UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31 , 2021
Commission File Number: 1-4018
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | ||||||||
Registrant's telephone number: | ||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Securities registered pursuant to Section 12(g) of the Act: | ||||||||
| None | ||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| ☑ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company | ||||||||||||||
Emerging growth company | |||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the close of business on June 30, 2021 was $21,609,554,242 . The registrant’s closing price as reported on the New York Stock Exchange-Composite Transactions for June 30, 2021 was $150.60 per share. The number of outstanding shares of the registrant’s common stock as of February 1, 2022 was 144,054,607 .
Documents Incorporated by Reference: Part III — Certain Portions of the Proxy Statement for Annual Meeting of Shareholders to be held on May 6, 2022 (the “2022 Proxy Statement”).
1
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, especially "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. All statements in this document other than statements of historical fact are statements that are, or could be deemed, “forward-looking” statements. Some of these statements may be indicated by words such as “may”, “anticipate”, “expect”, believe”, “intend”, "continue", “guidance”, “estimates”, “suggest”, “will”, “plan”, “should”, “would”, “could”, “forecast” and other words and terms that use the future tense or have a similar meaning. Forward-looking statements are based on current expectations and are subject to numerous important risks, uncertainties, and assumptions, including those described in Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Factors that could cause actual results to differ materially from current expectations include, among other things: the impacts of COVID-19 or other future pandemics on the global economy and on our customers, suppliers, employees, business and cash flows; supply chain constraints and labor shortages that could result in production stoppages, inflation in material input costs and increased transportation costs; other general economic conditions and conditions in the particular markets in which we operate; changes in customer demand and capital spending; competitive factors and pricing pressures; our ability to develop and launch new products in a cost-effective manner; changes in law, including the effect of tax laws and developments with respect to trade policy and tariffs; our ability to identify and complete acquisitions and integrate and realize synergies from newly acquired businesses; the impact of interest rate and currency exchange rate fluctuations; capital allocation plans and changes in those plans, including with respect to dividends, share repurchases, investments in research and development, capital expenditures and acquisitions; our ability to derive expected benefits from restructurings, productivity initiatives and other cost reduction actions; the impact of legal compliance risks and litigation, including with respect to product quality and safety, cybersecurity and privacy; and our ability to capture and protect intellectual property rights. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
In this Annual Report on Form 10-K, we refer to measures used by management to evaluate performance, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). We include reconciliations to provide more details on the use and derivation of these financial measures. Please see "Non-GAAP Disclosures" at the end of Item 7 for further detail.
2
TABLE OF CONTENTS
3
PART I
ITEM 1. BUSINESS
Overview
Dover Corporation is a diversified global manufacturer and solutions provider delivering innovative equipment and components, consumable supplies, aftermarket parts, software and digital solutions and support services through five operating segments: Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions, and Climate & Sustainability Technologies. Unless the context indicates otherwise, references herein to "Dover," "the Company," and words such as "we," "us," or "our" include Dover Corporation and its consolidated subsidiaries. Dover was incorporated in 1947 in the State of Delaware and became a publicly traded company in 1955. Dover is headquartered in Downers Grove, Illinois and currently employs approximately 25,000 people worldwide.
Dover's five segments are structured around businesses with similar business models, go-to-market strategies and manufacturing practices. This structure enables management efficiency, aligns Dover’s operations with its strategic initiatives and capital allocation priorities, and provides transparency about our performance to external stakeholders. We have changed the names of two of our segments (Fueling Solutions to Clean Energy & Fueling, and Refrigeration & Food Equipment to Climate & Sustainability Technologies) to reflect recent portfolio changes, as well as to better reflect markets and customers served as well as growth drivers of respective businesses in the two segments. Dover's five operating and reportable segments are as follows:
•Our Engineered Products segment provides a wide range of equipment, components, software, solutions and services vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
•Our Clean Energy & Fueling segment provides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous substances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
•Our Imaging & Identification segment supplies precision marking and coding, product traceability and digital textile printing equipment, as well as related consumables, software and services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
•Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly engineered precision components for rotating and reciprocating machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
•Our Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and beverage container-making equipment markets.
COVID-19
For information related to the impact of the COVID-19 pandemic on our business see Item 7. Management's Discussion and Analysis in this Form 10-K.
4
Management Philosophy
Dover is committed to steadily creating shareholder value through a combination of sustained long-term profitable growth, operational excellence, superior free cash flow generation and productive capital re-deployment while adhering to a conservative financial policy. Dover seeks to be a leader in a diverse set of growing markets where customers are loyal to trusted partners and suppliers, and value product performance and differentiation driven by superior engineering, manufacturing precision, total solution development and excellent supply chain performance. Our businesses are long-time leaders in their respective markets and are known for their innovation, engineering capability and customer service excellence. We aim to continue growing our businesses from this strong foundation. Our operating structure of five business segments allows for differentiated acquisition focus consistent with our portfolio and capital allocation priorities. We believe our business segment structure, coupled with functional expertise at our lean corporate center, presents opportunities to identify and capture operating synergies, such as global sourcing and supply chain integration, shared services, and manufacturing practices, and further advances the development of our executive talent. Our executive management team sets strategic direction, initiatives and goals, provides oversight of strategy execution and achievement of these goals for our business segments, and with oversight from our Board of Directors, makes capital allocation decisions, including with respect to organic investment initiatives, major capital projects, acquisitions and the return of capital to our shareholders.
Our goal is to foster an operating culture with high ethical and performance standards that values accountability, rigor, trust, inclusion, respect and open communications, designed to allow individual growth and operational effectiveness. We are also increasing our focus on maintaining sustainable business practices that reduce environmental impact, and developing products that help our customers meet their sustainability goals.
Company Goals
We are committed to driving superior shareholder returns through three key tenets of our corporate strategy.
First, we are committed to achieving organic sales growth above that of gross domestic product (greater than GDP or 3% to 5% annually on average) over a long-term business cycle, absent prolonged adverse economic conditions, complemented by growth through strategic acquisitions.
Second, we continue to focus on improving returns on capital, as well as segment and corporate earnings margin by enhancing our operational capabilities and making investments across the organization in digital capabilities, automation, operations management, information technology ("IT"), shared services (including Dover Business Services and our India Innovation Center), and talent. We also focus on continuous, effective cost management and productivity initiatives, such as automation and digitally-supported manufacturing, supply chain optimization, e-commerce and digital go-to-market, restructuring, improved footprint utilization, strategic pricing and portfolio management.
Third, we aim to generate strong and growing free cash flow and earnings per share through strong earnings performance, productivity improvements and active working capital management. Dover prioritizes deploying free cash flow towards high-return and high-confidence organic reinvestments aimed at growing, improving and strengthening our businesses, as well as through inorganic investments that synergistically enhance the quality of our portfolio. Dover’s value creation strategy is supported by a financial policy that includes a prudent approach to financial leverage, and a disciplined approach to capital allocation that allows for a balance between reinvestment and return of capital to shareholders through growing dividends and opportunistic share repurchases.
We support achievement of these goals by (1) aligning management compensation with strategic and financial objectives, (2) actively managing our portfolio to increase enterprise scale, improve business mix over time to markets with secular growth characteristics, and pursue acquisitions that fit the characteristics of an ideal Dover business and (3) investing in talent development programs.
Characteristics of a Dover Business
Our businesses generally operate in strategically attractive niche industrial markets with supportive long-term growth trends, favorable supply and demand landscapes, mature and incrementally improving technologies and highly loyal customers, suppliers or channel partners. Our businesses have consistently enjoyed a customer base that chooses products primarily
5
based on their performance, track record, safety and compliance. In many instances, our businesses produce critical equipment or components to a larger system, where value-in-use and costs and risks of switching far exceed the cost of the product itself. Our products tend to have meaningful replacement, consumable or aftermarket demand due, in part, to a large installed base because they play a specialized role in customer applications. Recurring demand, which includes parts, consumables, services and software, represents approximately 35% of our revenue. Additionally, many of our products enjoy recurring like-for-like replacement demand patterns. Our businesses increasingly complement our component or equipment offerings with digital solutions (such as connected products, sensors and software) that create new sources of value to our customers and allow Dover businesses to drive growth and increase relevance with our customers. Dover businesses also exhibit attractive financial profiles, characterized by predictable, stable revenue, low capital intensity, strong cash-flow and sustainable returns on invested capital well in excess of our cost of capital.
Business Strategy
To achieve our stated goals, we are focused on executing the following pillars of Dover’s business strategy:
Capturing growth potential in our end-markets and adjacent market segments
Dover’s business segments are focused on building enduring competitive advantages and leadership positions in markets we believe are positioned for sustained future growth. We believe our businesses are among the top suppliers in most markets and niches we serve (as defined by customer applications, geographies or products), which positions us well to capture future growth. We capitalize on our engineering, technology and design expertise, and maintain an intense focus on meeting the needs of our customers and on adding significant, and often new, value to their operations through superior product performance, safety, reliability, and a commitment to aftermarket support. We cultivate and maintain an entrepreneurial culture to enable business agility, and continuously innovate to address our customers’ needs, to help them win in the markets they serve.
In particular, our businesses are well-positioned to capitalize on: growing industrial manufacturing and trade volumes; adoption of digital technologies; increasing requirements for sustainability, safety, energy efficiency and consumer product safety; and growth of the middle class and consumption in emerging economies. Our Engineered Products segment is capitalizing on secular growth in waste generation and the increasing sophistication and automation of waste collection operations, increasing car parc, car age and miles driven, as well as increasing digitization and sensorization of modern vehicles. Our Clean Energy & Fueling segment benefits from the worldwide growth in environmental safety and compliance regulations, new infrastructure build-out in emerging economies, consolidation in the convenience retail sector, increased digitization of convenience stores and fuel retailing, clean energy products, as well as secular growth in automated vehicle wash systems and solutions (over manual and do-it-yourself washing). Our Imaging & Identification segment leverages its unique product offering containing equipment, consumables, software and services to address market needs and requirements, including conversion to digital textile printing, increased demand for product traceability and brand protection, and consumer product safety. Our Pumps & Process Solutions segment is focused on: capturing growth in its installed base; the growing sophistication of fluid transfer and rotating machinery components within the biopharma and hygienic markets; chemical, plastics and polymer, industrial, mid and downstream oil & gas; and globalizing brands across geographies while expanding sales channels and engineering support. Our Climate & Sustainability Technologies segment is responding to our customers’ demand for increased energy efficiency and sustainability in food retail merchandising solutions, as well as increasing demand for sustainable heating and cooling solutions and growing global demand for aluminum beverage containers.
We aim to capture growth by making organic investments in research and development, developing new products and technologies, improving digital capabilities, expanding our geographic coverage, and pursuing disciplined strategic acquisitions that will enhance our portfolio and position Dover for long-term growth. We continually evaluate how our assets and capabilities can position us to grow in markets adjacent to our core businesses (for example, new applications, geographies, product segments or adjacent technologies) where we can be advantaged.
In addition to product innovation, we aim to capture growth by developing digital technologies. Our Boston-based Dover Digital Labs serves as the company-wide hub for our digital initiative. We have continued to invest in this facility and our team of software developers, data scientists, and product managers to enhance our digital capabilities. The Digital Labs team is driving digital transformation across our businesses in three areas: (i) enhancing the customer experience through more
6
efficient and streamlined digital customer interfaces that make it easy to do business with Dover companies; (ii) developing connected software and machine learning augmented solutions built to integrate into and work with our core equipment and component offerings; and (iii) driving increased efficiency, safety and quality in our manufacturing operations by employing cutting-edge automation and “digital factory” solutions. We believe the Digital Labs center's contributions in these areas enable us to add significant value to our products and to capture commercial growth opportunities. By leveraging a central resource for Industrial Internet of Things ("IIoT") and connected product initiatives, we are able to capture efficiencies in our digital transformation efforts, improve product security and offer better efficiency in software and sensor integration engineering to keep our projects cost-competitive.
Improving profitability and return on invested capital
We are committed to generating sustainable returns on invested capital well above the cost of capital across all of our businesses. We continually evaluate and pursue opportunities to improve efficiency, margin and return on capital. We are intensely focused on driving operational excellence across our businesses. We have implemented numerous productivity initiatives to maximize our efficiency, such as supply chain integration, shared services, lean manufacturing principles and production automation, as well as workplace safety initiatives to help ensure the health and welfare of our employees. Our businesses place a strong emphasis on continual product quality improvement and new product development to better serve customers and to facilitate expansion into new products and geographic markets.
We also focus on margin expansion initiatives designed to reduce our selling, general and administrative cost base and rationalize our manufacturing and supply chain footprint across the portfolio. We continually expand initiatives to extract productivity gains across the businesses and realize savings. Our margin expansion initiatives are focused on four core enterprise capabilities: (1) leverage our Digital Labs team to enhance our internal and market-facing digital capabilities, (2) improve utilization and optimization of our manufacturing footprint through centralized resources and investment, (3) further centralize shared services under Dover Business Services, and (4) invest in our India Innovation Center shared services.
Dover Digital. Our Dover Digital Labs consists of a team of approximately 100 software developers, data scientists and product managers who provide digital capabilities to enhance the customer experience, develop connected products, and drive automation and efficiency inside our factories through digital technologies and in our business processes. Our Dover Digital Labs team has built common platforms which we have begun deploying on customer facing applications to make it easier to find, configure, buy and obtain products and services from Dover companies. It has also deployed shared IIoT capability such that many of Dover's products are remotely configurable and monitored, enabling our businesses to sell aftermarket parts and offer remote diagnostic services.
Dover Operational Excellence. In 2019, we began to coordinate and oversee operations management from the corporate center of excellence through a team composed of functional experts in operational optimization, lean manufacturing, automation, HSE (Health, Safety and Environment) and complex project management. This team works closely with our businesses to drive execution excellence in our operational processes, standards and measurement tools to identify, prioritize and monitor execution of operational improvement initiatives. With expertise in health and safety, supply chain management, lean operations, project management, and advanced manufacturing and automation, we continue to focus on initiatives to improve operational efficiency and enhance and solidify the continuous improvement programs embedded in our businesses' day-to-day operations.
Dover Business Services. We continue to invest in Dover Business Services shared service centers, consisting of a team of approximately 450 people, to provide important transactional and value-added services to our businesses. Our shared service model allows us to leverage scale across Dover, increase process efficiencies through technology and specialization, and reduce risk through centralized controls. Our shared service centers create value by freeing resources within our businesses that would otherwise be dedicated to transactional services and allowing them to focus on customers, markets and product excellence. We expect to continue driving efficiencies through Dover Business Services as we increase the level of service centralization across the portfolio.
India Innovation Center. Our India Innovation Center has a team of approximately 600 engineers and IT professionals that our businesses rely on to leverage for product engineering, digital solutions development, data & information management, research & development, and intellectual property services. The scale of this team allows our businesses to access resources
7
with capabilities and expertise across many disciplines that would be unaffordable to them as stand-alone companies, and allows for concurrent engineering on time sensitive projects.
We have been steadily investing in the build out and deployment of the above four enterprise capabilities in the past several years, including investing over $20 million in capital expenditures during 2019-2021, and significantly expanding the staff of experts and support personnel in key centers of excellence globally.
Disciplined capital allocation and continuous portfolio enhancement
We are focused on the most efficient allocation of capital to maximize returns on investment. To do this, we utilize organic reinvestment to grow and strengthen our existing businesses. We plan to make average annual investments in capital spending of 2% - 3% of revenue with a focus on internal projects designed to expand our market participation, develop new products and improve productivity. In addition, we seek to deploy capital in acquisitions in attractive growth areas across our five segments. Dover focuses primarily on bolt-on acquisitions, applying strict selection criteria of market attractiveness (including growth, market landscape, and performance-based competition), business fit (including sustained leading position, revenue visibility, and favorable customer value-add versus switching cost or risk) and financial return profile (accretive growth and margins and double-digit return on invested capital). We opportunistically divest businesses where we see limited runway for future value creation relative to our aspirations, or where market and business fundamentals change and no longer fit our criteria of business attractiveness and portfolio fit. Finally, we have consistently returned cash to shareholders by paying dividends, which have increased annually over each of the last 66 years. We undertake opportunistic share repurchases as part of our capital allocation strategy. We employ a prudent financial policy to support our capital allocation strategy, which includes maintaining an investment grade credit rating.
Portfolio Development
Acquisitions
Our acquisition program has two key elements. As a first priority, we seek to acquire attractive add-on businesses with a strong fit that enhance our existing franchises either by increasing their reach and customer access, by broadening their product mix or by enhancing technological capability and customer value-add. Second, in the right circumstances, we may strategically pursue larger, stand-alone businesses that complement our existing businesses or provide a path for us to pursue growth in near adjacencies. With all our acquisitions, we seek businesses that are leaders in their markets or niches, have a strong track record for innovation, offer differentiated solutions, clearly complement our businesses, have a solid organic growth profile and attractive and sustainable returns, and offer significant synergy potential to generate double-digit return on capital within three years after the acquisition is completed.
Over the past three years (2019 through 2021), we have spent approximately $1,677.3 million, net of cash acquired and including contingent consideration, to purchase eighteen businesses. For more details, see Note 3 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Our future growth depends in large part on finding and acquiring successful businesses that expand the scope of our offerings and make us an even more important supplier to our customers. While we expect to generate annual organic revenue growth (greater than GDP or 3% to 5% annually on average) over a long-term business cycle absent extraordinary adverse economic conditions, our success in consistently growing the portfolio is also dependent on the ability to acquire and integrate businesses successfully within our existing structure. To track post-merger integration and accountability, we utilize an internal scorecard and well-defined processes to help ensure expected synergies are realized and value is created.
Dispositions
From time to time, we have sold or divested some of our businesses based on changes in specific market outlook, structural changes in financial performance, value-creation potential, or for other strategic considerations, which included an effort to reduce our exposure to cyclical markets or focus on our higher margin growth spaces.
Going forward, we recognize that some businesses in Dover’s portfolio may have a greater value-creation potential if owned by another parent with a larger presence and focus on a given niche. We pragmatically consider such opportunities as part of
8
our ongoing portfolio management and review processes, and execute divestitures if the value created is determined to be at an appropriate premium to the value of such business to Dover and the divestitures allow Dover shareholders to participate in the future value-creation potential from a change in ownership.
For more details, see Note 4 — Dispositions in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Business Segments
As noted previously, Dover's five segments are structured around businesses with similar business models, go-to-market strategies and manufacturing practices. This structure enables management efficiency, aligns Dover’s operations with its strategic initiatives and capital allocation priorities, and provides transparency about our performance to external stakeholders. Dover's five operating and reportable segments are as follows: Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions and Climate & Sustainability Technologies. For financial information about our segments and geographic areas, see Note 19 — Segment Information in the Consolidated Financial Statements in Item 8 of this Form 10-K.
Engineered Products
Our Engineered Products segment provides a wide range of equipment, components, software, solutions and services that have broad customer applications across a number of markets, including: solid waste handling, aftermarket vehicle service, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing. Our waste handling business is a leading North American supplier of equipment, software and services for the refuse collection industry and for on-site processing and compaction of trash and recyclable materials. Our vehicle service business provides products, software and services used primarily in vehicle repair and maintenance, including light and heavy-duty vehicle lifts, wheel service equipment, vehicle diagnostics and vehicle collision repair solutions. The businesses in the industrial automation market provide a wide range of modular automation components including manual clamps, power clamps, rotary and linear mechanical indexers, conveyors, pick and place units, glove ports and manipulators, as well as end-of-arm robotic grippers, slides and end effectors. Our industrial winch and hoist business provides a range of winches, hoists, bearings, drives, and electric monitoring systems for infrastructure and other industrial markets. The segment also supplies radio frequency and microwave filters and switches, as well as signal intelligence solutions, to enable secure communications in aerospace and defense applications, and benchtop soldering and fluid dispensing solutions in electronics and industrial product assembly.
Our Engineered Products segment's products are manufactured primarily in the U.S., Europe and Asia and are sold throughout the world directly and through a network of distributors.
Clean Energy & Fueling
Our Clean Energy & Fueling segment provides components, equipment and software, and service solutions enabling safe storage, transport. handling and dispensing of clean and traditional fuels, cryogenic gases and other hazardous fluids, as well as safe and efficient operation of retail fueling and vehicle wash establishments across the globe. Among solutions supplied by the segment are dispensing equipment and components for gasoline, compressed natural gas (CNG), liquified natural gas (LNG) and hydrogen (H2) fueling sites, payment systems, hardware and underground containment systems, vehicle wash systems, as well as asset tracking, monitoring and operational optimization software.
Our Clean Energy & Fueling segment's products are manufactured primarily in North America, Europe, Asia, and South America and are sold throughout the world directly and through a network of distributors.
9
Imaging & Identification
The companies in our Imaging & Identification segment are global suppliers of precision marking and coding, packaging intelligence, product traceability, brand protection, and digital textile printing equipment and solutions, as well as related consumables, software and services. Our marking and coding businesses primarily design and manufacture equipment and consumables used for printing variable information (such as bar codes, dates, and serial numbers) on fast-moving consumer goods, provides serialization solutions for pharmaceutical customers, and develops supply chain traceability solutions capitalizing on expanding food and product safety, supply chain traceability and brand protection requirements. In addition, our businesses serving the apparel and textile printing market develop, manufacture and sell equipment, software, consumables and service solutions used in digital textile, soft signage and specialty materials markets. These businesses are benefiting from a secular shift from analog to digital printing, resulting from growing demand for “fast fashion”, and more customized and complex fashion designs, as well as increasing environmental sustainability requirements (digital printing process is significantly more environment-friendly due to lower water consumption). Businesses within this segment leverage digital printing capabilities and operate business models that involve initial equipment and software sales followed by significant consumable, software and service aftermarket revenue streams.
Our Imaging & Identification segment's products are manufactured primarily in North America, Europe and Asia and are sold throughout the world directly and through a network of distributors.
Pumps & Process Solutions
The businesses in our Pumps & Process Solutions segment manufacture specialty pumps, single-use pumps, connectors and flow meters, plastics and polymers processing equipment, and highly-engineered components for rotating and reciprocating machinery. The segment’s products are used in a wide variety of markets, including plastics and polymers processing, chemicals production, food/sanitary, biopharma, medical, transportation, petroleum refining, power generation and general industrial applications. The products in this segment are generally used in demanding and specialized operating environments with high performance requirements. Businesses within this segment share the following commonalities: their products are predominantly components or parts of larger equipment and production systems with our products often specified by end customers or regulations, they participate in markets with a diverse and fragmented customer base and where there is a significant demand for aftermarket equipment and parts from a large installed base, and the route-to-market is a mix of distribution and direct sales.
Our Pumps & Process Solutions segment's products are manufactured primarily in North America, Europe, and Asia and are sold throughout the world directly and through a network of distributors and original equipment manufacturers.
Climate & Sustainability Technologies
Our Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling, and container and beverage packaging equipment markets. Our refrigeration business manufactures refrigeration systems (including environmentally friendly systems like CO2), refrigeration display cases, commercial glass refrigerator and freezer doors and brazed plate heat exchangers used for industrial heating and cooling and residential climate control. Other businesses in this segment design and manufacture machinery and associated spare parts used for beverage container-making. The majority of the products that are manufactured or serviced by the Climate & Sustainability Technologies segment are used by the retail food industry, including supermarkets, “big-box” retail and convenience stores, the commercial/industrial refrigeration industry, food production markets and beverage container-making industries.
Our Climate & Sustainability Technologies segment's products are manufactured primarily in North America, Europe and Asia and are sold globally, directly and through a network of distributors.
10
Raw Materials
We use a wide variety of raw materials, primarily metals and semi-processed or finished components, which are generally available from a number of sources. As a result, the loss of any single supplier have not had, and are not likely to have, a material impact on operating profits at the consolidated level. While the required raw materials are generally available, commodity pricing can be volatile, particularly for various grades of steel, copper, aluminum and select other commodities. Although cost increases in commodities may be recovered through increased prices to customers, our operating results are exposed to such fluctuations. We attempt to control such costs through fixed-price contracts with suppliers and various other programs, such as our global supply chain activities.
Markets for multiple raw materials saw significant cost increases throughout 2021, as well as increases in transportation costs to deliver materials to our manufacturing sites, which we partially offset through price increases and other levers. Additionally, supply chain disruptions have caused shortages of material inputs in several of our businesses, which negatively impacted profitability of such businesses as we were required to seek alternative sources of supply at higher costs or interrupt our normal manufacturing process flow leading to less efficient output and cost.
Research and Development
Our businesses invest to develop innovative new products, as well as to upgrade and improve existing products, to satisfy customer needs, including demand for energy-efficient products designed to help customers meet sustainability goals, expand revenue opportunities geographically, maintain or extend competitive advantages, improve product reliability and reduce production costs.
Our Imaging & Identification segment expends significant effort in research and development because the rate of product development by their customers is often quite high. Our businesses that develop product identification, printing equipment and software solutions believe their customers expect a continuing rate of product innovation, performance improvement and reduction in total cost of ownership. The result has been downward pricing trends that can only be mitigated with the continuous introduction of innovative product solutions in a market where product life cycles generally average less than seven years.
Our Clean Energy & Fueling segment invests in research and development to advance innovative traditional and alternative fuel dispensing equipment and components, payment platforms, fuel site asset management and connectivity solutions, IIoT-enabled cloud-based connected solutions for retail and commercial fleet fueling settings, components for high-criticality cryogenic gas storage and transportation applications, including hydrogen and liquified natural gas. These technology investments align with our customer’s needs and our commitment to delivering to our customers opportunities for operational cost reductions, increased sales, and an enhanced customer experience for their customers through a combination of intelligent fueling and retail solutions.
Our Pumps & Process Solutions segment invests in research and development for new product introduction and custom solutions to drive volume and share in both existing markets and newer/faster growth markets – such as single-use biopharmaceutical manufacturing and liquid cooling of high performance electronics. These investments will allow us to take advantage of existing growth trends such as vaccine production for certain COVID-19 vaccines and also cell and gene therapy applications coming on the market.
Many of our businesses are also involved in important product improvement initiatives. These businesses concentrate on working closely with customers on specific applications, expanding product lines and market applications and continuously improving manufacturing processes. Some of these businesses experience a much more rapid rate of change requiring higher product development capability and new product introduction.
Similarly, our businesses invest in research and development to pursue digital strategies based on customer needs and leverage the capabilities of the Dover Digital Labs center to deliver on those digital strategies. For example, Vehicle Services Group, within the Engineered Products segment, launched Mosaic Advanced Diagnostic Technology built in partnership with Burke Porter Group and work completed at the Digital Labs. Mosaic is the automotive repair industry’s first digitally enabled cloud based after-market advanced driver assistance systems ("ADAS") sensor calibration technology. Environmental Solutions Group, from the Engineered Products segment, launched artificial intelligence capabilities through 3rd Eye Digital Solution to use data to improve operations outcomes for waste hauling fleets.
11
Human Capital Resources
Our employees are our most valuable asset and are critical to our ability to deliver on our strategic plans. Our success in delivering high quality and innovative products and solutions for our customers and driving operational excellence is only achievable through the talent, expertise, and dedication of our global team. We had approximately 25,000 employees worldwide as of December 31, 2021.
Attraction, Development, and Retention
We recognize that attracting, developing and retaining skilled talent and promoting a diverse and inclusive culture are essential to maintaining our leadership positions in the markets we serve. While our operating companies are the hubs of these activities — an effective model that puts ownership in the businesses and cultures that are the source of opportunities for employees — we are increasingly leveraging the corporate center to drive talent recruitment and development and consistent human capital management practices across our businesses. This center-led focus is enabling us to make development opportunities available across our enterprise which promotes employee advancement, engagement and retention. We offer employees resources to continuously improve their skills and performance with the goal of further cultivating the diverse, entrepreneurial talent inside our global businesses to fill key positions. We seek people who are proactive and dedicated, demonstrate an ownership mindset and share our commitment to the pursuit of operational excellence. We continue to make significant investments in talent development and recognize that the growth and development of our employees is essential for our continued success.
Diversity and Inclusion
We view the diversity of our employees as a strength to better serve our customers and communities. We also believe the diversity of our workforce enables us to attract new talent, keeps our employees engaged and productive, and advances innovation from ideas reflecting the broad diversity of our employees' backgrounds, experiences, and perspectives. To that end, we have taken various actions to enhance diversity, including partnering with organizations that can support our efforts to identify and recruit talented and diverse candidates.
We aim to cultivate an inclusive culture that enables employees to feel connected to our business objectives and valued for their contributions. One of the ways in which we seek to promote an inclusive work environment is by supporting our operating companies in establishing employee resource groups. These groups allow for collaboration and serve as an open forum for networking, professional development, and mentoring. We are committed to our efforts to maintain a work environment that is professional, inclusive, and free from discrimination and harassment. To help educate our workforce on the benefits of an inclusive environment, and drive awareness, we have invested in training across the organization focused on diversity and inclusion topics.
Health and Safety
We are committed to providing a healthy environment and safe workplace by operating in accordance with established health and safety protocols across our facilities and maintaining an enhanced health and safety compliance program. We regularly conduct self-assessments to examine our safety culture and processes. In response to COVID-19, we have taken and continue to take measures to protect our workforce. We have modified practices at our manufacturing locations and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities in our global network. In addition, we have invested at the corporate center to provide oversight, enhance coordination and ensure robust safety protocols are present across our operations.
Human Capital Investments Related to Strategic Priorities
In line with our strategic priorities, we have additionally invested in the following aspects of human capital resource management, among other areas:
12
•Dover Digital Labs – We are continuing to leverage our Digital Labs team to improve our digital capabilities. Our team of software developers, data scientists, and product managers drive digital transformation across our businesses by enhancing customer experience, developing connected products, and enabling digital manufacturing.
•Operational management – Our operations teams, including our management team at the corporate center, continually focuses on improving operational efficiency, such as implementing production automation.
•Shared services – We are continuing to further centralize shared services under Dover Business Services and our India Innovation Center. Our shared services capabilities include a wide range of functional areas including transactional support, human resources, IT, engineering and product development. These services enable productivity and growth as well as free up resources at our businesses to focus on customers, markets and product development.
Intellectual Property and Intangible Assets
Our businesses own many patents, trademarks, licenses and other forms of intellectual property, which have been created, registered or acquired over a number of years and, to the extent relevant, expire at various times over a number of years. A large portion of our businesses’ intellectual property consists of patents, unpatented technology and proprietary information constituting trade secrets that we seek to protect in various ways, including confidentiality agreements with employees and suppliers where appropriate. In addition, a significant portion of our intangible assets relate to customer relationships. While our intellectual property and customer relationships are important to our success, the loss or expiration of any of these rights or relationships, or any group of related rights or relationships, is not likely to materially affect our results on a consolidated basis. We believe that our commitment to continuous engineering improvements, new product development and improved manufacturing techniques, as well as strong sales, marketing and service efforts, are significant to our general leadership positions in the niche markets we serve.
Customers
We serve thousands of customers, none of which accounted for more than 10% of our consolidated revenue in 2021. Given our diversity of served markets, customer concentrations are not significant. Businesses supplying the environmental solutions, defense, automotive and commercial refrigeration industries tend to deal with a few large customers that are significant within those industries. This also tends to be true for businesses supplying the power generation and chemical industries. In the other markets served, there is usually a much lower concentration of customers, particularly where our companies provide a substantial number of products and services applicable to a broad range of end-use applications.
Seasonality
In general, while our businesses are not highly seasonal, we do tend to have stronger revenue generation in the second half of the year, which is driven by customer capital expenditure timing and seasonal activity patterns in our end-markets. Our businesses serving the retail fueling market tend to increase in the second half of the year based on the historical purchasing patterns of their customers. Our businesses serving the major equipment markets, such as power generation, chemical and processing industries, have longer lead times geared to seasonal, commercial, or consumer demands and customers in these markets tend to delay or accelerate product ordering and delivery to coincide with those market trends which moderates the aforementioned seasonality patterns. Our food retail refrigeration business tends to face higher levels of demand in the second and third quarters as retailers avoid construction and remodeling activity during fall/winter holidays.
13
Competition
Our competitive environment is complex because of the wide diversity of our products manufactured and the markets served. In general, most of our businesses are market leaders that compete with only a few companies, and the key competitive factors are customer service, product quality, price and innovation. A summary of our key competitors within each of our segments follows:
| Segment | Key Competitors | |||||||
| Engineered Products | Snap-On Inc. (Challenger Lifts, Car-O-Liner), Vontier (Hennessey Industries, Inc.), Oshkosh Corp. (McNeilus), Labrie Enviroquip Group, Geotab Inc., AMCS Group, Tünkers Maschinenbau GmbH, PACCAR (Braden), and numerous others | |||||||
| Clean Energy & Fueling | Vontier (Gilbarco Veeder-Root, DRB), Tatsuno, Verifone, Franklin Electric, Elaflex, Ingersoll Rand (Emco Wheaton), Dixon Valve & Coupling Company, Professional Datasolutions, Inc. (PDI), Salco, Sonny's Enterprises LLC, National Carwash Solutions, Washtec AG | |||||||
| Imaging & Identification | Danaher Corporation (Videojet), Brother Industries, Ltd. (Domino Printing), Electronics for Imaging (Reggiani), SPG Prints, Konica Minolta, Kornit Digital Ltd. | |||||||
| Pumps & Process Solutions | IDEX Corporation, Ingersoll Rand (Milton Roy, Dosatron, ARO), Millipore, Danaher Corporation (Pall), Nordson Corporation, ITT, SPX Flow Inc. (Waukesha), Spirax Sarco, Kingsbury, Seko, Ecolab, Hoerbiger Holdings AG, Miba AG, Hillenbrand Inc. (Coperion) | |||||||
Climate & Sustainability Technologies | Panasonic (Hussman Corp.), Alfa Laval, Stolle Machinery | |||||||
International
Consistent with our strategic focus on positioning our businesses for growth, we aim to grow our revenue in international markets, particularly in developing economies in Asia, the Middle East, Eastern Europe and South America.
Most of our non-U.S. subsidiaries and affiliates are currently based in China, France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and other locations including Australia, Brazil, Canada, India, Mexico, and the Netherlands.
The following table shows annual revenue derived from customers outside the U.S. as a percentage of total annual revenue for each of the last three years, by segment and in total:
| Percentage of Non-U.S. Revenue by Segment | |||||||||||||||||
| Years Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Engineered Products | 27 | % | 27 | % | 27 | % | |||||||||||
Clean Energy & Fueling | 45 | % | 45 | % | 52 | % | |||||||||||
| Imaging & Identification | 75 | % | 75 | % | 77 | % | |||||||||||
| Pumps & Process Solutions | 53 | % | 51 | % | 49 | % | |||||||||||
Climate & Sustainability Technologies | 37 | % | 37 | % | 39 | % | |||||||||||
| Total percentage of revenue derived from customers outside of the United States | 46 | % | 45 | % | 47 | % | |||||||||||
Our international operations are subject to certain risks, such as price and exchange rate fluctuations and non-U.S. governmental restrictions, which are discussed further in Item 1A. "Risk Factors." For additional details regarding our non-U.S. revenue and the geographic allocation of the assets, see Note 19 — Segment Information to the Consolidated Financial Statements in Item 8 of this Form 10-K.
14
Environmental Matters
Sustainability
We are committed to creating economic value for shareholders by developing products designed to help our customers meet their sustainability goals, run their operations more efficiently and satisfy evolving regulatory and environmental standards. We believe that sustainability-driven innovation in response to customer demand helps us contribute positively to enhanced resource efficiency and waste reduction while presenting a valuable growth opportunity. Aligned with this commitment, in 2021, we announced science-based targets to reduce our greenhouse gas emissions. These targets include an absolute reduction of scope 1 and scope 2 market-based greenhouse gas emissions of 30 percent by 2030, from a 2019 baseline year, and an absolute reduction of scope 3 greenhouse gas emissions of 15 percent by 2030, from a 2019 baseline year.
We highlight key initiatives and performance metrics about our sustainability activities under the “Sustainability” tab on our website, www.dovercorporation.com.
Other Matters
Our operations are governed by a variety of international, national, state and local environmental laws. We are committed to continued compliance and believe our operations generally are in substantial compliance with these laws. In a few instances, particular plants and businesses have been the subject of administrative and legal proceedings with governmental agencies or private parties relating to the discharge or potential discharge of regulated substances. Where necessary, these matters have been addressed with specific consent orders to achieve compliance.
There have been no material effects upon our earnings and competitive position resulting from our compliance with laws or regulations enacted or adopted relating to the protection of the environment. We are aware of a number of existing or upcoming regulatory initiatives intended to reduce emissions in geographies where our manufacturing and warehouse/distribution facilities are located and have evaluated the potential impact of these regulations on our businesses. We anticipate that direct impacts from regulatory actions will not be significant in the short- to medium-term. We expect the regulatory impacts associated with climate change regulation would be primarily indirect and would result in "pass-through" costs from energy suppliers, suppliers of raw materials and other services related to our operations.
Other Information
We make available free of charge through the "Investor Information" link on our website, www.dovercorporation.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports. We post each of these reports on the website as soon as reasonably practicable after the report is filed with the Securities and Exchange Commission. The contents of our website are not intended to be incorporated by reference into this Form 10-K, and any reference to our website is intended to be inactive textual references only.
15
ITEM 1A. RISK FACTORS
The risk factors discussed in this section should be considered together with information included elsewhere in this Form 10-K and should not be considered the only risks to which we are exposed. In general, we are subject to the same general risks and uncertainties that impact many other industrial companies such as general economic, industry and/or market conditions and growth rates; the impact of natural disasters and their effect on global markets; and changes in laws or accounting rules. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our businesses, including our results of operations, liquidity and financial condition.
Business and Operational Risks
•The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our businesses, the nature and extent of which are highly uncertain and unpredictable.
The COVID-19 pandemic has disrupted the global economy and adversely impacted our businesses, including demand for our products across multiple end-markets as well as our supply chain and operations. While we have experienced sequentially improving activity in most markets and geographies, the public health situation, global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook. Accordingly, we are currently unable to quantify the full and long-term impact of the pandemic on our results of operations, financial position and cash flows.
We have taken and will continue to take steps to mitigate the risks of COVID-19 by working with our customers, employees, suppliers and other stakeholders. Significant portions of our workforce and operations have been impacted by quarantines, government orders and guidance, facility closures, illness, travel restrictions, implementation of precautionary measures and other restrictions. Over the course of the pandemic, we have continued to operate in accordance with established health and safety protocols across our facilities while maintaining an enhanced health and safety compliance program. More specifically, we have modified practices at our manufacturing locations and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities in our global network with respect to social distancing, physical separation, personal protective equipment and sanitization, and have restricted the number of employees permitted in common areas at any given time. The emergence of new variants of COVID-19, evolving government plans around the world to institute vaccination mandates, including in the U.S., and limited availability of vaccines in various jurisdictions, create uncertainty that may impact our employees and result in labor shortages and unforeseen costs. In addition, because the pandemic has decreased customer demand in many of our end-markets, some of our businesses have continued to operate at reduced capacity. We cannot predict the number or timing of any future facility closures, the potential for operating at reduced capacity or the size of the workforce that may be impacted by potential labor actions such as furloughs or layoffs.
The extent to which our operations may be impacted by COVID-19 will depend on future developments that are highly uncertain, including the pandemic's duration, the emergence of different COVID-19 variants, the efficacy and adoption rates of vaccines, the availability of recently approved oral medicines and actions by governments and private enterprises to contain the outbreak or mitigate the impact of the pandemic. For example, applicable laws and government measures, such as U.S. federal vaccine mandates or Occupational Safety and Health Administration requirements for vaccination or regular testing, could also result in skilled labor impacts including voluntary attrition or difficulty finding labor or otherwise adversely affect our ability to operate our facilities, obtain materials and component inputs from suppliers or deliver our products in a timely manner. Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. Due to the continuing uncertainties surrounding the pandemic, we are unable to predict the ultimate impact that it will have on our financial position, operating results and cash flows in future periods.
16
•Increases in labor costs, potential labor disputes and work stoppages or an inability to hire skilled personnel could adversely affect our business.
We have a number of collective bargaining units in the U.S. and various collective labor arrangements outside the U.S. We are subject to potential work stoppages, union and works council campaigns and other labor disputes, any of which could adversely impact our productivity, reputation, results of operations, financial condition and cash flows.
Furthermore, the competition for skilled personnel is often intense in the regions in which our manufacturing facilities are located. A sustained labor shortage or increased turnover rates within our employee base, increases in the salaries and wages paid by competing employers, as a result of general macroeconomic factors or otherwise, could lead to increased costs, such as increased overtime to meet demand and potentially further increase salaries and wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing facilities and overall business. If we are unable to hire and retain employees capable of performing at a high level, our business, financial condition and results of of operations could be adversely affected.
•Our reputation, ability to do business and results of operations may be impaired by improper conduct by any of our employees, agents, or business partners.
While we strive to maintain high standards, we cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate the laws of the jurisdictions where we do business, including the laws governing payments to government officials, bribery, fraud, anti-kickback and false claims, competition, export and import compliance, environmental compliance, money laundering and data privacy, as well as the improper use of proprietary information or social media. Any such violations of law or improper actions could: subject us to civil or criminal investigations; lead to substantial civil or criminal, monetary and non-monetary penalties and related shareholder lawsuits; lead to increased costs of compliance; and damage our reputation, our consolidated results of operations, financial condition and cash flows.
17
•We are subject to risks relating to our existing international operations and expansion into new geographical markets.
Approximately 46% and 45% of our revenues for 2021 and 2020, respectively, were derived outside the United States and we expect international sales to continue to represent a significant portion of our revenues given our global growth strategy. As a result of our international operations and our global expansion strategy, we are subject to various risks, including:
| o | political, social and economic instability and disruptions; | ||||
| o | government import and export controls, economic sanctions, embargoes or trade restrictions; | ||||
| o | the imposition of duties and tariffs and other trade barriers and retaliatory countermeasures; | ||||
| o | limitations on ownership and dividend of earnings; | ||||
| o | transportation delays and interruptions; | ||||
| o | labor unrest and current and changing regulatory environments; | ||||
| o | widespread public health crises, such as a pandemic or epidemic; | ||||
| o | increased compliance costs, including costs associated with disclosure requirements and related due diligence; | ||||
| o | the impact of loss of a single-source manufacturing facility; | ||||
| o | difficulties in staffing and managing multi-national operations; | ||||
| o | limitations on our ability to enforce legal rights and remedies; | ||||
| o | potentially adverse tax consequences; and | ||||
| o | access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks. | ||||
If we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, the risks could have a material adverse effect on our growth in geographic markets, our reputation, our consolidated results of operations, financial position and cash flows.
•Our operations, businesses and products are subject to cybersecurity risks.
We depend on our own and third party IT systems, including cloud-based systems and managed service providers, to store, process and protect our information and support our business activities. We also use third party IT systems to support employee data processing for our global workforce and to support customer business activities, such as transmitting payment information, providing mobile monitoring services, and capturing operational data. Additionally, some of our products contain computer hardware and software and offer the ability to connect to computer networks. Increasingly, our customers, including government customers, are requiring cybersecurity protections and mandating cybersecurity standards for our products. Our business has both an increasing reliance on IT systems and an increasing digital footprint as a result of changing technologies, connected devices and digital offerings, as well as expanded remote work policies. If these technologies, systems, products or services are damaged, cease to function properly, are compromised due to employee or third-party contractor error, user error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity attacks, such as those involving denial of service attacks, unauthorized access, malicious software, or other intrusions, including by criminals, nation states or insiders, our business may be adversely impacted. The impacts could include production downtimes, operational delays, and other impacts on our operations and ability to provide products and services to our customers; compromise of confidential, proprietary or otherwise protected information, including personal information and customer confidential data; destruction, corruption, or theft of data or intellectual property; manipulation, disruption, or improper use of these technologies, systems, products or services; financial losses from fraudulent transactions, remedial actions, loss of business or potential liability; adverse media coverage; and legal claims or legal proceedings, including regulatory investigations, actions and fines; and damage to our reputation. There has been a rise in the number of cyberattacks targeting confidential business information generally and in the manufacturing industry specifically, as well as an increase in cyberattacks targeting managed service providers, by both state-sponsored and criminal organizations. Moreover, there has been a rise in the number of
18
cyberattacks that depend on human error or manipulation, including phishing attacks or schemes that use social engineering to gain access to systems or perpetuate wire transfer or other frauds.
These trends increase the likelihood of such events occurring as well as the costs associated with protecting against such attacks. It is possible for vulnerabilities in our IT systems to remain undetected for an extended period of time up to and including several years. We attempt to mitigate these risks by employing a number of measures, including employee training, systems monitoring and other technical security controls, a breach response plan, maintenance of backup and protective systems, and security personnel. Notwithstanding those measures, our systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity attacks and other threats, any of which could have a material adverse effect on our consolidated results of operations, financial condition and cash flows. We, and the service providers that we depend on to support our systems and business operations, are regularly the target of, and periodically respond to, cyberattacks, including phishing and denial-of-service attacks, and must continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. In addition, a cybersecurity attack could persist for an extended period of time before being detected, and, following detection, it could take considerable time for us to obtain full and reliable information about the extent, amount and type of information compromised. During the course of an investigation, we may not know the full impact of the event and how to remediate it, and actions, decisions and mistakes that are taken or made may further increase the negative effects of the event on our business, results of operations and reputation. While we maintain insurance coverage that is intended to address certain aspects of cybersecurity risks, such insurance coverage may not cover all losses or all types of claims that arise. As cyber threats continue to evolve, cybersecurity and data protection laws and regulations continue to develop in the U.S. and globally, and our business continues to move towards increased online connectivity within our information systems and through more Internet-enabled products and offerings, we expect to expend additional resources to continue to build out our compliance programs, strengthen our information security, data protection and business continuity measures, and investigate and remediate vulnerabilities.
•Unforeseen developments in contingencies such as litigation and product recalls could adversely affect our consolidated results of operations, financial condition and cash flows.
We and certain of our subsidiaries are, and from time to time may become, parties to a number of legal proceedings incidental to our businesses, including alleged injuries arising out of the use of products or exposure to hazardous substances, or claims related to patent infringement, employment matters and commercial disputes. The defense of these lawsuits may require significant expenses and divert management’s attention, and we may be required to pay damages that could adversely affect our consolidated results of operations, financial condition and cash flows. In addition, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against potential loss exposures.
We may be exposed to product recalls and adverse public relations if our products are alleged to have defects, to cause property damage, to cause injury or illness, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention. Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our consolidated results of operations, financial condition and cash flows.
•Our revenue, operating profits and cash flows could be adversely affected if our businesses are unable to protect or obtain patent and other intellectual property rights.
Our businesses own patents, trademarks, licenses and other forms of intellectual property related to their products and continuously invest in research and development that may result in innovations and general intellectual property rights. Our businesses employ various measures to develop, maintain and protect their intellectual property rights. These measures may not be effective in capturing intellectual property rights, and they may not prevent their intellectual property from being challenged, invalidated, or circumvented, particularly in countries where intellectual property rights are not highly developed or protected. Unauthorized use of our businesses' intellectual property rights could adversely impact the competitive position of our businesses and could have a negative impact on our consolidated results of operations, financial condition and cash flows.
19
•We could be negatively impacted by environmental, social and governance (ESG) and sustainability matters.
Governments, shareholders, customers, employees and other stakeholders are increasingly focusing on corporate ESG practices and disclosures, and expectations in this area are rapidly evolving and growing. We have announced certain initiatives, including goals, regarding our focus areas, which include greenhouse gas emissions reductions, health and safety, diversity and inclusion, talent attraction and development, and innovation for sustainable products. The criteria by which our ESG practices are assessed may change due to the evolution of the sustainability landscape, which could result in greater expectations of us and may cause us to undertake costly initiatives to satisfy new criteria. Moreover, the increasing attention to sustainability could also result in reduced demand for certain of our products or services and/or reduced profits. If we are unable to respond effectively, investors may conclude that our policies and/or actions with respect to ESG matters are inadequate. If we fail or are perceived to have failed to achieve previously announced initiatives or goals or to accurately disclose our progress on such initiatives or goals, our reputation, business, financial condition and results of operations could be adversely impacted.
Industry Risks
•Increasing product, service and price competition by international and domestic competitors, including new entrants, and our inability to introduce new and competitive products could cause our businesses to generate lower revenue, operating profits and cash flows.
Our competitive environment is complex because of the wide diversity of the products that our businesses manufacture and the markets they serve. In general, most of our businesses compete with only a few companies. Our ability to compete effectively depends on how successfully we anticipate and respond to various competitive factors, including new products, digital solutions and support services that may be introduced by competitors, changes in customer preferences, evolving regulations, new business models and technologies and pricing pressures. If our businesses are unable to anticipate their competitors’ developments or identify customer needs and preferences on a timely basis, successfully introduce new products, digital solutions and support services in response to such competitive factors, or adopt to market changes relating to climate change related policies, they could lose customers to competitors. If our businesses do not compete effectively, we may experience lower revenue, operating profits and cash flows.
•Our operating results depend in part on the timely development and commercialization, and customer acceptance, of new and enhanced products, digital solutions and support services based on technological innovation.
The success of new and improved products, digital solutions and support services depends on their initial and continued acceptance by our customers. Certain of our businesses sell in markets that are characterized by rapid technological changes, frequent new product introductions, changing industry standards and corresponding shifts in customer demand, which may result in unpredictable product transitions, shortened life cycles and increased importance of being first to market. Failure to correctly identify and predict customer needs and preferences, to deliver high quality, innovative and competitive products to the market, to adequately protect our intellectual property rights or to acquire rights to third-party technologies, to provide adequate data security and privacy protections and to stimulate customer demand for, and convince customers to adopt new products, digital solutions and support services could adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we may experience difficulties or delays in the research, development, production or marketing of new products, digital solutions and support services which may prevent us from recouping or realizing a return on the investments required to continue to bring new products and services to market.
•We could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of our raw materials or components, if suppliers are not able to meet our quality and delivery requirements.
We purchase raw materials, sub-assemblies and components for use in our manufacturing operations. Factors such as freight costs, transportation availability, inventory levels, the level of imports, the imposition of duties, tariffs and other trade barriers and general economic conditions may affect the price of these raw materials, sub-assemblies and components. Significant price increases for certain commodities, other raw materials or components could adversely affect operating profits of our businesses. While we generally attempt to mitigate the impact of increased raw material
20
prices by hedging or passing along the increased costs to customers, there may be a time delay between the increased raw material prices and the ability to increase the prices of products, or we may be unable to increase the prices of products due to a competitor’s pricing pressure or other factors.
We use a wide range of raw materials and components in our manufacturing operations that come from numerous suppliers. While we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects of extended lead times or shortages may have in the future. In addition, some of the raw materials and components may be available only from limited or single source suppliers. If a single source or limited source supplier were to cease or interrupt production for any reason or otherwise fail to supply those raw materials or components to us on favorable purchase terms, including at favorable prices, in sufficient quantities and with adequate lead times needed for efficient manufacturing, our ability to meet customer commitments, and satisfy market demands for affected products could be negatively affected. The disruption of our global supply chain for any reason, including for issues such as COVID-19 or other health epidemics or pandemics, labor disputes, loss of single source or limited source supplier, inability to procure sufficient raw materials, quality control issues, ethical sourcing issues, a supplier's financial distress, natural disasters, looting, vandalism or acts of war or terrorism, trade sanctions or other external factors over which we have no control, could interrupt product supply and, if not effectively managed and remedied, have a material adverse impact on our business operations, financial condition and results of operations.
Legal and Regulatory Risks
•Our businesses are subject to regulation and their profitability and reputation could be adversely affected by domestic and foreign governmental and public policy changes, risks associated with emerging markets, changes in statutory tax rates and unanticipated outcomes with respect to tax audits.
Our businesses’ domestic and international sales and operations must comply with a wide variety of laws, regulations and policies (including environmental, employment and health and safety regulations, data security laws, data privacy laws, export/import laws, tax policies such as export subsidy programs and research and experimentation credits, carbon emission regulations, energy efficiency and design regulations and other similar programs). These laws, regulations and policies are complex, change frequently, have tended to become more stringent over time and may be inconsistent across jurisdictions. Failure to comply (or any alleged or perceived failure to comply) with any of the foregoing could result in civil and criminal, monetary and non-monetary penalties as well as potential damage to our reputation and disruption to our business. We cannot provide assurance that our costs of complying with new and evolving regulatory reporting requirements and current or future laws will not exceed our estimates. Any of these factors could adversely affect customer demand, our relationships with customers and suppliers, and our business and financial position.
Certain of our businesses have sales or operations in countries, including Brazil, Russia, India and China, and may in the future invest in other countries, any of which may carry high levels of currency, political, compliance, or economic risk. While these risks or the impact of these risks are difficult to predict, any one or more of them could adversely affect our businesses and reputation.
Our effective tax rate is impacted by the mix of earnings among countries with differing statutory tax rates, changes in the valuation allowance of deferred tax assets and changes in income tax laws. The amount of income taxes and other taxes paid can be adversely impacted by changes in statutory tax rates and laws and are subject to ongoing audits by governmental authorities. If these audits result in assessments different from amounts estimated, then our consolidated results of operations, financial position and cash flows may be adversely affected by unfavorable tax adjustments.
Financial and Strategic Risks
•Our exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact our results of operations.
We conduct business through our subsidiaries in many different countries, and fluctuations in currency exchange rates could have a significant impact on our reported consolidated results of operations, financial condition and cash flows, which are presented in U.S. dollars. Cross-border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange effects. Accordingly, significant changes in currency exchange rates, particularly the euro, Chinese renminbi (yuan), Swedish krona, pound sterling, Indian rupee, Singapore dollar, Danish
21
krone, and Canadian dollar, could cause fluctuations in the reported results of our businesses’ operations that could negatively affect our results of operations. Additionally, the strengthening of certain currencies such as the euro and U.S. dollar potentially exposes us to competitive threats from lower cost producers in other countries. Our sales are translated into U.S. dollars for reporting purposes. The strengthening of the U.S. dollar could result in unfavorable translation effects as the results of foreign locations are translated into U.S. dollars.
•Our growth and results of operations may be adversely affected if we are unsuccessful in our capital allocation and acquisition program.
We expect to continue our strategy of seeking to acquire value creating add-on businesses that broaden our existing position and global reach as well as, in the right circumstances, strategically pursue larger acquisitions that could have the potential to either complement our existing businesses or allow us to pursue a new platform. However, there can be no assurance that we will be able to continue to find suitable businesses to purchase, that we will be able to acquire such businesses on acceptable terms, or that all closing conditions will be satisfied with respect to any pending acquisition. In addition, we face the risk that a completed acquisition may underperform relative to expectations. We may not achieve the synergies originally anticipated, may become exposed to unexpected liabilities or may not be able to sufficiently integrate completed acquisitions into our current business and growth model. Further, if we fail to allocate our capital appropriately, in respect of either our acquisition program or organic growth in our operations, we could be overexposed in certain markets and geographies and unable to expand into adjacent products or markets. These factors could potentially have an adverse impact on our consolidated results of operations, financial condition and cash flows.
•The indemnification provisions of acquisition and disposition agreements by which we have acquired or sold or disposed of companies may not fully protect us and may result in unexpected liabilities.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of those companies before we acquired them. In most of these agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. Similarly, the purchasers of our disposed operations may from time to time agree to indemnify us for operations of such businesses after the closing. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may face unexpected liabilities that adversely affect our consolidated results of operations, financial condition and cash flows. In addition, we have retained certain liabilities directly or through indemnifications made to the buyers of businesses we have sold or disposed against known and unknown contingent liabilities such as tax liabilities and environmental matters.
There can be no assurance that the indemnity agreements will be sufficient to protect us against the full amount of any liabilities that may arise, or that the indemnitors will be able to fully satisfy their indemnification obligations. The failure to receive amounts for which we are entitled to indemnification could adversely affect our results of operations, cash flows and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
22
ITEM 2. PROPERTIES
The number, type, location and size of the properties used by our operations as of December 31, 2021 are shown in the following charts, by segment:
| Number and nature of facilities | Square footage (in 000s) | ||||||||||||||||||||||||||||||||||
| Manufacturing | Warehouse | Sales / Service | Total | Owned | Leased | ||||||||||||||||||||||||||||||
| Engineered Products | 26 | 19 | 10 | 55 | 2,908 | 1,175 | |||||||||||||||||||||||||||||
Clean Energy & Fueling | 29 | 8 | 29 | 66 | 1,458 | 1,889 | |||||||||||||||||||||||||||||
| Imaging & Identification | 13 | 15 | 58 | 86 | 689 | 1,068 | |||||||||||||||||||||||||||||
| Pumps & Process Solutions | 39 | 6 | 20 | 65 | 3,044 | 924 | |||||||||||||||||||||||||||||
Climate & Sustainability Technologies | 20 | 15 | 13 | 48 | 965 | 2,184 | |||||||||||||||||||||||||||||
| Locations | Expiration dates of leased facilities (in years) | ||||||||||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | Minimum | Maximum | |||||||||||||||||||||||||||||||||||
| Engineered Products | 33 | 14 | 7 | 1 | 55 | 1 | 7 | ||||||||||||||||||||||||||||||||||
| Clean Energy & Fueling | 25 | 16 | 10 | 2 | 53 | 1 | 11 | ||||||||||||||||||||||||||||||||||
| Imaging & Identification | 10 | 33 | 23 | 1 | 67 | 1 | 11 | ||||||||||||||||||||||||||||||||||
| Pumps & Process Solutions | 29 | 18 | 8 | 3 | 58 | 1 | 11 | ||||||||||||||||||||||||||||||||||
| Climate & Sustainability Technologies | 23 | 11 | 8 | 4 | 46 | 1 | 9 | ||||||||||||||||||||||||||||||||||
Our owned and leased facilities are well-maintained and suitable for our operations.
ITEM 3. LEGAL PROCEEDINGS
See Note 16 — Commitments and Contingent Liabilities in the Consolidated Financial Statements in Item 8 of this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
23
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
All of our officers are elected annually at the first meeting of the Board of Directors following our annual meeting of shareholders, and are subject to removal at any time by the Board of Directors. Our executive officers as of February 11, 2022, and their positions with Dover (and, where relevant, prior business experience) for the past five years, are as follows:
| Name | Age | Positions Held and Prior Business Experience | ||||||||||||
| Richard J. Tobin | 58 | President and Chief Executive Officer (since May 2018) and Director (since August 2016); prior thereto Chief Executive Officer (from 2013 to 2018) of CNH Industrial NV. | ||||||||||||
| Kimberly K. Bors | 61 | Senior Vice President, Human Resources (since January 2020) of Dover; prior thereto Senior Vice President and Chief Human Resources Officer of The Mosaic Company (from July 2017 to December 2018); prior thereto Senior Vice President, Human Resources & Administration for Schneider, North America at Schneider Electric (September 2014 to June 2017). | ||||||||||||
| Ivonne M. Cabrera | 55 | Senior Vice President, General Counsel and Secretary (since January 2013) of Dover. | ||||||||||||
| Brad M. Cerepak | 62 | Senior Vice President and Chief Financial Officer (since May 2011) of Dover. | ||||||||||||
| Girish Juneja | 52 | Senior Vice President and Chief Digital Officer (since May 2017) of Dover; prior thereto Senior Vice President/Chief Technology Officer and General Manager of the Marketplace Solutions Business of Altisource (from January 2014 to April 2017). | ||||||||||||
| David J. Malinas | 47 | Senior Vice President, Operations (since July 2019) of Dover; prior thereto Senior Vice President and President, Industrial Process for ITT Corporation (from June 2017 to June 2019); prior thereto Vice President and General Manager, Controlled Temperature Technologies Businesses at Thermo Fisher Scientific Inc. ("Thermo Fisher") (from March 2017 to June 2017); prior thereto Vice President, Industrial Segment at Thermo Fisher (from December 2015 to March 2017); prior thereto Vice President and General Manager, Global Chemicals Business Unit (from June 2012 to November 2015) at Thermo Fisher. | ||||||||||||
| Anthony K. Kosinski | 55 | Vice President, Tax (since June 2016) of Dover; prior thereto Director, Domestic Tax (June 2003 to June 2016) of Dover. | ||||||||||||
| James M. Moran | 56 | Vice President, Treasurer (since November 2015) of Dover; prior thereto Senior Vice President and Treasurer (from June 2013 to August 2015) of Navistar International Corporation (“NIC”); prior thereto Vice President and Treasurer (from 2008 to June 2013) of NIC; also served as Senior Vice President and Treasurer of Navistar, Inc. (from June 2013 to August 2015). | ||||||||||||
| Ryan W. Paulson | 48 | Vice President & Controller (from July 2019) of Dover; prior thereto Assistant Controller, Global Consolidations & Operations Accounting (from August 2017 to July 2019); prior thereto partner at PricewaterhouseCoopers LLP (from July 2012 to June 2017). | ||||||||||||
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Dividends
The principal market in which Dover common stock is traded is the New York Stock Exchange.
Holders
As of February 1, 2022, there were 1,264 holders of record of Dover common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
Information relating to securities authorized for issuance under our equity compensation plans is contained in Part III, Item 12 of this Form 10-K.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
In November 2020, the Company's Board of Directors approved a new standing share repurchase authorization, whereby we may repurchase up to 20 million shares beginning on January 1, 2021 through December 31, 2023. This share repurchase authorization replaced the February 2018 share repurchase authorization. Upon expiration of the February 2018 share repurchase authorization, there were 7,380,879 shares remaining.
During the year ended December 31, 2021, under our November 2020 standing share repurchase authorization, which began on January 1, 2021, we purchased 182,951 shares of common stock at a total cost of $21,637 or $118.27 per share. No share repurchases were made under the November 2020 authorization during the three months ended December 31, 2021. As of December 31, 2021, 19,817,049 shares remain authorized for repurchase under the November 2020 share repurchase authorization.
25
Performance Graph
This performance graph does not constitute soliciting material, is not deemed filed with the Securities and Exchange Commission ("SEC"), and is not incorporated by reference in any of our filings under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date of this Form 10-K and irrespective of any general incorporation language in any such filing, except to the extent we specifically incorporate this performance graph by reference therein.
Comparison of Five-Year Cumulative Total Return +
Dover Corporation, S&P 500 Index, S&P 500 Industrials Index, Old Peer Group Index
Total Shareholder Returns
Data Source: Research Data Group, Inc
_______________________
+Total return assumes reinvestment of dividends.
This graph assumes $100 invested on December 31, 2016 in Dover common stock, the S&P 500 Index, the S&P 500 Industrials Index, and an Old Peer Group Index.
The 2021 new peer index group consists of the S&P 500 Industrials Index. The Old Peer Group index consists of the following 29 public companies selected by Dover.
| 3M Company | Flowserve Corporation | Parker-Hannifin Corp. | ||||||
| Ametek Inc. | Fortive Corp. | Pentair Plc | ||||||
| Carlisle Companies Inc. | Honeywell International Inc. | Regal Beloit Corp. | ||||||
| Colfax Corp. | IDEX Corporation | Rockwell Automation Inc. | ||||||
| Corning Inc. | Illinois Tool Works Inc. | Snap-on Inc. | ||||||
| Crane Co. | Ingersoll Rand Inc. | SPX Flow Inc. | ||||||
| Danaher Corp. | ITT Inc. | Teledyne Technologies Inc. | ||||||
| Eaton Corporation Plc | Johnson Controls International Plc | Textron Inc. | ||||||
| Emerson Electric Co. | Lennox International Inc. | The Timken Company | ||||||
| Enerpac Tool Group Corp. | Nordson Corp. | |||||||
26
We re-examined our Old Peer Group and concluded that our diversified portfolio of businesses, which evolves in accordance with our acquisition and disposition initiatives, is better benchmarked against a broad set of industrial manufacturing peers represented by the S&P 500 Industrials Index rather than a constant group of peers, each with limited overlap with our portfolio. Moreover, the companies within the Old Peer Group have undertaken and may continue to undertake mergers, spin-offs, split-offs, or other strategic transactions that could potentially cause those companies to no longer be considered peers.
ITEM 6. [RESERVED]
Not required.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations and financial condition for the years ended December 31, 2021, 2020 and 2019. The MD&A should be read in conjunction with our Consolidated Financial Statements and Notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Form 10-K, particularly in Item 1A. "Risk Factors" and in the "Special Note Regarding Forward-Looking Statements" preceding Part I of this Form 10-K.
Throughout this MD&A, we refer to measures used by management to evaluate performance, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). Please see "Non-GAAP Disclosures" at the end of this Item 7 for further detail on these financial measures. We believe these measures provide investors with important information that is useful in understanding our business results and trends. Reconciliations within this MD&A provide more details on the use and derivation of these measures.
OVERVIEW
Dover Corporation is a diversified global manufacturer and solutions provider delivering innovative equipment and components, consumable supplies, aftermarket parts, software and digital solutions and support services.
For the year ended December 31, 2021, consolidated revenue was $7.9 billion, an increase of $1.2 billion or 18.3%, as compared to the prior year. This growth included organic revenue growth of 15.3% driven by strong demand across all our segments reflecting robust macroeconomic trends, a favorable impact from foreign currency translation of 1.9% and 1.3% acquisition-related growth, partially offset by 0.2% impact from dispositions. Overall, customer pricing favorably impacted revenue by approximately 2.8% for the year.
Within our Engineered Products segment, revenue increased $249.6 million, or 16.3%, from the prior year, reflecting a broad-based organic revenue growth of 14.1%, a favorable foreign currency translation of 1.6% and acquisition-related growth of 0.6%. The organic revenue growth was primarily driven by robust demand in our key end-markets most notably in our vehicle service and industrial automation businesses, and strategic pricing initiatives which partially offset significant inflationary headwinds in this segment.
Our Clean Energy & Fueling segment revenue increased $171.9 million, or 11.6%, from prior year, reflecting organic growth of 5.8%, acquisition-related growth of 3.6% and a favorable impact from foreign currency translation of 2.2%. The organic revenue growth was driven by solid demand in our North America and Europe, the Middle East, and Africa ("EMEA") retail fueling and vehicle wash businesses, along with pricing actions aimed at mitigating material, logistics and labor cost inflation.
Our Imaging & Identification segment revenue increased $125.2 million, or 12.1%, from the prior year, comprised of organic growth of 8.0%, a favorable impact from foreign currency translation of 2.8%, and acquisition-related growth of 1.3%. The organic revenue growth was primarily driven by solid growth in new equipment and associated services and consumables, as well as serialization software sales in our marking and coding business and ongoing demand recovery in our digital textile printing business.
Our Pumps & Process Solutions segment revenue increased $384.6 million, or 29.1%, from the prior year, attributable to an organic growth of 26.6%, a favorable impact from foreign currency translation of 1.9% and acquisition-related growth of 0.6%. The organic revenue growth was principally driven by strong demand in the biopharma and hygienic markets especially for single use pumps and connectors used in biopharmaceutical production processes. Our industrial pumps plastics and polymer processing solutions and bearings and compression components businesses also contributed to top-line growth on strong end market demand.
Our Climate & Sustainability Technologies segment revenue increased $292.1 million, or 22.2%, from the prior year, reflecting an organic revenue growth of 22.0% and a favorable impact from foreign currency translation of 1.3%, partially offset by a disposition related decline of 1.1%. The organic growth was driven by robust demand in all of our key end-
28
markets. Beverage packaging production equipment revenues increased substantially from prior year, driven by continued favorable macro trends in the global beverage industry and shift to more recyclable packaging materials. Our heat exchanger business experienced strong growth in Asia, regulation driven demand for energy-efficient heat pumps in Europe and strengthening commercial HVAC and industrial markets globally. Retail refrigeration experienced broad-based growth, driven by increased remodel activity with key supermarket customers and growing demand for our environmentally friendly natural CO2 refrigerant systems in both Europe and the U.S.
Revenue for the U.S. grew 17.1%, while revenue in Europe and Asia grew 21.1% and all other geographic markets grew 15.9% year over year. This growth was broad-based, with all our segments posting increased sales in North America, Europe, Asia and Latin America as global demand continued to improve after the impact of operational and demand headwinds from the COVID-19 experienced in the prior year.
Gross profit was $3.0 billion for the year ended December 31, 2021, a increase of $495.8 million, or 20.0%, as compared to the prior year. The increase was primarily due to growth in sales volume across all our segments benefited by pricing and favorable product mix partially offset by higher material, labor and logistics costs as well as production inefficiencies caused by intermittent constraints in production inputs and labor availability. Gross profit margin expanded to 37.6% for the year ended December 31, 2021 compared to 37.0% for the prior year. For further discussion related to our consolidated and segment results, see "Consolidated Results of Operations" and "Segment Results of Operations," respectively, within MD&A.
Bookings increased 35.3% over the prior year to $9.4 billion for the year ended December 31, 2021. This included an organic bookings growth of 31.9%, a favorable impact due to foreign exchange rate of 2.1% and a 1.5% increase in acquisition-related bookings, partially offset by a 0.2% decline due to dispositions. Bookings increased organically across all our segments primarily as a result of strong recovery from the global impact on customer demand from the COVID-19 pandemic. Overall, our book-to-bill increased from the prior year to 1.19. Backlog as of December 31, 2021 was $3.2 billion, up from $1.8 billion from the prior year. The increase in backlog is primarily driven by higher order rates across all our segments. Backlog as of December 31, 2021 included $0.8 billion, $0.4 billion, $0.2 billion, $0.7 billion and $1.2 billion in the Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions and Climate & Sustainability Technologies segments, respectively. See definition of bookings, organic bookings, book-to-bill and backlog within "Segment Results of Operations".
During the year ended December 31, 2021, we executed rightsizing programs to further optimize operations. Rightsizing charges of $38.4 million included restructuring charges of $26.7 million and other costs of $11.7 million. The expenses were primarily a result of restructuring programs initiated in 2020 and 2021.
During the year ended December 31, 2021, we made a total of nine acquisitions totaling $1,125.1 million, net of cash acquired and including contingent consideration. See Note 3 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses acquired during the year.
During the year ended December 31, 2021, we completed the sale of the Unified Brands ("UB"), a wholly owned subsidiary of the Company and we disposed of our equity method investment in Race Winning Brands ("RWB"). See Note 4 — Dispositions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses disposed of during the year.
During the year ended December 31, 2021, we purchased approximately 0.2 million shares of our common stock for a total cost of $21.6 million, or $118.27 per share. In November 2020, our Board of Directors approved a new standing share repurchase authorization, whereby we may repurchase up to 20 million shares beginning on January 1, 2021 through December 31, 2023. We also continued our 66 year history of increasing our annual dividend per share and paid a total of $286.9 million in dividends to our shareholders.
COVID-19
The COVID-19 outbreak and associated counter-acting measures implemented by governments and businesses around the world, as well as subsequent accelerated and robust recovery in global business activity, have increased uncertainty in the global business environment and led to supply chain disruptions and shortages in global markets for commodities, logistics and labor, as well as input cost inflation.
29
In response to COVID-19, we have taken and continue to take measures to protect our workforce. We have modified practices at our manufacturing locations and offices to adhere to guidance from the U.S. Centers for Disease Control and Prevention and local health and governmental authorities in our global network. We have invested at the corporate center to provide oversight, enhance coordination and ensure robust safety protocols are present across our operations. In addition, we have provided employee incentives for vaccinations and hosted vaccination clinics at a number of our facilities.
Activity in most of the end markets we serve improved throughout 2021, although demand in certain businesses such as textile printing, industrial winch and bearings and compression components is expected to take longer to recover to pre-pandemic levels with continued improvement expected in 2022. The recovery in demand has had business impacts, including increased material cost inflation (principally steel), labor availability issues and logistics costs increases. Some of our businesses have also been impacted from supplier component input availability issues. Currently our expectation is that the impact of material cost inflation, labor constraints and logistics constraints and to some extent supplier component input availability will continue into 2022.
The public health situation, continued global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook. We will continue to proactively respond to the situation and may take further actions that alter our business activity as may be required by governmental authorities, or that we determine are in the best interests of our employees and operations.
30
CONSOLIDATED RESULTS OF OPERATIONS
| Years Ended December 31, | % / Point Change | |||||||||||||||||||||||||||||||
| (dollars in thousands, except per share figures) | 2021 | 2020 | 2019 | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||||||
| Revenue | $ | 7,907,081 | $ | 6,683,760 | $ | 7,136,397 | 18.3 | % | (6.3) | % | ||||||||||||||||||||||
| Cost of goods and services | 4,937,295 | 4,209,741 | 4,515,459 | 17.3 | % | (6.8) | % | |||||||||||||||||||||||||
| Gross profit | 2,969,786 | 2,474,019 | 2,620,938 | 20.0 | % | (5.6) | % | |||||||||||||||||||||||||
| Gross profit margin | 37.6 | % | 37.0 | % | 36.7 | % | 0.60 | 0.30 | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 1,688,278 | 1,541,032 | 1,599,098 | 9.6 | % | (3.6) | % | |||||||||||||||||||||||||
| Selling, general and administrative expenses as a percent of revenue | 21.4 | % | 23.1 | % | 22.4 | % | (1.70) | 0.70 | ||||||||||||||||||||||||
| Loss on assets held for sale | — | — | 46,946 | nm* | nm* | |||||||||||||||||||||||||||
| Operating earnings | 1,281,508 | 932,987 | 974,894 | 37.4 | % | (4.3) | % | |||||||||||||||||||||||||
| Interest expense | 106,319 | 111,937 | 125,818 | (5.0) | % | (11.0) | % | |||||||||||||||||||||||||
| Interest income | (4,441) | (3,571) | (4,526) | 24.4 | % | (21.1) | % | |||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | 23,543 | nm* | nm* | |||||||||||||||||||||||||||
| Gain on dispositions | (206,338) | (5,213) | — | nm* | nm* | |||||||||||||||||||||||||||
| Other income, net | (14,858) | (11,900) | (12,950) | 24.9 | % | (8.1) | % | |||||||||||||||||||||||||
| Earnings before provision for income taxes | 1,400,826 | 841,734 | 843,009 | 66.4 | % | (0.2) | % | |||||||||||||||||||||||||
| Provision for income taxes | 277,008 | 158,283 | 165,091 | 75.0 | % | (4.1) | % | |||||||||||||||||||||||||
| Effective tax rate | 19.8 | % | 18.8 | % | 19.6 | % | 1.0 | (0.8) | ||||||||||||||||||||||||
| Net earnings | $ | 1,123,818 | $ | 683,451 | $ | 677,918 | 64.4 | % | 0.8 | % | ||||||||||||||||||||||
| Net earnings per common share - diluted | $ | 7.74 | $ | 4.70 | $ | 4.61 | 64.7 | % | 2.0 | % | ||||||||||||||||||||||
* nm: not meaningful
Revenue
For the year ended December 31, 2021, revenue increased $1.2 billion, or 18.3% to $7.9 billion compared with 2020, reflecting an organic growth of 15.3% driven by strong demand across all our segments reflecting robust macro-trends. Acquisition-related growth increased by 1.3% led by our Clean Energy & Fueling and Imaging & Identification segments, partially offset by a 0.2% decrease from dispositions mainly due to the sale of our UB business within Climate & Sustainability Technologies segment. Revenue also increased due to favorable foreign currency translation impact of 1.9%. Overall, customer pricing favorably impacted revenue by 2.8% for the year ended December 31, 2021.
For the year ended December 31, 2020, revenue decreased $452.6 million, or 6.3% to $6.7 billion compared with 2019, reflecting an organic decline of 6.6%, due to lower sales volumes due to pandemic-related impacts in our markets. Acquisition-related growth increased by 1.0% led by our Imaging & Identification and Pumps & Process Solutions segments, partially offset by a 0.7% decrease from dispositions within our Pumps & Process Solutions and Climate & Sustainability Technologies segments. Foreign currency translation had no significant impact to revenue for the year ended December 31, 2020. Overall, customer pricing favorably impacted revenue by approximately 0.7% in 2020.
Gross Profit
For the year ended December 31, 2021, gross profit increased $495.8 million, or 20.0%, to $3.0 billion compared with 2020, primarily due to organic revenue growth, benefits from pricing and productivity initiatives and rightsizing actions partially offset by increased material, labor and logistics costs as well as production inefficiencies caused by component and labor availability constraints. Gross profit margin increased 60 basis points to 37.6% as compared to the prior year due to benefits from pricing and product mix, productivity and restructuring actions.
31
For the year ended December 31, 2020, gross profit decreased $146.9 million, or 5.6% to $2.5 billion compared with 2019, primarily due to lower revenue as productivity initiatives including prior rightsizing programs and cost containment actions were partially offset by increased material costs and inflation and higher restructuring costs. Gross profit margin expanded 30 basis points to 37.0% as compared to the prior year due to benefits from productivity initiatives and restructuring and cost containment actions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2021, increased $147.2 million, or 9.6% to $1.7 billion compared with 2020, due to higher labor and acquisition related costs and lower discretionary spend in the prior year partially offset by lower restructuring costs of $11.8 million. As a percentage of revenue, selling, general and administrative expenses decreased 170 basis points in 2021 to 21.4%, reflecting the increase in revenue base.
Selling, general and administrative expenses for the year ended December 31, 2020, decreased $58.1 million, or 3.6% to $1.5 billion compared with 2019, due to reduction in discretionary spend and benefits from rightsizing actions partially offset by higher restructuring costs of $7.7 million and a $3.6 million write-off of assets. As a percentage of revenue, selling, general and administrative expenses increased 70 basis points in 2020 to 23.1%, reflecting the decrease in revenue base.
Research and development costs, including qualifying engineering costs, are expensed when incurred and amounted to $157.8 million, $142.1 million and $141.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The change from 2020 to 2021 reflects increased investment in hardware and software product development. These costs as a percent of revenue were 2.0%, 2.1% and 2.0% for the years December 31, 2021, 2020 and 2019, respectively.
Loss on Assets Held for Sale
On March 29, 2019, we entered into a definitive agreement to sell Finder Pompe S.r.l ("Finder") for total consideration of approximately $23.6 million net of estimated selling costs. As of March 31, 2019, Finder met the criteria to be classified as held for sale and based on the total consideration from the sale, net of selling costs, we recorded a loss on the assets held for sale of $46.9 million. The loss was comprised of an impairment on assets held for sale of $21.6 million and foreign currency translation losses reclassified from accumulated other comprehensive losses to current earnings of $25.3 million. We subsequently sold Finder on April 2, 2019, which generated total cash proceeds of $24.2 million.
Non-Operating Items
Interest Expense, net
For the year ended December 31, 2021, interest expense, net of interest income, decreased $6.5 million, or 6.0%, to $101.9 million compared with 2020 primarily due to borrowings against our unsecured revolving credit facility and commercial paper in 2020 to ensure liquidity during height of pandemic-related impacts.
For the year ended December 31, 2020, interest expense, net of interest income, decreased $12.9 million, or 10.7%, to $108.4 million compared with 2019 primarily due to lower interest rates on new debt issued in November 2019 of €500 million of 0.750% notes due 2027 and $300 million of 2.950% notes due 2029. The new notes repaid the old debt of €300 million of 2.125% notes and $450 million of 4.30% notes, which carried higher interest rates.
Loss on Extinguishment of Debt
On December 4, 2019, the Company extinguished the €300 million of 2.125% notes due 2020 and the $450 million of 4.30% notes due 2021. The Company was required to pay a make whole premium to the bondholders for the early extinguishment of debt, resulting in a loss of $23.5 million.
32
Gain on Dispositions
On December 1, 2021, we completed the sale of UB, a wholly owned subsidiary of Dover. We recognized a total consideration of $229.0 million. This sale resulted in a pre-tax gain on disposition of $181.6 million included within the Consolidated Statements of Earnings and within the Climate & Sustainability Technologies segment for the year ended December 31, 2021. The total consideration and pre-tax gain on disposition are subject to standard working capital adjustments. The sale does not represent a strategic shift that will have a major effect on operations and financial results and, therefore, did not qualify for presentation as a discontinued operation.
Additionally, included in this line item is a $24.7 million gain related to the disposition of our equity method investment in RWB.
Refer to Note 4 — Dispositions in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information on disposed and discontinued operations.
On March 6, 2020, we sold AMS Chino within the Climate & Sustainability Technologies segment for total consideration of $15.4 million which included a working capital adjustment. A gain of $5.2 million was recognized on this sale. The disposal did not represent a strategic shift in operations and, therefore, did not qualify for presentation as discontinued operations.
There were no dispositions in the year 2019 aside from the sale of Finder as described above.
Other Income, net
For the years ended December 31, 2021, 2020 and 2019, other income, net was $14.9 million, $11.9 million and $13.0 million, respectively. For the year ended December 31, 2021, other income increased compared to 2020 primarily due to transition services in connection with our sale of UB, certain non-income tax credits, and investment income, partially offset by a $12.1 million other than temporary impairment charge related to an equity method investment in 2021. For the year ended December 31, 2020, other income decreased compared to 2019 primarily due to decreased earnings from our equity method investments and increased foreign exchange losses resulting from the re-measurement and settlement of foreign currency denominated balances.
Income Taxes
Our businesses have a global presence with 40%, 45% and 47% of our pre-tax earnings in 2021, 2020 and 2019, respectively, generated in foreign jurisdictions. 2021 includes the gains on the UB and RWB dispositions, which has the effect of lowering the contributions of pre-tax earnings of foreign jurisdictions. Foreign earnings are generally subject to local country tax rates that differ from the 21.0% U.S. statutory tax rate. Our effective foreign tax rate is typically lower than the U.S. statutory tax rate.
Our effective tax rate was 19.8% for the year ended December 31, 2021, compared to 18.8% and 19.6% for the years ended December 31, 2020 and December 31, 2019, respectively. Excluding the impact of the gains on dispositions, the 2021, 2020 and 2019 rates were impacted by $35.6 million, $22.2 million, and $26.6 million respectively, of favorable net discrete items primarily driven by favorable audit resolutions and the tax benefit of share award exercises.
See Note 14 — Income Taxes in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional details.
Net Earnings
For the year ended December 31, 2021, net earnings increased $440.4 million, or 64.4%, to $1,123.8 million, or $7.74 per share, compared with net earnings of $683.5 million, or $4.70 per share, for the year ended December 31, 2020. Earnings increased due to organic volume growth, favorable pricing actions and product mix and productivity actions including benefits of rightsizing actions. Additionally, earnings were favorably impacted by the gains on disposition of UB and our equity method investment in RWB. These benefits more than offset increases in material and logistics costs, most notably steel and ocean & air freight costs, higher labor costs as well as productivity shortfalls resulting from labor constraints and supply chain disruption.
33
For the year ended December 31, 2020, net earnings increased $5.5 million, or 0.8%, to $683.5 million, or $4.70 per share, compared with net earnings of $677.9 million, or $4.61 per share, for the year ended December 31, 2019. Despite a revenue decline of 6.3% due to the impact of COVID-19, earnings increased due to broad-based cost containment actions, benefits from productivity and restructuring actions, a loss due to the after-tax extinguishment of debt of $18.4 million in the prior year and a loss on assets held for sale of $46.9 million in the prior year.
Rightsizing Activities, which includes Restructuring and Other Costs
We recorded the following rightsizing costs (benefits) for the year ended December 31, 2021:
Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Engineered Products | Clean Energy & Fueling | Imaging & Identification | Pumps & Process Solutions | Climate & Sustainability Technologies | Corporate | Total | ||||||||||||||||||||||||||||||||||
| Restructuring (GAAP) | $ | 9,507 | $ | 3,609 | $ | 4,589 | $ | 1,911 | $ | 5,068 | $ | 2,021 | $ | 26,705 | |||||||||||||||||||||||||||
| Other (benefits) costs, net | (8,702) | 238 | 1,888 | (2,347) | 18,146 | 2,508 | 11,731 | ||||||||||||||||||||||||||||||||||
| Rightsizing (non-GAAP) | $ | 805 | $ | 3,847 | $ | 6,477 | $ | (436) | $ | 23,214 | $ | 4,529 | $ | 38,436 | |||||||||||||||||||||||||||
During the year ended December 31, 2021, rightsizing activities included restructuring charges of $26.7 million and other (benefits) costs of $11.7 million. Restructuring expense was incurred in response to demand conditions, asset charges related to a product line exit, as well as broad-based operational efficiency initiatives focusing on footprint consolidation and IT centralization. Other (benefits) costs were comprised primarily of a $12.1 million other than temporary impairment charge related to an equity method investment and a $6.1 million write-off of assets in connection with an exit from certain Latin America countries in our Climate & Sustainability Technologies segment, offset by a $9.1 million payment received for previously incurred restructuring costs related to a product line exit ($7.3 million is classified within costs of goods and services and $1.8 million within selling, general and administrative expenses) within our Engineering Products segment and $3.3 million of gains on sales of assets as a result of restructuring actions in our Pumps & Process Solutions segment. These rightsizing charges were recorded in cost of goods and services, selling, general and administrative expenses, and other income, net in the Consolidated Statement of Earnings. Additional programs, beyond the scope of the announced programs may be implemented during 2022 with related restructuring charges.
We recorded the following rightsizing costs for the year ended December 31, 2020:
Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Engineered Products | Clean Energy & Fueling | Imaging & Identification | Pumps & Process Solutions | Climate & Sustainability Technologies | Corporate | Total | ||||||||||||||||||||||||||||||||||
| Restructuring (GAAP) | $ | 10,307 | $ | 6,681 | $ | 5,946 | $ | 13,374 | $ | 4,015 | $ | 4,145 | $ | 44,468 | |||||||||||||||||||||||||||
| Other costs, net | 1,223 | 22 | 81 | 62 | 2,460 | 3,156 | 7,004 | ||||||||||||||||||||||||||||||||||
| Rightsizing (non-GAAP) | $ | 11,530 | $ | 6,703 | $ | 6,027 | $ | 13,436 | $ | 6,475 | $ | 7,301 | $ | 51,472 | |||||||||||||||||||||||||||
During the year ended December 31, 2020, rightsizing activities included restructuring charges of $44.5 million and other costs of $7.0 million. Restructuring expense was comprised primarily of new actions executed in response to lower demand driven by COVID-19 as well as continuing broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, and operational optimization and IT centralization. Other costs were comprised primarily of charges related to the restructuring actions and asset charges, principally due to a $3.6 million write off of assets, partially offset by a $1.7 million gain on sale of assets in our Climate & Sustainability Technologies segment. These rightsizing charges were recorded in cost of goods and services, selling, general and administrative expenses, interest expense, and other income, net in the Consolidated Statement of Earnings.
34
We recorded the following rightsizing costs for the year ended December 31, 2019:
Year Ended December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Engineered Products | Clean Energy & Fueling | Imaging & Identification | Pumps & Process Solutions | Climate & Sustainability Technologies | Corporate | Total | ||||||||||||||||||||||||||||||||||
| Restructuring (GAAP) | $ | 3,155 | $ | 4,943 | $ | 6,426 | $ | 5,666 | $ | 3,671 | $ | 2,961 | $ | 26,822 | |||||||||||||||||||||||||||
| Other (benefits) costs, net | (5) | (58) | (76) | 462 | 2,371 | 2,637 | 5,331 | ||||||||||||||||||||||||||||||||||
| Rightsizing (non-GAAP) | $ | 3,150 | $ | 4,885 | $ | 6,350 | $ | 6,128 | $ | 6,042 | $ | 5,598 | $ | 32,153 | |||||||||||||||||||||||||||
During the year ended December 31, 2019, rightsizing activities included restructuring charges of $26.8 million and other costs of $5.3 million. Restructuring expense was comprised primarily of broad-based selling, general and administrative expense reduction initiatives and broad-based operational efficiency initiatives focusing on footprint consolidation, operational optimization and IT centralization. Other costs were comprised primarily of other charges related to the restructuring actions. These rightsizing charges were recorded in cost of goods and services and selling, general and administrative expenses in the Consolidated Statement of Earnings.
See Note 11 — Restructuring Activities in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional details regarding our recent restructuring activities.
35
SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of each of our five operating and reportable segments (Engineered Products, Clean Energy & Fueling, Imaging & Identification, Pumps & Process Solutions, and Climate & Sustainability Technologies). Each of these segments is comprised of various product and service offerings that serve multiple markets. See Note 19 — Segment Information in the Consolidated Financial Statements in Item 8 of this Form 10-K for a reconciliation of segment revenue, earnings and margin to our consolidated revenue, net earnings and margin. Segment EBITDA and segment EBITDA margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to segment earnings (EBIT) as a measure of operating performance. We believe that these non-GAAP measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. For further information, see "Non-GAAP Disclosures" at the end of this Item 7.
Additionally, we believe the following operational metrics are useful to investors and other users of our financial information in assessing the performance of our segments:
•Bookings represent total orders received from customers in the current reporting period. This metric is an important measure of performance and an indicator of revenue order trends.
•Organic bookings represent total orders received from customers in the current reporting period excluding the impact of foreign currency exchange rates and the impact of acquisitions and dispositions. The metric is an important measure of performance and an indicator of revenue order trends.
•Backlog represents an estimate of the total remaining bookings at a point in time for which performance obligations have not yet been satisfied. This metric is useful as it represents the aggregate amount we expect to recognize as revenue in the future.
•Book-to-bill is a ratio of the amount of bookings received from customers during a period divided by the amount of revenue recorded during that same period. This metric is a useful indicator of demand.
36
Engineered Products
Our Engineered Products segment provides a wide range of equipment, components, software, solutions and services vehicle aftermarket, waste handling, industrial automation, aerospace and defense, industrial winch and hoist, and fluid dispensing end-markets.
| Years Ended December 31, | % Change | |||||||||||||||||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2019 | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||||||
| Revenue | $ | 1,780,827 | $ | 1,531,277 | $ | 1,697,557 | 16.3 | % | (9.8) | % | ||||||||||||||||||||||
Segment earnings (EBIT) (1) | $ | 285,511 | $ | 238,167 | $ | 291,848 | 19.9 | % | (18.4) | % | ||||||||||||||||||||||
| Depreciation and amortization | 48,644 | 42,603 | 41,032 | 14.2 | % | 3.8 | % | |||||||||||||||||||||||||
Segment EBITDA (1) | $ | 334,155 | $ | 280,770 | $ | 332,880 | 19.0 | % | (15.7) | % | ||||||||||||||||||||||
Segment margin (1) | 16.0 % | 15.6 % | 17.2 % | |||||||||||||||||||||||||||||
Segment EBITDA margin (1) | 18.8 % | 18.3 % | 19.6 % | |||||||||||||||||||||||||||||
| Other measures: | ||||||||||||||||||||||||||||||||
| Bookings | $ | 2,113,729 | $ | 1,558,486 | $ | 1,708,321 | 35.6 | % | (8.8) | % | ||||||||||||||||||||||
| Backlog | $ | 785,085 | $ | 463,701 | $ | 452,142 | 69.3 | % | 2.6 | % | ||||||||||||||||||||||
| Components of revenue growth (decline): | ||||||||||||||||||||||||||||||||
| Organic growth (decline) | 14.1 | % | (10.3) | % | ||||||||||||||||||||||||||||
| Acquisitions | 0.6 | % | 0.3 | % | ||||||||||||||||||||||||||||
| Foreign currency translation | 1.6 | % | 0.2 | % | ||||||||||||||||||||||||||||
| Total revenue growth (decline) | 16.3 | % | (9.8) | % | ||||||||||||||||||||||||||||
(1) Segment earnings (EBIT) and segment EBITDA for 2021 include a $24,723 gain related to the sale of RWB equity method investment.
2021 Versus 2020
Engineered Products segment revenue for the year ended December 31, 2021 increased $249.6 million, or 16.3% compared to the prior year, comprised of a broad-based organic revenue growth of 14.1%, a favorable foreign currency translation of 1.6%, and acquisition-related growth of 0.6%. Acquisition-related growth was driven by the acquisitions of Espy, CDS Visual, and Soft-Pak. Overall, customer pricing favorably impacted revenue by approximately 4.2% in 2021.
The organic revenue growth was primarily driven by robust demand across all of our key end-markets, most notably in our vehicle service and industrial automation businesses, and strategic pricing initiatives that partially offset inflationary headwinds. Despite the strong organic growth and record high backlog levels, certain shipments in our waste handling and vehicle service groups were deferred to future quarters as a result of supply chain and labor availability constraints with the most significant impact in the fourth quarter of 2021. While we anticipate these headwinds to continue into 2022, we expect shipment volume in both businesses to improve as the year progresses.
Engineered Products segment earnings for the year ended December 31, 2021 increased $47.3 million, or 19.9%, compared to the prior year. The increase was primarily driven by conversion on increased volumes, a $24.7 million gain resulting from the sale of our minority interest in RWB, benefits from right-sizing actions, and favorable impact from foreign currency translation, partially offset by higher material and logistics costs, most notably steel and ocean & air freight costs, as well as plant productivity shortfalls resulting from supply chain disruption and higher labor costs. Segment margin increased from 15.6% to 16.0% as compared to the prior year.
Bookings for the year ended December 31, 2021 increased 35.6% compared to the prior year, comprised primarily of organic growth of 33.2%, a favorable impact from foreign currency translation of 2.0%, and acquisition-related growth of 0.4%. The
37
organic bookings growth was broad-based, most notably in our vehicle service, waste handling, and industrial automation businesses. Segment book-to-bill was 1.19. Backlog increased 69.3% compared to the prior year.
2020 Versus 2019
Engineered Products segment revenue for the year ended December 31, 2020 decreased $166.3 million, or 9.8% compared to the prior year, comprised of a broad-based organic revenue decline of 10.3%, partially offset by acquisition-related growth of 0.3% and a favorable foreign currency translation of 0.2%. The organic revenue decline was primarily driven by the global economic downturn precipitated by the COVID-19 pandemic beginning late in the first quarter of 2020. The impact was broad-based across the segment, with the most significant impacts in the year experienced in our waste handling, industrial winch and hoist, industrial automation and fluid dispensing businesses. Acquisition-related growth was driven by the acquisition of Soft-Pak. Overall, customer pricing favorably impacted revenue by approximately 0.3% in 2020.
Engineered Products segment earnings for the year ended December 31, 2020 decreased $53.7 million, or 18.4%, compared to the prior year. This decrease was primarily driven by the impact of the COVID-19 pandemic on customer spending, partially offset by cost containment initiatives we executed in the year. These initiatives include actions to adjust direct and indirect manufacturing costs to current demand levels, the execution of short-term actions to reduce labor costs, the elimination of non-essential travel, third party and other expenses, the recognition of adjustments to variable compensation to reflect current conditions, the execution of selective structural cost actions aimed at streamlining our businesses, and a detailed review and re-prioritization of all planned investments and hiring plans. Segment margin decreased from 17.2% to 15.6% as compared to the prior year.
38
Clean Energy & Fueling
Our Clean Energy & Fueling segment provides components, equipment, and software and service solutions enabling safe transport of traditional and clean fuels and other hazardous substances along the supply chain, as well as the safe and efficient operation of convenience retail, retail fueling and vehicle wash establishments.
| Years Ended December 31, | % Change | |||||||||||||||||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2019 | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||||||
| Revenue | $ | 1,648,153 | $ | 1,476,282 | $ | 1,620,177 | 11.6 | % | (8.9) | % | ||||||||||||||||||||||
| Segment earnings (EBIT) | $ | 271,388 | $ | 236,974 | $ | 231,873 | 14.5 | % | 2.2 | % | ||||||||||||||||||||||
| Depreciation and amortization | 78,010 | 72,803 | 75,045 | 7.2 | % | (3.0) | % | |||||||||||||||||||||||||
| Segment EBITDA | $ | 349,398 | $ | 309,777 | $ | 306,918 | 12.8 | % | 0.9 | % | ||||||||||||||||||||||
| Segment margin | 16.5 % | 16.1 % | 14.3 % | |||||||||||||||||||||||||||||
| Segment EBITDA margin | 21.2 % | 21.0 % | 18.9 % | |||||||||||||||||||||||||||||
| Other measures: | ||||||||||||||||||||||||||||||||
| Bookings | $ | 1,742,479 | $ | 1,471,870 | $ | 1,613,764 | 18.4 | % | (8.8) | % | ||||||||||||||||||||||
| Backlog | $ | 383,572 | $ | 201,521 | $ | 205,842 | 90.3 | % | (2.1) | % | ||||||||||||||||||||||
| Components of revenue growth (decline): | ||||||||||||||||||||||||||||||||
| Organic growth (decline) | 5.8 | % | (8.8) | % | ||||||||||||||||||||||||||||
| Acquisitions | 3.6 | % | 0.2 | % | ||||||||||||||||||||||||||||
| Foreign currency translation | 2.2 | % | (0.3) | % | ||||||||||||||||||||||||||||
| Total revenue growth (decline) | 11.6 | % | (8.9) | % | ||||||||||||||||||||||||||||
2021 Versus 2020
Clean Energy & Fueling segment revenue for the year ended December 31, 2021 increased $171.9 million, or 11.6%, compared to the prior year, attributable to an organic growth of 5.8%, acquisition-related growth of 3.6%, and a favorable impact from foreign currency translation of 2.2%. Acquisition-related growth was driven by the acquisition of ICS, AvaLAN and LIQAL. The acquisitions of RegO and Acme Cryogenics late in the fourth quarter had an immaterial impact to the segment's results. Overall, customer pricing favorably impacted revenue by approximately 2.3% in 2021.
The organic revenue growth was primarily driven by solid demand in our North America and EMEA retail fueling and vehicle wash businesses, along with pricing actions aimed at mitigating material, logistics and labor cost inflation. Growth in this segment was hampered by supply chain and labor availability challenges, both within our and our customers' operations, that intensified in the second half of the year, impacting our ability to ship some customer orders.
Clean Energy & Fueling segment earnings for the year ended December 31, 2021 increased $34.4 million, or 14.5%, compared to the prior year. The increase was primarily driven by conversion on organic revenue growth, pricing initiatives, productivity actions, and a favorable impact from acquisitions, partially offset by material and labor cost inflation. Segment margin increased to 16.5% from 16.1% in the prior year.
Bookings for the year ended December 31, 2021 increased 18.4% compared to the prior year, reflecting organic growth of 11.2%, acquisition-related growth of 4.7%, and a favorable impact from foreign currency translation of 2.5%. The organic bookings growth was primarily driven by solid global demand for retail fueling equipment and order strength in vehicle wash solutions. Segment book to bill was 1.06. Backlog increased 90.3% as compared to the prior year.
39
2020 Versus 2019
Clean Energy & Fueling segment revenue for the year ended December 31, 2020 decreased $143.9 million, or 8.9%, compared to the prior year, attributable to organic decline of 8.8% and an unfavorable foreign currency translation of 0.3%, partially offset by acquisition-related growth of 0.2%. The organic revenue decline was principally driven by the adverse effects of COVID-19 and the measures taken to reduce its spread globally. The negative impact started during the latter part of the first quarter in 2020 with several mandated manufacturing plant shutdowns temporarily disrupting our global operations and supply chain, followed by a reduction in customer demand, particularly from vertically-integrated oil & gas companies. Overall, customer pricing favorably impacted revenue by approximately 1.0% in 2020.
Clean Energy & Fueling segment earnings for the year ended December 31, 2020 increased $5.1 million, or 2.2%, compared to the prior year. The increase was driven by favorable pricing initiatives, restructuring benefits, productivity actions, selling, general and administrative cost containment, and favorable impact from foreign currency translation. These benefits were partially offset by weakened organic volume due to COVID-19. Segment margin increased 180 basis points compared to the prior year.
40
Imaging & Identification
Our Imaging & Identification segment supplies precision marking and coding, product traceability and digital textile printing equipment, as well as related consumables, software and services to the global packaged and consumer goods, pharmaceutical, industrial manufacturing, fashion and apparel and other end-markets.
| Years Ended December 31, | % Change | |||||||||||||||||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2019 | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||||||
| Revenue | $ | 1,163,367 | $ | 1,038,178 | $ | 1,084,471 | 12.1 | % | (4.3) | % | ||||||||||||||||||||||
| Segment earnings (EBIT) | $ | 237,147 | $ | 193,473 | $ | 229,484 | 22.6 | % | (15.7) | % | ||||||||||||||||||||||
| Depreciation and amortization | 38,510 | 38,378 | 30,530 | 0.3 | % | 25.7 | % | |||||||||||||||||||||||||
| Segment EBITDA | $ | 275,657 | $ | 231,851 | $ | 260,014 | 18.9 | % | (10.8) | % | ||||||||||||||||||||||
| Segment margin | 20.4 % | 18.6 % | 21.2 % | |||||||||||||||||||||||||||||
| Segment EBITDA margin | 23.7 % | 22.3 % | 24.0 % | |||||||||||||||||||||||||||||
| Other measures: | ||||||||||||||||||||||||||||||||
| Bookings | $ | 1,190,404 | $ | 1,065,098 | $ | 1,092,915 | 11.8 | % | (2.5) | % | ||||||||||||||||||||||
| Backlog | $ | 212,098 | $ | 192,785 | $ | 125,775 | 10.0 | % | 53.3 | % | ||||||||||||||||||||||
| Components of revenue growth (decline): | ||||||||||||||||||||||||||||||||
| Organic growth (decline) | 8.0 | % | (7.2) | % | ||||||||||||||||||||||||||||
| Acquisitions | 1.3 | % | 3.9 | % | ||||||||||||||||||||||||||||
| Foreign currency translation | 2.8 | % | (1.0) | % | ||||||||||||||||||||||||||||
| Total revenue growth (decline) | 12.1 | % | (4.3) | % | ||||||||||||||||||||||||||||
2021 Versus 2020
Imaging & Identification segment revenue for the year ended December 31, 2021 increased $125.2 million, or 12.1% compared to the prior year, comprised of organic growth of 8.0%, a favorable impact from foreign currency translation of 2.8%, and acquisition-related growth of 1.3%. Acquisition-related growth was driven by the acquisitions of Solaris in the third quarter of 2020 and of Blue Bite in the second quarter of 2021. Overall, customer pricing favorably impacted revenue by approximately 0.9% in 2021.
The organic revenue growth was driven by both our marking and coding business, and our digital textile printing business. Our marking and coding business delivered solid growth in new equipment and associated services and consumables, as well as serialization software sales. Our digital textile printing business experienced demand recovery in 2021 compared to 2020 when demand for printed textiles was significantly reduced due to the impact of COVID-19 restrictions on the global apparel industry. While 2021 global apparel retail volumes improved from 2020, volumes have not yet returned to pre-pandemic levels and continue to be impacted by local business and travel restrictions, as well as work-from-home policies which resulted in reduced apparel demand. We continue to believe we remain favorably positioned to gain from a longer-term transition from analog to digital printing by our customers.
Imaging & Identification segment earnings for the year ended December 31, 2021 increased $43.7 million, or 22.6%, compared to the prior year. This increase was driven by conversion on organic revenue growth, pricing initiatives and the benefits from productivity initiatives and restructuring actions, partially offset by material and labor cost inflation. As a result, segment margin increased from 18.6% to 20.4% as compared to the prior year.
Segment bookings for the year ended December 31, 2021 increased 11.8% compared to the prior year, reflecting organic growth of 7.7%, a favorable impact from foreign currency translation of 2.5%, and acquisition-related growth of 1.6%. The
41
organic increase was primarily the result of strong order intake for marking and coding equipment, services and consumables, along with increased serialization software orders, as well as a recovery in demand for equipment and solutions in our digital textile printing business. Segment book-to-bill was 1.02. Backlog increased 10.0% compared to the prior year.
2020 Versus 2019
Imaging & Identification segment revenue for the year ended December 31, 2020 decreased $46.3 million, or 4.3%, compared to the prior year, comprised of organic decline of 7.2% and an unfavorable impact from foreign currency translation of 1.0%, partially offset by acquisition-related growth of 3.9%. The organic revenue decline was primarily driven by the global economic downturn precipitated by the COVID-19 pandemic beginning late in the first quarter, which materially impacted our digital textile printing business, as government-mandated mobility restrictions forced clothing and apparel retailers to close locations, and resulted in the decline of overall demand for clothing and apparel, as fewer consumers went to schools, offices, restaurants and other gatherings. Acquisition-related growth was driven by the acquisition of Systech in the first quarter of 2020 and Solaris, which closed in the third quarter of 2020. Overall, customer pricing favorably impacted revenue by approximately 0.7% in 2020.
Imaging & Identification segment earnings for the year ended December 31, 2020 decreased $36.0 million, or 15.7%, compared to the prior year. This decrease was primarily driven by the impact of continued reduced consumer spending due to COVID-19 on clothing, sports apparel, and other textile products that impact our digital printing customers. Partially offsetting this decrease were continued cost containment initiatives during the year. As a result, segment margin decreased from 21.2% to 18.6% as compared to the prior year.
42
Pumps & Process Solutions
Our Pumps & Process Solutions segment manufactures specialty pumps and flow meters, fluid connecting solutions, plastics and polymer processing equipment, and highly engineered precision components for rotating and reciprocating machines serving single-use biopharmaceutical production, diversified industrial manufacturing, polymer processing, midstream and downstream oil and gas and other end-markets.
| Years Ended December 31, | % Change | |||||||||||||||||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2019 | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||||||
| Revenue | $ | 1,708,634 | $ | 1,324,003 | $ | 1,338,528 | 29.1 | % | (1.1) | % | ||||||||||||||||||||||
Segment earnings (EBIT) (1) | $ | 546,863 | $ | 305,276 | $ | 240,081 | 79.1 | % | 27.2 | % | ||||||||||||||||||||||
| Depreciation and amortization | 69,075 | 72,191 | 67,584 | (4.3) | % | 6.8 | % | |||||||||||||||||||||||||
Segment EBITDA (1) | $ | 615,938 | $ | 377,467 | $ | 307,665 | 63.2 | % | 22.7 | % | ||||||||||||||||||||||
Segment margin (1) | 32.0 % | 23.1 % | 17.9 % | |||||||||||||||||||||||||||||
Segment EBITDA margin (1) | 36.0 % | 28.5 % | 23.0 % | |||||||||||||||||||||||||||||
| Other measures: | ||||||||||||||||||||||||||||||||
| Bookings | $ | 2,023,061 | $ | 1,334,338 | $ | 1,393,830 | 51.6 | % | (4.3) | % | ||||||||||||||||||||||
| Backlog | $ | 688,931 | $ | 390,238 | $ | 353,073 | 76.5 | % | 10.5 | % | ||||||||||||||||||||||
| Components of revenue growth (decline): | ||||||||||||||||||||||||||||||||
| Organic growth (decline) | 26.6 | % | (2.3) | % | ||||||||||||||||||||||||||||
| Acquisitions | 0.6 | % | 1.1 | % | ||||||||||||||||||||||||||||
| Dispositions | — | % | (0.5) | % | ||||||||||||||||||||||||||||
| Foreign currency translation | 1.9 | % | 0.6 | % | ||||||||||||||||||||||||||||
| Total revenue growth (decline) | 29.1 | % | (1.1) | % | ||||||||||||||||||||||||||||
(1) Segment earnings (EBIT) and segment EBITDA for 2019 include a $46,946 loss on assets held for sale for Finder.
2021 Versus 2020
Pumps & Process Solutions segment revenue for the year ended December 31, 2021 increased $384.6 million, or 29.1%, compared to the prior year, attributable to organic growth of 26.6%, a favorable impact from foreign currency translation of 1.9%, and acquisition-related growth of 0.6%. Acquisition related growth was primarily driven by the acquisition of Quantex and one other immaterial acquisition. Overall, customer pricing favorably impacted revenue by approximately 1.8% in 2021.
The organic revenue growth was primarily driven by robust demand in the biopharma and hygienic markets, where we saw strong demand for single use pumps and connectors used in biopharmaceutical production processes. Our industrial pumps and our plastics and polymer processing solutions businesses also contributed to top-line growth responding to strong end market demand, despite experiencing supply chain constraints and customer delivery challenges that accelerated in the second half of the year. Revenue in bearings and compression components saw solid growth amidst an ongoing recovery in their end market demand.
Pumps & Process Solutions segment earnings for the year ended December 31, 2021 increased $241.6 million, or 79.1%, compared to the prior year. This increase was predominantly the result of strong conversion on revenue growth, favorable product mix, pricing initiatives, and productivity actions, partially offset by material and labor cost inflation, and investments in growth. Segment margin increased to 32.0% from 23.1% in the prior year, an increase of 890 basis points.
43
Bookings for the year ended December 31, 2021 increased 51.6% compared to the prior year, reflecting an organic growth of 48.2%, a favorable impact from foreign currency translation of 2.3%, and acquisition-related growth of 1.1%. The organic bookings growth was driven by significant growth in the biopharma and hygienic pumps and connectors markets, as well as strong order intake in industrial pumps and plastics and polymer processing solutions, and demand recovery in bearings and compression components. Segment book to bill was 1.18. Backlog increased 76.5% compared to the prior year primarily driven by our biopharma and hygienic markets, along with strength from our plastics and polymer processing solutions and industrial pumps businesses.
2020 Versus 2019
Pumps & Process Solutions segment revenue for the year ended December 31, 2020 decreased $14.5 million, or 1.1%, compared to the prior year, attributable to organic decline of 2.3% and a 0.5% decrease from a disposition, partially offset by acquisition-related growth of 1.1% and a favorable impact from foreign currency translation of 0.6%. The organic revenue decline was principally driven by continued comparable weakness in demand for compression components and aftermarket services due to lower activity in the North America upstream, midstream and downstream energy sector, as well as continued slower demand for industrial pumps due to pandemic-related disruptions. Overall, customer pricing favorably impacted revenue by approximately 1.0% in 2020.
Pumps & Process Solutions segment earnings for the year ended December 31, 2020 increased $65.2 million, or 27.2%, compared to the prior year. Segment earnings for the year ended December 31, 2019 included a loss on assets held for sale for Finder of $46.9 million. Excluding the loss, segment earnings increased as a result of pricing initiatives, productivity actions, restructuring benefits, and selling, general and administrative cost reductions. These benefits were partially offset by the global impact of COVID-19 on volume and an unfavorable impact from material and inflation costs. Segment margin increased to 23.1% from 17.9% in the prior year, an increase of 520 basis points.
44
Climate & Sustainability Technologies
Our Climate & Sustainability Technologies segment is a provider of innovative and energy-efficient equipment and systems that serve the commercial refrigeration, heating and cooling and beverage container-making equipment markets.
| Years Ended December 31, | % Change | |||||||||||||||||||||||||||||||
| (dollars in thousands) | 2021 | 2020 | 2019 | 2021 vs. 2020 | 2020 vs. 2019 | |||||||||||||||||||||||||||
| Revenue | $ | 1,608,175 | $ | 1,316,090 | $ | 1,396,617 | 22.2 | % | (5.8) | % | ||||||||||||||||||||||
Segment earnings (EBIT) (1) | $ | 322,622 | $ | 102,872 | $ | 118,832 | 213.6 | % | (13.4) | % | ||||||||||||||||||||||
| Depreciation and amortization | 48,634 | 46,541 | 51,360 | 4.5 | % | (9.4) | % | |||||||||||||||||||||||||
Segment EBITDA (1) | $ | 371,256 | $ | 149,413 | $ | 170,192 | 148.5 | % | (12.2) | % | ||||||||||||||||||||||
Segment margin (1) | 20.1 % | 7.8 % | 8.5 % | |||||||||||||||||||||||||||||
Segment EBITDA margin (1) | 23.1 % | 11.4 % | 12.2 % | |||||||||||||||||||||||||||||
| Other measures: | ||||||||||||||||||||||||||||||||
| Bookings | $ | 2,317,000 | $ | 1,510,499 | $ | 1,446,755 | 53.4 | % | 4.4 | % | ||||||||||||||||||||||
| Backlog | $ | 1,174,479 | $ | 510,498 | $ | 320,577 | 130.1 | % | 59.2 | % | ||||||||||||||||||||||
| Components of revenue growth (decline): | ||||||||||||||||||||||||||||||||
| Organic growth (decline) | 22.0 | % | (3.0) | % | ||||||||||||||||||||||||||||
| Dispositions | (1.1) | % | (2.9) | % | ||||||||||||||||||||||||||||
| Foreign currency translation | 1.3 | % | 0.1 | % | ||||||||||||||||||||||||||||
| Total revenue growth (decline) | 22.2 | % | (5.8) | % | ||||||||||||||||||||||||||||
(1) Segment earnings (EBIT) and segment EBITDA for 2021 include a $181,615 gain on the disposition of UB, a $12,073 other than temporary impairment charge related to an equity method investment, and a $6,072 write-off of assets incurred in connection with an exit from certain Latin America countries. 2020 includes a $5,213 gain on the sale of the AMS Chino and a $3,640 write-off of assets.
2021 Versus 2020
Climate & Sustainability Technologies segment revenue for the year ended December 31, 2021 increased $292.1 million, or 22.2%, compared to the prior year, reflecting an organic revenue growth of 22.0% and a favorable impact from foreign currency translation of 1.3%, partially offset by a disposition related decline of 1.1%. Overall, customer pricing favorably impacted revenue by approximately 4.1% in 2021.
The organic revenue growth was principally driven by robust demand across all of our end-markets. Beverage packaging equipment revenues increased substantially from prior year, driven by continued favorable macro trends in the global beverage industry, which include beverage innovations and producers increasingly shifting to highly recyclable aluminum containers for environmental sustainability and merchandising benefits offered by modern aluminum containers. Our heat exchanger business experienced strong growth across all regions, fueled by regulation-driven heat pump demand in Europe, robust demand in Asia, and strengthening commercial HVAC and industrial markets globally. Retail refrigeration experienced broad-based growth, driven by increased remodel activity with key supermarket customers and growing demand for our environmentally friendly natural refrigerant systems in both Europe and the U.S. Prior to the sale of UB in the fourth quarter of 2021, commercial foodservice equipment revenues improved over the prior year, as many key restaurant chain customers resumed store investment programs once government mandated COVID-19 restrictions eased in 2021.
Climate & Sustainability Technologies segment earnings for the year ended December 31, 2021 increased $219.8 million, or 213.6%, compared to the prior year. Segment margin increased to 20.1% from 7.8% in the prior year due to a $181.6 million gain on disposition of UB that occurred in the fourth quarter, increased volumes, favorable mix, improved operational efficiencies and benefits from prior restructuring programs; partially offset by a $12.1 million other than temporary impairment charge related to an equity method investment, a $6.1 million write-off of assets incurred in connection with an
45
exit from certain Latin America countries, increased material and logistics costs, most notably metals, and plant productivity shortfalls resulting from supply chain disruption, most notably from intermittent shortages of insulation foam materials throughout the year, and labor availability constraints, most significantly in our retail refrigeration business.
Bookings for the year ended December 31, 2021 increased 53.4% compared to the prior year, reflecting organic growth of 53.3% and a favorable impact from foreign currency translation of 1.2%, partially offset by a 1.1% impact from the sale of UB. The organic bookings growth was primarily driven by continued supermarket remodel programs in retail refrigeration, strong demand for brazed heat exchangers and increased project activity for beverage packaging equipment. Segment book to bill for the full year was 1.44. Backlog increased 130.1% over the prior year, principally driven by our aluminum can-shaping equipment business as well as an increase in our retail refrigeration and heat exchanger businesses.
2020 Versus 2019
Climate & Sustainability Technologies segment revenue for the year ended December 31, 2020 decreased $80.5 million, or 5.8%, compared to the prior year, reflecting an organic revenue decline of 3.0%, a disposition related decline of 2.9%, partially offset by a favorable impact from foreign currency translation of 0.1%. The organic revenue decline was principally driven by the impact of COVID-19 on a global basis as government actions to contain the spread of the virus, such as mandated plant shutdowns and restaurant curtailments, resulted in deferred customer orders and operational inefficiencies across the segment. Overall, customer pricing favorably impacted revenue by approximately 0.3% in 2020.
Climate & Sustainability Technologies segment earnings for the year ended December 31, 2020 decreased $16.0 million, or 13.4%, compared to the prior year. Segment margin decreased to 7.8% from 8.5% in the prior year due to substantially reduced revenues and operational inefficiencies associated with COVID-19, increased restructuring expenses and a $3.6 million write-off of assets. This was partially offset by the $5.2 million gain on sale from the disposition of AMS Chino, a $1.7 million gain on sale of assets, and other broad-based cost reduction activities.
46
FINANCIAL CONDITION
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting liquidity are cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, repurchase of outstanding shares, adequacy of available commercial paper and bank lines of credit and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from the operations of our businesses and remain in a strong financial position, with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions.
Cash Flow Summary
The following table is derived from our Consolidated Statements of Cash Flows:
| Years Ended December 31, | |||||||||||||||||
Cash Flows from Operations (in thousands) | 2021 | 2020 | 2019 | ||||||||||||||
| Net cash flows provided by (used in): | |||||||||||||||||
Operating activities | $ | 1,115,865 | $ | 1,104,810 | $ | 945,306 | |||||||||||
Investing activities | (992,753) | (481,379) | (384,255) | ||||||||||||||
Financing activities | (249,880) | (506,290) | (558,042) | ||||||||||||||
Operating Activities
Cash provided by operating activities for the year ended December 31, 2021 increased compared to 2020. This increase was primarily driven by higher earnings net of non-cash adjustments and increases to accrued expenses, partially offset by our investment in working capital of $307.1 million.
Cash provided by operating activities for the year ended December 31, 2020 increased $159.5 million compared to 2019. This increase was driven primarily by improvements in working capital of $89.4 million, payroll tax deferrals under the U.S. CARES Act of $31.6 million and advanced payments received on contracts, partially offset by lower net earnings, excluding the impact of depreciation, amortization, loss on assets held for sale and gain on a disposition.
Pension and Other Post-Retirement Activity: Total cash used in conjunction with pension plans during 2021 was $14.4 million, including contributions to our international pension plans and payments of benefits under our non-qualified supplemental pension plans.
The funded status of our U.S. qualified defined benefit pension plan is dependent upon many factors, including returns on invested assets, the level of market interest rates and the level of funding. We contribute cash to our plans at our discretion, subject to applicable regulations and minimum contribution requirements. Due to the overfunded status of this plan, the Company did not make contributions in 2021, 2020 or 2019 and does not expect to make contributions in the near term.
Our international pension plans are located in regions where often it is not economically advantageous to pre-fund the plans due to local regulations. Total cash payments, which include contributions and direct benefit payments to nonfunded plans, to ongoing international defined benefit pension plans in 2021, 2020 and 2019 totaled $8.1 million, $7.3 million and $7.2 million, respectively. In 2022, we expect to make cash payments of approximately $7.7 million related to our non-U.S. plans.
Our non-qualified supplemental pension plans are funded through Company assets as benefits are paid. In 2021, 2020 and 2019 a total of $6.3 million, $12.3 million, and $13.6 million in benefits were paid under these plans, respectively. See Note 17 — Employee Benefit Plans in the Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion regarding our post-retirement plans. In 2022, we expect to make cash payments of approximately $4.8 million to our non-qualified U.S. plans.
47
Adjusted Working Capital: We believe adjusted working capital (a non-GAAP measure calculated as accounts receivable, plus inventory, less accounts payable) provides a meaningful measure of our operational results by showing changes caused solely by revenue.
Adjusted Working Capital (dollars in thousands) | December 31, 2021 | December 31, 2020 | ||||||||||||
| Accounts receivable | ||||||||||||||