DOVER CORP
10-Qs and 10-Ks
PROXIES
Table of Contents
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
OF THE SECURITIES EXCHANGE ACT OF 1934
For
fiscal year ended December 31, 2010
Commission File
No. 1-4018
Dover Corporation
(Exact name of Registrant as
specified in its charter)
|
Delaware
(State of Incorporation) |
53-0257888
(I.R.S. Employer Identification No.) |
3005
Highland Parkway, Suite 200, Downers Grove, IL 60515
(Address of principal executive offices)
(Address of principal executive offices)
Telephone:
(630) 541-1540
Securities registered pursuant to Section 12(b) of the
Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |||
| Common Stock, par value $1 | New York Stock Exchange | |||
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 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 and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
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 and post such
files.) Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2
of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
Table of Contents
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, 2010 was $7,801,329,117. The
registrant’s closing price as reported on the New York
Stock Exchange-Composite Transactions for June 30, 2010 was
$41.79 per share. The number of outstanding shares of the
registrant’s common stock as of February 4, 2011 was
186,545,088.
Documents Incorporated by Reference: Part III —
Certain Portions of the Proxy Statement for Annual Meeting of
Shareholders to be held on May 5, 2011 (the “2011
Proxy Statement”).
Special
Notes 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
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, and the Private Securities Litigation
Reform Act of 1995. Such statements relate to, among other
things, income, earnings, cash flows, changes in operations,
operating improvements, industries in which Dover companies
operate and the U.S. and global economies. Statements in
this
Form 10-K
that are not historical are hereby identified as
“forward-looking statements” and may be indicated by
words or phrases such as “anticipates,”
“supports,” “indicates,”
“suggests,” “will,” “plans,”
“projects,” “expects,” “believes,”
“should,” “would,” “could,”
“hope,” “forecast,” “management is of
the opinion,” use of the future tense and similar words or
phrases. Forward-looking statements are subject to inherent
risks and uncertainties that could cause actual results to
differ materially from current expectations including, but not
limited to: current economic conditions and uncertainties in the
credit and capital markets; the Company’s ability to
achieve expected savings from integration, synergy and other
cost-control initiatives; the ability to identify and
successfully consummate value-adding acquisition opportunities;
the ability to successfully integrate acquired businesses;
increased competition and pricing pressures in the markets
served by Dover’s operating companies; the ability of
Dover’s companies to expand into new geographic markets and
to anticipate and meet customer demands for new products and
product enhancements; increases in the cost of raw materials;
the impact of loss of a single-source manufacturing facility;
changes in customer demand; political events that could impact
the worldwide economy; the impact of natural disasters and their
effect on global energy markets; a downgrade in Dover’s
credit ratings; international economic conditions including
interest rate and currency exchange rate fluctuations; the
relative mix of products and services which impacts margins and
operating efficiencies; short-term capacity constraints;
domestic and foreign governmental and public policy changes
including environmental regulations and tax policies (including
domestic and international export subsidy programs, research and
experimentation credits and other similar programs); unforeseen
developments in contingencies such as litigation; protection and
validity of patent and other intellectual property rights; the
cyclical nature of some of Dover’s companies; domestic
housing industry weakness; instability in the countries where
Dover conducts business; and possible future terrorist threats
and their effect on the worldwide economy. Readers are cautioned
not to place undue reliance on such forward-looking statements.
These forward-looking statements speak only as of the date made.
The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required
by law.
The Company may, from time to time, post financial or other
information on its Internet website, www.dovercorporation.com.
The Internet address is for informational purposes only and is
not intended for use as a hyperlink. The Company is not
incorporating any material on its website into this report.
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OF CONTENTS
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PART 1
| Item 1. | Business |
Overview
Dover Corporation (“Dover” or the
“Company”), incorporated in 1947 in the State of
Delaware, became a publicly traded company in 1955. The Company
owns and operates a global portfolio of manufacturing companies
providing innovative components and equipment, specialty systems
and support services for a variety of applications in the
industrial products, engineered systems, fluid management and
electronic technologies markets. Additional information is
contained in Items 7 and 8.
Operating
Structure
The Company reports its results in four business
segments — Industrial Products, Engineered Systems,
Fluid Management and Electronic Technologies. The Company
discusses its operations at the platform level within the
Industrial Products, Engineered Systems, and Fluid Management
segments, each of which contains two platforms. The results of
Electronic Technologies are discussed at the segment level.
Dover companies design, manufacture, assemble
and/or
service the following:
Industrial
Products
| • | Material handling equipment such as industrial and recreational winches, utility, construction and demolition machinery attachments, hydraulic parts, industrial automation tools, four-wheel-drive (“4WD”) and all-wheel drive (“AWD”) powertrain systems, accessories for off-road vehicles and operator cabs and rollover structures. | |
| • | Mobile equipment related products, primarily refuse truck bodies, tank trailers, compactors, balers, vehicle service lifts and collision equipment, car wash systems, internal engine components, fluid control assemblies and various aerospace components. |
Engineered
Systems
| • | Engineered products such as refrigeration systems, refrigeration display cases, walk-in coolers, foodservice equipment, commercial kitchen air and ventilation systems, heat transfer equipment, and food and beverage packaging machines. | |
| • | Product identification related products such as industrial marking and coding systems used to code information (i.e. dates and serial numbers) on consumer products, printing products for cartons used in warehouse logistics operations, bar code printers and portable printers. |
Fluid
Management
| • | Energy market production and distribution products such as sucker rods, downhole rod pumps, drill bit inserts for oil and gas exploration, gas well production control devices, control valves, piston and seal rings, control instrumentation, remote data collection and transfer devices, and components for compressors, turbo machinery, motors and generators. | |
| • | Fluid solution products including nozzles, swivels and breakaways used to deliver various types of fuel, suction system equipment, unattended fuel management systems, integrated tank monitoring, pumps used in fluid transfer applications, quick disconnect couplings used in a wide variety of biomedical and commercial applications, and chemical proportioning and dispensing systems. |
Electronic
Technologies
| • | Electronic technology equipment and devices/components such as advanced micro-component products for the hearing aid, mobile phone and consumer electronics industries, high frequency capacitors, microwave electromagnetic switches, radio frequency and microwave filters, electromagnetic products, frequency control/select components and sophisticated automated assembly and testing equipment. |
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Business
Strategy
The Company operates with certain fundamental business
strategies. First, it seeks to acquire and own businesses that
manufacture proprietary engineered products and are leaders in
four broad markets: Industrial Products, Engineered Systems,
Fluid Management and Electronic Technologies. To ensure success,
Dover companies place strong emphasis on new product development
to better serve customers and expand into new product and
geographic markets. Second, the Company’s businesses are
committed to operational excellence, and to being market leaders
as measured by market share, customer service, innovation,
profitability and return on invested capital. Third, the Company
is committed to an operating culture with high ethical
standards, trust, respect and open communication, to allow
individual growth and operational effectiveness. Fourth, the
Company seeks to utilize its strong free cash flow in a balanced
manner to grow its businesses and to increase shareholder value.
Management
Philosophy
The Company’s operating structure of four defined industry
segments and six core business platforms within those segments
drives focused acquisition activity, accelerates opportunities
to identify and capture operating synergies, including global
sourcing and supply chain integration, and advances the
development of the Company’s executive talent. The
presidents of the Company’s operating companies and groups
have responsibility for their businesses’ performance as
they are able to serve customers by focusing closely on their
products and markets and reacting quickly to customer needs. The
Company’s segment and executive management set strategic
direction and initiatives, provide oversight, allocate and
manage capital, are responsible for major acquisitions, and
provide other services.
In addition, the Company is committed to creating value for its
customers, employees and shareholders through sustainable
business practices that protect the environment and developing
products that help its customers meet their sustainability
goals. Dover companies are increasing their focus on efficient
energy usage, greenhouse gas reduction and waste management as
they strive to meet the global environmental needs of today and
tomorrow.
Company
Goals
The Company is committed to driving shareholder return through
three key objectives. First, the Company is committed to
achieving annual organic sales growth over the next three years
(2011 through 2013) of 6% to 8%, complemented by
acquisition growth of 3% to 5% over the same periods. Secondly,
the Company continues to focus on margin improvement activities
and to expand return on invested capital to effectuate earnings
per share growth ranging from 10% to 13% on an annual basis.
Lastly, the Company is committed to generating free cash flow as
a percentage of sales in excess of 10% through disciplined
capital allocation, productivity improvements and active working
capital management. The Company supports these goals through
(1) alignment of management compensation with these
objectives, (2) well defined and actively managed merger
and acquisition processes, and (3) talent development
programs.
Portfolio
Development
Acquisitions
The Company’s acquisition program has two elements. First,
it seeks to acquire value creating add-on businesses that
broaden its existing companies and their global reach,
manufacture innovative components and equipment, specialty
systems
and/or
support services, and sell to industrial or commercial users.
Second, in the right circumstances, it will strategically pursue
larger, stand-alone businesses that have the potential to either
complement its existing companies or allow the Company to pursue
a new platform. During the last three years (2008 —
2010), the Company purchased 16 businesses with an aggregate
cost of $436.6 million.
In 2010, the Company acquired six add-on businesses for an
aggregate cost of $104.4 million. In 2009, the Company also
acquired six add-on businesses, for aggregate consideration of
$228.4 million (including $6.4 million of
consideration paid in the form of common stock issued in
connection with the acquisition of Inpro/Seal Company). In 2008,
the Company acquired four add-on businesses for an aggregate
cost of $103.8 million.
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For more details regarding acquisitions completed over the past
two years, see Note 2 to the Consolidated Financial
Statements in Item 8. The Company’s future growth
depends in large part on finding and acquiring successful
businesses, as a substantial number of the Company’s
current businesses operate in relatively mature markets. While
the Company expects to generate annual organic growth of
4% — 5% over a business cycle absent extraordinary
economic conditions, sustained organic growth at these levels
for individual businesses is difficult to achieve consistently
each year.
Dispositions
While the Company generally expects to hold and integrate
businesses that it buys, it continually reviews its portfolio to
verify that those businesses continue to be essential
contributors to the Company’s long-term growth strategy.
Occasionally, the Company may also make an opportunistic sale of
one of its companies based on specific market conditions and
strategic considerations. During the past three years (2008-
2010), the Company decided to reduce its exposure to small,
lower margin operations and, accordingly, it discontinued one
operation and sold seven businesses for aggregate consideration
of approximately $100.8 million. For more details, see the
“Discontinued Operations” discussion below and
Note 3 to the Consolidated Financial Statements in
Item 8.
Reportable
Segments
Below is a description of the Company’s reportable segments
and related platforms. For additional financial information
about the Company’s reportable segments, see Note 14
to the Consolidated Financial Statements in Item 8 of this
Form 10-K.
Industrial
Products
The Industrial Products segment provides Material Handling
products and services that improve its customers’
productivity as well as products used in various Mobile
Equipment applications, primarily in the transportation
equipment, vehicle service and solid waste management markets.
The segment manages and sells its products and services through
the two business platforms described below.
Material
Handling
The Material Handling platform primarily serves two global
markets — infrastructure and industrial automation.
The companies in this platform develop and manufacture branded
customer productivity enhancing systems. These products are
produced in the United States, Canada, Germany, Thailand, India,
China, Brazil and France and are marketed globally on a direct
basis to original equipment manufacturers
(“OEM“s) and through a global dealer and
distribution network to industrial end users.
The businesses in the infrastructure market sell to broad
segments of the construction, utility, demolition, recycling,
scrap processing, material handling, forestry, energy, military,
marine, towing/recovery, refuse, mining and automotive OEM
markets. Major products include mobile shears, concrete
demolition tools, buckets, backhoes, trenchers, augers, worm
gear and planetary winches, and hydraulic lift and electronic
control/monitoring systems for mobile and structural cranes, 4WD
and AWD powertrain systems, accessories for off-road vehicles
and operator cabs and rollover structures. These products are
sold to OEMs and extensive dealer networks primarily in
North America. Components systems and services are also
provided for military vehicles and marine applications.
The businesses in the industrial automation market provide a
wide range of modular automation components including manual
clamps, power clamps, rotary and linear mechanical indexers,
conveyors, pick and place units, glove ports and manipulators as
well as
end-of-arm
robotic grippers, slides and end effectors. These products serve
a very broad market including food processing, packaging, paper
processing, medical, electronic, automotive, nuclear, and
general industrial products. These businesses generate almost
half of their revenues outside the United States.
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Mobile
Equipment
The Mobile Equipment platform serves three primary
markets — transportation equipment, solid waste
management and vehicle service. The platform has manufacturing
operations in North and South America, Asia and Europe.
The businesses in the transportation equipment market
manufacture and sell aluminum, stainless steel and steel tank
trailers that carry petroleum products, chemical, edible and dry
bulk products, as well as specialty trailers focused on the
heavy haul, oil field and recovery markets. Trailers are
marketed both directly and indirectly through distributors to
customers in the construction, trucking, railroad, oilfield and
heavy haul industries. These products are also sold to
government agencies in the United States and globally.
The businesses in the solid waste management market provide
products and services for the refuse collection industry and for
on-site
processing and compaction of trash and recyclable materials.
Products are sold to municipal customers, national accounts and
independent waste haulers through a network of distributors and
directly in certain geographic areas. The
on-site
waste management and recycling systems include a variety of
stationary compactors, wire processing and separation machines,
and balers that are manufactured and sold primarily in the
United States to distribution centers, malls, stadiums, arenas,
office complexes, retail stores and recycling centers.
The businesses in the vehicle service market provide a wide
range of products and services that are utilized in vehicle
services, maintenance, repair and modification. Vehicle lifts
and collision equipment are sold through equipment distributors
and directly to a wide variety of markets, including independent
service and repair shops, collision repair shops, national
chains and franchised service facilities, new vehicle dealers,
governments, and directly to consumers via the Internet. Car
wash systems, both “touch-free” and
“friction”, are sold primarily in the United States
and Canada to major oil companies, convenience store chains and
individual investors. These products are sold through a
distribution network that installs the equipment and provides
after-sale service and support. High performance internal
combustion engine components, including pistons, connecting
rods, crankshafts and accessories, and fuel and combustion
management devices are designed to meet customer specifications
for the racing and enthusiast markets in both the powersports
and automotive market segments. These products are sold directly
and through distribution networks on a global basis.
Engineered
Systems
The Engineered Systems segment provides products and services
for the refrigeration, storage, packaging and preparation of
food products, as well as industrial marking and coding systems
for various markets. The segment serves its markets by managing
these products and services through the two business platforms
described below.
Product
Identification
The Product Identification platform is a worldwide supplier of
industrial marking and coding systems that serves the food,
beverage, cosmetic, pharmaceutical, electronic, automotive and
other markets where variable marking is required. Its primary
printing products are used for marking variable information
(such as date codes or serial numbers) on consumer products. The
platform provides solutions for product marking on primary
packaging, secondary packaging such as cartons, and pallet
marking for use in warehouse logistics operations. The platform
also manufactures bar code printers and portable printers used
where on demand labels/receipts are required. The
platform’s principal manufacturing facilities are in the
United States, France and China, with sales operations globally.
Engineered
Products
The Engineered Products platform manufactures refrigeration
systems, refrigeration display cases, walk-in coolers and
freezers, electrical distribution products and engineering
services, commercial foodservice equipment, cook-chill
production systems, custom food storage and preparation
products, kitchen ventilation systems, conveyer systems,
beverage can-making machinery, and packaging machines used for
meat, poultry and other food products. In addition, the platform
manufactures copper-brazed compact heat exchangers, and designs
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software for heating and cooling substations. The
platform’s manufacturing facilities and distributing
operations are in North America, Europe and Asia.
The majority of the systems and machinery that are manufactured
or serviced by the Engineered Products platform is used by the
supermarket industry, “big-box” retail and convenience
stores, the commercial/industrial refrigeration industry,
institutional and commercial foodservice markets, and beverage
can-making industries. The commercial foodservice cooking
equipment products serve their markets worldwide through a
network of dealers, distributors, national chain accounts,
manufacturer representatives, and a direct sales force with the
primary market being North America. The heat exchangers are sold
via a direct sales force throughout the world for various
applications in a wide variety of industries.
Fluid
Management
The Fluid Management segment provides products and services for
end-to-end
stewardship of its customers’ critical fluids including
liquids, gases, powders and other solutions that are hazardous,
valuable or process-critical. The segment provides highly
engineered, cost-saving technologies that help contain, control,
move, measure and monitor these critical fluids. To better serve
its end-markets, these products and services are channeled
through two business platforms described below.
Energy
The Energy platform serves the oil, gas and power generation
industries. Its products promote the efficient and
cost-effective extraction, storage and movement of oil and gas
products, or constitute critical components for power generation
equipment. Major products manufactured by companies within this
platform include: polycrystalline diamond cutters (PDCs) used in
drill bits for oil and gas wells; steel sucker rods, plunger
lifts, and accessories used in artificial lift applications in
oil and gas production; pressure, temperature and flow
monitoring equipment used in oil and gas exploration and
production applications; and control valves and instrumentation
for oil and gas production. In addition, these companies
manufacture various compressor parts that are used in the
natural gas production, distribution and oil refining markets,
as well as bearings and remote condition monitoring systems that
are used for rotating machinery applications such as turbo
machinery, motors, generators and compressors used in energy,
utility, marine and other industries. Sales are made directly to
customers and through various distribution channels. Sales are
predominantly in North America with international sales directed
largely to Europe and South America.
Fluid
Solutions
The Fluid Solutions platform manufactures pumps, compressors,
vehicle fuel dispensing products, and products for the transfer,
monitoring, measuring and protection of hazardous, liquid and
dry bulk commodities. In addition, these companies manufacture
quick disconnect couplings and chemical proportioning and
dispensing products. The products are manufactured in the United
States, South America, Asia and Europe and marketed globally
through a network of distributors or via direct channels.
Vehicle fuel dispensing products include conventional, vapor
recovery, and clean energy (LPG, CNG, and Hydrogen) nozzles,
swivels and breakaways, as well as tank pressure management
systems. Products manufactured for the transportation, storage
and processing of hazardous liquid and dry-bulk commodities
include relief valves, loading/unloading angle valves, rupture
disc devices, actuator systems, level measurement gauges, swivel
joints, butterfly valves, lined ball valves, aeration systems,
industrial access ports, manholes, hatches, collars, weld rings
and fill covers.
This platform’s pumps and compressors are used to transfer
liquid and bulk products and are sold to a wide variety of
markets, including the refined fuels, LPG, pulp and paper,
wastewater, food/sanitary, military, transportation and chemical
process industries. These companies manufacture centrifugal,
reciprocating (double diaphragm) and rotary pumps that are used
in demanding and specialized fluid transfer process applications.
The quick disconnect couplings provide fluid control solutions
to the industrial, food handling, life sciences and chemical
handling markets. The chemical portioning and dispensing systems
are used to dilute and dispense
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concentrated cleaning chemicals and are sold to the food
service, health care, supermarket, institutional, school,
building service contractor and industrial markets.
Electronic
Technologies
The Electronic Technologies segment designs and manufactures
electronic test, material deposition and manual soldering
equipment, advanced micro-acoustic components, and specialty
electronic components. The products are manufactured primarily
in North America, Europe and Asia and are sold throughout the
world directly and through a network of distributors.
The test equipment products include machines, test fixtures and
related products used in testing “bare” and
“loaded” electronic circuit boards and semiconductors.
In addition, the segment manufactures high-speed precision
material deposition machines and other related tools used in the
assembly process for printed circuit boards, solar cells and
other specialty applications as well as precision manual
soldering, de-soldering and other hand tools.
The micro-acoustic components manufactured include audio
communications components, primarily miniaturized microphones,
receivers and electromechanical components for use in hearing
aids as well as high performance transducers for use in
professional audio devices, high-end headsets, medical devices
and military headsets. This business also designs, manufactures
and assembles microphones for use in the personal mobile device
and consumer electronics markets, including mobile phones, PDAs,
Bluetooth
®
headsets and laptop computers.
The specialty electronic components include frequency
control/select components and modules employing quartz
technologies, microwave electromechanical switches, radio
frequency and microwave filters, integrated assemblies,
multi-layer ceramic capacitors and high frequency capacitors.
These components are sold to communication, medical, defense,
aerospace and automotive manufacturers worldwide.
Discontinued
Operations
Operating companies that are considered discontinued operations
in accordance with Accounting Standards Codification
(“ASC”) 360, Property Plant and Equipment, are
presented separately in the consolidated statements of
operations, balance sheets and cash flows and are not included
in continuing operations. Earnings from discontinued operations
include impairment charges, when necessary to reduce these
businesses to estimated fair value. Fair value is determined by
using directly observable inputs, such as a negotiated selling
price, or other valuation techniques that use market assumptions
that are reasonable and supportable. All interim and full year
reporting periods presented reflect the continuing operations on
a comparable basis. Please refer to Note 3 to the
Consolidated Financial Statements in Item 8 of this
Form 10-K
for additional information on discontinued operations.
Raw
Materials
The Company’s operating companies use a wide variety of raw
materials, primarily metals and semi-processed or finished
components, which are generally available from a number of
sources. As a result, shortages or the loss of any single
supplier have not had, and are not likely to have, a material
impact on operating profits. While the needed raw materials are
generally available, commodity pricing has trended upward over
the past few years, particularly for various grades of steel,
copper, aluminum and select other commodities. The Company has
generally kept pace with or exceeded raw material cost increases
using effective pricing strategies. During 2010, the Company
experienced modest increases in commodity prices.
Research
and Development
The Company’s operating companies are encouraged to develop
new products as well as to upgrade and improve existing products
to satisfy customer needs, expand revenue opportunities
domestically and internationally, maintain or extend competitive
advantages, improve product reliability and reduce production
costs. During 2010, the Company spent $193.5 million for
research and development, including qualified engineering costs.
In 2009 and 2008, research and development spending totaled
$178.3 million and $189.2 million, respectively.
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Our operating companies in the Product Identification platform
and Electronic Technologies segment expend significant effort in
research and development because the rate of product development
by their customers is often quite high. The companies that
develop product identification equipment and specialty
electronic components for the life sciences, datacom and telecom
commercial markets believe that their customers expect a
continuing rate of product innovation, performance improvement
and reduced costs. The result has been that product life cycles
in these markets generally average less than five years with
meaningful sales price reductions over that time period.
The Company’s other segments contain many businesses that
are also involved in important product improvement initiatives.
These businesses also concentrate on working closely with
customers on specific applications, expanding product lines and
market applications, and continuously improving manufacturing
processes. Most of these businesses experience a much more
moderate rate of change in their markets and products than is
generally experienced by the Product Identification platform and
the Electronic Technologies segment.
Intellectual
Property and Intangible Assets
The Company owns many patents, trademarks, licenses and other
forms of intellectual property, which have been acquired over a
number of years and, to the extent relevant, expire at various
times over a number of years. A large portion of the
Company’s intellectual property consists of patents,
unpatented technology and proprietary information constituting
trade secrets that its companies seek to protect in various
ways, including confidentiality agreements with employees and
suppliers where appropriate. In addition, a significant portion
of the Company’s intangible assets relate to customer
relationships. While the Company’s intellectual property
and customer relationships are important to its success, the
loss or expiration of any of these rights or relationships, or
any group of related rights or relationships, is not likely to
materially affect the Company on a consolidated basis. The
Company believes that its companies’ commitment to
continuous engineering improvements, new product development and
improved manufacturing techniques, as well as strong sales,
marketing and service efforts, are significant to their general
leadership positions in the niche markets that they serve.
Seasonality
In general, Dover companies, while not strongly seasonal, tend
to have stronger revenue in the second and third quarters,
particularly companies serving the consumer electronics,
transportation, construction, waste hauling, petroleum,
commercial refrigeration and food service markets. Companies
serving the major equipment markets, such as power generation,
chemical and processing industries, have long lead times geared
to seasonal, commercial or consumer demands, and tend to delay
or accelerate product ordering and delivery to coincide with
those market trends.
Customers
Dover’s companies serve thousands of customers, no one of
which accounted for more than 10% of the Company’s
consolidated revenue in 2010. Similarly, within each of the four
segments, no customer accounted for more than 10% of that
segment’s revenue in 2010.
With respect to the Engineered Systems, Fluid Management and
Industrial Products segments, customer concentrations are quite
varied. Companies supplying the waste handling, construction,
agricultural, defense, energy, automotive and commercial
refrigeration industries tend to deal with a few large customers
that are significant within those industries. This also tends to
be true for companies supplying the power generation, aerospace
and chemical industries. In the other markets served, there is
usually a much lower concentration of customers, particularly
where the companies provide a substantial number of products as
well as services applicable to a broad range of end use
applications.
Certain companies within the Electronic Technologies segment
serve the military, space, aerospace, commercial and
datacom/telecom infrastructure markets. Their customers include
some of the largest operators in these markets. In addition,
many of the OEM customers of these companies within the
Electronic Technologies segment outsource their manufacturing to
Electronic Manufacturing Services (“EMS”) companies.
Other customers include global cell phone and hearing aid
manufacturers, many of the largest global EMS companies,
particularly in China, and major printed circuit board and
semiconductor manufacturers.
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Backlog
Backlog generally is not a significant long-term success factor
in most of the Company’s businesses, as most of the
products of Dover companies have relatively short
order-to-delivery
periods. It is more relevant to those businesses that produce
larger and more sophisticated machines or have long-term
government contracts, primarily in the Mobile Equipment platform
within the Industrial Products segment. Total Company backlog as
of December 31, 2010 and 2009 was $1,409.5 million and
$1,083.5 million, respectively.
Competition
The Company’s competitive environment is complex because of
the wide diversity of the products its companies manufacture and
the markets they serve. In general, most Dover companies are
market leaders that compete with only a few companies, and the
key competitive factors are customer service, product quality
and innovation. Dover companies usually have more significant
competitors domestically, where their principal markets are,
than in
non-U.S. markets.
However, Dover companies are becoming increasingly global where
more competitors exist.
Certain companies in the Electronic Technologies and Engineered
Systems segments compete globally against a variety of
companies, primarily operating in Europe and East Asia.
International
For
non-U.S. revenue
and an allocation of the assets of the Company’s continuing
operations, see Note 14 to the Consolidated Financial
Statements in Item 8 of this
Form 10-K.
Most of the Company’s
non-U.S. subsidiaries
and affiliates are currently based in France, Germany, the
United Kingdom, the Netherlands, Sweden, Switzerland and,
with increasing emphasis, China, Malaysia, India, Mexico, Brazil
and Eastern Europe.
Although international operations are subject to certain risks,
such as price and exchange rate fluctuations and
non-U.S. governmental
restrictions, the Company continues to increase its expansion
into international markets, particularly in developing economies
in South America, Asia and Eastern Europe.
Environmental
Matters
The Company’s operations are governed by a variety of
international, national, state and local environmental laws.
Dover is committed to continued compliance and believes its
companies’ 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.
In 2010, the Company developed and implemented a process to
conduct an inventory of greenhouse gas emissions from its many,
independently operated companies. In addition, the Company has
evaluated its climate change risks and opportunities and is in
the process of developing a strategy to manage these risks and
opportunities. The Company plans to have this strategy completed
in 2011, including clearly defined goals and objectives, along
with prioritized programs and projects for achieving energy use
and greenhouse gas emissions reductions.
All of the Company’s segments are investigating the energy
efficiencies related to the operation and use of their products
and services by customers. In some instances, Dover’s
operating companies may be able to help customers reduce some of
their energy needs. Increased demand for energy-efficient
products, based on a variety of drivers (including, but not
limited to, reduction of greenhouse gas emissions) could result
in increased sales for a number of Dover’s operating
companies.
There have been no material effects upon the earnings and
competitive position of the Company resulting from compliance
with laws or regulations enacted or adopted relating to the
protection of the environment. The Company is aware of a number
of existing or upcoming regulatory initiatives intended to
reduce emissions in geographies where its manufacturing and
warehouse/distribution facilities are located and has evaluated
the potential impact of
10
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these regulations on the its businesses. The Company anticipates
that direct impacts from regulatory actions will be
insignificant in the short- to medium-term. The Company expects
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 its operations.
Employees
The Company had approximately 32,000 employees in
continuing operations as of December 31, 2010, which was an
increase of approximately 9% from the prior year end. The
increase reflects additional headcount necessary to support the
volume growth in 2010, as well as the impact of recent
acquisitions.
Other
Information
The Company makes available through the “Financial
Reports” link on its Internet website,
http://www.dovercorporation.com,
the Company’s annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to these reports. The Company posts each of
these reports on the website as soon as reasonably practicable
after the report is filed with the Securities and Exchange
Commission. The information on the Company’s Internet
website is not incorporated into this
Form 10-K.
| Item 1A. | Risk Factors |
The Company’s business, financial condition, operating
results and cash flows can be impacted by a number of factors
which could cause its actual results to vary materially from
recent results or from anticipated future results. In general,
the Company is subject to the same general risks and
uncertainties that impact many other industrial companies such
as general economic, industry
and/or
market conditions and growth rates; the impact of natural
disasters, and their effect on global energy markets; possible
future terrorist threats and their effect on the worldwide
economy; and changes in laws or accounting rules. The risk
factors discussed in this section should be considered together
with information included elsewhere in this
Form 10-K
and should not be considered the only risks facing the Company.
The Company has identified the following specific risks and
uncertainties that it considers material:
| • | The Company’s results for 2011 may continue to be impacted by current domestic and international economic conditions and uncertainties. |
In 2011, the Company’s businesses may continue to be
adversely affected by disruptions in the financial markets or
declines in economic activity both domestically and
internationally in those countries in which the Company
operates. These circumstances will also impact the
Company’s suppliers and customers in various ways which
could have an impact on the Company’s business operations,
particularly if global credit markets are not operating
efficiently and effectively to support industrial commerce. Such
negative changes in worldwide economic and capital market
conditions are beyond the Company’s control, are highly
unpredictable, and can have an adverse effect on the
Company’s revenue, earnings, cash flows and cost of capital.
| • | Increasing product/service and price competition by international and domestic competitors, including new entrants and the ability of the Company to introduce new and competitive products could cause the Company’s businesses to generate lower revenue, operating profits and cash flows. |
The Company’s competitive environment is complex because of
the wide diversity of the products that its companies
manufacture and the markets they serve. In general, most Dover
companies compete with only a few companies. The ability of
Dover’s companies to compete effectively depends on how
successfully they anticipate and respond to various competitive
factors, including new products and services that may be
introduced by their competitors, changes in customer
preferences, and pricing pressures. If Dover’s companies
are unable to anticipate their competitors’ development of
new products and services
and/or
identify customer needs and preferences on a timely basis or
successfully introduce new products and services in response to
such competitive factors, they could lose customers to
competitors. If Dover’s companies do not compete
effectively, Dover companies may experience lower revenue,
operating profits and cash flows.
11
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| • | Some of Dover’s companies may not anticipate, adapt to, or capitalize on technological developments and are subject to the cyclical nature of their industries. These factors could cause these companies to become less competitive and lead to reduced market share, revenue, operating profits and cash flows. |
Certain Dover companies, particularly in the Electronic
Technologies segment, sell their products in industries that are
constantly experiencing change as new technologies are
developed. In order to grow and remain competitive, the
companies in these industries must adapt to future changes in
technology to enhance their existing products and introduce new
products to address their customers’ changing demands.
Also, a portion of the Electronic Technologies segment’s
revenue is derived from companies that are subject to
unpredictable short-term business cycles.
The Energy platform in the Fluid Management segment is subject
to risk due to the volatility of energy prices, although overall
demand is more directly related to depletion rates and global
economic conditions and related energy demands. In addition,
certain Dover businesses manufacture products that are used in
or related to residential and commercial construction, which can
be adversely affected by a prolonged downturn in new housing
starts and other construction markets.
As a result of all the above factors, the revenue and operating
performance of these companies in any one period are not
necessarily predictive of their revenue and operating
performance in other periods, and these factors could have a
material impact on the Company’s consolidated results of
operations, financial position and cash flows.
| • | Our companies could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of raw materials (including energy) or if they are unable to obtain raw materials. |
Dover’s companies purchase raw materials, subassemblies and
components for use in their manufacturing operations, which
exposes them to volatility in prices for certain commodities.
Significant price increases for these commodities could
adversely affect operating profits for certain Dover companies.
While the Company’s businesses generally attempt to
mitigate the impact of increased raw material prices by hedging
or passing along the increased costs to customers, there may be
a time delay between the increased raw material prices and the
ability to increase the prices of products, or they may be
unable to increase the prices of products due to a
competitor’s pricing pressure or other factors. In
addition, while raw materials are generally available now, the
inability to obtain necessary raw materials could affect the
ability to meet customer commitments and satisfy market demand
for certain products. Consequently, a significant price increase
in raw materials, or their unavailability, may result in a loss
of customers and adversely impact revenue, operating profits and
cash flows.
| • | The Company is subject to risks relating to its existing foreign operations and expansion into new geographical markets. |
Approximately 46% of the Company’s revenues for 2010 and
43% of the Company’s revenues for 2009 were derived outside
the United States. The Company continues to focus on penetrating
global markets as part of its overall growth strategy and
expects sales from and into foreign markets to continue to
represent a significant portion of its revenues. In addition,
many of the Company’s manufacturing operations and
suppliers are located outside the United States. The
Company’s foreign operations and its global expansion
strategy are subject to general risks related to international
operations, including:
| • | political, social and economic instability and disruptions; | |
| • | government embargoes or trade restrictions; | |
| • | the imposition of duties and tariffs and other trade barriers; | |
| • | import and export controls; | |
| • | limitations on ownership and on repatriation of earnings; | |
| • | transportation delays and interruptions; |
12
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| • | labor unrest and current and changing regulatory environments; | |
| • | increased compliance costs; | |
| • | the impact of loss of a single-source manufacturing facility; | |
| • | difficulties in staffing and managing multi-national operations; and | |
| • | limitations on its ability to enforce legal rights and remedies. |
If the Company is unable to successfully manage the risks
associated with expanding its global business or adequately
manage operational risks of its existing international
operations, the risks could have a material adverse effect on
the Company’s growth strategy involving expansion into new
geographical markets or the results of operations and financial
position.
| • | The Company’s exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact the Company’s results of operations. |
The Company conducts business through its subsidiaries in many
different countries, and fluctuations in currency exchange rates
could have a significant impact on the reported results of
operations, which are presented in U.S. dollars. A
significant and growing portion of the Company’s products
are manufactured in lower-cost locations and sold in various
countries. Cross-border transactions, both with external parties
and intercompany relationships, result in increased exposure to
foreign exchange effects. Accordingly, significant changes in
currency exchange rates, particularly the Euro, Pound Sterling,
Chinese RMB (Yuan) and the Canadian dollar, could cause
fluctuations in the reported results of the Company’s
operations that could negatively affect its results of
operations. Additionally, the strengthening of certain
currencies such as the Euro and U.S. dollar potentially
exposes the Company to competitive threats from lower cost
producers in other countries such as China. The Company’s
sales are translated into U.S. dollars for reporting
purposes. The weakening of the U.S. dollar could result in
unfavorable translation effects as the results of foreign
locations are translated into U.S. dollars.
| • | The Company’s operating profits and cash flows could be adversely affected if the Company cannot achieve projected savings and synergies. |
The Company is continually evaluating its cost structure and
seeking ways to capture synergies across its operations. If the
Company is unable to reduce costs and expenses through its
various programs, it could adversely affect the Company’s
operating profits and cash flows.
| • | Failure to attract, retain and develop personnel or to provide adequate succession plans for key management could have an adverse effect on the Company’s operating results. |
The Company’s growth, profitability and effectiveness in
conducting its operations and executing its strategic plans
depend in part on its ability to attract, retain and develop
qualified personnel, align them with appropriate opportunities
and maintain adequate succession plans for key management
positions. If the Company is unsuccessful in these efforts, its
operating results could be adversely affected.
| • | The Company’s businesses and their profitability and reputation could be adversely affected by domestic and foreign governmental and public policy changes (including environmental and employment regulations and tax policies such as export subsidy programs, research and experimentation credits, carbon emission regulations, and other similar programs), risks associated with emerging markets, changes in statutory tax rates and unanticipated outcomes with respect to tax audits. |
The Company’s domestic and international sales and
operations are subject to risks associated with changes in local
government laws (including environmental and export laws),
regulations and policies. Failure to comply with any of these
laws could result in civil and criminal, monetary and
non-monetary penalties as well as potential damage to the
Company’s reputation. In addition, the Company cannot
provide assurance that its costs of complying with new and
evolving regulatory reporting requirements and current or future
laws, including environmental protection, employment, and health
and safety laws, will not exceed its estimates. In addition, the
Company has
13
Table of Contents
invested in certain countries, including Brazil, Russia, India
and China that carry high levels of currency, political,
compliance and economic risk. While these risks or the impact of
these risks are difficult to predict, any one or more of them
could adversely affect the Company’s businesses and
reputation.
The Company’s effective tax rate is impacted by changes in
the mix among earnings in countries with differing statutory tax
rates, changes in the valuation allowance of deferred tax assets
or changes in tax laws. The amount of income taxes and other
taxes paid can be adversely impacted by changes in statutory tax
rates and laws and are subject to ongoing audits by domestic and
international authorities. If these audits result in assessments
different from amounts estimated, then the Company’s
financial results may be adversely affected by unfavorable tax
adjustments.
| • | Unforeseen developments in contingencies such as litigation could adversely affect the Company’s financial condition. |
The Company and certain of its subsidiaries are, and from time
to time may become, parties to a number of legal proceedings
incidental to their businesses involving alleged injuries
arising out of the use of their products, exposure to hazardous
substances or patent infringement, employment matters and
commercial disputes. The defense of these lawsuits may require
significant expenses, divert management’s attention, and
the Company may be required to pay damages that could adversely
affect its financial condition. In addition, any insurance or
indemnification rights that the Company may have may be
insufficient or unavailable to protect it against potential loss
exposures.
| • | The Company’s revenue, operating profits and cash flows could be adversely affected if Dover’s companies are unable to protect or obtain patent and other intellectual property rights. |
Dover companies own patents, trademarks, licenses and other
forms of intellectual property related to their products. Dover
companies employ various measures to maintain and protect their
intellectual property. These measures may not prevent their
intellectual property from being challenged, invalidated or
circumvented, particularly in countries where intellectual
property rights are not highly developed or protected.
Unauthorized use of these intellectual property rights could
adversely impact the competitive position of Dover’s
companies and have a negative impact on their revenue, operating
profits and cash flows.
| • | The Company’s growth and results of operations may be adversely affected if the Company is unsuccessful in its capital allocation and acquisition program or is unable to divest non-core assets and businesses as planned. |
The Company expects to continue its strategy of seeking to
acquire value creating add-on businesses that broaden its
existing companies and their global reach as well as, in the
right circumstances, strategically pursue large businesses that
have the potential to either complement its existing companies
or allow the Company to pursue a new platform. However, there
can be no assurance that the Company will able to continue to
find suitable businesses to purchase, that it will be able to
acquire such businesses on acceptable terms, or that all closing
conditions will be satisfied with respect to any pending
acquisition. If the Company is unsuccessful in its acquisition
efforts, then its ability to continue to grow at rates similar
to prior years could be adversely affected. In addition a
completed acquisition may underperform relative to expectations,
may be unable to achieve synergies originally anticipated, or
may expose the Company to unexpected liabilities. Further, if
the Company fails to allocate its capital appropriately, in
respect of either its acquisition program or organic growth in
its operations, the Company could be overexposed in certain
markets and geographies. These factors could potentially have an
adverse impact on the Company’s operating profits and cash
flows.
The inability of the Company to dispose of non-core assets and
businesses on satisfactory terms and conditions and within
expected time frames could also have an adverse affect on the
Company’s results of operations.
| • | The Company’s borrowing costs may be impacted by its credit ratings developed by various rating agencies. |
Three major ratings agencies (Moody’s, Standard and
Poor’s, and Fitch Ratings) evaluate the Company’s
credit profile on an ongoing basis and have each assigned high
ratings for the Company’s long-term debt as of
14
Table of Contents
December 31, 2010. Although the Company does not anticipate
a material change in its credit ratings, if the Company’s
current credit ratings deteriorate, then its borrowing costs
could increase, including increased fees under the Five-Year
Credit Facility and the Company’s access to future sources
of liquidity may be adversely affected.
| Item 1B. | Unresolved Staff Comments |
Not applicable.
| Item 2. | Properties |
The number, type, location and size of the Company’s
properties as of December 31, 2010 are shown in the
following charts, by segment:
| Number and Nature of Facilities | Square Footage (000’s) | |||||||||||||||||||
| Segment | Mfg. | Warehouse | Sales/Service | Owned | Leased | |||||||||||||||
|
Industrial Products
|
67 | 11 | 17 | 4,726 | 1,603 | |||||||||||||||
|
Engineered Systems
|
34 | 24 | 70 | 2,604 | 6,010 | |||||||||||||||
|
Fluid Management
|
71 | 11 | 36 | 2,599 | 1,290 | |||||||||||||||
|
Electronic Technologies
|
44 | 6 | 28 | 1,122 | 1,293 | |||||||||||||||
| Locations |
Leased Facilities
|
|||||||||||||||||||||||
|
North
|
Expiration Dates (Years) | |||||||||||||||||||||||
| America | Europe | Asia | Other | Minimum | Maximum | |||||||||||||||||||
|
Industrial Products
|
61 | 15 | 7 | 3 | 1 | 4 | ||||||||||||||||||
|
Engineered Systems
|
41 | 35 | 40 | 7 | 1 | 7 | ||||||||||||||||||
|
Fluid Management
|
80 | 11 | 5 | 3 | 1 | 15 | ||||||||||||||||||
|
Electronic Technologies
|
29 | 14 | 20 | 1 | 1 | 11 | ||||||||||||||||||
During 2010, the Company had a net reduction of 18 manufacturing
and warehouse facilities reflecting the 2010 sale of a business
(which had been discontinued in a prior period), along with
other facility consolidations undertaken as part of the
Company’s ongoing efforts to streamline operations. The
Company’s facilities are
well-maintained
and suitable for the operations conducted.
During the summer of 2010, the Company completed the relocation
of its corporate headquarters from New York City, and its
four segment offices from other locations, to Downers Grove,
Illinois. The move has consolidated the corporate and segment
management teams into one location in order to improve
communication and strategic decision making and facilitate
performance efficiencies.
| Item 3. | Legal Proceedings |
A few of the Company’s subsidiaries are involved in legal
proceedings relating to the cleanup of waste disposal sites
identified under federal and state statutes which provide for
the allocation of such costs among “potentially responsible
parties.” In each instance, the extent of the
subsidiary’s liability appears to be very small in relation
to the total projected expenditures and the number of other
“potentially responsible parties” involved and it is
anticipated to be immaterial to the Company. In addition, a few
of the Company’s subsidiaries are involved in ongoing
remedial activities at certain plant sites, in cooperation with
regulatory agencies, and appropriate reserves have been
established.
The Company and certain of its subsidiaries are, and from time
to time may become, parties to a number of other legal
proceedings incidental to their businesses. These proceedings
primarily involve claims by private parties alleging injury
arising out of the use of products of Dover companies, exposure
to hazardous substances or patent infringement, employment
matters and commercial disputes. Management and legal counsel
periodically review the probable outcome of such proceedings,
the costs and expenses reasonably expected to be incurred, the
availability and extent of insurance coverage, and established
reserves. While it is not possible to predict the outcome of
these legal actions or any need for additional reserves, in the
opinion of management, based on these reviews, it is unlikely
that the disposition of the lawsuits and the other matters
mentioned above will have a material adverse effect on the
Company’s financial position, results of operations, cash
flows or competitive position.
15
Table of Contents
| Item 4. | [Removed and Reserved] |
Executive
Officers of the Registrant
All officers are elected annually at the first meeting of the
Board of Directors, following the Company’s annual meeting
of shareholders, and are subject to removal at any time by the
Board of Directors. The executive officers of the Company as of
February 11, 2011, and their positions with the Company
(and, where relevant, prior business experience) for the past
five years, are as follows:
| Name | Age | Positions Held and Prior Business Experience | ||||
|
Robert A. Livingston
|
57 | Chief Executive Officer and Director (since December 2008), President (since June 2008) and Chief Operating Officer (from June 2008 — December 2008) of Dover; prior thereto Vice President of Dover and President and Chief Executive Officer of Dover Engineered Systems, Inc. (from July 2007 to May 2008); prior thereto Vice President of Dover and President and Chief Executive Officer of Dover Electronics, Inc. (from October 1, 2004). | ||||
|
Kevin P. Buchanan
|
55 | Vice President, Taxation (since July 2010); prior thereto Deputy General Counsel, Tax (November 2009 to June 2010) and Vice President, Tax (May 2000 to October 2009) of Monsanto Company. | ||||
|
Ivonne M. Cabrera
|
44 | Vice President of Dover (since May 2010) and Deputy General Counsel of Dover (since February 2004). | ||||
|
Brad M. Cerepak
|
51 | Vice President and Chief Financial Officer (since August 2009); prior thereto Vice President, Finance (since June 2009) of Dover; prior thereto Vice President and Controller, Trane, Inc. (August 2005 to June 2008). | ||||
|
Thomas W. Giacomini
|
45 | Vice President of Dover (since February 2008) and President (since April 2009) and Chief Executive Officer of Dover Industrial Products, Inc. (since July 2009); prior thereto President of Material Handling Platform (since October 2007); prior thereto President of Warn Industries, Inc. (from July 2005); prior thereto Chief Operating Officer of Warn Industries, Inc. (from 2000 to July 2005). | ||||
|
Paul E. Goldberg
|
47 | Treasurer and Director of Investor Relations of Dover (since February 2006); prior thereto Assistant Treasurer of Dover (from July 2002). | ||||
|
Raymond C. Hoglund
|
60 | Vice President of Dover and President and Chief Executive Officer of Dover Engineered Systems, Inc. (since August 2008); prior thereto President and Chief Executive Officer of Hill Phoenix, Inc. (from February 2005). | ||||
|
Jay L. Kloosterboer
|
50 | Vice President, Human Resources (since January 2009); prior thereto Executive Vice President — Business Excellence of AES Corporation (from May 2005); prior thereto Vice President and Chief Human Resources Officer of AES Corporation (from May 2003). | ||||
|
Raymond T. McKay, Jr.
|
57 | Vice President of Dover (since February 2004), Controller of Dover (since November 2002). | ||||
|
James H. Moyle
|
58 | Vice President, Supply Chain and Global Sourcing (since April 2009); prior thereto Chief Financial Officer of Dover Fluid Management, Inc. (since July 2007); prior thereto Vice President and Chief Financial Officer of Dover Diversified, Inc. (since November 2005); prior thereto Executive Vice President of Knowles Electronics, Inc. (since September 2003). | ||||
16
Table of Contents
| Name | Age | Positions Held and Prior Business Experience | ||||
|
Joseph W. Schmidt
|
64 | Vice President, General Counsel and Secretary of Dover (since January 2003). | ||||
|
Stephen R. Sellhausen
|
52 | Vice President, Corporate Development of Dover (since January 2009); prior thereto Vice President, Business Development of Dover (from April 2008); prior thereto investment banker with Citigroup Global Markets. | ||||
|
Sivasankaran Somasundaram
|
45 | Vice President of Dover (since January 2008); Executive Vice President of Dover Fluid Management (since January 2010); President of Fluid Solutions Platform (since January 2008); prior thereto President of Gas Equipment Group (from May 2006); prior thereto President of RPA Process Technologies (from March 2004); prior thereto Vice President of Dorr-Oliver Eimco (supplier of solid/liquid separation equipment and wholly-owned subsidiary of GLV Inc.) (from November 2002 through February 2004). | ||||
|
William W. Spurgeon, Jr.
|
52 | Vice President of Dover and President and Chief Executive Officer of Dover Fluid Management, Inc. (since July 2007); prior thereto Vice President of Dover and President and Chief Executive Officer of Dover Diversified, Inc. (from October 1, 2004). | ||||
|
Michael Y. Zhang
|
47 | Vice President of Dover (since May 2010) and Managing Director of Dover Regional Headquarters Shanghai (since January 2009); prior thereto various roles at ABB, Ltd., including Vice President, ABB Control System and Product Business (September 2004 to March 2008). | ||||
|
David R. Van Loan
|
62 | Vice President of Dover and President and Chief Executive Officer of Dover Electronic Technologies, Inc. (since July 2007); prior thereto Vice President of Dover and President and Chief Executive Officer of Dover Technologies International, Inc. (from January 2006); prior thereto President of Dover Technologies International, Inc. (from July 2005); prior thereto for more than eight years, President and Chief Executive Officer of Everett Charles Technologies, Inc. | ||||
17
Table of Contents
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 the Company’s common stock is
traded is the New York Stock Exchange. Information on the high
and low sales prices of such stock, and the frequency and the
amount of dividends paid during the last two years, is as
follows:
| 2010 | 2009 | |||||||||||||||||||||||
| Market Prices |
Dividends
|
Market Prices |
Dividends
|
|||||||||||||||||||||
| High | Low | Per Share | High | Low | Per Share | |||||||||||||||||||
|
First Quarter
|
$ | 47.56 | $ | 40.50 | $ | 0.26 | $ | 36.15 | $ | 21.79 | $ | 0.25 | ||||||||||||
|
Second Quarter
|
55.50 | 41.42 | 0.26 | 36.55 | 25.83 | 0.25 | ||||||||||||||||||
|
Third Quarter
|
53.00 | 40.50 | 0.275 | 39.79 | 30.30 | 0.26 | ||||||||||||||||||
|
Fourth Quarter
|
59.20 | 51.39 | 0.275 | 43.10 | 36.52 | 0.26 | ||||||||||||||||||
| $ | 1.07 | $ | 1.02 | |||||||||||||||||||||
Holders
The number of holders of record of the Company’s common
stock as of January 28, 2011 was approximately 17,211. This
figure includes participants in the Company’s 401(k)
program.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information regarding securities authorized for issuance under
the Company’s equity compensation plans is contained in
Part III, Item 12 of this
Form 10-K.
Recent
Sales of Unregistered Securities
None.
Issuer
Purchases of Equity Securities
The table below presents shares of the Company’s stock
which were acquired by the Company during the fourth quarter.
|
Total Number of
|
Maximum Number (or
|
|||||||||||||||
|
Shares Purchased as
|
Approximate Dollar Value)
|
|||||||||||||||
|
Total Number of
|
Part of Publicly
|
of Shares that May Yet Be
|
||||||||||||||
|
Shares
|
Average Price
|
Announced Plans or
|
Purchased under the Plans
|
|||||||||||||
| Period | Purchased(1) | Paid per Share | Programs | or Programs | ||||||||||||
|
October 1 to October 31
|
19,004 | $ | 53.00 | — | 7,453,968 | |||||||||||
|
November 1 to November 30
|
140,285 | 55.13 | 140,000 | 7,313,968 | ||||||||||||
|
December 1 to December 31
|
769,869 | 57.95 | 745,500 | 6,568,468 | ||||||||||||
|
For the Fourth Quarter 2010
|
929,158 | $ | 57.43 | 885,500 | 6,568,468 | |||||||||||
| (1) | In October, November and December, 19,004, 285, and 24,369 of these shares were acquired by the Company, respectively, from the holders of its employee stock options when they tendered these shares as full or partial payment of the exercise price of such options. These shares are applied against the exercise price at the market price on the date of exercise. During November and December, the Company purchased 140,000 and 745,500 shares, respectively, under the five-year, 10,000,000 share repurchase authorized by the Board of Directors in May 2007, leaving 6,568,468 available for repurchase as of the end of December 2010. |
18
Table of Contents
Performance
Graph
This performance graph does not constitute soliciting
material, is not deemed filed with the SEC and is not
incorporated by reference in any of the Company’s filings
under the Securities Act of 1933 or the Exchange Act of 1934,
whether made before or after the date of this
Form 10-K
and irrespective of any general incorporation language in any
such filing, except to the extent the Company specifically
incorporates this performance graph by reference therein.
Comparison
of Five-Year Cumulative Total Return*
Dover Corporation, S&P 500 Index & Peer Group Index
Dover Corporation, S&P 500 Index & Peer Group Index
Total
Shareholder Returns
Data Source: Hemscott, Inc.
| * | Total return assumes reinvestment of dividends. |
This graph assumes $100 invested on December 31, 2005 in
Dover Corporation common stock, the S&P 500 index and a
peer group index.
The peer index consists of the following 38 public companies
selected by the Company:
|
Actuant Corp.
|
FMC Technologies | Parker-Hannifin Corp. | ||
|
ACGO Corporation
|
Honeywell International | Pentair Inc. | ||
|
Agilent Technologies
|
Hubbell Incorporated | Precision Castparts Corp. | ||
|
Ametek Inc.
|
IDEX Corporation | Rockwell Automation | ||
|
Cameron International
|
Illinois Tool Works | Roper Industries | ||
|
Carlisle Companies
|
Ingersoll-Rand Company | SPX Corporation | ||
|
Cooper Industries
|
ITT Corporation | Terex Corporation | ||
|
Crane Co.
|
Leggett & Platt Inc. | The Timken Company | ||
|
Danaher Corporation
|
Manitowoc Co. | Tyco International | ||
|
Deere & Company
|
Masco Corp. | United Technologies Corp. | ||
|
Eaton Corporation
|
Oshkosh Corp. | Weatherford International | ||
|
Emerson Electric Co.
|
Paccar Inc. | 3M Company | ||
|
Flowserve Corporation
|
Pall Corporation |
19
Table of Contents
| Item 6. | Selected Financial Data |
Selected Company financial information for the years 2006
through 2010 is set forth in the following
5-year
Consolidated Table.
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (In thousands, except per share figures) | ||||||||||||||||||||
|
Revenue
|
$ | 7,132,648 | $ | 5,775,689 | $ | 7,568,888 | $ | 7,317,270 | $ | 6,419,528 | ||||||||||
|
Earnings from continuing operations
|
707,908 | 371,894 | 694,758 | 669,750 | 595,680 | |||||||||||||||
|
Basic earnings (loss) per share:
|
||||||||||||||||||||
|
Continuing operations
|
$ | 3.79 | $ | 2.00 | $ | 3.69 | $ | 3.33 | $ | 2.92 | ||||||||||
|
Discontinued operations
|
(0.04 | ) | (0.08 | ) | (0.55 | ) | (0.04 | ) | (0.17 | ) | ||||||||||
|
Net earnings
|
3.75 | 1.91 | 3.13 | 3.28 | 2.76 | |||||||||||||||
|
Weighted average shares outstanding
|
186,897 | 186,136 | 188,481 | 201,330 | 203,773 | |||||||||||||||
|
Diluted earnings (loss) per share:
|
||||||||||||||||||||
|
Continuing operations
|
$ | 3.74 | $ | 1.99 | $ | 3.67 | $ | 3.30 | $ | 2.90 | ||||||||||
|
Discontinued operations
|
(0.04 | ) | (0.08 | ) | (0.55 | ) | (0.04 | ) | (0.16 | ) | ||||||||||
|
Net earnings
|
3.70 | 1.91 | 3.12 | 3.26 | 2.73 | |||||||||||||||
|
Weighted average shares outstanding
|
189,170 | 186,736 | 189,269 | 202,918 | 205,497 | |||||||||||||||
|
Dividends per common share
|
$ | 1.07 | $ | 1.02 | $ | 0.90 | $ | 0.77 | $ | 0.71 | ||||||||||
|
Capital expenditures
|
$ | 183,217 | $ | 120,009 | $ | 175,795 | $ | 173,653 | $ | 191,937 | ||||||||||
|
Depreciation and amortization
|
268,406 | 258,223 | 261,154 | 243,776 | 195,840 | |||||||||||||||
|
Total assets
|
8,562,894 | 7,882,403 | 7,883,238 | 8,068,407 | 7,626,657 | |||||||||||||||
|
Total debt
|
1,807,811 | 1,860,884 | 2,085,673 | 2,090,652 | 1,771,040 | |||||||||||||||
All results and data in the table above reflect continuing
operations, unless otherwise noted. All periods reflect the
impact of certain operations that were discontinued. As a
result, the data presented above will not necessarily agree to
previously issued financial statements. See Note 3 to the
Consolidated Financial Statements for additional information on
disposed and discontinued operations.
20
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Special
Note Regarding Forward-Looking Statements
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(“MD&A”) is intended to help the reader
understand the results of operations and financial condition of
Dover Corporation for the three years ended December 31,
2010. The following MD&A should be read in conjunction with
the Company’s Consolidated Financial Statements and Notes
which appear elsewhere in this
Form 10-K.
This discussion contains forward-looking statements that involve
risks and uncertainties. The Company’s actual results could
differ materially from those anticipated in these
forward-looking statements as a result of various factors,
including those discussed elsewhere in this
Form 10-K,
particularly in Item 1A. “Risk Factors” and in
“SPECIAL NOTES REGARDING FORWARD-LOOKING
STATEMENTS” inside the front cover of this
Form 10-K.
OVERVIEW
AND OUTLOOK
As the global economy strengthened in 2010, the Company
experienced increased demand across most of its end-markets as
well as higher bookings and backlog in all of its segments. In
total, the Company’s consolidated revenue increased
$1.4 billion, or 24%, over 2009 to $7.1 billion,
inclusive of acquisitions. Furthermore, the Company successfully
leveraged the structural improvements made over the last few
years to expand consolidated gross profit margin by
200 basis points to 38.3%, as compared with 2009. The
Company generated free cash flow of $767 million,
representing 11% of revenue and 108% of earnings from continuing
operations, despite significant investments necessary to support
the growing businesses. The Company deployed this cash in
support of its growth strategies as well as continuing its
55-year
record of increasing its annual dividend to shareholders.
Developing economies in Asia contributed 17% of 2010
consolidated revenues, and the Company expects to continue its
expansion into Asia and other growing markets.
Given this strong momentum entering 2011, along with the
execution of its strategies around product innovation, global
expansion, leveraging its scale and disciplined capital
allocation, the Company believes it is well-positioned for solid
growth in the future.
The Company estimates 2011 full year organic growth to be in the
range of 6% to 8% (assuming a negligible impact from foreign
currency) and acquisition related growth to be approximately 3%
for transactions completed in 2010 and four acquisitions
completed in January 2011, the largest being Harbison-Fischer,
which closed on January 3, 2011. Based on these revenue
assumptions and profitability expectations, the Company has
projected that its diluted earnings per share from continuing
operations for 2011 will be in the range of $4.05 to $4.25 and
expects its earnings to follow a traditional seasonal pattern of
being higher in the second and third quarters.
21
Table of Contents
CONSOLIDATED
RESULTS OF OPERATIONS
| % / Point Change | ||||||||||||||||||||
|
2010
|
2009
|
|||||||||||||||||||
| Years Ended December 31, |
versus
|
versus
|
||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (In thousands except per share figures) | ||||||||||||||||||||
|
Revenue
|
$ | 7,132,648 | $ | 5,775,689 | $ | 7,568,888 | 24 | % | (24 | )% | ||||||||||
|
Cost of goods and services
|
4,399,990 | 3,676,535 | 4,838,881 | 20 | % | (24 | )% | |||||||||||||
|
Gross profit
|
2,732,658 | 2,099,154 | 2,730,007 | 30 | % | (23 | )% | |||||||||||||
|
Selling and administrative expenses
|
1,697,721 | 1,511,111 | 1,700,677 | 12 | % | (11 | )% | |||||||||||||
|
Restructuring — severance and exit costs
|
6,200 | 72,102 | 27,364 | (91 | )% | 163 | % | |||||||||||||
|
Interest expense, net
|
106,341 | 100,375 | 96,037 | 6 | % | 5 | % | |||||||||||||
|
Other expense (income), net
|
3,512 | (3,950 | ) | (12,726 | ) | (189 | )% | (69 | )% | |||||||||||
|
Earnings from continuing operations
|
707,908 | 371,894 | 694,758 | 90 | % | (46 | )% | |||||||||||||
|
Net earnings
|
700,104 | 356,438 | 590,831 | 96 | % | (40 | )% | |||||||||||||
|
Net earnings per common share — diluted
|
$ | 3.70 | $ | 1.91 | $ | 3.12 | 94 | % | (39 | )% | ||||||||||
|
Gross profit margin
|
38.3 | % | 36.3 | % | 36.1 | % | 2.0 | 0.2 | ||||||||||||
|
Selling and administrative expenses as a percentage of revenue
|
23.8 | % | 26.2 | % | 22.5 | % | (2.4 | ) | 3.7 | |||||||||||
|
Effective tax rate
|
23.5 | % | 24.4 | % | 26.6 | % | (0.9 | ) | (2.2 | ) | ||||||||||
Revenue
Consolidated revenue in 2010 increased $1.4 billion or 24%
reflecting organic revenue growth of 20%, growth from
acquisitions of 4%, and a negligible unfavorable impact from
foreign currency translation. The organic growth reflects volume
increases across all of the Company’s segments, driven by
higher demand in the majority of the Company’s end-markets
as the global economy continues to rebound. Revenues generated
outside of the U.S. increased by 30% compared with 2009,
with much of this growth generated in emerging economies of Asia
and Latin America.
The $1.8 billion or 24% decrease in consolidated revenue in
2009 reflected a 24% decline in organic revenue and a 2%
unfavorable impact from foreign currency translation, partially
offset by 2% net growth from acquisitions. The decline in
organic revenue reflected lower demand and sales volumes across
all four business segments stemming from general unfavorable
global economic conditions.
Gross
Profit
Gross profit increased $633.5 million or 30% in 2010
compared with 2009, reflecting the increased sales volumes.
Gross profit margin improved to 38.3% in 2010, a 200 basis
point improvement over the 2009 gross profit margin of
36.3%, reflecting the increase in sales volumes in 2010, the
impact of lower restructuring charges on a comparative basis,
and benefits realized from restructuring initiatives executed in
2009 along with Dover productivity initiatives.
Gross profit decreased $630.9 million or 23% in 2009
compared with 2008, consistent with the decline in revenue for
the period. Gross margin as a percentage of sales remained
essentially flat at 36.3% and 36.1% in 2009 and 2008,
respectively.
22
Table of Contents
Selling
and Administrative Expenses
Selling and administrative expenses increased
$186.6 million or 12% in 2010 compared with 2009 due
primarily to general increases across the segments in support of
higher volumes. As a percentage of sales, selling and
administrative expenses declined to 23.8% in 2010 compared with
26.2% in 2009. This 240 basis point improvement reflects
the absence of significant restructuring charges in 2010 and the
benefits realized from 2009 restructuring efforts, as well as
leverage from the higher revenue levels partially offset by
increased compensation costs.
Selling and administrative expenses decreased
$189.6 million or 11% in 2009 compared with 2008, primarily
due to decreased revenue activity, cost curtailment efforts and
integration programs, partially offset by restructuring charges.
Selling and administrative expenses as a percentage of revenue
increased to 26.2% in 2009 from 22.5% in the prior year,
reflecting reduced revenue levels and restructuring charges of
$50.2 million.
Interest
Expense, net
Interest expense for the years ended December 31, 2010,
2009 and 2008 was $115.5 million, $116.2 million and
$130.2 million, respectively. Interest income for the years
ended December 31, 2010, 2009 and 2008 was
$9.1 million, $15.8 million $34.2 million,
respectively.
Interest expense, net, increased 6.0% in 2010 compared with
2009, primarily due to reduced interest income in 2010 resulting
from lower interest rates on the Company’s short term
investment balances.
Interest expense, net increased 4.5% in 2009 compared with 2008
due primarily to reduced interest income stemming from lower
interest rates on cash and investments which more than offset
the reduction in interest expense due to lower average
outstanding commercial paper balances during the 2009 period.
Other
Expense (Income), net
Other expense, net of $3.5 million in 2010 reflects
$6.6 million of net expense from foreign currency exchange
fluctuations on assets and liabilities denominated in currencies
other than the functional currency, coupled with a
$4.3 million loss on extinguishment of debt, offset in part
by royalty income and other miscellaneous non-operating gains.
This compares to other income, net of $4.0 million in 2009,
which reflects $6.0 million of net expense from foreign
currency exchange fluctuations on assets and liabilities
denominated in currencies other than the Company’s
functional currency, which was more than offset by a favorable
insurance settlement and other miscellaneous non-operating
gains. In 2008, other income, net of $12.7 million
reflected net gains from foreign currency exchange fluctuations
of $6.7 million, coupled with other miscellaneous
non-operating gains.
Income
Taxes
The effective tax rate for continuing operations for 2010 was
23.5% compared to the 2009 rate of 24.4%. The effective tax rate
was impacted by discrete items in both years. The effective tax
rate for 2010 was favorably impacted by net discrete items
totaling $38.5 million, arising principally from third and
fourth quarter settlements with U.S. taxing authorities,
coupled with the resolution of a foreign tax matter in the third
quarter. The effective tax rate for 2009 was favorably impacted
by $31.6 million of net benefits recognized for discrete
items in the second and fourth quarters of 2009. Excluding these
discrete items, the effective tax rate for 2010 was 27.6%
compared to 30.8% for 2009, the variance of which is primarily
attributed to a more favorable mix of
non-U.S. earnings
in low tax rate jurisdictions in 2010. With the exception of
contested matters, for which an estimate cannot be made due to
uncertainties, the Company believes that additional uncertain
tax positions will be settled in 2011.
The effective tax rate for continuing operations for 2009 was
24.4% compared to the 2008 rate of 26.6%, reflecting the
previously mentioned discrete items in the second and fourth
quarters of 2009. The effective tax rate for 2008 was favorably
impacted by $26.3 million of net benefits recognized for
discrete items in the third and fourth quarters of 2008. The
full year 2009 rate reflects the favorable impact of net
benefits for discrete items and the favorable impact of a higher
percentage of
non-U.S. earnings
in low tax rate jurisdictions. Excluding these discrete items,
the effective tax rate for 2009 was 30.8% compared to 29.3% for
2008.
23
Table of Contents
Net
Earnings
Net earnings for the year ended December 31, 2010 were
$700.1 million or $3.70 dilutive earnings per share
(“EPS”) including a loss from discontinued operations
of $7.8 million or $0.04 EPS, compared to net earnings of
$356.4 million or $1.91 dilutive EPS for the same period of
2009, including a loss from discontinued operations of
$15.5 million or $0.08 EPS.
The loss from discontinued operations in 2010 includes a loss of
approximately $14.2 million, net of tax, related to the
sale of a business that had been previously reflected as a
discontinued operation as well as other expense and accrual
adjustments relating to other previously discontinued
operations. These losses and expenses were offset in part by tax
benefits, which included approximately $11.6 million
relating to discrete tax items settled or resolved during the
third and fourth quarters. The loss from discontinued operations
in 2009 includes approximately $10.3 million, net of tax,
related to a write-down of a business held for sale. Refer to
Note 3 to the Consolidated Financial Statements for
additional information on disposed and discontinued operations.
Net earnings for the year ended December 31, 2009 were
$356.4 million or $1.91 dilutive EPS including a loss from
discontinued operations of $15.5 million or $0.08 EPS,
compared to net earnings of $590.8 million or $3.12
dilutive EPS for the same period of 2008, including a loss from
discontinued operations of $103.9 million or $0.55 EPS. As
noted above, the loss from discontinued operations in 2009
includes approximately $10.3 million, net of tax, related
to a write-down of a business held for sale. The loss from
discontinued operations in 2008 largely reflects a loss
provision for a business held for sale, as well as tax expenses
and tax accruals related to ongoing federal tax settlements and
state tax assessments.
In addition to these factors, 2009 earnings across all platforms
were also negatively impacted by restructuring charges as noted
below, while 2010 earnings reflect the benefits captured from
the businesses’ restructuring and integration programs
initiated in 2008 and 2009.
Severance
and Exit Reserves
In late 2008, the Company launched various synergy capture
programs and restructuring initiatives in response to the
weakening global economic environment. In 2008 and 2009, the
Company recorded restructuring charges of $27.4 million and
$72.1 million, respectively, relating to these programs.
These programs were largely executed throughout 2009, and the
Company realized incremental savings of approximately
$125 million and $32 million in 2009 and 2010,
respectively. During 2009, the Company had a net reduction in
its workforce of approximately 2,950, or 9%, and a net reduction
of 23 manufacturing and warehouse facilities, as a result of
these strategic restructuring efforts.
By 2010, the Company completed the majority of the initiatives
launched in 2008 and 2009 and initiated a few targeted facility
consolidations at its operating companies, resulting in
restructuring charges of $6.2 million, a significant
decline compared to the previous two years. The remaining exit
reserves of $6.8 million at December 31, 2010 relate
primarily to lease commitment obligations in connection with the
prior years’ restructuring activities.
The Company does not expect to undertake significant
restructuring activities in 2011, but will continue to monitor
business activity across its markets served and adjust capacity
as necessary depending on the economic climate.
24
Table of Contents
A summary of the Company’s restructuring activity for the
years ended December 31, 2010, 2009 and 2008 is as follows
(in thousands):
| Severance | Exit | Total | ||||||||||
|
Balance at December 31, 2007
|
$ | 5,762 | $ | 22,668 | $ | 28,430 | ||||||
|
Provision
|
14,980 | 12,384 | 27,364 | |||||||||
|
Purchase accounting
|
2,933 | 2,698 | 5,631 | |||||||||
|
Payments
|
(16,094 | ) | (12,035 | ) | (28,129 | ) | ||||||
|
Other, including impairments
|
(378 | ) | (1,961 | ) | (2,339 | ) | ||||||
|
Balance at December 31, 2008
|
7,203 | 23,754 | 30,957 | |||||||||
|
Provision
|
53,106 | 18,996 | 72,102 | |||||||||
|
Purchase accounting
|
— | (16,074 | ) | (16,074 | ) | |||||||
|
Payments
|
(53,009 | ) | (13,828 | ) | (66,837 | ) | ||||||
|
Other, including impairments
|
852 | (4,229 | ) | (3,377 | ) | |||||||
|
Balance at December 31, 2009
|
8,152 | 8,619 | 16,771 | |||||||||
|
Provision
|
2,989 | 3,211 | 6,200 | |||||||||
|
Payments
|
(9,773 | ) | (5,574 | ) | (15,347 | ) | ||||||
|
Other, including impairments
|
(225 | ) | 495 | 270 | ||||||||
|
At December 31, 2010
|
$ | 1,143 | $ | 6,751 | $ | 7,894 | ||||||
Prior to January 1, 2009, the Company had established
reserves related to severance and facility closings in
connection with certain acquisitions, which were established
through the purchase accounting for these acquisitions, as
allowed under accounting guidance in effect at the time. The
restructuring reserve balances at December 31, 2009, 2008
and 2007 include $0.9 million, $27.9 million and
$26.8 million for acquisition-related restructuring
accruals that were established in purchase accounting. These
reserves were substantially settled in 2010.
A summary of restructuring charges by segment and income
statement classification for the years ended December 31,
2010, 2009 and 2008 is as follows (in thousands):
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Industrial Products
|
$ | 1,182 | $ | 17,505 | $ | 8,285 | ||||||
|
Engineered Systems
|
2,364 | 18,381 | 10,071 | |||||||||
|
Fluid Management
|
1,476 | 9,707 | 2,475 | |||||||||
|
Electronic Technologies
|
1,178 | 26,509 | 6,533 | |||||||||
|
Total
|
$ | 6,200 | $ | 72,102 | $ | 27,364 | ||||||
|
Classified in the Statements of Operations as follows:
|
||||||||||||
|
Cost of goods and services
|
$ | 2,147 | $ | 21,943 | $ | — | ||||||
|
Selling and adminstrative expenses
|
4,053 | 50,159 | 27,364 | |||||||||
|
Total
|
$ | 6,200 | $ | 72,102 | $ | 27,364 | ||||||
25
Table of Contents
Segment
Results of Operations
See Note 14 to the Consolidated Financial Statements in
this
Form 10-K
for a reconciliation of segment revenue, earnings and operating
margin to the Company’s consolidated revenue, earnings from
continuing operations, and operating margin.
Industrial
Products
| % Change | ||||||||||||||||||||
|
2010
|
2009
|
|||||||||||||||||||
| Years Ended December 31, |
versus
|
versus
|
||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenue
|
||||||||||||||||||||
|
Material Handling
|
$ | 854,331 | $ | 660,353 | $ | 1,136,869 | 29 | % | (42 | )% | ||||||||||
|
Mobile Equipment
|
995,159 | 962,177 | 1,323,422 | 3 | % | (27 | )% | |||||||||||||
|
Eliminations
|
(1,679 | ) | (738 | ) | (786 | ) | ||||||||||||||
| $ | 1,847,811 | $ | 1,621,792 | $ | 2,459,505 | 14 | % | (34 | )% | |||||||||||
|
Segment earnings
|
$ | 226,385 | $ | 139,757 | $ | 299,740 | 62 | % | (53 | )% | ||||||||||
|
Operating margin
|
12.3 | % | 8.6 | % | 12.2 | % | ||||||||||||||
|
Acquisition related depreciation and amortization expense*
|
$ | 31,792 | $ | 32,048 | $ | 32,283 | (1 | )% | (1 | )% | ||||||||||
|
Bookings
|
||||||||||||||||||||
|
Material Handling
|
$ | 899,794 | $ | 587,676 | $ | 1,109,028 | 53 | % | (47 | )% | ||||||||||
|
Mobile Equipment
|
1,033,114 | 901,164 | 1,177,880 | 15 | % | (23 | )% | |||||||||||||
|
Eliminations
|
(2,130 | ) | (986 | ) | (1,134 | ) | ||||||||||||||
| $ | 1,930,778 | $ | 1,487,854 | $ | 2,285,774 | 30 | % | (35 | )% | |||||||||||
|
Backlog
|
||||||||||||||||||||
|
Material Handling
|
$ | 165,505 | $ | 116,658 | $ | 188,591 | 42 | % | (38 | )% | ||||||||||
|
Mobile Equipment
|
368,140 | 329,774 | 387,329 | 12 | % | (15 | )% | |||||||||||||
|
Eliminations
|
(822 | ) | (371 | ) | (220 | ) | ||||||||||||||
| $ | 532,823 | $ | 446,061 | $ | 575,700 | 19 | % | (23 | )% | |||||||||||
| * | Represents the pre-tax impact on earnings from the depreciation and amortization of acquisition accounting write-ups to reflect the fair value of inventory, property, plant and equipment, and intangible assets. |
2010
Versus 2009
Industrial Products 2010 revenue and earnings increased by 14%
and 62%, respectively, as compared with 2009 primarily due to
broad-based revenue growth in material handling businesses and
more modest growth in mobile equipment businesses. The revenue
increase was predominantly attributed to organic revenue growth,
with nominal 2010 revenue growth from the acquisition of Gear
Products in the third quarter by Tulsa Winch in the
segment’s Material Handling platform.
Earnings and margin were favorably impacted by increased volume
in high margin businesses, the absence of restructuring charges
and the benefits associated with prior year restructuring
initiatives.
Material Handling 2010 revenue increased 29% while earnings
increased over 200% when compared with the prior year. Revenue
improvements were experienced across the platform, including
modest improvements in those businesses with commercial
construction exposure, driven by increased activity across most
end-markets. Improvements in the energy and infrastructure
end-markets, along with modest automotive market recovery,
particularly outside the U.S., contributed to backlog levels at
the end of 2010 which were 42% higher than 2009 year-end
levels. Earnings and operating margin improved due to the
increased sales volume, coupled with the absence of
restructuring charges in the current period and the benefits
associated with prior year restructuring initiatives.
26
Table of Contents
Mobile Equipment 2010 revenue and earnings each increased 3% as
compared with the prior year. The revenue growth was generated
primarily by the vehicle service business, offset in part by
softness in bulk trailer and refuse vehicle markets.
Earnings and operating margin at the platform level were
favorably impacted by the absence of significant restructuring
charges in the current period coupled with the benefits achieved
from restructuring initiatives taken in the prior year; however,
this was substantially offset by the impact of unfavorable
product mix in the period.
2009
Versus 2008
Industrial Products 2009 revenue and earnings decreased by 34%
and 53%, respectively, compared with 2008, primarily due to
general economic conditions as well as the continued downturn in
infrastructure, energy, and transportation markets. The segment
decline in revenue primarily reflected a core business decrease
of 33% and an unfavorable impact of 1% due to foreign exchange.
Earnings and margin were impacted by decreased revenue and
$17.5 million in restructuring charges. The segment
experienced modest improvement in commercial activity across
markets served during the fourth quarter of 2009.
Material Handling revenue and earnings decreased 42% and 73%,
respectively, when compared to the prior year. The platform
experienced significant challenges in its core infrastructure,
automotive, construction equipment and energy markets, which
were partially offset by an increase in military demand. The
decrease in revenue coupled with restructuring charges of
$11.0 million negatively impacted earnings. Although
bookings were down 47% as compared to 2008, the platform’s
served end-markets stabilized in the fourth quarter.
Mobile Equipment revenue and earnings decreased 27% and 29%,
respectively, over the prior year. The strength of the military
market during the year was offset by challenges in the energy,
bulk transport and vehicle service markets. Earnings at the
platform were primarily impacted by lower revenue and
restructuring charges of $6.5 million.
Engineered
Systems
| % Change | ||||||||||||||||||||
|
2010
|
2009
|
|||||||||||||||||||
| Years Ended December 31, |
versus
|
versus
|
||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenue
|
||||||||||||||||||||
|
Engineered Products
|
$ | 1,339,204 | $ | 1,059,660 | $ | 1,085,881 | 26 | % | (2 | )% | ||||||||||
|
Product Identification
|
890,471 | 802,276 | 924,469 | 11 | % | (13 | )% | |||||||||||||
| $ | 2,229,675 | $ | 1,861,936 | $ | 2,010,350 | 20 | % | (7 | )% | |||||||||||
|
Segment earnings
|
$ | 301,906 | $ | 227,268 | $ | 278,553 | 33 | % | (18 | )% | ||||||||||
|
Operating margin
|
13.5 | % | 12.2 | % | 13.9 | % | ||||||||||||||
|
Acquisition related depreciation and amortization expense*
|
$ | 28,688 | $ | 26,666 | $ | 24,394 | 8 | % | 9 | % | ||||||||||
|
Bookings
|
||||||||||||||||||||
|
Engineered Products
|
$ | 1,408,443 | $ | 1,018,067 | $ | 1,043,873 | 38 | % | (2 | )% | ||||||||||
|
Product Identification
|
902,874 | 817,359 | 920,712 | 10 | % | (11 | )% | |||||||||||||
| $ | 2,311,317 | $ | 1,835,426 | $ | 1,964,585 | 26 | % | (7 | )% | |||||||||||
|
Backlog
|
||||||||||||||||||||
|
Engineered Products
|
$ | 288,969 | $ | 218,520 | $ | 183,821 | 32 | % | 19 | % | ||||||||||
|
Product Identification
|
86,315 | 74,700 | 61,195 | 16 | % | 22 | % | |||||||||||||
| $ | 375,284 | $ | 293,220 | $ | 245,016 | 28 | % | 20 | % | |||||||||||
27
Table of Contents
| * | Represents the pre-tax impact on earnings from the depreciation and amortization of acquisition accounting write-ups to reflect the fair value of inventory, property, plant and equipment, and intangible assets. |
2010
Versus 2009
Engineered Systems 2010 revenue and earnings increased by 20%
and 33%, respectively, compared with 2009. The improvement in
revenue was the result of a 12% increase in organic business
revenue and an 8% increase from acquisitions completed in 2010
and 2009. The revenue and earnings increases were substantially
driven by strength in Hill Phoenix, Direct Coding and Belvac
volumes, including acquisitions, coupled with the benefits from
prior year restructuring activities, which more than offset
higher commodity costs and unfavorable mix.
Engineered Products 2010 revenue and earnings increased by 26%
and 30%, respectively, compared with 2009. Organic business
revenue increased approximately 13% driven by higher sales
volume at Hill Phoenix and Belvac, while growth from
acquisitions completed in 2010 and 2009 contributed 13% to
revenue growth and was accretive to 2010 earnings. The
platform’s earnings were favorably impacted by the higher
sales volumes and contribution from prior year restructuring
activities, partly offset by higher material costs and
unfavorable product and customer mix.
Product Identification 2010 revenue and earnings increased 11%
and 31%, respectively, compared with 2009, with growth driven by
organic sales volume growth and benefit from the 2009
acquisition of Extech Instruments. The platform’s earnings
reflect continued investment in research and development, the
favorable impact of product and geographic mix, the absence of
restructuring charges and the benefits of prior year
restructuring initiatives.
2009
Versus 2008
Engineered Systems 2009 revenue and earnings decreased by 7% and
18%, respectively, compared with 2008. The decline in revenue
was primarily driven by an 11% decline in core business revenue
(excluding acquisitions) as a result of general softness in the
markets served by the segment and an unfavorable impact of
foreign exchange of 3%. The acquisitions of Tyler, Ala Cart,
Inc. and Barker Company in the Engineered Products platform and
Extech Instruments in the Product Identification platform
accounted for 7% revenue growth. The earnings decline was
substantially driven by softness in most end markets served,
$18.4 million of restructuring charges and
$6.2 million of acquisition related expenses.
Engineered Products 2009 revenue and earnings decreased by 2%
and 10%, respectively, compared with 2008. Lower sales volume
throughout our core businesses (most notably refrigeration
equipment) were partially offset by acquisition revenue. The
earnings decline resulted from lower sales volume in commercial
cooling, HVAC and packaging equipment, restructuring charges of
$6.9 million and $6.2 million of acquisition related
expenses.
Product Identification 2009 revenue and earnings declined 13%
and 18%, respectively, compared with 2008. Core revenue
decreased 10% due to lower sales volume in the Direct Marketing
and Bar Coding business with the balance of the revenue decline
due to foreign exchange. The platform incurred
$11.5 million in restructuring charges during the year.
28
Table of Contents
Fluid
Management
| % Change | ||||||||||||||||||||
|
2010
|
2009
|
|||||||||||||||||||
| Years Ended December 31, |
versus
|
versus
|
||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenue
|
||||||||||||||||||||
|
Energy
|
$ | 885,582 | $ | 624,211 | $ | 935,414 | 42 | % | (33 | )% | ||||||||||
|
Fluid Solutions
|
754,650 | 646,849 | 778,812 | 17 | % | (17 | )% | |||||||||||||
|
Eliminations
|
(442 | ) | (150 | ) | (180 | ) | ||||||||||||||
| $ | 1,639,790 | $ | 1,270,910 | $ | 1,714,046 | 29 | % | (26 | )% | |||||||||||
|
Segment earnings
|
$ | 388,420 | $ | 259,269 | $ | 385,317 | 50 | % | (33 | )% | ||||||||||
|
Operating margin
|
23.7 | % | 20.4 | % | 22.5 | % | ||||||||||||||
|
Acquisition related depreciation and amortization expense*
|
$ | 22,010 | $ | 18,389 | $ | 19,550 | 20 | % | (6 | )% | ||||||||||
|
Bookings
|
||||||||||||||||||||
|
Energy
|
$ | 895,360 | $ | 610,045 | $ | 964,517 | 47 | % | (37 | )% | ||||||||||
|
Fluid Solutions
|
758,002 | 645,098 | 771,359 | 18 | % | (16 | )% | |||||||||||||
|
Eliminations
|
(1,175 | ) | (140 | ) | (178 | ) | ||||||||||||||
| $ | 1,652,187 | $ | 1,255,003 | $ | 1,735,698 | 32 | % | (28 | )% | |||||||||||
|
Backlog
|
||||||||||||||||||||
|
Energy
|
$ | 94,113 | $ | 77,173 | $ | 95,532 | 22 | % | (19 | )% | ||||||||||
|
Fluid Solutions
|
65,525 | 60,540 | 64,471 | 8 | % | (6 | )% | |||||||||||||
|
Eliminations
|
(33 | ) | (2 | ) | (12 | ) | ||||||||||||||
| $ | 159,605 | $ | 137,711 | $ | 159,991 | 16 | % | (14 | )% | |||||||||||
| * | Represents the pre-tax impact on earnings from the depreciation and amortization of acquisition accounting write-ups to reflect the fair value of inventory, property, plant and equipment, and intangible assets. |
2010
Versus 2009
Fluid Management 2010 revenue and earnings increased by 29% and
50%, respectively, compared with 2009. The improvement in
revenue was driven by a 25% increase in core business revenue
and a 4% increase from acquisitions completed in 2009 and 2010,
along with a nominal impact from favorable foreign currency
translation. The increase in revenue is primarily attributed to
continued recovery in the oil and gas markets served by the
Energy platform as well as in the industrial markets served by
the Fluid Solutions platform, along with market share gains at
select operating companies. Segment earnings and operating
margin reflect the benefit of higher sales volumes, productivity
improvements and favorable product mix.
The Energy platform’s 2010 revenue and earnings increased
42% and 63%, respectively, compared with 2009. Organic revenue
growth of 34% was driven by higher demand and market share gains
in the oil and gas sector, which experienced a significant
increase in active North American drilling rigs. The 2009
Inpro/Seal acquisition contributed revenue growth of
approximately 7%, and foreign currency translation favorably
impacted revenue by 1%. The increase in earnings is the result
of higher sales volume and benefits from productivity
improvements and 2009 restructuring initiatives.
The Fluid Solutions platform revenue and earnings increased 17%
and 31%, respectively, compared with 2009 due to higher demand
in substantially all end-markets, including chemical, sanitary,
transportation, retail fueling and life sciences. Earnings were
favorably impacted by the increased volumes and productivity
improvements.
29
Table of Contents
2009
Versus 2008
Fluid Management 2009 revenue and earnings decreased by 26% and
33%, respectively, compared with 2008. The decline in revenue
was primarily driven by a 25% decline in core business revenue
and an unfavorable impact of foreign exchange of 2%. The decline
in revenue was partially offset by growth of 1% from the full
year effect of 2008 acquisitions and a 2009 acquisition. The
earnings decline was driven by reduced revenue,
$9.7 million in restructuring charges and acquisition
related expenses of $2.5 million.
The Energy platform’s 2009 revenue and earnings decreased
33% and 38%, respectively, compared with 2008. The decline in
revenue was a result of lower demand in the oil, gas and power
generation industries, partially offset by the impact of 2008
and 2009 acquisitions. The platform experienced a recent
increase in revenue growth stemming from increases in active
North American drilling rigs. The decrease in earnings was a
result of lower sales volume, restructuring charges of
$3.0 million and acquisition related expenses of
$2.5 million, partially offset by operational improvements
and cost savings as a result of restructuring activities.
Waukesha Bearings acquired Inpro/Seal Company on
December 30, 2009, which accounted for the majority of the
acquisition costs.
The Fluid Solutions 2009 platform revenue and earnings decreased
17% and 20%, respectively, compared with 2008 due to lower
demand in its various industrial markets served. Decreased
earnings reflected lower sales volume and $6.7 million of
restructuring charges.
Electronic
Technologies
| % Change | ||||||||||||||||||||
|
2010
|
2009
|
|||||||||||||||||||
| Years Ended December 31, |
versus
|
versus
|
||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Revenue
|
$ | 1,423,664 | $ | 1,026,954 | $ | 1,396,131 | 39 | % | (26 | )% | ||||||||||
|
Segment earnings
|
250,428 | 83,694 | 193,641 | 199 | % | (57 | )% | |||||||||||||
|
Operating margin
|
17.6 | % | 8.1 | % | 13.9 | % | ||||||||||||||
|
Acquisition related depreciation and amortization expense*
|
$ | 33,998 | $ | 33,203 | $ | 36,481 | 2 | % | (9 | )% | ||||||||||
|
Bookings
|
$ | 1,544,954 | $ | 1,055,282 | $ | 1,342,382 | 46 | % | (21 | )% | ||||||||||
|
Backlog
|
342,578 | 206,893 | 175,317 | 66 | % | 18 | % | |||||||||||||
| * | Represents the pre-tax impact on earnings from the depreciation and amortization of acquisition accounting write-ups to reflect the fair value of inventory, property, plant and equipment, and intangible assets. |
2010
Versus 2009
Electronic Technologies 2010 revenue and earnings increased 39%
and 199%, respectively, compared with 2009. The increase in
revenues was supported by organic revenue growth of 39% and
growth from acquisitions of 1%, offset by a 1% unfavorable
impact from foreign currency translation. The organic revenue
growth was primarily driven by strong demand for electronic
assembly equipment, Micro Electronic Mechanical Systems
(“MEMS”) microphones, hearing aid components and
telecom infrastructure related products. Demand also continues
to grow for the segment’s emerging solar products. Revenue
from the electronic assembly equipment companies increased 77%,
while revenue of the communication component companies increased
20% compared with 2009. Earnings and operating margin in 2010
were favorably impacted by higher sales volume and production
leverage, coupled with the absence of significant restructuring
charges in the current year and the benefit of prior year
restructuring programs.
2009
Versus 2008
Electronic Technologies 2009 revenue and earnings decreased 26%
and 57%, respectively, compared with 2008 primarily driven by
weak demand for telecom components and electronic assembly and
test equipment. The decline in core revenue was 24% and there
was a 2% unfavorable impact on revenue from foreign exchange.
MEMS products continued to show increased customer adoption,
while military and space programs continued to provide a
30
Table of Contents
constructive business climate for the segment’s electronic
component companies. Earnings in 2009 were negatively impacted
by lower sales volume and $26.6 million of restructuring
charges. In addition, the comparability of 2009 earnings was
impacted by the favorable impact of 2008 earnings, which
included a $7.5 million gain on the sale of a business
(semi-conductor test handling).
FINANCIAL
CONDITION
Liquidity
and Capital Resources
Net
Debt to Net Capitalization
The Company utilizes the net debt to net capitalization
calculation (a non-GAAP measure) to assess its overall financial
leverage and capacity and believes the calculation is useful to
investors for the same reason. The following table provides a
reconciliation of net debt to net capitalization to the most
directly comparable GAAP measures:
| At December 31, | ||||||||||||
| Net Debt to Net Capitalization Ratio | 2010 | 2009 | 2008 | |||||||||
| (In thousands) | ||||||||||||
|
Current maturities of long-term debt
|
$ | 1,925 | $ | 35,624 | $ | 32,194 | ||||||
|
Commercial paper
|
15,000 | — | 192,750 | |||||||||
|
Long-term debt
|
1,790,886 | 1,825,260 | 1,860,729 | |||||||||
|
Total debt
|
1,807,811 | 1,860,884 | 2,085,673 | |||||||||
|
Less: Cash, cash equivalents and short-term investments
|
(1,309,095 | ) | (938,174 | ) | (826,869 | ) | ||||||
|
Net debt
|
498,716 | 922,710 | 1,258,804 | |||||||||
|
Add: Stockholders’ equity
|
4,526,562 | 4,083,608 | 3,792,866 | |||||||||
|
Net capitalization
|
$ | 5,025,278 | $ | 5,006,318 | $ | 5,051,670 | ||||||
|
Net debt to net capitalization
|
9.9 | % | 18.4 | % | 24.9 | % | ||||||
The Company’s net debt to net capitalization levels
improved during 2010, primarily as a result of cash generated
from operations and lower levels of acquisition investments. In
addition, long-term debt decreased due to scheduled repayments,
coupled with the early extinguishment of a structured
non-interest bearing loan in the third quarter.
At December 31, 2010, the Company’s cash, cash
equivalents and short-term investments totaled
$1.3 billion, representing an increase of
$371 million, as compared with the 2009 balance. Cash and
equivalents are invested in highly liquid investment grade money
market instruments with maturities of three months or less. The
Company regularly invests cash in excess of near-term
requirements in short-term investments, which consist of
investment grade time deposits with original maturity dates at
the time of purchase greater than three months, up to twelve
months. At December 31, 2010, the Company’s total
cash, cash equivalents and short-term investments included
$1.2 billion held outside of the United States, and the
Company intends to use a significant portion of this to fund the
Sound Solutions acquisition, as described in Note 17 to the
Consolidated Financial Statements.
Free
Cash Flow
In addition to measuring its cash flow generation and usage
based upon the operating, investing and financing
classifications included in the Consolidated Statements of Cash
Flows (as analyzed in the sections below), the Company also
measures free cash flow (a non-GAAP measure). Management
believes that free cash flow is an important measure of
operating performance because it provides management and
investors a measurement of cash generated from operations that
is available to repay debt, pay dividends, fund acquisitions and
repurchase the Company’s common stock. For further
information, see Non-GAAP Disclosures at the end of this
Item 7.
31
Table of Contents
The following table reconciles free cash flow to cash flows from
operating activities:
| Years Ended December 31, | ||||||||||||
| Free Cash Flow | 2010 | 2009 | 2008 | |||||||||
| (In thousands) | ||||||||||||
|
Cash flow provided by operating activities
|
$ | 950,551 | $ | 802,060 | $ | 1,010,416 | ||||||
|
Less: Capital expenditures
|
(183,217 | ) | (120,009 | ) | (175,795 | ) | ||||||
|
Free cash flow
|
$ | 767,334 | $ | 682,051 | $ | 834,621 | ||||||
|
Free cash flow as a percentage of revenue
|
10.8 | % | 11.8 | % | 11.0 | % | ||||||
Free cash flow in 2010 was $767.3 million or 10.8% of
revenue, compared to $682.1 million or 11.8% of revenue in
2009 and $834.6 million or 11.0% of revenue in 2008. The
2010 increase in free cash flow compared to 2009 reflects higher
earnings from continuing operations offset by investment in
working capital and an increase in capital expenditures as
compared to the prior year. The 100 basis point decline in
free cash flow as a percentage of revenue was the result of the
significant reduction in working capital realized in 2009
coupled with lower revenue levels.
The 2009 decrease in free cash flow compared to 2008 reflected
lower earnings from continuing operations and higher employee
benefit contributions partially offset by improvements in
working capital and a decrease in capital expenditures. The
increase in free cash flow as a percentage of revenue was due to
active management of adjusted working capital in a lower revenue
environment.
The Company uses commercial paper borrowings for general
corporate purposes, including the funding of acquisitions and
the repurchase of its common stock. The Company currently
maintains an unsecured revolving credit facility with a
syndicate of banks which permits borrowings up to
$1 billion, which expires on November 9, 2012. This
facility is used primarily as liquidity
back-up
for
the Company’s commercial paper program. The Company has not
drawn down any loans under this facility nor does it anticipate
doing so. If the Company were to draw down a loan, at the
Company’s election, the loan would bear interest at a
Eurodollar or Sterling rate based on LIBOR, plus an applicable
margin ranging from 0.13% to 0.35% (subject to adjustment based
on the rating accorded the Company’s senior unsecured debt
by S&P and Moody’s) or at a base rate pursuant to a
formula defined in the facility. Under this facility, the
Company is required to maintain an interest coverage ratio of
EBITDA to consolidated net interest expense of not less than 3.5
to 1. The Company was in compliance with this covenant and its
other long-term debt covenants at December 31, 2010 and had
a coverage ratio of 12.1 to 1. The Company is not aware of any
potential impairment to its liquidity and expects to remain in
compliance with all of its debt covenants.
The Company also has a current shelf registration statement
filed with the SEC, with remaining capacity of
$600 million, that allows for the issuance of additional
debt securities that may be offered in one or more offerings on
terms to be determined at the time of the offering. Net proceeds
of any offering would be used for general corporate purposes,
including repayment of existing indebtedness, capital
expenditures and acquisitions.
The Company has a $400 million face value note issuance
coming due on February 15, 2011. This amount is classified
as long-term within the consolidated balance sheet at
December 31, 2010, as the Company has the ability and
intends to refinance this debt on a long-term basis.
At December 31, 2010, the Company also had an outstanding
floating-to-floating
cross currency swap agreement for a total notional amount of
$50 million in exchange for CHF 65.1 million, which
matures on February 15, 2011. This transaction hedges a
portion of the Company’s net investment in
non-U.S. operations.
The agreement qualifies as a net investment hedge and changes in
the fair value are reported within the cumulative translation
adjustment section of other comprehensive income, with any hedge
ineffectiveness being recognized in current earnings. The fair
values at December 31, 2010 and 2009 reflected losses of
$19.8 million and $13.3 million, respectively, due to
the strengthening of the Swiss franc relative to the
U.S. dollar over the term of this arrangement. Prior to
this hedge maturing, the Company intends to assess market
conditions and make a decision as to whether to settle the
liability with available sources of liquidity or renew the hedge
arrangement.
The Company’s ability to obtain debt financing at
comparable risk-based interest rates is partly a function of its
existing cash-flow-to-debt and
debt-to-capitalization
levels as well as its current credit standing. The
Company’s
32
Table of Contents
credit ratings, which are independently developed by the
respective rating agencies, were as follows as of
December 31, 2010:
|
Short Term
|
Long Term
|
|||||||||||
| Rating | Rating | Outlook | ||||||||||
|
Moody’s
|
P-1 | A2 | Stable | |||||||||
|
Standard & Poor’s
|
A-1 | A | Stable | |||||||||
|
Fitch
|
F1 | A | Stable | |||||||||
The Company believes that existing sources of liquidity are
adequate to meet anticipated funding needs at comparable
risk-based interest rates for the foreseeable future.
Acquisition spending
and/or
share
repurchases could potentially increase the Company’s debt.
However, management anticipates that the net debt to net
capitalization ratio will remain generally consistent with the
historical range of 25%-30%. Operating cash flow and access to
capital markets are expected to satisfy the Company’s
various cash flow requirements, including acquisitions and
capital expenditures.
Management also assesses the Company’s liquidity in terms
of its ability to generate cash to fund its operating, investing
and financing activities. Significant factors affecting
liquidity are: cash flows generated from operating activities,
capital expenditures, acquisitions, dispositions, dividends,
repurchases of outstanding shares, adequacy of available
commercial paper and bank lines of credit, and the ability to
attract long-term capital with satisfactory terms. The Company
generates substantial cash from operations and remains in a
strong financial position, with sufficient liquidity available
for reinvestment in existing businesses and strategic
acquisitions while managing its capital structure on a short and
long-term basis.
Cash Flow
Summary
The following table is derived from the Company’s
Consolidated Statements of Cash Flows:
| Years Ended December 31, | ||||||||||||
| Cash Flows from Continuing Operations | 2010 | 2009 | 2008 | |||||||||
| (In thousands) | ||||||||||||
|
Net Cash Flows Provided By (Used In):
|
||||||||||||
|
Operating activities
|
$ | 950,551 | $ | 802,060 | $ | 1,010,416 | ||||||
|
Investing activities
|
(178,957 | ) | (257,865 | ) | (452,994 | ) | ||||||
|
Financing activities
|
(304,788 | ) | (389,953 | ) | (560,904 | ) | ||||||
Operating
Activities
Cash provided by operating activities in 2010 increased
$148.5 million from 2009. Higher sales volume increased
2010 net earnings before depreciation and amortization by
$354 million as compared with 2009. This was offset by a
$223 million increase in working capital necessary to
support the increase in 2010 order and revenue levels, compared
to a $229 million decrease in working capital in the 2009
period when sales levels had declined. Other factors
contributing to the 2010 increase in operating cash flows
included $52 million less in restructuring payments,
$21 million less of post-retirement plan contributions, and
a $40 million increase in unearned/deferred revenue due to
additional sales activity in the 2010 period.
Cash flows provided by operating activities in 2009 decreased
$208.4 million from 2008, primarily reflecting lower
earnings on reduced sales from continuing operations and
increased contributions to employee benefit plans, partially
offset by improvements in working capital.
Postretirement costs relating to pension and other
employee-related defined benefit plans affect results in all
segments. The Company recorded net periodic benefit cost of
$33 million, $37 million and $36 million in 2010,
2009 and 2008, respectively, relating to its benefit plans
(including its defined benefit, supplemental and post-retirement
plans). As further described in Note 13, the main drivers
of the expense variance from year to year are the expected
returns on plan assets, the service cost and the interest cost.
In 2010, the actual return on plan assets increased, consistent
with increased returns within the global equity markets. In
2011, the Company expects its net
33
Table of Contents
periodic benefit cost to be approximately $36 million, with
the increase compared to 2010 being attributed to higher
amortization relating to unrecognized losses.
The funded status of the Company’s qualified defined
benefit pension plans is dependent upon many factors, including
returns on invested assets and the level of market interest
rates. The Company contributes cash to its plans at its
discretion, subject to applicable regulations and minimum
contribution requirements. Cash contributions to qualified
defined benefit pension plans in 2010, 2009 and 2008 totaled
$38 million, $51 million and $35 million,
respectively. See Note 13 to the Consolidated Financial
Statements for further discussion regarding the Company’s
post-retirement plans.
At December 31, 2010, the Company’s qualified defined
benefit plans were underfunded by $49 million, which
includes $7 million relating to the U.S. Dover
Corporate Pension Plan and $42 million relating to the
Company’s significant international pension plans, some in
locations where it is not economically advantageous to pre-fund
the plans due to local regulations. The majority of the
international obligations relate to defined pension plans
operated by the Company’s businesses in Germany, the United
Kingdom and Switzerland. In 2011, the Company expects to
contribute approximately $40 million to its qualified
defined benefit plans.
Investing
Activities
Cash used in investing activities during 2010 decreased
$78.9 million compared to 2009, largely due to lower
spending on acquisitions in 2010, offset in part by higher net
proceeds from the sale of short-term investments and higher
capital investments.
Cash used in investing activities during 2009 decreased
$195.1 million compared to 2008, largely reflecting reduced
capital expenditures and higher net proceeds from the sale of
short-term investments, partially offset by higher acquisition
investments and reduced proceeds from the sale of businesses.
Cash consideration paid for acquisitions was $104 million
in 2010 compared to $222 million in 2009 and
$104 million in 2008. In addition, during the fourth
quarter of 2010, the Company signed a definitive agreement to
acquire the Sound Solutions business of NXP Semiconductors.
Sound Solutions, which is currently headquartered in Vienna,
Austria, is one of the world’s leading manufacturers of
dynamic speakers and receivers for the global cell phone market
and will become part of Knowles Electronics, which is an
operating unit of Dover’s Electronic Technologies segment.
The purchase price is $855 million, subject to customary
regulatory approvals, and the deal is expected to close around
the end of the first quarter or early in the second quarter of
2011. This acquisition is expected to be entirely funded by cash
and equivalents currently held outside the U.S.
Effective January 3, 2011, the Company also completed the
acquisition of Harbison-Fischer, Inc., a Texas-based leading
designer and manufacturer of down-hole rod pumps and related
products for $402.5 million, subject to normal closing
adjustments. Harbison-Fischer’s 2011 revenue is expected to
be approximately $160 million. The business will become
part of Norris Production Solutions, which is an operating unit
of Dover’s Fluid Management segment.
The Company currently anticipates that these and any other
acquisitions made during 2011 will be funded from available cash
and internally generated funds, and if necessary, through the
issuance of commercial paper or through public debt markets.
Cash used for capital expenditures increased to
$183 million in 2010, compared to $120 million in 2009
and $176 million in 2008, with the increase driven by
capacity expansion requirements of the Company’s
high-growth businesses. Additionally, 2009 capital spending was
at reduced levels due to management’s spending discretion
in response to the weakened economic environment.
Capital expenditures during 2011 are expected to be
approximately 3.0% to 3.2% of revenue, which compares to 2010
capital expenditures as a percent of revenue of 2.6%. The
increase continues to be driven by capacity expansion in
high-growth areas, including significant investment to support
increased demand in the energy and cell phone markets.
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Table of Contents
Financing
Activities
Cash used in financing activities during 2010 decreased
$85.2 million compared to 2009, due mainly to lower debt
repayments in 2010 and cash inflows from exercise of stock
options, offset by share repurchases made in 2010. In 2010, the
Company’s net repayments of debt and commercial paper were
$166 million lower than in 2009. Proceeds from the exercise
of stock options increased by $53 million in 2010 compared
to 2009 due to the increased exercise of stock options.
Cash used in financing activities during 2009 decreased
$171.0 million compared to 2008 primarily driven by the
absence of share repurchases versus the prior year and reduced
proceeds from the exercise of stock options, partially offset by
debt repayments and higher dividend payments in 2009.
During 2010, financing cash outflows included repurchase of
approximately 2.3 million shares of its common stock in the
open market for approximately $124 million, pursuant to the
10,000,000 share repurchase program authorized by the Board
of Directors in May 2007. The Company had no share repurchases
in 2009. Approximately 6.6 million shares remain authorized
for repurchase under this 10,000,000 five year authorization as
of December 31, 2010. In 2008, pursuant to a separate
$500 million share repurchase program approved by the Board
of Directors in the fourth quarter of 2007, the Company
repurchased 10,000,000 shares of its common stock in the
open market for $467 million. The Company has completed the
purchase of all shares under this $500 million share
repurchase program.
In 2010, the Company paid quarterly dividends totaling $1.07 per
share for the year, for a total of $200 million and a 5%
increase over 2009 payments. In 2009 and 2008, $190 million
and $169 million, respectively, was paid to shareholders.
Adjusted
Working Capital
In 2010, Adjusted Working Capital (a non-GAAP measure calculated
as accounts receivable, plus inventory, less accounts payable)
increased from 2009 by $240 million, or 22%, to
$1.3 billion, which reflected an increase in receivables of
$209 million, an increase in net inventory of
$143 million and an increase in accounts payable of
$112 million, generally due to additional working capital
investment necessary to support the increased revenue levels.
Excluding acquisitions, dispositions, and the effects of foreign
exchange translation of $14 million, Adjusted Working
Capital would have increased by $226 million, or 21%.
“Average Annual Adjusted Working Capital” as a
percentage of revenue (a non-GAAP measure calculated as the
five-quarter average balance of accounts receivable, plus
inventory, less accounts payable divided by the trailing twelve
months of revenue) decreased to 17.6% at December 31, 2010
from 19.9% at December 31, 2009, and inventory turns were
6.7 at December 31, 2010 compared to 6.2 at
December 31, 2009.
Off-Balance
Sheet Arrangements and Contractual Obligations
As of December 31, 2010, the Company had approximately
$66.0 million outstanding in letters of credit with
financial institutions, which expire at various dates in 2011
through 2015. These letters of credit are primarily maintained
as security for insurance, warranty and other performance
obligations. In general, the Company would only be liable for
the amount of these guarantees in the event of default in the
performance of its obligations, the probability of which is
remote in management’s opinion.
The Company has also provided typical indemnities in connection
with sales of certain businesses and assets, including
representations and warranties and related indemnities for
environmental, health and safety, tax and employment matters.
The Company does not have liabilities recorded for certain of
the historic indemnifications and is not aware of any claims or
other information that would give rise to material payments
under such indemnities.
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Table of Contents
A summary of the Company’s consolidated contractual
obligations and commitments as of December 31, 2010 and the
years when these obligations are expected to be due is as
follows:
| Payments Due by Period | ||||||||||||||||||||||||
|
Less than
|
More than
|
|||||||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | Other(4) | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Long-term debt(1)
|
1,792,811 | $ | 401,911 | $ | 1,116 | $ | 299,047 | $ | 1,090,737 | $ | — | |||||||||||||
|
Interest expense(2)
|
1,293,735 | 82,875 | 159,250 | 157,422 | 894,188 | — | ||||||||||||||||||
|
Rental commitments
|
237,358 | 54,544 | 76,730 | 43,048 | 63,036 | — | ||||||||||||||||||
|
Purchase obligations
|
30,543 | 27,899 | 2,597 | 47 | — | — | ||||||||||||||||||
|
Capital leases
|
3,467 | 1,149 | 1,494 | 184 | 640 | — | ||||||||||||||||||
|
Supplemental & post-retirement
benefits(3)
|
116,008 | 18,706 | 22,562 | 31,828 | 42,912 | — | ||||||||||||||||||
|
Uncertain tax positions(4)
|
226,088 | 29,641 | — | — | — | 196,447 | ||||||||||||||||||
|
Total obligations
|
$ | 3,700,010 | $ | 616,725 | $ | 263,749 | $ | 531,576 | $ | 2,091,513 | $ | 196,447 | ||||||||||||
| (1) | See Note 8 to the Consolidated Financial Statements. Amounts represent total long-term debt, including current maturities. The amount presented within the less than one year category includes $399,986 relating to the Company’s 6.50% notes which mature February 15, 2011. This amount is classified as long-term within the Consolidated Balance Sheet at December 31, 2010 as the Company has the ability and intends to refinance this debt on a long-term basis. The Company anticipates refinancing this debt with a maturity date beyond five years; however, since the terms of the refinancing have not been finalized, the debt is reflected within the less than one year category in the above table. | |
| (2) | Amounts represent estimate of future interest payments on long-term debt using the interest rates in effect at December 31, 2010. | |
| (3) | Amounts represent estimated benefit payments under the Company’s supplemental and post-retirement benefit plans. See Note 13 to the Consolidated Financial Statements. The Company also expects to contribute approximately $40 million to its qualified defined benefit plans in 2011, which amount is not reflected in the above table. | |
| (4) | Due to the uncertainty of the potential settlement of future uncertain tax positions, management is unable to estimate the timing of the related payments, if any, that will be made subsequent to 2011. These amounts do not include the potential indirect benefits resulting from deductions or credits for payments made to other jurisdictions. |
Critical
Accounting Policies
The Company’s consolidated financial statements and related
public financial information are based on the application of
generally accepted accounting principles in the United States of
America (“GAAP”). GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of
accounting principles that have an impact on the assets,
liabilities, revenue and expense amounts reported. These
estimates can also affect supplemental information contained in
the public disclosures of the Company, including information
regarding contingencies, risk and its financial condition. The
significant accounting policies used in the preparation of the
consolidated financial statements are discussed in Note 1.
The accounting assumptions and estimates discussed in the
section below are those that management considers most critical
to an understanding of the Company’s financial statements
because they inherently involve significant judgments and
estimates. The Company believes its use of estimates and
underlying accounting assumptions conform to GAAP and are
consistently applied. Valuations based on estimates are reviewed
for reasonableness on a consistent basis throughout the Company.
| • | Revenue is recognized when all of the following circumstances are satisfied: a) persuasive evidence of an arrangement exists, b) price is fixed or determinable, c) collectability is reasonably assured, and d) delivery has occurred. In revenue transactions where installation is required, revenue can be recognized when the installation obligation is not essential to the functionality of the delivered products. Revenue transactions involving non-essential installation obligations are those which can generally be completed in a short period of time at insignificant cost and the skills required to complete these installations are not unique to the |
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| Company and in many cases can be provided by third parties or the customers. If the installation obligation is essential to the functionality of the delivered product, then revenue recognition is deferred until installation is complete. In addition, when it is determined that there are multiple deliverables to a sales arrangement, the Company will allocate consideration received to the separate deliverables based on their relative fair values and recognize revenue based on the appropriate criteria for each deliverable identified. In a limited number of revenue transactions, other post shipment obligations such as training and customer acceptance are required and, accordingly, revenue recognition is deferred until the customer is obligated to pay, or acceptance has been confirmed. Service revenue is recognized and earned when services are performed. Revenues associated with construction-type contracts are recorded using the percentage-of-completion method. The Company recognizes contract revenue under percentage-of-completion accounting using the cost to cost method measure of progress. The application of percentage of completion accounting requires estimates of future revenues and contract costs over the full term of the contract. The Company updates project cost estimates on a quarterly basis or more frequently when changes in circumstances warrant. |
| • | Inventory for the majority of the Company’s subsidiaries, including all international subsidiaries, are stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or market. Other domestic inventory is stated at cost, determined on the last-in, first-out (LIFO) basis, which is less than market value. Under certain market conditions, estimates and judgments regarding the valuation of inventory are employed by the Company to properly value inventory. The Electronic Technologies companies tend to experience somewhat higher levels of inventory value fluctuations, particularly given the relatively high rate of product obsolescence over relatively short periods of time. | |
| • | Occasionally, the Company will establish restructuring reserves at an operation, in accordance with appropriate accounting principles. These reserves, for both severance and exit costs, require the use of estimates. Though the Company believes that these estimates accurately reflect the anticipated costs, actual results may be different than the estimated amounts. | |
| • | The Company has significant tangible and intangible assets on its balance sheet that include goodwill and other intangibles related to acquisitions. The valuation and classification of these assets and the assignment of useful depreciation and amortization lives involve significant judgments and the use of estimates. The testing of these intangibles under established accounting guidelines for impairment also requires significant use of judgment and assumptions, particularly as it relates to the identification of reporting units and the determination of fair market value. The Company’s assets and reporting units are tested and reviewed for impairment on an annual basis during the fourth quarter or, when indicators of impairment exist, such as a significant sustained change in the business climate, during the interim periods. The Company estimates fair value using discounted cash flow analyses (i.e. an income approach) which incorporate management assumptions relating to future growth and profitability. Changes in business or market conditions could impact the future cash flows used in such analyses. The Company believes that its use of estimates and assumptions are reasonable and comply with generally accepted accounting principles. No goodwill impairment was indicated by the Company’s testing of its 10 identified reporting units in the fourth quarter of 2010, and the fair values of the reporting units significantly exceeded the carrying values. If the fair value of each of the reporting units was decreased by 10%, the resulting fair value would still have exceeded the carrying value and no impairment would have been recognized. | |
| • | The valuation of the Company’s pension and other post-retirement plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses and assets/liabilities. Inherent in these valuations are key assumptions, including discount rates, investment returns, projected salary increases and benefits, and mortality rates. The actuarial assumptions used in the Company’s pension reporting are reviewed annually and are compared with external benchmarks to ensure that they accurately account for the Company’s future pension obligations. Changes in assumptions and future investment returns could potentially have a material impact on the Company’s pension expenses and related funding requirements. The Company’s expected long-term rate of return on plan assets is reviewed annually based on actual returns, economic trends and portfolio allocation. The Company’s discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plans’ expected benefit payment streams. The plans’ expected cash flows are then discounted by the resulting year-by-year |
37
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| spot rates. As disclosed in Note 13 to the Consolidated Financial Statements, the Company’s 2010 weighted-average discount rates used to measure its qualified defined benefit, supplemental and other post-retirement obligations were 5.37%, 5.50% and 5.10%, respectively, in each case reduced from the 2009 rates of 5.71%, 5.95% and 5.50%, respectively. The reduced discount rates are reflective of the decline in global market interests over these periods. A 25 basis point decrease in the discount rates used for these plans would have increased the post retirement benefit obligations by approximately $26.7 million from the amount recorded in the financial statements at December 31, 2010. The Company’s pension expense is also sensitive to changes in the expected long-term rate of return on plan assets. A decrease of 25 basis points in the expected long-term rate of return on assets would have increased the Company’s defined benefit pension expense by approximately $1.3 million. |
| • | The Company has significant amounts of deferred tax assets that are reviewed for recoverability and valued accordingly. These assets are evaluated by using estimates of future taxable income streams and the impact of tax planning strategies. Reserves are also estimated, using more likely than not criteria, for ongoing audits regarding federal, state and international issues that are currently unresolved. The Company routinely monitors the potential impact of these situations and believes that it is properly reserved. Reserves related to tax accruals and valuations related to deferred tax assets can be impacted by changes in accounting regulations, changes in tax codes and rulings, changes in statutory tax rates, and the Company’s future taxable income levels. The provision for uncertain tax positions provides a recognition threshold and measurement attribute for financial statement tax benefits taken or expected to be taken in a tax return and disclosure requirements regarding uncertainties in income tax positions. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company records interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes. | |
| • | The Company has significant accruals and reserves related to the self-insured portion of its risk management program. These accruals require the use of estimates and judgment with regard to risk exposure and ultimate liability. The Company estimates losses under these programs using actuarial assumptions, the Company’s experience and relevant industry data. The Company reviews these factors quarterly and considers the current level of accruals and reserves adequate relative to current market conditions and Company experience. | |
| • | The Company has established reserves for environmental and legal contingencies at both the operating company and corporate levels. A significant amount of judgment and the use of estimates is required to quantify the Company’s ultimate exposure in these matters. The valuation of reserves for contingencies is reviewed on a quarterly basis at the operating and corporate levels to ensure that the Company is properly reserved. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While the Company believes that the current level of reserves is adequate, future changes in circumstances could impact these determinations. | |
| • | The Company from time to time will discontinue certain operations for various reasons. Estimates are used to adjust, if necessary, the assets and liabilities of discontinued operations to their estimated fair market value. These estimates include assumptions relating to the proceeds anticipated as a result of the sale. Fair value is established using internal valuation calculations along with market analysis of similar-type entities. The adjustments to fair market value of these operations provide the basis for the gain or loss when sold. Changes in business conditions or the inability to sell an operation could potentially require future adjustments to these estimates. | |
| • | The Company is required to recognize in its consolidated statements of operations the expense associated with all share-based payment awards made to employees and directors, including stock options, stock appreciation rights (SARs), restricted stock and performance share awards. The Company uses the Black-Scholes valuation model to estimate the fair value of its SARs, and stock options that are granted to employees. The model requires management to estimate the expected life of the SAR or option, expected forfeitures and the volatility of the Company’s stock using historical data. The Company uses the Monte Carlo simulation model to estimate fair value of performance share awards which also requires management |
38
Table of Contents
| to estimate the volatility of its stock and the volatility of returns on the stock of its peer group as well as the correlation of the returns between the companies in the peer group. For additional information related to the assumptions used, see Note 10 to the Consolidated Financial Statements in Item 8 of this Form 10-K. |
New
Accounting Standards
In January 2010, the FASB issued Accounting Standards Update
(“ASU”)
2010-06
which is intended to improve disclosures about fair value
measurements. The guidance requires entities to disclose
significant transfers in and out of fair value hierarchy levels,
the reasons for the transfers and to present information about
purchases, sales, issuances and settlements separately in the
reconciliation of fair value measurements using significant
unobservable inputs (Level 3). Additionally, the guidance
clarifies that a reporting entity should provide fair value
measurements for each class of assets and liabilities and
disclose the inputs and valuation techniques used for fair value
measurements using significant other observable inputs
(Level 2) and significant unobservable inputs
(Level 3). The Company has applied the new disclosure
requirements as of January 1, 2010, except for the
disclosures about purchases, sales, issuances and settlements in
the Level 3 reconciliation, which will be effective for
interim and annual periods beginning after December 15,
2010. The adoption of this guidance has not had and is not
expected to have a material impact on the Company’s
consolidated financial statements.
In October 2009, the FASB issued ASU
2009-13
which amends existing guidance for identifying separate
deliverables in a revenue-generating transaction where multiple
deliverables exist, and provides guidance for allocating and
recognizing revenue based on those separate deliverables. The
guidance is expected to result in more multiple-deliverable
arrangements being separable than under current guidance. This
guidance is effective for the Company beginning on
January 1, 2011 and is required to be applied prospectively
to new or significantly modified revenue arrangements. Its
adoption is not expected to significantly impact the
Company’s consolidated financial statements.
In October 2009, the FASB issued ASU
2009-14
which eliminates tangible products containing both software and
non-software components that operate together to deliver a
product’s functionality from the scope of current generally
accepted accounting principles for software. This guidance is
effective for the Company beginning on January 1, 2011 and
is required to be applied prospectively to new or significantly
modified revenue arrangements. Its adoption is not expected to
significantly impact the Company’s consolidated financial
statements.
Non-GAAP Disclosures
In an effort to provide investors with additional information
regarding the Company’s results as determined by generally
accepted accounting principles (GAAP), the Company also
discloses non-GAAP information which management believes
provides useful information to investors. Free cash flow, net
debt, the net debt to net capitalization ratio, total debt,
total capitalization, adjusted working capital, average annual
adjusted working capital, revenues excluding the impact of
changes in foreign currency exchange rates and organic revenue
growth are not financial measures under GAAP and should not be
considered as a substitute for cash flows from operating
activities, debt or equity, revenue and working capital as
determined in accordance with GAAP, and they may not be
comparable to similarly titled measures reported by other
companies. Management believes the (1) net debt to net
capitalization ratio and (2) free cash flow are important
measures of operating performance and liquidity. Net debt to net
capitalization is helpful in evaluating the Company’s
capital structure and the amount of leverage it employs. Free
cash flow provides both management and investors a measurement
of cash generated from operations that is available to fund
acquisitions, pay dividends, repay debt and repurchase the
Company’s common stock. Reconciliations of free cash flow,
total debt and net debt can be found above in this Item 7,
Management’s Discussion and Analysis of Financial Condition
and Results of Operation. Management believes that reporting
adjusted working capital (also sometimes called “working
capital”), which is calculated as accounts receivable, plus
inventory, less accounts payable, provides a meaningful measure
of the Company’s operational results by showing the changes
caused solely by revenue. Management believes that reporting
adjusted working capital and revenues at constant currency,
which excludes the positive or negative impact of fluctuations
in foreign currency exchange rates, provides a meaningful
measure of the Company’s operational changes, given the
global nature of Dover’s businesses. Management believes
that reporting organic revenue growth, which excludes the impact
of foreign currency exchange rates and the impact of
acquisitions, provides a useful comparison of the Company’s
revenue performance and trends between periods.
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Table of Contents
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
The diverse nature of the Company’s business activities
necessitates the management of various financial and market
risks, including those related to changes in interest rates,
foreign currency exchange rates and commodity prices. The
Company periodically uses derivative financial instruments to
manage some of these risks. The Company does not hold or issue
derivative instruments for trading or speculative purposes. The
Company is exposed to credit loss in the event of nonperformance
by counterparties to the financial instrument contracts held by
the Company; however, nonperformance by these counterparties is
considered unlikely as the Company’s policy is to contract
with highly-rated, diversified counterparties.
Interest
Rate Exposure
The Company may from time to time enter into interest rate swap
agreements to manage its exposure to interest rate changes. As
of December 31, 2010, the Company did not have any open
interest rate swap contracts. The Company issues commercial
paper, which exposes it to changes in variable interest rates;
however, maturities are typically three months or less so a
change in rates over this period would have an immaterial impact
on the Company’s pre-tax earnings.
The Company considers its current risk related to market
fluctuations in interest rates to be minimal since its debt is
largely long-term and fixed-rate in nature. Generally, the fair
market value of fixed-interest rate debt will increase as
interest rates fall and decrease as interest rates rise. A
100 basis point increase in market interest rates would
decrease the fair value of Company’s long-term debt by
approximately $130 million. However, since the Company has
no plans to repurchase its outstanding fixed-rate instruments
before their maturities, the impact of market interest rate
fluctuations on the Company’s long-term debt does not
affect the Company’s results of operations or financial
position.
Foreign
Currency Exposure
The Company conducts business in various
non-U.S. countries,
primarily in Canada, Mexico, substantially all of the European
countries, Brazil, Argentina, Malaysia, China, India and other
Asian countries. Therefore, the Company has a significant volume
of foreign currency exposures that result from its international
sales, purchases, investments, borrowings and other
international transactions. Changes in the value of the
currencies of these countries affect the Company’s
financial position and cash flows when translated into
U.S. dollars.
The Company has generally accepted the exposure to exchange rate
movements relative to its investment in
non-U.S. operations.
The Company may, from time to time, for a specific exposure,
enter into fair value hedges. At December 31, 2010, the
Company had one outstanding
floating-to-floating
cross currency swap agreement for a total notional amount of
$50 million in exchange for CHF 65.1 million, which
matures on February 15, 2011. This transaction hedges a
portion of the Company’s net investment in
non-U.S. operations.
The agreement qualifies as a net investment hedge and changes in
the fair value are reported within the cumulative translation
adjustment section of other comprehensive income, with any hedge
ineffectiveness being recognized in current earnings. The fair
values at December 31, 2010 reflected losses of
$19.8 million and $13.3 million, due to the
strengthening of the Swiss franc relative to the
U.S. dollar over the term of this arrangement.
Certain individual operating companies that have foreign
exchange exposure have established formal policies to mitigate
risk in this area by using fair value
and/or
cash
flow hedging programs. The Company has mitigated and will
continue to mitigate a portion of its currency exposure through
operation of
non-U.S. operating
companies in which the majority of all costs are local-currency
based. A change of 5% or less in the value of all foreign
currencies would not have a material effect on the translation
of the Company’s balance sheet or statement of operations.
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Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENT SCHEDULE
(All
other schedules are not required and have been
omitted)
41
Table of Contents
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rule 13a-15(f).
The Company’s management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2010. In making this assessment, the
Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in
Internal Control — Integrated
Framework
.
Based on its assessment under the criteria set forth in
Internal Control — Integrated Framework
,
management concluded that, as of December 31, 2010, the
Company’s internal control over financial reporting was
effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. GAAP.
In making its assessment of internal control over financial
reporting as of December 31, 2010, management has excluded
those companies acquired in purchase business combinations
during 2010, which included BSC Filters, Chemilizer, Intek
Manufacturing, the Diagnostic Product Line of Dynalco Controls,
Gear Products, and
KMC/Bearings
Inc. These companies are wholly-owned by the Company and their
total revenue for the year ended December 31, 2010
represents approximately 0.3% of the Company’s consolidated
total revenue for the same period and their assets represent
approximately 1.3% of the Company’s consolidated assets as
of December 31, 2010.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2010 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their attestation report
which appears herein.
42
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Dover Corporation:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Dover Corporation and its subsidiaries
at December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010 based on criteria
established in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in “Management’s Report
on Internal Control Over Financial Reporting,” appearing
under Item 8. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule,
and on the Company’s internal control over financial
reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement and whether effective internal control
over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
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Table of Contents
As described in “Management’s Report on Internal
Control Over Financial Reporting,” management has excluded
BSC Filters, Chemilizer, Intek Manufacturing, the Diagnostic
Product Line of Dynalco Controls, Gear Products, and
KMC/Bearings Inc. from its assessment of internal control over
financial reporting as of December 31, 2010 because they
were acquired by the Company in purchase business combinations
during 2010. We have also excluded BSC Filters, Chemilizer,
Intek Manufacturing, the Diagnostic Product Line of Dynalco
Controls, Gear Products, and KMC/Bearings Inc. from our audit of
internal control over financial reporting. These subsidiaries
are wholly owned by the Company and their total assets and
revenue represent approximately 1.3% and 0.3%, respectively, of
the related consolidated financial statement amounts as of and
for the year ended December 31, 2010.
/s/
PricewaterhouseCoopers
LLP
Chicago, Illinois
February 11, 2011
44
Table of Contents
DOVER
CORPORATION
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share amounts) | ||||||||||||
|
Revenue
|
$ | 7,132,648 | $ | 5,775,689 | $ | 7,568,888 | ||||||
|
Cost of goods and services
|
4,399,990 | 3,676,535 | 4,838,881 | |||||||||
|
Gross profit
|
2,732,658 | 2,099,154 | 2,730,007 | |||||||||
|
Selling and administrative expenses
|
1,697,721 | 1,511,111 | 1,700,677 | |||||||||
|
Operating earnings
|
1,034,937 | 588,043 | 1,029,330 | |||||||||
|
Interest expense, net
|
106,341 | 100,375 | 96,037 | |||||||||
|
Other expense (income), net
|
3,512 | (3,950 | ) | (12,726 | ) | |||||||
|
Earnings before provision for income taxes and discontinued
operations
|
925,084 | 491,618 | 946,019 | |||||||||
|
Provision for income taxes
|
217,176 | 119,724 | 251,261 | |||||||||
|
Earnings from continuing operations
|
707,908 | 371,894 | 694,758 | |||||||||
|
Loss from discontinued operations, net
|
(7,804 | ) | (15,456 | ) | (103,927 | ) | ||||||
|
Net earnings
|
$ | 700,104 | $ | 356,438 | $ | 590,831 | ||||||
|
Basic earnings (loss) per common share:
|
||||||||||||
|
Earnings from continuing operations
|
$ | 3.79 | $ | 2.00 | $ | 3.69 | ||||||
|
Loss from discontinued operations, net
|
(0.04 | ) | (0.08 | ) | (0.55 | ) | ||||||
|
Net earnings
|
3.75 | 1.91 | 3.13 | |||||||||
|
Weighted average shares outstanding
|
186,897 | 186,136 | 188,481 | |||||||||
|
Diluted earnings (loss) per common share:
|
||||||||||||
|
Earnings from continuing operations
|
$ | 3.74 | $ | 1.99 | $ | 3.67 | ||||||
|
Loss from discontinued operations, net
|
(0.04 | ) | (0.08 | ) | (0.55 | ) | ||||||
|
Net earnings
|
3.70 | 1.91 | 3.12 | |||||||||
|
Weighted average shares outstanding
|
189,170 | 186,736 | 189,269 | |||||||||
|
Dividends paid per common share
|
$ | 1.07 | $ | 1.02 | $ | 0.90 | ||||||
The following table is a reconciliation of the share amounts
used in computing earnings per share:
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Weighted average shares outstanding — Basic
|
186,897 | 186,136 | 188,481 | |||||||||
|
Dilutive effect of assumed exercise of employee stock options,
SARs and performance shares
|
2,273 | 600 | 788 | |||||||||
|
Weighted average shares outstanding — Diluted
|
189,170 | 186,736 | 189,269 | |||||||||
|
Anti-dilutive options/SARs excluded from diluted EPS computation
|
1,378 | 9,176 | 5,103 | |||||||||
See Notes to Consolidated Financial Statements.
45
Table of Contents
DOVER
CORPORATION
|
At December 31,
|
At December 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 1,187,361 | $ | 714,365 | ||||
|
Short-term investments
|
121,734 | 223,809 | ||||||
|
Receivables, net of allowances of $34,151 and $41,832
|
1,087,704 | 878,754 | ||||||
|
Inventories, net
|
714,110 | 570,858 | ||||||
|
Prepaid and other current assets
|
61,242 | 64,922 | ||||||
|
Deferred tax asset
|
89,720 | 69,999 | ||||||
|
Total current assets
|
3,261,871 | 2,522,707 | ||||||
|
Property, plant and equipment, net
|
847,189 | 828,922 | ||||||
|
Goodwill
|
3,368,033 | 3,350,217 | ||||||
|
Intangible assets, net
|
907,523 | 950,748 | ||||||
|
Other assets and deferred charges
|
111,145 | 113,108 | ||||||
|
Assets of discontinued operations
|
67,133 | 116,701 | ||||||
|
Total assets
|
$ | 8,562,894 | $ | 7,882,403 | ||||
|
Current liabilities:
|
||||||||
|
Notes payable and current maturities of long-term debt
|
$ | 16,925 | $ | 35,624 | ||||
|
Accounts payable
|
469,038 | 357,004 | ||||||
|
Accrued compensation and employee benefits
|
275,947 | 210,804 | ||||||
|
Accrued insurance
|
112,198 | 107,455 | ||||||
|
Other accrued expenses
|
240,786 | 219,295 | ||||||
|
Federal and other taxes on income
|
79,492 | 38,994 | ||||||
|
Total current liabilities
|
1,194,386 | 969,176 | ||||||
|
Long-term debt
|
1,790,886 | 1,825,260 | ||||||
|
Deferred income taxes
|
381,297 | 292,344 | ||||||
|
Other liabilities
|
564,121 | 573,137 | ||||||
|
Liabilities of discontinued operations
|
105,642 | 138,878 | ||||||
|
Commitments and contingent liabilities
|
||||||||
|
Stockholders’ Equity:
|
||||||||
|
Preferred stock
|
— | — | ||||||
|
Common stock
|
249,361 | 247,342 | ||||||
|
Additional paid-in capital
|
596,457 | 497,291 | ||||||
|
Accumulated other comprehensive earnings
|
50,161 | 84,842 | ||||||
|
Retained earnings
|
5,953,027 | 5,453,022 | ||||||
|
Common stock in treasury
|
(2,322,444 | ) | (2,198,889 | ) | ||||
|
Total stockholders’ equity
|
4,526,562 | 4,083,608 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 8,562,894 | $ | 7,882,403 | ||||
See Notes to Consolidated Financial Statements.
46
Table of Contents
DOVER
CORPORATION
COMPREHENSIVE
EARNINGS
|
Accumulated
|
|||||||||||||||||||||||||||||
|
Common
|
Additional
|
Other
|
Total
|
Comprehensive
|
|||||||||||||||||||||||||
|
Stock
|
Paid-In
|
Comprehensive
|
Retained
|
Treasury
|
Stockholders’
|
Earnings
|
|||||||||||||||||||||||
| $1 Par Value | Capital | Earnings (Loss) | Earnings | Stock | Equity | (Loss) | |||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
|
Balance at December 31, 2007
|
$ | 244,548 | $ | 353,031 | $ | 217,648 | $ | 4,870,460 | $ | (1,739,514 | ) | $ | 3,946,173 | $ | 829,876 | ||||||||||||||
|
Net earnings
|
— | — | — | 590,831 | — | 590,831 | $ | 590,831 | |||||||||||||||||||||
|
Dividends paid
|
— | — | — | (169,071 | ) | — | (169,071 | ) | — | ||||||||||||||||||||
|
Common stock issued for options exercised
|
2,038 | 68,549 | — | — | — | 70,587 | — | ||||||||||||||||||||||
|
Tax benefit from the exercise of stock options
|
— | 8,449 | — | — | — | 8,449 | — | ||||||||||||||||||||||
|
Stock-based compensation expense
|
— | 24,367 | — | — | — | 24,367 | — | ||||||||||||||||||||||
|
Common stock issued, net of cancellations
|
29 | 832 | — | — | — | 861 | — | ||||||||||||||||||||||
|
Common stock acquired
|
— | — | — | — | (466,737 | ) | (466,737 | ) | — | ||||||||||||||||||||
|
Translation of foreign financial statements
|
— | — | (146,433 | ) | — | — | (146,433 | ) | (146,433 | ) | |||||||||||||||||||
|
Unrealized holding losses, net of tax of $582
|
— | — | (1,081 | ) | — | — | (1,081 | ) | (1,081 | ) | |||||||||||||||||||
|
Effect of adoption of ASC 715, change in measurement date
|
— | — | 1,960 | (5,762 | ) | — | (3,802 | ) | — | ||||||||||||||||||||
|
Pension amortization and adjustment, net of tax of $31,923
|
— | — | (61,278 | ) | — | — | (61,278 | ) | (61,278 | ) | |||||||||||||||||||
|
Balance at December 31, 2008
|
$ | 246,615 | $ | 455,228 | $ | 10,816 | $ | 5,286,458 | $ | (2,206,251 | ) | $ | 3,792,866 | $ | 382,039 | ||||||||||||||
|
Net earnings
|
— | — | — | 356,438 | — | 356,438 | $ | 356,438 | |||||||||||||||||||||
|
Dividends paid
|
— | — | — | (189,874 | ) | — | (189,874 | ) | — | ||||||||||||||||||||
|
Common stock issued for options exercised
|
712 | 24,807 | — | — | — | 25,519 | — | ||||||||||||||||||||||
|
Tax benefit from the exercise of stock options
|
— | 425 | — | — | — | 425 | — | ||||||||||||||||||||||
|
Stock-based compensation expense
|
— | 17,176 | — | — | — | 17,176 | — | ||||||||||||||||||||||
|
Common stock issued, net of cancellations
|
15 | 617 | — | — | — | 632 | — | ||||||||||||||||||||||
|
Issuance of treasury stock
|
— | (962 | ) | — | — | 7,362 | 6,400 | — | |||||||||||||||||||||
|
Translation of foreign financial statements
|
— | — | 76,442 | — | — | 76,442 | 76,442 | ||||||||||||||||||||||
|
Unrealized holding gains, net of tax of ($582)
|
— | — | 1,091 | — | — | 1,091 | 1,091 | ||||||||||||||||||||||
|
Pension amortization and adjustment, net of tax of $1,740
|
— | — | (3,507 | ) | — | — | (3,507 | ) | (3,507 | ) | |||||||||||||||||||
|
Balance at December 31, 2009
|
$ | 247,342 | $ | 497,291 | $ | 84,842 | $ | 5,453,022 | $ | (2,198,889 | ) | $ | 4,083,608 | $ | 430,464 | ||||||||||||||
|
Net earnings
|
— | — | — | 700,104 | — | 700,104 | $ | 700,104 | |||||||||||||||||||||
|
Dividends paid
|
— | — | — | (200,099 | ) | — | (200,099 | ) | — | ||||||||||||||||||||
|
Common stock issued for options exercised
|
1,983 | 69,465 | — | — | — | 71,448 | — | ||||||||||||||||||||||
|
Tax benefit from the exercise of stock options
|
— | 6,466 | — | — | — | 6,466 | — | ||||||||||||||||||||||
|
Stock-based compensation expense
|
— | 21,464 | — | — | — | 21,464 | — | ||||||||||||||||||||||
|
Common stock issued, net of cancellations
|
36 | 1,771 | — | — | — | 1,807 | — | ||||||||||||||||||||||
|
Common stock acquired
|
— | — | — | — | (123,555 | ) | (123,555 | ) | — | ||||||||||||||||||||
|
Translation of foreign financial statements
|
— | — | (33,636 | ) | — | — | (33,636 | ) | (33,636 | ) | |||||||||||||||||||
|
Unrealized holding losses, net of tax of ($126)
|
— | — | 234 | — | — | 234 | 234 | ||||||||||||||||||||||
|
Pension amortization and adjustment, net of tax of $1,189
|
— | — | (1,279 | ) | — | — | (1,279 | ) | (1,279 | ) | |||||||||||||||||||
|
Balance at December 31, 2010
|
$ | 249,361 | $ | 596,457 | $ | 50,161 | $ | 5,953,027 | $ | (2,322,444 | ) | $ | 4,526,562 | $ | 665,423 | ||||||||||||||
See Notes to Consolidated Financial Statements.
47
Table of Contents
DOVER
CORPORATION
| For the Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Operating Activities of Continuing Operations
|
||||||||||||
|
Net earnings
|
$ | 700,104 | $ | 356,438 | $ | 590,831 | ||||||
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
||||||||||||
|
Loss from discontinued operations
|
7,804 | 15,456 | 103,927 | |||||||||
|
Depreciation and amortization
|
268,406 | 258,223 | 261,154 | |||||||||
|
Stock-based compensation
|
22,102 | 17,912 | 25,246 | |||||||||
|
Provision for losses on accounts receivable (net of recoveries)
|
(620 | ) | 17,260 | 12,040 | ||||||||
|
Deferred income taxes
|
84,839 | (23,062 | ) | 33,459 | ||||||||
|
Employee benefit plan expense
|
32,914 | 37,221 | 36,275 | |||||||||
|
Loss on extinguishment of long-term debt
|
4,343 | — | — | |||||||||
|
Gain on sale of line of business
|
— | — | (7,518 | ) | ||||||||
|
Other non-current, net
|
15,937 | 26,609 | (33,081 | ) | ||||||||
|
Cash effect of changes in current assets and liabilities
(excluding effects of acquisitions, dispositions and foreign
exchange):
|
||||||||||||
|
Accounts receivable
|
(195,934 | ) | 163,054 | 36,427 | ||||||||
|
Inventories
|
(131,476 | ) | 97,241 | 27,128 | ||||||||
|
Prepaid expenses and other assets
|
4,766 | 18,296 | 882 | |||||||||
|
Accounts payable
|
104,093 | (31,306 | ) | (19,273 | ) | |||||||
|
Accrued expenses
|
92,975 | (95,647 | ) | 26,161 | ||||||||
|
Accrued taxes
|
(1,501 | ) | 23,319 | (27,881 | ) | |||||||
|
Contributions to employee benefit plans
|
(58,201 | ) | (78,954 | ) | (55,361 | ) | ||||||
|
Net cash provided by operating activities of continuing
operations
|
950,551 | 802,060 | 1,010,416 | |||||||||
|
Investing Activities of Continuing Operations
|
||||||||||||
|
Proceeds from sale of short-term investments
|
553,466 | 406,033 | — | |||||||||
|
Purchase of short-term investments
|
(466,881 | ) | (348,439 | ) | (279,460 | ) | ||||||
|
Proceeds from sale of property, plant and equipment
|
17,593 | 22,973 | 13,248 | |||||||||
|
Additions to property, plant and equipment
|
(183,217 | ) | (120,009 | ) | (175,795 | ) | ||||||
|
Proceeds from sales of businesses
|
4,500 | 3,571 | 92,774 | |||||||||
|
Acquisitions (net of cash acquired)
|
(104,418 | ) | (221,994 | ) | (103,761 | ) | ||||||
|
Net cash used in investing activities of continuing
operations
|
(178,957 | ) | (257,865 | ) | (452,994 | ) | ||||||
|
Financing Activities of Continuing Operations
|
||||||||||||
|
Increase (decrease) in notes payable, net
|
15,000 | (192,749 | ) | (412,723 | ) | |||||||
|
Reduction of long-term debt
|
(75,855 | ) | (33,908 | ) | (186,390 | ) | ||||||
|
Proceeds from long-term debt
|
— | — | 594,120 | |||||||||
|
Purchase of common stock
|
(123,555 | ) | — | (466,737 | ) | |||||||
|
Proceeds from exercise of stock options, including tax benefits
|
79,721 | 26,578 | 79,897 | |||||||||
|
Dividends to stockholders
|
(200,099 | ) | (189,874 | ) | (169,071 | ) | ||||||
|
Net cash used in financing activities of continuing
operations
|
(304,788 | ) | (389,953 | ) | (560,904 | ) | ||||||
|
Cash Flows from Discontinued Operations
|
||||||||||||
|
Net cash used in operating activities of discontinued operations
|
(3,700 | ) | (5,967 | ) | (7,592 | ) | ||||||
|
Net cash used in investing activities of discontinued operations
|
(140 | ) | (888 | ) | (1,805 | ) | ||||||
|
Net cash used in discontinued operations
|
(3,840 | ) | (6,855 | ) | (9,397 | ) | ||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
10,030 | 19,569 | (45,817 | ) | ||||||||
|
Net increase in cash and cash equivalents
|
472,996 | 166,956 | (58,696 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
714,365 | 547,409 | 606,105 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,187,361 | $ | 714,365 | $ | 547,409 | ||||||
|
Supplemental information — cash paid during the
year for:
|
||||||||||||
|
Income taxes
|
$ | 105,328 | $ | 115,047 | $ | 212,348 | ||||||
|
Interest
|
$ | 116,037 | $ | 116,847 | $ | 120,834 | ||||||
See Notes to Consolidated Financial Statements.
48
Table of Contents
DOVER
CORPORATION
(Amounts
in thousands except share data and where otherwise
indicated)
| 1. | Description of Business and Summary of Significant Accounting Policies |
Description of Business
— Dover
Corporation (the “Company”) is a diversified,
multinational manufacturing corporation comprised of operating
companies that manufacture a broad range of specialized products
and components as well as related services and consumables. The
Company also provides engineering, testing and other similar
services, which are not significant in relation to consolidated
revenue. The Company’s operating companies are based
primarily in the United States of America and Europe with
manufacturing and other operations throughout the world. The
Company reports its results in four segments, Industrial
Products, Engineered Systems, Fluid Management and Electronic
Technologies. For additional information on the Company’s
segments, see Note 14.
Principles of Consolidation
— The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation. The
results of operations of purchased businesses are included from
the dates of acquisitions. The assets, liabilities, results of
operations and cash flows of all discontinued operations have
been separately reported as discontinued operations for all
periods presented.
Use of Estimates
— The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. These estimates
may be adjusted due to changes in future economic, industry or
customer financial conditions, as well as changes in technology
or demand. Significant estimates include allowances for doubtful
accounts receivable, net realizable value of inventories,
restructuring reserves, valuation of goodwill and intangible
assets, pension and post retirement assumptions, useful lives
associated with amortization and depreciation of intangibles and
fixed assets, warranty reserves, income taxes and tax valuation
reserves, environmental reserves, legal reserves, insurance
reserves and the valuations of discontinued assets and
liabilities. Actual results could differ from those estimates.
Estimates and assumptions are periodically reviewed and the
effects of revisions are reflected in the consolidated financial
statements in the period that they are determined.
Cash and Cash Equivalents
— Cash and
cash equivalents include cash on hand, demand deposits and
short-term investments which are highly liquid in nature and
have original maturities at the time of purchase of three months
or less.
Short-Term Investments
— Short-term
investments consist of investment grade time deposits that have
original maturity dates at the time of purchase greater than
three months, up to twelve months. The Company’s short-term
investments earned interest at the weighted average rate of
1.04% and 1.01%, in 2010 and 2009, respectively.
Allowance for Doubtful Accounts
— The
Company maintains allowances for doubtful accounts for estimated
losses as a result of customer’s inability to make required
payments. Management at each operating company evaluates the
aging of the accounts receivable balances, the financial
condition of its customers, historical trends and the time
outstanding of specific balances to estimate the amount of
accounts receivable that may not be collected in the future and
records the appropriate provision.
Inventories
— Inventories for the
majority of the Company’s subsidiaries, including all
international subsidiaries, are stated at the lower of cost,
determined on the
first-in,
first-out (FIFO) basis, or market. Other domestic inventory is
stated at cost, determined on the
last-in,
first-out (LIFO) basis, which is less than market value.
Property, Plant and Equipment
—
Property, plant and equipment includes the historic cost of
land, buildings, equipment and significant improvements to
existing plant and equipment or, in the case of acquisitions, a
fair market value appraisal of such assets completed at the time
of acquisition. Property, plant and equipment also includes the
cost of purchased software. Expenditures for maintenance,
repairs and minor renewals are expensed as incurred. When
property or equipment is sold or otherwise disposed of, the
related cost and accumulated depreciation is removed from the
respective accounts and the gain or loss realized on disposition
is reflected in earnings. Depreciation expense was $163,915 in
2010, $159,595 in 2009 and $159,282 in 2008 and was calculated
on a straight-line basis for all periods presented. The Company
depreciates its assets over their estimated
49
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
useful lives as follows: buildings and improvements 5 to
31.5 years; machinery and equipment 3 to 7 years;
furniture and fixtures 3 to 7 years; vehicles 3 years;
and software 3 to 5 years.
Derivative Instruments
— The Company
periodically uses derivative financial instruments to hedge its
exposures to various risks, including interest rate and foreign
currency exchange rate risk. The Company does not enter into
derivative financial instruments for speculative purposes and
does not have a material portfolio of derivative financial
instruments. Derivative financial instruments used for hedging
purposes must be designated and effective as a hedge of the
identified risk exposure at inception of the contract.
The Company recognizes all derivatives as either assets or
liabilities on the consolidated balance sheet and measures those
instruments at fair value. For derivatives designated as hedges
of the fair value of assets or liabilities, the changes in fair
value of both the derivatives and of the hedged items are
recorded in current earnings. For derivatives designated as cash
flow hedges, the effective portion of changes in the fair value
of the derivatives is recorded as a component of other
comprehensive income and subsequently recognized in earnings
when the hedged items impact earnings.
Goodwill and Indefinite-Lived Intangible
Assets
— Goodwill represents the excess of
acquisition costs over the fair value of the net assets of
businesses acquired. Goodwill and certain other intangible
assets deemed to have indefinite lives (primarily trademarks)
are not amortized. Instead, goodwill and indefinite-lived
intangible assets are tested for impairment at least annually,
or more frequently if indicators of impairment exist, such as a
significant sustained change in the business climate. The
Company conducts its annual impairment evaluation in the fourth
quarter of each year. No impairment was indicated for the years
ended December 31, 2010, 2009 or 2008.
Recoverability of goodwill is measured at the reporting unit
level and determined using a two step process. For both 2010 and
2009, the Company identified 10 reporting units for its annual
goodwill impairment test. Step one of the test compared the fair
value of each reporting unit using a discounted cash flow method
to its book value. This method uses the Company’s own
market assumptions including projections of future cash flows,
determinations of appropriate discount rates, and other
assumptions which are considered reasonable and inherent in the
discounted cash flow analysis. The projections are based on
historical performance and future estimated results. These
assumptions require significant judgment and actual results may
differ from assumed and estimated amounts. Step two, which
compares the book value of the goodwill to its implied fair
value, was not necessary since there were no indicators of
potential impairment from step one. See Note 6 for
additional details on goodwill balances.
Similar to goodwill, in testing its other indefinite lived
intangible assets for impairment, the Company uses a discounted
cash flow method to calculate and compare the fair value of the
intangible asset to its book value. This method uses the
Company’s own market assumptions which are considered
reasonable and inherent in the discounted cash flow analysis.
Any excess of carrying value over the estimated fair value is
recognized as an impairment loss.
Other Intangible Assets
— Other
intangible assets with determinable lives consist primarily of
customer lists, unpatented technology, patents and trademarks.
These other intangibles and are amortized over their estimated
useful lives, ranging from 5 to 15 years.
Long-Lived Assets
— Long-lived assets
(including intangible assets with determinable lives) are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, such as a significant sustained change in
the business climate. If an indicator of impairment exists for
any grouping of assets, an estimate of undiscounted future cash
flows is produced and compared to its carrying value. If an
asset is determined to be impaired, the loss is measured by the
excess of the carrying amount of the asset over its fair value
as determined by an estimate of discounted future cash flows.
There were no indicators of impairment noted during 2010.
Foreign Currency
— Assets and
liabilities of
non-U.S. subsidiaries,
where the functional currency is not the U.S. dollar, have
been translated at year-end exchange rates and profit and loss
accounts have been translated using
50
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
weighted average yearly exchange rates. Foreign currency
translation gains and losses are included as a component of
Accumulated Other Comprehensive Income (Loss). Assets and
liabilities of an entity that are denominated in currencies
other than an entity’s functional currency are remeasured
into the functional currency using end of period exchange rates
or historical rates where applicable to certain balances. Gains
and losses related to these remeasurements are recorded within
the Statement of Operations as a component of Other Expense
(Income), net.
Revenue Recognition
— Revenue is
recognized when all of the following circumstances are
satisfied: a) persuasive evidence of an arrangement exists,
b) price is fixed or determinable, c) collectability
is reasonably assured, and d) delivery has occurred. In
revenue transactions where installation is required, revenue can
be recognized when the installation obligation is not essential
to the functionality of the delivered products. Revenue
transactions involving non-essential installation obligations
are those which can generally be completed in a short period of
time at insignificant cost and the skills required to complete
these installations are not unique to the Company and in many
cases can be provided by third parties or the customers. If the
installation obligation is essential to the functionality of the
delivered product, revenue recognition is deferred until
installation is complete. In addition, when it is determined
that there are multiple deliverables to a sales arrangement, the
Company will allocate consideration received to the separate
deliverables based on their relative fair values and recognize
revenue based on the appropriate criteria for each deliverable
identified. In a limited number of revenue transactions, other
post-shipment obligations such as training and customer
acceptance are required and, accordingly, revenue recognition is
deferred until the customer is obligated to pay, or acceptance
has been confirmed. Service revenue is recognized and earned
when services are performed and is not significant to any period
presented. The Company recognizes contract revenue under
percentage-of- completion accounting using the cost to cost
method as the measure of progress. The application of
percentage-of-completion
accounting requires estimates of future revenues and contract
costs over the full term of the contract. The Company updates
project cost estimates on a quarterly basis or more frequently,
when changes in circumstances warrant.
Stock-Based Compensation
— The principal
awards issued under the Company’s stock-based compensation
plans include non-qualified stock-settled stock appreciation
rights and performance share awards. The cost for such awards is
measured at the grant date based on the fair value of the award.
The value of the portion of the award that is expected to
ultimately vest is recognized as expense on a straight-line
basis, generally over the explicit service period of three years
(except for retirement- eligible employees and retirees) and is
included in selling and administrative expense in the
Consolidated Statements of Operations. Awards granted to
retirement-eligible employees are expensed immediately and the
Company shortens the vesting period, for expensing purposes, for
any employee who will become eligible to retire within the
three-year explicit service period. Expense for these employees
is recorded over the period from the date of grant through the
date the employee first becomes eligible to retire and is no
longer required to provide service. See Note 10 for
additional information related to the Company’s stock-based
compensation. Forfeitures are required to be estimated at the
time of grant in order to estimate the portion of the award that
will ultimately vest. The estimate is based on the
Company’s historical rates of forfeiture.
Income Taxes
— The provision for income
taxes on continuing operations includes federal, state, local
and
non-U.S. taxes.
Tax credits, primarily for research and experimentation and
non-U.S. earnings,
export programs, and U.S. manufacturer’s tax deduction
are recognized as a reduction of the provision for income taxes
on continuing operations in the year in which they are available
for tax purposes. Deferred taxes are provided on temporary
differences between assets and liabilities for financial and tax
reporting purposes as measured by enacted tax rates expected to
apply when temporary differences are settled or realized. Future
tax benefits are recognized to the extent that realization of
those benefits is considered to be more likely than not. A
valuation allowance is established for deferred tax assets for
which realization is not assured. The Company has not provided
for any residual U.S. income taxes on unremitted earnings
of
non-U.S. subsidiaries
as such earnings are currently intended to be indefinitely
reinvested.
Research and Development Costs
—
Research and development costs, including qualifying engineering
costs, are expensed when incurred and amounted to $193,487 in
2010, $178,335 in 2009 and $189,221 in 2008.
51
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Risk, Retention, Insurance
— The Company
currently self-insures its product and commercial general
liability claims up to $5.0 million per occurrence, its
workers’ compensation claims up to $0.5 million per
occurrence, and automobile liability claims up to
$1.0 million per occurrence. Third-party insurance provides
primary level coverage in excess of these amounts up to certain
specified limits. In addition, the Company has excess liability
insurance from third-party insurers on both an aggregate and an
individual occurrence basis well in excess of the limits of the
primary coverage. A worldwide program of property insurance
covers the Company’s owned and leased property and any
business interruptions that may occur due to an insured hazard
affecting those properties, subject to reasonable deductibles
and aggregate limits. The Company’s property and casualty
insurance programs contain various deductibles that, based on
the Company’s experience, are typical and customary for a
company of its size and risk profile. The Company does not
consider any of the deductibles to represent a material risk to
the Company. The Company generally maintains deductibles for
claims and liabilities related primarily to workers’
compensation, health and welfare claims, general commercial,
product and automobile liability and property damage, and
business interruption resulting from certain events. The Company
accrues for claim exposures that are probable of occurrence and
can be reasonably estimated. As part of the Company’s risk
management program, insurance is maintained to transfer risk
beyond the level of self-retention and provide protection on
both an individual claim and annual aggregate basis.
Reclassifications
— Certain amounts in
prior years have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
— In
January 2010, the FASB issued Accounting Standards Update
(“ASU”)
2010-06
which is intended to improve disclosures about fair value
measurements. The guidance requires entities to disclose
significant transfers in and out of fair value hierarchy levels,
the reasons for the transfers and to present information about
purchases, sales, issuances and settlements separately in the
reconciliation of fair value measurements using significant
unobservable inputs (Level 3).
Additionally,
the guidance clarifies that a reporting entity should provide
fair value measurements for each class of assets and liabilities
and disclose the inputs and valuation techniques used for fair
value measurements using significant other observable inputs
(Level 2) and significant unobservable inputs
(Level 3). The Company has applied the new disclosure
requirements as of January 1, 2010, except for the
disclosures about purchases, sales, issuances and settlements in
the Level 3 reconciliation, which will be effective for
interim and annual periods beginning after December 15,
2010. The adoption of this guidance has not had and is not
expected to have a material impact on the Company’s
consolidated financial statements.
In October 2009, the FASB issued ASU
2009-13
which amends existing guidance for identifying separate
deliverables in a revenue-generating transaction where multiple
deliverables exist, and provides guidance for allocating and
recognizing revenue based on those separate deliverables. The
guidance is expected to result in more multiple-deliverable
arrangements being separable than under current guidance. This
guidance is effective for the Company beginning on
January 1, 2011 and is required to be applied prospectively
to new or significantly modified revenue arrangements. Its
adoption is not expected to significantly impact the
Company’s consolidated financial statements.
In October 2009, the FASB issued ASU
2009-14
which eliminates tangible products containing both software and
non-software components that operate together to deliver a
product’s functionality from the scope of current generally
accepted accounting principles for software. This guidance is
effective for the Company beginning on January 1, 2011 and
is required to be applied prospectively to new or significantly
modified revenue arrangements. Its adoption is not expected to
significantly impact the Company’s consolidated financial
statements.
| 2. | Acquisitions |
All of the Company’s 2010 and 2009 acquisitions were
accounted for under Accounting Standard Codification
(“ASC”) 805, Business Combinations (“ASC
805”). Accordingly, the assets and liabilities of the
acquired businesses are accounted for under the purchase method
of accounting and recorded at their fair values at the
52
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
dates of acquisition. The results of operations of acquired
businesses have been included in the Company’s consolidated
results of operations from their respective dates of acquisition
and were not material to the consolidated financial statements.
In accordance with ASC 805, all direct transaction costs
relating to the 2010 and 2009 acquisitions were expensed as
incurred and such amounts were not material to the
Company’s consolidated financial statements.
2010
Acquisitions
A summary of the acquisitions made during the year ended
December 31, 2010 is as follows:
|
Company/Product
|
||||||||||||
| Date | Type | Line Acquired | Location (Near) | Segment | Platform | Company | ||||||
|
4-May
|
Stock | BSC Filters | York, UK | Electronic Technologies | N/A | Ceramic & Microwave Products Group | ||||||
|
Designer and manufacturer of microwave filters, diplexers,
waveguide and coaxial passive components.
|
||||||||||||
|
1-Jun
|
Asset | Chemilizer | Largo, FL | Fluid Management | Fluid Solutions | HydroSystems | ||||||
|
Manufacturer of non-electric, volumetric dosing equipment used
in commercial animal raising, agriculture, horticulture and
irrigation markets.
|
||||||||||||
|
17-Aug
|
Asset | Intek Manufacturing | Fort Wayne, IN | Engineered Systems | Engineered Products | Unified Brands | ||||||
|
Manufacturer of electric and gas steam equipment (steamers,
kettles, braising pans).
|
||||||||||||
|
30-Sep
|
Asset | Diagnostic Product Line — Dynalco Controls | Ft. Lauderdale, FL | Fluid Management | Energy | Cook Compression | ||||||
|
Manufacturer and servicer of portable analyzers targeting the
gas gathering and gas transmission markets.
|
||||||||||||
|
30-Sep
|
Stock | Gear Products | Tulsa, OK | Industrial Products | Material Handling | Tulsa Winch Group | ||||||
|
Manufacturer of worm gear and planetary hoists, rotation drives,
rotation bearings and hydraulic pump drives.
|
||||||||||||
|
24-Nov
|
Asset | KMC/Bearings Inc. | Houston, TX/Rhode Island | Fluid Management | Energy | Waukesha Bearings | ||||||
|
Designer and manufacturer of fluid film bearings serving process
plant, refinery, deep hole drilling, plant air and
refridgeration industries.
|
||||||||||||
The Company acquired 100% of each of these businesses in six
separate transactions for an aggregate purchase price of
$104,418, net of cash acquired. The Company makes an initial
allocation of the purchase price at the date of acquisition
based upon its understanding, obtained during due diligence and
through other sources, of the fair value of the acquired assets
and assumed liabilities. As additional information is obtained
about these assets and liabilities within the measurement period
(not to exceed one year from the date of acquisition), including
through asset appraisals and learning more about the newly
acquired business, the Company may refine its estimates of fair
value to more accurately allocate the purchase price. The
Company is still in the process of finalizing appraisals of
tangible and intangible assets in order to complete its purchase
price allocation for the KMC/Bearings Inc. acquisition which
occurred in the fourth quarter of 2010. Accordingly, management
has used its best estimates in the preliminary purchase price
allocation as of the date of these financial statements.
The following presents the allocation of the aggregate purchase
price to the assets acquired and liabilities assumed, based on
their estimated fair values:
| 2010 | ||||
|
Current assets, net of cash acquired
|
$ | 14,983 | ||
|
Property, plant and equipment
|
11,610 | |||
|
Goodwill
|
40,086 | |||
|
Intangible assets
|
43,650 | |||
|
Total assets acquired
|
110,329 | |||
|
Total liabilities assumed
|
(5,911 | ) | ||
|
Net assets acquired
|
$ | 104,418 | ||
53
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Acquired intangible assets consist primarily of customer and
technology-related intangibles and trademarks, which are being
amortized on a straight-line basis over a weighted average
amortization period of approximately 10 years (lives
ranging from 7 to 12 years). The 2010 acquisitions resulted
in the recognition of goodwill totaling $40,086, which is
attributed primarily to the benefits derived from the
complementary product line offerings and operational synergies
the businesses bring to the existing operations.
The amounts assigned to goodwill and major intangible asset
classifications by segment for the 2010 acquisitions are as
follows:
|
Industrial
|
Engineered
|
Fluid
|
Electronic
|
|||||||||||||||||
| Products | Systems | Management | Technologies | Total | ||||||||||||||||
|
Goodwill — Tax deductible
|
$ | 8,106 | $ | 4,575 | $ | 22,970 | $ | — | $ | 35,651 | ||||||||||
|
Goodwill — Non deductible
|
— | — | — | 4,435 | 4,435 | |||||||||||||||
|
Trademarks
|
738 | 552 | 1,900 | — | 3,190 | |||||||||||||||
|
Customer intangibles
|
5,157 | 1,180 | 25,525 | 1,240 | 33,102 | |||||||||||||||
|
Unpatented technologies
|
— | — | 5,854 | — | 5,854 | |||||||||||||||
|
Other intangibles
|
— | — | 364 | 1,140 | 1,504 | |||||||||||||||
| $ | 14,001 | $ | 6,307 | $ | 56,613 | $ | 6,815 | $ | 83,736 | |||||||||||
In December 2010, the Company entered into an agreement with NXP
Semiconductors N.V. to acquire the Sound Solutions business line
for approximately $855 million. See Note 17 for
additional details regarding this acquisition, which is expected
to close around the end of the first quarter or early in the
second quarter of 2011.
2009
Acquisitions
During 2009, the Company acquired 100% of six businesses for an
aggregate cost of $221,994, net of cash acquired, plus the
issuance of $6,400 of common stock for aggregate consideration
of $228,394 at the date of acquisition. A summary of the
acquisitions made during 2009 is as follows:
| Date | Type | Acquired Companies | Location (Near) | Segment | Platform | Company | ||||||
|
8-May
|
Asset | Tyler Refrigeration | Niles, MI | Engineered Systems | Engineered Products | Hill Phoenix | ||||||
|
Manufacturer of refrigerated specialty display merchandisers and
refrigeration systems for the food retail industry.
|
||||||||||||
|
24-Aug
|
Asset | Mechanical Field Services | Gardendale, TX | Fluid Management | Energy | Cook Compression | ||||||
|
Manufacturer of air and gas compressors.
|
||||||||||||
|
12-Nov
|
Asset | Ala Cart Inc. | Charlotte, NC | Engineered Systems | Engineered Products | Unified Brands | ||||||
|
Manufacturer of foodservice equipment, ventilation and conveyor
systems.
|
||||||||||||
|
17-Nov
|
Asset/Stock | Barker Company | Keosaugua, IA | Engineered Systems | Engineered Products | Hill Phoenix | ||||||
|
Manufacturer of refrigerated, non-refrigerated and hot display
cases.
|
||||||||||||
|
16-Dec
|
Asset | Extech Instruments | Waltham, MA | Engineered Systems | Product Identification | Datamax O’Neil | ||||||
|
Developer of portable printers for enterprise-wide applications.
|
||||||||||||
|
31-Dec
|
Asset | Inpro/Seal | Rock Island, IL | Fluid Management | Energy | Waukesha Bearings | ||||||
|
Manufacturer of metallic gaskets and machined seals, parts and
components for ball and roller bearings.
|
||||||||||||
During the year ended December 31, 2010, the Company
recorded adjustments totaling $12,655 to goodwill relating
primarily to the finalization of purchase price allocations for
2009 acquisitions.
54
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Pro
Forma Information
The following unaudited pro forma information illustrates the
effect on the Company’s revenue and net earnings for the
years ended December 31, 2010 and 2009, assuming that the
2010 acquisitions had taken place on January 1, 2009.
| Years Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Revenue from continuing operations:
|
||||||||
|
As reported
|
$ | 7,132,648 | $ | 5,775,689 | ||||
|
Pro forma
|
7,173,187 | 5,827,947 | ||||||
|
Net earnings from continuing operations:
|
||||||||
|
As reported
|
$ | 707,908 | $ | 371,894 | ||||
|
Pro forma
|
713,306 | 374,794 | ||||||
|
Basic earnings per share from continuing operations:
|
||||||||
|
As reported
|
$ | 3.79 | $ | 2.00 | ||||
|
Pro forma
|
3.82 | 2.01 | ||||||
|
Diluted earnings per share from continuing operations:
|
||||||||
|
As reported
|
$ | 3.74 | $ | 1.99 | ||||
|
Pro forma
|
3.77 | 2.01 | ||||||
These pro forma results of operations have been prepared for
comparative purposes only and include certain adjustments to
actual financial results for the periods presented, such as
estimated additional amortization and depreciation expense as a
result of intangibles and fixed assets acquired, measured at
fair value. They do not purport to be indicative of the results
of operations that actually would have resulted had the
acquisitions occurred on the date indicated or that may result
in the future.
| 3. | Disposed and Discontinued Operations |
2010
— During the first quarter of 2010,
the Company sold Triton, an operating company that had been
reclassified from the Engineered Systems segment to discontinued
operations in 2008, for net consideration of $7,498, resulting
in a net after-tax current year loss on sale of approximately
$13,100. During the second and third quarters of 2010, the loss
was increased by approximately $900, net of tax, upon settlement
of a $1,500 working capital adjustment related to the sale. The
net loss from discontinued operations also includes tax benefits
of $11,597 driven primarily by discrete tax items settled or
resolved during the year, which more than offset other expense
and accrual adjustments relating to discontinued operations
during the year.
2009
— During the first and fourth
quarters of 2009, the Company recorded in aggregate, a $10,338
(after-tax) additional write-down to the carrying value of
Triton. The write-down and other adjustments related to
previously discontinued entities resulted in a net after-tax
loss on sale of $11,170 for the year. The after-tax loss from
discontinued operations for the year ended December 31,
2009 was $15,456.
Summarized results of the Company’s discontinued operations
are detailed in the following table:
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenue
|
$ | 9,380 | $ | 55,275 | $ | 84,065 | ||||||
|
Loss on sale, net of taxes(1)
|
$ | (14,203 | ) | $ | (11,170 | ) | $ | (101,692 | ) | |||
|
Earnings (loss) from operations before taxes
|
(3,918 | ) | (2,062 | ) | (3,886 | ) | ||||||
|
Benefit (provision) for income taxes
|
10,317 | (2,224 | ) | 1,651 | ||||||||
|
Gain (loss) from discontinued operations, net of tax
|
$ | (7,804 | ) | $ | (15,456 | ) | $ | (103,927 | ) | |||
55
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| (1) | Includes impairments and other adjustments to previously sold discontinued operations. |
2008
— During the second quarter of
2008, the Company discontinued Triton and recorded an impairment
charge of $51,173 (after-tax) to write-down the carrying value
of Triton to its estimated fair market value. This write-down
was increased by $21,330 (after-tax) in the fourth quarter based
on factors supporting the fair value at that time. In the fourth
quarter, the Company reached final settlement on certain Federal
tax matters relating to businesses previously discontinued and
sold, resulting in a charge of $14,602, after tax, and also
recognized certain state tax adjustments relating to previously
sold businesses resulting in a net charge of $12,736, after tax.
The remaining adjustments comprising the 2008 after-tax loss on
sale of $101,692 were individually insignificant and related to
other businesses sold or held for sale during the period.
During the fourth quarter of 2008, the Company also closed on a
sale of a line of business in the Electronic Technologies
segment resulting in a $7,518 (after-tax) gain, which was
recorded in Selling and Administrative expenses in the
Consolidated Statements of Operations.
The Company currently has no businesses held for sale in
discontinued operations. At December, 31, 2010, the assets and
liabilities of discontinued operations primarily represent
residual amounts for deferred tax assets, short and long-term
reserves, and contingencies related to businesses previously
sold. Additional detail related to the assets and liabilities of
the Company’s discontinued operations is as follows:
| At December 31, | At December 31, | |||||||
| 2010 | 2009 | |||||||
|
Assets of Discontinued Operations
|
||||||||
|
Current assets
|
$ | 52,678 | $ | 73,284 | ||||
|
Non-current assets
|
14,455 | 43,417 | ||||||
| $ | 67,133 | $ | 116,701 | |||||
|
Liabilities of Discontinued Operations
|
||||||||
|
Current liabilities
|
$ | 34,111 | $ | 25,919 | ||||
|
Non-current liabilities
|
71,531 | 112,959 | ||||||
| $ | 105,642 | $ | 138,878 | |||||
| 4. | Inventories |
The following table displays the components of inventory:
| At December 31, | At December 31, | |||||||
| 2010 | 2009 | |||||||
|
Raw materials
|
$ | 349,628 | $ | 291,340 | ||||
|
Work in progress
|
161,597 | 136,726 | ||||||
|
Finished goods
|
253,910 | 191,853 | ||||||
|
Subtotal
|
765,135 | 619,919 | ||||||
|
Less LIFO reserve
|
51,025 | 49,061 | ||||||
|
Total
|
$ | 714,110 | $ | 570,858 | ||||
At December 31, 2010 and 2009, the portion of domestic
inventories determined by the LIFO inventory method amounted to
$73,372 and $60,376, respectively.
56
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| 5. | Property, Plant & Equipment |
The following table details the components of property,
plant & equipment, net:
| At December 31, | At December 31, | |||||||
| 2010 | 2009 | |||||||
|
Land
|
$ | 50,760 | $ | 48,010 | ||||
|
Buildings and improvements
|
567,941 | 555,262 | ||||||
|
Machinery, equipment and other
|
1,921,509 | 1,840,638 | ||||||
| 2,540,210 | 2,443,910 | |||||||
|
Accumulated depreciation
|
(1,693,021 | ) | (1,614,988 | ) | ||||
|
Total
|
$ | 847,189 | $ | 828,922 | ||||
| 6. | Goodwill and Other Intangible Assets |
The changes in the carrying value of goodwill by segment for the
years ended December 31, 2010 and 2009 are as follows:
|
Industrial
|
Engineered
|
Fluid
|
Electronic
|
|||||||||||||||||
| Products | Systems | Management | Technologies | Total | ||||||||||||||||
|
Goodwill
|
1,018,967 | 788,424 | 631,191 | 976,706 | 3,415,288 | |||||||||||||||
|
Accumulated impairment losses
|
(99,752 | ) | — | (59,970 | ) | — | (159,722 | ) | ||||||||||||
|
Balance at January 1, 2009
|
919,215 | 788,424 | 571,221 | 976,706 | 3,255,566 | |||||||||||||||
|
Acquisitions
|
— | 49,807 | 43,882 | — | 93,689 | |||||||||||||||
|
Foreign currency translation
|
1,236 | 4,887 | 2,829 | 2,800 | 11,752 | |||||||||||||||
|
Purchase price adjustments
|
— | (10,790 | ) | — | — | (10,790 | ) | |||||||||||||
|
Balance at December 31, 2009
|
920,451 | 832,328 | 617,932 | 979,506 | 3,350,217 | |||||||||||||||
|
Acquisitions
|
8,106 | 4,575 | 22,970 | 4,435 | 40,086 | |||||||||||||||
|
Foreign currency translation
|
824 | (3,665 | ) | (644 | ) | (6,130 | ) | (9,615 | ) | |||||||||||
|
Purchase price adjustments
|
2,525 | (14,184 | ) | (996 | ) | — | (12,655 | ) | ||||||||||||
|
Balance at December 31, 2010
|
931,906 | 819,054 | 639,262 | 977,811 | 3,368,033 | |||||||||||||||
During the year ended December 31, 2010, the Company
recorded adjustments totaling $12,655 to goodwill relating
primarily to the finalization of purchase price allocations for
2009 acquisitions.
57
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible
assets:
| At December 31, 2010 | At December 31, 2009 | |||||||||||||||
|
Gross Carrying
|
Accumulated
|
Gross Carrying
|
Accumulated
|
|||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
|
Amortized Intangible Assets:
|
||||||||||||||||
|
Trademarks
|
$ | 74,053 | $ | 21,330 | $ | 72,790 | $ | 16,492 | ||||||||
|
Patents
|
131,975 | 94,632 | 128,041 | 84,092 | ||||||||||||
|
Customer Intangibles
|
802,663 | 334,585 | 764,865 | 267,558 | ||||||||||||
|
Unpatented Technologies
|
138,780 | 86,461 | 134,822 | 75,244 | ||||||||||||
|
Drawings & Manuals
|
15,650 | 7,728 | 11,922 | 6,523 | ||||||||||||
|
Distributor Relationships
|
73,183 | 24,724 | 73,230 | 20,974 | ||||||||||||
|
Other
|
28,202 | 18,445 | 23,740 | 16,032 | ||||||||||||
|
Total
|
1,264,506 | 587,905 | 1,209,410 | 486,915 | ||||||||||||
|
Unamortized Intangible Assets:
|
||||||||||||||||
|
Trademarks
|
230,922 | 228,253 | ||||||||||||||
|
Total Intangible Assets
|
$ | 1,495,428 | $ | 587,905 | $ | 1,437,663 | $ | 486,915 | ||||||||
Total intangible amortization expense for the twelve months
ended December 31, 2010, 2009 and 2008 was $103,892,
$98,628 and $101,873, respectively. Amortization expense, based
on current intangible balances is estimated to be $92,622,
$91,773, $91,257, $84,894 and $79,554 in 2011 through 2015,
respectively.
| 7. | Accrued Expenses and Other Liabilities |
The following table details the major components of other
accrued expenses:
| At December 31, | At December 31, | |||||||
| 2010 | 2009 | |||||||
|
Warranty
|
$ | 49,776 | $ | 47,980 | ||||
|
Unearned/deferred revenue
|
45,616 | 13,462 | ||||||
|
Taxes other than income
|
27,888 | 25,411 | ||||||
|
Accrued interest
|
27,679 | 28,226 | ||||||
|
Accrued volume discounts
|
13,896 | 14,115 | ||||||
|
Accrued commissions (non-employee)
|
9,900 | 9,745 | ||||||
|
Legal and environmental
|
8,193 | 9,622 | ||||||
|
Restructuring and exit
|
5,555 | 13,203 | ||||||
|
Other (none of which are individually significant)
|
52,283 | 57,531 | ||||||
| $ | 240,786 | $ | 219,295 | |||||
58
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
The following table details the major components of other
liabilities:
| At December 31, | At December 31, | |||||||
| 2010 | 2009 | |||||||
|
Deferred compensation
|
$ | 257,122 | $ | 253,208 | ||||
|
Tax reserves
|
196,446 | 230,200 | ||||||
|
Unearned/deferred revenue
|
40,767 | 32,995 | ||||||
|
Legal and environmental
|
19,234 | 20,954 | ||||||
|
Warranty
|
8,453 | 11,733 | ||||||
|
Restructuring and exit
|
2,339 | 3,568 | ||||||
|
Other
|
39,760 | 20,479 | ||||||
| $ | 564,121 | $ | 573,137 | |||||
Unearned/deferred revenue represents cash received in excess of
revenue recognized, which amounts have increased in 2010 due in
part to growth in the solar manufacturing business within the
Electronic Technologies segment, as well as incremental growth
in other businesses throughout the Company.
From time to time, the Company will initiate various
restructuring programs at its operating companies and incur
severance and other restructuring costs. Prior to
January 1, 2009, the Company established reserves related
to severance and facility closings in connection with certain
acquisitions, which were established through the purchase
accounting for these acquisitions, as allowed under accounting
guidance in effect at the time. These reserves have been
substantially settled in 2010.
In late 2008, the Company announced plans to substantially
increase its restructuring efforts in response to the
significant decline in global economic activity at the time. As
a result, in 2009 the Company recorded restructuring charges
totaling $72,102 for workforce reductions and facility
rationalizations. The majority of these activities were carried
out in 2009 and the exit reserves of $6,751 remaining at
December 31, 2010 relate largely to lease commitment
obligations in connection with these restructuring activities.
Restructuring initiatives in 2010 were minor, and the Company
does not anticipate significant restructuring charges in 2011.
59
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
The following table details the Company’s severance and
exit reserve activity for the years ended December 31,
2010, 2009 and 2008:
| Severance | Exit | Total | ||||||||||
|
Balance at December 31, 2007(A)
|
$ | 5,762 | $ | 22,668 | $ | 28,430 | ||||||
|
Provision
|
14,980 | 12,384 | 27,364 | |||||||||
|
Purchase accounting
|
2,933 | 2,698 | 5,631 | |||||||||
|
Payments
|
(16,094 | ) | (12,035 | ) | (28,129 | ) | ||||||
|
Other, including impairments
|
(378 | ) | (1,961 | ) | (2,339 | ) | ||||||
|
Balance at December 31, 2008(B)
|
7,203 | 23,754 | 30,957 | |||||||||
|
Provision
|
53,106 | 18,996 | 72,102 | |||||||||
|
Purchase accounting
|
— | (16,074 | ) | (16,074 | ) | |||||||
|
Payments
|
(53,009 | ) | (13,828 | ) | (66,837 | ) | ||||||
|
Other, including impairments
|
852 | (4,229 | ) | (3,377 | ) | |||||||
|
Balance at December 31, 2009(C)
|
8,152 | 8,619 | 16,771 | |||||||||
|
Provision
|
2,989 | 3,211 | 6,200 | |||||||||
|
Payments
|
(9,773 | ) | (5,574 | ) | (15,347 | ) | ||||||
|
Other, including impairments
|
(225 | ) | 495 | 270 | ||||||||
|
Balance at December 31, 2010
|
$ | 1,143 | $ | 6,751 | $ | 7,894 | ||||||
| (A) | Includes $26,823 for acquisition-related restructuring accruals established in purchase accounting. | |
| (B) | Includes $27,864 for acquisition-related restructuring accruals established in purchase accounting. | |
| (C) | Includes $895 for acquisition-related restructuring accruals established in purchase accounting. This balance was settled in 2010. |
A summary of restructuring charges by segment and income
statement classification is as follows:
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Industrial Products
|
$ | 1,182 | $ | 17,505 | $ | 8,285 | ||||||
|
Engineered Systems
|
2,364 | 18,381 | 10,071 | |||||||||
|
Fluid Management
|
1,476 | 9,707 | 2,475 | |||||||||
|
Electronic Technologies
|
1,178 | 26,509 | 6,533 | |||||||||
|
Total
|
$ | 6,200 | $ | 72,102 | $ | 27,364 | ||||||
Classified in the Statements of Operations as follows:
|
Cost of goods and services
|
$ | 2,147 | $ | 21,943 | $ | — | ||||||
|
Selling and adminstrative expenses
|
4,053 | 50,159 | 27,364 | |||||||||
|
Total
|
$ | 6,200 | $ | 72,102 | $ | 27,364 | ||||||
60
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| 8. | Borrowings and Lines of Credit |
Borrowings at December 31, 2010 and 2009 consist of the
following:
| 2010 | 2009 | |||||||
|
6.50%
10-year
notes due February 15, 2011
|
$ | 399,986 | $ | 399,921 | ||||
|
4.875%
10-year
notes due October 15, 2015
|
299,047 | 298,851 | ||||||
|
5.45%
10-year
notes due March 15, 2018
|
347,608 | 347,280 | ||||||
|
6.60%
30-year
notes due March 15, 2038
|
247,595 | 247,506 | ||||||
|
6.65%
30-year
debentures due June 1, 2028
|
199,379 | 199,344 | ||||||
|
5.375%
30-year
debentures due October 15, 2035
|
296,048 | 295,890 | ||||||
|
Non-interest bearing, amortizing loan due July 2011
|
— | 67,684 | ||||||
|
Other
|
3,148 | 4,408 | ||||||
|
Total long-term debt
|
1,792,811 | 1,860,884 | ||||||
|
Less current installments
|
(1,925 | ) | (35,624 | ) | ||||
| $ | 1,790,886 | $ | 1,825,260 | |||||
The long-term note borrowings presented above are net of
unamortized discounts of $5,764 and $6,240 in 2010 and 2009,
respectively. The debentures presented above include unamortized
discounts of $4,572 and $4,767 in 2010 and 2009, respectively.
The discounts are being amortized to interest expense using the
effective interest rate method over the life of the issuances.
The notes and debentures are redeemable at the option of Dover
in whole or in part at any time at a redemption price that
includes a make-whole premium, with accrued interest to the
redemption date.
At December 31, 2010, notes payable and current maturities
of long-term debt shown on the Consolidated Balance Sheet
includes commercial paper of $15,000. The weighted average
interest rate for short-term commercial paper borrowings for
2010 and 2009 was 0.2% and 0.3%, respectively. The Company had
no outstanding commercial paper borrowings at December 31,
2009.
The Company maintains a $1 billion unsecured revolving
credit facility (the “Credit Agreement”), which
expires on November 9, 2012. At the Company’s
election, loans under the Credit Agreement will bear interest at
a Eurodollar or Sterling rate based on LIBOR, plus an applicable
margin ranging from 0.13% to 0.35% (subject to adjustment based
on the rating accorded the Company’s senior unsecured debt
by S&P and Moody’s), or at a base rate pursuant to a
formula defined in the Credit Agreement. In addition, the Credit
Agreement requires the Company to pay a facility fee and a
utilization fee in certain circumstances and imposes various
restrictions on the Company such as, among other things, the
requirement for the Company to maintain an interest coverage
ratio of EBITDA to consolidated net interest expense of not less
than 3.5 to 1. The Company was in compliance with all of its
debt covenants at December 31, 2010 and had a coverage
ratio of 12.1 to 1. The Company primarily uses this facility as
liquidity
back-up
for
its commercial paper program and has not drawn down any loans
under the $1 billion facility and does not anticipate doing
so. The Company generally uses commercial paper borrowings for
general corporate purposes, including the funding of potential
acquisitions and the repurchases of its common stock.
During the third quarter of 2010, the lender of a structured
five-year, non-interest bearing amortizing loan originally due
July 2011 called the loan, as permitted per the terms of the
agreement. As a result, the Company repaid the outstanding
$51,214 balance and recognized a net loss on extinguishment of
$4,343, recorded in other income.
Principal payments required on long-term debt for the next five
years (2011 to 2015) and thereafter are $401,911 in 2011,
$616 in 2012, $500 in 2013, $0 in 2014, $299,047 in 2015, and
$1,090,737 thereafter. The
61
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Company currently has debt with a carrying value of
approximately $399,986 which matures February 15, 2011.
This amount is classified as long-term within the Consolidated
Balance Sheet at December 31, 2010 as the Company has the
ability and intends to refinance this debt on a long-term basis.
The Company anticipates refinancing this debt with a maturity
date beyond five years; however, since the terms of the
refinancing have not been finalized, the debt is reflected
within the 2011 repayments in the aforementioned principal
payments schedule.
Interest expense for the years ended December 31, 2010,
2009 and 2008 was $115,490, $116,234 and $130,150, respectively.
Interest income for the years ended December 31, 2010, 2009
and 2008 was $9,149, $15,859 and $34,113, respectively.
| 9. | Financial Instruments |
Derivatives
The Company is exposed to market risk for changes in foreign
currency exchange rates due to the global nature of its
operations. In order to manage this risk the Company has hedged
portions of its forecasted sales and purchases, which occur
within the next twelve months and are denominated in
non-functional currencies, with currency forward or collar
contracts. At December 31, 2010 and 2009, the Company had
contracts with U.S. dollar equivalent notional amounts of
$63,935 and $45,847, respectively, to exchange foreign
currencies, principally the U.S. dollar, British pound,
Singapore dollar, Chinese yuan and Malaysian ringgit. The
Company believes it is probable that all forecasted cash flow
transactions will occur.
At December 31, 2010, the Company also had an outstanding
floating-to-floating
cross currency swap agreement for a total notional amount of
$50,000 in exchange for CHF 65,100, which matures on
February 15, 2011. This transaction hedges a portion of the
Company’s net investment in
non-U.S. operations.
The agreement qualifies as a net investment hedge and changes in
the fair value are reported within the cumulative translation
adjustment section of other comprehensive income, with any hedge
ineffectiveness being recognized in current earnings. The fair
values at December 31, 2010 and 2009 reflected losses of
$19,774 and $13,278, respectively, due to the strengthening of
the Swiss franc relative to the U.S. dollar over the term
of this arrangement.
The following table sets forth the fair values of derivative
instruments held by the Company as of December 31, 2010 and
2009 and the balance sheet lines in which they are recorded:
| Fair Value — Asset (Liability) | ||||||||||
| 2010 | 2009 | Balance Sheet Caption | ||||||||
|
Foreign exchange forward/collar contracts
|
$ | 503 | $ | 16 | Prepaid/Other assets | |||||
|
Foreign exchange forward/collar contracts
|
— | (99 | ) | Other accrued expenses | ||||||
|
Net investment hedge swap derivative
|
(19,774 | ) | (13,278 | ) | Other liabilities | |||||
The amount of gains or losses from hedging activity recorded in
earnings is not significant and the amount of unrealized gains
and losses from cash flow hedges which are expected to be
reclassified to earnings in the next twelve months is not
significant; therefore, additional tabular disclosures are not
presented. There are no amounts excluded from the assessment of
hedge effectiveness and there are no credit risk related
contingent features in the Company’s derivative instruments.
The Company is exposed to credit loss in the event of
nonperformance by counterparties to the financial instrument
contracts held by the Company; however, nonperformance by these
counterparties is considered unlikely as the Company’s
policy is to contract with highly-rated, diversified
counterparties.
62
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Fair
Value Measurements
ASC 820,
Fair Value Measurements and Disclosures
,
establishes a fair value hierarchy that requires the Company to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial
instrument’s categorization within the hierarchy is based
on the lowest level of input that is significant to the fair
value measurement. ASC 820 establishes three levels of
inputs that may be used to measure fair value.
Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level 2 inputs include inputs other than Level 1 that
are observable, either directly or indirectly, such as quoted
prices in active markets for similar assets and liabilities,
quoted prices for identical or similar assets or liabilities in
markets that are not active, or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of assets or liabilities.
Level 3 inputs are unobservable inputs in which little or
no market data exists, therefore requiring an entity to develop
its own assumptions.
The following table presents the Company’s assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2010 and 2009:
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||
|
Short-term investments
|
$ | 121,734 | $ | — | $ | — | $ | 223,809 | $ | — | $ | — | ||||||||||||
|
Foreign currency exchange contracts
|
— | 503 | 16 | |||||||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||||||
|
Net investment hedge derivative
|
— | 19,774 | — | — | 13,278 | — | ||||||||||||||||||
|
Foreign currency exchange contracts
|
— | — | — | — | 99 | — | ||||||||||||||||||
Short-term investments consist of investment grade time deposits
with original maturities between three months and one year and
are included in current assets in the Consolidated Balance
Sheet. Short-term investments are measured at fair value using
quoted market prices. The derivative contracts are measured at
fair value using models based on observable market inputs such
as foreign currency exchange rates and interest rates;
therefore, they are classified within Level 2 of the
valuation hierarchy.
In addition to fair value disclosure requirements related to
financial instruments carried at fair value, accounting
standards require disclosures regarding the fair value of all of
the Company’s financial instruments.
The Company’s long-term debt instruments with a book value
of $1,792,811 had a fair value of approximately $1,961,697 at
December 31, 2010. On December 31, 2009, the
Company’s long-term debt instruments had a book value of
$1,860,884 and a fair value of approximately $1,954,569. The
estimated fair value of the long-term debt is based on quoted
market prices for similar issues. The fair value of short-term
loans, principally commercial paper at December 31, 2010,
approximates carrying value.
The carrying values of cash and cash equivalents, trade
receivables, accounts payable, notes payable, and accrued
expenses are reasonable estimates of their fair values as of
December 31, 2010 and 2009 due to the short-term nature of
these instruments.
63
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| 10. | Equity and Cash Incentive Program |
2005
Equity and Cash Incentive Plan
On April 20, 2004, the shareholders approved the Dover
Corporation 2005 Equity and Cash Incentive Plan (the “2005
Plan”) to replace the 1995 Incentive Stock Option Plan and
1995 Cash Performance Program (the “1995 Plan”), which
expired on January 30, 2005. Under the 2005 Plan, a maximum
aggregate of 20 million shares were reserved for grants
(non-qualified and incentive stock options, stock settled stock
appreciation rights (“SARs”), restricted stock, and
performance share awards) to key personnel between
February 1, 2005 and January 31, 2015, provided that
no incentive stock options shall be granted under the plan after
February 11, 2014 and a maximum of two million shares may
be granted as restricted stock or performance share awards. The
exercise price of options and SARs may not be less than the fair
market value of the stock at the time the awards are granted.
The period during which these options and SARs are exercisable
is fixed by the Company’s Compensation Committee at the
time of grant, but generally may not commence sooner than three
years after the date of grant, and may not exceed ten years from
the date of grant. All stock options or SARs issued under the
1995 Plan or the 2005 Plan vest after three years of service and
expire at the end of ten years. All stock options and SARs are
granted at regularly scheduled quarterly Compensation Committee
meetings (usually only at the meeting during the first quarter)
and have an exercise price equal to the closing price of the
Company’s stock on the New York Stock Exchange on the date
of grant. New common shares are issued when options or SARs are
exercised.
Performance
Share Awards
In May 2009, the shareholders of the Company approved an
amendment to the 2005 Plan allowing the granting of performance
share awards that will become payable in common shares upon
achievement of pre-established performance targets. The changes
to the 2005 Plan are detailed in the Company’s Proxy
Statement dated March 24, 2009 under the heading
“Proposal 2 — Proposal to Approve Amendments
to the 2005 Equity and Cash Incentive Plans.” Performance
share awards granted under the 2005 Plan are being expensed over
the three year period that is the requisite performance and
service period. Awards shall become vested if (1) the
Company achieves certain specified stock performance targets
compared to a peer group of 38 companies and (2) the
employee remains continuously employed by the company during the
performance period. Partial vesting may occur for certain
terminations not for cause and for retirements. The Company
assesses performance levels quarterly. Compensation expense
relating to performance share awards for the years ended
December 31, 2010 and 2009 was $2,632 and $555,
respectively. Unrecognized compensation expense as of
December 31, 2010 is $3,038 which will be recognized over a
weighted average period of 1.8 years.
|
Weighted-Average
|
||||||||
|
Number of
|
Grant-Date
|
|||||||
| Performance Share Awards | Shares | Fair Value | ||||||
|
Unvested at December 31, 2009
|
75,006 | $ | 35.79 | |||||
|
Granted
|
68,446 | 57.49 | ||||||
|
Vested
|
— | — | ||||||
|
Forfeited
|
— | — | ||||||
|
Unvested at December 31, 2010
|
143,452 | $ | 46.14 | |||||
64
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
The performance share awards are market condition awards and
have been fair valued on the date of grant using the Monte Carlo
simulation model with the following assumptions:
|
2010
|
2009
|
|||||||
| Performance Shares | Grant | Grant | ||||||
|
Risk-free interest rate
|
1.37 | % | 1.30 | % | ||||
|
Dividend yield
|
2.38 | % | 2.93 | % | ||||
|
Expected life (years)
|
2.9 | 2.7 | ||||||
|
Volatility
|
39.98 | % | 39.57 | % | ||||
|
Share price at date of grant
|
$ | 42.88 | $ | 32.47 | ||||
|
Fair value of performance award
|
$ | 57.49 | $ | 35.79 | ||||
SARs
and Stock Options
In 2010, 2009 and 2008, the Company issued SARs covering
2,304,574 shares, 2,825,701 shares, and
2,234,942 shares, respectively, under the 2005 Plan. No
stock options were issued in 2010, 2009 or 2008 and the Company
does not anticipate issuing stock options in the future. The
fair value of each SAR grant was estimated on the date of grant
using a Black-Scholes option-pricing model with the following
assumptions:
|
2010
|
2009
|
2008
|
||||||||||
| Grant | Grant | Grant | ||||||||||
|
Risk-free interest rate
|
2.77 | % | 2.06 | % | 3.21 | % | ||||||
|
Dividend yield
|
2.33 | % | 3.23 | % | 1.86 | % | ||||||
|
Expected life (years)
|
6.0 | 6.5 | 6.5 | |||||||||
|
Volatility
|
31.93 | % | 30.47 | % | 26.09 | % | ||||||
|
Option grant price
|
$ | 42.88 | $ | 29.45 | $ | 42.30 | ||||||
|
Fair value of options granted
|
$ | 11.66 | $ | 6.58 | $ | 10.97 | ||||||
65
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
A summary of activity for SARs and stock options for the years
ended December 31, 2010, 2009 and 2008 is as follows:
| SARs | Stock Options | |||||||||||||||||||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||||
|
Average
|
Average
|
|||||||||||||||||||||||||||||||
|
Weighted
|
Remaining
|
Weighted
|
Remaining
|
|||||||||||||||||||||||||||||
|
Average
|
Aggregate
|
Contractual
|
Average
|
Contractual
|
||||||||||||||||||||||||||||
|
Number of
|
Exercise
|
Intrinsic
|
Term
|
Number of
|
Exercise
|
Aggregate
|
Term
|
|||||||||||||||||||||||||
| Shares | Price | Value | (Years) | Shares | Price | Intrinsic Value | (Years) | |||||||||||||||||||||||||
|
Outstanding at 1/1/2008
|
3,241,226 | $ | 48.32 | 8,260,730 | $ | 35.77 | ||||||||||||||||||||||||||
|
Granted
|
2,234,942 | 42.30 | — | — | ||||||||||||||||||||||||||||
|
Forfeited
|
(373,193 | ) | 45.90 | (139,826 | ) | 36.82 | ||||||||||||||||||||||||||
|
Exercised
|
— | — | $ | — | (2,040,458 | ) | 34.29 | $ | 15,807 | |||||||||||||||||||||||
|
Outstanding at 12/31/2008
|
5,102,975 | 45.82 | — | 8.23 | 6,080,446 | 36.22 | 35,359 | 4.29 | ||||||||||||||||||||||||
|
Exercisable at December 31, 2008 through February 14,
2015
|
— | — | 6,080,466 | 36.22 | ||||||||||||||||||||||||||||
|
Outstanding at 1/1/2009
|
5,102,975 | $ | 45.82 | 6,080,446 | $ | 36.22 | ||||||||||||||||||||||||||
|
Granted
|
2,825,701 | 29.51 | — | — | ||||||||||||||||||||||||||||
|
Forfeited
|
(320,490 | ) | 38.85 | (174,386 | ) | 31.06 | ||||||||||||||||||||||||||
|
Exercised
|
— | — | $ | — | (713,678 | ) | 34.63 | |||||||||||||||||||||||||
|
Outstanding at 12/31/2009
|
7,608,186 | 40.05 | — | 7.89 | 5,192,382 | 36.62 | $ | 8,903 | 3.48 | |||||||||||||||||||||||
|
Exercisable at December 31, 2009 through February 14,
2016
|
1,477,658 | 46.00 | 5,192,382 | 36.62 | ||||||||||||||||||||||||||||
|
Outstanding at 1/1/2010
|
7,608,186 | $ | 40.05 | 5,192,382 | $ | 36.62 | ||||||||||||||||||||||||||
|
Granted
|
2,304,574 | 42.88 | — | |||||||||||||||||||||||||||||
|
Forfeited
|
(312,950 | ) | 38.56 | (314,584 | ) | 38.39 | ||||||||||||||||||||||||||
|
Exercised
|
(167,797 | ) | 47.06 | $ | 252 | (1,978,663 | ) | 35.94 | $ | 24,976 | ||||||||||||||||||||||
|
Outstanding at 12/31/2010
|
9,432,013 | 40.63 | 74,841 | 7.46 | 2,899,135 | 36.79 | 34,128 | 2.99 | ||||||||||||||||||||||||
|
Exercisable at December 31, 2010 through:
|
||||||||||||||||||||||||||||||||
|
2011
|
— | $ | — | $ | — | 118,613 | $ | 40.99 | $ | 898 | ||||||||||||||||||||||
|
2012
|
— | — | — | 345,006 | 37.90 | 3,678 | ||||||||||||||||||||||||||
|
2013
|
— | — | — | 479,064 | 24.59 | 11,483 | ||||||||||||||||||||||||||
|
2014
|
— | — | — | 797,078 | 41.25 | 5,828 | ||||||||||||||||||||||||||
|
2015
|
— | — | — | 1,159,374 | 38.00 | 12,241 | ||||||||||||||||||||||||||
|
2016
|
1,253,338 | 46.00 | 3,209 | — | — | — | ||||||||||||||||||||||||||
|
2017
|
1,378,443 | 50.60 | — | — | — | |||||||||||||||||||||||||||
|
Total exercisable at December 31, 2010
|
2,631,781 | 48.41 | 3,209 | 5.62 | 2,899,135 | 36.79 | 34,128 | 2.99 | ||||||||||||||||||||||||
Compensation expense relating to SARs/option awards for the
years ended December 31, 2010, 2009 and 2008 was $19,334,
$16,621 and $24,839, respectively. Unrecognized compensation
expense related to not yet exercisable SARs was $22,708 at
December 31, 2010. This cost is expected to be recognized
over a weighted average period of 1.8 years. The fair value
of options and SARs which became exercisable during the years
ended December 31, 2010, 2009 and 2008 was $23,593, $25,134
and $26,200, respectively. Cash received by the Company for
stock options exercised during 2010, 2009 and 2008 totaled
$66,962, $24,714, and $70,600, respectively.
66
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Additional
Detail
| SARs Outstanding | SARs Exercisable | |||||||||||||||||||||||
|
Weighted Average
|
Weighted Average
|
|||||||||||||||||||||||
|
Weighted Average
|
Remaining Life
|
Weighted Average
|
Remaining Life
|
|||||||||||||||||||||
| Range of Exercise Prices | Number | Exercise Price | in Years | Number | Exercise Price | in Years | ||||||||||||||||||
|
$29.45-$35.50
|
2,596,423 | $ | 29.52 | 8.12 | — | $ | — | — | ||||||||||||||||
|
$42.30-$50.60
|
6,835,590 | $ | 44.84 | 7.20 | 2,631,781 | $ | 48.41 | 5.62 | ||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
|
Weighted Average
|
Weighted Average
|
|||||||||||||||||||||||
|
Weighted Average
|
Remaining Life
|
Weighted Average
|
Remaining Life
|
|||||||||||||||||||||
| Range of Exercise Prices | Number | Exercise Price | in Years | Number | Exercise Price | in Years | ||||||||||||||||||
|
$24.50-$31.00
|
479,514 | $ | 24.53 | 2.12 | 479,514 | $ | 24.53 | 2.12 | ||||||||||||||||
|
$33.00-$39.00
|
1,501,430 | 38.00 | 3.43 | 1,501,430 | 38.00 | 3.43 | ||||||||||||||||||
|
$39.40-$43.00
|
918,191 | 41.21 | 2.73 | 918,191 | 41.21 | 2.50 | ||||||||||||||||||
The Company also has restricted stock authorized for grant (as
part of the 2005 Plan), under which common stock of the Company
may be granted at no cost to certain officers and key employees.
In general, restrictions limit the sale or transfer of these
shares during a two or three year period, and restrictions lapse
proportionately over the two or three year period. The Company
granted 15,500 restricted shares in 2010. No restricted shares
were granted in 2009 or 2008.
The Company has a stock compensation plan under which
non-employee directors are granted shares of the Company’s
common stock each year as more than half of their compensation
for serving as directors. During 2010, the Company issued an
aggregate of 20,279 shares, of its common stock to 13
outside directors (after withholding 574 additional shares to
satisfy tax obligations) as partial compensation for serving as
directors of the Company during 2010. During 2009, the Company
issued an aggregate of 14,726 shares, of its common stock
to 11 outside directors (after withholding 6,823 additional
shares to satisfy tax obligations) as partial compensation for
serving as directors of the Company during 2009. During 2008,
the Company issued an aggregate of 29,213 shares, net, of
its common stock to 12 outside directors (after withholding
11,582 additional shares to satisfy tax obligations) as partial
compensation for serving as directors of the Company during 2008.
| 11. | Income Taxes |
Income taxes have been based on the following components of
“Earnings Before Provision for Income Taxes and
Discontinued Operations” in the Consolidated Statements of
Operations:
| For the Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Domestic
|
$ | 470,396 | $ | 258,313 | $ | 527,509 | ||||||
|
Foreign
|
454,688 | 233,305 | 418,510 | |||||||||
| $ | 925,084 | $ | 491,618 | $ | 946,019 | |||||||
Total income taxes were as follows:
| For the Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Taxes on income from continuing operations
|
217,176 | 119,724 | 251,261 | |||||||||
|
Credit to stockholders’ equity for tax benefit related to
stock option/SAR exercises
|
(6,466 | ) | (425 | ) | (8,449 | ) | ||||||
| 210,710 | 119,299 | 242,812 | ||||||||||
67
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Income tax expense (benefit) for the years ended
December 31, 2010, 2009 and 2008 is comprised of the
following:
| For the Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Current:
|
||||||||||||
|
U.S. Federal
|
$ | 33,867 | $ | 71,269 | $ | 124,193 | ||||||
|
State and local
|
8,295 | 5,191 | 24,060 | |||||||||
|
Foreign
|
105,476 | 68,065 | 69,549 | |||||||||
|
Total current — continuing
|
147,638 | 144,525 | 217,802 | |||||||||
|
Deferred:
|
||||||||||||
|
U.S. Federal
|
95,036 | (12,985 | ) | 21,207 | ||||||||
|
State and local
|
140 | 116 | 301 | |||||||||
|
Foreign
|
(25,638 | ) | (11,932 | ) | 11,951 | |||||||
|
Total deferred — continuing
|
69,538 | (24,801 | ) | 33,459 | ||||||||
|
Total expense — continuing
|
$ | 217,176 | $ | 119,724 | $ | 251,261 | ||||||
Differences between the effective income tax rate and the
U.S. Federal income statutory rate are as follows:
|
For the Years Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
U.S. Federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State and local taxes, net of Federal income tax benefit
|
1.3 | 1.5 | 1.7 | |||||||||
|
Foreign operations tax effect
|
(8.1 | ) | (5.2 | ) | (6.9 | ) | ||||||
|
Subtotal
|
(6.8 | ) | (3.7 | ) | (5.2 | ) | ||||||
|
R&E tax credits
|
(0.4 | ) | (0.4 | ) | (0.5 | ) | ||||||
|
Domestic manufacturing deduction
|
(0.8 | ) | (0.9 | ) | (0.7 | ) | ||||||
|
Foreign tax credits
|
(0.5 | ) | 1.2 | (0.1 | ) | |||||||
|
Branch losses
|
(0.5 | ) | (1.1 | ) | (0.5 | ) | ||||||
|
Settlement of tax contingencies
|
(4.2 | ) | (6.9 | ) | (1.9 | ) | ||||||
|
Other, principally non-tax deductible items
|
1.7 | 1.2 | 0.5 | |||||||||
|
Effective rate from continuing operations
|
23.5 | % | 24.4 | % | 26.6 | % | ||||||
68
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
The tax effects of temporary differences that give rise to
future deferred tax assets and liabilities are as follows:
| At December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Deferred Tax Assets:
|
||||||||
|
Accrued insurance
|
$ | 10,777 | $ | 9,794 | ||||
|
Accrued compensation, principally postretirement benefits and
other employee benefits
|
119,148 | 103,800 | ||||||
|
Accrued expenses, principally for state income taxes, interest
and warranty
|
66,543 | 73,147 | ||||||
|
Long-term liabilities, principally warranty, environmental, and
exit costs
|
759 | 2,548 | ||||||
|
Inventories, principally due to reserves for financial reporting
purposes and capitalization for tax purposes
|
24,806 | 25,593 | ||||||
|
Net operating loss and other carryforwards
|
68,558 | 106,009 | ||||||
|
Accounts receivable, principally due to allowance for doubtful
accounts
|
8,089 | 9,786 | ||||||
|
Prepaid pension assets
|
1,619 | 7,947 | ||||||
|
Other assets
|
10,377 | 13,904 | ||||||
|
Total gross deferred tax assets
|
310,676 | 352,528 | ||||||
|
Valuation allowance
|
(38,136 | ) | (43,171 | ) | ||||
|
Total deferred tax assets
|
$ | 272,540 | $ | 309,357 | ||||
|
Deferred Tax Liabilities:
|
||||||||
|
Accounts receivable
|
$ | (8,304 | ) | $ | (9,098 | ) | ||
|
Plant and equipment, principally due to differences in
depreciation
|
(51,872 | ) | (46,831 | ) | ||||
|
Intangible assets, principally due to different tax and
financial reporting bases and amortization lives
|
(503,941 | ) | (475,773 | ) | ||||
|
Total gross deferred tax liabilities
|
$ | (564,117 | ) | $ | (531,702 | ) | ||
|
Net deferred tax liability
|
$ | (291,577 | ) | $ | (222,345 | ) | ||
Classified as follows in the consolidated balance sheets:
|
Current deferred tax asset
|
$ | 89,720 | $ | 69,999 | ||||
|
Non-current deferred tax liability
|
(381,297 | ) | (292,344 | ) | ||||
| $ | (291,577 | ) | $ | (222,345 | ) | |||
The Company has loss carryforwards for U.S. federal and
non-U.S. purposes
as of December 31, 2010 of $1.2 million and
$52.7 million, respectively, and as of December 31,
2009, $8.4 million and $73.8 million, respectively.
The federal loss carryforwards are available for use against the
Company’s consolidated federal taxable income and expire in
2029. The entire balance of the
non-U.S. losses
is available to be carried forward, with $8.5 million of
these losses beginning to expire during the years 2012 through
2030. The remaining $44.2 million of such losses can be
carried forward indefinitely.
The Company has loss carryforwards for state purposes as of
December 31, 2010 and 2009 of $211.8 million and
$220.9 million, respectively. The state loss carryforwards
are available for use by the Company between 2011 and 2030.
The Company has U.S. foreign tax credit carryforwards as of
December 31, 2010 and 2009 of $24.5 million and
$61.8 million, respectively. The U.S. foreign tax
credit carryforwards are available for use by the Company
between 2011 and 2019.
The Company has research and development credits of
$3.9 million at December 31, 2010 and 2009 that are
available for use by the Company between 2011 and 2026.
69
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
At December 31, 2010 and 2009, the Company had available
alternative minimum tax credits of $3.1 million, which are
available for use by the Company indefinitely, and alternative
minimum tax
non-U.S. tax
credits of $11.7 million that are available for use by the
Company between 2011 and 2026.
The Company maintains valuation allowances by jurisdiction
against the deferred tax assets related to certain of these
carryforwards as utilization of these tax benefits is not
assured for certain jurisdictions.
The Company has not provided for U.S. federal income taxes
or tax benefits on the undistributed earnings of its
international subsidiaries because such earnings are reinvested
and it is currently intended that they will continue to be
reinvested indefinitely. At December 31, 2010, the Company
has not provided for federal income taxes on earnings of
approximately $1.2 billion from its international
subsidiaries.
Unrecognized
Tax Benefits
The Company files federal income tax returns, as well as
multiple state, local and
non-U.S. jurisdiction
tax returns. The Company is no longer subject to examinations of
its federal income tax returns by the Internal Revenue Service
(“IRS”) for years through 2006. All significant state,
local, and international matters have been concluded for years
through 1993 and 2000, respectively. With the exception of
contested matters, for which an estimate cannot be made due to
uncertainties, the Company believes that additional uncertain
tax positions will be settled in 2011.
The following table is a reconciliation of the beginning and
ending balances of the Company’s unrecognized tax benefits:
| Continuing | Discontinued | Total | ||||||||||
|
Unrecognized tax benefits at January 1, 2008
|
$ | 188,758 | $ | 34,987 | $ | 223,745 | ||||||
|
Additions based on tax positions related to the current year
|
24,015 | — | 24,015 | |||||||||
|
Additions for tax positions of prior years
|
25,866 | 22,578 | 48,444 | |||||||||
|
Reductions for tax positions of prior years
|
(19,267 | ) | (10,906 | ) | (30,173 | ) | ||||||
|
Settlements
|
(2,859 | ) | — | (2,859 | ) | |||||||
|
Lapse of statutes
|
(11,466 | ) | — | (11,466 | ) | |||||||
|
Unrecognized tax benefits at December 31, 2008
|
205,047 | 46,659 | 251,706 | |||||||||
|
Additions based on tax positions related to the current year
|
46,133 | 39,480 | 85,613 | |||||||||
|
Additions for tax positions of prior years
|
5,622 | 2,741 | 8,363 | |||||||||
|
Reductions for tax positions of prior years
|
(9,497 | ) | (2,014 | ) | (11,511 | ) | ||||||
|
Settlements
|
(41,869 | ) | (5,914 | ) | (47,783 | ) | ||||||
|
Lapse of statutes
|
(7,074 | ) | (2,748 | ) | (9,822 | ) | ||||||
|
Unrecognized tax benefits at December 31, 2009
|
198,362 | 78,204 | 276,566 | |||||||||
|
Additions based on tax positions related to the current year
|
22,566 | — | 22,566 | |||||||||
|
Additions for tax positions of prior years
|
15,258 | — | 15,258 | |||||||||
|
Reductions for tax positions of prior years
|
(39,883 | ) | (6,716 | ) | (46,599 | ) | ||||||
|
Settlements
|
(8,152 | ) | (17,804 | ) | (25,956 | ) | ||||||
|
Lapse of statutes
|
(7,654 | ) | — | (7,654 | ) | |||||||
|
Unrecognized tax benefits at December 31, 2010
|
$ | 180,497 | (A) | $ | 53,684 | $ | 234,181 | |||||
| (A) | If recognized, the net amount of potential tax benefits that would impact the Company’s effective tax rate is $150.0 million. During the years ended December 31, 2010, 2009, and 2008, the Company recorded potential |
70
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| interest and penalty expense of $1.5 million, $5.0 million and $(0.6) million, respectively, related to its unrecognized tax benefits as a component of provision for income taxes. The Company had accrued interest and penalties of $45.6 million at December 31, 2010 and $46.5 million at December 31, 2009. |
| 12. | Commitments and Contingent Liabilities |
A few of the Company’s subsidiaries are involved in legal
proceedings relating to the cleanup of waste disposal sites
identified under federal and state statutes that provide for the
allocation of such costs among “potentially responsible
parties.” In each instance, the extent of the
Company’s liability appears to be very small in relation to
the total projected expenditures and the number of other
“potentially responsible parties” involved and is
anticipated to be immaterial to the Company. In addition, a few
of the Company’s subsidiaries are involved in ongoing
remedial activities at certain plant sites, in cooperation with
regulatory agencies, and appropriate reserves have been
established.
The Company and certain of its subsidiaries are also parties to
a number of other legal proceedings incidental to their
businesses. These proceedings primarily involve claims by
private parties alleging injury arising out of use of the
Company’s products, exposure to hazardous substances or
patent infringement, litigation and administrative proceedings
involving employment matters and commercial disputes. Management
and legal counsel periodically review the probable outcome of
such proceedings, the costs and expenses reasonably expected to
be incurred, the availability and extent of insurance coverage,
and established reserves. While it is not possible at this time
to predict the outcome of these legal actions or any need for
additional reserves, in the opinion of management, based on
these reviews, it is unlikely that the disposition of the
lawsuits and the other matters mentioned above will have a
material adverse effect on the financial position, results of
operations, cash flows or competitive position of the Company.
The Company leases certain facilities and equipment under
operating leases, many of which contain renewal options. Total
rental expense, net of insignificant sublease rental income, for
all operating leases was $75,172, $74,859 and $76,651 for the
years ended December 31, 2010, 2009 and 2008, respectively.
Contingent rentals under the operating leases were not
significant.
The aggregate future minimum lease payments for operating and
capital leases as of December 31, 2010 are as follows:
| Operating | Capital | |||||||
|
2011
|
$ | 54,544 | $ | 1,149 | ||||
|
2012
|
44,831 | 845 | ||||||
|
2013
|
31,899 | 649 | ||||||
|
2014
|
24,478 | 89 | ||||||
|
2015
|
18,570 | 95 | ||||||
|
2016 and thereafter
|
63,036 | 640 | ||||||
Warranty program claims are provided for at the time of sale.
Amounts provided for are based on historical costs and adjusted
for new claims. A roll-forward of the warranty reserve is as
follows:
| 2010 | 2009 | |||||||
|
Beginning Balance, January 1
|
$ | 59,713 | $ | 56,137 | ||||
|
Provision for warranties
|
40,190 | 34,342 | ||||||
|
Increase from acquisitions/dispositions
|
173 | 3,838 | ||||||
|
Settlements made
|
(40,876 | ) | (34,781 | ) | ||||
|
Other adjustments, including currency translation
|
(971 | ) | 177 | |||||
|
Ending Balance, December 31
|
$ | 58,229 | $ | 59,713 | ||||
71
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
As of December 31, 2010, the Company had approximately
$66,002 outstanding in letters of credit with financial
institutions, which expire at various dates in 2011 through
2015. These letters of credit are primarily maintained as
security for insurance, warranty and other performance
obligations.
| 13. | Employee Benefit Plans |
The Company offers a defined contribution plan to most of its
employees. The Company also has defined benefit pension plans
(the “plans”) covering certain employees of the
Company and its subsidiaries. The plans’ benefits are
generally based on years of service and employee compensation.
The Company’s funding policy is consistent with the funding
requirements of the Employment Retirement Income Security Act
(“ERISA”) and applicable international laws.
The Company is responsible for overseeing the management of the
investments of the plans’ assets and otherwise ensuring
that the plans’ investment programs are in compliance with
ERISA, other relevant legislation, and related plan documents.
Where relevant, the Company has retained professional investment
managers to manage the plans’ assets and implement the
investment process. The investment managers, in implementing
their investment processes, have the authority and
responsibility to select appropriate investments in the asset
classes specified by the terms of their applicable prospectus or
investment manager agreements with the plans.
The primary financial objective of the plans is to secure
participant retirement benefits. Accordingly, the key objective
in the plans’ financial management is to promote stability
and, to the extent appropriate, growth in the funded status.
Related and supporting financial objectives are established in
conjunction with a review of current and projected plan
financial requirements.
The assets of the plans are invested to achieve an appropriate
return for the plans consistent with a prudent level of risk.
The asset return objective is to achieve, as a minimum over
time, the passively managed return earned by market index funds,
weighted in the proportions outlined by the asset class
exposures identified in the plans’ strategic allocation.
The expected return on assets assumption used for pension
expense is developed through analysis of historical market
returns, statistical analysis, current market conditions and the
past experience of plan asset investments. Overall, it is
projected that the investment of plan assets will achieve a
7.75% net return over time from the asset allocation strategy.
The actual and target weighted-average asset allocation for
defined benefit plans was as follows:
|
December
|
December
|
Current
|
||||||||||
| 2010 | 2009 | Target | ||||||||||
|
Equity — domestic
|
40 | % | 39 | % | 35 | % | ||||||
|
Equity — international
|
22 | % | 21 | % | 22 | % | ||||||
|
Fixed income — domestic
|
32 | % | 34 | % | 35 | % | ||||||
|
Real estate
|
6 | % | 6 | % | 8 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
72
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
The fair values of pension plan assets by asset category within
the ASC 820 hierarchy are as follows:
| At December 31, 2010 | At December 31, 2009 | |||||||||||||||||||||||||||||||
|
Total Fair
|
Total Fair
|
|||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | Level 1 | Level 2 | Level 3 | Value | |||||||||||||||||||||||||
|
Asset category:
|
||||||||||||||||||||||||||||||||
|
Common stocks
|
$ | 154,832 | $ | 5,381 | $ | — | $ | 160,213 | $ | 110,728 | $ | 4,868 | $ | — | $ | 115,596 | ||||||||||||||||
|
Fixed income investments
|
6,070 | 160,251 | — | 166,321 | 8,955 | 133,586 | — | 142,541 | ||||||||||||||||||||||||
|
Debt, equity and real estate funds
|
— | 171,856 | 23,059 | 194,915 | — | 177,342 | 20,401 | 197,743 | ||||||||||||||||||||||||
|
Cash and equivalents
|
10,149 | — | — | 10,149 | 11,761 | — | — | 11,761 | ||||||||||||||||||||||||
| $ | 171,051 | $ | 337,488 | $ | 23,059 | $ | 531,598 | $ | 131,444 | $ | 315,796 | $ | 20,401 | $ | 467,641 | |||||||||||||||||
Common stocks represent investments in U.S. equities which
are publicly traded on active exchanges and are valued based on
quoted market prices.
Fixed income investments include U.S. treasury bonds and
notes, which are valued based on quoted market prices, as well
as investments in other U.S. government and municipal
securities and corporate bonds, which are valued based on yields
currently available on comparable securities of issuers with
similar credit ratings.
Debt, equity and real estate funds represent commingled
investment funds. The debt and equity fund investments are
valued using Net Asset Value (“NAV”) which is based on
the underlying value of the assets owned by the funds, minus
liabilities, then divided by the number of shares outstanding.
The NAV is a quoted price in an active market. The real estate
funds are valued on an annual basis using third-party
appraisals, with adjustments estimated on a quarterly basis
using discounted cash flow models which consider such inputs as
revenue and expense growth rates, terminal capitalization rates
and discount rates.
The fair value measurement of plan assets using significant
unobservable inputs (Level 3) changed during 2010 due
to the following:
|
Real Estate
|
||||
| Investments | ||||
|
Balance at December 31, 2009
|
$ | 20,401 | ||
|
Realized gains
|
1,156 | |||
|
Unrealized gains
|
1,502 | |||
|
Balance at December 31, 2010
|
$ | 23,059 | ||
The Company’s discount rate assumption is determined by
developing a yield curve based on high quality corporate bonds
with maturities matching the plans’ expected benefit
payment streams. The plans’ expected cash flows are then
discounted by the resulting
year-by-year
spot rates.
The Company also provides, through non-qualified plans,
supplemental retirement benefits in excess of qualified plan
limits imposed by federal tax law. These plans are supported by
the general assets of the Company.
73
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Obligations
and Funded Status
|
Qualified
|
Non Qualified
|
Post-Retirement
|
||||||||||||||||||||||
| Defined Benefits | Supplemental Benefits | Benefits | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
|
Change in benefit obligation
|
||||||||||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 541,206 | $ | 484,891 | $ | 127,355 | $ | 152,695 | $ | 15,329 | $ | 16,470 | ||||||||||||
|
Benefits earned during the year
|
14,687 | 13,971 | 4,241 | 6,188 | 279 | 314 | ||||||||||||||||||
|
Interest cost
|
30,574 | 28,936 | 7,677 | 8,688 | 837 | 959 | ||||||||||||||||||
|
Plan participants’ contributions
|
809 | 1,014 | — | — | 2,094 | 172 | ||||||||||||||||||
|
Benefits paid
|
(30,418 | ) | (27,699 | ) | (18,471 | ) | (26,828 | ) | (3,661 | ) | (1,597 | ) | ||||||||||||
|
Federal subsidy on benefits paid
|
— | — | — | — | 85 | 130 | ||||||||||||||||||
|
Actuarial loss (gain)
|
25,617 | 20,469 | 4,885 | (13,388 | ) | (455 | ) | 538 | ||||||||||||||||
|
Business acquisitions/divestitures
|
— | 7,241 | — | — | — | — | ||||||||||||||||||
|
Amendments
|
1,781 | 227 | 1,348 | — | — | (1,657 | ) | |||||||||||||||||
|
Settlements and curtailments
|
(1,697 | ) | (6,963 | ) | — | — | — | — | ||||||||||||||||
|
Currency rate changes
|
(1,591 | ) | 10,322 | — | — | — | — | |||||||||||||||||
|
Other
|
75 | 8,797 | — | — | — | — | ||||||||||||||||||
|
Benefit obligation at end of year
|
581,043 | 541,206 | 127,035 | 127,355 | 14,508 | 15,329 | ||||||||||||||||||
|
Change in Plan Assets
|
||||||||||||||||||||||||
|
Fair value of plan assets at beginning of year
|
467,641 | 410,711 | — | — | — | — | ||||||||||||||||||
|
Actual return on plan assets
|
55,205 | 23,992 | — | — | — | — | ||||||||||||||||||
|
Company contributions
|
38,163 | 50,701 | 18,471 | 26,828 | 1,567 | 1,425 | ||||||||||||||||||
|
Employee contributions
|
809 | 1,014 | — | — | 2,094 | 172 | ||||||||||||||||||
|
Benefits paid
|
(30,418 | ) | (27,699 | ) | (18,471 | ) | (26,828 | ) | (3,661 | ) | (1,597 | ) | ||||||||||||
|
Acquisitions
|
— | 6,361 | — | — | — | |||||||||||||||||||
|
Settlements and curtailments
|
(503 | ) | (6,547 | ) | — | — | — | |||||||||||||||||
|
Currency rate changes
|
701 | 7,191 | — | — | — | |||||||||||||||||||
|
Other
|
— | 1,917 | — | — | — | |||||||||||||||||||
|
Fair value of plan assets at end of year
|
531,598 | 467,641 | — | — | — | — | ||||||||||||||||||
|
Funded status
|
(49,445 | ) | (73,565 | ) | (127,035 | ) | (127,355 | ) | (14,508 | ) | (15,329 | ) | ||||||||||||
|
Accrued benefit cost
|
$ | (49,445 | ) | $ | (73,565 | ) | $ | (127,035 | ) | $ | (127,355 | ) | $ | (14,508 | ) | $ | (15,329 | ) | ||||||
|
Amounts recognized in the Balance Sheets consist of:
|
||||||||||||||||||||||||
|
Assets and Liabilities:
|
||||||||||||||||||||||||
|
Other assets and deferred charges
|
$ | 5,930 | $ | 3,339 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
Accrued compensation and employee benefits
|
(1,343 | ) | (1,527 | ) | (17,670 | ) | (14,468 | ) | (1,036 | ) | (1,189 | ) | ||||||||||||
|
Other liabilities (principally compensation)
|
(54,032 | ) | (75,377 | ) | (109,365 | ) | (112,887 | ) | (13,472 | ) | (14,140 | ) | ||||||||||||
|
Total Assets and Liabilities
|
(49,445 | ) | (73,565 | ) | (127,035 | ) | (127,355 | ) | (14,508 | ) | (15,329 | ) | ||||||||||||
|
Net actuarial losses (gains)
|
$ | 168,605 | 165,935 | $ | (10,159 | ) | (15,045 | ) | $ | (2,917 | ) | (2,881 | ) | |||||||||||
|
Prior service cost (credit)
|
8,547 | 8,133 | 51,445 | 57,363 | (2,262 | ) | (2,671 | ) | ||||||||||||||||
|
Net asset at transition, other
|
(155 | ) | (198 | ) | — | — | — | — | ||||||||||||||||
|
Deferred taxes
|
(59,845 | ) | (58,426 | ) | (14,451 | ) | (14,812 | ) | 1,754 | 1,885 | ||||||||||||||
|
Total Accumulated Other Comprehensive Loss (Earnings), net of tax
|
117,152 | 115,444 | 26,835 | 27,506 | (3,425 | ) | (3,667 | ) | ||||||||||||||||
|
Net amount recognized at December 31,
|
$ | 67,707 | $ | 41,879 | $ | (100,200 | ) | $ | (99,849 | ) | $ | (17,933 | ) | $ | (18,996 | ) | ||||||||
|
Accumulated benefit obligations
|
$ | 532,426 | $ | 494,690 | $ | 95,771 | $ | 93,956 | ||||||||||||||||
|
Information for plans with accumulated benefit obligations in
excess of plan assets:
|
||||||||||||||||||||||||
|
ABO
|
$ | 105,846 | $ | 120,278 | $ | 95,771 | $ | 93,956 | ||||||||||||||||
|
PBO
|
114,888 | 127,928 | 127,035 | 127,356 | ||||||||||||||||||||
|
Fair value of plan assets
|
66,485 | 71,003 | — | — | ||||||||||||||||||||
The Company’s net unfunded status of $49,445 at
December 31, 2010 includes $6,971 relating to the
U.S. Dover Corporate Pension Plan and $42,474 relating to
the Company’s significant international pension plans, some
in locations where it is not economically advantageous to
pre-fund the plans due to local regulations. The majority of the
international obligations relate to defined pension plans
operated by the Company’s businesses in Germany, the United
Kingdom and Switzerland.
74
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Net
Periodic Cost
|
Non-Qualified
|
||||||||||||||||||||||||||||||||||||
| Qualified Defined Benefits | Supplemental Benefits | Post-Retirement Benefits | ||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||
|
Service Cost
|
$ | 14,687 | $ | 13,971 | $ | 13,042 | $ | 4,241 | $ | 6,188 | $ | 7,688 | $ | 279 | $ | 314 | $ | 274 | ||||||||||||||||||
|
Interest Cost
|
30,574 | 28,936 | 28,337 | 7,677 | 8,688 | 9,434 | 837 | 959 | 954 | |||||||||||||||||||||||||||
|
Expected return on plan assets
|
(38,289 | ) | (34,612 | ) | (34,341 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Amortization of:
|
||||||||||||||||||||||||||||||||||||
|
Prior service cost (income)
|
1,365 | 1,292 | 1,343 | 7,266 | 7,706 | 7,463 | (409 | ) | (172 | ) | (172 | ) | ||||||||||||||||||||||||
|
Transition obligation
|
(42 | ) | (43 | ) | (53 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Recognized actuarial (gain) loss
|
5,474 | 5,216 | 3,933 | — | — | — | (398 | ) | (426 | ) | (478 | ) | ||||||||||||||||||||||||
|
Settlement and curtailment gains
|
(348 | ) | (795 | ) | (1,149 | ) | — | (1 | ) | — | — | — | — | |||||||||||||||||||||||
|
Total net periodic benefit cost
|
$ | 13,421 | $ | 13,965 | $ | 11,112 | $ | 19,184 | $ | 22,581 | $ | 24,585 | $ | 309 | $ | 675 | $ | 578 | ||||||||||||||||||
Assumptions
The weighted-average assumptions used in determining the benefit
obligations were as follows:
|
Non-Qualified
|
||||||||||||||||||||||||
|
Qualified
|
Supplemental
|
Post-Retirement
|
||||||||||||||||||||||
| Defined Benefits | Benefits | Benefits | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
|
Discount rate
|
5.37 | % | 5.71 | % | 5.50 | % | 5.95 | % | 5.10 | % | 5.50 | % | ||||||||||||
|
Average wage increase
|
4.32 | % | 4.26 | % | 4.50 | % | 4.50 | % | — | — | ||||||||||||||
|
Ultimate medical trend rate
|
— | — | — | — | 5.00 | % | 5.00 | % | ||||||||||||||||
The weighted average assumptions used in determining the net
periodic cost were as follows:
|
Non-Qualified
|
||||||||||||||||||||||||||||||||||||
|
Qualified
|
Supplemental
|
Post-Retirement
|
||||||||||||||||||||||||||||||||||
| Defined Benefits | Benefits | Benefits | ||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||
|
Discount rate
|
5.71 | % | 6.10 | % | 6.10 | % | 5.95 | % | 6.10 | % | 6.25 | % | 5.50 | % | 6.00 | % | 6.00 | % | ||||||||||||||||||
|
Average wage increase
|
4.29 | % | 4.26 | % | 4.20 | % | 4.50 | % | 6.00 | % | 6.00 | % | — | — | — | |||||||||||||||||||||
|
Expected return on plan assets
|
7.37 | % | 7.37 | % | 6.40 | % | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Ultimate medical trend rate
|
— | — | — | — | — | — | 5.00 | % | 5.00 | % | 5.00 | % | ||||||||||||||||||||||||
75
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Future
Estimates
Benefit
Payments
Estimated future benefit payments to retirees, which reflect
expected future service, are as follows:
|
Qualified
|
Non-Qualified
|
|||||||||||
|
Defined
|
Supplemental
|
Post-Retirement
|
||||||||||
| Benefits | Benefits | Benefits | ||||||||||
|
2011
|
$ | 34,249 | $ | 17,670 | $ | 1,036 | ||||||
|
2012
|
35,124 | 12,593 | 1,065 | |||||||||
|
2013
|
35,690 | 7,843 | 1,061 | |||||||||
|
2014
|
35,891 | 3,612 | 1,052 | |||||||||
|
2015
|
36,344 | 26,105 | 1,059 | |||||||||
|
2016-2020
|
200,090 | 38,466 | 4,446 | |||||||||
Contributions
Estimated contributions to be made during 2011 are as follows:
|
Qualified
|
Non-Qualified
|
|||||||
|
Defined
|
Supplemental
|
|||||||
| Benefits | Benefits | |||||||
|
To plan assets
|
$ | 40,000 | $ | — | ||||
|
To plan participants
|
840 | 17,670 | ||||||
2011
Amortization Expense
Estimated amortization expense for 2011 related to amounts in
Accumulated Other Comprehensive Earnings (Loss) at
December 31, 2010 is as follows:
|
Non-Qualified
|
||||||||||||
|
Qualified
|
Supplemental
|
|||||||||||
| Defined Benefits | Benefits | Post-Retirement | ||||||||||
|
Amortization of:
|
||||||||||||
|
Prior service cost (income)
|
$ | 1,424 | $ | 7,266 | $ | (409 | ) | |||||
|
Transition obligation
|
(42 | ) | — | — | ||||||||
|
Recognized actuarial (gain) loss
|
9,613 | — | (241 | ) | ||||||||
|
Total
|
$ | 10,995 | $ | 7,266 | $ | (650 | ) | |||||
Pension cost for all defined contribution, defined benefit, and
supplemental plans was $78,513 for 2010, $72,884 for 2009 and
$81,693 for 2008.
For post-retirement benefit measurement purposes, an 8.0% annual
rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rates) was assumed for 2011. The
rate was assumed to decrease gradually to 5% by the year 2017
and remain at that level thereafter. The health care cost trend
rate assumption can have an effect on the amounts reported. For
example, increasing (decreasing) the assumed health care cost
trend rates by one percentage point in each year would increase
(decrease) the accumulated post-retirement benefit obligation as
of December 31, 2010 by $397 ($380) and would have a
negligible impact on the net post-retirement benefit cost for
2010.
The post-retirement benefit plans cover approximately 1,634
participants, approximately 778 of whom are eligible for medical
benefits. The plans are effectively closed to new entrants. The
post-retirement benefit
76
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
obligation amounts at December 31, 2010 and 2009 include
approximately $3,529 and $4,767 in obligations, respectively,
recorded in discontinued operations.
| 14. | Segment Data |
The Company identifies its operating segments through the
underlying management reporting structure related to its
operating companies and through commonalities related to
products, processes, distribution
and/or
markets served. The Company’s segment structure allows the
management of each segment to focus its attention on particular
markets and provide oversight capacity to acquire additional
businesses.
The Company’s four reportable segments are briefly
described below:
Industrial Products manufactures equipment and components for
use in material handling such as industrial and recreational
winches, utility, construction and demolition machinery
attachments, hydraulic parts, industrial automation tools, 4WD
and AWD powertrain systems and other accessories of off-road
vehicles. In addition, mobile equipment related products include
refuse truck bodies, tank trailers, compactors, balers, vehicle
service lifts, car wash systems, internal engine components,
fluid control assemblies and various aerospace components.
Engineered Systems manufactures or assembles the following
products: refrigeration systems, display cases, walk-in coolers,
food service equipment, commercial kitchen air and ventilation
systems, heat transfer equipment, and food and beverage
packaging machines. The segment also manufactures product
identification related products such as industrial marking and
coding systems used to code information (e.g., dates and serial
numbers) on consumer products. In addition, the segment produces
several printing products for cartons used in warehouse
logistics operations as well as bar code printers and portable
printers.
Fluid Management manufactures the following products that serve
the energy markets (i.e. oil and gas): sucker rods, gas well
production control devices, drill bit inserts for oil and gas
exploration, control valves, piston and seal rings, control
instrumentation, remote data collection and transfer devices,
components for compressors, turbo machinery, motors and
generators. In addition, the segment manufactures various
products that provide fluid solutions, including nozzles,
swivels and breakaways used to deliver various types of fuel,
suction system equipment, unattended fuel management systems,
integrated tank monitoring, pumps used in fluid transfer
applications, quick disconnect couplings used in a wide variety
of biomedical and commercial applications, and chemical
portioning and dispensing systems.
Electronic Technologies manufactures advanced micro-component
products for the hearing aid, mobile phone and consumer
electronics industries, high frequency capacitors, microwave
electro-magnetic switches, radio frequency and microwave
filters, electromagnetic products, and frequency control/select
components. In addition, the segment builds sophisticated
automated assembly and testing equipment for the electronics
industry.
77
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
Selected financial information by market segment is as follows:
| For the Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
REVENUE
|
||||||||||||
|
Industrial Products
|
$ | 1,847,811 | $ | 1,621,792 | $ | 2,459,505 | ||||||
|
Engineered Systems
|
2,229,675 | 1,861,936 | 2,010,350 | |||||||||
|
Fluid Management
|
1,639,790 | 1,270,910 | 1,714,046 | |||||||||
|
Electronic Technologies
|
1,423,664 | 1,026,954 | 1,396,131 | |||||||||
|
Intra — segment eliminations
|
(8,292 | ) | (5,903 | ) | (11,144 | ) | ||||||
|
Total consolidated revenue
|
$ | 7,132,648 | $ | 5,775,689 | $ | 7,568,888 | ||||||
|
EARNINGS FROM CONTINUING OPERATIONS
|
||||||||||||
|
Segment Earnings:
|
||||||||||||
|
Industrial Products
|
$ | 226,385 | $ | 139,757 | $ | 299,740 | ||||||
|
Engineered Systems
|
301,906 | 227,268 | 278,553 | |||||||||
|
Fluid Management
|
388,420 | 259,269 | 385,317 | |||||||||
|
Electronic Technologies
|
250,428 | 83,694 | 193,641 | |||||||||
|
Total segments
|
1,167,139 | 709,988 | 1,157,251 | |||||||||
|
Corporate expense/other
|
(135,714 | ) | (117,995 | ) | (115,195 | ) | ||||||
|
Net interest expense
|
(106,341 | ) | (100,375 | ) | (96,037 | ) | ||||||
|
Earnings from continuing operations before provision for income
taxes and discontinued operations
|
925,084 | 491,618 | 946,019 | |||||||||
|
Provision for taxes
|
217,176 | 119,724 | 251,261 | |||||||||
|
Earnings from continuing operations — total
consolidated
|
$ | 707,908 | $ | 371,894 | $ | 694,758 | ||||||
|
OPERATING MARGINS (pre-tax)
|
||||||||||||
|
Segments:
|
||||||||||||
|
Industrial Products
|
12.3 | % | 8.6 | % | 12.2 | % | ||||||
|
Engineered Systems
|
13.5 | % | 12.2 | % | 13.9 | % | ||||||
|
Fluid Management
|
23.7 | % | 20.4 | % | 22.5 | % | ||||||
|
Electronic Technologies
|
17.6 | % | 8.1 | % | 13.9 | % | ||||||
|
Total Segments
|
16.4 | % | 12.3 | % | 15.3 | % | ||||||
|
Earnings from continuing operations
|
13.0 | % | 8.5 | % | 12.5 | % | ||||||
Selected financial information by market segment (continued):
| TOTAL ASSETS AT DECEMBER 31: | 2010 | 2009 | 2008 | |||||||||
|
Industrial Products
|
$ | 1,925,495 | $ | 1,874,242 | $ | 2,069,743 | ||||||
|
Engineered Systems
|
1,886,100 | 1,818,750 | 1,729,331 | |||||||||
|
Fluid Management
|
1,405,122 | 1,267,388 | 1,231,391 | |||||||||
|
Electronic Technologies
|
1,830,833 | 1,751,826 | 1,820,173 | |||||||||
|
Corporate (principally cash and equivalents and marketable
securities)
|
1,448,211 | 1,053,496 | 963,494 | |||||||||
|
Total continuing assets
|
8,495,761 | 7,765,702 | 7,814,132 | |||||||||
|
Assets from discontinued operations
|
67,133 | 116,701 | 69,106 | |||||||||
|
Consolidated total
|
$ | 8,562,894 | $ | 7,882,403 | $ | 7,883,238 | ||||||
78
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| For the Years Ended December 31, | ||||||||||||
| DEPRECIATION and AMORTIZATION | 2010 | 2009 | 2008 | |||||||||
|
Industrial Products
|
$ | 68,462 | $ | 71,453 | $ | 73,516 | ||||||
|
Engineered Systems
|
62,348 | 60,106 | 61,062 | |||||||||
|
Fluid Management
|
61,263 | 54,023 | 49,962 | |||||||||
|
Electronic Technologies
|
74,296 | 71,544 | 75,587 | |||||||||
|
Corporate
|
2,037 | 1,097 | 1,027 | |||||||||
|
Consolidated total
|
$ | 268,406 | $ | 258,223 | $ | 261,154 | ||||||
|
CAPITAL EXPENDITURES
|
||||||||||||
|
Industrial Products
|
$ | 45,377 | $ | 23,750 | $ | 43,194 | ||||||
|
Engineered Systems
|
39,012 | 34,740 | 33,609 | |||||||||
|
Fluid Management
|
46,399 | 34,424 | 61,054 | |||||||||
|
Electronic Technologies
|
40,821 | 25,725 | 37,730 | |||||||||
|
Corporate
|
11,608 | 1,370 | 208 | |||||||||
|
Consolidated total
|
$ | 183,217 | $ | 120,009 | $ | 175,795 | ||||||
| Revenue | Long-Lived Assets | |||||||||||||||||||
| For the Years Ended December 31, | At December 31, | |||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | ||||||||||||||||
|
United States
|
$ | 3,863,849 | $ | 3,257,152 | $ | 4,246,792 | $ | 551,763 | $ | 543,886 | ||||||||||
|
Europe
|
1,210,644 | 1,078,308 | 1,544,144 | 139,975 | 144,651 | |||||||||||||||
|
Other Americas
|
680,230 | 463,176 | 642,673 | 45,830 | 36,666 | |||||||||||||||
|
Total Asia
|
1,188,679 | 791,292 | 968,169 | 108,430 | 103,026 | |||||||||||||||
|
Other
|
189,246 | 185,761 | 167,110 | 1,191 | 693 | |||||||||||||||
| $ | 7,132,648 | $ | 5,775,689 | $ | 7,568,888 | $ | 847,189 | $ | 828,922 | |||||||||||
Revenue is attributed to regions based on the location of the
Company’s customer, which in some instances is an
intermediary and not necessarily the end user. Long-lived assets
are comprised of net property, plant and equipment. The
Company’s operating companies are based primarily in the
United States of America and Europe. The Company’s
businesses serve thousands of customers, none of which accounted
for more than 10% of consolidated revenue. Accordingly, it is
impractical to provide revenue from external customers for each
product and service sold by segment.
| 15. | Shareholders’ Equity |
The Company has the authority to issue up to 100,000 shares
of $100 par value preferred stock and up to
500,000,000 shares of $1 par value common stock. None
of the preferred stock has been issued. As of December 31,
2010 and 2009, 249,373,529 and 247,343,411 shares of common
stock were issued, respectively. In addition, the Company had
62,885,348 and 60,467,393 shares in treasury, held at cost,
as of December 31, 2010 and 2009, respectively.
Share
Repurchases
2010
During the year ended December 31, 2010, the Company
repurchased 2,335,500 shares of its common stock in the
open market at an average price of $51.13 per share under the
five-year, 10,000,000 share repurchase authorized
79
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
by the Board of Directors in May 2007 (the “five-year
authorization”), leaving approximately 6.6 million
shares available for repurchase as of the end of December 2010.
2009
The Company had no share repurchases in 2009. Approximately
8.9 million shares remained authorized for repurchase under
the five-year authorization as of December 31, 2009.
2008
During the fourth quarter of 2007, the Board of Directors
approved a $500 million share repurchase program
authorizing repurchases of the Company’s common shares
through the end of 2008. During the year ended December 31,
2008, the Company repurchased 10,000,000 shares of its
common stock in the open market at an average price of $46.15
per share. As of December 31, 2008, all shares authorized
by the program were purchased.
| 16. | Quarterly Data (Unaudited) |
| Continuing Operations | Net Earnings | |||||||||||||||||||||||||||||||
|
Per Share -
|
Per Share -
|
Per Share -
|
Per Share -
|
|||||||||||||||||||||||||||||
| Quarter | Revenue | Gross Profit | Earnings | Basic | Diluted | Net Earnings | Basic | Diluted | ||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||||||
|
First
|
$ | 1,583,270 | $ | 612,157 | $ | 121,485 | $ | 0.65 | $ | 0.65 | $ | 108,127 | $ | 0.58 | $ | 0.58 | ||||||||||||||||
|
Second
|
1,786,696 | 688,698 | 171,893 | 0.92 | 0.91 | 169,870 | 0.91 | 0.90 | ||||||||||||||||||||||||
|
Third
|
1,887,141 | 711,685 | 222,759 | 1.19 | 1.18 | 223,759 | 1.20 | 1.19 | ||||||||||||||||||||||||
|
Fourth
|
1,875,541 | 720,118 | 191,771 | 1.03 | 1.01 | 198,348 | 1.06 | 1.04 | ||||||||||||||||||||||||
| $ | 7,132,648 | $ | 2,732,658 | $ | 707,908 | 3.79 | 3.74 | $ | 700,104 | 3.75 | 3.70 | |||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
First
|
$ | 1,379,086 | $ | 482,144 | $ | 61,096 | $ | 0.33 | $ | 0.33 | $ | 53,428 | $ | 0.29 | $ | 0.29 | ||||||||||||||||
|
Second
|
1,390,331 | 493,310 | 100,874 | 0.54 | 0.54 | 97,080 | 0.52 | 0.52 | ||||||||||||||||||||||||
|
Third
|
1,499,611 | 558,266 | 107,484 | 0.58 | 0.58 | 106,884 | 0.57 | 0.57 | ||||||||||||||||||||||||
|
Fourth
|
1,506,661 | 565,434 | 102,440 | 0.55 | 0.55 | 99,046 | 0.53 | 0.53 | ||||||||||||||||||||||||
| $ | 5,775,689 | $ | 2,099,154 | $ | 371,894 | 2.00 | 1.99 | $ | 356,438 | 1.91 | 1.91 | |||||||||||||||||||||
80
Table of Contents
DOVER
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Amounts
in thousands except share data and where otherwise
indicated)
| 17. | Subsequent Events |
The Company assessed events occurring subsequent to
December 31, 2010 for potential recognition and disclosure
in the consolidated financial statements. No events have
occurred that would require adjustment to the consolidated
financial statements.
In December 2010, the Company entered into an agreement with NXP
Semiconductors N.V. to acquire the Sound Solutions business line
for approximately $855 million. The transaction is subject
to customary regulatory approvals and the satisfaction of normal
closing conditions, and is expected to close around the end of
the first quarter or early in the second quarter of 2011. Sound
Solutions is one of the world’s leading manufacturers of
dynamic speakers and receivers for cell phones and other
consumer electronics, with annual unaudited 2010 revenue of
approximately $330 million. The business will be
incorporated into the Knowles business within the Dover
Electronic Technologies segment, which will enhance the
segment’s product offerings serving the high growth mobile
handset market.
Effective January 3, 2011, the Company completed the
acquisition of Harbison-Fischer, Inc., a Texas-based leading
designer and manufacturer of down-hole rod pumps and related
products for $402.5 million, subject to normal closing
adjustments. Harbison-Fischer’s 2011 revenue is expected to
be approximately $160 million. The business will become
part of Norris Production Solutions, which is an operating unit
of Dover’s Fluid Management segment.
Effective January 5, 2011, the Company completed the
acquisition of Dosmatic, Inc., a Texas-based leading
manufacturer of environmentally friendly, non-electric chemical
metering equipment for approximately $14 million, subject
to normal closing adjustments. The business will become part of
Hydro Systems Company, which is also an operating unit of
Dover’s Fluid Management segment.
81
Table of Contents
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2010, 2009
and 2008
(In thousands)
|
Balance at
|
Acquired by
|
Charged to
|
Balance at
|
|||||||||||||||||||||
|
Beginning of
|
Purchase or
|
Cost and
|
Accounts
|
End of
|
||||||||||||||||||||
| Allowance for Doubtful Accounts | Year | Merger | Expense (A) | Written Off | Other | Year | ||||||||||||||||||
|
Year Ended December 31, 2010
|
||||||||||||||||||||||||
|
Allowance for Doubtful Accounts
|
$ | 41,832 | 113 | (620 | ) | (6,857 | ) | (317 | ) | $ | 34,151 | |||||||||||||
|
Year Ended December 31, 2009
|
||||||||||||||||||||||||
|
Allowance for Doubtful Accounts
|
$ | 32,647 | — | 17,260 | (10,198 | ) | 2,123 | $ | 41,832 | |||||||||||||||
|
Year Ended December 31, 2008
|
||||||||||||||||||||||||
|
Allowance for Doubtful Accounts
|
$ | 32,211 | 40 | 12,040 | (10,650 | ) | (994 | ) | $ | 32,647 | ||||||||||||||
| (A) | Net of recoveries on previously reserved or written-off balances. |
|
Balance at
|
Acquired by
|
Balance at
|
||||||||||||||||||||||
|
Beginning of
|
Purchase or
|
End of
|
||||||||||||||||||||||
| Deferred Tax Valuation Allowance | Year | Merger | Additions | Reductions | Other | Year | ||||||||||||||||||
|
Year Ended December 31, 2010
|
||||||||||||||||||||||||
|
Deferred Tax Valuation Allowance
|
$ | 43,171 | — | — | (5,035 | ) | — | $ | 38,136 | |||||||||||||||
|
Year Ended December 31, 2009
|
||||||||||||||||||||||||
|
Deferred Tax Valuation Allowance
|
$ | 55,486 | — | 2,875 | (15,190 | ) | — | $ | 43,171 | |||||||||||||||
|
Year Ended December 31, 2008
|
||||||||||||||||||||||||
|
Deferred Tax Valuation Allowance
|
$ | 64,534 | — | 2,818 | (7,554 | ) | (4,312 | ) | $ | 55,486 | ||||||||||||||
|
Balance at
|
Acquired by
|
Charged to
|
Balance at
|
|||||||||||||||||||||
|
Beginning of
|
Purchase or
|
Cost and
|
End of
|
|||||||||||||||||||||
| Inventory Reserves | Year | Merger | Expense | Reductions | Other | Year | ||||||||||||||||||
|
Year Ended December 31, 2010
|
||||||||||||||||||||||||
|
Inventory Reserves
|
$ | 101,295 | 531 | 20,476 | (15,395 | ) | (1,436 | ) | $ | 105,471 | ||||||||||||||
|
Year Ended December 31, 2009
|
||||||||||||||||||||||||
|
Inventory Reserves
|
$ | 100,471 | — | 21,307 | (21,869 | ) | 1,386 | $ | 101,295 | |||||||||||||||
|
Year Ended December 31, 2008
|
||||||||||||||||||||||||
|
Inventory Reserves
|
$ | 100,081 | 1,033 | 24,113 | (22,920 | ) | (1,836 | ) | $ | 100,471 | ||||||||||||||
|
Balance at
|
Acquired by
|
Charged to
|
Balance at
|
|||||||||||||||||||||
|
Beginning of
|
Purchase or
|
Cost and
|
End of
|
|||||||||||||||||||||
| LIFO Reserve | Year | Merger | Expense | Reductions | Other | Year | ||||||||||||||||||
|
Year Ended December 31, 2010 LIFO Reserve
|
$ | 49,061 | — | 1,964 | — | — | $ | 51,025 | ||||||||||||||||
|
Year Ended December 31, 2009 LIFO Reserve
|
$ | 58,810 | — | — | (9,749 | ) | — | $ | 49,061 | |||||||||||||||
|
Year Ended December 31, 2008 LIFO Reserve
|
$ | 51,988 | — | 6,822 | — | — | $ | 58,810 | ||||||||||||||||
82
Table of Contents
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
Evaluation
of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the
participation of the Company’s management, the
Company’s Chief Executive Officer and Chief Financial
Officer have concluded that the Company’s disclosure
controls and procedures as defined in
Rule 13a-15(e)
under the Exchange Act were effective as of December 31,
2010 to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange
Act is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission rules and forms, and (ii) accumulated and
communicated to the Company’s management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Changes
in Internal Controls
During the fourth quarter of 2010, there were no changes in the
Company’s internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Inherent
Limitations Over Internal Controls
The Company’s internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. The Company’s
internal control over financial reporting includes those
policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company’s assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that the Company’s receipts and
expenditures are being made only in accordance with
authorizations of the Company’s management and
directors; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect
on the financial statements.
Management’s report on the effectiveness of the
Company’s internal control over financial reporting is
included in Item 8 of this
Form 10-K.
Management, including the Company’s Chief Executive Officer
and Chief Financial Officer, does not expect that the
Company’s internal controls will prevent or detect all
errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no
evaluation of internal controls can provide absolute assurance
that all control issues and instances of fraud, if any, have
been detected. Also, any evaluation of the effectiveness of
controls in future periods is subject to the risk that those
internal controls may become inadequate because of changes in
business conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
| Item 9B. | Other Information |
Not applicable.
83
Table of Contents
PART III
| Item 10. | Directors and Executive Officers and Corporate Governance |
The information with respect to the directors and the board
committees of the Company required to be included pursuant to
this Item 10 is included in the 2011 Proxy Statement which
will be filed with the Securities and Exchange Commission
pursuant to
Rule 14a-6
under the Exchange Act in accordance with applicable SEC
deadlines, and is incorporated in this Item 10 by
reference. The information with respect to the executive
officers of the Company required to be included pursuant to this
Item 10 is included under the caption “Executive
Officers of the Registrant” in Part I of this
Form 10-K
and is incorporated in this Item 10 by reference.
The information with respect to Section 16(a) reporting
compliance required to be included in this Item 10 is
included in the 2011 Proxy Statement and is incorporated in this
Item 10 by reference.
The Company has adopted a code of ethics that applies to its
chief executive officer and senior financial officers. A copy of
this code of ethics can be found on the Company’s website
at
www.dovercorporation.com
. In the event of any
amendment to, or waiver from, the code of ethics, the Company
will publicly disclose the amendment or waiver by posting the
information on its website.
| Item 11. | Executive Compensation |
The information with respect to executive compensation required
to be included pursuant to this Item 11 is included in the
2011 Proxy Statement and is incorporated in this Item 11 by
reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
The information regarding security ownership of certain
beneficial owners and management that is required to be included
pursuant to this Item 12 is included in the 2011 Proxy
Statement and is incorporated in this Item 12 by reference.
EQUITY
COMPENSATION PLANS
The Equity Compensation Plan Table below presents information
regarding the Company’s equity compensation plans at
December 31, 2010:
| (a) | (b) | (c) | ||||||||||
|
Number of Securities
|
||||||||||||
|
Remaining Available
|
||||||||||||
|
Number of Securities
|
Weighted-Average
|
for Future Issuance
|
||||||||||
|
to be Issued Upon
|
Exercise Price of
|
Under Equity
|
||||||||||
|
Exercise of
|
Outstanding
|
Compensation Plans
|
||||||||||
|
Outstanding Options,
|
Options, Warrants
|
(Excluding Securities
|
||||||||||
| Plan Category | Warrants and Rights | and Rights | Reflected in Column (a)) | |||||||||
|
Equity compensation plans approved by stockholders
|
12,474,600 | $ | 39.68 | 8,259,949 | ||||||||
|
Equity compensation plans not approved by stockholders
|
— | — | — | |||||||||
|
Total
|
12,474,600 | $ | 39.68 | 8,259,949 | ||||||||
The Company has three compensation plans under which equity
securities of the Company have been authorized for issuance and
have been issued to employees and to non-employee directors.
These are the 1995 Incentive Stock Option Plan and 1995 Cash
Performance Program (the “1995 Plan”), the 2005 Equity
and Cash Incentive Plan (the “2005 Plan”) and the 1996
Non-Employee Directors’ Stock Compensation Plan (the
“Directors’ Plan”). The information regarding
these plans that is required to be included pursuant to this
Item 12 is included in the 2011 Proxy Statement and is
incorporated in this Item 12 by reference. The table above
does not reflect shares eligible for issuance under the 1996
Non-Employee Directors’ Stock Compensation Plan, which does
not specify a maximum number of shares issuable under it.
84
Table of Contents
| Item 13. | Certain Relationships and Related Transactions and Director Independence |
The information with respect to any reportable transaction,
business relationship or indebtedness between the Company and
the beneficial owners of more than 5% of the Common Stock, the
directors or nominees for director of the Company, the executive
officers of the Company or the members of the immediate families
of such individuals that are required to be included pursuant to
this Item 13 is included in the 2011 Proxy Statement and is
incorporated in this Item 13 by reference.
| Item 14. | Principal Accountant Fees and Services |
The information with respect to the Company’s relationship
with its independent registered public accounting firm and fees
paid thereto required to be included pursuant to this
Item 14 is included in the 2011 Proxy Statement and is
incorporated in this Item 14 by reference.
The information with respect to audit committee pre-approval
policies and procedures required to be included pursuant to this
Item 14 is included in the 2011 Proxy Statement and is
incorporated in this Item 14 by reference.
PART IV
| Item 15. | Exhibits, Financial Statement Schedules |
(a)(1) Financial Statements
Financial Statements covered by the Report of Independent
Registered Public Accounting Firm:
(A) Consolidated Statements of Operations for the years
ended December 31, 2010, 2009 and 2008.
(B) Consolidated Balance Sheets as of December 31,
2010 and 2009.
(C) Consolidated Statements of Shareholders’ Equity
and Comprehensive Earnings for the years ended December 31,
2010, 2009 and 2008.
(D) Consolidated Statements of Cash Flows for the years
ended December 31, 2010, 2009 and 2008.
(E) Notes to consolidated financial statements.
(2) Financial Statement Schedule
The following financial statement schedule is included in
Item No. 8 of this report on
Form 10-K:
| • | Schedule II — Valuation and Qualifying Accounts |
All other schedules are not required and have been omitted.
(3) Not covered by the Report of Independent Registered
Public Accounting Firm:
Quarterly financial data (unaudited)
(4) See (b) below.
(b) Exhibits:
| (2 | .1) | Sale and Purchase Agreement, dated as of December 22, 2010, between the Company, NXP B.V., Knowles Electronics, LLC, EFF Acht Beteiligungsverwaltung GmbH and NXP Semiconductors N.V.** | ||
| (3 | )(i)(a) | Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the Period Ended June 30, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (3 | )(i)(b) | Certificate of Correction to the Restated Certificate of Incorporation dated as of January 24, 2003, filed as Exhibit 3(i) to the Company’s Current Report on Form 8-K filed February 28, 2003 (SEC File No. 001-04018), is incorporated by reference. | ||
| (3 | )(ii) | By-Laws of the Company as amended and restated as of November 6, 2008, filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed November 12, 2008 (SEC File No. 001-04018), are incorporated by reference. |
85
Table of Contents
| (4 | .1) | Indenture, dated as of June 8, 1998 between the Company and The First National Bank Chicago, as Trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 12, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .2) | Form of 6.65% Debentures due June 1, 2028 ($200,000,000 aggregate principal amount), filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed June 12, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .3) | Form of 6.50% Notes due February 15, 2011 ($400,000,000 aggregate principal amount), filed as Exhibit 4.3 to the Company’s current report on Form 8-K filed February 12, 2001 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .4) | Indenture, dated as of February 8, 2001 between the Company and BankOne Trust Company, N.A., as trustee, filed as Exhibit 4.1 to the Company’s current report on Form 8-K filed February 12, 2001 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .5) | First Supplemental Indenture among the Company, J.P. Morgan Trust Company, National Association, as original trustee, and The Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .6) | Form of 4.875% Notes due October 15, 2015 ($300,000,000 aggregate principal amount), filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .7) | Form of 5.375% Debentures due October 15, 2035 ($300,000,000 aggregate principal amount), filed as exhibit 4.3 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .8) | Second Supplemental Indenture between the Company and The Bank of New York, as trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-040018) is incorporated by reference. | ||
| (4 | .9) | Form of Global Note representing the 5.45% Notes due March 15, 2018 ($350,000,000 aggregate principal amount), filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .10) | Form of Global Note representing 6.60% Notes due March 15, 2038 ($250,000,000) aggregate principal amount) filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-04018) is incorporated by reference. | ||
| The Company agrees to furnish to the Securities and Exchange Commission upon request, a copy of any instrument with respect to long-term debt under which the total amount of securities authorized does not exceed 10 percent of the total consolidated assets of the Company. | ||||
| (10 | .1) | Employee Savings and Investment Plan, filed as Exhibit 99 to Registration Statement on Form S-8 (SEC File No. 33-01419), is incorporated by reference.* | ||
| (10 | .2) | Amended and Restated 1996 Non-Employee Directors’ Stock Compensation Plan, filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (SEC File No. 001-04018) is incorporated by reference. | ||
| (10 | .3) | Executive Officer Annual Incentive Plan, as amended and restated as of January 1, 2009, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 13, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .4) | Executive Change in Control Agreement as amended and restated as of January 1, 2009, filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .5) | 1995 Incentive Stock Option Plan and 1995 Cash Performance Program, as amended as of May 4, 2006 with respect to all awards then outstanding, filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .6) | Deferred Compensation Plan, as amended and restated as of January 1, 2009, filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .7) | 2005 Equity and Cash Incentive Plan, as amended as of January 1, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 13, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .8) | Form of award grant letter for SSAR grants made under 2005 Equity and Cash Incentive Plan.* |
86
Table of Contents
| (10 | .9) | Form of award grant letter for cash performance awards made under the 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .10) | Form of award grant letter for performance share awards made under the 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .11) | Pension Replacement Plan (formerly the Supplemental Executive Retirement Plan), as amended and restated as of January 1, 2010, filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .12) | Letter Agreement between Ronald L. Hoffman and the Company, dated November 28, 2008, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 26, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .13) | Letter Agreement between Robert G. Kuhbach and the Company, dated November 13, 2009, filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .14) | Five-year Credit Agreement dated as of November 9, 2007 by and among Dover Corporation, the Lenders listed therein, the Borrowing Subsidiaries party thereto, JPMorgan Chase Bank, N.A as Administrative Agent, Deutsche Bank Securities Inc. as Syndication Agent, and Bank of America, N.A., The Royal Bank of Scotland plc and Wachovia Bank, National Association as Documented Agents, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 14, 2007 (SEC File No. 001-04018), is incorporated by reference. | ||
| (10 | .15) | Form of award grant letter for restricted stock awards made under the 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .16) | Amendment No. 1 to the Executive Employee Supplemental Retirement Agreement with Robert A. Livingston, Jr., filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed March 3, 2010 (SEC File No. 001-04018), is incorporated by reference.* | ||
| (10 | .17) | Executive Severence Plan.* | ||
| (10 | .18) | Senior Executive Change-in-Control Severence Plan.* | ||
| (14 | ) | Dover Corporation Code of Ethics for Chief Executive Officer and Senior Financial Officers, filed as Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 001-04018), is incorporated by reference. | ||
| (21 | ) | Subsidiaries of Dover. | ||
| (23 | ) | Consent of Independent Registered Public Accounting Firm. | ||
| (24 | ) | Power of Attorney (included in signature page). | ||
| (31 | .1) | Certification pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, signed and dated by Brad M. Cerepak. | ||
| (31 | .2) | Certification pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, signed and dated by Robert A. Livingston. | ||
| (32 | ) | Certification pursuant to 18 U.S.C. Section 1350, signed and dated by Brad M. Cerepak and Robert A. Livingston. | ||
| (101 | ) | The following materials from Dover Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the three years ended December 31, 2010, (ii) the Consolidated Balance Sheets at December 31, 2010 and 2009, (iii) the Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2010, (iv) the Consolidated Statements of Cash Flows for the three years ended December 31, 2010, (v) Notes to the Consolidated Financial Statements, and (vi) Financial Statement Schedule of Valuation and Qualifying Accounts.*** |
| * | Executive compensation plan or arrangement. | |
| ** | Confidential treatment requested. | |
| *** | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. | |
| (d) | Not applicable. |
87
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned thereunto duly
authorized.
Dover Corporation
| By: |
/s/
Robert
A. Livingston
|
Robert A. Livingston
President and Chief Executive Officer
Date: February 11, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report on
Form 10-K
has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated. Each of
the undersigned, being a director or officer of Dover
Corporation (the “Company”), hereby constitutes and
appoints Robert A. Livingston, Brad M. Cerepak and Joseph W.
Schmidt, and each of them (with full power to each of them to
act alone), his or her true and lawful attorney-in-fact and
agent for him or her and in his or her name, place and stead in
any and all capacities, to sign the Company’s Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2010 under the
Securities Exchange Act of 1934, as amended, and any and all
amendments thereto, and to file the same with all exhibits
thereto and other documents in connection therewith with the
Securities and Exchange Commission and any other appropriate
authority, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing required and necessary to be done in and
about the premises in order to effectuate the same as fully to
all intents and purposes as he or she might or could do if
personally present, hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may lawfully
do or cause to be done by virtue hereof.
| Signature | Title | Date | ||||
|
/s/
Robert
W. Cremin
|
Chairman, Board of Directors | February 11, 2011 | ||||
|
/s/
Robert
A. Livingston
|
Chief Executive Officer,
President and Director (Principal Executive Officer) |
February 11, 2011 | ||||
|
/s/
Brad
M. Cerepak
|
Vice President and
Chief Financial Officer (Principal Financial Officer) |
February 11, 2011 | ||||
|
/s/
Raymond
T. Mckay, Jr.
|
Vice President, Controller
(Principal Accounting Officer) |
February 11, 2011 | ||||
|
/s/
David
H. Benson
|
Director | February 11, 2011 | ||||
|
/s/
Jean-Pierre
M. Ergas
|
Director | February 11, 2011 | ||||
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Table of Contents
| Signature | Title | Date | ||||
|
/s/
Peter
T. Francis
|
Director | February 11, 2011 | ||||
|
/s/
Kristiane
C. Graham
|
Director | February 11, 2011 | ||||
|
/s/
James
L. Koley
|
Director | February 11, 2011 | ||||
|
/s/
Richard
K. Lochridge
|
Director | February 11, 2011 | ||||
|
/s/
Bernard
G. Rethore
|
Director | February 11, 2011 | ||||
|
/s/
Michael
B. Stubbs
|
Director | February 11, 2011 | ||||
|
/s/
Stephen
M. Todd
|
Director | February 11, 2011 | ||||
|
/s/
Stephen
K. Wagner
|
Director | February 11, 2011 | ||||
|
/s/
Mary
A. Winston
|
Director | February 11, 2011 | ||||
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Table of Contents
EXHIBIT INDEX
| (2 | .1) | Sale and Purchase Agreement, dated as of December 22, 2010, between the Company, NXP B.V., Knowles Electronics, LLC, EFF Acht Beteiligungsverwaltung GmbH and NXP Semiconductors N.V.** | ||
| (3 | )(i)(a) | Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the Period Ended June 30, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (3 | )(i)(b) | Certificate of Correction to the Restated Certificate of Incorporation dated as of January 24, 2003, filed as Exhibit 3(i) to the Company’s Current Report on Form 8-K filed February 28, 2003 (SEC File No. 001-04018), is incorporated by reference. | ||
| (3 | )(ii) | By-Laws of the Company as amended and restated as of November 6, 2008, filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed November 12, 2008 (SEC File No. 001-04018), are incorporated by reference. | ||
| (4 | .1) | Indenture, dated as of June 8, 1998 between the Company and The First National Bank Chicago, as Trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 12, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .2) | Form of 6.65% Debentures due June 1, 2028 ($200,000,000 aggregate principal amount), filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K filed June 12, 1998 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .3) | Form of 6.50% Notes due February 15, 2011 ($400,000,000 aggregate principal amount), filed as Exhibit 4.3 to the Company’s current report on Form 8-K filed February 12, 2001 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .4) | Indenture, dated as of February 8, 2001 between the Company and BankOne Trust Company, N.A., as trustee, filed as Exhibit 4.1 to the Company’s current report on Form 8-K filed February 12, 2001 (SEC File No. 001-04018), is incorporated by reference. | ||
| (4 | .5) | First Supplemental Indenture among the Company, J.P. Morgan Trust Company, National Association, as original trustee, and The Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .6) | Form of 4.875% Notes due October 15, 2015 ($300,000,000 aggregate principal amount), filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .7) | Form of 5.375% Debentures due October 15, 2035 ($300,000,000 aggregate principal amount), filed as exhibit 4.3 to the Company’s Current Report on Form 8-K filed October 12, 2005 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .8) | Second Supplemental Indenture between the Company and The Bank of New York, as trustee, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-040018) is incorporated by reference. | ||
| (4 | .9) | Form of Global Note representing the 5.45% Notes due March 15, 2018 ($350,000,000 aggregate principal amount), filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-04018) is incorporated by reference. | ||
| (4 | .10) | Form of Global Note representing 6.60% Notes due March 15, 2038 ($250,000,000) aggregate principal amount) filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K filed March 14, 2008 (SEC File No. 001-04018) is incorporated by reference. | ||
| The Company agrees to furnish to the Securities and Exchange Commission upon request, a copy of any instrument with respect to long-term debt under which the total amount of securities authorized does not exceed 10 percent of the total consolidated assets of the Company. | ||||
| (10 | .1) | Employee Savings and Investment Plan, filed as Exhibit 99 to Registration Statement on Form S-8 (SEC File No. 33-01419), is incorporated by reference.* | ||
| (10 | .2) | Amended and Restated 1996 Non-Employee Directors’ Stock Compensation Plan, filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (SEC File No. 001-04018) is incorporated by reference. |
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Table of Contents
| (10 | .3) | Executive Officer Annual Incentive Plan, as amended and restated as of January 1, 2009, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 13, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .4) | Executive Change in Control Agreement as amended and restated as of January 1, 2009, filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .5) | 1995 Incentive Stock Option Plan and 1995 Cash Performance Program, as amended as of May 4, 2006 with respect to all awards then outstanding, filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .6) | Deferred Compensation Plan, as amended and restated as of January 1, 2009, filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .7) | 2005 Equity and Cash Incentive Plan, as amended as of January 1, 2009, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 13, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .8) | Form of award grant letter for SSAR grants made under 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .9) | Form of award grant letter for cash performance awards made under the 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .10) | Form of award grant letter for performance share awards made under the 2005 Equity and Cash Incentive Plan.*. | ||
| (10 | .11) | Pension Replacement Plan (formerly the Supplemental Executive Retirement Plan), as amended and restated as of January 1, 2010, filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .12) | Letter Agreement between Ronald L. Hoffman and the Company, dated November 28, 2008, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 26, 2008 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .13) | Letter Agreement between Robert G. Kuhbach and the Company, dated November 13, 2009, filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (SEC File No. 001-04018) is incorporated by reference.* | ||
| (10 | .14) | Five-year Credit Agreement dated as of November 9, 2007 by and among Dover Corporation, the Lenders listed therein, the Borrowing Subsidiaries party thereto, JPMorgan Chase Bank, N.A as Administrative Agent, Deutsche Bank Securities Inc. as Syndication Agent, and Bank of America, N.A., The Royal Bank of Scotland plc and Wachovia Bank, National Association as Documented Agents, filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 14, 2007 (SEC File No. 001-04018), is incorporated by reference. | ||
| (10 | .15) | Form of award grant letter for restricted stock awards made under the 2005 Equity and Cash Incentive Plan.* | ||
| (10 | .16) | Amendment No. 1 to the Executive Employee Supplemental Retirement Agreement with Robert A. Livingston, Jr., filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed March 3, 2010 (SEC File No. 001-04018), is incorporated by reference.* | ||
| (10 | .17) | Executive Severence Plan.* | ||
| (10 | .18) | Senior Executive Change-in-Control Severence Plan.* | ||
| (14 | ) | Dover Corporation Code of Ethics for Chief Executive Officer and Senior Financial Officers, filed as Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (SEC File No. 001-04018), is incorporated by reference. | ||
| (21 | ) | Subsidiaries of Dover. | ||
| (23 | ) | Consent of Independent Registered Public Accounting Firm. | ||
| (24 | ) | Power of Attorney (included in signature page). | ||
| (31 | .1) | Certification pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, signed and dated by Brad M. Cerepak. |
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Table of Contents
| (31 | .2) | Certification pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, signed and dated by Robert A. Livingston. | ||
| (32 | ) | Certification pursuant to 18 U.S.C. Section 1350, signed and dated by Brad M. Cerepak and Robert A. Livingston. | ||
| (101 | ) | The following materials from Dover Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the three years ended December 31, 2010, (ii) the Consolidated Balance Sheets at December 31, 2010 and 2009, (iii) the Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2010, (iv) the Consolidated Statements of Cash Flows for the three years ended December 31, 2010, (v) Notes to the Consolidated Financial Statements, and (vi) Financial Statement Schedule of Valuation and Qualifying Accounts.*** |
| * | Executive compensation plan or arrangement. | |
| ** | Confidential treatment requested. | |
| *** | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. | |
| (d) | Not applicable. |
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Part 1printItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. [removed and Reserved]printPart IIprintItem 5. Market For Registrant S Common Equity, Related Shareholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors and Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareholder MattersprintItem 13. Certain Relationships and Related Transactions and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits, Financial Statement Schedulesprint