Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations and financial condition for the three years ended December 31, 2018, 2017 and 2016. The MD&A should be read in conjunction with our Consolidated Financial Statements and Notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Form 10-K, particularly in Item 1A. "Risk Factors" and in the "Special Note Regarding Forward-Looking Statements" preceding Part I of this Form 10-K.

Throughout this MD&A, we refer to measures used by management to evaluate performance, including a number of financial measures that are not defined under accounting principles generally accepted in the United States of America ("GAAP"). Please see "Non-GAAP Disclosures" at the end of this Item 7 for further detail on these financial measures. We believe these measures provide investors with important information that is useful in understanding our business results and trends. Reconciliations within this MD&A provide more details on the use and derivation of these measures.

OVERVIEW

Dover is a diversified global manufacturer delivering innovative equipment and components, specialty systems, consumable supplies, software and digital solutions and support services through three operating segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment.

For the year ended December 31, 2018, consolidated revenue from continuing operations was $7.0 billion, an increase of $0.2 billion or 2.5%, as compared to the prior year. This increase included organic revenue growth of 3.7%, a favorable impact of 0.8% from foreign currency, and acquisition-related growth of 0.5%, partially offset by a 2.5% impact from dispositions. Overall, customer pricing had a favorable impact of 1.0% on revenue for the year.

Within our Engineered Systems segment, revenue increased $75.0 million, or 2.8%, from the prior year, reflecting organic growth of 5.8%, a favorable impact from foreign currency of 1.5%, and acquisition-related growth of 0.1%, partially offset by a 4.6% impact from dispositions. Organic growth was broad-based across the segment with particular strength in our Printing & Identification platform and environmental solutions and defense businesses. Our Fluids segment revenue increased $242.3 million, or 9.5%, comprised of organic growth of 8.7%, acquisition-related growth of 0.7%, and a favorable foreign currency impact of 0.3%, partially offset by a 0.2% impact from dispositions. The organic growth was principally driven by strong activity in international retail fueling, industrial pumps and other industrial markets. Within our Refrigeration & Food Equipment segment, revenue decreased $146.0 million, or 9.1%, from the prior year, including an organic revenue decline of 7.9% and a decline of 2.6% due to a disposition, partially offset by a favorable impact from foreign currency translation of 0.7% and acquisition-related growth of 0.7%. The organic decline was driven primarily by continued weak retail refrigeration markets, especially with respect to refrigerated door cases.

Gross profit was $2.6 billion for the year ended December 31, 2018, an increase of $30.5 million, or 1.2%, as compared to the prior year. The increase was primarily due to growth in sales volumes as well as the benefits of prior restructuring actions, partially offset by lost gross profit from divestitures. Gross profit margin was 36.6% for the year ended December 31, 2018 compared to 37.1% for the prior year primarily as a result of unfavorable product mix and rising material costs in our Refrigeration and Food Equipment segment and the impact of inefficiencies due to facility consolidations principally in our Fluids segment. For further discussion related to our consolidated and segment results, see "Consolidated Results of Operations" and "Segment Results of Operations," respectively, within MD&A.

Bookings increased 5.1% over the prior year to $7.3 billion for the year ended December 31, 2018. Included in this result was a 5.3% increase in organic bookings, a 1.7% favorable impact due to foreign exchange rates, and a 0.5% increase in acquisition-related bookings, which were partially offset by a 2.4% decline due to dispositions. Bookings increased 11.0% and 6.3% within our Fluids and Engineered Systems segments, respectively, while bookings in our Refrigeration & Food Equipment segment decreased 6.8%. Overall, our book-to-bill increased from the prior year to 1.04. Backlog as of December 31, 2018 was $1.4 billion, up from $1.2 billion from the prior year. Backlog as of December 31, 2018 included $0.6 billion, $0.5 billion and $0.3 billion in the Engineered Systems, Fluids and Refrigeration and Food Equipment segments, respectively.

From a geographic perspective, revenue for the U.S., our largest market, grew by 2.1% organically over the prior year, where broad-based growth in Engineered Systems and Fluids was partially offset by our retail refrigeration business in the Refrigeration and Food Equipment segment, which is primarily a domestic business. Asia and Europe also grew organically by 15.2% and 2.7%, respectively, over the prior year.

On May 9, 2018, the Company completed the separation of Apergy Corporation ("Apergy") from Dover through the pro rata distribution of 100% of the common stock of Apergy to Dover's shareholders of record as of the close of business on April 30, 2018. Each Dover shareholder received one share of Apergy common stock for every two shares of Dover common stock held as of the record date. As a result, Apergy became an independent, publicly traded company listed on the New York Stock Exchange, and Dover retained no ownership interest in Apergy. The distribution was structured to be tax-free to Dover and its shareholders for U.S. federal income tax purposes. Apergy holds entities conducting the upstream energy businesses previously included within our Energy segment. Following the spin-off, effective the second quarter of 2018, the Company no longer has the Energy segment and is aligned into three reportable segments. The retained Precision Components (Bearings & Compression) and Tulsa Winch Group businesses, which were historically reported within the Energy segment, became a part of the Fluids and Engineered Systems segments, respectively. See Note 2 Spin-off of Apergy Corporation and Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information regarding the spin off of Apergy.

During the year ended December 31, 2018, we executed several programs in order to further optimize operations. Rightsizing programs in 2018 included 1) alignment of our cost structure in preparation for the Apergy separation, 2) broad-based selling, general and administrative expense reduction initiatives and 3) initiation of footprint consolidation actions. We recorded rightsizing and other related costs of $72.8 million for the year ended December 31, 2018, which was comprised of $56.1 million of rightsizing costs and $16.7 million of other charges. These costs primarily related to actions taken for employee reductions, facility consolidations and site closures and product line divestitures and other asset charges designed to increase operating margin, enhance operations and position us for sustained growth and investment. These charges were broad based across all segments as well as corporate, with costs incurred of $19.9 million in Engineered Systems, $28.7 million in Fluids, $10.0 million in Refrigeration & Food Equipment, and $14.2 million at Corporate. These charges were recorded in cost of goods and services, selling, general and administrative expenses, and other expense (income), net, in the Consolidated Statement of Earnings. We expect to incur total future charges of approximately $20 million related to completion of our selling, general and administrative expense reduction actions and continuation of our footprint consolidation initiatives, approximately $15 million which will be incurred during the year ended December 31, 2019 and approximately $5 million of which we expect to incur in 2020.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the U.S. bill commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”). In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a net tax benefit of $4.2 million which resulted in a 0.6% decrease in effective tax rate, as an adjustment to provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions we made as a result of the Tax Reform Act. On a full year basis, the effective tax rate for 2018 was 18.5%, inclusive of the SAB 118 amounts.

During the year ended December 31, 2018, we made a total of two acquisitions totaling $68.6 million, net of cash acquired. We completed the acquisition of Ettlinger Group ("Ettlinger"), a leading manufacturer of filtering solutions for the plastics recycling industry for $53.2 million, net of cash acquired. Ettlinger enhances our ability to serve the Process Solutions end market within our Fluids segment. We also completed the acquisition of Rosario Handel B.V. ("Rosario"), a manufacturer of decorator and base coating machinery used in the production of beverage, food and aerosol cans for total consideration of $15.3 million, net of cash acquired. Rosario enhances our ability to serve the Food Equipment end market within our Refrigeration & Food Equipment segment. See Note 4 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for further details regarding the businesses acquired during the year. Subsequently, in January 2019, we acquired Belanger, Inc. ("Belanger"), a leading full-line car wash equipment manufacturer, for approximately $180 million. Belanger strengthens our position in the Fueling & Transport end market within our Fluids segment.

During the year ended December 31, 2018, we purchased 10.7 million shares of our common stock for a total cost of $895.0 million, or $83.35 per share. Together with other repurchases in December 2017, we have completed the $1 billion of share repurchases announced in November 2017. As of December 31, 2018, 9,703,666 shares remain authorized for repurchase under our current share repurchase authorization. We also continued our 63 year history of increasing our annual dividend payments to shareholders and paid a total of $283.6 million in dividends to our shareholders.

CONSOLIDATED RESULTS OF OPERATIONS

						Years Ended December 31,																														% / Point Change
(dollars in thousands, except per share figures)						2018						2017						2016						2018 vs. 2017												2017 vs. 2016
Revenue						$	6,992,118					$	6,820,886					$	6,043,224					2.5		%										12.9		%
Cost of goods and services						4,432,562						4,291,839						3,815,672						3.3		%										12.5		%
Gross profit						2,559,556						2,529,047						2,227,552						1.2		%										13.5		%
Gross profit margin						36.6		%				37.1		%				36.9		%				(0.50)												0.20
Selling, general and administrative expenses						1,716,444						1,722,161						1,518,580						(0.3)		%										13.4		%
Selling, general and administrative expenses as a percent of revenue						24.5		%				25.2		%				25.1		%				(0.70)												0.10
Interest expense						130,972						144,948						135,969						(9.6)		%										6.6		%
Interest income						(8,881)						(8,491)						(6,752)						4.6		%										25.8		%
Other income, net						(4,357)						(2,251)						(8,291)						93.6		%										(72.9)		%
Gain on sale of businesses						—						(203,135)						(96,598)						nm*												nm*
Provision for income taxes						134,233						129,152						182,516						3.9		%										(29.2)		%
Effective tax rate						18.5		%				14.7		%				26.7		%				3.8												(12.0)
Earnings from continuing operations						591,145						746,663						502,128						(20.8)		%										48.7		%
(Loss) earnings from discontinued operations, net						(20,878)						65,002						6,764						nm*												nm*
Earnings from continuing operations per common share - diluted						3.89						4.73						$	3.21					(17.8)		%										47.4		%
(Loss) earnings from discontinued operations per common share -diluted						$	(0.14)					$	0.41					$	0.04					nm*												nm*

• nm: not meaningful

Revenue

For the year ended December 31, 2018, revenue increased $171.2 million, or 2.5% to $7.0 billion compared with 2017, reflecting organic growth of 3.7% led by our Fluids and Engineered Systems segments, partially offset by our Refrigeration and Food Equipment segment, acquisition-related growth of 0.5% from our Fluids and Refrigeration and Food Equipment segments and a favorable impact from foreign currency translation of 0.8%. Revenue growth was partially offset by a 2.5% impact from dispositions within our Engineered Systems segment. Customer pricing favorably impacted revenue by approximately 1.0% in 2018.

For the year ended December 31, 2017, revenue increased $777.7 million, or 12.9% to $6.8 billion compared with 2016, reflecting a growth from acquisitions of 10.9%, an organic growth of 4.6%, and a favorable impact of 0.5% from foreign currency translation, offset by a decline from dispositions of 3.1%. Acquisition-related growth of 10.9% was led by the Fluids and Engineered Systems segments, largely due to the full-year benefit from the 2016 acquisitions of Wayne Fueling Systems Ltd. ("Wayne") within our Fluids segment and Ravaglioli S.p.A Group ("RAV") within our Engineered Systems segment, as well as the 2017 acquisition of Caldera Graphics S.A.S. ("Caldera") within our Engineered Systems segment. Growth in organic revenue was largely driven by strong broad-based activity in the Engineered Systems segment. Organic growth also reflected strong shipments in our Pumps and Process Solutions businesses in the Fluids segment and solid retail refrigeration activity in the Refrigeration & Food Equipment segment. Overall customer pricing was favorable, impacting consolidated revenue 0.6%.

Gross Profit

For the year ended December 31, 2018, gross profit increased $30.5 million, or 1.2%, to $2.6 billion compared with 2017, primarily due to growth in sales volumes and benefits of prior restructuring actions, partially offset by the loss of gross profits due to divestitures. Gross profit margin decreased 50 basis points as compared to the prior year, due to unfavorable product mix and rising material costs in our Refrigeration and Food Equipment segment and the impact of inefficiencies due to facility consolidations principally in our Fluids segment.

For the year ended December 31, 2017, gross profit increased $301.5 million, or 13.5% to $2.5 billion compared with 2016, primarily due to growth in sales volumes and benefits of prior restructuring actions as well as a reduction of a product recall accrual of $7.2 million compared to a fourth quarter 2016 charge of $23.2 million. Gross profit margin increased 20 basis points compared with 2016.

Selling, General and Administrative Expenses

For the year ended December 31, 2018, selling, general and administrative expenses decreased $5.7 million, or 0.3% to $1.7 billion compared with 2017, primarily due to benefits from prior restructuring actions and decreases from dispositions within our Engineered Systems segment, offset by an increase in restructuring costs of $6.0 million. As a percentage of revenue, selling, general and administrative expenses decreased 50 basis points in 2018 to 24.5%, reflecting the leverage of costs on a higher revenue base and the decrease in expenses.

For the year ended December 31, 2017, selling, general and administrative expenses increased $203.6 million, or 13.4% to $1.7 billion compared with 2016 primarily reflecting the impact of acquisitions in 2017, including acquisition-related amortization expense of $18.0 million, higher restructuring charges of $15.9 million, disposition-related costs for Warn of $5.2 million and increased compensation costs. As a percentage of revenue, selling, general and administrative expenses remained consistent with 2016 at approximately 25%.

Non-Operating Items

Interest Expense

For the year ended December 31, 2018, interest expense, net of interest income, decreased $14.4 million, or 10.5%, to $122.1 million compared with 2017 due to the $350 million 5.45% 10-year notes that were paid in March 2018 that resulted in lower outstanding long-term debt and lower interest expense compared to 2017.

For the year ended December 31, 2017, interest expense, net of interest income, increased $7.2 million, or 5.6%, to $136.5 million compared with 2016 due to the full year impact of the fourth quarter 2016 issuance of the €600 million of 1.25% euro-denominated notes and higher interest rates on commercial paper in 2017.

Other income, net

For the years ended December 31, 2018, 2017 and 2016, other income, net was $4.4 million, $2.3 million and $8.3 million, respectively. For the year ended December 31, 2018, other income was primarily driven by non-operating gains from our defined benefit and post-retirement benefit plans of $5.8 million. For the year ended December 31, 2017, other income was primarily due to non-operating gains from our defined benefit and post-retirement benefit plans of $8.6 million partially offset by $6.9 million foreign exchange losses resulting from the re-measurement and settlement of foreign currency denominated balances. For the year ended December 31, 2016, other income was primarily due to earnings on equity method investments of $3.3 million and net foreign exchange gains of $3.6 million.

Gain on sale of businesses

There were no significant dispositions in 2018 aside from the spin-off of Apergy, whose results are presented as discontinued operations.

For the year ended December 31, 2017, gain on sale of businesses was $203.1 million. The gain was primarily due to the sales of PMI and the consumer and industrial winch business of Warn ("Warn"), both within the Engineered Systems segment, in which we recognized gains on sale of $88.4 million and $116.9 million, respectively. Other immaterial dispositions completed during the year were recorded as a net loss of $2.2 million.

For the year ended December 31, 2016, gain on sale of businesses was $96.6 million. The gain was primarily due to the sales of Texas Hydraulics ("THI"), a custom manufacturer of fluid power components within the Engineered Systems segment, and Tipper Tie, a global supplier of processing and clip packaging machines within the Refrigeration & Food Equipment segment. Upon disposal of THI and Tipper Tie, we recognized gains on sale of $11.9 million and $85 million, respectively.

The disposals in 2017 and 2016 did not represent strategic shifts in operations and, therefore, did not qualify for presentation as discontinued operations.

Income Taxes

Our businesses span the globe with 52.5%, 37.8% and 38.2% of our pre-tax earnings in 2018, 2017 and 2016, respectively, generated in foreign jurisdictions. Foreign earnings are generally subject to local country tax rates that differ from the 21.0% U.S. statutory tax rate. As a result of our non-U.S. business locations, our effective foreign tax rate is typically lower than the U.S. statutory tax rate.

Our effective tax rate was 18.5% for the year ended December 31, 2018, compared to 14.7% for the year ended December 31, 2017. The 2018 and 2017 rates were impacted by $24.0 million and $51.7 million, respectively, of favorable net discrete items, inclusive of the impact recorded for the U.S. Tax Reform Act in 2017 and the SAB 118 adjustment in 2018, as described below.

On December 22, 2017, the Tax Reform Act was enacted which reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we revalued our ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional tax benefit of $172.0 million. The Tax Reform Act also imposed a tax for a one-time deemed repatriation of post-1986 unremitted foreign earnings and profit through the year ended December 31, 2017. For the year ended December 31, 2017, we recorded provisional tax expense related to the deemed repatriation of $111.6 million payable over eight years.

On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions the Company has made as a result of the Tax Reform Act.

For the year ended December 31, 2016, our effective tax rate on continuing operations was 26.7%. The effective tax rate was impacted by favorable net discrete items totaling $13.6 million, principally related to settlements of uncertain tax matters.

We believe it is reasonably possible during the next twelve months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. This decrease may result in an income tax benefit. Due to the potential for resolution of federal, state, and foreign examinations and the expiration of various statutes of limitation, our gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $12.5 million. We believe adequate provision has been made for all income tax uncertainties.

Earnings from Continuing Operations

For the year ended December 31, 2018, earnings from continuing operations decreased $155.5 million, or 20.8%, to $591.1 million, or EPS of $3.89, compared with earnings from continuing operations of $746.7 million, or EPS of $4.73, for the year ended December 31, 2017. Earnings decreased primarily because we did not record any gains from dispositions in 2018 compared to 2017 when we recorded net gains from dispositions of $172.6 million, or EPS of $1.09. In 2018, we recorded a net tax benefit primarily from the Tax Reform Act of $4.2 million, or EPS of $0.03, whereas in 2017 we recorded a net tax benefit of $54.9 million, or EPS of $0.35. The 2018 results included after-tax rightsizing and other costs of $58.3 million, or EPS of $0.38, whereas 2017 included rightsizing and other costs of $34.6 million, or EPS of $0.22. Excluding these items in both years, earnings from continuing operations increased $91.4 million, or 16.5%, in 2018 as a result of higher earnings due to increased sales volumes. Diluted earnings per share improved due to the benefit of the share repurchase programs announced in November 2017.

For the year ended December 31, 2017, earnings from continuing operations increased $244.5 million, or 48.7%, to $746.7 million, or EPS of $4.73, compared with earnings from continuing operations of $502.1 million, or EPS of $3.21, for the year ended December 31, 2016. The 2017 results include a net benefit of $172.6 million, or EPS of $1.09 from dispositions, a net tax benefit primarily from the Tax Reform Act of $54.9 million, or EPS of $0.35, after-tax rightsizing and other costs of $34.6 million or EPS of $0.22 and a net benefit of $4.6 million, or EPS of $0.03, from a reduction to a previously recorded product recall accrual.

Discontinued Operations

The results of discontinued operations for December 31, 2018, 2017 and 2016 include the historical results of Apergy prior to its distribution on May 9, 2018. The years ended December 31, 2018 and 2017 included costs incurred by Dover to complete the spin-off of Apergy amounting to $46.4 million and $15.3 million, respectively, reflected in selling, general and administrative expenses in discontinued operations. Due to lump-sum payments made in 2018 for Apergy participants in the Dover U.S. Pension Plan, non-cash settlement costs of approximately $9.2 million were classified within discontinued operations.

Refer to Note 5 — Discontinued and Disposed Operations in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information on disposed and discontinued operations.

Restructuring Activities

2018 Restructuring Activities

During the year ended December 31, 2018, we executed several programs in order to further optimize operations. Rightsizing programs in 2018 included 1) alignment of our cost structure in preparation for the Apergy separation, 2) broad-based selling, general and administrative expense reduction initiatives and 3) initiation of footprint consolidation actions. The Company incurred $58.5 million of restructuring charges for the year ended December 31, 2018, including a $22.1 million charge in the fourth quarter of 2018 for rightsizing costs related to the selling, general and administrative expense reduction initiative which began in the third quarter of 2018 and the footprint consolidation initiative which started in the fourth quarter of 2018. The restructuring programs are described below.

• The Engineered Systems segment recorded $21.0 million of restructuring charges related to programs across the segment focused on headcount reductions and manufacturing plant consolidation.

• The Fluids segment recorded $25.7 million of restructuring charges principally related to headcount reductions and manufacturing plant and facility consolidations, focused on achieving long-term footprint optimization.

• The Refrigeration & Food Equipment segment recorded $3.5 million of restructuring charges primarily due to headcount reductions, product exit and manufacturing plant consolidation.

• Corporate recorded $8.2 million of restructuring charges primarily related to headcount reductions.

The Apergy-related rightsizing programs previously announced in the fourth quarter of 2017 were completed in 2018. The third quarter selling, general and administrative rightsizing programs were substantially completed in 2018 with benefits realized in the second half of 2018 and expected into 2019. We commenced footprint consolidation initiatives in late 2018 and expect to continue to incur costs through 2020, with partial benefits beginning in 2019 and extending into 2020 and 2021 due to the long nature of the programs.

2017 Restructuring Activities

The Company incurred $52.3 million of restructuring charges for the year ended December 31, 2017, including the programs described below.

• The Engineered Systems segment recorded $12.1 million of restructuring charges related to programs across the segment focused on headcount reductions and various site and product line moves and exits to lower ongoing operating expenses.

• The Fluids segment recorded $16.3 million of restructuring charges as a result of programs and projects across the segment, principally related to headcount reductions and facility consolidations, principally focused on achieving acquisition integration benefits.

• The Refrigeration & Food Equipment segment recorded restructuring charges of $14.1 million, related to headcount reductions, facility consolidations and product line exits, primarily within its Refrigeration business to improve margin performance.

• Corporate recorded $9.8 million of restructuring charges primarily related to headcount reductions, corporate office consolidation and a shared facility exit in South America.

Restructuring initiatives in 2016 included targeted facility consolidations at certain businesses, headcount reductions and actions taken to optimize the Company's cost structure. We incurred restructuring charges of $25.0 million for the year ended December 31, 2016 relating to such activities. See Note 10 — Restructuring Activities in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional details regarding our recent restructuring activities.

SEGMENT RESULTS OF OPERATIONS

The summary that follows provides a discussion of the results of operations of each of our three reportable operating segments (Engineered Systems, Fluids, and Refrigeration & Food Equipment). Each of these segments is comprised of various product and service offerings that serve multiple end markets. See Note 18 — Segment Information in the Consolidated Financial Statements in Item 8 of this Form 10-K for a reconciliation of segment revenue, earnings and margin to our consolidated revenue, earnings from continuing operations and margin. Segment EBITDA and segment EBITDA margin, which are presented in the segment discussion that follows, are non-GAAP measures and do not purport to be alternatives to operating income as a measure of operating performance. We believe that these measures are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. For further information, see "Non-GAAP Disclosures" at the end of this Item 7.

Engineered Systems

Our Engineered Systems segment is comprised of two platforms, Printing & Identification and Industrials, and is focused on the design, manufacture and service of critical equipment and components serving the fast-moving consumer goods, digital textile printing, vehicle service, environmental solutions and industrial end markets.

						Years Ended December 31,																														% Change
(dollars in thousands)						2018						2017						2016						2018 vs. 2017						2017 vs. 2016
Revenue:
Printing & Identification						$	1,162,431					$	1,094,015					$	1,022,502					6.3		%				7.0		%
Industrials						1,580,517						1,573,969						1,424,163						0.4		%				10.5		%
						$	2,742,948					$	2,667,984					$	2,446,665					2.8		%				9.0		%
Segment earnings						$	451,270					$	604,484					$	399,209					(25.3)		%				51.4		%
Segment margin						16.5		%				22.7		%				16.3		%
Segment EBITDA						$	527,149					$	689,931					$	477,382					(23.6)		%				44.5		%
Segment EBITDA margin						19.2		%				25.9		%				19.5		%
Other measures:
Depreciation and amortization						$	75,879					$	85,447					$	78,173					(11.2)		%				9.3		%
Bookings
Printing & Identification						$	1,158,537					$	1,114,340					$	1,026,453					4.0		%				8.6		%
Industrials						1,751,280						1,624,181						1,418,665						7.8		%				14.5		%
						$	2,909,817					$	2,738,521					$	2,445,118					6.3		%				12.0		%
Backlog
Printing & Identification						$	122,028					$	129,752					$	98,924					(6.0)		%				31.2		%
Industrials						438,546						329,575						266,556						33.1		%				23.6		%
						$	560,574					$	459,327					$	365,480					22.0		%				25.7		%
Components of revenue growth:
Organic growth																								5.8		%				5.9		%
Acquisitions																								0.1		%				6.5		%
Dispositions																								(4.6)		%				(4.2)		%
Foreign currency translation																								1.5		%				0.8		%
Total revenue growth																								2.8		%				9.0		%

2018 Versus 2017

Engineered Systems segment revenue for the year ended December 31, 2018 increased $75.0 million, or 2.8% compared to the prior year, comprised of broad-based organic growth of 5.8% and a favorable impact from foreign currency translation of 1.5%. This increase was partially offset by a 4.6% decrease from the dispositions of PMI in the first quarter of 2017 and the consumer and industrial winch business of Warn in the fourth quarter of 2017. Customer pricing favorably impacted revenue by approximately 1.3% in 2018.

• Printing & Identification revenue (representing 42.4% of segment revenue) increased $68.4 million, or 6.3%, compared to the prior year. The increase is comprised primarily of organic revenue growth of 4.4% and a favorable impact from foreign currency translation of 1.7%. Organic revenue growth was led by strong activity in our digital printing businesses, complemented by growth in our marking and coding businesses.

• Industrials revenue (representing 57.6% of segment revenue) increased $6.5 million, or 0.4%, compared to the prior year. The increase reflects organic revenue growth of 6.8% and a favorable impact of foreign currency translation of 1.3% partially offset by the impact of the PMI and Warn dispositions of 7.6%. Organic revenue growth was broad-based, with particular strength in our environmental solutions, industrial winch, and defense/commercial aerospace businesses.

Engineered Systems segment earnings for the year ended December 31, 2018 decreased $153.2 million, or 25.3%, compared to the prior year. The decline in earnings was impacted by 1) a gain of $205.3 million recognized in 2017 from the sales of PMI and Warn; 2) lost earnings of $25.6 million, offset by disposition costs of $5.2 million, associated with 2017 divestitures; and 3) incremental restructuring costs in 2018 of $9.0 million. Excluding these non-operational, non-recurring items, segment earnings increased by $81.5 million, or 20.8%. This increase was primarily driven by solid conversion on organic volume growth, favorable pricing and productivity initiatives including the benefits of prior year and current year restructuring initiatives, as well as the net benefit of an earn-out reversal recorded in the second quarter of 2018. Partially offsetting this favorable operational performance were increases in material costs, primarily driven by U.S. Section 232 tariffs, most notably commodity cost increases impacting steel, and Section 301 tariffs. Segment margin decreased from 22.7% to 16.5% as compared to the prior year primarily due to the gain from the sales of PMI and Warn, lost earnings and disposition costs from 2017 divested businesses and incremental restructuring costs. Excluding these items, margins increased 188 basis points from 15.3% to 17.2 % from the prior year.

Segment bookings for the year ended December 31, 2018 increased 6.3% compared to the prior year. Bookings for our Industrials platform for the year ended December 31, 2018 increased 7.8%, compared to the prior year, due primarily to organic growth in our environmental solutions and vehicle services businesses, partially offset by divestiture impacts of Warn and PMI. Our Printing & Identification bookings for the year ended December 31, 2018 increased 4.0%, compared to the prior year, driven by strong activity in our marking and coding and digital printing businesses. Segment book-to-bill was 1.06.

2017 Versus 2016

Engineered Systems segment revenue for the year ended December 31, 2017 increased $221.3 million, or 9.0%, compared to the prior year, primarily driven by acquisition-related growth of 6.5% from RAV and Alliance Wireless Technologies ("AWTI") in the fourth quarter 2016 and Caldera in the second quarter of 2017, and broad-based organic growth of 5.9%. This increase was also driven by a favorable impact from foreign currency translation of 0.8%, partially offset by a 4.2% impact from dispositions. Customer pricing favorably impacted revenue by approximately 0.3% in 2017.

• Printing & Identification revenue (representing 41.0% of 2017 segment revenue) increased $71.5 million, or 7.0%, compared to the prior year. Organic revenue of 4.6%, acquisition-related growth of 0.9% from Caldera and a favorable impact from foreign currency translation of 1.5% all contributed to year over year growth. Organic revenue growth was driven by our marking and coding and digital printing businesses.

• Industrials revenue (representing 59.0% of 2017 segment revenue) increased $149.8 million, or 10.5%, compared to the prior year. The increase reflects acquisition-related growth of 10.5% from the RAV and AWTI acquisitions, organic revenue growth of 6.8% and a favorable impact from foreign currency translation of 0.4%. This increase was partially offset by the impact of dispositions of 7.2%. Organic revenue growth was broad-based, with particular strength in our environmental solutions business.

Engineered Systems segment earnings for the year ended December 31, 2017 increased $205.3 million, or 51.4%, compared to the prior year. The increase was primarily driven by $193.4 million of incremental gains on the sale of divested businesses including Warn and PMI in 2017 and THI in 2016, partially offset by $17.3 million of lower earnings due to divested businesses, $8.0 million of incremental restructuring expenses and $5.2 million of Warn divestiture costs. Excluding these items, segment earnings increased $42.2 million or 11.3% compared to the prior year driven by leverage on organic growth in our marking and coding and industrial businesses, partially offset by increases in material costs, most notably steel, and key strategic investments. Segment margin increased from 16.3% to 22.7% as compared to the prior year primarily due to the 2017 gains on dispositions.

Fluids

Our Fluids segment, serving the Fueling & Transport, Pumps, and Process Solutions end markets, is focused on the safe handling of critical fluids, and providing critical components to the retail fueling, chemical, hygienic, oil and gas, power generation and industrial end markets. In the second quarter of 2018, we aligned our financial reporting around these three key end markets to provide more detailed information after the spin-off of the Apergy business.

						Years Ended December 31,																														% Change
(dollars in thousands)						2018						2017						2016						2018 vs. 2017						2017 vs. 2016
Revenue:
Fueling & Transport						$	1,465,590					$	1,338,062					$	848,109					9.5		%				57.8		%
Pumps						676,027						618,224						577,048						9.3		%				7.1		%
Process Solutions						655,721						598,779						551,893						9.5		%				8.5		%
Total						$	2,797,338					$	2,555,065					$	1,977,050					9.5		%				29.2		%
Segment earnings						$	389,804					$	368,630					$	246,545					5.7		%				49.5		%
Segment margin						13.9		%				14.4		%				12.5		%
Segment EBITDA						$	530,248					$	504,451					$	347,811					5.1		%				45.0		%
Segment EBITDA margin						19.0		%				19.7		%				17.6		%
Other measures:
Depreciation and amortization						$	140,444					$	135,821					$	101,266					3.4		%				34.1		%
Bookings						2,899,740						2,612,763						1,970,428						11.0		%				32.6		%
Backlog						523,791						459,746						394,399						13.9		%				16.6		%
Components of revenue growth:
Organic growth																								8.7		%				4.0		%
Acquisitions																								0.7		%				25.1		%
Dispositions																								(0.2)		%				—		%
Foreign currency translation																								0.3		%				0.1		%
Total revenue growth																								9.5		%				29.2		%

2018 Versus 2017

Fluids segment revenue for the year ended December 31, 2018 increased $242.3 million, or 9.5%, compared to the prior year, attributable to organic growth of 8.7%, acquisition-related growth of 0.7% and a favorable foreign currency translation impact of 0.3%. This increase was partially offset by a 0.2% decrease from dispositions. The organic growth was principally driven by industrial pump activity and solid biopharma and medical markets, along with continued strength in retail fueling, especially in the Asia Pacific region. Customer pricing favorably impacted revenue by approximately 0.8% in 2018.

• Fueling & Transport revenue (representing 52.4% of segment revenue) increased $127.5 million, or 9.5%, compared to the prior year, primarily driven by continued strong international retail fueling activity, specifically in the Asia Pacific region and improving U.S. based Europay, Mastercard and Visa (EMV) activity. Transport revenue improved over the prior year and the rail business experienced strong growth, in part, due to softer volumes experienced in last year’s second half and the continued rebound of aftermarket volumes.

• Pumps revenue (representing 24.2% of segment revenue) increased $57.8 million, or 9.3%, compared to the prior year. This increase reflects growth in the oil and gas markets in North America. Additionally, strong activity in other industrial markets, specifically biopharma and medical businesses, continue to trend positively.

• Process Solutions revenue (representing 23.4% of segment revenue) increased $56.9 million, or 9.5%, compared to the prior year. This revenue increase was driven by the acquisition of Ettlinger Group ("Ettlinger"), strength in our Asia Pacific markets, continued infrastructure spending by our original equipment manufacturer ("OEM") customers, and polymer plant demand increase.

Fluids segment earnings for the year ended December 31, 2018 increased $21.2 million, or 5.7%, compared to the prior year, primarily driven by our Pumps and Process Solutions end markets. This growth was partially offset by increased material costs due, in part, to U.S. Section 232 and 301 tariff exposure, costs associated with the exit of a minority interest investment, higher restructuring costs and the negative productivity impacts of footprint consolidation and supply chain disruptions in our Fueling & Transport end market. Segment margin decreased 50 basis points primarily due to one-time cost impacts driven by footprint consolidations and temporary supply chain disruptions impacting production. Excluding these items and incremental rightsizing and other impacts, segment earnings increased $64.1 million, or 17.3%, and segment margin increased 100 basis points for the year ended December 31, 2018 compared to the prior year.

Bookings for the year ended December 31, 2018 increased 11.0% compared to the prior year, reflecting organic growth of 7.8%, a favorable impact from foreign currency translation of 2.6%, and acquisition-related growth of 0.8% offset by disposition related decline of 0.2%. Book to bill was 1.04.

2017 Versus 2016

Fluids segment revenue for the year ended December 31, 2017 increased $578.0 million, or 29.2%, compared to the prior year, comprised of acquisition-related growth of 25.1% primarily due to Wayne, organic revenue growth of 4.0% and a favorable foreign currency translation impact of 0.1%. Customer pricing did not have a significant impact to revenue in 2017.

• Fueling & Transport revenue (representing 52.4% of 2017 segment revenue) increased $490.0 million, or 57.8%, compared to the prior year. The increase was primarily driven by acquisition-related growth from Wayne, and improving European and Asian retail fueling markets, partially offset by weak transport markets.

• Pumps revenue (representing 24.2% of 2017 segment revenue) increased $41.2 million, or 7.1%, compared to the prior year, largely reflecting increased industrial demand and biopharma and medical businesses growth in North America and Asia.

• Process Solutions revenue (representing 23.4% of 2017 segment revenue) increased $46.9 million, or 8.5%, compared to the prior year. This revenue increase was primarily driven by new product development, and solid market activity relating to infrastructure spending by our OEM customers and polymer plant demand increase.

Fluids segment earnings for the year ended December 31, 2017 increased $122.1 million, or 49.5%, compared to the prior year, primarily driven by volume growth, including acquisitions, productivity gains and the benefits of the retail fueling integration. Segment year over year earnings also includes a benefit from a reduction of $7.2 million to a voluntary product recall accrual compared to a $23.2 million charge in 2016. Segment margin increased overall by 190 basis points.

Refrigeration & Food Equipment

Our Refrigeration & Food Equipment segment is a provider of innovative and energy efficient equipment and systems serving the commercial refrigeration and food equipment end markets.

						Years Ended December 31,																														% Change
(dollars in thousands)						2018						2017						2016						2018 vs. 2017						2017 vs. 2016
Revenue:
Refrigeration						$	1,197,072					$	1,305,530					$	1,261,633					(8.3)		%				3.5		%
Food Equipment						256,021						293,575						358,706						(12.8)		%				(18.2)		%
Total						$	1,453,093					$	1,599,105					$	1,620,339					(9.1)		%				(1.3)		%
Segment earnings						$	136,119					$	193,822					$	283,628					(29.8)		%				(31.7)		%
Segment margin						9.4		%				12.1		%				17.5		%
Segment EBITDA						$	196,596					$	251,029					$	348,646					(21.7)		%				(28.0)		%
Segment EBITDA margin						13.5		%				15.7		%				21.5		%
Other measures:
Depreciation and amortization						$	60,477					$	57,207					$	65,018					5.7		%				(12.0)		%
Bookings						1,474,717						1,582,606						1,645,807						(6.8)		%				(3.8)		%
Backlog						268,991						244,972						258,329						9.8		%				(5.2)		%
Components of revenue decline:
Organic (decline) growth																								(7.9)		%				3.4		%
Acquisitions																								0.7		%				—		%
Dispositions																								(2.6)		%				(5.1)		%
Foreign currency translation																								0.7		%				0.4		%
Total revenue decline																								(9.1)		%				(1.3)		%

2018 Versus 2017

Refrigeration & Food Equipment segment revenue for the year ended December 31, 2018 decreased $146.0 million, or 9.1%, compared to the prior year, reflecting an organic revenue decline of 7.9%, the impact from product line dispositions of 2.6%, partially offset by acquisition-related growth of 0.7% and a favorable impact from foreign currency translation of 0.7%. Customer pricing favorably impacted revenue by approximately 0.8% in 2018.

• Refrigeration revenue (representing 82.4% of segment revenue) decreased $108.5 million, or 8.3%, compared to the prior year, principally driven by weak capital spending and deferred remodel programs by key U.S. retail refrigeration customers, as well as certain product line exits. The retail refrigeration shortfall was partially offset by increased demand for heat exchanger products, most notably in Europe.

• Food Equipment revenue (representing 17.6% of segment revenue) decreased $37.6 million, or 12.8%, compared to the prior year, due to project timing and market softness in our can shaping equipment and foodservice equipment businesses, partially offset by the addition of sales from our Rosario acquisition.

Refrigeration & Food Equipment segment earnings for the year ended December 31, 2018 decreased $57.7 million, or 29.8%, compared to the prior year. Segment margin decreased to 9.4% from 12.1% in the prior year, as benefits from rightsizing and other restructuring actions, productivity gains and lower restructuring costs were more than offset by volume reductions, unfavorable product mix in our can shaping business, costs associated with product re-design and SKU rationalization in our refrigeration door system product line and a favorable $1.7 million one-time disposition gain in 2017 due to a working capital adjustment. Segment margin was also impacted by rising material costs, most notably steel, inclusive of commodity pricing impacts attributable to U.S. Section 232 tariffs.

Bookings for the year ended December 31, 2018 decreased 6.8% compared to the prior year, primarily driven by weak retail refrigeration markets and the impact of dispositions. Organically, bookings decreased 5.6%. Ending backlog was 9.8% higher than prior year, driven by fourth quarter bookings growth in our retail refrigeration and can shaping equipment businesses. Book to bill was 1.01.

2017 Versus 2016

Refrigeration & Food Equipment segment revenue for the year ended December 31, 2017 decreased $21.2 million, or 1.3%, compared to the prior year, primarily driven by a 5.1% decline due to dispositions, offset, in part, by organic revenue growth of 3.4% and a favorable impact from foreign currency translation of 0.4%. Customer pricing favorably impacted revenue by approximately 1.7% in 2017.

• Refrigeration revenue (representing 81.6% of 2017 segment revenue) increased $43.9 million, or 3.5%, compared to the prior year, primarily driven by growth in CO2 and industrial refrigeration systems as well as strong demand for heat exchanger products, especially in Asia.

• Food Equipment revenue (representing 18.4% of 2017 segment revenue) decreased $65.1 million, or 18.2%, compared to the prior year, primarily due to the disposition of Tipper Tie in the fourth quarter of 2016. Excluding divestitures, revenues increased $17.2 million, or 6.2%, compared to prior year driven by strong shipments in can-shaping equipment.

Refrigeration & Food Equipment segment earnings for the year ended December 31, 2017 decreased $89.8 million, or 31.7%, compared to the prior year, primarily related to the $85.0 million gain on sale of Tipper Tie in 2016 as well as $10.1 million of lower earnings in 2017 due to the divestiture, an increase of $13.1 million of restructuring expenses in 2017 compared to the prior year, and a $4.0 million loss on sale of a non-US business in 2017. Segment margin decreased 540 basis points to 12.1% primarily driven by the aforementioned gain on sale of Tipper Tie in 2016 and increase in restructuring expenses. Excluding the impact of dispositions and restructuring, segment earnings increased $20.8 million, or 11.0%, and segment margins increased 80 basis points reflecting increased organic volume and improved productivity which more than offset increased materials cost, most notably steel.

FINANCIAL CONDITION

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting liquidity are: cash flows generated from operating activities, capital expenditures, acquisitions, dispositions, dividends, repurchase of outstanding shares, adequacy of available commercial paper and bank lines of credit and the ability to attract long-term capital with satisfactory terms. We generate substantial cash from the operations of our businesses and remain in a strong financial position, with sufficient liquidity available for reinvestment in existing businesses and strategic acquisitions.

Cash Flow Summary

The following table is derived from our Consolidated Statements of Cash Flows:

			Years Ended December 31,
Cash Flows from Continuing Operations (in thousands)			2018						2017						2016
Net cash flows provided by (used in):
Operating activities			$	789,193					$	739,409					$	734,596
Investing activities			(245,480)						208,335						(1,480,742)
Financing activities			(897,838)						(592,933)						634,336

Operating Activities

Cash provided by operating activities for the year ended December 31, 2018 increased $49.8 million compared to 2017. This increase was driven primarily by higher continuing earnings of $46.9 million, excluding non-cash activity from depreciation and amortization and gain on sale of businesses, and significantly lower tax payments in the current year due to a lower tax rate in 2018 as well as tax payments made in the prior year for dispositions. The increase was offset by higher investments in working capital relative to the prior year in support of organic bookings and timing of year end revenue.

Cash provided by operating activities for the year ended December 31, 2017 increased $4.8 million compared to 2016. This increase was primarily driven by higher continuing earnings of $171.6 million, excluding non-cash activity from depreciation and amortization and gain on sale of businesses. The increase was largely offset by timing of year end revenue and increased tax payments of $167.6 million, which includes $69.0 million of federal and state tax payments for dispositions.

Pension and Other Post-Retirement Activity: Total cash used in conjunction with pension plans during 2018 was $25.9 million including contributions to our international pension plans and payments of benefits under our non-qualified supplemental pension plan.

The funded status of our U.S. qualified defined benefit pension plans is dependent upon many factors, including returns on invested assets, the level of market interest rates and the level of funding. We contribute cash to our plans at our discretion, subject to applicable regulations and minimum contribution requirements. Due to the overfunded status of this plan, the Company did not make contributions in 2018, 2017 or 2016 and expects to make minimal contributions, if any, in the near term.

Our international pension obligations are located in regions where it is not economically advantageous to pre-fund the plans due to local regulations. Total cash contributions to ongoing international defined benefit pension plans in 2018, 2017 and 2016 totaled $6.0 million, $8.0 million and $8.4 million, respectively. In 2019, we expect to contribute approximately $5.4 million to our non-U.S. plans. Our non-qualified supplemental pension plans are funded through Company assets as benefits are paid. In 2018, a total of $19.4 million in benefits were paid under these plans. See Note 16 — Employee Benefit Plans in the Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion regarding our post-retirement plans.

Adjusted Working Capital: We believe adjusted working capital (a non-GAAP measure calculated as accounts receivable, plus inventory, less accounts payable) provides a meaningful measure of our operational results by showing changes caused solely by revenue.

Adjusted Working Capital (dollars in thousands)						December 31, 2018						December 31, 2017
Accounts receivable						$	1,231,859					$	1,183,514
Inventories						748,796						677,043
Less: Accounts payable						969,531						882,007
Adjusted working capital						$	1,011,124					$	978,550

Adjusted working capital increased from December 31, 2017 by $32.6 million, or 3.3%, to $1.0 billion at December 31, 2018, which reflected an increase in receivables of $48.3 million, an increase in inventory of $71.8 million and an increase in accounts payable of $87.5 million. Excluding acquisitions, dispositions and the effects of foreign currency translation, adjusted working capital increased by $66.1 million, or 6.8%, and decreased $51.2 million, or 4.9%, for the years ended December 31, 2018 and 2017, respectively.

Investing Activities

Cash flow from investing activities is derived from cash inflows from proceeds from sales of businesses, property, plant and equipment and short-term investments, partially offset by cash outflows for capital expenditures and acquisitions. The majority of the activity in investing activities was comprised of the following:

• Acquisitions: In 2018, we deployed $68.6 million to acquire two businesses. In comparison, we acquired two businesses in 2017 for an aggregate purchase price of approximately $27.2 million. Total acquisition spend in 2016 was $1,561.7 million and was comprised of six businesses. See Note 4 — Acquisitions in the Consolidated Financial Statements in Item 8 of this Form 10-K for additional information with respect to recent acquisitions.

*•*Proceeds from sale of businesses: In 2018, we generated cash proceeds of $3.9 million, primarily due to cash received on a sale in the prior year. Cash proceeds of $372.7 million in 2017 were primarily from the sale of PMI and Warn. In 2016, we generated cash proceeds of $206.4 million primarily from the sale of THI and Tipper Tie.

*•*Capital spending: Capital expenditures, primarily to support productivity and new product launches, were $171.0 million in 2018, $170.1 million in 2017 and $139.6 million in 2016. Our capital expenditures remained relatively flat in 2018 compared to 2017, but increased $30.5 million in 2017 compared to 2016, primarily within Fluids.

We anticipate that capital expenditures and any additional acquisitions we make in 2019 will be funded from available cash and internally generated funds and, if necessary, through the issuance of commercial paper, or by accessing the public debt or equity markets.

Financing Activities

Our cash flow from financing activities generally relates to the use of cash for purchases of our common stock and payment of dividends, offset by net borrowing activity and proceeds from the exercise of share-based awards. The majority of financing activity was attributed to the following:

*•*Cash received from Apergy, net of cash distributed: In connection with the separation of Apergy from Dover, Apergy

incurred borrowings to fund a one-time cash payment of $700.0 million to Dover in connection with Dover's contribution to Apergy of stock and assets relating to the businesses spun off with Apergy. Dover received net cash of $689.6 million upon separation, which reflects $10.4 million of cash held by Apergy at the time of distribution and retained by it in in connection with its separation from Dover.

*•*Repurchase of common stock, including prepayment under an accelerated share repurchase program: During the year ended December 31, 2018, we used $45.0 million to repurchase 440,608 shares under our January 2015 authorization, which expired on January 9, 2018. Under a new share repurchase authorization adopted by the Board of Directors in February 2018, we repurchased 1,753,768 shares of common stock at a total cost of $150.0 million and used $700 million to repurchase a total of 8,542,566 shares through an accelerated share repurchase transaction which concluded in December 2018. We funded the accelerated share repurchase primarily with funds received from Apergy in connection with the consummation of the Apergy spin-off. For the year ended December 31, 2017, we used $105.0 million to repurchase 1,059,682 shares under the January 2015 authorization.

*•*Long-term debt, commercial paper and notes payable, net: During 2018, we repaid the Company's $350.0 million 5.45% notes, which matured on March 15, 2018, and decreased net borrowings from commercial paper by $10.7 million. During the 2017 period, we decreased net borrowings from commercial paper by $182.6 million with the cash proceeds from the sale of PMI and Warn. During 2016, we increased net borrowings from commercial paper by $254.8 million, primarily for purposes of funding acquisitions. Additionally, in November 2016, we issued €600.0 million of 1.25% euro-denominated notes due in 2026. The proceeds of $656.4 million from this issuance, net of discounts and issuance costs, were primarily used for payment of a portion of the purchase price for the acquisition of Wayne.

• Dividend payments: Total dividend payments to common shareholders were $283.6 million in 2018, $284.0 million in 2017 and $267.7 million in 2016. Our dividends paid per common share increased 4% to $1.90 per share in 2018 compared to $1.82 per share in 2017, which represents the 63rd consecutive year that our dividend has increased. The number of common shares outstanding decreased from 2017 to 2018 due to our share repurchase programs.

• Net Proceeds from the exercise of share-based awards: There were no proceeds from the exercise of share-based awards in 2018 and 2017. With the adoption of Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic 718), beginning January 1, 2017 this activity is reflected in operating activities for the years ended December 31, 2018 and 2017, and we have elected to reflect this cash flow presentation prospectively. Proceeds from the exercise of share-based awards were $8.4 million in 2016. Payments to settle tax obligations on share exercises were $46.3 million, $18.4 million and $15.7 million in 2018, 2017 and 2016, respectively. These tax payments generally increase or decrease correspondingly to the number of exercises in a particular year.

Cash Flows from Discontinued Operations

Our cash flows from discontinued operations for the years ended December 31, 2018, 2017 and 2016 (used) generated $(14.3) million, $48.5 million and $103.5 million, respectively. These cash flows primarily reflect the operating results of Apergy prior to its separation during the second quarter of 2018. Cash flows used in discontinued operations for the year ended December 31, 2018 primarily reflects cash payments of spin-off costs of $46.4 million and capital expenditures of $23.7 million, partially offset by cash provided by operations of approximately $55.4 million. Cash flows generated for the years ended December 31, 2017 and 2016 primarily reflects cash provided by operating activities of approximately $96.2 million and $128.3 million, respectively, partially offset by capital expenditures.

Liquidity and Capital Resources

Free Cash Flow

In addition to measuring our cash flow generation and usage based upon the operating, investing and financing classifications included in the Consolidated Statements of Cash Flows, we also measure free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. We believe that free cash flow is an important measure of operating performance because it provides management and investors a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing our common stock.

The following table reconciles our free cash flow to cash flow provided by operating activities:

			Years Ended December 31,
Free Cash Flow (dollars in thousands)			2018						2017						2016
Cash flow provided by operating activities			$	789,193					$	739,409					$	734,596
Less: Capital expenditures			(170,994)						(170,068)						(139,578)
Free cash flow			$	618,199					$	569,341					$	595,018
Free cash flow as a percentage of revenue			8.8		%				8.3		%				9.8		%

For 2018, we generated free cash flow of $618.2 million, representing 8.8% of revenue. Free cash flow in 2017 was $569.3 million or 8.3% of revenue, and $595.0 million, or 9.8% of revenue in 2016. The full year increase in 2018 free cash flow reflects higher cash flow provided by operations due to higher operating earnings, as previously mentioned. However, the 2018 free cash flow includes cash payments related to restructuring initiatives of $52.0 million, whereas the restructuring payments were $22.6 million in 2017. The 2017 decrease in free cash flow compared to 2016 reflects higher capital expenditures, primarily within our Fluids segment.

Capitalization

We use commercial paper borrowings for general corporate purposes, including the funding of acquisitions and the repurchase of our common stock. We maintain a $1.0 billion five-year unsecured committed revolving credit facility (the "Credit Agreement") with a syndicate of banks which expires on November 10, 2020. This facility is used primarily as liquidity back-up for our commercial paper program. We have not drawn down any loans under this facility nor do we anticipate doing so. If we were to draw down a loan, at our election, the loan would bear interest at a base rate plus an applicable margin. Under this facility, we are required to pay a facility fee and to maintain an interest coverage ratio of consolidated EBITDA to consolidated net interest expense of not less than 3.0 to 1. We were in compliance with this covenant and our other long-term debt covenants at December 31, 2018 and had a coverage ratio of 9.6 to 1.0. We are not aware of any potential impairment to our liquidity and expect to remain in compliance with all of our debt covenants.

On March 15, 2018, the outstanding 5.45% notes with a principal value of $350.0 million matured. The repayment of debt was funded by the Company's commercial paper program and through a reduction of existing cash balances.

We also have a current shelf registration statement filed with the SEC that allows for the issuance of additional debt securities that may be utilized in one or more offerings on terms to be determined at the time of the offering. Net proceeds of any offering would be used for general corporate purposes, including repayment of existing indebtedness, capital expenditures and acquisitions.

At December 31, 2018, our cash and cash equivalents totaled $396.2 million, of which approximately $247.5 million was held outside the United States. At December 31, 2017, our cash and cash equivalents totaled $754.0 million, of which $609.8 million was held outside the United States. The reduction in cash held outside the United States was primarily the result of repatriating $534.4 million to the United States during the year ended December 31, 2018. Cash and cash equivalents are held primarily in bank deposits with highly rated banks. We regularly hold cash in excess of near-term requirements in bank deposits or invest the funds in government money market instruments or short-term investments, which consist of investment grade time deposits with original maturity dates at the time of purchase of no greater than three months.

We utilize the net debt to net capitalization calculation (a non-GAAP measure) to assess our overall financial leverage and capacity and believe the calculation is useful to investors for the same reason. Net debt represents total debt minus cash and cash equivalents. Net capitalization represents net debt plus stockholders' equity. The following table provides a reconciliation of net debt to net capitalization to the most directly comparable GAAP measures:

Net Debt to Net Capitalization Ratio (dollars in thousands)						December 31, 2018						December 31, 2017									December 31, 2016
Current maturities of long-term debt						$	—					$	350,402								$	6,950
Commercial paper						220,318						230,700									407,600
Notes payable and current maturities of long-term debt						220,318						581,102									414,550
Long-term debt						2,943,660						2,986,702									3,206,637
Total debt						3,163,978						3,567,804									3,621,187
Less: Cash and cash equivalents						(396,221)						(753,964)									(349,146)
Net debt						2,767,757						2,813,840									3,272,041
Add: Stockholders' equity						2,768,666						4,383,180									3,799,746
Net capitalization						$	5,536,423					$	7,197,020								$	7,071,787
Net debt to net capitalization						50.0		%				39.1		%							46.3		%

Our net debt to net capitalization ratio increased to 50.0% at December 31, 2018 compared to 39.1% at December 31, 2017. The increase in this ratio was driven primarily by the reduction of our net capitalization of $1.7 billion for the period primarily due to the reduction in stockholders' equity as a result of the $906.8 million distribution of Apergy, $895.0 million in share repurchases and $283.6 million of dividends paid, offset by $570.3 million of current earnings. Net debt decreased $46.1 million during the period primarily due to a reduction in current maturities of long term debt as a result of the repayment of $350.0 million note on March 15, 2018, partially offset by a reduction in cash levels to fund dividends and other operating purposes.

Our net debt to net capitalization ratio decreased to 39.1% at December 31, 2017 compared to 46.3% at December 31, 2016 primarily due to changes in net debt during the period. Net debt decreased $458.2 million as a result of $404.8 million higher cash and cash equivalents. The decrease was also impacted by the repayment of commercial paper partially offset by foreign currency translation on our euro-denominated notes.

Our ability to obtain debt financing at comparable risk-based interest rates is partly a function of our existing cash-flow-to-debt and debt-to-capitalization levels as well as our current credit standing. Our credit ratings, which are independently developed by the respective rating agencies, were as follows as of December 31, 2018:

			Short Term Rating						Long Term Rating						Outlook
Moody's			P-2						Baa1						Stable
Standard & Poor's			A-2						BBB+						Stable

Operating cash flow and access to capital markets are expected to satisfy our various cash flow requirements, including acquisitions and capital expenditures. Acquisition spending and/or share repurchases could potentially increase our debt.

We believe that existing sources of liquidity are adequate to meet anticipated funding needs at current risk-based interest rates for the foreseeable future.

Off-Balance Sheet Arrangements and Contractual Obligations

As of December 31, 2018, we had approximately $144.5 million outstanding in letters of credit with financial institutions, which expire on various dates in 2019 through 2028. These letters of credit are primarily maintained as security for insurance, warranty and other performance obligations. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations, the probability of which we believe is remote.

We have 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. We do not have any material liabilities recorded for these indemnifications and are not aware of any claims or other information that would give rise to material payments under such indemnities.

A summary of our consolidated contractual obligations and commitments as of December 31, 2018 and the years when these obligations are expected to be due is as follows:

												Payments Due by Period
(in thousands)						Total						Less than 1 Year						1-3 Years						3-5 Years						More than 5 Years						Other
Long-term debt (1)						$	2,943,660					$	—					$	789,569					$	—					$	2,154,091					$	—
Interest payments (2)						1,364,672						112,439						207,967						171,704						872,562						—
Rental commitments						194,873						49,009						68,016						35,761						42,087						—
Purchase obligations						62,045						61,747						289						9						—						—
Capital leases						11,383						1,802						3,435						6,146						—						—
Supplemental and post-retirement benefits (3)						89,073						15,722						21,582						18,168						33,601						—
Income tax payable - deemed repatriation tax (4)						54,304						1,875						8,056						44,373						—						—
Unrecognized tax benefits (5)						112,299						—						—						—						—						112,299
Total obligations						$	4,832,309					$	242,594					$	1,098,914					$	276,161					$	3,102,341					$	112,299

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(1)			See Note 11 — Borrowings and Lines of Credit to the Consolidated Financial Statements. Amounts represent principal payments for all long-term debt, including current maturities, net of unamortized discounts and deferred issuance costs.
(2)			Amounts represent estimate of future interest payments on long-term debt using the interest rates in effect at December 31, 2018.
(3)			Amounts represent estimated benefit payments under our unfunded supplemental and post-retirement benefit plans and our unfunded non-U.S. qualified defined benefit plans. See Note 16 — Employee Benefit Plans to the Consolidated Financial Statements. We also expect to contribute approximately $5.4 million to our non-U.S. qualified defined benefit plans in 2019, which amount is not reflected in the above table.
(4)			Amounts represent a tax imposed by the Tax Reform Act for a one-time deemed repatriation of unremitted earnings of foreign subsidiaries, including current payable.
(5)			Due to the uncertainty of the potential settlement of future unrecognized tax benefits, we are unable to estimate the timing of the related payments, if any, that will be made subsequent to 2018. These amounts do not include the potential indirect benefits resulting from deductions or credits for payments made to other jurisdictions.

Financial Instruments and Risk Management

The diverse nature of our businesses’ 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. We periodically use derivative financial instruments to manage some of these risks. We do not hold or issue derivative instruments for trading or speculative purposes. We are exposed to credit loss in the event of nonperformance by counterparties to our financial instrument contracts; however, nonperformance by these counterparties is considered unlikely as our policy is to contract with highly-rated, diversified counterparties.

Interest Rate Exposure

As of December 31, 2018 and during the three year period then ended, we did not have any open interest rate swap contracts. However, we may in the future enter into interest rate swap agreements to manage our exposure to interest rate changes. We issue commercial paper, which exposes us to changes in variable interest rates; however, maturities are typically three months or less so a change in rates over this period would not have a material impact on our pre-tax earnings.

We consider our current risk related to market fluctuations in interest rates to be minimal since our 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 2018 year-end fair value of our long-term debt by approximately $781.4 million. However, since we have no plans to repurchase our outstanding

fixed-rate instruments before their maturities, the impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position.

Foreign Currency Exposure

We conduct business in various non-U.S. countries, including Canada, substantially all of the European countries, Mexico, Brazil, Argentina, China, India and other Asian countries. Therefore, we have foreign currency risk relating to receipts from customers, payments to suppliers and intercompany transactions denominated in foreign currencies. We will occasionally use derivative financial instruments to offset such risks, when it is believed that the exposure will not be limited by our normal operating and financing activities. We have formal policies to mitigate risk in this area by using fair value and/or cash flow hedging programs.

Changes in the value of the currencies of the countries in which we operate affect our results of operations, financial position and cash flows when translated into U.S. dollars, our reporting currency. The strengthening of the U.S. dollar could result in unfavorable translation effects as the results of foreign operations are translated into U.S. dollars. We have generally accepted the exposure to exchange rate movements relative to our investment in non-U.S. operations. We may, from time to time, for a specific exposure, enter into fair value hedges.

Additionally, the Company has designated the €300 million and €600 million of euro-denominated notes issued December 4, 2013 and November 9, 2016, respectively, as a hedge of a portion of its net investment in euro-denominated operations. Due to the high degree of effectiveness between the hedging instruments and the exposure being hedged, fluctuations in the value of the euro-denominated debt due to exchange rate changes are offset by changes in the net investment. Accordingly, changes in the value of the euro-denominated debt are recognized in the cumulative translation adjustment section of other comprehensive income (loss) to offset changes in the value of the net investment in euro-denominated operations. Due to the fluctuations of the euro relative to the U.S. dollar, the U.S. dollar equivalent of this debt increases or decreases, resulting in the recognition of a gain of $45.2 million and a loss of $125.3 million in other comprehensive income for the years ended December 31, 2018 and 2017, respectively.

Commodity Price Exposure

Certain of our businesses are exposed to volatility in the prices of certain commodities, such as aluminum, steel, copper and various precious metals, among others. Our primary exposure to commodity pricing volatility relates to the use of these materials in purchased component parts or the purchase of raw materials. When possible, we maintain long-term fixed price contracts on raw materials and component parts; however, we are prone to exposure as these contracts expire. We may, from time to time, for a specific exposure, enter into cash flow hedges to mitigate our risk to commodity pricing; however, such contracts outstanding at December 31, 2018 were not significant.

Critical Accounting Policies and Estimates

Our consolidated financial statements and related public financial information are based on the application of 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 we report. These estimates can also affect supplemental information contained in our public disclosures, including information regarding contingencies, risk and our financial condition. The significant accounting policies used in the preparation of our consolidated financial statements are discussed in Note 1 — Description of Business and Summary of Significant Accounting Policies in the Consolidated Financial Statements in Item 8 of this Form 10-K. The accounting assumptions and estimates discussed in the section below are those that we consider most critical to an understanding of our financial statements because they inherently involve significant judgments and estimates. We believe our use of estimates and underlying accounting assumptions conforms to GAAP and is consistently applied. We review valuations based on estimates for reasonableness on a consistent basis.

Revenue Recognition - Effective January 1, 2018, we adopted Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606” or “ASC 606”). Under Topic 606, a contract with a customer is an agreement which both parties have approved, that creates enforceable rights and obligations, has commercial substance and where payment terms are identified and collectability is probable. Once we enter a contract, it is evaluated to identify performance obligations. For each performance obligation, revenue is recognized as control of promised goods or services transfers to the customer in an amount that reflects the consideration we expect to receive in exchange for those goods or

services. The amount of revenue recognized takes into account variable consideration, such as discounts and volume rebates. The majority of our revenue is generated through the manufacture and sale of a broad range of specialized products and components, with revenue recognized upon transfer of title and risk of loss, which is generally upon shipment. Service revenue represents less than 5% of our total revenue and is recognized as the services are performed. In limited cases, our revenue arrangements with customers require delivery, installation, testing, certification, or other acceptance provisions to be satisfied before revenue is recognized. We include shipping costs billed to customers in revenue and the related shipping costs in cost of goods and services.

Inventories - Inventories for the majority of our subsidiaries, including all international subsidiaries, are stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or net realizable value. Other domestic inventories are 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 inventories are employed by us to properly value inventories.

Goodwill and Other Intangible Assets - We have significant goodwill and intangible assets on our consolidated balance sheets as a result of current and past acquisitions. The valuation and classification of these assets and the assignment of useful lives involve significant judgments and the use of estimates. In addition, the testing of goodwill and intangibles for impairment requires significant use of judgment and assumptions, particularly as it relates to the determination of fair market value. Our indefinite-lived intangible assets and reporting units are tested and reviewed for impairment on an annual basis during the fourth quarter, or more frequently when indicators of impairment exist.

When performing an impairment test, we estimate fair value using the income-based valuation method. Under the income-based valuation method, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rate based on our most recent views of the long-term outlook for each reporting unit. Actual results may differ from these estimates. The discount rates used in these analyses vary by reporting unit and are based on a capital asset pricing model and published relevant industry rates. We use discount rates commensurate with the risks and uncertainties inherent to each reporting unit and in our internally developed forecasts. Discount rates used in our 2018 reporting unit valuations ranged from 8.5% to 9.5%.

We performed the annual goodwill impairment testing of our seven identified reporting units in the fourth quarter of 2018. Based on the impairment tests performed, the fair value of each of our reporting units exceeded their carrying values by more than 150%. As such, no goodwill impairment was recognized. While we believe the assumptions used in the 2018 impairment analysis are reasonable and representative of expected results, if market conditions worsen or persist for an extended period of time, an impairment of goodwill or assets may occur. We will continue to monitor the long-term outlook and forecasts, including estimated future cash flows, for these businesses and the impact on the carrying value of goodwill and assets.

Employee Benefit Plans - The valuation of our 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. Annually, we review the actuarial assumptions used in our pension reporting and compare them with external benchmarks to ensure that they accurately account for our future pension obligations. Changes in assumptions and future investment returns could potentially have a material impact on our pension expense and related funding requirements. Our expected long-term rate of return on plan assets is reviewed annually based on actual returns, economic trends and portfolio allocation. Our 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. As disclosed in Note 16 — Employee Benefit Plans to the Consolidated Financial Statements, the 2018 weighted-average discount rates used to measure our qualified defined benefit obligations ranged from 1.83% to 4.35%, a general increase from the 2017 rates, which ranged from 1.94% to 3.65%. The higher 2018 discount rates in the U.S. are reflective of increased market interest rates over this period. A 25 basis point decrease in the discount rates used for these plans would have increased the post-retirement benefit obligations by approximately $27.9 million from the amount recorded in the consolidated financial statements at December 31, 2018. Our 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 our defined benefit pension expense by approximately $1.4 million.

Income Taxes - We have 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. We routinely monitor the potential impact of these situations and believe that we have established the proper reserves. Reserves related to tax accruals and valuations related to deferred tax assets can be impacted by changes in tax codes and rulings (as further described below with respect to U.S. tax law), changes in statutory tax rates and our 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. We record interest and penalties related to unrecognized tax benefits as a component of our provision for income taxes.

On December 22, 2017, the Tax Reform Act was enacted which permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the reduction in the U.S. corporate income tax rate, we revalued our ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional tax benefit of $172.0 million. The Tax Reform Act also imposed a tax for a one-time deemed repatriation of post-1986 unremitted foreign earnings and profit through the year ended December 31, 2017. For the year ended December 31, 2017, we recorded provisional tax expense related to the deemed repatriation of $111.6 million payable over eight years.

On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, we recognized the provisional tax impacts related to deemed repatriated earnings and the benefit for the revaluation of deferred tax assets and liabilities in its consolidated financial statements for the year ended December 31, 2017. In accordance with SAB 118, we finalized the financial reporting impact of the Tax Reform Act in the fourth quarter of 2018. For the year ended December 31, 2018, we recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to the provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions we made as a result of the Tax Reform Act.

Risk, Retention, Insurance - We have significant accruals and reserves related to the self-insured portion of our risk management program. These accruals require the use of estimates and judgment with regard to risk exposure and ultimate liability. We estimate losses under these programs using actuarial assumptions, our experience and relevant industry data. We review these factors quarterly and consider the current level of accruals and reserves adequate relative to current market conditions and experience.

Contingencies - We have established liabilities for environmental and legal contingencies at both the business and corporate levels. A significant amount of judgment and the use of estimates are required to quantify our ultimate exposure in these matters. The valuation of liabilities for these contingencies is reviewed on a quarterly basis to ensure that we have accrued the proper level of expense. The liability balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional liabilities for emerging issues. While we believe that the amount accrued to-date is adequate, future changes in circumstances could impact these determinations.

Restructuring - We establish liabilities for restructuring activities at an operation when management has committed to an exit or reorganization plan and when termination benefits are probable and can be reasonably estimated based on circumstances at the time the restructuring plan is approved by management or when termination benefits are communicated. Exit costs include future minimum lease payments on vacated facilities and other contractual terminations. In addition, asset impairments may be recorded as a result of an approved restructuring plan. The accrual of both severance and exit costs requires the use of estimates. Though we believe that these estimates accurately reflect the anticipated costs, actual results may be different than the estimated amounts.

Disposed and Discontinued Operations - From time to time we sell or discontinue or dispose of certain operations for various reasons. Estimates are used to adjust, if necessary, the assets and liabilities of discontinued operations, including goodwill, 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. No impairment charges were recorded in 2018, 2017 or 2016.

Stock-Based Compensation - We are required to recognize in our Consolidated Statements of Earnings the expense associated with all share-based payment awards made to employees and directors, including stock appreciation rights ("SARs"), restricted stock units and performance share awards. We use the Black-Scholes valuation model to estimate the fair value of SARs granted to employees. The model requires that we estimate the expected life of the SAR, expected forfeitures and the volatility of our stock using historical data. For additional information related to the assumptions used, see Note 14 — Equity and Cash Incentive Program to the Consolidated Financial Statements in Item 8 of this Form 10-K.

Recent Accounting Standards

See Note 1 — Description of Business and Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8 of this Form 10-K for a discussion of recent accounting pronouncements and recently adopted accounting standards.

Non-GAAP Disclosures

In an effort to provide investors with additional information regarding our results as determined by GAAP, we also disclose non-GAAP information which we believe provides useful information to investors. Segment EBITDA, segment EBITDA margin, free cash flow, net debt, net capitalization, the net debt to net capitalization ratio, adjusted working capital and organic revenue growth are not financial measures under GAAP and should not be considered as a substitute for earnings, cash flows from operating activities, debt or equity, working capital or revenue as determined in accordance with GAAP, and they may not be comparable to similarly titled measures reported by other companies. We believe that segment EBITDA and segment EBITDA margin are useful to investors and other users of our financial information in evaluating ongoing operating profitability as they exclude the depreciation and amortization expense related primarily to capital expenditures and acquisitions that occurred in prior years, as well as in evaluating operating performance in relation to our competitors. Segment EBITDA is calculated by adding back depreciation and amortization expense to segment earnings, which is the most directly comparable GAAP measure. We do not present segment net income because corporate expenses are not allocated at a segment level. Segment EBITDA margin is calculated as segment EBITDA divided by segment revenue.

We believe the net debt to net capitalization ratio and free cash flow are important measures of liquidity. Net debt to net capitalization ratio is helpful in evaluating our capital structure and the amount of leverage we employ. Free cash flow provides both management and investors a measurement of cash generated from operations that is available to fund acquisitions, pay dividends, repay debt and repurchase our common stock. Reconciliations of free cash flow, net debt and net capitalization can be found above in this Item 7, MD&A. We believe that reporting adjusted working capital, which is calculated as accounts receivable, plus inventory, less accounts payable, provides a meaningful measure of our operational results by showing the changes caused solely by revenue. We believe that reporting organic revenue and organic revenue growth, which exclude the impact of foreign currency exchange rates and the impact of acquisitions and divestitures, provides a useful comparison of our revenue performance and trends between periods.