NORDSON CORPORATION NOTE REGARDING AMOUNTS AND FISCAL YEAR REFERENCES In this annual report, all amounts related toUnited States dollars and foreign currency and to the number ofNordson Corporation's common shares, except for per share earnings and dividend amounts, are expressed in thousands. Unless the context otherwise indicates, all references to "we," "us," "our," or the "Company" meanNordson Corporation . Unless otherwise noted, all references to years relate to our fiscal year endingOctober 31 . Critical Accounting Policies and Estimates Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate the accounting policies and estimates that are used to prepare financial statements. We base our estimates on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below. On a regular basis, critical accounting policies are reviewed with the Audit Committee of the board of directors. Revenue recognition - A contract exists when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. Revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied. Generally, our revenue results from short-term, fixed-price contracts and is recognized as of a point in time when the product is shipped or at a later point when the control of the product transfers to the customer. Refer to Note 1 to the Consolidated Financial Statements for further discussion regarding the Company's revenue recognition policy. Business combinations - The acquisitions of our businesses are accounted for under the acquisition method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by management, taking into consideration information supplied by the management of the acquired entities, and other relevant information. Such information typically includes valuations obtained from independent appraisal experts, which management reviews and considers in its estimates of fair values. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair values requires significant judgment by management, particularly with respect to the value of identifiable intangible assets. This judgment could result in either a higher or lower value assigned to amortizable or depreciable assets. The impact could result in either higher or lower amortization and/or depreciation expense.Goodwill -Goodwill is the excess of purchase price over the fair value of tangible and identifiable intangible net assets acquired in various business combinations.Goodwill is not amortized but is tested for impairment annually at the reporting unit level, or more often if indications of impairment exist. Our reporting units are one level below the Industrial Precision Solutions segment, and one level below theAdvanced Technology Solutions segment. We test goodwill in accordance with Accounting Standards Codification (ASC) 350.Goodwill impairment charge is recorded for the amount by which the carrying value of the reporting unit exceeds the fair value of the reporting unit, as calculated in the quantitative analysis described below. We did not record any goodwill impairment charges in 2020. We use an independent valuation specialist to assist with refining our assumptions and methods used to determine fair values using these methods. To test for goodwill impairment, we estimate the fair value of each of our reporting units using a combination of the Income Approach and the Market Approach. The discounted cash flow method (Income Approach) uses assumptions for revenue growth, operating margin, and working capital turnover that are based on management's strategic plans tempered by performance trends and reasonable expectations about those trends. Terminal value calculations employ a published formula known as the Gordon Growth Model Method that essentially captures the present value of perpetual cash flows beyond the last projected period assuming a constant Weighted Average Cost of Capital (WACC) methodology and growth rate. For each reporting unit, a sensitivity analysis is performed to vary the discount and terminal growth rates in order to provide a range of reasonableness for detecting impairment. Discount rates are developed using a WACC methodology. The WACC represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors. For 2020, the discount rates used ranged from 7.0 percent to 8.8 percent depending upon the reporting unit's size, end market volatility, and projection risk.Nordson Corporation 25 -------------------------------------------------------------------------------- Table of Co
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In the application of the guideline public company method (Market Approach), fair value is determined using transactional evidence for similar publicly traded equity. The comparable company guideline group is determined based on relative similarities to each reporting unit since exact correlations are not available. An indication of fair value for each reporting unit is based on the placement of each reporting unit within a range of multiples determined for its comparable guideline company group. Valuation multiples are derived by dividing latest twelve-month performance for revenues and EBITDA into total invested capital, which is the sum of traded equity plus interest bearing debt less cash. These multiples are applied against the revenue and EBITDA of each reporting unit. While the implied indications of fair value using the guideline public company method yield meaningful results, the discounted cash flow method of the income approach includes management's thoughtful projections and insights as to what the reporting units will accomplish in the near future. Accordingly, the reasonable, implied fair value of each reporting unit is a blend based on the consideration of both the Income and Market approaches. In 2020, 2019, and 2018, the results of our annual impairment tests indicated no impairment. The excess of fair value (FV) over carrying value (CV) was compared to the carrying value for each reporting unit. Based on the results shown in the table below and based on our measurement date ofAugust 1, 2020 , our conclusion is that no goodwill was impaired in 2020. Potential events or circumstances, such as a sustained downturn in global economies, could have a negative effect on estimated fair values. Excess of WACC FV over CV Goodwill Industrial Precision Solutions Segment - Adhesives 7.0% 648%$ 393,491
Industrial Precision Solutions Segment - Industrial Coating Systems
8.8% 584% $ 24,058 Advanced Technology Solutions Segment - Electronics Systems
7.8% 343% $ 27,962
Advanced Technology Solutions Segment - Fluid
Management 7.8% 145% $ 1,176,613
Advanced Technology Solutions Segment - Test &
Inspection 8.5% 218% $ 79,790
Pension plans and postretirement medical plans - The measurement of liabilities
related to our pension plans and postretirement medical plans is based on
management's assumptions related to future factors, including interest rates,
return on pension plan assets, compensation increases, mortality and turnover
assumptions, and health care cost trend rates.
The weighted-average discount rate used to determine the present value of our
domestic pension plan obligations was 2.85 percent at October 31, 2020 and 3.25
percent at October 31, 2019 . The weighted-average discount rate used to
determine the present value of our various international pension plan
obligations was 1.01 percent at October 31, 2020 , compared to 1.26 percent at
October 31, 2019 . The discount rates used for all plans were determined by using
quality fixed income investments with a duration period approximately equal to
the period over which pension obligations are expected to be settled.
In determining the expected return on plan assets, we consider both historical
performance and an estimate of future long-term rates of return on assets
similar to those in our plans. We consult with and consider the opinions of
financial and actuarial experts in developing appropriate return assumptions.
The expected rate of return (long-term investment rate) on domestic pension
assets used to determine net benefit costs was 5.75 percent in 2020 and 6.00
percent in 2019. The average expected rate of return on international pension
assets used to determine net benefit costs was 3.22 percent in 2020 and 3.96
percent in 2019.
The assumed rate of compensation increases used to determine the present value
of our domestic pension plan obligations was 4.00 percent at both October 31,
2020 and October 31, 2019 . The assumed rate of compensation increases used to
determine the present value of our international pension plan obligations was
2.69 percent at October 31, 2020 , compared to 3.12 percent at October 31, 2019 .
Annual expense amounts are determined based on the discount rate used at the end
of the prior year. Differences between actual and assumed investment returns on
pension plan assets result in actuarial gains or losses that are amortized into
expense over a period of years.
Economic assumptions have a significant effect on the amounts reported. The
effect of a one percent change in the discount rate, expected return on assets
and compensation increase is shown in the table below. Bracketed numbers
represent decreases in expense and obligation amounts.
Nordson Corporation 26
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United States International
1% Point 1% Point 1% Point 1% Point
Increase Decrease Increase Decrease
Discount rate:
Effect on total net periodic pension cost in
2020 $ (7,315) $ 9,402 $ (1,591) $ 1,723
Effect on pension obligation as of October 31,
2020 $ (79,095) $ 98,884 $ (16,979) $ 20,430
Expected return on assets:
Effect on total net periodic pension cost in
2020 $ (4,289) $ 4,289 $ (398) $ 398
Compensation increase:
Effect on total net periodic pension cost in
2020 $ 6,433 $ (5,628) $ 538 $ (507)
Effect on pension obligation as of October 31,
2020 $ 32,766 $
(29,256)
With respect to the domestic postretirement medical plan, the discount rate used to value the benefit obligation was 2.84 percent atOctober 31, 2020 and 3.27 percent atOctober 31, 2019 . The annual rate of increase in the per capita cost of covered benefits (the health care cost trend rate) is assumed to be 3.40 percent in 2021, decreasing gradually to 3.17 percent by 2026. For the international postretirement medical plan, the discount rate used to value the benefit obligation was 2.94 percent atOctober 31, 2020 and 3.03 percent atOctober 31, 2019 . The annual rate of increase in the per capita cost of covered benefits (the health care cost trend rate) is assumed to be 4.22 percent in 2021 to 4.05 percent by 2040. The discount rate and the health care cost trend rate assumptions have a significant effect on the amounts reported. For example, a one-percentage point change in the discount rate and the assumed health care cost trend rate would have the following effects. Bracketed numbers represent decreases in expense and obligation amounts. United States International 1% Point 1% Point 1% Point 1% Point Increase Decrease Increase Decrease Discount rate: Effect on total net postretirement benefit cost components in 2020$ (604) $ 711 $ (2) $ 2 Effect on postretirement obligation as of October 31, 2020$ (11,184) $ 13,899 $ (84) $ 111 Health care trend rate: Effect on total net postretirement benefit cost components in 2020$ 431 $ (345) $ 7 $ (5) Effect on postretirement obligation as of October 31, 2020$ 11,019 $
(9,100)
Employees hired afterJanuary 1, 2002 , are not eligible to participate in the domestic postretirement medical plan. Pension and postretirement expenses in 2021 are expected to be approximately$5,500 lower than 2020. Income taxes - Income taxes are estimated based on income for financial reporting purposes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management believes the valuation allowances are adequate after considering future taxable income, allowable carryforward periods and ongoing prudent and feasible tax planning strategies. In the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of the net recorded amount (including the valuation allowance), an adjustment to the valuation allowance would increase income in the period such determination was made. Conversely, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the valuation allowance would be expensed in the period such determination was made. Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.Nordson Corporation 27 -------------------------------------------------------------------------------- Table of Co
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2020 compared to 2019 We had two acquisitions during 2020,Fluortek, Inc. and vivaMOS Ltd. which are both included within theAdvanced Technology Solutions segment. Refer to Note 3 to the Consolidated Financial Statements for further discussion. As used throughout this Form 10-K, geographic regions include theAmericas (Canada ,Mexico and Central andSouth America ),Asia Pacific (excludingJapan ),Europe ,Japan , andthe United States . Worldwide sales for 2020 were$2,121,100 , a decrease of 3.3 percent from 2019 sales of$2,194,226 . The decrease consisted of a 3.7 percent decline in sales volume and unfavorable currency translation effects which decreased sales by 0.2 percent partially offset by 0.6 percent growth from acquisitions. Sales outsidethe United States accounted for 64.4 percent of total sales in 2020, as compared to 65.4 percent in 2019. On a geographic basis, sales inthe United States were$755,642 , a decrease of 0.4 percent from 2019. The decrease in sales consisted of a 1.1 percent decrease in sales volume partially offset by a 0.7 percent increase from acquisitions. In theAmericas region, sales were$141,473 , a decrease of 15.6 percent from 2019, with volume decreasing 14.8 percent and unfavorable currency effects of 3.8 percent partially offset by a 3.0 percent increase from acquisitions. Sales inEurope were$536,636 , a decrease of 6.1 percent from 2019. The decrease in sales consisted of a 6.4 percent volume decrease and unfavorable currency effects of 0.1 percent partially offset by a 0.4 percent increase from acquisitions. Sales inJapan were$126,601 , a decrease of 0.1 percent from 2019, with volume decreasing 2.1 percent partially offset by favorable currency effects of 1.8 percent and a 0.2 percent increase from acquisitions. Sales in theAsia Pacific region were$560,748 , a decrease of 1.6 percent from 2019, with volume decreasing 1.7 percent and unfavorable currency effects of 0.1 percent. partially offset by a 0.2 percent increase from acquisitions. Cost of sales were$990,632 in 2020, down 1.1 percent from$1,002,123 in 2019. Gross profit, expressed as a percentage of sales, decreased to 53.3 percent in 2020 from 54.3 percent in 2019. Of the 1.0 percentage point decrease in gross margin, unfavorable product mix contributed 0.8 of a percentage point, higher costs and adjustments related to cost structure simplification actions contributed 0.2 of a percentage point, unfavorable currency translation effects contributed 0.1 of a percentage point, and an inventory step-up related to acquisitions contributed 0.1 of a percentage point. These were partially offset by 0.2 of a percentage point due to the first year effect of acquisitions. Severance costs were incurred in both of our segments as part of cost structure simplification actions made to improve operational efficiencies. Selling and administrative expenses were$693,552 in 2020, compared to$708,990 in 2019. Of the 2.2 percent decrease, lower base business costs contributed 3.7 percentage points, and favorable currency translation effects contributed 0.2 of a percentage point. These improvements were partially offset by 1.0 percentage point due to higher severance costs, and 0.7 of a percentage point due to the first year effect of acquisitions. Selling and administrative expenses as a percentage of sales increased to 32.7 percent in 2020 from 32.3 percent in 2019. Of the 0.4 percentage point increase, higher severance costs contributed 0.5 of a percentage point, and the first year effect of acquisitions contributed 0.1 of a percentage point. These increases were partially offset by lower base business costs of 0.2 of a percentage point. In the fourth quarter of 2020, we committed to a plan to sell our screws and barrels product line within the Adhesives reporting unit under our Industrial Precision Solutions segment and determined that it met the criteria to be classified as held for sale. The decision was part of a strategy to focus resources on core strategies and businesses and the Board of Directors authorized the disposition onOctober 23, 2020 . As a result of this decision, the Company incurred a non-cash, assets held for sale impairment charge of$87,371 . Refer to Note 4 to the Consolidated Financial Statements for further discussion. Operating profit as a percentage of sales decreased to 16.5 percent in 2020 compared to 22.0 percent in 2019. Of the 5.5 percentage point decline in operating margin, the assets held for sale impairment charge contributed 4.1 percentage points, unfavorable absorption due to lower sales volume and unfavorable product mix contributed 0.8 of a percentage point, higher severance costs contributed 0.5 of a percentage point, and the amortization of the step-up of acquired inventory, unfavorable foreign currency translation effects, and the first-year effect of acquisitions combined to contribute a negative impact of 0.3 of a percentage point. This decline was partially offset by 0.2 of a percentage point due to lower base business costs. Operating capacity for each of our segments can support fluctuations in order activity without significant changes in operating costs. Also, currency translation affects reported operating margins. Operating margins for each segment were unfavorably impacted by a stronger dollar primarily against the Chinese Yuan, Mexican Peso, and Brazilian Real during 2020 as compared to 2019. Interest expense in 2020 was$32,160 , a decrease of$14,985 , or 31.8 percent, from 2019. The decrease was due to lower average debt levels and lower variable interest rates compared to the prior year. Other expense in 2020 was$17,577 compared to other expense of$6,708 in 2019. Included in the current year's other expense were pension costs of$13,683 and$1,532 in foreign currency losses. Included in the prior year's other expense were pension costs of$7,136 . The increased pension costs were principally attributable to increased amortization of net actuarial losses.Nordson Corporation 28 -------------------------------------------------------------------------------- Table of Co
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Income tax expense in 2020 was$51,950 , or 17.2 percent of pre-tax income, as compared to$94,013 , or 21.8 percent of pre-tax income in 2019. The income tax provision for 2020 included a tax benefit of$15,661 due to our share-based payment transactions which reduced the rate 5.2 percentage points. Net income in 2020 included a non-cash, assets held for sale impairment charge of$87,371 related to our commitment to sell our screws and barrels product line within the Adhesives reporting unit under our Industrial Precision Solutions segment and the tax benefit of the impairment was$15,254 . A portion of the impairment charge did not have related tax benefits. Our income tax provision for 2019 included a provisional tax benefit of$4,866 to reflect the adjustment to the provisional amounts recognized in 2018 due to changes in interpretations and assumptions and the finalization of estimates related to theU.S. Tax Cuts and Jobs Act ("the Act"). We are paying the transition tax in installments over the eight-year period allowable under the Act. The remaining transition tax is included in other long-term liabilities in the Consolidated Balance Sheet atOctober 31, 2020 . Other provisions of the Act became effective for us in 2019. The Foreign-Derived Intangible Income provision generates a deduction against ourU.S. taxable income forU.S. earnings derived offshore that utilize intangibles held in theU.S. Conversely, the Global Intangible Low-Taxed Income ("GILTI") provision requires us to subject toU.S. taxation a portion of our foreign subsidiary earnings that exceed an allowable return. We elected to treat any GILTI inclusion as a period expense in the year incurred. Our income tax provision for 2019 also included a tax benefit of$4,615 due to our share-based payment transactions. Net income was$249,539 , or$4.27 per diluted share, in 2020, compared to net income of$337,091 , or$5.79 per diluted share, in 2019. This represented a 26.0 percent decrease in net income and a 26.3 percent decrease in diluted earnings per share. The decrease in both net income and diluted earnings per share was due primarily to the non-cash, assets held for sale impairment charge of$87,371 . Industrial Precision Solutions Sales of the Industrial Precision Solutions segment were$1,143,423 in 2020, a decrease of 5.4 percent, from 2019 sales of$1,208,376 . The decrease was the result of a sales volume decrease of 4.8 percent and unfavorable currency effects that decreased sales by 0.6 percent. Growth in product lines serving consumers in the non-durable end markets particularly inthe United States ,Americas ,Europe andJapan regions was offset by weakness in sales of product lines serving industrial markets primarily in theAmericas andEurope . Operating profit as a percentage of sales decreased to 18.2 percent in 2020 compared to 27.2 percent in 2019. Of the 9.0 percentage point decline in operating margin, the assets held for sale impairment charge contributed 7.6 percentage points, unfavorable absorption due to lower sales volume and unfavorable product mix contributed 0.7 of a percentage point, higher severance costs contributed 0.5 of a percentage point, and unfavorable currency translation effects contributed 0.3 of a percentage point. This decline was minimally offset by 0.1 of a percentage point due to lower base business costs.Advanced Technology Solutions Sales of theAdvanced Technology Solutions segment were$977,677 in 2020, a decrease of 0.8 percent from 2019 sales of$985,850 . The decrease was the result of a sales volume decrease of 2.3 percent, partially offset by a 1.4 percent increase from the first-year effect of acquisitions and favorable currency effects that increased sales by 0.1 percent. Sales volume increases in certain medical product lines as well as test and inspection product lines serving electronics end markets were more than offset by weakness in fluid dispense product lines serving industrial end markets. The stable demand in medical is reflective of strength in some product lines, offset by meaningful softness in other medical products more closely tied to elective surgery, which have been reduced as a result of the COVID-19 pandemic. Operating profit as a percentage of sales decreased to 19.6 percent in 2020 compared to 20.9 percent in 2019. Of the 1.3 percentage point decline in operating margin, unfavorable absorption due to lower sales volume and unfavorable product mix contributed 0.8 of a percentage point, higher severance costs contributed 0.4 of a percentage point, the first year effect of acquisitions contributed 0.3 of a percentage point, and an inventory step-up related to acquisitions contributed 0.2 of a percentage point. This decline was partially offset by 0.4 of a percentage point due to lower base business costs.Nordson Corporation 29 -------------------------------------------------------------------------------- Table of Co
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2019 compared to 2018 We had one acquisition during 2019,Optical Control GmbH & Co. KG ("Optical"), which is included within theAdvanced Technology Solutions segment. Worldwide sales for 2019 were$2,194,226 , a decrease of 2.7 percent from 2018 sales of$2,254,668 . The decrease was driven by unfavorable currency translation effects of 2.0 percent and a 1.1 percent decline in sales volume, partially offset by 0.4 percent growth from acquisitions. Sales outsidethe United States accounted for 65.4 percent of total sales in 2019, as compared to 68.0 percent in 2018. On a geographic basis, sales inthe United States were$758,383 , an increase of 5.2 percent from 2018. The increase in sales consisted of 4.9 percent from sales volume and 0.3 percent from acquisitions. In theAmericas region, sales were$167,661 , an increase of 5.6 percent over 2018, with volume increasing 7.2 percent and a 0.2 percent increase from acquisitions partially offset by unfavorable currency effects of 1.8 percent. Sales inEurope were$571,596 , a decrease of 8.1 percent from 2018, due to unfavorable currency effects of 4.8 percent and volume decreasing 3.8 percent partially offset by a 0.5 percent increase from acquisitions. Sales inJapan were$126,756 , a decrease of 21.6 percent from 2018, with volume decreasing 22.9 percent partially offset by a 0.7 percent increase from acquisitions and favorable currency effects of 0.6 percent. Sales in theAsia Pacific region were$569,830 , a decrease of 3.6 percent from 2018. The decrease was driven by unfavorable currency effects of 2.3 percent and lower volume of 1.9 percent, partially offset by a 0.6 percent increase from acquisitions. Cost of sales were$1,002,123 in 2019, down 1.6 percent from$1,018,340 in 2018. Gross profit, expressed as a percentage of sales, decreased to 54.3 percent in 2019 from 54.8 percent in 2018. Of the 0.5 percentage point decrease in gross margin, unfavorable currency translation effects contributed 0.4 percentage points and unfavorable product mix contributed 0.1 percentage points. Selling and administrative expenses were$708,990 in 2019, compared to$733,749 in 2018. The 3.4 percent decrease includes 1.6 percentage points due to lower base business costs and 1.8 percentage points due to unfavorable currency translation effects. Selling and administrative expenses as a percentage of sales decreased to 32.3 percent in 2019 from 32.5 percent in 2018. The 0.2 percentage point improvement is due to lower base business costs. Operating capacity for each of our segments can support fluctuations in order activity without significant changes in operating costs. Also, currency translation affects reported operating margins. Operating margins for each segment were unfavorably impacted by a stronger dollar primarily against the Euro and British Pound during 2019 as compared to 2018. Operating profit as a percentage of sales decreased to 22.0 percent in 2019 compared to 22.3 percent in 2018. Of the 0.3 percentage point decline in operating margin, unfavorable leverage of our selling and administrative expenses contributed 1.2 percentage points, and unfavorable foreign currency translation effects contributed 0.4 percentage points. This decline was offset by 1.2 percentage points due to the first-year effect of acquisitions and 0.1 percentage points due to lower severance costs. Interest expense in 2019 was$47,145 , a decrease of$2,431 , or 4.9 percent, from 2018. The decrease was due to lower average debt levels than the prior year. Other expense in 2019 was$6,708 compared to other expense of$5,868 in 2018. Included in the 2019 other expense were pension costs related to the adoption of a new accounting standard of$7,136 . Included in the 2018 other expense were pension costs related to the adoption of a new accounting standard, as noted above, of$8,022 , foreign currency gains of$1,133 and a non-recurring gain of$2,512 . Income tax expense in 2019 was$94,013 , or 21.8 percent of pre-tax income, as compared to$71,144 , or 15.9 percent of pre-tax income in 2018. OnDecember 22, 2017 the Act was enacted. It reduced theU.S. federal corporate income tax rate from 35 percent to 21 percent. We have anOctober 31 fiscal year end; therefore the lower corporate income tax rate was phased in, resulting in aU.S. statutory federal rate of 23.3 percent for our fiscal year endedOctober 31, 2018 , and 21.0 percent for subsequent fiscal years. The statutory tax rate of 21.0 percent was applied to earnings in 2019. Our income tax provision for 2018 included a provisional tax benefit of$49,082 to reflect the revaluation of our tax assets and liabilities at the reduced corporate tax rate. We also recorded a provisional tax expense of$27,618 to reflect the transition tax on previously deferred foreign earnings. The net tax effect of these discrete items resulted in a decrease of$21,464 in income tax expense for 2018, or 4.8 percent. Subsequent to the enactment of the Act, theSEC staff issuedSAB 118, which provided a measurement period of up to one year after the enactment date for companies to finalize the recognition of the income tax effects of the Act. As ofJanuary 31, 2019 , our provisional accounting for the effects of the Act was complete. As a result, during 2019 and within the one year measurement period provided bySAB 118, we recorded tax expense of$4,866 to the provisional amounts recognized in 2018 due to changes in interpretations and assumptions and the finalizations of estimates.Nordson Corporation 30 -------------------------------------------------------------------------------- Table of Co
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Other provisions of the Act became effective for us in 2019. The Foreign-Derived Intangible Income provision generates a deduction against ourU.S. taxable income forU.S. earnings derived offshore that utilize intangibles held in theU.S. Conversely, the Global Intangible Low-Taxed Income ("GILTI") provision requires us to subject toU.S. taxation a portion of our foreign subsidiary earnings that exceed an allowable return. We elected to treat any GILTI inclusion as a period expense in the year incurred. Net income was$337,091 , or$5.79 per diluted share, in 2019, compared to net income of$377,375 , or$6.40 per diluted share, in 2018. This represented a 10.7 percent decrease in net income and a 9.5 percent decrease in diluted earnings per share. Industrial Precision Solutions Sales of the Industrial Precision Solutions segment were$1,208,376 in 2019, a decrease of$6,926 , or 0.6 percent, from 2018 sales of$1,215,302 . The decrease was the result of unfavorable currency effects that decreased sales by 2.5 percent which was partially offset by a sales volume increase of 1.9 percent. Within this segment, sales volume increased in all geographic regions with the exception ofEurope . Growth in product lines serving packaging, product assembly, and polymer processing end markets as well as cold materials product lines serving automotive end markets was offset by softness in product lines serving nonwoven end markets as well as liquid and container product lines serving industrial end markets. Operating profit as a percentage of sales increased to 27.2 percent in 2019 compared to 25.9 percent in 2018. Of the 1.3 percentage point improvement in operating margin, favorable product mix contributed 1.1 percentage points, favorable leverage of our selling and administrative expenses contributed 0.4 percentage points, and lower severance and restructuring expenses contributed 0.3 percentage points. These improvements were offset by 0.5 percentage points related to unfavorable foreign currency translation effects.Advanced Technology Solutions Sales of theAdvanced Technology Solutions segment were$985,850 in 2019, a decrease of$53,516 , or 5.1 percent, from 2018 sales of$1,039,366 . The decrease was the result of a sales volume decrease of 4.6 percent and unfavorable currency effects that decreased sales by 1.4 percent partially offset by a 0.9 percent increase from the first-year effect of acquisitions. Within this segment, sales volume, inclusive of acquisitions, increased inthe United States andAmericas geographic regions, and was offset by softness in all other regions. Growth in our fluid management product lines serving medical end markets was offset by lower demand in our dispensing product lines serving electronics end markets. Operating profit as a percentage of sales decreased to 20.9 percent in 2019 compared to 23.6 percent in 2018. Of the 2.7 percentage point decline in operating margin, unfavorable product mix contributed 2.8 percentage points, unfavorable foreign currency translation effects contributed 0.4 percentage points and higher severance and restructuring expenses contributed 0.1 percentage points. These declines were partially offset by 0.6 percentage points due to favorable leverage of our selling and administrative expenses. Liquidity and Capital Resources Cash and cash equivalents increased$57,129 in 2020. Cash provided by operating activities was$502,421 in 2020, compared to$382,893 in 2019. The primary sources were net income adjusted for non-cash income and expenses (consisting of depreciation and amortization, non-cash stock compensation, provision for losses on receivables, deferred income taxes, other non-cash expense, loss on sale of property, plant and equipment, and impairment loss on assets held for sale), which was$455,490 in 2020, compared to$466,941 in 2019. The increase in cash provided by operating activities was primarily due to working capital improvements, principally related to accounts receivable, which provided cash of$46,931 compared to$84,048 used in 2019. Cash used in investing activities was$194,109 in 2020, compared to$76,289 in 2019. In the current year, cash of$142,414 was used for acquisitions compared to$12,486 used in the prior year. Capital expenditures were$50,535 in 2020 compared to$64,244 in 2019. Cash used in financing activities was$251,529 in 2020, compared to$251,074 cash used in 2019. Net repayment of long-term debt and long-term borrowings used$153,816 of cash in 2020, compared to$67,838 used in 2019. In 2020, cash of$52,614 was used for the purchase of treasury shares, down from$120,510 used in 2019. Dividend payments were$88,347 in 2020, up from$82,145 in 2019 due to an increase in the annual dividend to$1.53 per share from$1.43 per share. Issuance of common shares related to employee benefit plans generated$50,853 of cash in 2020, up from$26,020 in 2019. The following is a summary of significant changes by balance sheet caption fromOctober 31, 2019 toOctober 31, 2020 .Goodwill increased by$98,615 driven primarily by the Fluortek acquisition. Refer to Note 3 for an explanation of the change in goodwill due to the Fluortek acquisition. Assets held for sale increased by$19,615 due to our plan to sell our screws and barrels product line. Refer to Note 4 for further discussion. Current maturities of long-term debt decreased$130,695 primarily driven by a payment of$100,000 on our Term Loan Agreement and a$25,000 payment on notes issued under our agreement withNew York Life which matured inJuly 2020 .Nordson Corporation 31 -------------------------------------------------------------------------------- Table of Co
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InDecember 2014 , the board of directors authorized a$300,000 common share repurchase program. InAugust 2015 , the board of directors authorized the repurchase of up to an additional$200,000 of the Company's common shares. InAugust 2018 , the board of directors authorized the repurchase of an additional$500,000 of the Company's common shares, bringing the aggregate total of common shares authorized for repurchase to$1,000,000 . Approximately$447,104 of the total$1,000,000 authorized remained available for share repurchases atOctober 31, 2020 . Uses for repurchased shares include the funding of benefit programs including stock options and restricted stock. Shares purchased are treated as treasury shares until used for such purposes. The repurchase program is being funded using cash from operations and proceeds from borrowings under our credit facilities. As ofOctober 31, 2020 , approximately 63 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries. Deferred income taxes are not provided on undistributed earnings of international subsidiaries that are intended to be permanently invested in those operations. These undistributed earnings represent the post-income tax earnings underU.S. GAAP not adjusted for previously taxed income which aggregated approximately$1,045,389 and$1,101,736 atOctober 31, 2020 and 2019, respectively. Should these earnings be distributed, applicable foreign tax credits, distributions of previously taxed income, and utilization of other attributes would substantially offset taxes due upon the distribution. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings. Contractual Obligations The following table summarizes contractual obligations as ofOctober 31, 2020 : Payments Due by Period Less than 1-3 4-5 After 5 Total 1 Year Years Years Years Debt (1)$ 1,109,256 $ 38,043
19,709 34,345 19,720 14,904
Capital lease obligations (2) 17,820 6,226 6,987 1,651 2,956
Operating leases (2) 139,407 18,821 32,172 24,428 63,986
Contributions related to pension and
postretirement
benefits (3) 46,521 46,521 - - -
Purchase obligations (4) 78,620 74,767 3,853 - -
Total obligations $ 1,480,302 $ 204,087 $ 597,284 $ 447,085 $ 231,846
(1)In October 2020 , we amended, restated and extended the term of the unsecured
$200,000 private shelf facility agreement with New York Life Investment
Management LLC . The facility has a three-year term and expires in October 2023 .
The interest rate on each borrowing is fixed based upon the market rate at the
borrowing date or is variable based upon the LIBOR rate. At October 31, 2020 ,
there was no outstanding balance under this facility.
In March 2020 we amended, restated and extended the term of our existing term
loan facility with Bank of America Merrill Lynch International Limited . The
interest rate is variable based on the EURIBOR rate. The Term Loan Agreement
provides for the following term loans due in two tranches: €115,000 is due in
March 2023 and an additional €150,000 that was drawn down in March 2020 is due
in March 2023 . The weighted average interest rate at October 31, 2020 was 0.71
percent.
In April 2019 , we amended, restated and extended the term of our existing
$605,000 term loan facility with a group of banks. The interest rate is variable
based upon the LIBOR rate. At October 31, 2020 , $255,000 was outstanding under
this facility. The Term Loan Agreement provides for the following term loans due
in two tranches: $50,000 is due in September 2022 and $205,000 is due in March
2024 . The weighted average interest rate for borrowings under this agreement was
0.83 percent at October 31, 2020 .
In April 2019 , we entered into a $850,000 unsecured multi-currency credit
facility with a group of banks, which amended, restated and extended our
existing syndicated revolving credit agreement that was scheduled to expire in
February 2020 . This facility has a 5-year term and includes a $75,000
subfacility for swing-line loans. It expires in April 2024 . At October 31, 2020 ,
we had no balances outstanding under this facility.
In June 2018 , we entered into a Note Purchase Agreement with a group of
insurance companies under which we sold $350,000 of unsecured Senior Notes to
the insurance companies and their affiliates. The notes mature in June 2023
through June 2030 and bear interest at fixed rates between 3.71 percent and 4.17
percent.
We entered into a $150,000 three-year Note Purchase and Private Shelf agreement
with New York Life Investment Management LLC in 2011. In 2015, the amount of
the facility was increased to $180,000 , and in 2016 it was
Nordson Corporation 32
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Table of Co ntents
increased to$200,000 . Senior Notes issued under the agreement can have a maturity of up to 12 years, with an average life of up to 10 years, and are unsecured. AtOctober 31, 2020 , we had no balances outstanding under this facility. In 2012, we entered into a Note Purchase Agreement with a group of insurance companies under which we sold$200,000 of unsecured Senior Notes. AtOctober 31, 2020 ,$109,900 was outstanding under this agreement. Existing notes mature betweenJuly 2021 andJuly 2025 and bear interest at fixed rates between 2.62 percent and 3.13 percent. InJuly 2015 , we entered into a Note Purchase Agreement under which$100,000 of unsecured Senior Notes were purchased primarily by a group of insurance companies. AtOctober 31, 2020 ,$85,714 was outstanding under this agreement. Existing notes mature betweenJuly 2021 andJuly 2027 and bear interest at fixed rates of 2.89 percent and 3.19 percent. Refer to Note 10 to the Consolidated Financial Statements for further discussion. (2)Refer to Note 11 to the Consolidated Financial Statements for further discussion. (3)Pension and postretirement plan funding amounts after 2021 will be determined based on the future funded status of the plans and therefore cannot be estimated at this time. Refer to Note 7 to the Consolidated Financial Statements for further discussion. (4)Purchase obligations primarily represent commitments for materials used in our manufacturing processes that are not recorded in our Consolidated Balance Sheet. We believe that the combination of present capital resources, cash from operations and unused financing sources are more than adequate to meet cash requirements for 2021. There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent company. Outlook We are optimistic about our longer-term growth opportunities in the diverse end markets we serve. We also support our customers with parts and consumables, so a significant percentage of our revenue is recurring. The combination of the Company's core strength in the direct-sales model and product innovation, combined with the new NBS Next growth framework, should deliver sustainable profitable growth. We expect the first quarter of 2021 sales growth to be approximately 2 to 3 percent as compared to the first quarter of 2020. Our operating performance, balance sheet position, and financial ratios for 2020 remained strong, although uncertainties persist in global financial markets and the general economic environment. Going forward, we are well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures, and contributions related to pension and postretirement obligations as well as principal and interest payments on our outstanding debt. Primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash provided by operations and borrowings under our loan agreements. Cash from operations has been 15 to 24 percent of revenues over the past five years, which when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the next year. With respect to debt capacity, as ofOctober 31, 2020 , we had an unused,$850,000 multicurrency revolving credit facility. This credit facility is unsecured and expires inFebruary 2024 . New Accounting Standards Refer to Note 2 for further discussion of recently issued accounting standards. Effects of Foreign Currency The impact of changes in foreign currency exchange rates on sales and operating results cannot be precisely measured due to fluctuating selling prices, sales volume, product mix and cost structures in each country where we operate. As a general rule, a weakening ofthe United States dollar relative to foreign currencies has a favorable effect on sales and net income, while a strengthening of the dollar has a detrimental effect. In 2020, as compared with 2019,the United States dollar was generally stronger against foreign currencies. If 2019 exchange rates had been in effect during 2020, sales would have been approximately$5,400 higher and third party costs would have been approximately$1,200 higher. In 2019, as compared with 2018,the United States dollar was generally stronger against foreign currencies. If 2018 exchange rates had been in effect during 2019, sales would have been approximately$45,600 higher and third-party costs would have been approximately$23,500 higher. These effects on reported sales do not include the impact of local price adjustments made in response to changes in currency exchange rates.Nordson Corporation 33 -------------------------------------------------------------------------------- Table of Co
ntents
Inflation
Inflation affects profit margins as the ability to pass cost increases on to customers is restricted by the need for competitive pricing. Although inflation has been modest in recent years and has had no material effect on the years covered by the financial statements included in this report, we continue to seek ways to minimize the impact of inflation through focused efforts to increase productivity. Trends The Five-Year Summary in Part II, Item 6 of this report documents our historical financial trends. Over this period, the world's economic conditions fluctuated significantly. Our solid performance is attributed to our participation in diverse geographic and industrial markets and our long-term commitment to develop and provide quality products and worldwide service to meet our customers' changing needs. Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995 This Form 10-K, particularly "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate andthe United States and global economies. Statements in this 10-K that are not historical are hereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "hope," "forecast," "management is of the opinion," use of the future tense and similar words or phrases. In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such statements. Readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Factors that could cause our actual results to differ materially from the expected results are discussed in Part 1, Item 1A, Risk Factors of this report.Nordson Corporation 34 -------------------------------------------------------------------------------- Table of Co
ntents
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