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. We did not record any goodwill impairment charges in 2021. We use an independent valuation specialist to assist with refining our assumptions and methods used to determine fair values. 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.Nordson Corporation 24 -------------------------------------------------------------------------------- Table of
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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 2021, the WACC rates used ranged from 7.5 percent to 10.0 percent depending upon the reporting unit's size, end market volatility, and projection risk. See Note 6 -Goodwill and intangible assets for further details regarding the valuation methodologies used. In 2021, 2020, and 2019, the results of our annual impairment tests indicated no impairment. The fair value ("FV") was compared to the carrying value ("CV") for each reporting unit. Based on the results shown in the table below and based on our measurement date ofAugust 1, 2021 , our conclusion is that no goodwill was impaired in 2021. 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 7.5% 865%$ 393,900
Industrial Precision Solutions Segment - Industrial Coating Systems
10.0% 982% $ 24,058 Advanced Technology Solutions Segment - Electronics Systems
8.0% 404% $ 28,014
Advanced Technology Solutions Segment - Fluid
Management 8.0% 215% $ 1,177,303
Advanced Technology Solutions Segment - Test &
Inspection 10.0% 287% $ 95,290
Pension plan in the United States - The measurement of the liabilities related
to our domestic pension plan 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 liabilities associated with the Company's international pension
plans and OPEB are not as materially sensitive to changes in assumptions as the
pension plan in the United States .
The weighted-average discount rate used to determine the present value of our
domestic pension plan obligations was 3.02 percent at October 31, 2021 and 2.85
percent at October 31, 2020 . The discount rate used was 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 both 2021 and
2020.
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,
2021 and October 31, 2020 .
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.
United States
1% Point 1% Point
Increase Decrease
Discount rate:
Effect on total net periodic pension cost in 2021 $ (7,223) $ 9,334
Effect on pension obligation as of October 31, 2021 $ (80,729) $ 100,948
Expected return on assets:
Effect on total net periodic pension cost in 2021 $ (4,468) $ 4,467
Compensation increase:
Effect on total net periodic pension cost in 2021 $ 6,663 $ (5,794)
Effect on pension obligation as of October 31, 2021 $ 32,240 $ (28,702)
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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. 2021 compared to 2020 Below is a detailed discussion comparison of our results of operations for the fiscal years endedOctober 31, 2021 andOctober 31, 2020 . For a discussion of changes from the fiscal year endedOctober 31, 2020 to the fiscal year endedOctober 31, 2019 , refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year endedOctober 31, 2020 . As used throughout this annual report, geographic regions include theAmericas (Canada ,Mexico and Central andSouth America ),Asia Pacific (excludingJapan ),Europe ,Japan , andthe United States . Worldwide sales for 2021 were$2,362,209 , an increase of 11.4 percent from 2020 sales of$2,121,100 . The increase consisted of a 11.3 percent improvement in sales volume and favorable currency translation effects, which increased sales by 2.7 percent partially offset by a net 2.6 percent decrease from acquisitions and divestitures. Sales outsidethe United States accounted for 66.6 percent of total sales in 2021, as compared to 64.4 percent in 2020. On a geographic basis, sales inthe United States were$789,303 , an increase of 4.5 percent from 2020. The increase in sales consisted of a 8.3 percent increase in sales volume partially offset by a 3.8 percent decrease from acquisitions and divestitures. Sales in theAsia Pacific region were$668,035 , an increase of 19.1 percent from 2020, with volume increasing 16.7 percent and favorable currency effects of 4.2 percent. partially offset by a 1.8 percent decrease from acquisitions and divestitures. Sales inEurope were$617,492 , an increase of 15.1 percent from 2020. The increase in sales consisted of a 11.4 percent volume increase and favorable currency effects of 5.7 percent partially offset by a 2.0 percent decrease from acquisitions and divestitures. In theAmericas region, sales were$179,807 , an increase of 27.1 percent from 2020, with volume increasing 24.4 percent, favorable currency effects of 1.8 percent and a 0.9 percent increase from acquisitions and divestitures. Sales inJapan were$107,572 , a decrease of 15.0 percent from 2020, with volume decreasing 11.0 percent, unfavorable currency effects of 0.5 percent and a 3.5 percent decrease from acquisitions and divestitures. Cost of sales were$1,038,129 in 2021, up 4.8 percent from$990,632 in 2020. Gross profit, expressed as a percentage of sales, increased to 56.1 percent in 2021 from 53.3 percent in 2020. The 2.8 percentage point increase in gross margin was driven by a favorable product mix impact, principally driven by a divestiture, of 1.9 percentage points and favorable sales volume leverage. Selling and administrative expenses were$708,953 in 2021, up from$693,552 in 2020. The 2.2 percent increase was driven by base business growth of 2.6 percentage points due primarily to increased variable incentive compensation, partially offset by reductions resulting from structural cost reduction actions taken in 2020. In addition, unfavorable currency translation effects increased costs by 2.1 percentage points. These increases were offset by a divestiture impact of 2.5 percentage points. Selling and administrative expenses as a percentage of sales decreased to 30.0 percent in 2021 from 32.7 percent in 2020. Of the 2.7 percentage point decrease, a divestiture decreased expenses by 1.2 percentage points, while sales growth leverage contributed to the remaining percentage point improvement. Operating profit as a percentage of sales increased to 26.0 percent in 2021 compared to 16.5 percent in 2020. The 9.5 percent increase in operating margin was the result of improved operating results, specifically favorable absorption from higher sales volume and favorable product mix driven by a divestiture, and 2020 operating profit was negatively impacted by an assets held for sale impairment charge related to the 2021 product line divestiture.Nordson Corporation 26 -------------------------------------------------------------------------------- Table of
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Operating capacity for each of our segments can support fluctuations in order activity without significant changes in operating costs. Operating margins for each segment were favorably impacted by a weaker dollar primarily against the Euro, Chinese Yuan, and Mexican Peso during 2021 as compared to 2020. Interest expense in 2021 was$25,491 , a decrease of$6,669 , or 20.7 percent, from 2020. The decrease was due to lower average debt levels compared to the prior year. Other expense in 2021 was$17,610 compared to other expense of$17,577 in 2020. Included in 2021's other expense were pension costs of$9,484 and$5,926 in foreign currency losses. Included in the prior year's other expense were pension costs of$13,683 and$1,532 in foreign currency losses. The decrease in pension cost was principally attributable to decreased amortization of net actuarial losses. Income tax expense in 2021 was$119,808 , or 20.9 percent of pre-tax income, as compared to$51,950 , or 17.2 percent of pre-tax income in 2020. The income tax provision for 2021 included a tax benefit of$5,982 due to our share-based payment transactions. Our income tax provision for 2020 included a tax benefit of$15,661 due to our share-based payment transactions. 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. Net income was$454,368 , or$7.74 per diluted share, in 2021, compared to net income of$249,539 , or$4.27 per diluted share, in 2020. This represented a 82.1 percent increase in net income and a 81.3 percent increase in diluted earnings per share. Net income in 2020 included a non-cash, assets held for sale impairment charge net of tax$72,117 related to the sale of the screws and barrels product line within the Adhesives reporting unit under our Industrial Precision Solutions segment. The remaining increase of$2.24 per diluted share was primarily driven by sales growth and mix improvement. Industrial Precision Solutions Sales of the Industrial Precision Solutions segment were$1,246,947 in 2021, an increase of 9.1 percent, from 2020 sales of$1,143,423 . The increase was the result of an organic sales volume increase of 11.7 percent and favorable currency effects that increased sales by 3.4 percent, partially offset by a divestiture impact of 6.0 percent. Growth occurred in all product lines, except nonwovens, and in all regions except forJapan . Operating profit as a percentage of sales increased to 33.2 percent in 2021 compared to 18.2 percent in 2020. The 15.0 percentage point improvement in operating margin was the result of improved operating results, specifically favorable absorption from higher sales volume and favorable product mix driven by a divestiture, and 2020 operating profit negatively impacted by an assets held for sale impairment charge related to a divestiture.Advanced Technology Solutions Sales of theAdvanced Technology Solutions segment were$1,115,262 in 2021, an increase of 14.1 percent from 2020 sales of$977,677 . The increase was the result of an organic sales volume increase of 10.9 percent, favorable currency effects that increased sales by 1.9 percent and a 1.3 percent increase from acquisitions. Sales growth was strong across all product lines and in all regions. Operating profit as a percentage of sales increased to 24.4 percent in 2021 compared to 19.6 percent in 2020. The 4.8 percentage point improvement in operating margin was principally driven by greater selling and administrative expense leverage which contributed 3.1 percentage points and was associated with the sales volume growth and cost structure simplification actions taken in 2020. Liquidity and Capital Resources Cash and cash equivalents increased$91,679 in 2021 to$299,972 as ofOctober 31, 2021 compared to$208,293 as ofOctober 31, 2020 . Approximately 55 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries as ofOctober 31, 2021 . OnNovember 1, 2021 , cash of$180,000 was used to fund the acquisition of NDC Technologies ("NDC") as disclosed in Note 19 to these Consolidated Financial Statements. Cash provided by operating activities was$545,927 in 2021, compared to$502,421 in 2020. 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$590,607 in 2021, compared to$455,490 in 2020. Changes in working capital items provided cash of$29,011 compared to$45,113 provided in 2020 as increases in receivables and inventory were partially offset by increases in other liabilities. In addition, pension cash contributions increased by$53,975 in 2021 compared to 2020 which are included in "Other - principally pension plan" in the Consolidated Statements of Cash Flows. Cash used in investing activities was$33,169 in 2021, compared to$194,109 in 2020. In the current year, no cash was used for acquisitions compared to$142,414 used in the prior year. Capital expenditures were$38,303 in 2021 compared to$50,535 in 2020.Nordson Corporation 27 -------------------------------------------------------------------------------- Table of
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Cash used in financing activities was$422,913 in 2021, compared to$251,529 cash used in 2020. Net repayment of long-term debt and long-term borrowings used$289,416 of cash in 2021, compared to$153,816 used in 2020. In 2021, cash of$60,970 was used for the purchase of treasury shares, up from$52,614 used in 2020. Dividend payments were$97,683 in 2021, up from$88,347 in 2020 due to an increase in the annual dividend to$1.69 per share from$1.53 per share. Issuance of common shares related to employee benefit plans generated$31,780 of cash in 2021, down from$50,853 in 2020. The following is a summary of significant changes by balance sheet caption fromOctober 31, 2020 toOctober 31, 2021 . Inventories-net increased$50,162 due to increased business activity during the year. Intangible assets-net decreased$50,219 due to amortization expense and the divestiture of our screws and barrels product line. Pension obligations decreased$84,945 primarily due to pension contributions during the second and third quarters of 2021. Our operating performance, balance sheet position, and financial ratios for 2021 remained strong. Long-term debt decreased$286,243 during 2021 primarily due to the full repayment of our term loan due 2024. The Company is well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures, and contributions related to pension and postretirement obligations as well as principal and interest payments on our outstanding debt. Primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash provided by operations and borrowings under our loan agreements. Cash from operations, which when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the next year. Contractual Obligations The following table summarizes contractual obligations as ofOctober 31, 2021 : Payments Due by Period Less than 1-3 4-5 After 5 Total 1 Year Years Years Years Debt (1)$ 813,930 30,643 547,644 135,643 100,000 Interest payments on long-term debt (1) 69,161 18,479 27,762 13,292 9,628 Finance lease obligations (2) 23,153 6,162 6,952 2,512 7,527 Operating leases (2) 126,190 18,942 29,896 22,790 54,562 Contributions related to pension and postretirement benefits (3) 7,175 7,175 - - - Purchase obligations (4) 213,972 212,543 1,349 40 40 Total obligations$ 1,253,581 $ 293,944 $ 613,603 $ 174,277 $ 171,757 (1)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 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 such as our credit facilities are more than adequate to meet cash requirements for 2021 and beyond. There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent company. Outlook We are optimistic about our long-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 Ascend Strategy, should deliver sustainable profitable growth. We expect to deliver increased sales and earnings in 2022 compared to 2021. New Accounting Standards Refer to Note 2 to the Consolidated Financial Statements for further discussion of recently issued accounting standards. Nordson Corporation 28 -------------------------------------------------------------------------------- Table of
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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 2021, as compared with 2020,the United States dollar was generally weaker against foreign currencies. If 2020 exchange rates had been in effect during 2021, sales would have been approximately$55,200 lower and third -party costs would have been approximately$24,600 lower. 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. These effects on reported sales do not include the impact of local price adjustments made in response to changes in currency exchange rates. Trends Our solid historical performance is attributed to our diverse geographic and end market participation 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 annual report, 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 annual report 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. These statements reflect management's current expectations and involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to,U.S. and international economic conditions; financial and market conditions; currency exchange rates and devaluations; possible acquisitions including the Company's ability to complete and successfully integrate acquisitions, including integrating the acquisition of NDC; the Company's ability to successfully divest or dispose of businesses that are deemed not to fit with its strategic plan; the effects of changes inU.S. trade policy and trade agreements; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, acts of terror, natural disasters and pandemics, including the current COVID-19 pandemic. 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 annual report.Nordson Corporation 29 -------------------------------------------------------------------------------- Table of
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