Notes to Condensed Consolidated Financial Statements
January 31, 2021
NOTE REGARDING AMOUNTS AND FISCAL YEAR REFERENCES
In this quarterly report, all amounts related to United States dollars and foreign currency and to the number of Nordson 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” or the “Company” mean Nordson Corporation.
Unless otherwise noted, all references to years relate to our fiscal year ending October 31.
Significant accounting policies
Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended January 31, 2021 are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended October 31, 2020.
Basis of consolidation. The consolidated financial statements include the accounts of Nordson Corporation and its majority-owned and controlled subsidiaries. Investments in affiliates and joint ventures in which our ownership is 50% or less or in which we do not have control but have the ability to exercise significant influence, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual amounts could differ from these estimates.
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 primarily 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. Revenue for undelivered items is deferred and included within Accrued liabilities in our Condensed Consolidated Balance Sheets. Revenues deferred as of January 31, 2021 and 2020 were not material.
However, for certain contracts related to the sale of customer-specific products within our Advanced Technology Solutions segment, revenue is recognized over time as we satisfy performance obligations because of the continuous transfer of control to the customer. The continuous transfer of control to the customer occurs as we enhance assets that are customer controlled and we are contractually entitled to payment for work performed to date plus a reasonable margin.
As control transfers over time for these products or services, revenue is recognized based on progress toward completion of the performance obligations. The selection method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We have elected to use the input method – costs incurred for these contracts because it best depicts the transfer of products or services to the customer based on incurring costs on the contract. Under this method, revenues are recorded proportionally as costs are incurred. Contract assets recognized are recorded in Prepaid expenses and other current assets and contract liabilities are recorded in Accrued liabilities in our Consolidated Balance Sheets and were not material at January 31, 2021 and October 31, 2020. Revenue recognized over time is not material to our overall Consolidated Financial Statements.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales, value add, and other taxes we collect concurrently with revenue-producing activities are excluded from revenue. As a practical expedient, we may exclude the assessment of whether goods or services are performance obligations, if they are immaterial in the context of the contract, and combine these with other performance obligations. While payment terms and conditions vary by contract type, we have determined that our contracts generally do not include a significant financing component. We have elected to apply the practical expedient to treat all shipping and handling costs as fulfillment costs as a significant portion of these costs are incurred prior to transfer of control to the customer. We have also elected to apply the practical expedient to expense sales
commissions as they are incurred as the amortization period resulting from capitalizing the costs is one year or less. These costs are recorded within Selling and administrative expenses in our Consolidated Statements of Income.
We offer assurance type warranties on our products as well as separately sold warranty contracts. Revenue related to warranty contracts that are sold separately is recognized over the life of the warranty term and are generally not material. Certain arrangements may include installation, installation supervision, training, and spare parts, which tend to be completed in a short period of time, at an insignificant cost, and utilizing skills not unique to us, and, therefore, are typically regarded as inconsequential or not material.
We disclose disaggregated revenues by operating segment and geography in accordance with the revenue standard and on the same basis used internally by the chief operating decision maker for evaluating performance of operating segments and for allocating resources. Refer to our Operating Segments note.
Earnings per share. Basic earnings per share are computed based on the weighted-average number of common shares outstanding during each year, while diluted earnings per share are based on the weighted-average number of common shares and common share equivalents outstanding. Common share equivalents consist of shares issuable upon exercise of stock options computed using the treasury stock method, as well as restricted shares and deferred stock-based compensation. Options with an exercise price higher than the average market price are excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive. Options excluded from the calculation of diluted earnings per share for the three months ended January 31, 2021 were 92. No options were excluded from the calculation of diluted earnings per share for the three months ended January 31, 2020.
Recently issued accounting standards
New accounting guidance adopted:
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which changed the impairment model for most financial instruments. Prior guidance required the recognition of credit losses based on an incurred loss impairment methodology that reflected losses once the losses are probable. We adopted the new standard on November 1, 2020 and are now applying a current expected credit loss model that requires recognizing an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of the update, including trade receivables. The standard requires judgment and consideration of historical information, current information, and reasonable and supportable forecasts, as well as the impact of any prepayments. In addition, we reviewed our business processes and controls to support the recognition and disclosure as required under the new standard. The adoption of this new standard did not have a material impact on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40),” which is meant to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance in determining when the arrangement includes a software license. We adopted the new standard on November 1, 2020. Hosted arrangements deemed to be in scope will follow the capitalization criteria for implementation costs as though they were internal-use computer software. There may be multiple elements besides the software license (such as: training, future upgrades, data conversion, and other elements) which require the allocation of the contract price to each of the elements; entities are to capitalize only those elements which meet the capitalization criteria. Capitalized implementation costs are amortized over the term of the hosted arrangement including consideration for renewal or termination options. In addition, we reviewed our business processes and controls to support the recognition and disclosure as required under the new standard. The adoption of this new standard did not have a material impact on our Consolidated Financial Statements.
In August 2018, the FASB issued a new standard which removed, modified, and added certain disclosure requirements on fair value measurements. The guidance removed disclosure requirements pertaining to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly. In addition, the amendment clarified that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The guidance added disclosure requirements for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. We adopted the new standard on November 1, 2020 with no material impact to the Consolidated Financial Statements.
New accounting guidance issued and not yet adopted:
In August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20),” a new standard which addresses defined benefit plans. The amendments modify the following disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans: the amounts in accumulated other
comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, amount and timing of plan assets expected to be returned to the employer, related party disclosure about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan, and the effects of a one-percentage point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligations for postretirement health care benefits. A disclosure requirement was added for the explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. Additionally, the standard clarifies disclosure requirements surrounding the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. It will be effective for us beginning November 1, 2021. Early adoption is permitted. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. It will be effective for us beginning November 1, 2021. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.
Acquisitions
Business acquisitions have been accounted for using the acquisition method, with the acquired assets and liabilities recorded at estimated fair value on the dates of acquisition. The cost in excess of the net assets of the business acquired is included in goodwill. Operating results since the respective dates of acquisitions are included in the Condensed Consolidated Statements of Income.
On September 1, 2020, we acquired 100 percent of the outstanding shares of vivaMOS Ltd. ("vivaMOS"), a developer and fabricator of high-end large-area complementary metal–oxide–semiconductor (CMOS) image sensors for a wide range of X-ray applications. We acquired vivaMOS for an aggregate purchase price of $17,154, net of cash and other closing adjustments of approximately $158, utilizing cash on hand. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $14,394 and identifiable intangible assets of $4,040 were recorded. The identifiable intangible assets consist primarily of $3,900 of technology (amortized over 10 years) and $140 of non-compete agreements (amortized over 3 years). Goodwill associated with this acquisition is not tax deductible. This acquisition is being reported in our Advanced Technology Solutions segment and the results of vivaMOS are not material to our Consolidated Financial Statements. As of January 31, 2021, the purchase price allocation remains preliminary as we complete our assessments of income taxes.
On June 1, 2020, we acquired 100 percent of the outstanding shares of Fluortek, Inc. ("Fluortek"), a precision plastic extrusion manufacturer that provides custom dimensioned tubing to the medical device industry. We acquired Fluortek for an aggregate purchase price of $125,260, net of cash and other closing adjustments of approximately $515, utilizing cash on hand. Based on the fair value of the assets acquired and the liabilities assumed, property, plant and equipment and working capital – net of $19,843, goodwill of $76,047 and identifiable intangible assets of $29,370 were recorded. The identifiable intangible assets consist primarily of $19,700 of customer relationships (amortized over 12 years), $7,400 of technology (amortized over 10 years), $1,500 of tradenames (amortized over 10 years), and $770 of non-compete agreements (amortized over 5 years). Goodwill associated with this acquisition is tax deductible. This acquisition is being reported in our Advanced Technology Solutions segment and the results for Fluortek are not material to our Consolidated Financial Statements. As of January 31, 2021, the purchase price allocations remain preliminary as we complete our assessments of income taxes.
Assets Held for Sale
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 operating segment and determined that it met the criteria to be classified as held for sale. Therefore, these assets and liabilities have been presented as held for sale in the Condensed Consolidated Balance Sheets as of January 31, 2021 and October 31, 2020. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell. We entered into a letter of intent to sell the screws and barrels product line in October 2020. In December 2020, we entered into a definitive agreement with the buyer and the transaction was completed in February 2021.
Before measuring the fair value less costs to sell of the disposal group as a whole, we first reviewed individual assets and liabilities to determine if any fair value adjustments were required and concluded no individual asset impairments were required. Then, based on the definitive agreement entered into by us and the buyer, we determined the fair value of the disposal group to be equal to the selling price, less costs to sell. Based on this review, we recorded a non-cash, assets held for sale impairment charge
of $87,371 in 2020. Subsequent adjustments to the loss due to changes in the carrying value of net assets held for sale as well as estimated sales proceeds less costs to sell were immaterial.
The assets and liabilities of the screws and barrels product line classified as held for sale at January 31, 2021 and October 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
October 31, 2020
|
|
|
Receivables - net
|
$
|
9,883
|
|
|
$
|
14,327
|
|
|
|
Inventories - net
|
11,399
|
|
|
9,854
|
|
|
|
Prepaid expenses and other current assets
|
1,424
|
|
|
696
|
|
|
|
Property, plant and equipment - net
|
59,260
|
|
|
58,950
|
|
|
|
Other assets
|
24,016
|
|
|
23,159
|
|
|
|
Impairment on carrying value
|
(86,531)
|
|
|
(87,371)
|
|
|
|
Assets held for sale
|
$
|
19,451
|
|
|
$
|
19,615
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
5,010
|
|
|
$
|
4,625
|
|
|
|
Accrued liabilities
|
4,315
|
|
|
3,352
|
|
|
|
Other liabilities
|
4,886
|
|
|
5,171
|
|
|
|
Liabilities held for sale
|
$
|
14,211
|
|
|
$
|
13,148
|
|
|
|
Excluding the non-cash, assets held for sale impairment charge recorded in the fourth quarter of 2020, the operating results of the screws and barrels product line were not material to our Consolidated Financial Statements for any period presented.
Receivables
Our primary allowance for credit losses is the allowance for doubtful accounts, which is principally determined based on aging of receivables. Receivables are exposed to credit risk based on the customers' ability to pay which is influenced by, among other factors, their financial liquidity. We perform ongoing customer credit evaluation to maintain sufficient allowances for potential credit losses. Our segments perform credit evaluation and monitoring to estimate and manage credit risk through the review of customer information, credit ratings, approval and monitoring of customer credit limits, and assessment of market conditions. We may also require prepayments or bank guarantees from customers to mitigate credit risk. Our receivables are generally short-term in nature with a majority of receivables outstanding less than 90 days. Account receivable balances are written-off against the allowance if deemed uncollectible.
Accounts receivable are net of an allowance for credit losses of $9,243 and $9,045 at January 31, 2021 and October 31, 2020, respectively. The change in the allowance for expected credit losses includes a provision for losses on receivables of $103 as well as an immaterial accounting standard adoption impact from ASU 2016-13 of $396 for the three months ended January 31, 2021 compared to a provision for losses on receivables $388 in the three months ended October 31, 2020, which were principally offset by write-offs of uncollectible accounts.
Inventories
At January 31, 2021 and October 31, 2020, inventories consisted of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
October 31, 2020
|
Finished goods
|
|
$
|
184,065
|
|
|
$
|
183,860
|
|
Raw materials and component parts
|
|
100,496
|
|
|
94,630
|
|
Work-in-process
|
|
47,345
|
|
|
44,403
|
|
|
|
331,906
|
|
|
322,893
|
|
Obsolescence and other reserves
|
|
(44,471)
|
|
|
(41,315)
|
|
LIFO reserve
|
|
(4,995)
|
|
|
(4,545)
|
|
|
|
$
|
282,440
|
|
|
$
|
277,033
|
|
Property, Plant and Equipment
At January 31, 2021 and October 31, 2020, property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
October 31, 2020
|
Land
|
$
|
8,883
|
|
|
$
|
8,816
|
|
Land improvements
|
4,631
|
|
|
4,611
|
|
Buildings
|
256,886
|
|
|
253,621
|
|
Machinery and equipment
|
476,264
|
|
|
464,171
|
|
Enterprise management system
|
51,697
|
|
|
56,103
|
|
Construction-in-progress
|
32,391
|
|
|
29,897
|
|
Leased property under capitalized leases
|
34,283
|
|
|
32,590
|
|
|
865,035
|
|
|
849,809
|
|
Accumulated depreciation and amortization
|
(506,365)
|
|
|
(491,191)
|
|
|
$
|
358,670
|
|
|
$
|
358,618
|
|
Property, plant and equipment are carried at cost. Additions and improvements that extend the lives of assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Plant and equipment are depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets or, in the case of property under finance leases, over the terms of the leases. Leasehold improvements are depreciated over the shorter of the lease term or their useful lives. Internal use software costs are expensed or capitalized depending on whether they are incurred in the preliminary project stage, application development or the post implementation stage. Amounts capitalized are amortized over the estimated useful lives of the software beginning with the project's completion or the non-cancelable term of the arrangement with consideration for renewal options. Depreciation expense was $12,940 and $12,445 for the three months ended January 31, 2021 and January 31, 2020, respectively.
Goodwill and other intangible assets
Changes in the carrying amount of goodwill for the three months ended January 31, 2021 by operating segment are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Precision
Solutions
|
|
Advanced
Technology
Solutions
|
|
Total
|
Balance at October 31, 2020
|
|
$
|
415,862
|
|
|
$
|
1,297,492
|
|
|
$
|
1,713,354
|
|
|
|
|
|
|
|
|
Currency effect
|
|
4,614
|
|
|
4,856
|
|
|
9,470
|
|
Balance at January 31, 2021
|
|
$
|
420,476
|
|
|
$
|
1,302,348
|
|
|
$
|
1,722,824
|
|
Information regarding our intangible assets subject to amortization is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Customer relationships
|
|
$
|
487,336
|
|
|
$
|
204,435
|
|
|
$
|
282,901
|
|
Patent/technology costs
|
|
155,455
|
|
|
81,205
|
|
|
74,250
|
|
Trade name
|
|
74,737
|
|
|
36,250
|
|
|
38,487
|
|
Non-compete agreements
|
|
10,031
|
|
|
8,734
|
|
|
1,297
|
|
Other
|
|
1,404
|
|
|
1,404
|
|
|
—
|
|
Total
|
|
$
|
728,963
|
|
|
$
|
332,028
|
|
|
$
|
396,935
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Customer relationships
|
|
$
|
483,568
|
|
|
$
|
193,617
|
|
|
$
|
289,951
|
|
Patent/technology costs
|
|
153,555
|
|
|
76,934
|
|
|
76,621
|
|
Trade name
|
|
74,240
|
|
|
34,693
|
|
|
39,547
|
|
Non-compete agreements
|
|
9,908
|
|
|
8,444
|
|
|
1,464
|
|
Other
|
|
1,403
|
|
|
1,400
|
|
|
3
|
|
Total
|
|
$
|
722,674
|
|
|
$
|
315,088
|
|
|
$
|
407,586
|
|
Amortization expense for the three months ended January 31, 2021 and 2020 was $13,080 and $16,173, respectively.
Pension and other postretirement plans
The components of net periodic pension cost for the three months ended January 31, 2021 and 2020 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
Three Months Ended
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
|
$
|
5,766
|
|
|
$
|
5,057
|
|
|
$
|
518
|
|
|
$
|
571
|
|
Interest cost
|
|
3,340
|
|
|
3,918
|
|
|
220
|
|
|
262
|
|
Expected return on plan assets
|
|
(6,753)
|
|
|
(6,159)
|
|
|
(391)
|
|
|
(330)
|
|
Amortization of prior service credit
|
|
(20)
|
|
|
(21)
|
|
|
(77)
|
|
|
(74)
|
|
Amortization of net actuarial loss
|
|
3,574
|
|
|
3,398
|
|
|
790
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
Total benefit cost
|
|
$
|
5,907
|
|
|
$
|
6,193
|
|
|
$
|
1,060
|
|
|
$
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of other postretirement benefit cost for the three months ended January 31, 2021 and 2020 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
Three Months Ended
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
|
$
|
176
|
|
|
$
|
190
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Interest cost
|
|
454
|
|
|
614
|
|
|
3
|
|
|
3
|
|
Amortization of prior service credit
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial (gain) loss
|
|
347
|
|
|
419
|
|
|
(10)
|
|
|
(9)
|
|
Total benefit cost
|
|
$
|
977
|
|
|
$
|
1,219
|
|
|
$
|
(3)
|
|
|
$
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic pension cost other than service cost are included in Other – net in our Condensed Consolidated Statements of Income.
Income taxes
We record our interim provision for income taxes based on our estimated annual effective tax rate, as well as certain items discrete to the current period. The effective tax rate for the three months ended January 31, 2021 and 2020 was 20.7% and 17.6%, respectively. The effective tax rate for the current quarter was higher than the comparable prior year period primarily due to share-based payment transactions which resulted in discrete tax benefits of $799 and $2,537 for the three months ended January 31, 2021 and 2020, respectively.
Accumulated other comprehensive loss
The components of accumulated other comprehensive loss, including adjustments for items that are reclassified from accumulated other comprehensive loss to net income, are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
translation
adjustments
|
|
Pension and
postretirement
benefit
plan adjustments
|
|
Accumulated
other
comprehensive
loss
|
Balance at October 31, 2020
|
|
$
|
(40,422)
|
|
|
$
|
(185,696)
|
|
|
$
|
(226,118)
|
|
Amortization of prior service costs and net
actuarial losses, net of tax of ($930)
|
|
—
|
|
|
2,997
|
|
|
2,997
|
|
Foreign currency translation adjustments
|
|
28,433
|
|
|
—
|
|
|
28,433
|
|
Balance at January 31, 2021
|
|
$
|
(11,989)
|
|
|
$
|
(182,699)
|
|
|
$
|
(194,688)
|
|
Stock-based compensation
During the 2018 Annual Meeting of Shareholders, our shareholders approved the Amended and Restated 2012 Stock Incentive and Award Plan (the “2012 Plan”). The 2012 Plan provides for the granting of stock options, stock appreciation rights, restricted shares, restricted share units, performance shares, cash awards and other stock or performance-based incentives. A maximum of 4,525 common shares were originally available for grant under the 2012 Plan.
Stock Options
Nonqualified or incentive stock options may be granted to our employees and directors. Generally, options granted to employees may be exercised beginning one year from the date of grant at a rate not exceeding 25 percent per year and expire 10 years from the date of grant. Vesting accelerates upon a qualified termination in connection with a change in control. In the event of termination of employment due to early retirement or normal retirement at age 65, options granted within 12 months prior to termination are forfeited, and vesting continues post retirement for all other unvested options granted. In the event of disability or death, all unvested stock options granted within 12 months prior to termination (or at any time prior to December 28, 2017) fully vest. Termination for any other reason results in forfeiture of unvested options and vested options in certain circumstances. The amortized cost of options is accelerated if the retirement eligibility date occurs before the normal vesting date. Option exercises are satisfied through the issuance of treasury shares on a first-in, first-out basis. We recognized compensation expense related to stock options of $2,236 and $2,725 in the three months ended January 31, 2021 and 2020, respectively.
The following table summarizes activity related to stock options for the three months ended January 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
Aggregate
Intrinsic Value
|
|
Weighted
Average
Remaining
Term
|
Outstanding at October 31, 2020
|
|
1,487
|
|
$
|
122.45
|
|
|
|
|
|
Granted
|
|
92
|
|
201.50
|
|
|
|
|
|
Exercised
|
|
(64)
|
|
116.96
|
|
|
|
|
|
Forfeited or expired
|
|
(6)
|
|
146.89
|
|
|
|
|
|
Outstanding at January 31, 2021
|
|
1,509
|
|
$
|
127.40
|
|
|
$
|
80,152
|
|
|
7.0 years
|
Expected to vest
|
|
600
|
|
$
|
156.03
|
|
|
$
|
16,077
|
|
|
8.5 years
|
Exercisable at January 31, 2021
|
|
902
|
|
$
|
108.12
|
|
|
$
|
63,938
|
|
|
5.9 years
|
As of January 31, 2021, there was $14,122 of total unrecognized compensation cost related to unvested stock options. That cost is expected to be amortized over a weighted average period of approximately 1.8 years.
The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
January 31, 2021
|
|
January 31, 2020
|
Expected volatility
|
30.8%
|
-
|
32.6%
|
|
24.5%
|
-
|
25.4%
|
Expected dividend yield
|
0.83%
|
|
0.93%
|
-
|
1.16%
|
Risk-free interest rate
|
0.43%
|
-
|
0.54%
|
|
1.64%
|
-
|
1.69%
|
Expected life of the option (in years)
|
5.3
|
-
|
6.2
|
|
5.3
|
-
|
6.2
|
The weighted-average expected volatility used to value the 2021 and 2020 options was 31.0% and 25.1%, respectively.
Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.
The weighted average grant date fair value of stock options granted during the three months ended January 31, 2021 and 2020 was $56.05 and $37.82, respectively.
The total intrinsic value of options exercised during the three months ended January 31, 2021 and 2020 was $5,435 and $17,244, respectively.
Cash received from the exercise of stock options for the three months ended January 31, 2021 and 2020 was $7,438 and $16,379, respectively.
Restricted Shares and Restricted Share Units
We may grant restricted shares and/or restricted share units to our employees and directors. These shares or units may not be transferred for a designated period of time (generally one to three years) defined at the date of grant. We may also grant continuation awards in the form of restricted share units with cliff vesting and a gateway performance measure that must be achieved for the restricted share units to vest.
For employee recipients, in the event of termination of employment due to early retirement with the consent of the Company, restricted shares and units granted within 12 months prior to termination are forfeited, and other restricted shares and units vest on a pro-rata basis, subject to the consent of the Compensation Committee. In the event of termination of employment due to normal retirement at age 65, restricted shares and units granted within 12 months prior to termination are forfeited, and, for other restricted shares and units, the restriction period applicable to restricted shares will lapse and the shares will vest and be transferable and all unvested units will become vested in full, subject to the consent of the Compensation Committee. In the event of a recipient's disability or death, all restricted shares and units granted within 12 months prior to termination (or at any time prior to December 28, 2017), fully vest. Termination for any other reason prior to the lapse of any restrictions or vesting of units results in forfeiture of the shares or units.
For non-employee directors, all restrictions lapse in the event of disability or death of the non-employee director. Termination of service as a director for any other reason within one year of date of grant results in a pro-rata vesting of shares or units.
As shares or units are issued, deferred stock-based compensation equivalent to the fair value on the date of grant is expensed over the vesting period.
The following table summarizes activity related to restricted shares during the three months ended January 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Restricted shares at October 31, 2020
|
|
58
|
|
|
$
|
148.75
|
|
Granted
|
|
—
|
|
|
—
|
Forfeited
|
|
(1)
|
|
|
147.93
|
Vested
|
|
(15)
|
|
|
139.70
|
Restricted shares units at January 31, 2021
|
|
42
|
|
|
$
|
151.90
|
|
As of January 31, 2021, there was $3,263 of unrecognized compensation cost related to restricted shares. The cost is expected to be amortized over a weighted average period of 1.9 years. The amount charged to expense related to restricted shares during the three months ended January 31, 2021 and 2020 was $964 and $1,573, respectively. These amounts included common share dividends for the three months ended January 31, 2021 and 2020 of $18 and $25, respectively.
The following table summarizes activity related to restricted share units during the three months ended January 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted-Average
Grant Date
Fair Value
|
Restricted shares units at October 31, 2020
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
85
|
|
|
202.14
|
Forfeited
|
|
(2)
|
|
|
198.68
|
Vested
|
|
(1)
|
|
|
201.50
|
Restricted shares units at January 31, 2021
|
|
82
|
|
|
$
|
202.26
|
|
As of January 31, 2021, there was $14,526 of remaining expense to be recognized related to outstanding restricted share units, which is expected to be recognized over a weighted average period of 1.5 years. The amount charged to expense related to restricted share units during each of the three months ended January 31, 2021 and 2020 was $2,092 and $286, respectively.
Performance Share Incentive Awards
Executive officers and selected other key employees are eligible to receive common share-based incentive awards. Payouts, in the form of unrestricted common shares, vary based on the degree to which corporate financial performance exceeds predetermined threshold, target and maximum performance goals over three-year performance periods. No payout will occur unless threshold performance is achieved.
The amount of compensation expense is based upon current performance projections for each three-year period and the percentage of the requisite service that has been rendered. The calculations are also based upon the grant date fair value determined using the closing market price of our common shares at the grant date, reduced by the implied value of dividends not to be paid. The per share values were $196.17 and $191.23 for 2021, $160.02, $133.01 and $184.04 for 2020. The amount charged to expense for the three months ended January 31, 2021 and 2020 was $4,755 and $1,421, respectively. The cumulative amount recorded in shareholders’ equity at January 31, 2021 was $4,592.
Deferred Compensation
Our executive officers and other highly compensated employees may elect to defer up to 100% of their base pay and cash incentive compensation, and for executive officers, up to 90% of their share-based performance incentive payout each year. Additional share units are credited for quarterly dividends paid on our common shares. Expense related to dividends paid under this plan for the three months ended January 31, 2021 and 2020 was $29 and $81, respectively.
Deferred Directors’ Compensation
Non-employee directors may defer all or part of their cash and equity-based compensation until retirement. Cash compensation may be deferred as cash or as share equivalent units. Deferred cash amounts are recorded as liabilities, and share equivalent units are recorded as equity. Additional share equivalent units are earned when common share dividends are declared.
The following table summarizes activity related to director deferred compensation share equivalent units during the three months ended January 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Outstanding at October 31, 2019
|
|
120
|
|
|
$
|
60.81
|
|
Dividend equivalents
|
|
—
|
|
|
—
|
Distributions
|
|
(7)
|
|
|
81.32
|
Outstanding at January 31, 2021
|
|
113
|
|
|
$
|
59.93
|
|
The amount charged to expense related to director deferred compensation for the three months ended January 31, 2021 and 2020 was $62 and $44, respectively.
Warranties
We offer warranties to our customers depending on the specific product and terms of the customer purchase agreement. A typical warranty program requires that we repair or replace defective products within a specified time period (generally one year) from the date of delivery or first use. We record an estimate for future warranty-related costs based on actual historical return rates. Based on analysis of return rates and other factors, the adequacy of our warranty provisions are adjusted as necessary. The liability for warranty costs is included in Accrued liabilities in the Condensed Consolidated Balance Sheets.
Following is a reconciliation of the product warranty liability for the three months ended January 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
January 31, 2020
|
Beginning balance at October 31
|
|
$
|
10,550
|
|
|
$
|
11,006
|
|
Accruals for warranties
|
|
3,870
|
|
|
2,954
|
|
Warranty payments
|
|
(3,594)
|
|
|
(2,551)
|
|
Currency effect
|
|
259
|
|
|
8
|
|
Ending balance
|
|
$
|
11,085
|
|
|
$
|
11,417
|
|
Operating segments
We conduct business across two primary operating segments: Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS). The composition of segments and measure of segment profitability is consistent with that used by our chief operating decision maker. The primary measure used by the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing performance is operating profit, which equals sales less cost of sales and certain operating expenses. Items below the operating profit line of the Condensed Consolidated Statements of Income (interest and investment income, interest expense and other income/expense) are excluded from the measure of segment profitability reviewed by our chief operating decision maker and are not presented by operating segment.
Effective in the second quarter of 2020, we made changes to realign our management team and our operating segments, which are reflected in our disclosures. This realignment will enable us to better serve global customers and markets, to more efficiently leverage technology synergies, to operate divisions of significant size in a consistent and focused way and to position ourselves for our next chapter of profitable growth. The revised operating segments better reflect how we manage the Company, allocate resources, and assess performance of the businesses.
We realigned our former three operating segments into two: Industrial Precision Solutions and Advanced Technology Solutions. Existing product lines were unchanged as part of this new structure.
Industrial Precision Solutions: This segment delivers proprietary dispensing and processing technology to diverse end markets. Product lines reduce material consumption, increase line efficiency and enhance product brand and appearance. Components are used for dispensing adhesives, coatings, paint, finishes, sealants and other materials. This segment primarily serves the non-durables, industrial and consumer durables markets.
Advanced Technology Solutions: This segment integrates our proprietary product technologies found in progressive stages of a customer’s production processes, such as surface treatment, precisely controlled dispensing of material and post-dispense test and inspection to ensure quality. Related single-use plastic molded syringes, cartridges, tips, fluid connection components, tubing, balloons and catheters are used to dispense or control fluids in production processes or within customers’ end products. This segment predominantly serves customers in the electronics, medical and related high-tech industrial markets.
The following table presents information about our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Industrial
Precision
Solutions
|
|
Advanced
Technology
Solutions
|
|
Corporate
|
|
Total
|
January 31, 2021
|
|
|
|
|
|
|
|
|
Net external sales
|
|
$
|
288,416
|
|
|
$
|
238,150
|
|
|
$
|
—
|
|
|
$
|
526,566
|
|
Operating profit (loss)
|
|
83,403
|
|
|
47,201
|
|
|
(21,579)
|
|
|
109,025
|
|
January 31, 2020
|
|
|
|
|
|
|
|
|
Net external sales
|
|
$
|
263,799
|
|
|
$
|
231,117
|
|
|
$
|
—
|
|
|
$
|
494,916
|
|
Operating profit (loss)
|
|
56,404
|
|
|
32,287
|
|
|
(13,598)
|
|
|
75,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of total segment operating income to total consolidated income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
January 31, 2021
|
|
January 31, 2020
|
|
|
|
|
Total profit for reportable segments
|
|
$
|
109,025
|
|
|
$
|
75,093
|
|
|
|
|
|
Interest expense
|
|
(6,932)
|
|
|
(9,740)
|
|
|
|
|
|
Interest and investment income
|
|
380
|
|
|
588
|
|
|
|
|
|
Other-net
|
|
(4,661)
|
|
|
(2,846)
|
|
|
|
|
|
Income before income taxes
|
|
$
|
97,812
|
|
|
$
|
63,095
|
|
|
|
|
|
We have significant sales in the following geographic regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
January 31, 2021
|
|
January 31, 2020
|
|
|
|
|
United States
|
|
$
|
185,316
|
|
|
$
|
188,500
|
|
|
|
|
|
Americas
|
|
36,138
|
|
|
31,083
|
|
|
|
|
|
Europe
|
|
135,151
|
|
|
126,391
|
|
|
|
|
|
Japan
|
|
27,115
|
|
|
27,552
|
|
|
|
|
|
Asia Pacific
|
|
142,846
|
|
|
121,390
|
|
|
|
|
|
Total net external sales
|
|
$
|
526,566
|
|
|
$
|
494,916
|
|
|
|
|
|
Fair value measurements
The inputs to the valuation techniques used to measure fair value are classified into the following categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The following tables present the classification of our assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (a)
|
|
$
|
8,255
|
|
|
$
|
—
|
|
|
$
|
8,255
|
|
|
$
|
—
|
|
Total assets at fair value
|
|
$
|
8,255
|
|
|
$
|
—
|
|
|
$
|
8,255
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred compensation plans (b)
|
|
$
|
13,708
|
|
|
$
|
—
|
|
|
$
|
13,708
|
|
|
$
|
—
|
|
Foreign currency forward contracts (a)
|
|
2,150
|
|
|
—
|
|
|
2,150
|
|
|
—
|
|
Total liabilities at fair value
|
|
$
|
15,858
|
|
|
$
|
—
|
|
|
$
|
15,858
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (a)
|
|
$
|
2,700
|
|
|
$
|
—
|
|
|
$
|
2,700
|
|
|
$
|
—
|
|
Total assets at fair value
|
|
$
|
2,700
|
|
|
$
|
—
|
|
|
$
|
2,700
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred compensation plans (b)
|
|
$
|
12,304
|
|
|
$
|
—
|
|
|
$
|
12,304
|
|
|
$
|
—
|
|
Foreign currency forward contracts (a)
|
|
5,937
|
|
|
—
|
|
|
5,937
|
|
|
—
|
|
Total liabilities at fair value
|
|
$
|
18,241
|
|
|
$
|
—
|
|
|
$
|
18,241
|
|
|
$
|
—
|
|
(a)We enter into foreign currency forward contracts to reduce the risk of foreign currency exposures resulting from receivables, payables, intercompany receivables, intercompany payables and loans denominated in foreign currencies. Foreign exchange contracts are valued using market exchange rates. These foreign exchange contracts are not designated as hedges.
(b)Executive officers and other highly compensated employees may defer up to 100 percent of their salary and annual cash incentive compensation and for executive officers, up to 90 percent of their long-term incentive compensation, into various
non-qualified deferred compensation plans. Deferrals can be allocated to various market performance measurement funds. Changes in the value of compensation deferred under these plans are recognized each period based on the fair value of the underlying measurement funds.
The carrying amounts and fair values of financial instruments, other than cash and cash equivalents, receivables, and accounts payable, are shown in the table below. The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term nature of these instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021
|
|
|
Carrying
Amount
|
|
Fair Value
|
Long-term debt (including current portion), excluding unamortized debt issuance costs
|
|
1,019,326
|
|
|
1,084,467
|
|
We used the following methods and assumptions in estimating the fair value of financial instruments:
•Long-term debt is valued by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy.
Derivative financial instruments
We operate internationally and enter into intercompany transactions denominated in foreign currencies. Consequently, we are subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. We regularly use foreign currency forward contracts to reduce our risks related to most of these transactions. These contracts usually have maturities of 90 days or less and generally require us to exchange foreign currencies for U.S. dollars at maturity, at rates stated in the contracts. These contracts are not designated as hedging instruments under U.S. GAAP. Accordingly, the changes in the fair value of the foreign currency forward contracts are recognized in each accounting period in “Other – net” on the Condensed Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. For the three months ended January 31, 2021, we recognized a net gain of $9,342 on foreign currency forward contracts and a realized net loss of $12,102 from the change in fair value of balance sheet positions. For the three months ended January 31, 2020, we recognized a net loss of $431 on foreign currency forward contracts and a net gain of $431 from the change in fair value of balance sheet positions.
The following table summarizes, by currency, the foreign currency forward contracts outstanding at January 31, 2021 and 2020:
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Notional Amounts
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January 31, 2021 contract amounts:
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Sell
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Buy
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Euro
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$
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122,414
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$
|
270,516
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British pound
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20,206
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|
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60,579
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Japanese yen
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|
25,011
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|
|
42,370
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Australian dollar
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|
193
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|
|
9,255
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Hong Kong dollar
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60,949
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88,915
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Singapore dollar
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|
204
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|
16,983
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Others
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9,649
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|
|
81,018
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Total
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$
|
238,626
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|
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$
|
569,636
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Notional Amounts
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January 31, 2020 contract amounts:
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Sell
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Buy
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Euro
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$
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227,292
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|
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$
|
118,275
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British pound
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18,934
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54,818
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Japanese yen
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37,429
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58,672
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Australian dollar
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|
345
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|
|
7,817
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Hong Kong dollar
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|
643
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|
|
152,452
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Singapore dollar
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1,109
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|
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15,987
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Others
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6,505
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|
|
68,395
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Total
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$
|
292,257
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|
|
$
|
476,416
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We are exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments. These financial instruments include cash deposits and foreign currency forward contracts. We periodically monitor the credit ratings of these
counterparties in order to minimize our exposure. Our customers represent a wide variety of industries and geographic regions. For the three months ended January 31, 2021 and 2020, there were no significant concentrations of credit risk.
Long-term debt
A summary of long-term debt is as follows:
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January 31, 2021
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October 31, 2020
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Senior notes, due 2021-2025
|
|
$
|
109,900
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|
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$
|
109,900
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Senior notes, due 2021-2027
|
|
85,714
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|
|
85,714
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Senior notes, due 2023-2030
|
|
350,000
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|
|
350,000
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Term loan, due 2024
|
|
155,000
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|
|
255,000
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Euro loan, due 2023
|
|
321,602
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|
|
308,642
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|
|
|
1,022,216
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|
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1,109,256
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Less current maturities
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38,043
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38,043
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Less unamortized debt issuance costs
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2,889
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|
|
3,261
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Long-term maturities
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$
|
981,284
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|
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$
|
1,067,952
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Revolving credit agreement — 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 five-year term and includes a $75,000 subfacility for swing-line loans. It expires in April 2024. At January 31, 2021 and October 31, 2020, we had no balances outstanding under this facility. We were in compliance with all covenants at January 31, 2021, and the amount we could borrow under the facility would not have been limited by any debt covenants.
Senior notes, due 2021-2025 — These unsecured fixed-rate notes entered into in 2012 with a group of insurance companies had a remaining weighted-average life of 2.08 years. The weighted-average interest rate at January 31, 2021 was 3.07 percent.
Senior notes, due 2021-2027 — These unsecured fixed-rate notes entered into in 2015 with a group of insurance companies had a remaining weighted-average life of 3.66 years. The weighted-average interest rate at January 31, 2021 was 3.06 percent.
Senior notes, due 2023-2030 — These unsecured fixed-rate notes entered into in 2018 with a group of insurance companies had a remaining weighted-average life of 4.79 years. The weighted-average interest rate at January 31, 2021 was 3.90 percent.
Term loan, due 2024 — 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 January 31, 2021, $155,000 was outstanding under this facility. The term loan outstanding under this facility is due in March 2024. The weighted average interest rate for borrowings under this agreement was 0.93 percent at January 31, 2021. We were in compliance with all covenants at January 31, 2021.
Euro loan, due 2023 — 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 January 31, 2021 was 0.71% percent. We were in compliance with all covenants at January 31, 2021.
Contingencies
We are involved in pending or potential litigation regarding environmental, product liability, patent, contract, employee and other matters arising from the normal course of business. Including the litigation and environmental matters discussed below, after consultation with legal counsel, we do not believe that losses in excess of the amounts we have accrued would have a material adverse effect on our financial condition, quarterly or annual operating results or cash flows.
Class Action Litigation
On February 22, 2019, a former employee, Mr. Ortiz, filed a purported class action lawsuit in the San Diego County Superior Court, California, against Nordson Asymtek, Inc. and Nordson Corporation, alleging various violations of the California Labor Code. Plaintiff seeks, among other things, an unspecified amount for unpaid wages, actual, consequential and incidental losses, penalties, and attorneys’ fees and costs. Following mediation in June 2020, the parties agreed to settle the lawsuit, subject to the execution of a written settlement agreement and court approval. If the settlement agreement is approved, the class action lawsuit will be resolved. Management believes, based on currently available information, that the ultimate outcome of the proceeding described above will not have a material adverse effect on the Company’s financial condition or results of operations.
Environmental
We have voluntarily agreed with the City of New Richmond, Wisconsin and other Potentially Responsible Parties to share costs associated with the remediation of the City of New Richmond municipal landfill (the “Site”) and the construction of a potable water delivery system serving the impacted area down gradient of the Site. At January 31, 2021 and October 31, 2020, our accrual for the ongoing operation, maintenance and monitoring obligation at the Site was $360. The liability for environmental remediation represents management’s best estimate of the probable and reasonably estimable undiscounted costs related to known remediation obligations. The accuracy of our estimate of environmental liability is affected by several uncertainties such as additional requirements that may be identified in connection with remedial activities, the complexity and evolution of environmental laws and regulations, and the identification of presently unknown remediation requirements. Consequently, our liability could be greater than our current estimate. However, we do not expect that the costs associated with remediation will have a material adverse effect on our financial condition or results of operations.