NORDSON CORP - Quarter Report: 2020 April (Form 10-Q)

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-7977

NORDSON CORPORATION

(Exact name of registrant as specified in its charter)

Ohio		34-0590250
(State of incorporation)		(I.R.S. Employer Identification No.)

28601 Clemens Road Westlake, Ohio		44145
(Address of principal executive offices)		(Zip Code)

(440) 892-1580

(Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange On Which Registered
Common Shares, without par value		NDSN	Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Shares, without par value as of May 29, 2020: 57,680,280

Nordson Corporation

Table of Contents

PART I – FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME	3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
CONDENSED CONSOLIDATED BALANCE SHEETS	5
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY	6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
Critical Accounting Policies and Estimates	24
Results of Operations	24
Financial Condition	27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4. CONTROLS AND PROCEDURES	29

PART II – OTHER INFORMATION	30

ITEM 1. LEGAL PROCEEDINGS	30
ITEM 1A. RISK FACTORS	30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31
ITEM 6. EXHIBITS	32

SIGNATURE	33

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Nordson Corporation

Part I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Statements of Income

	Three Months Ended						Six Months Ended
	April 30, 2020			April 30, 2019			April 30, 2020			April 30, 2019
(In thousands, except for per share data)
Sales	$	529,478		$	551,119		$	1,024,394		$	1,049,029
Operating costs and expenses:
Cost of sales		239,880			249,590			471,602			478,524
Selling and administrative expenses		164,569			172,633			352,670			357,328
		404,449			422,223			824,272			835,852
Operating profit		125,029			128,896			200,122			213,177
Other income (expense):
Interest expense		(8,293	)		(12,372	)		(18,034	)		(24,738	)
Interest and investment income		278			325			867			642
Other - net		(429	)		(568	)		(3,275	)		(4,757	)
		(8,444	)		(12,615	)		(20,442	)		(28,853	)
Income before income taxes		116,585			116,281			179,680			184,324
Income taxes		24,506			24,358			35,597			43,834
Net income	$	92,079		$	91,923		$	144,083		$	140,490
Average common shares		57,677			57,288			57,672			57,498
Incremental common shares attributable to outstanding stock options, restricted stock, and deferred stock-based compensation		583			768			720			719
Average common shares and common share equivalents		58,260			58,056			58,392			58,217
Basic earnings per share	$	1.60		$	1.60		$	2.50		$	2.44
Diluted earnings per share	$	1.58		$	1.58		$	2.47		$	2.41

See accompanying notes.

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Nordson Corporation

Condensed Consolidated Statements of Comprehensive Income

	Three Months Ended						Six Months Ended
	April 30, 2020			April 30, 2019			April 30, 2020			April 30, 2019
(In thousands)
Net income	$	92,079		$	91,923		$	144,083		$	140,490
Components of other comprehensive income (loss):
Foreign currency translation adjustments		(21,227	)		(9,064	)		(18,434	)		7,399
Amortization of prior service cost and net actuarial losses, net of tax		3,898			1,598			7,127			2,950
Total other comprehensive income (loss)		(17,329	)		(7,466	)		(11,307	)		10,349
Total comprehensive income	$	74,750		$	84,457		$	132,776		$	150,839

See accompanying notes.

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Nordson Corporation

Condensed Consolidated Balance Sheets

	April 30, 2020			October 31, 2019
(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	306,255		$	151,164
Receivables - net		474,913			530,765
Inventories - net		312,118			283,399
Prepaid expenses and other current assets		49,990			45,867
Total current assets		1,143,276			1,011,195
Property, plant and equipment - net		400,103			398,895
Operating right of use lease assets		126,129			—
Goodwill		1,611,340			1,614,739
Intangible assets - net		416,877			445,575
Deferred income taxes		10,841			11,261
Other assets		34,338			34,782
Total assets	$	3,742,904		$	3,516,447
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	79,785		$	85,139
Income taxes payable		15,663			15,601
Accrued liabilities		146,090			161,655
Customer advanced payments		50,453			41,131
Current maturities of long-term debt		43,598			168,738
Operating lease liability - current		18,428			—
Finance lease liability - current		6,172			5,362
Total current liabilities		360,189			477,626
Long-term debt		1,237,225			1,075,404
Operating lease liability - noncurrent		111,836			—
Finance lease liability - noncurrent		11,100			9,513
Deferred income taxes		83,730			83,564
Pension obligations		158,285			158,506
Postretirement obligations		86,950			86,368
Other long-term liabilities		41,095			44,421
Shareholders' equity:
Common shares		12,253			12,253
Capital in excess of stated value		503,841			483,116
Retained earnings		2,847,756			2,747,650
Accumulated other comprehensive loss		(243,188	)		(231,881	)
Common shares in treasury, at cost		(1,468,168	)		(1,430,093	)
Total shareholders' equity		1,652,494			1,581,045
Total liabilities and shareholders' equity	$	3,742,904		$	3,516,447

See accompanying notes.

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Condensed Consolidated Statements of Shareholders’ Equity

	Three and Six Month Period Ended April 30, 2020
(In thousands, except for per share data)	Common Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Common Shares in Treasury, at cost			TOTAL
November 1, 2019	$	12,253	$	483,116		$	2,747,650		$	(231,881	)	$	(1,430,093	)	$	1,581,045
Shares issued under company stock and employee benefit plans		—		12,330			—			—			4,049			16,379
Stock-based compensation		—		6,105			—			—			—			6,105
Purchase of treasury shares (26,223 shares)		—		—			—			—			(4,311	)		(4,311	)
Dividends declared ($0.38 per share)		—		—			(21,915	)		—			—			(21,915	)
Net income		—		—			52,004			—			—			52,004
Impact of adoption of ASU 2016-02 (See Note 2)		—		—			(1,055	)		—			—			(1,055	)
Other Comprehensive Income:
Foreign currency translation adjustments		—		—			—			2,793			—			2,793
Defined benefit pension and post-retirement plans adjustment		—		—			—			3,229			—			3,229
January 31, 2020	$	12,253	$	501,551		$	2,776,684		$	(225,859	)	$	(1,430,355	)	$	1,634,274
Shares issued under company stock and employee benefit plans		—		2,362			—			—			(194	)		2,168
Stock-based compensation		—		(72	)		—			—			—			(72	)
Purchase of treasury shares (300,894 shares)		—		—			—			—			(37,619	)		(37,619	)
Dividends declared ($0.38 per share)		—		—			(21,963	)		—			—			(21,963	)
Net Income		—		—			92,079			—			—			92,079
Impact of adoption of ASU 2016-02 (See Note 2)							956									956
Other Comprehensive Income (Loss):
Foreign currency translation adjustments		—		—			—			(21,227	)		—			(21,227	)
Defined benefit pension and post-retirement plans adjustment		—		—			—			3,898			—			3,898
April 30, 2020	$	12,253	$	503,841		$	2,847,756		$	(243,188	)	$	(1,468,168	)	$	1,652,494

	Three and Six Month Period Ended April 30, 2019
(In thousands, except for per share data)	Common Shares		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Common Shares in Treasury, at cost			TOTAL
November 1, 2018	$	12,253	$	446,555	$	2,488,375		$	(179,314	)	$	(1,317,128	)	$	1,450,741
Shares issued under company stock and employee benefit plans		—		1,016		—			—			2,591			3,607
Stock-based compensation		—		4,359		—			—			—			4,359
Purchase of treasury shares (901,545 shares)		—		—		—			—			(107,667	)		(107,667	)
Dividends declared ($0.35 per share)		—		—		(20,210	)		—			—			(20,210	)
Net income		—		—		48,567			—			—			48,567
Impact of adoption of ASU 2014-09		—		—		4,329			—			—			4,329
Other Comprehensive Income:
Foreign currency translation adjustments		—		—		—			16,463			—			16,463
Defined benefit pension and post-retirement plans adjustment		—		—		—			1,352			—			1,352
January 31, 2019	$	12,253	$	451,930	$	2,521,061		$	(161,499	)	$	(1,422,204	)	$	1,401,541
Shares issued under company stock and employee benefit plans		—		8,116		—			—			2,731			10,847
Stock-based compensation		—		4,869		—			—			—			4,869
Purchase of treasury shares (78,957 shares)		—		—		—			—			(10,422	)		(10,422	)
Dividends declared ($0.35 per share)		—		—		(20,029	)		—			—			(20,029	)
Net Income		—		—		91,923			—			—			91,923
Other Comprehensive Income (Loss):
Foreign currency translation adjustments		—		—		—			(9,064	)		—			(9,064	)
Defined benefit pension and post-retirement plans adjustment		—		—		—			1,598			—			1,598
April 30, 2019	$	12,253	$	464,915	$	2,592,955		$	(168,965	)	$	(1,429,895	)	$	1,471,263

See accompanying notes.

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Nordson Corporation

Condensed Consolidated Statements of Cash Flows

Six months ended	April 30, 2020			April 30, 2019
(In thousands)
Cash flows from operating activities:
Net income	$	144,083		$	140,490
Depreciation and amortization		55,664			55,488
Non-cash stock compensation		6,033			9,228
Deferred income taxes		(5,932	)		(828	)
Other non-cash expense		2,166			1,213
Loss on sale of property, plant and equipment		237			884
Changes in operating assets and liabilities		15,928			(44,563	)
Net cash provided by operating activities		218,179			161,912
Cash flows from investing activities:
Additions to property, plant and equipment		(25,835	)		(26,603	)
Proceeds from sale of property, plant and equipment		104			984
Equity investments		(2,000	)		—
Acquisition of businesses, net of cash acquired		—			(69	)
Net cash used in investing activities		(27,731	)		(25,688	)
Cash flows from financing activities:
Proceeds from long-term debt		165,773			186,084
Repayment of long-term debt		(125,951	)		(125,807	)
Repayment of finance lease obligations		(3,548	)		(2,963	)
Issuance of common shares		18,547			14,454
Purchase of treasury shares		(41,930	)		(118,089	)
Dividends paid		(43,878	)		(40,239	)
Net cash used in financing activities		(30,987	)		(86,560	)

Effect of exchange rate changes on cash		(4,370	)		3,841
Increase in cash and cash equivalents		155,091			53,505
Cash and cash equivalents:
Beginning of year		151,164			95,678
End of period	$	306,255		$	149,183

See accompanying notes.

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Nordson Corporation

Notes to Condensed Consolidated Financial Statements

April 30, 2020

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 otherwise noted, all references to years relate to our fiscal year ending October 31.

1.	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 footnotes 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 and six months ended April 30, 2020 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 footnotes included in our Annual Report on Form 10-K for the year ended October 31, 2019. Certain reclassifications have been made to the prior year financial statements to conform to current year classifications, which included the reclassification of amounts as a result of the realignment of our operating segments. Refer to Note 11 for details on our operating segments.

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 Consolidated Balance Sheets. Revenues deferred as of April 30, 2020 and 2019 were not material.

However, for certain contracts related to the sale of customer-specific products within our Advanced Technology Solutions segment, revenue for these contracts 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 April 30, 2020 and October 31, 2019. 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, general and administrative expenses in our Consolidated Statements of Income.

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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.

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 Note 11 for details on our operating segments.

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 April 30, 2020 were 360. No options were excluded from the calculation of diluted earnings per share for the three months ended April 30, 2019. Options excluded from the calculation of diluted earnings per share for the six months ended April 30, 2020 and 2019 were 180 and 352, respectively.

2.	Recently issued accounting standards

New accounting guidance adopted:

On November 1, 2019, we adopted ASU 2016-02, Accounting Standards Codification (ASC) 842, “Leases.” This standard requires a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than 12 months. We elected to use the transition option, which allows entities to initially apply the new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. We elected the practical expedient package related to the identification of leases in contracts, lease classification, and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before the effective date. As we have not reassessed such conclusions, we did not adopt the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended or terminated, to separate non-lease components within our lease portfolios, or whether a purchase option will be exercised. There was not a material cumulative-effect adjustment to our beginning retained earnings for the adoption of this standard. Upon adoption, we recognized operating right-of-use assets and lease liabilities in our Consolidated Balance Sheet of $130,583 and $134,853 as of November 1, 2019, respectively, and operating right-of-use assets and lease liabilities were $126,129 and $130,264 as of April 30, 2020, respectively. Adoption of the new standard did not have a material impact on our Consolidated Statements of Income and Cash Flows. Refer to Note 14 for further discussion of leases.

New accounting guidance issued and not yet adopted:

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. We will be required to use a current expected credit loss model that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The standard does not prescribe a specific method to make an estimate so the application will require judgment and should consider historical information, current information, and reasonable and supportable forecasts, and includes estimates of prepayment. This guidance will become effective for us on November 1, 2020. We are currently assessing the impact this standard will have on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820),” a new standard which removes, modifies, and adds certain disclosure requirements on fair value measurements. The guidance removes 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 clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The guidance adds disclosure requirements for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value

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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. It will be effective for us beginning November 1, 2020. Early adoption is permitted. We currently do not expect this standard will 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),” a new standard which makes a number of changes 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. It will be effective for us beginning November 1, 2020. Early adoption is permitted. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.

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 requirement 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 of this standard on our Consolidated Financial Statements.

3.	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 Consolidated Statements of Income.

2019 acquisition

On July 1, 2019, we purchased certain assets of Optical Control GmbH & Co. KG (“Optical”), a Nuremberg, Germany designer and developer of high speed, fully automatic counting systems utilizing x-ray technology. This transaction was not material to our Consolidated Financial Statements. We recorded the acquisition of Optical based on the fair value of the assets acquired and the liabilities assumed. Goodwill associated with this acquisition is tax deductible. This acquisition is being reported in our Advanced Technology Solutions segment. As of April 30, 2020, the purchase price allocations remain preliminary as we complete our assessments of income taxes.

2018 acquisitions

On October 17, 2018, we purchased 100 percent of the outstanding shares of Cladach Nua Teoranta (“Clada”), a Galway, Ireland designer and developer primarily focused on medical balloons and balloon catheters. Clada’s technologies are used in key applications such as angioplasty and the treatment of vascular disease. We acquired Clada for an aggregate purchase price of $5,236, which included an earn-out liability of $1,131. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $3,776 and identifiable intangible assets of $697 were recorded. The identifiable intangible assets consist primarily of $58 of customer relationships (amortized over 6 years), $70 of tradenames (amortized over 9 years), $499 of technology (amortized over 7 years) and $70 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.

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On January 2, 2018, we purchased 100 percent of the outstanding shares of Sonoscan, Inc. (“Sonoscan”), an Elk Grove Village, Illinois leading designer and manufacturer of acoustic microscopes and sophisticated acoustic micro imaging systems used in a variety of microelectronic, automotive, aerospace and industrial electronic assembly applications. We acquired Sonoscan for an aggregate purchase price of $46,018, net of $655 of cash. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $22,775 and identifiable intangible assets of $7,910 were recorded. The identifiable intangible assets consist primarily of $1,700 of customer relationships (amortized over 7 years), $3,300 of tradenames (amortized over 11 years), $2,500 of technology (amortized over 7 years) and $410 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.

4.	Inventories

At April 30, 2020 and October 31, 2019, inventories consisted of the following:

	April 30, 2020			October 31, 2019
Finished goods	$	197,276		$	183,973
Raw materials and component parts		107,065			102,044
Work-in-process		55,611			42,904
		359,952			328,921
Obsolescence and other reserves		(42,528	)		(39,377	)
LIFO reserve		(5,306	)		(6,145	)
	$	312,118		$	283,399

5.	Goodwill and other intangible assets

Changes in the carrying amount of goodwill for the six months ended April 30, 2020 by operating segment are as follows:

	Industrial Precision Solutions			Advanced Technology Solutions			Total
Balance at October 31, 2019	$	411,461		$	1,203,278		$	1,614,739
Currency effect		(1,954	)		(1,445	)		(3,399	)
Balance at April 30, 2020	$	409,507		$	1,201,833		$	1,611,340

As part of our change in operating segments as described in Note 11, we considered whether the reporting units used for purposes of assessing impairment of goodwill should be changed and concluded that no changes were necessary.

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Information regarding our intangible assets subject to amortization is as follows:

	April 30, 2020
	Carrying Amount		Accumulated Amortization		Net Book Value
Customer relationships	$	478,457	$	191,300	$	287,157
Patent/technology costs		154,018		77,121		76,897
Trade name		96,437		44,495		51,942
Non-compete agreements		11,490		10,614		876
Other		1,398		1,393		5
Total	$	741,800	$	324,923	$	416,877

	October 31, 2019
	Carrying Amount		Accumulated Amortization		Net Book Value
Customer relationships	$	480,007	$	173,996	$	306,011
Patent/technology costs		154,735		71,663		83,072
Trade name		96,655		41,303		55,352
Non-compete agreements		11,540		10,406		1,134
Other		1,400		1,394		6
Total	$	744,337	$	298,762	$	445,575

Amortization expense for the three months ended April 30, 2020 and 2019 was $14,660 and $14,133, respectively. Amortization expense for the six months ended April 30, 2020 and 2019 was $30,833 and $27,762, respectively.

6.	Pension and other postretirement plans

The components of net periodic pension cost for the three and six months ended April 30, 2020 and 2019 were:

	U.S.						International
Three Months Ended	2020			2019			2020			2019
Service cost	$	5,235		$	3,577		$	459		$	486
Interest cost		4,026			4,492			251			424
Expected return on plan assets		(6,175	)		(5,794	)		(304	)		(407	)
Amortization of prior service credit		(22	)		(15	)		(68	)		(76	)
Amortization of net actuarial loss		3,622			1,544			729			428
Total benefit cost	$	6,686		$	3,804		$	1,067		$	855

	U.S.						International
Six Months Ended	2020			2019			2020			2019
Service cost	$	10,293		$	7,155		$	1,030		$	970
Interest cost		7,943			8,989			514			846
Expected return on plan assets		(12,334	)		(11,597	)		(635	)		(807	)
Amortization of prior service credit		(42	)		(30	)		(142	)		(152	)
Amortization of net actuarial loss		7,019			3,088			1,462			855
Total benefit cost	$	12,879		$	7,605		$	2,229		$	1,712

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The components of other postretirement benefit cost for the three and six months ended April 30, 2020 and 2019 were:

	U.S.						International
Three Months Ended	2020			2019			2020			2019
Service cost	$	143		$	165		$	4		$	6
Interest cost		558			749			3			6
Amortization of prior service credit		(4	)		(6	)		—			—
Amortization of net actuarial (gain) loss		258			152			(9	)		(9	)
Total benefit cost	$	955		$	1,060		$	(2	)	$	3


	U.S.						International
Six Months Ended	2020			2019			2020			2019
Service cost	$	333		$	331		$	7		$	9
Interest cost		1,173			1,497			7			11
Amortization of prior service credit		(8	)		(13	)		—			—
Amortization of net actuarial (gain) loss		677			304			(18	)		(16	)
Total benefit cost	$	2,175		$	2,119		$	(4	)	$	4

The components of net periodic pension cost other than service cost are included in Other – net in our Consolidated Statements of Income.

7.	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 and six months ended April 30, 2020 was 21.0% and 19.8%, respectively. The effective tax rate for the three and six months ended April 30, 2019 was 20.9% and 23.9%, respectively.

Our income tax provision included a discrete tax benefit of $138 and $2,675 due to our share-based payment transactions for the three and six months ended April 30, 2020, respectively. Our income tax provision included a similar discrete tax benefit of $2,149 and $3,017 for the three and six months ended April 30, 2019, respectively.

During the six months ended April 30, 2019, a discrete tax expense of $4,866 was recorded to update the provisional amounts recognized in 2018 due to changes in interpretations and assumptions and the finalization of estimates related to the U.S. Tax Cuts and Jobs Act.

8.	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			Pension and			Accumulated
	translation			postretirement benefit			other comprehensive
	adjustments			plan adjustments			loss
Balance at October 31, 2019	$	(53,332	)	$	(178,549	)	$	(231,881	)
Amortization of prior service costs and net actuarial losses, net of tax of $(2,213)		—			7,127			7,127
Foreign currency translation adjustments		(18,434	)		—			(18,434	)
Balance at April 30, 2020	$	(71,766	)	$	(171,422	)	$	(243,188	)

9.	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.

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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 $2,538 and $2,527 in the three months ended April 30, 2020 and 2019, respectively. Corresponding amounts for the six months ended April 30, 2020 and 2019 were $5,263 and $5,058

The following table summarizes activity related to stock options for the six months ended April 30, 2020:

	Number of Options			Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Remaining Term
Outstanding at October 31, 2019		1,787		$	97.74
Granted		370		$	165.04
Exercised		(228	)	$	81.40
Forfeited or expired		(21	)	$	138.83
Outstanding at April 30, 2020		1,908		$	112.28	$	94,349	6.9 years
Expected to vest		845		$	140.24	$	18,964	8.6 years
Exercisable at April 30, 2020		1,047		$	89.09	$	75,214	5.6 years

As of April 30, 2020, there was $15,769 of total unrecognized compensation cost related to unvested stock options. That cost is expected to be amortized over a weighted average period of approximately 1.7 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:

Six months ended	April 30, 2020	April 30, 2019
Expected volatility	24.5%-29.2%	24.1%-24.5%
Expected dividend yield	0.92%-1.16%	1.04%
Risk-free interest rate	0.50%-1.69%	2.84%-2.95%
Expected life of the option (in years)	5.3-6.2	5.3-6.2

The weighted-average expected volatility used to value the 2020 and 2019 options was 25.1% and 24.3%, 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 six months ended April 30, 2020 and 2019 was $37.81 and $31.74, respectively.

The total intrinsic value of options exercised during the three months ended April 30, 2020 and 2019 was $1,704 and $14,699, respectively. The total intrinsic value of options exercised during the six months ended April 30, 2020 and 2019 was $18,948 and $19,321, respectively.

Cash received from the exercise of stock options for the six months ended April 30, 2020 and 2019 was $18,547 and $14,454, 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.

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For employee recipients, in the event of termination of employment due to early retirement with the consent of the Company, restricted shares granted within 12 months prior to termination are forfeited, and other restricted shares vest on a pro-rata basis. In the event of termination of employment due to normal retirement at age 65, restricted shares granted within 12 months prior to termination are forfeited, and, for other restricted shares, the restriction period will lapse and the shares will vest and be transferable. For restricted shares granted within 12 months prior to termination (or at any time prior to December 28, 2017), the restrictions lapse in the event of a recipient’s disability or death. Termination for any other reason prior to the lapse of any restrictions results in forfeiture of the shares.

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 six months ended April 30, 2020:

	Number of Shares			Weighted-Average Grant Date Fair Value
Restricted shares at October 31, 2019		66		$	126.83
Granted		18		$	162.95
Forfeited		(4	)	$	138.36
Vested		(25	)	$	120.18
Restricted shares at April 30, 2020		55		$	141.09

As of April 30, 2020, there was $4,772 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 April 30, 2020 and 2019 was $688 and $1,167, respectively. These amounts included common share dividends for the three months ended April 30, 2020 and 2019 of $18, respectively. For the six months ended April 30, 2020 and 2019, the amounts charged to expense related to restricted shares were $2,261 and $1,864, respectively. These amounts included common share dividends for the six months ended April 30, 2020 and 2019 of $43 and $36, respectively.

The following table summarizes activity related to restricted share units during the six months ended April 30, 2020:

	Number of Units		Weighted-Average Grant Date Fair Value
Restricted share units at October 31, 2019		—	$	—
Granted		7	$	160.68
Restricted share units at April 30, 2020		7	$	160.68

As of April 30, 2020, there was $591 of remaining expense to be recognized related to outstanding restricted share units, which is expected to be recognized over a weighted average period of 0.5 years. The amount charged to expense related to restricted share units during each of the three months ended April 30, 2020 and 2019 was $298 and $263, respectively. For the six months ended April 30, 2020 and 2019, the corresponding amounts were $584 and $526, 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 $160.02 and $133.01 for 2020, $120.12 and $138.53 for 2019, and $123.45 and $138.53 for 2018. During the three months ended April 30, 2020, $3,703 was credited to expense, and for the three months ended April 30, 2019, $819 was charged to expense. For the six months ended April 30, 2020, $2,282 was credited to expense, and for the six months ended April 30, 2019, $1,596 was charged to expense. The cumulative amount recorded in shareholders’ equity at April 30, 2020 was $2,007.

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Deferred Compensation

Our executive officers and other highly compensated employees may elect to defer up to 100% of their base pay and cash incentive 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 April 30, 2020 and 2019 was $83 and $73, respectively. For the six months ended April 30, 2020 and 2019, the corresponding amounts were $164 and $145, 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 six months ended April 30, 2020:

	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at October 31, 2019		114	$	55.52
Dividend equivalents		—	$	—
Outstanding at April 30, 2020		114	$	55.99

10.	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 Consolidated Balance Sheet.

Following is a reconciliation of the product warranty liability for the six months ended April 30, 2020 and 2019:

	April 30, 2020			April 30, 2019
Beginning balance at October 31	$	11,006		$	12,195
Accruals for warranties		5,429			4,846
Warranty payments		(5,231	)		(5,258	)
Currency effect		(122	)		31
Ending balance	$	11,082		$	11,814

11.	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 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. 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.

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Industrial Precision Solutions: This segment combines our former Adhesive Dispensing Systems (ADS) and Industrial Coating Systems (ICS) businesses. IPS enhances the technology synergies between ADS and ICS to deliver 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 industrial, consumer durables and non-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 financial information presented herein reflects the impact of the preceding changes and prior periods have been revised to reflect these changes.

The following table presents information about our segments:

	Industrial Precision Solutions		Advanced Technology Solutions		Corporate			Total
Three months ended
April 30, 2020
Net external sales	$	282,274	$	247,204	$	—		$	529,478
Operating profit (loss)		76,454		58,689		(10,114	)		125,029
Three months ended
April 30, 2019
Net external sales	$	301,824	$	249,295	$	—		$	551,119
Operating profit (loss)		85,481		56,535		(13,120	)		128,896
Six months ended
April 30, 2020
Net external sales	$	546,073	$	478,321	$	—		$	1,024,394
Operating profit (loss)		132,858		90,976		(23,712	)		200,122
Six months ended
April 30, 2019
Net external sales	$	565,277	$	483,752	$	—		$	1,049,029
Operating profit (loss)		140,890		97,320		(25,033	)		213,177

A reconciliation of total segment operating income to total consolidated income before income taxes is as follows:

	Three Months Ended						Six Months Ended
	April 30, 2020			April 30, 2019			April 30, 2020			April 30, 2019
Total profit for reportable segments	$	125,029		$	128,896		$	200,122		$	213,177
Interest expense		(8,293	)		(12,372	)		(18,034	)		(24,738	)
Interest and investment income		278			325			867			642
Other-net		(429	)		(568	)		(3,275	)		(4,757	)
Income before income taxes	$	116,585		$	116,281		$	179,680		$	184,324

We have significant sales in the following geographic regions:

	Three Months Ended				Six Months Ended
	April 30, 2020		April 30, 2019		April 30, 2020		April 30, 2019
United States	$	188,933	$	190,699	$	377,433	$	361,050
Americas		36,673		43,682		67,756		76,119
Europe		136,056		149,526		262,447		282,200
Japan		31,575		30,031		59,127		59,078
Asia Pacific		136,241		137,181		257,631		270,582
Total net external sales	$	529,478	$	551,119	$	1,024,394	$	1,049,029

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12.	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:

April 30, 2020	Total		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts (a)	$	3,492	$	—	$	3,492	$	—
Total assets at fair value	$	3,492	$	—	$	3,492	$	—
Liabilities:
Deferred compensation plans (b)	$	12,708	$	—	$	12,708	$	—
Foreign currency forward contracts (a)		4,990		—		4,990		—
Total liabilities at fair value	$	17,698	$	—	$	17,698	$	—

October 31, 2019	Total		Level 1		Level 2		Level 3
Assets:
Foreign currency forward contracts (a)	$	5,042	$	—	$	5,042	$	—
Total assets at fair value	$	5,042	$	—	$	5,042	$	—
Liabilities:
Deferred compensation plans (b)	$	11,850	$	—	$	11,850	$	—
Foreign currency forward contracts (a)		2,381		—		2,381		—
Total liabilities at fair value	$	14,231	$	—	$	14,231	$	—

(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.

April 30, 2020

Carrying

Amount

Fair Value

Long-term debt (including current portion), excluding unamortized debt

issuance costs

1,280,823

1,317,424

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.

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13.	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 Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. For the three months ended April 30, 2020, we recognized net losses of $3,728 on foreign currency forward contracts and net gains of $6,720 from the change in fair value of balance sheet positions. For the three months ended April 30, 2019, we recognized net losses of $1,236 on foreign currency forward contracts and net gains of $1,863 from the change in fair value of balance sheet positions. For the six months ended April 30, 2020, we recognized net losses of $4,159 on foreign currency forward contracts and gains of $7,151 from the change in fair value of balance sheet positions. For the six months ended April 30, 2019, we recognized losses of $206 on foreign currency forward contracts and losses of $140 from the change in fair value of balance sheet positions.

The following table summarizes, by currency, the foreign currency forward contracts outstanding at April 30, 2020 and 2019:

	Notional Amounts
April 30, 2020 contract amounts:	Sell		Buy
Euro	$	110,114	$	182,146
British pound		18,987		58,543
Japanese yen		16,301		31,934
Australian dollar		327		7,647
Hong Kong dollar		53,935		60,737
Singapore dollar		1,082		15,620
Others		3,995		61,286
Total	$	204,741	$	417,913

	Notional Amounts
April 30, 2019 contract amounts:	Sell		Buy
Euro	$	401,545	$	279,131
British pound		21,012		44,879
Japanese yen		28,504		46,226
Australian dollar		180		7,771
Hong Kong dollar		1,209		128,710
Singapore dollar		794		15,356
Others		3,128		60,540
Total	$	456,372	$	582,613

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 six months ended April 30, 2020 and 2019, there were no significant concentrations of credit risk.

14.

Leases

We review new contracts to determine if the contracts include a lease. To the extent a lease agreement includes an extension option that is reasonably certain to be exercised, we have recognized those amounts as part of the right-of-use assets and lease liabilities. We combine lease and non-lease components, such as common area maintenance, in the calculation of the lease assets and related liabilities. As most lease agreements do not provide an implicit rate, we use an incremental borrowing rate (IBR) based on information available at the lease commencement date in determining the present value of lease payments and to help classify the lease as operating or financing. We calculate the IBR based on a bond yield curve which considers secured borrowing rates based on our credit rating and current economic environment, as well as other publicly available data.

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We lease certain manufacturing facilities, warehouse space, machinery and equipment, and vehicles. We often have options to renew lease terms for buildings and other assets. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the Consolidated Balance Sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments occur. Variable payments for leases primarily relate to future rates or amounts, miles, or other quantifiable usage factors which are not determinable at the time the lease agreement commences. Finance lease assets are recorded in Property, plant, and equipment – net on the Consolidated Balance Sheet. As of April 30, 2020, we have no material leases that have yet to commence.

Additional lease information is summarized below for the three and six months ended April 30, 2020:

	Three months ended				Six months ended
	April 30, 2020				April 30, 2020
	Finance Leases		Operating Leases		Finance Leases		Operating Leases
Amortization of right of use assets	$	1,799	$	—	$	3,513	$	—
Interest		91		—		174		—
Lease cost⁽¹⁾	$	1,890	$	5,348	$	3,687	$	10,667
Short-term and variable lease cost⁽¹⁾		534		435		823		1,300
Total lease cost		2,424		5,783		4,510		11,967

(1)

Lease costs are recorded in both Cost of sales and Selling and administrative expenses on the Consolidated Statements of Income.

Supplemental cash flow information is summarized below for the six months ended April 30, 2020:

Cash outflows for leases	$	3,548		$	10,635
Weighted average remaining lease term (years)	4.84 years			10.60 years
Weighted average discount rate		2.66	%		1.71	%

The following table reconciles the undiscounted cash flows for five years and thereafter to the operating and finance lease liabilities recognized on the statement of financial position as of April 30, 2020. The reconciliation excludes short-term leases that are not recognized on the Consolidated Balance Sheet.

Year:	Finance Leases		Operating Leases
2020	$	6,503	$	19,870
2021		4,420		17,865
2022		2,694		15,426
2023		1,243		13,128
2024		680		11,350
Later years		3,293		63,655
Total minimum lease payments	$	18,833	$	141,294
Amounts representing interest		1,561		11,030
Present value of minimum lease payments	$	17,272	$	130,264

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15.	Long-term debt

A summary of long-term debt is as follows:

	April 30, 2020		October 31, 2019
Senior notes, due 2020-2025		140,800		140,800
Senior notes, due 2020-2027		92,857		92,857
Senior notes, due 2023-2030		350,000		350,000
Term loan, due 2022-2024		405,000		505,000
Euro loan, due 2023		290,315		128,219
Private shelf facility, due 2020		5,556		30,556
Development loans, due 2020-2026		—		951
		1,284,528		1,248,383
Less current maturities		43,598		168,738
Less unamortized debt issuance costs		3,705		4,241
Long-term maturities	$	1,237,225	$	1,075,404

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 in two tranches: € 115,000 due in March 2023 and an additional € 150,000 that was drawn down in March 2020 and is due in March 2023. The weighted average interest rate at April 30, 2020 was 0.824%. At April 30, 2020, the balance outstanding was € 265,000 ($290,315). We were in compliance with all covenants at April 30, 2020.

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 April 30, 2020, $405,000 was outstanding under this facility. The Term Loan Agreement provides for the following term loans in two tranches: $200,000 due in September 2022, and $205,000 due in March 2024. The weighted average interest rate for borrowings under this agreement was 1.06% at April 30, 2020. We were in compliance with all covenants at April 30, 2020.

In April 2019, we entered into a $850,000 unsecured, multicurrency 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. We had no balances outstanding under this facility at April 30, 2020 and October 31, 2019. We were in compliance with all covenants at April 30, 2020, and the amount we could borrow under the facility would not have been limited by any debt covenants.

In June 2018, we entered into a Note Purchase Agreement with a group of insurance companies under which we sold $350,000 of Senior Notes to the insurance companies and their affiliates. The notes start to mature between June 2023 and June 2030 and bear interest at fixed rates between 3.71% and 4.17%. We were in compliance with all covenants at April 30, 2020.

In July 2015, we entered into a Note Purchase Agreement with a group of insurance companies under which we sold $100,000 of unsecured Senior Notes. At April 30, 2020 and October 31, 2019, there was $92,857 outstanding under this agreement. Existing notes mature between July 2020 and July 2027 and bear interest at fixed rates of 2.89% and 3.19%. We were in compliance with all covenants at April 30, 2020.

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. At April 30, 2020 and October 31, 2019, there was $140,800 outstanding under this agreement. Existing notes mature between July 2020 and July 2025 and bear interest at fixed rates between 2.62% and 3.13%. We were in compliance with all covenants at April 30, 2020.

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 increased to $200,000. At April 30, 2020 and October 31, 2019, $5,556 and $30,556, respectively, was outstanding under this facility. Existing notes mature in September 2020 and bear interest at a fixed rate of 2.21%. We were in compliance with all covenants at April 30, 2020.

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16.	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. Mediation is currently scheduled for June 2020. 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 April 30, 2020 and October 31, 2019, our accrual for the ongoing operation, maintenance and monitoring obligation at the Site was $360 and $401, respectively. 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.

17.	Subsequent event

On June 1, 2020, we acquired Fluortek, Inc., a precision plastic extrusion manufacturer that provides custom dimensioned tubing to the medical device industry. We acquired Fluortek for an aggregate purchase price of $120,000, net of cash and other closing adjustments of approximately $5,000, utilizing cash on hand. This acquisition is being reported in our Advanced Technology Solutions segment, and is not expected to have a material impact on our consolidated financial statements.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is Management's discussion and analysis of certain significant factors affecting our financial condition and results of operations for the periods included in the accompanying condensed consolidated financial statements.

Overview

Founded in 1954, Nordson Corporation delivers precision technology solutions to help customers succeed worldwide. We engineer, manufacture and market differentiated products and systems used for precision dispensing, applying and controlling of adhesives, coatings, sealants, biomaterials, polymers, plastics and other materials; fluid management; test and inspection; and UV curing and plasma surface treatment. These products are supported with extensive application expertise and direct global sales and service. We serve a wide variety of consumer non-durable, consumer durable and technology end-markets including packaging, nonwovens, electronics, medical, appliances, energy, transportation, building and construction, and general product assembly and finishing. We have approximately 7,600 employees and direct operations in more than 35 countries.

On May 8, 2020, we announced that Joseph P. Kelley had been named Executive Vice President and Chief Financial Officer of the Company effective July 6, 2020. Mr. Kelley succeeds Gregory A. Thaxton, who previously announced his plans to retire. Upon Mr. Kelley’s start date, Mr. Thaxton will become Executive Vice President to the Company until he retires on August 28, 2020.

Segment Update

As described in Note 11, effective in the second quarter of 2020, we made changes to realign our management team and our operating segments. 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 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.

The financial information presented herein reflects the impact of the preceding changes and prior periods have been reviewed to reflect these changes.

COVID-19 Update

While the coronavirus (COVID-19) pandemic did not have a material adverse effect on our reported results for the second quarter, we continue to actively monitor the impact of the pandemic, which may negatively impact our business and results of operations for the third quarter and potentially beyond. The extent to which our operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the outbreak or treat its impact, among other things.

As a business supporting multiple “critical infrastructure” sectors by manufacturing materials and products needed for medical supply chains, transportation, energy, communications, and other critical infrastructure industries, we have continued to operate during the course of the COVID-19 pandemic in all of our production facilities, having taken the recommended public health measures to ensure

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worker and workplace safety. We have seen increases globally for several of our products. These products are being deployed in the fight against the COVID-19 pandemic in the medical industry, and are providing basic consumer necessities in the food and packaging industries. We continue to monitor our customers’ demand. As a result, there are practical limits to the extent we can increase output. Additionally, we are taking steps to offset cost increases from pandemic-related supply chain disruptions. For more information about the risks to the Company as a result of the COVID-19 pandemic and its potential impact on our ability to operate, results of operations, financial condition, liquidity and capital investments, see “Part II, Item 1A. Risk Factors” in this report.

Critical Accounting Policies and Estimates

The preparation and fair presentation of the consolidated unaudited interim financial statements and accompanying notes included in this report are the responsibility of management. The financial statements and footnotes have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and contain certain amounts that were based upon management’s best estimates, judgments and assumptions that were believed to be reasonable under the circumstances. On an ongoing basis, we evaluate the accounting policies and estimates used to prepare our financial statements. Estimates are based on historical experience, judgments and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management.

A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Item 7 of our Annual Report on Form 10-K for the year ended October 31, 2019. Other than the adoption of the new lease standard as described in Note 2, there have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended October 31, 2019.

Results of Operations

Sales

Sales – Worldwide sales for the three months ended April 30, 2020 were $529,478, a decrease of 3.9% from sales of $551,119 for the comparable period of 2019. Sales volume decreased 2.5% and unfavorable currency effects decreased sales by 1.4%. While sales were likely negatively impacted by the general decline in the global business environment due to the pandemic, the portion of the sales decline attributable to the pandemic is not determinable.

Sales of the Industrial Precision Solutions segment for the three months ended April 30, 2020 were $282,274 compared to $301,824 in the comparable period of 2019, a decrease of $19,550, or 6.5%. The decrease was due to an organic sales volume decrease of 4.5%, and unfavorable currency effects that decreased sales by 2.0%. Within this segment, sales volume increased in the United States and Japan regions, which was more than offset by softness in all other regions. Growth in our product lines serving consumer non-durable end markets, such as nonwovens, was offset by weakness in sales of product lines serving end markets such as automotive and general industrial.

Sales of the Advanced Technology Solutions segment for the three months ended April 30, 2020 were $247,204 compared to $249,295 in the comparable period of 2019, a decrease of $2,091, or 0.8%. The decrease was due to a sales volume decrease of 0.2% and unfavorable currency effects that decreased sales by 0.6%. The sales volume decrease consisted of 0.8% from an organic volume decrease, partially offset by a 0.6% increase from the first-year effect of the Optical acquisition. Within this segment, sales volume increased in the Asia and Japan regions and was more than offset by softness in all other regions. Growth in product lines serving medical end markets and fluid dispense product lines serving electronics end markets was more than offset by weakness in our test and inspection and fluid dispense product lines serving industrial end markets.

Sales outside the United States accounted for 64.3% of our sales in the three months ended April 30, 2020 compared to 65.4% in the comparable period of 2019. On a geographic basis, sales in the United States were $188,933, a decrease of 0.9% from the comparable period of 2019. The decrease in sales was due to an organic sales volume decrease of 1.2%, offset by a 0.3% increase from acquisitions. In the Americas region, sales were $36,673, a decrease of 16% from the comparable period of 2019, with volume decreasing 11.6% and unfavorable currency effects of 4.4%. The decrease in sales volume consisted of lower organic volume of 11.8%, offset by a 0.2% increase from acquisitions. Sales in Europe were $136,056, a decrease of 9.0% from the comparable period of 2019, with volume decreasing 6.1% and unfavorable currency effects of 2.9%. The decrease in sales volume consisted of lower organic volume of 6.7%, offset by a 0.6% increase from acquisitions. Sales in Japan were $31,575, an increase of 5.1% from the comparable period of 2019, with volume increasing 2.8%, and favorable currency effects of 2.3%. Sales in the Asia Pacific region were $136,241, a decrease of 0.7% from the comparable period of 2019, with volume increasing 0.9%, offset by unfavorable currency effects of 1.6%. The increase in sales volume consisted of organic volume growth of 0.8%, and a 0.1% increase from acquisitions.

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Worldwide sales for the six months ended April 30, 2020 were $1,024,394, a 2.3% decrease from sales of $1,049,029 for the comparable period of 2019. The decrease was due to a sales volume decrease of 1.3%, and unfavorable currency effects that decreased sales by 1.0%. The decrease in sales volume consisted of an organic volume decrease of 1.7%, offset by a 0.4% increase from acquisitions.

Sales of the Industrial Precision Solutions segment for the six months ended April 30, 2020 were $546,073 compared to $565,277 in the comparable period of 2019, a decrease of $19,204, or 3.4%. The decrease was due to an organic sales volume decrease of 1.9%, and unfavorable currency effects that decreased sales by 1.5%. Within this segment, sales volume increased in the United States and Japan, which was more than offset by decreases in all other regions. Growth in our product lines serving consumer non-durable end markets, such as nonwovens, was more than offset by weakness in sales of product lines serving end markets such as automotive and general industrial.

Sales of the Advanced Technology Solutions segment for the six months ended April 30, 2020 were $478,321 compared to $483,752 in the comparable period of 2019, a decrease of $5,431, or 1.1%. The decrease was due to a sales volume decrease of 0.6%, and unfavorable currency effects that decreased sales by 0.5%. The sales volume decrease consisted of 1.4% from an organic volume decrease, partially offset by 0.8% growth from the first year effect of the Optical acquisition. Within this segment, sales volume increased in the Asia Pacific region, was more than offset by softness in all other regions. Growth in product lines serving medical end markets and fluid dispense product lines serving electronic end markets was offset by weakness in our test and inspection and fluid dispense product lines serving industrial end markets.

Sales outside the United States accounted for 63.2% of sales in the six months ended April 30, 2020 compared to 65.6% in the comparable period of 2019. On a geographic basis, sales in the United States were $377,433, an increase of 4.5% from 2019. The increase in sales was due to an organic sales volume increase of 4.2% and a 0.3% increase from acquisitions. In the Americas region, sales were $67,756, a decrease of 11.0% from 2019, with sales volume decreasing 8.3%, and unfavorable currency effects of 2.7%. The decrease in sales volume consisted of 8.6% from an organic volume decrease, partially offset by a 0.3% increase from acquisitions. Sales in Europe were $262,447, a decrease of 7.0% from 2019, with sales volume decreasing 4.6% and unfavorable currency effects of 2.4%. The decrease in sales volume consisted of 5.3% from an organic volume decrease, partially offset by a 0.7% increase from acquisitions. Sales in Japan were $59,127, an increase of 0.1% from 2019, with sales volume decreasing 1.8%, offset by favorable currency effects of 1.9%. The decrease in sales volume consisted of 2.0% from an organic volume decrease, and was partially offset by a 0.2% increase from acquisitions. Sales in the Asia Pacific region were $257,631, a decrease of 4.8% from 2019, with sales volume decreasing 3.7% and unfavorable currency effects of 1.1%. The decrease in sales volume consisted of 3.9% from an organic volume decrease, partially offset by a 0.2% increase from acquisitions.

Operating profit – Cost of sales for the three months ended April 30, 2020 were $239,880, down from $249,590 in the comparable period of 2019. Gross profit, expressed as a percentage of sales, was 54.7%, the same as in 2019.

Cost of sales for the six months ended April 30, 2020 were $471,602, down from $478,524 in the comparable period of 2019. Gross profit, expressed as a percentage of sales, decreased to 54.0% for this same period from 54.4% in 2019. Of the 0.4 percentage point decline in gross margin, unfavorable currency translation effects contributed 0.3 percentage points and unfavorable product mix contributed 0.1 percentage points.

Selling and administrative expenses for the three months ended April 30, 2020 were $164,569, down from $172,633 in the comparable period of 2019. The 4.7% decrease includes 4.2% in support of base business and 1.3% due to favorable currency translation effects. This improvement was partially offset by 0.6% due to the first year effect of acquisitions and 0.2% due to higher severance and restructuring costs.

Selling and administrative expenses for the six months ended April 30, 2020 were $352,670, down from $357,328 in the comparable period of 2019. The 1.3% decrease includes 1.3% in support of base business and 0.9 percentage points in favorable currency translation effects. This improvement was partially offset by 0.5% due to the first year effect of acquisitions and 0.4% due to higher severance and restructuring costs.

Selling and administrative expenses as a percentage of sales decreased to 31.1% for the three months ended April 30, 2020 compared to 31.3% in 2019. Of the 0.2 percentage point decrease, 0.5 percentage points were due to lower base business costs. This improvement was partially offset by 0.2 percentage points due to the first year effect of acquisitions and 0.1 percentage point due to higher severance and restructuring costs.

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Selling and administrative expenses as a percentage of sales increased to 34.4% for the six months ended April 30, 2020 compared to 34.1% in 2019. Of the 0.3 percentage point increase, 0.2 percentage points were due to higher severance and restructuring costs and 0.1 percentage point was due to higher salaries and employee related costs to support our base business.

Operating capacity for each of our segments can support fluctuations in order activity without significant changes in operating costs. Changes in exchange rates can materially impact reported operating margins. Operating margins for each segment were unfavorably impacted by a stronger dollar primarily against the Euro and Chinese Yuan during the first six months of 2020 as compared to the same period in 2019.

Operating profit as a percentage of sales increased to 23.6% for the three months ended April 30, 2020 compared to 23.4% in 2019. Of the 0.2 percentage point increase, lower base business costs contributed 0.5 percentage points and 0.4 percentage points were due to favorable product mix. This improvement was partially offset by 0.4 percentage points due to unfavorable currency translation effects, 0.2 percentage points due to the first year effect of acquisitions, and 0.1 percentage point due to higher severance and restructuring costs.

Operating profit as a percentage of sales decreased to 19.5% for the six months ended April 30, 2020 compared to 20.3% in 2019. Of the 0.8 percentage point decrease, unfavorable currency translation effects contributed 0.3 percentage points, higher severance and restructuring costs contributed 0.2 percentage points, unfavorable absorption due to lower sales volume and unfavorable product mix contributed 0.3 percentage points.

For the Industrial Precision Solutions segment, operating profit as a percentage of sales decreased to 27.1% for the three months ended April 30, 2020 compared to 28.3% in 2019. Of the 1.2 percentage point decrease in operating margin, 0.6 percentage points were due to unfavorable absorption due to lower sales volume and unfavorable product mix, 0.5 percentage points were due to unfavorable currency translation effects, and 0.1 percentage point was due to higher severance and restructuring costs.

For the Industrial Precision Solutions segment, operating profit as a percentage of sales decreased to 24.3% for the six months ended April 30, 2020 compared to 24.9% for the comparable period of 2019. Of the 0.6 percentage point decline in operating margin, unfavorable currency translation effects contributed 0.4 percentage points and unfavorable absorption due to lower sales volume contributed 0.3 percentage points. These decreases were partially offset by 0.1 percentage point due to lower severance and restructuring expenses.

For the Advanced Technology Solutions segment, operating profit as a percentage of sales increased to 23.7% for the three months ended April 30, 2020 compared to 22.7% in 2019. Of the 1.0 percentage point improvement in operating margin, favorable product mix contributed 1.1 percentage points and lower base business costs contributed 0.5 percentage points. These increases were partially offset by 0.4 percentage points due to the first year effect of acquisitions and 0.2 percentage points due to unfavorable currency translation effects.

For the Advanced Technology Solutions segment, operating profit as a percentage of sales decreased to 19.0% for the six months ended April 30, 2020 compared to 20.1% for the comparable period of 2019. Of the 1.1 percentage point decrease in operating margin, higher severance and restructuring costs contributed 0.6 percentage points, unfavorable product mix contributed 0.3 percentage points, and unfavorable currency translation effects contributed 0.2 percentage points.

Interest and other income (expense) - Interest expense for the three months ended April 30, 2020 was $8,293, down from $12,372 for the comparable period of 2019. Interest expense for the six months ended April 30, 2020 was $18,034, down from $24,738 for the comparable period of 2019. These decreases were primarily due to lower average debt levels and lower interest rates compared to the prior year.

Other expense was $429 for the three months ended April 30, 2020, compared to other expense of $568 for the comparable period of 2019. Included in the current quarter’s other expense were pension costs of $2,851, offset by foreign currency gains of $2,992. Included in the prior year’s other expense were $1,489 of pension costs, partially offset by $627 of foreign currency gains.

Other expense was $3,275 for the six months ended April 30, 2020, compared to $4,757 for the comparable period of 2019. Included in the current year’s other expense were pension costs of $5,615, offset by foreign currency gains of $2,992. Included in the prior year’s other expense were $2,980 of pension costs and $346 of foreign currency losses.

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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. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. We have considered several factors in determining the probability of realizing deferred income tax assets which include forecasted operating earnings, available tax planning strategies and the time period over which the temporary differences will reverse. We review our tax positions on a regular basis and adjust the balances as new information becomes available. The effective tax rate for the three and six months ended April 30, 2020 was 21.0% and 19.8%, respectively. The effective tax rate for the three and six months ended April 30, 2019 was 20.9% and 23.9%, respectively.

Net income – Net income for the three months ended April 30, 2020, was $92,079, or $1.58 per diluted share, compared to $91,923, or $1.58 per diluted share, in the same period of 2019. This represents a 0.2% increase in net income. Net income for the three months ended April 30, 2020 was comparable to the same period of 2019 as lower sales were offset by reduced selling and administrative expenses and lower interest expense. For the six months ended April 30, 2020, net income was $144,083, or $2.47 per diluted share, compared to $140,490, or $2.41 per diluted share, in the same period of 2019. This represents a 2.6% increase in net income and a 2.5% increase in diluted earnings per share. These increases are due primarily to lower income tax and interest expenses in the current year.

Foreign Currency Effects

In the aggregate, average exchange rates for 2020 used to translate international sales and operating results into U.S. dollars were generally unfavorable compared with average exchange rates existing during 2019. It is not possible to precisely measure the impact on operating results arising from foreign currency exchange rate changes, because of changes in selling prices, sales volume, product mix and cost structure in each country in which we operate. However, if transactions for the three months ended April 30, 2020 were translated at exchange rates in effect during the same period of 2019, sales would have been approximately $7,700 higher while third-party costs and expenses would have been approximately $3,600 higher. If transactions for the six months ended April 30, 2020 were translated at exchange rates in effect during the same period of 2019, sales would have been approximately $10,500 higher while third-party costs and expenses would have been approximately $5,000 higher.

Financial Condition

Liquidity and Capital Resources

During the six months ended April 30, 2020, cash and cash equivalents increased $155,091. Cash provided by operations during this period was $218,179, compared to $161,912 for the six months ended April 30, 2019. Cash of $202,251 was generated from net income adjusted for non-cash income and expenses (consisting of depreciation and amortization, non-cash stock compensation, deferred income taxes, other non-cash expense and loss on sale of property, plant and equipment), compared to $206,475 for the comparable period of 2019. Changes in operating assets and liabilities increased cash by $15,928 in the six months ended April 30, 2020, compared to decreasing cash by $44,563 in the comparable period of 2019. The primary reason for this increase was due to higher collections of receivables.

Cash used in investing activities was $27,731 for the six months ended April 30, 2020, compared to $25,688 in the comparable period of 2019. Capital expenditures in the six months ended April 30, 2020 were $25,835, compared to $26,603 in the comparable period of 2019.

Cash used in financing activities was $30,987 for the six months ended April 30, 2020, compared to $86,560 used in the comparable period of 2019. Net Proceeds of long-term debt were $39,822 during the six months ended April 30, 2020, compared to net proceeds of long-term debt of $60,277 in the prior year period. Cash of $41,930 was used for the purchase of treasury shares associated with employee benefit plans and cash of $43,878 was used for dividend payments in the current year period, compared to $118,089 and $40,239, respectively, in the comparable period of 2019. Issuance of common shares related to employee benefit plans generated $18,547 during the six months ended April 30, 2020 compared to $14,454 in the comparable period of 2019.

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The following is a summary of significant changes in balance sheet captions from October 31, 2019 to April 30, 2020. Receivables decreased $55,852 due to higher collections. Current maturities of long-term debt decreased $125,140 primarily driven by a payment of $100,000 on our Term Loan Agreement and a $25,000 payment on our notes issued under our agreement with New York Life. Long-term debt increased $161,821 primarily due to net borrowings of our long-term debt, partially offset by the payments related to current maturities noted above.

In December 2014, the board of directors authorized a $300,000 common share repurchase program. In August 2015, the board of directors authorized the repurchase of up to an additional $200,000 of the Company’s common shares. In August 2018, the board of directors authorized the repurchase of an additional $500,000 of the Company’s common shares. Approximately $447,703 of the total $1,000,000 authorized remained available for share repurchases at April 30, 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.

Contractual Obligations

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 in two tranches: € 115,000 due in March 2023 and an additional € 150,000 that was drawn down in March 2020 and is due in March 2023. The weighted average interest rate at April 30, 2020 was 0.824%. At April 30, 2020, the balance outstanding was € 265,000 ($290,315). We were in compliance with all covenants at April 30, 2020.

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 April 30, 2020, $405,000 was outstanding under this facility. The Term Loan Agreement provides for the following two tranches: $200,000 due in September 2022, and $205,000 due in March 2024. The weighted average interest rate for borrowings under this agreement was 1.06% at April 30, 2020. We were in compliance with all covenants at April 30, 2020.

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Outlook

We are optimistic about our longer-term growth opportunities in the diverse consumer non-durable, industrial, medical, electronics, consumer durable and automotive end markets we serve. We also support our customers with parts and consumables, where a significant percentage of our revenue is recurring. For 2020, due to the uncertainties of the duration and impact of the COVID-19 pandemic, we have suspended our previously announced annual guidance.

We move forward with caution given the potential for a lower-growth macroeconomic environment, continued trade negotiations between the U.S. and other countries and the marketplace effects of political instability in certain areas of the world. We are also monitoring the COVID-19 pandemic. While the COVID-19 pandemic did not have a material adverse effect on our reported results for the second quarter, we are continuing to actively monitor the impact of the pandemic, which may negatively impact our business and results of operations for the third quarter and potentially beyond. We are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows.

Though the status of the global economy remains unclear, our growth potential has been demonstrated over time through our ability to build and enhance our core businesses by entering emerging markets, pursuing market adjacencies and driving growth initiatives. We drive value for our customers through our application expertise, differentiated technology, and direct sales and service support. Our priorities also are focused on operational efficiencies by employing continuous improvement methodologies in our business processes. We expect our efforts will continue to provide more than sufficient cash from operations to meet our liquidity needs, pay dividends to common shareholders and enable us to invest in the development of new applications and markets for our technologies.

Safe Harbor Statements Under The Private Securities Litigation Reform Act Of 1995

This Form 10-Q, particularly the “Management’s Discussion and Analysis”, 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 and the U.S. and global economies. Statements in this Form 10-Q 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 actual results to differ materially from the expected results are discussed in Part I, Item 1A, Risk Factors in our Form 10-K for the year ended October 31, 2019 and in Part II, Item 1A, Risk Factors in this report.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information regarding our financial instruments that are sensitive to changes in interest rates and foreign currency exchange rates was disclosed under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the year ended October 31, 2019. The information disclosed has not changed materially in the interim period since then.

ITEM 4.

CONTROLS AND PROCEDURES

Our management with the participation of the principal executive officer (President and Chief Executive Officer) and principal financial officer (Executive Vice President, Chief Financial Officer) has reviewed and evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act Rule 13a-15(e)) as of April 30, 2020. Based on that evaluation, our management, including the principal executive and financial officers, has concluded that our disclosure controls and procedures were effective as of April 30, 2020 in ensuring that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the three months ended April 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Nordson Corporation

Part II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Class Action Litigation

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 April 30, 2020 and October 31, 2019, our accrual for the ongoing operation, maintenance and monitoring obligation at the Site was $360 and $401, respectively. 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 different 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.

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended October 31, 2019 (the “2019 Form 10-K”). Many of the risks identified in the 2019 Form 10-K are, and will be further, exacerbated by the impact of the COVID-19 pandemic and the actions taken by governmental entities, businesses, individuals and others in response to the pandemic. Other than as set forth below, there have been no material changes to the risk factors previously disclosed in the 2019 Form 10-K.

The COVID-19 pandemic may have a negative impact, which could be material, on our ability to operate, results of operations, financial condition, liquidity and capital investments.

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. The pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, social distancing protocols, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

We manufacture and provide essential products and services to a variety of critical infrastructure customers around the globe, and we intend to continue providing our products and services to these customers. However, any negative impact of the COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments. In addition, preventive measures we may voluntarily put in place may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures, disruptions to the businesses of our channel partners and other potential adverse effects. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain, as well as decreased customer demand for our products and services. These issues may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization and capital investments. The long-term economic impact and near-term financial impacts of the COVID-19 pandemic cannot be reasonably estimated at this time due to the uncertainty of future developments.

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Nordson Corporation

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes common stock repurchased by the Company during the three months ended April 30, 2020:

					Total Number of		Approximate Dollar Value
					Shares Purchased		of Shares that
	Total Number		Average		as Part of Publicly		May Yet Be Purchased
	of Shares		Price Paid		Announced Plans		Under the Plans
	Purchased⁽¹⁾		per Share		or Programs⁽²⁾		or Programs⁽²⁾
February 1, 2020 to February 29, 2020		—		—		—	$	485,242
March 1, 2020 to March 31, 2020		212		120.71		212	$	459,543
April 1, 2020 to April 30, 2020		88		135.33		88	$	447,703
Total		300				300

(1)

Includes shares tendered for taxes related to vesting of restricted stock.

(2)

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Nordson Corporation

ITEM 6.

EXHIBITS


31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 by the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 by the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101		The following financial information from Nordson Corporation’s Quarterly Report on Form 10-Q for the three months ended April 30, 2020, formatted in inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Statements of Income for the three and six months ended April 30, 2020 and 2019, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended April 30, 2020 and 2019, (iii) the Condensed Consolidated Balance Sheets at April 30, 2020 and October 31, 2019, (iv) the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended April 30, 2020 and 2019, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2020 and 2019, and (vi) the Notes to Condensed Consolidated Financial Statements.

104		The cover page from Nordson Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2020, formatted in inline Extensible Business Reporting Language (iXBRL) (included in Exhibit 101).

*	Furnished herewith.

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Nordson Corporation

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 5, 2020		Nordson Corporation

		By: /s/ Gregory A. Thaxton
		Gregory A. Thaxton
		Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)

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