Nordson(NDSN) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents Nordson Corporation's unaudited condensed consolidated financial statements for the three and six months ended April 30, 2022, including statements of income, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes on significant accounting policies, acquisitions, and other financial components Condensed Consolidated Statements of Income Three Months Ended April 30: | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Sales | $635,403 | $589,538 | | Operating profit | $183,973 | $166,391 | | Net income | $109,634 | $124,144 | | Basic earnings per share | $1.90 | $2.14 | | Diluted earnings per share | $1.88 | $2.12 | Six Months Ended April 30: | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Sales | $1,244,569 | $1,116,104 | | Operating profit | $339,833 | $275,416 | | Net income | $230,043 | $201,726 | | Basic earnings per share | $3.97 | $3.47 | | Diluted earnings per share | $3.93 | $3.44 | Consolidated Statements of Comprehensive Income Three Months Ended April 30 (in thousands): | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $109,634 | $124,144 | | Foreign currency translation adjustments | $(46,901) | $(6,943) | | Pension settlement adjustment, net of tax | $32,047 | $4,581 | | Amortization of prior service cost and net actuarial losses, net of tax | $2,778 | $3,804 | | Total other comprehensive income (loss) | $(12,076) | $1,442 | | Total comprehensive income | $97,558 | $125,586 | Six Months Ended April 30 (in thousands): | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $230,043 | $201,726 | | Foreign currency translation adjustments | $(60,259) | $21,490 | | Pension settlement adjustment, net of tax | $32,047 | $4,581 | | Amortization of prior service cost and net actuarial losses, net of tax | $5,838 | $6,801 | | Total other comprehensive income (loss) | $(22,374) | $32,872 | | Total comprehensive income | $207,669 | $234,598 | Consolidated Balance Sheets As of (in thousands): | Asset | April 30, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $120,892 | $299,972 | | Total current assets | $1,059,839 | $1,164,838 | | Goodwill | $1,821,091 | $1,713,148 | | Total assets | $3,796,343 | $3,790,961 | | Liability & Equity | April 30, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Total current liabilities | $722,498 | $445,394 | | Long-term debt | $479,703 | $781,709 | | Total shareholders' equity | $2,190,616 | $2,159,130 | | Total liabilities and shareholders' equity | $3,796,343 | $3,790,961 | Consolidated Statements of Shareholders' Equity Shareholders' Equity Changes (November 1, 2021 to April 30, 2022, in thousands): | Item | Amount | | :--- | :--- | | Balance at November 1, 2021 | $2,159,130 | | Shares issued under company stock and employee benefit plans | $7,798 | | Stock-based compensation | $15,786 | | Purchase of treasury shares | $(140,466) | | Dividends paid | $(59,301) | | Net income | $230,043 | | Other Comprehensive Income (Loss) | $(22,374) | | Balance at April 30, 2022 | $2,190,616 | Condensed Consolidated Statements of Cash Flows Six Months Ended April 30 (in thousands): | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $214,501 | $247,714 | | Net cash used in investing activities | $(196,374) | $(13,681) | | Net cash used in financing activities | $(192,935) | $(310,333) | | Effect of exchange rate changes on cash | $(4,272) | $1,327 | | Decrease in cash and cash equivalents | $(179,080) | $(74,973) | | Cash and cash equivalents at end of period | $120,892 | $133,320 | Notes to Condensed Consolidated Financial Statements NOTE REGARDING AMOUNTS AND FISCAL YEAR REFERENCES - All amounts related to United States dollars, foreign currency, and common shares (except per share earnings and dividends) are expressed in thousands. All references to years relate to the fiscal year ending October 31[21] Significant Accounting Policies - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all information required for complete financial statements[22] - Revenue is generally recognized at a point in time when product is shipped or control transfers to the customer, except for certain customer-specific products in the Advanced Technology Solutions segment where revenue is recognized over time using the input method (costs incurred)[25][26][27] Acquisitions - On November 1, 2021, Nordson acquired 100% of NDC Technologies, a global provider of precision measurement solutions, for an aggregate purchase price of $171,613 thousand[35] - The acquisition resulted in $129,856 thousand in goodwill and $31,130 thousand in identifiable intangible assets (tradenames, technology, customer relationships, non-compete agreements)[35] - NDC Technologies is being reported in the Industrial Precision Solutions segment, and its results are not material to the Consolidated Financial Statements[35] Receivables Allowance for Credit Losses (in thousands): | Date | Amount | | :--- | :--- | | April 30, 2022 | $8,300 | | October 31, 2021 | $7,552 | Provision for Losses on Receivables (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $180 | $301 | | Six months ended April 30 | $651 | $404 | Inventories Components of Inventories (in thousands): | Component | April 30, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Finished goods | $235,511 | $211,628 | | Raw materials and component parts | $141,397 | $111,089 | | Work-in-process | $65,883 | $54,557 | | Obsolescence and other reserves | $(59,576) | $(50,079) | | Total Inventories - net | $383,215 | $327,195 | Property, Plant and Equipment Property, Plant and Equipment - Net (in thousands): | Date | Amount | | :--- | :--- | | April 30, 2022 | $357,561 | | October 31, 2021 | $355,565 | Depreciation Expense (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $12,393 | $12,700 | | Six months ended April 30 | $24,698 | $25,639 | Goodwill and Other Intangible Assets Goodwill by Operating Segment (in thousands): | Segment | October 31, 2021 | Acquisitions | Currency Effect | April 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Industrial Precision Solutions | $415,020 | $129,856 | $(12,431) | $532,445 | | Advanced Technology Solutions | $1,298,128 | — | $(9,482) | $1,288,646 | | Total | $1,713,148 | $129,856 | $(21,913) | $1,821,091 | Intangible Assets Subject to Amortization (April 30, 2022, in thousands): | Type | Carrying Amount | Accumulated Amortization | Net Book Value | | :--- | :--- | :--- | :--- | | Customer relationships | $485,584 | $238,359 | $247,225 | | Patent/technology costs | $160,542 | $92,682 | $67,860 | | Trade name | $83,806 | $42,209 | $41,597 | | Non-compete agreements | $10,448 | $9,184 | $1,264 | | Other | $1,209 | $1,203 | $6 | | Total | $741,589 | $383,637 | $357,952 | Amortization Expense (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $12,572 | $12,617 | | Six months ended April 30 | $25,657 | $25,697 | Pension and Other Postretirement Plans - During Q2 2022, the Company completed a partial plan settlement for two U.S. pension plans, using $171,181 thousand in plan assets to purchase a group annuity contract, resulting in a $41,221 thousand settlement loss included in Other-net[43] Total U.S. Pension Benefit Cost (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $44,009 | $7,920 | | Six months ended April 30 | $47,679 | $13,827 | Income Taxes (Note) Effective Tax Rate: | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | 21.3% | 20.3% | | Six months ended April 30 | 21.0% | 20.5% | Discrete Tax Benefit from Share-Based Payments (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $309 | $1,796 | | Six months ended April 30 | $1,424 | $2,595 | Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss (in thousands): | Component | October 31, 2021 | April 30, 2022 | | :--- | :--- | :--- | | Cumulative translation adjustments | $(33,389) | $(93,648) | | Pension and postretirement benefit plan adjustments | $(142,446) | $(104,561) | | Total Accumulated other comprehensive income (loss) | $(175,835) | $(198,209) | Stock-Based Compensation - The 2021 Stock Incentive and Award Plan authorized a maximum of 900 thousand common shares for grant, with 2,126 thousand shares available as of April 30, 2022[51] Stock Option Compensation Expense (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $2,391 | $1,565 | | Six months ended April 30 | $4,163 | $3,801 | Unrecognized Compensation Cost for Stock Options: $9,848 thousand, expected to be amortized over approximately 1.1 years[52][54] Restricted Share Units Expense (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $1,819 | $2,192 | | Six months ended April 30 | $4,092 | $4,284 | Unrecognized Compensation Cost for Restricted Share Units: $13,426 thousand, expected to be recognized over approximately 1.0 year[62] Warranties Product Warranty Liability Reconciliation (Six Months Ended April 30, in thousands): | Item | 2022 | 2021 | | :--- | :--- | :--- | | Beginning balance at October 31 | $11,113 | $10,550 | | Accruals for warranties | $7,557 | $7,708 | | Warranty payments | $(6,773) | $(8,200) | | Currency effect | $(446) | $197 | | Ending balance | $11,451 | $10,255 | Operating Segments - Nordson operates through two primary segments: Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS)[70] Net External Sales by Segment (Three Months Ended April 30, 2022, in thousands): | Segment | Sales | | :--- | :--- | | Industrial Precision Solutions | $316,434 | | Advanced Technology Solutions | $318,969 | | Total | $635,403 | Operating Profit by Segment (Three Months Ended April 30, 2022, in thousands): | Segment | Operating Profit | | :--- | :--- | | Industrial Precision Solutions | $102,196 | | Advanced Technology Solutions | $98,458 | | Corporate | $(16,681) | | Total | $183,973 | Net External Sales by Geographic Region (Six Months Ended April 30, 2022, in thousands): | Region | Sales | | :--- | :--- | | United States | $409,885 | | Americas | $103,769 | | Europe | $328,241 | | Japan | $51,001 | | Asia Pacific | $351,673 | | Total | $1,244,569 | Fair Value Measurements - The Company classifies fair value measurements into Level 1 (quoted market prices), Level 2 (observable market-based inputs), and Level 3 (unobservable inputs)[74] Assets and Liabilities Measured at Fair Value (April 30, 2022, in thousands): | Item | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Foreign currency forward contracts (assets) | $5,389 | — | $5,389 | — | | Deferred compensation plans (liabilities) | $10,407 | — | $10,407 | — | | Foreign currency forward contracts (liabilities) | $19,819 | — | $19,819 | — | Derivative Financial Instruments - Nordson uses foreign currency forward contracts to mitigate market risk from exchange rate movements on intercompany transactions, with maturities typically 90 days or less[78] Net Gain/Loss on Foreign Currency Forward Contracts and Balance Sheet Positions (in thousands): | Period | Forward Contracts | Balance Sheet Positions | | :--- | :--- | :--- | | Three months ended April 30, 2022 | $(9,080) (loss) | $10,079 (gain) | | Three months ended April 30, 2021 | $(8,133) (loss) | $7,357 (gain) | | Six months ended April 30, 2022 | $(12,678) (loss) | $14,041 (gain) | | Six months ended April 30, 2021 | $1,209 (gain) | $(4,746) (loss) | Long-Term Debt Long-Term Debt Summary (in thousands): | Debt Type | April 30, 2022 | October 31, 2021 | | :--- | :--- | :--- | | Notes payable | $961 | $3,545 | | Revolving credit agreement, due 2024 | $4,000 | — | | Senior notes, due 2022-2025 | $79,000 | $79,000 | | Senior notes, due 2022-2027 | $78,572 | $78,572 | | Senior notes, due 2023-2030 | $350,000 | $350,000 | | Euro loan, due 2023 | $279,329 | $306,358 | | Total | $791,862 | $817,475 | | Less current maturities and notes payable | $(310,892) | $(34,188) | | Less unamortized debt issuance costs | $(1,267) | $(1,578) | | Long-term maturities | $479,703 | $781,709 | - The Company was in compliance with all debt covenants as of April 30, 2022[85] Contingencies (Note) - The Company is involved in various legal proceedings but does not believe that losses in excess of accrued amounts would materially adversely affect its financial condition, operating results, or cash flows[86] - The accrual for environmental remediation at the City of New Richmond municipal landfill was $313 thousand at April 30, 2022, and $319 thousand at October 31, 2021[87] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Nordson Corporation's financial performance and condition for the periods ended April 30, 2022, highlighting sales growth drivers, profitability changes, the impact of the NDC acquisition and COVID-19, and the company's liquidity and capital resources Overview - Nordson Corporation is an innovative precision technology company focused on delivering top-tier growth with leading margins and returns through a direct sales model and applications expertise[90] - The Company serves diverse end markets including consumer non-durable, medical, electronics, and industrial, with approximately 7,200 employees and operations in over 35 countries[90] COVID-19 Update - Nordson has supported 'critical infrastructure' sectors throughout the COVID-19 pandemic, benefiting from geographical and product diversification[92] - COVID-19 lockdowns in China negatively impacted revenue growth in Asia-Pacific during the second quarter of 2022[93] NDC Acquisition (MD&A) - The NDC acquisition, completed on November 1, 2021, integrated a test and inspection business into the Industrial Precision Solutions segment to leverage growth opportunities in shared industrial and consumer non-durable end markets[94] Critical Accounting Policies and Estimates - There have been no significant changes in critical accounting policies, management estimates, or accounting policies since the fiscal year ended October 31, 2021[95] Results of Operations Three Months Ended April 30, 2022 - Worldwide sales increased by 7.8% to $635,403 thousand, driven by a 7.0% increase in organic sales volume and a 3.6% increase from acquisitions, partially offset by a 2.8% unfavorable currency translation effect[96] - Gross profit margin decreased by 1.0 percentage point to 56.3% due to unfavorable sales mix and cost inflation in material, labor, and logistics[98] - Operating profit increased to $183,973 thousand, with operating profit as a percentage of sales rising to 29.0% due to organic sales volume growth and selling and administrative expense leverage, despite unfavorable currency effects and sales mix[100] - Net income decreased by 11.7% to $109,634 thousand, or $1.88 per diluted share, primarily due to $41,221 thousand in non-cash pension settlement charges (after-tax impact of $32,450 thousand or $0.56 per diluted share)[101][102] Industrial Precision Solutions (MD&A) - Sales for the Industrial Precision Solutions segment increased by 5.9% to $316,434 thousand, with organic sales volume up 2.8% and acquisitions contributing 7.1%, offset by a 4.0% unfavorable currency effect[103] - Operating profit as a percentage of sales declined by 2.6 percentage points to 32.3%, mainly due to unfavorable sales mix and currency translation effects, despite favorable sales volume leverage[104] Advanced Technology Solutions (MD&A) - Sales for the Advanced Technology Solutions segment increased by 9.7% to $318,969 thousand, driven by an 11.3% organic sales volume increase, partially offset by a 1.6% unfavorable currency effect[105] - Operating profit as a percentage of sales improved by 4.6 percentage points to 30.9%, attributed to organic sales volume growth, favorable selling and administrative expense leverage, product sales mix, manufacturing efficiencies, and pricing actions[106] Six Months Ended April 30, 2022 - Worldwide sales increased by 11.5% to $1,244,569 thousand, driven by an 11.2% increase in organic sales volume and a 2.7% net increase from acquisitions/divestitures, partially offset by a 2.4% unfavorable currency translation effect[107] - Gross profit margin slightly decreased by 0.1 percentage point to 56.1% due to unfavorable mix, increased freight, and inflationary pressures, largely offset by favorable sales volume leverage, manufacturing efficiencies, and pricing[109] - Operating profit increased to $339,833 thousand, with operating profit as a percentage of sales rising by 2.6 percentage points to 27.3%, driven by organic sales volume growth and selling and administrative expense leverage[111] - Net income increased by 14.0% to $230,043 thousand, or $3.93 per diluted share, despite non-cash pension settlement charges of $41,221 thousand (after-tax impact of $32,450 thousand or $0.56 per diluted share)[112][113] Industrial Precision Solutions (MD&A) (Six Months) - Sales for the Industrial Precision Solutions segment increased by 9.1% to $640,367 thousand, with organic sales volume up 7.3% and acquisitions/divestitures contributing 5.3%, offset by a 3.5% unfavorable currency effect[114] - Operating profit as a percentage of sales slightly decreased to 31.9%, reflecting the first-year effect of acquisitions and unfavorable product mix, largely offset by divestiture benefits and selling and administrative expense leverage[115] Advanced Technology Solutions (MD&A) (Six Months) - Sales for the Advanced Technology Solutions segment increased by 14.2% to $604,202 thousand, driven by a 15.4% organic sales volume increase, partially offset by a 1.2% unfavorable currency effect[116] - Operating profit as a percentage of sales improved by 5.5 percentage points to 28.9%, primarily due to greater selling and administrative expense leverage (4.7 percentage points) and the organic sales volume increase[117] Income Taxes (MD&A) Effective Tax Rate: | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | 21.3% | 20.3% | | Six months ended April 30 | 21.0% | 20.5% | Discrete Tax Benefit from Share-Based Payments (in thousands): | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three months ended April 30 | $309 | $1,796 | | Six months ended April 30 | $1,424 | $2,595 | Foreign Currency Effects - Unfavorable average exchange rates in 2022 compared to 2021 are estimated to have reduced sales by approximately $16,500 thousand and increased costs by $8,400 thousand for the three months ended April 30, 2022[120] - For the six months ended April 30, 2022, sales are estimated to have been approximately $26,300 thousand higher and costs $14,400 thousand higher if translated at 2021 exchange rates[120] Financial Condition Liquidity and Capital Resources - Cash and cash equivalents decreased by $179,080 thousand during the six months ended April 30, 2022, primarily due to the NDC acquisition and treasury share purchases, partially offset by cash from operations[121] Cash Flow Summary (Six Months Ended April 30, in thousands): | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $214,501 | $247,714 | | Net cash used in investing activities | $(196,374) | $(13,681) | | Net cash used in financing activities | $(192,935) | $(310,333) | - Significant balance sheet changes include a $56,020 thousand increase in inventories (due to supply chain management and NDC acquisition) and a $129,856 thousand increase in goodwill (due to NDC acquisition)[124] Outlook - Backlog entering the second half of fiscal year 2022 exceeds $1 billion, driven by large orders in electronics, industrial, and medical end markets[126] - For fiscal year 2022, the Company expects year-over-year revenue growth of 8% to 9% and earnings per share growth compared to fiscal year 2021[126] Safe Harbor Statements Under The Private Securities Litigation Reform Act of 1995 - This section contains forward-looking statements subject to risks and uncertainties, including economic conditions, currency exchange rates, acquisitions, divestitures, trade policy, tax law changes, and events beyond control like pandemics and political unrest[127] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section refers to the Company's 2021 Form 10-K for detailed information on financial instruments sensitive to interest rates and foreign currency exchange rates, noting no material changes in the interim period - Information regarding financial instruments sensitive to changes in interest rates and foreign currency exchange rates was previously disclosed in Part II, Item 7A of the 2021 Form 10-K and has not materially changed[130] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of April 30, 2022, and there were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of April 30, 2022, ensuring timely and accurate reporting of information[131] - No material changes occurred in internal control over financial reporting during the three months ended April 30, 2022[132] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section refers to the Contingencies note in the financial statements for a discussion of the Company's legal and environmental matters - Legal proceedings and contingencies are discussed in the 'Contingencies' note to the condensed consolidated financial statements[134] ITEM 1A. RISK FACTORS This section directs readers to the 2021 Form 10-K for a comprehensive discussion of risk factors, noting that many identified risks may be exacerbated by the ongoing COVID-19 pandemic - Readers should consider risk factors disclosed in 'Item 1A. Risk Factors' of the 2021 Form 10-K[135] - Many risks identified in the 2021 Form 10-K have been, and may be further, exacerbated by the impact of the COVID-19 pandemic[135] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the Company's common stock repurchase activities during the three months ended April 30, 2022, including the number of shares purchased and the remaining authorization under the repurchase programs Common Stock Repurchases (Three Months Ended April 30, 2022): | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | February 1, 2022 to February 28, 2022 | 190,291 | $227.24 | | March 1, 2022 to March 31, 2022 | 196,442 | $223.41 | | April 1, 2022 to April 30, 2022 | 82,871 | $221.26 | | Total | 469,604 | | - Approximately $253,782 thousand of the total $1,000,000 thousand authorized remained available for share repurchases at April 30, 2022[137] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications, financial information in iXBRL format, and the cover page - Exhibits include certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2) and financial information formatted in iXBRL (101, 104)[138][139] SIGNATURE This section contains the signature of the registrant, confirming the due authorization and filing of the report - The report was signed by Joseph P. Kelley, Executive Vice President, Chief Financial Officer, on May 27, 2022[141]