NORDSON CORP
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
fiscal year ended October 31, 2010
OR
| o | 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
(Registrant’s Telephone
Number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Common Shares with no par value
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
x
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
x
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
x
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
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 and post such
files). Yes
x
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
| Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
x
The aggregate market value of Common Shares no par value per
share, held by nonaffiliates (based on the closing sale price on
the Nasdaq Stock Market) as of April 30, 2010 was
approximately $2,309,317,000.
There were 33,979,349 Common Shares outstanding as of
November 30, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 2011 Annual
Meeting — Part III
Table of Contents
Table of
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Table of Contents
Table of
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| EX-101 INSTANCE DOCUMENT | ||||||||
| EX-101 SCHEMA DOCUMENT | ||||||||
| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
| EX-101 LABELS LINKBASE DOCUMENT | ||||||||
| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
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Table of Contents
NOTE REGARDING
AMOUNTS AND FISCAL YEAR REFERENCES
In this annual 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.
General
Description of Business
We are one of the world’s leading manufacturers of
equipment used for precision material dispensing, testing and
inspection, surface preparation and curing. Our technology-based
systems can be found in production facilities around the world.
We serve many diverse markets, including the appliance,
automotive, bookbinding, container, converting, electronics,
food and beverage, furniture, life sciences and medical, light
emitting diodes (LED), metal finishing, nonwoven, packaging,
semiconductor and solar energy industries.
Our strategy for long-term growth is based on a customer-driven
focus and a global mindset. Headquartered in Westlake, Ohio, our
products are marketed through a network of direct operations in
more than 30 countries. Consistent with this global strategy,
more than 70 percent of our revenues are generated outside
the United States.
We have 3,680 employees worldwide. Principal manufacturing
facilities are located in the United States in California,
Georgia, New Jersey, Ohio and Rhode Island, as well as in China,
Germany, India, The Netherlands and the United Kingdom.
Corporate
Purpose and Goals
We strive to be a vital, self-renewing, worldwide organization
that, within the framework of ethical behavior and enlightened
citizenship, grows and produces wealth for our customers,
employees, shareholders and communities.
We operate for the purpose of creating balanced, long-term
benefits for all of our constituencies: customers, employees,
shareholders and communities.
Our corporate goal for growth is to double our value over a
five-year period, with the primary measure of value set by the
market for our common shares.
While external factors may impact value, the achievement of this
goal will rest with earnings growth, capital and human resource
efficiency and positioning for the future.
Although every quarter may not produce increased sales, earnings
and earnings per share, or exceed the comparative prior
year’s quarter, we do expect to produce long-term gains.
When short-term swings occur, we do not intend to alter our
basic objectives in efforts to mitigate the impact of these
natural occurrences.
Growth is achieved by seizing opportunities with existing
products and markets, investing in systems to maximize
productivity and pursuing growth markets. This strategy is
augmented through product line additions, engineering, research
and development, and acquisition of companies that can serve
multinational industrial markets.
We create benefits for our customers through a Package of
Values
®
,
which includes carefully engineered, durable products; strong
service support; the backing of a well-established worldwide
company with financial and technical strengths; and a corporate
commitment to deliver what was promised.
We strive to provide genuine customer satisfaction; it is the
foundation upon which we continue to build our business.
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Complementing our business strategy is the objective to provide
opportunities for employee self-fulfillment, growth, security,
recognition and equitable compensation. This goal is met through
Human Resources’ facilitation of employee training and
leadership training and the creation of
on-the-job
growth opportunities. The result is a highly qualified and
professional management team capable of meeting corporate
objectives.
We recognize the value of employee participation in the planning
process. Strategic and operating plans are developed by all
business units and divisions, resulting in a sense of ownership
and commitment on the part of employees in accomplishing our
objectives. In addition, employees participate in Lean and Six
Sigma initiatives to continuously improve our processes.
We are an equal opportunity employer.
We are committed to contributing approximately five percent of
domestic pretax earnings to human services, education and other
charitable activities, particularly in communities where we have
major facilities.
Financial
Information About Operating Segments, Foreign and Domestic
Operations and Export Sales
In accordance with accounting standards, we have reported
information about our three operating segments. This information
is contained in Note 16 of Notes to Consolidated Financial
Statements, which can be found in Part II, Item 8 of
this document.
Principal
Products and Uses
We are one of the world’s leading manufacturers of
equipment used for precision dispensing, testing and inspection,
surface preparation and curing. Our technology-based systems can
be found in production facilities around the world. Equipment
ranges from manual, stand-alone units for low-volume operations
to microprocessor-based automated systems for high-speed,
high-volume production lines.
We market our products in the United States and in more than 50
other countries, primarily through a direct sales force and also
through qualified distributors and sales representatives. We
have built a worldwide reputation for creativity and expertise
in the design and engineering of high-technology application
equipment that meets the specific needs of our customers.
The following is a summary of the products and markets served by
our operating segments:
| 1. | Adhesive Dispensing Systems |
This segment delivers our proprietary precision dispensing
technology to diverse markets for applications that commonly
reduce material consumption, increase line efficiency and
enhance product strength, durability, brand and appearance.
| • | Nonwovens — Equipment for applying adhesives, lotions, liquids and fibers to disposable products. Key strategic markets include adult incontinence products, baby diapers and child-training pants, feminine hygiene products and surgical drapes, gowns, shoe covers and face masks. | |
| • | Packaging — Automated adhesive dispensing systems used in the food and beverage and packaged goods industries. Key strategic markets include food packages and wrappers and drink containers. | |
| • | Paper and Paperboard Converting — Hot melt and cold glue adhesive dispensing systems for the paper and paperboard converting industries. Key strategic markets include bag and sack manufacturing, bookbinding, envelope manufacturing and folding carton manufacturing. | |
| • | Product Assembly — Adhesive and sealant dispensing systems for bonding or sealing plastic, metal and wood products. Key strategic markets include appliances, automotive components, building and construction materials, electronics, furniture and solar energy. | |
| • | Web Coating — Laminating and coating systems used to manufacture continuous-roll goods in the nonwovens, textile, paper and flexible-packaging industries. Key strategic markets include carpet, labels, tapes and textiles. |
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2. Advanced Technology Systems
This segment integrates our proprietary product technologies
found in progressive stages of a customer’s production
process, such as surface preparation, precisely controlled
dispensing of material onto the surface, curing and drying of
dispensed material, bond testing and X-ray inspection to ensure
quality. This segment primarily serves the specific needs of
electronics and related high-tech industries.
| • | Surface Preparation — Automated gas plasma treatment systems used to clean and condition surfaces for the semiconductor, medical and printed circuit board industries. Key strategic markets include contact lenses, electronics, medical instruments and devices, printed circuit boards and semiconductors. | |
| • | Dispensing Systems — Controlled manual and automated systems for applying materials in customer processes typically requiring extreme precision and material conservation. These systems include piezoelectric and motionless two-component mixing dispensing systems. Key strategic markets include aerospace, electronics (cell phones, liquid crystal displays, micro hard drives, microprocessors, printed circuit boards), general industrial, life sciences (dental and medical devices, including pacemakers and stents), light emitting diodes (LED) and solar energy. | |
| • | Curing and Drying Systems — Ultraviolet equipment used primarily in curing and drying operations for specialty coatings, semiconductor materials and paints. Key strategic markets include electronics, containers, and durable goods products. | |
| • | Bond Testing and Inspection Systems — Bond testing and automated optical and x-ray inspection systems used in the semiconductor and printed circuit board industries. Key strategic markets include electronics (digital music players and cell phones), printed circuit board assemblies and semiconductor packages. |
3. Industrial Coating Systems
This segment provides both standard and highly-customized
equipment used primarily for applying coatings, paint, finishes,
sealants and other materials. This segment primarily serves the
consumer durables market.
| • | Automotive — Automated and manual dispensing systems used to apply materials in the automotive, heavy truck and recreational vehicle manufacturing industries. Key strategic markets include powertrain components, body assembly and final trim applications. | |
| • | Container Coating — Automated and manual dispensing and curing systems used to coat and cure containers. Key strategic markets include beverage containers and food cans. | |
| • | Liquid Finishing — Automated and manual dispensing systems used to apply liquid paints and coatings to consumer and industrial products. Key strategic markets include automotive components, construction, metal shelving and drums. | |
| • | Powder Coating — Automated and manual dispensing systems used to apply powder paints and coatings to a variety of metal, plastic and wood products. Key strategic markets include agriculture and construction equipment, appliances, automotive components, home and office furniture, lawn and garden equipment and wood and metal shelving. |
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Manufacturing
and Raw Materials
Our production operations include machining and assembly. We
manufacture specially designed parts and assemble components
into finished equipment. Many components are made in standard
modules that can be used in more than one product or in
combination with other components for a variety of models. We
have principal manufacturing operations in the United States in
Amherst, Ohio; Norcross, Swainsboro and Dawsonville, Georgia;
Carlsbad, California; Robbinsville, New Jersey and East
Providence, Rhode Island; as well as in Shanghai and Suzhou,
China; Luneburg, Germany; Bangalore, India; Maastricht, The
Netherlands and in Aylesbury, United Kingdom.
Principal materials used to make our products are metals and
plastics, typically in sheets, bar stock, castings, forgings and
tubing. We also purchase many electrical and electronic
components, fabricated metal parts, high-pressure fluid hoses,
packings, seals and other items integral to our products.
Suppliers are competitively selected based on cost, quality and
service. All significant raw materials that we use are available
through multiple sources.
Senior operating executives supervise an extensive quality
control program for our equipment, machinery and systems.
Natural gas and other fuels are our primary energy sources.
However, standby capacity for alternative sources is available
if needed.
Intellectual
Property
We maintain procedures to protect our intellectual property
(including patents, trademarks and copyrights) both domestically
and internationally. Risk factors associated with our
intellectual property are discussed in Item 1A Risk Factors.
Our intellectual property portfolios include valuable patents,
trade secrets, know-how, domain names, trademarks and trade
names. As of October 31, 2010, we held 343 United States
patents and 732 foreign patents and had 157 United States patent
applications and 711 foreign patent applications pending, but
there is no assurance that any patent application will be
issued. We continue to apply for and obtain patent protection
for new products on an ongoing basis.
Patents covering individual products extend for varying periods
according to the date of filing or grant and legal term of
patents in various countries where a patent is obtained. Our
current patent portfolio has expiration dates ranging from
November 2010 to March 2035. The actual protection a patent
provides, which can vary from country to country, depends upon
the type of patent, the scope of its coverage, and the
availability of legal remedies in each country. We believe,
however, that the duration of our patents generally exceeds the
life cycles of the technologies disclosed and claimed in the
patents.
We believe our trademarks are important assets and we
aggressively manage our brands. We also own a number of
trademarks in the United States and foreign countries, including
registered trademarks for Nordson, Asymtek, ColorMax, Control
Coat, Dage, EFD and Saturn and various common law trademarks
which are important to our business, inasmuch as they identify
Nordson and our products to our customers. As of
October 31, 2010, we had a total of 1,010 trademark
registrations in the United States and in various foreign
countries.
We rely upon a combination of nondisclosure and other
contractual arrangements and trade secret laws to protect our
proprietary rights and also enter into confidentiality and
intellectual property agreements with our employees that require
them to disclose any inventions created during employment,
convey all rights to inventions to us, and restrict the
distribution of proprietary information.
We protect and promote our intellectual property portfolio and
take those actions we deem appropriate to enforce our
intellectual property rights and to defend our right to sell our
products. Although in aggregate our intellectual property is
important to our operations, we do not believe that the loss of
any one patent, trademark, or group of related patents or
trademarks would have a material adverse effect on our results
of operations or financial position of our overall business.
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Table of Contents
Seasonal
Variation in Business
Generally, the highest volume of sales occurs in our fourth
quarter due in large part to the timing of customers’
capital spending programs. First quarter sales volume is
typically the lowest of the year due to customer holiday
shutdowns.
Working
Capital Practices
No special or unusual practices affect our working capital.
However, we generally require advance payments as deposits on
customized equipment and systems and, in certain cases, require
progress payments during the manufacturing of these products. We
have initiated a number of new processes focused on reduction of
manufacturing lead times. These initiatives have resulted in
lower investment in inventory while maintaining the capability
to respond promptly to customer needs.
Customers
We serve a broad customer base, both in terms of industries and
geographic regions. In 2010, no single customer accounted for
five percent or more of sales.
Backlog
Our backlog of open orders increased to approximately $128,000
at October 31, 2010 from approximately $79,000 at
October 31, 2009. The increase can be traced primarily to
returning demand in consumer durable goods markets and recovery
in technology markets. All orders in the 2010 year-end
backlog are expected to be shipped to customers in 2011.
Government
Contracts
Our business neither includes nor depends upon a significant
amount of governmental contracts or subcontracts. Therefore, no
material part of our business is subject to renegotiation or
termination at the option of the government.
Competitive
Conditions
Our equipment is sold in competition with a wide variety of
alternative bonding, sealing, caulking, finishing, coating,
testing and inspection techniques. Any production process that
requires surface preparation or modification, application of
material to a substrate or surface, curing or testing and
inspection is a potential use for our equipment.
Many factors influence our competitive position, including
pricing, product quality and service. We enjoy a leadership
position in our business segments by delivering high-quality,
innovative products and technologies, as well as
after-the-sale
service and technical support. Working with customers to
understand their processes and developing the application
solutions that help them meet their production requirements also
contributes to our leadership position. Our worldwide network of
direct sales and technical resources also is a competitive
advantage.
Research
and Development
Investments in research and development are important to our
long-term growth, enabling us to keep pace with changing
customer and marketplace needs through the development of new
products and new applications for existing products. We place
strong emphasis on technology developments and improvements
through internal engineering and research teams. Research and
development expenses were approximately $23,835 in 2010,
compared with approximately $25,528 in 2009 and $33,566 in 2008.
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Environmental
Compliance
We are subject to extensive federal, state, local and foreign
environmental, safety and health laws and regulations
concerning, among other things, emissions to the air, discharges
to land and water and the generation, handling, treatment and
disposal of hazardous waste and other materials. Under certain
of these laws, we can be held strictly liable for hazardous
substance contamination of any real property we have ever owned,
operated or used as a disposal site or for natural resource
damages associated with such contamination. We are also required
to maintain various related permits and licenses, many of which
require periodic modification and renewal. The operation of
manufacturing plants unavoidably entails environmental, safety
and health risks, and we could incur material unanticipated
costs or liabilities in the future if any of these risks were
realized in ways or to an extent that we did not anticipate.
We believe that we operate in compliance, in all material
respects, with applicable environmental laws and regulations.
Compliance with environmental laws and regulations requires
continuing management effort and expenditures. We have incurred,
and will continue to incur, costs and capital expenditures to
comply with these laws and regulations and to obtain and
maintain the necessary permits and licenses. We believe that the
cost of complying with environmental laws and regulations will
not have a material affect on our earnings, liquidity or
competitive position but cannot assure that material
compliance-related costs and expenses may not arise in the
future. For example, future adoption of new or amended
environmental laws, regulations or requirements or newly
discovered contamination or other circumstances that require us
to incur costs and expenses that cannot be presently anticipated.
We believe that policies, practices and procedures have been
properly designed to prevent unreasonable risk of material
environmental damage arising from our operations. We accrue for
estimated environmental liabilities with charges to expense and
believe our environmental accrual is adequate to provide for our
portion of the costs of all such known environmental
liabilities. Compliance with federal, state and local
environmental protection laws during 2010 had no material effect
on our capital expenditures, earnings or competitive position.
Based upon consideration of currently available information, we
believe liabilities for environmental matters will not have a
material adverse affect on our financial position, operating
results or liquidity, but we cannot assure that material
environmental liabilities may not arise in the future.
Employees
As of October 31, 2010, we had 3,680 full- and part-time
employees, including 133 at our Amherst, Ohio, facility who are
represented by a collective bargaining agreement that expires on
November 3, 2013. No material work stoppages have been
experienced at any of our facilities during any of the periods
covered by this report.
Available
Information
Our proxy statement, annual report to the Securities and
Exchange Commission
(Form 10-K),
quarterly reports
(Form 10-Q)
and current reports
(Form 8-K)
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available free of charge at
http://www.nordson.com/investors
as soon as reasonably practical after such material is
electronically filed with, or furnished to, the SEC. Copies of
these reports may also be obtained free of charge by sending
written requests to Corporate Communications, Nordson
Corporation, 28601 Clemens Road, Westlake, Ohio 44145.
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In an enterprise as diverse as ours, a wide range of factors
could affect future performance. We discuss in this section some
of the risk factors that, if they actually occurred, could
materially and adversely affect our business, financial
condition, value and results of operations. You should consider
these risk factors in connection with evaluating the
forward-looking statements contained in this Annual Report on
Form 10-K
because these factors could cause our actual results and
financial condition to differ materially from those projected in
forward-looking statements.
The significant risk factors affecting our operations include
the following:
Changes
in United States or international economic conditions could
adversely affect the profitability of any of our
operations.
In 2010, 27 percent of our revenue was derived from
domestic customers while 73 percent was derived from
international customers. Our largest markets include appliance,
automotive, bookbinding, construction, container, converting,
electronics assembly, food and beverage, furniture, life
sciences and medical, light emitting diodes (LED), metal
finishing, nonwovens, packaging and semiconductor. A slowdown in
any of these specific end markets could directly affect our
revenue stream and profitability.
A portion of our product sales is attributable to industries and
markets, such as the semiconductor and metal finishing
industries, which historically have been cyclical and sensitive
to relative changes in supply and demand and general economic
conditions. The demand for our products depends, in part, on the
general economic conditions of the industries or national
economies of our customers. Downward economic cycles in our
customers’ industries or countries may reduce sales of some
of our products. It is not possible to predict accurately the
factors that will affect demand for our products in the future.
Any significant downturn in the health of the general economy,
either globally, regionally or in the markets in which we sell
products could have an adverse effect on our revenues and
financial performance, resulting in impairment of assets.
Significant
movements in foreign currency exchange rates or change in
monetary policy may harm our financial results.
We are exposed to fluctuations in foreign currency exchange
rates, particularly with respect to the Euro, the Yen and the
British Pound. Any significant change in the value of the
currencies of the countries in which we do business against the
United States dollar could affect our ability to sell products
competitively and control our cost structure, which could have a
material adverse effect on our business, financial condition and
results of operations. For additional detail related to this
risk, see Item 7A, Quantitative and Qualitative Disclosure
About Market Risk.
The majority of our consolidated revenues in 2010 were generated
in currencies other than the United States dollar, which is our
reporting currency. We recognize foreign currency transaction
gains and losses arising from our operations in the period
incurred. As a result, currency fluctuations between the United
States dollar and the currencies in which we do business have
caused and will continue to cause foreign currency transaction
and translation gains and losses, which historically have been
material and could continue to be material. We cannot predict
the effects of exchange rate fluctuations upon our future
operating results because of the number of currencies involved,
the variability of currency exposures and the potential
volatility of currency exchange rates. We take actions to manage
our foreign currency exposure, such as entering into hedging
transactions, where available, but we cannot assure that our
strategies will adequately protect our consolidated operating
results from the effects of exchange rate fluctuations.
We also face risks arising from the imposition of exchange
controls and currency devaluations. Exchange controls may limit
our ability to convert foreign currencies into United States
dollars or to remit dividends and other payments by our foreign
subsidiaries or customers located in or conducting business in a
country imposing controls. Currency devaluations diminish the
United States dollar value of the currency of the country
instituting the devaluation and, if they occur or continue for
significant periods, could adversely affect our earnings or cash
flow.
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We could
be adversely affected by rapid changes in interest
rates.
Any period of unexpected or rapid increase in interest rates may
also adversely affect our profitability. At October 31,
2010, we had $112,420 of total debt outstanding, of which
43 percent was priced at interest rates that float with the
market. A one percent increase in the interest rate on the
floating rate debt in 2010 would have resulted in approximately
$1,073 of additional interest expense. A higher level of
floating rate debt would increase the exposure discussed above.
For additional detail related to this risk, see Item 7A,
Quantitative and Qualitative Disclosure About Market Risk.
Inability
to access capital could impede growth or the repayment or
refinancing of existing indebtedness.
The limits imposed on us by the restrictive covenants contained
in our credit facilities could prevent us from making
acquisitions or cause us to lose access to these facilities.
Our existing credit facilities contain restrictive covenants
that limit our ability to, among other things:
| • | borrow money or guarantee the debts of others; | |
| • | use assets as security in other transactions; | |
| • | make investments or other restricted payments or distributions; | |
| • | change our business or enter into new lines of business; | |
| • | sell or acquire assets or merge with or into other companies. |
In addition, our credit facilities require us to meet financial
ratios, including total indebtedness to consolidated trailing
EBITDA (both as defined in the credit facility) and consolidated
trailing EBITDA to consolidated trailing interest expense (as
defined in the credit facility).
These restrictions could limit our ability to plan for or react
to market conditions or meet extraordinary capital needs and
could otherwise restrict our financing activities.
Our ability to comply with the covenants and other terms of our
credit facilities will depend on our future operating
performance. If we fail to comply with such covenants and terms,
we will be in default and the maturity of the related debt could
be accelerated and become immediately due and payable. We may be
required to obtain waivers from our lenders in order to maintain
compliance under our credit facilities, including waivers with
respect to our compliance with certain financial covenants. If
we are unable to obtain necessary waivers and the debt under our
credit facilities is accelerated, we would be required to obtain
replacement financing at prevailing market rates.
We may need new or additional financing in the future to expand
our business or refinance existing indebtedness. If we are
unable to access capital on satisfactory terms and conditions,
we may not be able to expand our business or meet our payment
requirements under our existing credit facilities. Our ability
to obtain new or additional financing will depend on a variety
of factors, many of which are beyond our control. We may not be
able to obtain new or additional financing because we have
substantial debt or because we may not have sufficient cash flow
to service or repay our existing or future debt. In addition,
depending on market conditions and our financial performance,
neither debt nor equity financing may be available on
satisfactory terms or at all. Finally, as a consequence of
worsening financial market conditions, our credit facility
providers may not provide the agreed capital if they become
undercapitalized.
9
Table of Contents
Our
growth strategy includes acquisitions, and we may not be able to
make acquisitions of suitable candidates or integrate
acquisitions successfully.
Our recent historical growth has depended, and our future growth
is likely to continue to depend, in part on our acquisition
strategy and the successful integration of acquired businesses
into our existing operations. We intend to continue to seek
additional acquisition opportunities both to expand into new
markets and to enhance our position in existing markets
throughout the world. We cannot assure, however, that we will be
able to successfully identify suitable candidates, prevail
against competing potential acquirers, negotiate appropriate
acquisition terms, obtain financing that may be needed to
consummate such acquisitions, complete proposed acquisitions,
successfully integrate acquired businesses into our existing
operations or expand into new markets. In addition, we cannot
assure that any acquisition, once successfully integrated, will
perform as planned, be accretive to earnings, or prove to be
beneficial to our operations and cash flow.
The success of any acquisition is subject to other risks and
uncertainties, including:
| • | our ability to realize operating efficiencies, synergies or other benefits expected from an acquisition, and possible delays in realizing the benefits of the acquired company or products; | |
| • | diversion of management’s time and attention from other business concerns; | |
| • | difficulties in retaining key employees, customers or suppliers of the acquired business; | |
| • | difficulties in maintaining uniform standards, controls, procedures and policies throughout acquired companies; | |
| • | adverse effects on existing business relationships with suppliers or customers; | |
| • | the risks associated with the assumption of contingent or undisclosed liabilities of acquisition targets; | |
| • | the ability to generate future cash flows or the availability of financing. |
In addition, an acquisition could adversely impact our operating
performance as a result of the incurrence of acquisition-related
debt, acquisition expenses, or the amortization of
acquisition-acquired assets.
We may also face liability with respect to acquired businesses
for violations of environmental laws occurring prior to the date
of our acquisition, and some or all of these liabilities may not
be covered by environmental insurance secured to mitigate the
risk or by indemnification from the sellers from which we
acquired these businesses. We could also incur significant
costs, including, but not limited to, remediation costs, natural
resources damages, civil or criminal fines and sanctions and
third-party claims, as a result of past or future violations of,
or liabilities associated with environmental laws.
The
inability to continue to develop new products could limit our
revenue and profitability.
Innovation is critical to our success. We believe that we must
continue to enhance our existing products and to develop and
manufacture new products with improved capabilities in order to
continue to be a market leader. We also believe that we must
continue to make improvements in our productivity in order to
maintain our competitive position. Our inability to anticipate,
respond to or utilize changing technologies could have a
material adverse effect on our business and our consolidated
results of operations.
10
Table of Contents
Our
inability to protect our intellectual property rights could
adversely affect product sales and financial
performance.
Difficulties in acquiring and maintaining our intellectual
property rights could also adversely affect our business and
financial position. Our performance may depend in part on our
ability to establish, protect and enforce intellectual property
rights with respect to our patented technologies and proprietary
rights and to defend against any claims of infringement. These
activities involve complex and constantly evolving legal,
scientific and factual questions and uncertainties. Our ability
to compete effectively with other companies depends in part on
our ability to maintain and enforce our patents and other
proprietary rights, which are essential to our business. These
measures afford only limited protection and may not in all cases
prevent our competitors from gaining access to our intellectual
property and proprietary information.
Litigation has been and may continue to be necessary to enforce
our intellectual property rights, to protect our trade secrets
and to determine the validity and scope of our proprietary
rights. In addition, we may face claims of infringement that
could interfere with our ability to use technology or other
intellectual property rights that are material to our business
operations. If litigation that we initiate is unsuccessful, we
may not be able to protect the value of some of our intellectual
property. If a claim of infringement against us is successful,
we may be required to pay royalties or license fees to continue
to use technology or other intellectual property rights that we
have been using or we may be unable to obtain necessary licenses
from third parties at a reasonable cost or within a reasonable
time. If we are unable to timely obtain licenses on reasonable
terms, we may be forced to cease selling or using any of our
products that incorporate the challenged intellectual property,
or to redesign or, in the case of trademark claims, rename our
products to avoid infringing the intellectual property rights of
third parties. This may not always be possible or, if possible,
may be time consuming and expensive. Intellectual property
litigation, whether successful or unsuccessful, could be
expensive to us and divert some of our resources. Our
intellectual property rights may not be as valuable as we
believe, which could result in a competitive disadvantage or
adversely affect our business and financial performance.
Political
conditions in foreign countries in which we operate could
adversely affect us.
We conduct our manufacturing, sales and distribution operations
on a worldwide basis and are subject to risks associated with
doing business outside the United States. In 2010, approximately
73 percent of our total sales were to customers outside the
United States. We expect that international operations and
United States export sales will continue to be important to our
business for the foreseeable future. Both the sales from
international operations and export sales are subject in varying
degrees to risks inherent in doing business outside the United
States. Such risks include, but are not limited to, the
following:
| • | risks of economic instability; | |
| • | unanticipated or unfavorable circumstances arising from host country laws or regulations; | |
| • | restrictions on the transfer of funds into or out of a country; | |
| • | currency exchange rate fluctuations; | |
| • | difficulties in enforcing agreements and collecting receivables through some foreign legal systems; | |
| • | international customers with longer payment cycles than customers in the United States; | |
| • | potential negative consequences from changes to taxation policies; | |
| • | the disruption of operations from foreign labor and political disturbances; | |
| • | the imposition of tariffs, import or export licensing requirements; | |
| • | exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country. |
Any of these events could reduce the demand for our products,
limit the prices at which we can sell our products, or otherwise
have an adverse effect on our operating performance.
11
Table of Contents
None.
The following table summarizes our principal properties as of
October 31, 2010.
|
Approximate
|
||||||
| Location | Description of Property | Square Feet | ||||
|
Amherst,
Ohio
(1)(2)(3)
|
A manufacturing, laboratory and office complex | 585,000 | ||||
|
Norcross,
Georgia
(1)
|
A manufacturing, laboratory and office building | 150,000 | ||||
|
Dawsonville,
Georgia
(1)
|
A manufacturing, laboratory and office building | 134,000 | ||||
|
East Providence, Rhode
Island
(2)
|
A manufacturing, warehouse and office building | 116,000 | ||||
|
Duluth,
Georgia
(1)
|
An office and laboratory building | 110,000 | ||||
|
Carlsbad,
California
(2)
|
Two manufacturing and office buildings (leased) | 88,000 | ||||
|
Robbinsville, New
Jersey
(2)
|
A manufacturing, warehouse and office building (leased) | 88,000 | ||||
|
Swainsboro,
Georgia
(1)
|
A manufacturing building | 59,000 | ||||
|
Vista,
California
(2)
|
A manufacturing building (leased) | 41,000 | ||||
|
Westlake, Ohio
|
Corporate headquarters (leased) | 23,000 | ||||
|
Luneburg,
Germany
(1)
|
A manufacturing and laboratory building | 130,000 | ||||
|
Shanghai,
China
(1)(3)
|
A manufacturing, warehouse and office building (leased) | 92,000 | ||||
|
Erkrath,
Germany
(1)(2)(3)
|
An office, laboratory and warehouse building (leased) | 63,000 | ||||
|
Bangalore,
India
(1)(2)(3)
|
A manufacturing, warehouse and office building | 56,000 | ||||
|
Shanghai,
China
(1)(2)(3)
|
An office and laboratory building | 54,000 | ||||
|
Tokyo,
Japan
(1)(2)(3)
|
An office, laboratory and warehouse building (leased) | 42,000 | ||||
|
Aylesbury,
U.K.
(1)(2)
|
A manufacturing, warehouse and office building (leased) | 36,000 | ||||
|
Mexico City,
Mexico
(1)(2)(3)
|
A warehouse and office building (leased) | 23,000 | ||||
|
Suzhou,
China
(2)
|
A manufacturing, warehouse and office building (leased) | 22,000 | ||||
|
Lagny Sur Marne,
France
(1)(3)
|
An office building (leased) | 17,000 | ||||
|
Segrate,
Italy
(1)(3)
|
An office, laboratory and warehouse building (leased) | 7,000 | ||||
|
Singapore
(1)(2)(3)
|
A warehouse and office building (leased) | 6,000 | ||||
Business Segment — Property Identification
Legend
1 — Adhesive Dispensing Systems
2 — Advanced Technology Systems
3 — Industrial Coating Systems
The facilities listed above have adequate, suitable and
sufficient capacity (production and nonproduction) to meet
present and foreseeable demand for our products.
Other properties at international subsidiary locations and at
branch locations within the United States are leased. Lease
terms do not exceed 25 years and generally contain a
provision for cancellation with some penalty at an earlier date.
In addition, we lease equipment under various operating and
capitalized leases. Information about leases is reported in
Note 6 of Notes to Consolidated Financial Statements that
can be found in Part II, Item 8 of this document.
12
Table of Contents
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 environmental matter discussed below, it is our
opinion, after consultation with legal counsel, that resolutions
of these matters are not expected to result in a material effect
on our financial condition, quarterly or annual operating
results or cash flows.
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 constructing a potable water delivery
system serving the impacted area down gradient of the Site. At
October 31, 2010 and 2009, our accrual for the ongoing
operation, maintenance and monitoring obligation at the Site was
$885.
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.
13
Table of Contents
Executive
Officers of the Company
Our executive officers as of October 31, 2010, were as
follows:
|
Position or Office with The Company and Business
|
||||||||||
| Name | Age | Officer Since | Experience During the Past Five (5) Year Period | |||||||
|
Michael F. Hilton
|
56 | 2010 | President and Chief Executive Officer, 2010 | |||||||
| Senior Vice President and General Manager-Electronics and Performance Materials Segment of Air Products and Chemicals, Inc., 2007 | ||||||||||
| Vice President and General Manager-Electronics and Performance Materials Segment of Air Products and Chemicals, Inc., 2006 | ||||||||||
| Vice President-Electronics Businesses, Electronics Division of Air Products and Chemicals, Inc., 2003 | ||||||||||
|
John J. Keane
|
49 | 2003 | Senior Vice President, 2005 | |||||||
|
Peter G. Lambert
|
50 | 2005 | Senior Vice President, 2010 | |||||||
| Vice President, 2005 | ||||||||||
|
Douglas C. Bloomfield
|
51 | 2005 | Vice President, 2005 | |||||||
|
Gregory P. Merk
|
39 | 2006 | Vice President, 2006 | |||||||
| General Manager, Latin America South, 2000 | ||||||||||
|
Shelly M. Peet
|
45 | 2007 | Vice President, 2009 | |||||||
| Vice President, Chief Information Officer, 2007 | ||||||||||
| Director, Corporate Information Services and Chief Information Officer, 2003 | ||||||||||
|
Gregory A. Thaxton
|
49 | 2007 | Vice President, Chief Financial Officer, 2008 | |||||||
| Vice President, Controller, 2007 | ||||||||||
| Corporate Controller and Chief Accounting Officer, 2006 | ||||||||||
| Group Controller, 2000 | ||||||||||
|
Robert E. Veillette
|
58 | 2007 | Vice President, General Counsel and Secretary, 2007 | |||||||
| Secretary and Assistant General Counsel, 2002 | ||||||||||
14
Table of Contents
| Item 5. | Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market
Information and Dividends
(a) Our common shares are listed on the Nasdaq Stock Market
under the symbol NDSN. As of November 30, 2010, there
were 1,791 registered shareholders. The table below is a summary
of dividends paid per common share and the range of market
prices during each quarter of 2010 and 2009.
|
Dividend
|
Common Share Price | |||||||||||
|
Quarters
|
Paid | High | Low | |||||||||
|
2010:
|
||||||||||||
|
First
|
$ | .19 | $ | 64.95 | $ | 51.07 | ||||||
|
Second
|
.19 | 77.40 | 53.47 | |||||||||
|
Third
|
.19 | 74.44 | 53.95 | |||||||||
|
Fourth
|
.21 | 80.17 | 61.76 | |||||||||
|
2009:
|
||||||||||||
|
First
|
$ | .1825 | $ | 39.95 | $ | 24.04 | ||||||
|
Second
|
.1825 | 38.06 | 20.30 | |||||||||
|
Third
|
.1825 | 46.29 | 34.47 | |||||||||
|
Fourth
|
.19 | 59.77 | 44.99 | |||||||||
(b) Use of Proceeds. Not applicable.
(c) Issuer Purchases of Equity Securities
|
Total Number of
|
Maximum Number
|
|||||||||||||||
|
Shares Repurchased
|
of Shares that
|
|||||||||||||||
|
Total Number
|
Average
|
as Part of Publicly
|
May Yet Be
|
|||||||||||||
|
of Shares
|
Price Paid
|
Announced Plans
|
Purchased Under the
|
|||||||||||||
| Repurchased | per Share | or Programs (1) | Plans or Programs | |||||||||||||
|
August 1, 2010 to August 31, 2010
|
42 | $ | 64.17 | 42 | 773 | |||||||||||
|
September 1, 2010 to September 30, 2010
|
89 | $ | 68.29 | 89 | 684 | |||||||||||
|
October 1, 2010 to October 31, 2010
|
33 | $ | 74.00 | 33 | 651 | |||||||||||
|
Total
|
164 | 164 | ||||||||||||||
(1) On December 10, 2008 the board of directors
approved a stock repurchase program of up to 1,000 shares.
Uses for repurchased shares include the funding of benefit
programs including stock options, nonvested stock and 401(k)
matching. Shares purchased are treated as treasury shares until
used for such purposes. The repurchase program is being funded
using working capital.
15
Table of Contents
Performance
Graph
The following is a graph that compares the five-year cumulative
return, calculated on a dividend-reinvested basis, from
investing $100 on November 1, 2005 in Nordson common
shares, the S&P MidCap 400 Index, the S&P MidCap 400
Industrial Machinery and the S&P 500 Industrial Machinery.
COMPARISON
OF CUMULATIVE TOTAL RETURN
| Period Ending | ||||||||||||||||||||||||||||||
| Company/Market/Peer Group | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||
|
NORDSON CORPORATION
|
$ | 100.0 | $ | 125.51 | $ | 148.20 | $ | 103.61 | $ | 151.25 | $ | 226.38 | ||||||||||||||||||
|
S&P MIDCAP 400
|
$ | 100.0 | $ | 113.43 | $ | 132.73 | $ | 84.33 | $ | 99.67 | $ | 127.21 | ||||||||||||||||||
|
S&P 500 IND. MACHINERY
|
$ | 100.0 | $ | 119.55 | $ | 149.66 | $ | 85.66 | $ | 114.62 | $ | 146.66 | ||||||||||||||||||
|
S&P MIDCAP 400 IND. MACHINERY
|
$ | 100.0 | $ | 122.77 | $ | 159.58 | $ | 92.40 | $ | 114.22 | $ | 148.45 | ||||||||||||||||||
16
Table of Contents
Five-Year
Summary
| (In thousands except for per-share amounts) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Operating
Data
(a)
|
||||||||||||||||||||
|
Sales
|
$ | 1,041,551 | $ | 819,165 | $ | 1,124,829 | $ | 993,649 | $ | 892,221 | ||||||||||
|
Cost of sales
|
419,937 | 350,239 | 494,394 | 439,804 | 379,800 | |||||||||||||||
|
% of sales
|
40 | 43 | 44 | 44 | 43 | |||||||||||||||
|
Selling and administrative expenses
|
384,752 | 337,294 | 434,476 | 401,294 | 362,179 | |||||||||||||||
|
% of sales
|
37 | 41 | 39 | 40 | 41 | |||||||||||||||
|
Severance and restructuring costs
|
2,029 | 16,396 | 5,621 | 409 | 2,627 | |||||||||||||||
|
Goodwill and long-lived asset impairments
|
— | 243,043 | — | — | — | |||||||||||||||
|
Operating profit (loss)
|
234,833 | (127,807 | ) | 190,338 | 152,142 | 147,615 | ||||||||||||||
|
% of sales
|
23 | (16 | ) | 17 | 15 | 17 | ||||||||||||||
|
Income (loss) from continuing operations
|
168,048 | (160,055 | ) | 117,504 | 90,692 | 97,667 | ||||||||||||||
|
% of sales
|
16 | (20 | ) | 10 | 9 | 11 | ||||||||||||||
|
Financial
Data
(a)
|
||||||||||||||||||||
|
Working capital
|
$ | 259,117 | $ | 190,249 | $ | 180,317 | $ | 180,010 | $ | 105,979 | ||||||||||
|
Net property, plant and equipment and other non-current assets
|
535,323 | 544,003 | 782,356 | 801,916 | 475,586 | |||||||||||||||
|
Total invested
capital
(b)
|
567,323 | 508,989 | 847,253 | 846,911 | 498,978 | |||||||||||||||
|
Total assets
|
986,354 | 890,674 | 1,166,669 | 1,211,840 | 822,890 | |||||||||||||||
|
Long-term liabilities
|
289,368 | 364,276 | 388,561 | 450,809 | 151,037 | |||||||||||||||
|
Shareholders’ equity
|
505,072 | 369,976 | 574,112 | 531,117 | 430,528 | |||||||||||||||
|
Return on average invested capital —
%
(c)
|
31 | 10 | (d) | 15 | 14 | 21 | ||||||||||||||
|
Return on average shareholders’ equity
— %
(e)
|
40 | (28 | ) | 20 | 19 | 26 | ||||||||||||||
|
Per-Share
Data
(a)
|
||||||||||||||||||||
|
Average number of common shares
|
33,805 | 33,565 | 33,746 | 33,547 | 33,365 | |||||||||||||||
|
Average number of common shares and common share equivalents
|
34,221 | 33,565 | 34,307 | 34,182 | 34,180 | |||||||||||||||
|
Basic earnings (loss) per share from continuing operations
|
$ | 4.97 | $ | (4.77 | ) | $ | 3.48 | $ | 2.70 | $ | 2.93 | |||||||||
|
Diluted earnings (loss) per share from continuing operations
|
4.91 | (4.77 | ) | 3.43 | 2.65 | 2.86 | ||||||||||||||
|
Dividends per common share
|
0.78 | 0.7375 | 0.73 | 0.70 | 0.67 | |||||||||||||||
|
Book value per common share
|
14.88 | 10.99 | 17.03 | 15.76 | 12.89 | |||||||||||||||
| (a) | See accompanying Notes to Consolidated Financial Statements. |
| (b) | Notes payable, plus current portion of long-term debt, plus long-term debt, minus cash and marketable securities, plus shareholders’ equity. |
| (c) | Income from continuing operations, plus after-tax interest expense on borrowings as a percentage of average quarterly borrowings (net of cash) plus average quarterly equity over five accounting periods. |
| (d) | The percentage for 2009 excludes goodwill and long-lived asset impairment charges. Including these charges, the return on average invested capital for 2009 would have been negative 21 percent. |
| (e) | Income from continuing operations as a percentage of shareholders’ equity. |
17
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
NOTE REGARDING
AMOUNTS AND FISCAL YEAR REFERENCES
In this annual 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.
Critical
Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes
have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of
these financial statements requires management to make
estimates, judgments and assumptions that affect reported
amounts of assets, liabilities, revenues and expenses. On an
ongoing basis, we evaluate the accounting policies and estimates
that are used to prepare financial statements. We base our
estimates on historical experience and assumptions believed to
be reasonable under current facts and circumstances. Actual
amounts and results could differ from these estimates used by
management.
Certain accounting policies that require significant management
estimates and are deemed critical to our results of operations
or financial position are discussed below. On a regular basis,
critical accounting policies are reviewed with the Audit
Committee of the board of directors.
Revenue Recognition
— Most of our revenues are
recognized upon shipment, provided that persuasive evidence of
an arrangement exists, the sales price is fixed or determinable,
collectibility is reasonably assured, and title and risk of loss
have passed to the customer. Revenues from contracts with
multiple element arrangements, such as those including
installation or other services, are recognized as each element
is earned based on objective evidence of the relative fair value
of each element. If the installation or other services are
inconsequential to the functionality of the delivered product,
the entire amount of revenue is recognized upon satisfaction of
the criteria noted above. Inconsequential installation or other
services are those that can generally be completed in a short
period of time, at insignificant cost, and the skills required
to complete these installations are not unique to us. If
installation or other services are essential to the
functionality of the delivered product, revenues attributable to
these obligations are deferred until completed. Amounts received
in excess of revenue recognized are included as deferred revenue
within accrued liabilities in the accompanying balance sheets.
Revenues deferred in 2010, 2009 and 2008 were not material.
Goodwill
— Goodwill is the excess of purchase
price over the fair value of tangible and identifiable
intangible net assets acquired in various business combinations.
Goodwill is not amortized but is tested for impairment annually
at the reporting unit level, or more often if indications of
impairment exist. For 2010 and 2009, our reporting units are the
Adhesive Dispensing Systems segment, the Industrial Coating
Systems segment and one level below the Advanced Technology
Systems segment. Reporting units in the Advanced Technology
Systems segment in 2010 are consistent with those used in 2009,
except that Picodostec and YESTech are now included in the EFD
and Dage reporting units, respectively.
18
Table of Contents
The goodwill impairment test is a two-step process. In the first
step, performed in the fourth quarter of each year, we calculate
a reporting unit’s fair value using a discounted cash flow
valuation methodology and compare the result against the
reporting unit’s carrying value of net assets. If the
carrying value of a reporting unit exceeds its fair value, then
a second step is performed to determine if goodwill is impaired.
In step one, the assumptions used for discounted cash flow,
revenue growth, operating margin, and working capital turnover
are based on general management’s strategic plans tempered
by performance trends and reasonable expectations about those
trends. Terminal value calculations employ a published formula
known as the “Gordon Growth Model Method” that
essentially captures the present value of perpetual cash flows
beyond the last projected period assuming a constant Weighted
Average Cost of Capital methodology (WACC) and growth rate. For
each reporting unit, sensitivity calculations vary the discount
and terminal growth rates in order to provide a range of
assurance that our expected assumptions are fair for detecting
impairment.
Discount rates were developed using a WACC methodology. The WACC
represents the blended average required rate of return for
equity and debt capital based on observed market return data and
company specific risk factors. For 2010, the discount rates used
ranged from 10 percent to 19 percent depending upon
the reporting unit’s size, end market volatility, and
projection risk. The calculated internal rate of return for the
step one consolidated valuation was 11.3 percent, the same
as the calculated WACC for total Nordson.
To test the reasonableness of the discounted cash flow
valuations, we performed the control premium test, which
compares the sum of the fair values calculated for our reporting
units (net of debt) to the market value of equity. The control
premium was 7 percent as of the test date of July 31,
2010 and negative 12 percent as of our year-end of
October 31, 2010. These comparisons indicated that the
discounted cash flow valuation was reasonable. In addition,
indications of value derived for each reporting unit using the
market approach reconciled reasonably with the results of the
discounted cash flow approach.
In 2010, the results of our step one testing indicated no
impairment; therefore, the second step of impairment testing was
not necessary.
In 2009, we determined that the second step of impairment
testing was necessary. In the second step, a hypothetical
purchase price allocation of the reporting unit’s assets
and liabilities is performed using the fair value calculated in
step one. The difference between the fair value of the reporting
unit and the hypothetical fair value of assets and liabilities
is the implied goodwill amount. Impairment is recorded if the
carrying value of the reporting unit’s goodwill is higher
than its implied goodwill. Based upon the results of our
impairment testing, we recognized an impairment charge for a
reduction in the carrying value of goodwill in the amount of
$232,789, relating to six reporting units as follows: Dage
$166,916, Picodostec $7,530, YESTech $26,149, March Plasma
Systems $16,449, UV Curing $12,129, and Industrial Coating
Systems $3,616.
The excess of fair value (FV) over carrying value (CV) was
compared to the carrying value for each reporting unit. Based on
the results shown in the table below, our conclusion is that no
indicators of impairment exist. Potential events or
circumstances resulting in a negative effect to the estimated
fair value could range from a further downturn in global
economies to a much slower recovery than assumed.
|
Excess of
|
||||||||||||
| WACC | FV over CV | Goodwill | ||||||||||
|
Adhesive Dispensing
|
10.0 | % | 800 | % | $ | 33,175 | ||||||
|
Asymtek
|
13.5 | % | 877 | % | $ | 15,185 | ||||||
|
EFD
|
12.0 | % | 39 | % | $ | 283,344 | ||||||
|
Dage and YESTech
|
19.0 | % | 20 | % | $ | 14,397 | ||||||
19
Table of Contents
Indefinite-Lived Intangible Assets
—
Indefinite-lived intangible assets are trademarks and trade
names associated with Dage, Picodostec and YESTech. These assets
are not subject to amortization and must be tested for
impairment annually or more often if indications of impairment
exist. The impairment test consists of a comparison of the fair
value of the intangible asset with its carrying amount. If the
carrying amount of an intangible asset exceeds its fair value,
an impairment charge is recognized in an amount equal to that
excess. After an impairment charge is recognized, the adjusted
carrying amount of the intangible asset becomes its new
accounting basis. Subsequent reversal of a previously recognized
impairment charge is prohibited.
The common valuation technique for trademark and trade names is
the “relief from royalty method.” The theory is that
these assets relieve the owner from having to pay a hypothetical
royalty attributable to an exclusive license for selling
products under the trademark or trade name. The value of the
hypothetical exclusive license is based upon the present value
of a stream of hypothetical royalty payments, using assumptions
for revenue growth (the same as for goodwill testing), discount
rates (slightly more risk premium than for goodwill testing),
royalty rates (based on market data), and tax amortization
benefits (based upon statutory guidance).
No impairment charges related to indefinite-lived intangible
assets were recorded in 2010. Impairment charges totaling $8,282
were recorded in 2009 as follows by reporting unit: Dage $5,365,
Picodostec $157, YESTech $350, and TAH Industries $2,410. The
charge for the TAH trade name was due to our branding program,
under which TAH product lines are being integrated into and
marketed as “Nordson EFD” over the next several years.
Accordingly, the TAH trade name was converted to a finite-lived
asset.
Other Long-Lived Assets
— Our test for
recoverability of long-lived depreciable and amortizable assets
used undiscounted cash flows. Long-lived assets are grouped at
the lowest level for which there is identifiable cash flows. The
total carrying value of long-lived assets for each reporting
unit has been compared to the forecasted cash flows of each
reporting unit’s long-lived assets being tested. Cash flows
have been defined as earnings before interest, taxes,
depreciation, and amortization, less annual maintenance capital
spending.
Estimates of future cash flows used to test the recoverability
of a long-lived asset (asset group) are based on the remaining
useful life of the asset. We believe that the relative value of
long-lived assets within each reporting unit is a reasonable
proxy for the relative importance of the assets in the
production of cash flow. To get to a reasonable forecast period,
the aggregate net book value of long-lived assets was divided by
the current depreciation and amortization value to arrive at a
blended remaining useful life. Our calculations for 2010 showed
the undiscounted aggregate value of cash flows over the
remaining useful life for each reporting unit was greater than
the respective carrying value of the lived assets within each
reporting unit, so no impairment charges were recognized.
Inventories
— Inventories are valued at the
lower of cost or market. Cost was determined using the
last-in,
first-out (LIFO) method for 25 percent of consolidated
inventories at October 31, 2010, and 26 percent at
October 31, 2009, with the
first-in,
first-out (FIFO) method used for the remaining inventory. On an
ongoing basis, inventory is tested for technical obsolescence,
as well as for future demand and changes in market conditions.
We have historically maintained inventory reserves to reflect
those conditions when the cost of inventory is not expected to
be recovered. Reserves are also maintained for inventory used
for demonstration purposes. The inventory reserve balance was
$16,802, $15,740 and $13,133 at October 31, 2010, 2009 and
2008, respectively.
Pension Plans and Postretirement Medical
Plans
— The measurement of liabilities related to
our pension plans and postretirement medical plans is based on
management’s assumptions related to future factors,
including interest rates, return on pension plan assets,
compensation increases, mortality and turnover assumptions, and
health care cost trend rates.
20
Table of Contents
The weighted-average discount rate used to determine the present
value of our domestic pension plan obligations was
5.21 percent at October 31, 2010 and 5.50 percent
at October 31, 2009. The discount rate for these plans,
which comprised 77 percent of the worldwide pension
obligations at October 31, 2010, was based on quality fixed
income investments with a duration period approximately equal to
the period over which pension obligations are expected to be
settled. The weighted-average discount rate used to determine
the present value of our various international pension plan
obligations was 4.17 percent at October 31, 2010,
compared to 4.78 percent at October 31, 2009. The
discount rates used for the international plans were determined
by using quality fixed income investments with a duration period
approximately equal to the period over which pension obligations
are expected to be settled.
In determining the expected return on plan assets, we consider
both historical performance and an estimate of future long-term
rates of return on assets similar to those in our plans. We
consult with and consider the opinions of financial and
actuarial experts in developing appropriate return assumptions.
The expected rate of return (long-term investment rate) on
domestic pension assets was 8.25 percent at
October 31, 2010 and 8.51 percent at
October 31, 2009. The average expected rate of return
on international pension assets was 4.84 percent at
October 31, 2010 and 4.85 percent at October 31,
2009.
The assumed rate of compensation increases for domestic
employees was 3.30 percent for both 2010 and 2009. The
assumed rate of compensation increases for international
employees was 3.21 percent in 2010, compared to
2.86 percent in 2009.
Annual expense amounts are determined based on the discount rate
used at the end of the prior year. Differences between actual
and assumed investment returns on pension plan assets result in
actuarial gains or losses that are amortized into expense over a
period of years.
Economic assumptions have a significant effect on the amounts
reported. The effect of a one percent change in the discount
rate, expected return on assets and compensation increase is
shown in the table below. Bracketed numbers represent decreases
in expense and obligation amounts.
| United States | International | |||||||||||||||
|
1% Point
|
1% Point
|
1% Point
|
1% Point
|
|||||||||||||
| Increase | Decrease | Increase | Decrease | |||||||||||||
|
Discount rate:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | (2,077 | ) | $ | 2,953 | $ | (226 | ) | $ | 494 | ||||||
|
Effect on pension obligation as of October 31, 2010
|
$ | (24,337 | ) | $ | 30,486 | $ | (11,368 | ) | $ | 14,527 | ||||||
|
Expected return on assets:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | (1,727 | ) | $ | 1,728 | $ | (278 | ) | $ | 278 | ||||||
|
Effect on pension obligation as of October 31, 2010
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Compensation increase:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | 2,482 | $ | (2,435 | ) | $ | 251 | $ | (250 | ) | ||||||
|
Effect on pension obligation as of October 31, 2010
|
$ | 26,009 | $ | (13,568 | ) | $ | 8,644 | $ | (7,119 | ) | ||||||
With respect to the domestic postretirement medical plan, the
discount rate used to value the benefit obligation decreased
from 5.50 percent at October 31, 2009 to
5.25 percent at October 31, 2010. The annual rate of
increase in the per capita cost of covered benefits (the health
care cost trend rate) is assumed to be 9.00 percent in
2011, decreasing gradually to 5.00 percent in 2020.
For the international postretirement plan, the discount rate
used to value the benefit obligation was 5.75 percent at
October 31, 2010 and 6.75 percent at October 31,
2009. The annual rate of increase in the per capita cost of
covered benefits (the health care cost trend rate) is assumed to
be 6.80 percent in 2011, decreasing gradually to
4.80 percent in 2013.
21
Table of Contents
The discount rate and the health care cost trend rate
assumptions have a significant effect on the amounts reported.
For example, a one-percentage point change in the discount rate
and assumed health care cost trend rate would have the following
effects:
| United States | International | |||||||||||||||
|
1% Point
|
1% Point
|
1% Point
|
1% Point
|
|||||||||||||
| Increase | Decrease | Increase | Decrease | |||||||||||||
|
Discount rate:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | (468 | ) | $ | 562 | $ | (9 | ) | $ | 11 | ||||||
|
Effect on postretirement obligation as of October 31, 2010
|
$ | (7,040 | ) | $ | 8,801 | $ | (131 | ) | $ | 176 | ||||||
|
Health care trend rate:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | 503 | $ | (406 | ) | $ | 19 | $ | (14 | ) | ||||||
|
Effect on postretirement obligation as of October 31, 2010
|
$ | 8,042 | $ | (6,556 | ) | $ | 169 | $ | (129 | ) | ||||||
Employees hired after January 1, 2002, are not eligible to
participate in the domestic postretirement medical plan.
Pension and postretirement expenses in 2011 are expected to be
approximately $5,000 lower than 2010, primarily due to a
settlement loss in 2010 resulting from a lump sum retirement
payment.
Financial Instruments
— Assets, liabilities and
commitments that are to be settled in cash and are denominated
in foreign currencies are sensitive to changes in currency
exchange rates. We enter into foreign currency forward
contracts, which are derivative financial instruments, to reduce
the risk of foreign currency exposures resulting from the
collection of receivables, payables and loans denominated in
foreign currencies. The maturities of these contracts are
usually less than 90 days. Forward contracts are not
designated as hedging instruments and therefore are marked to
market each accounting period, and the resulting gains or losses
are included in “other — net” within other
income (expense) in the Consolidated Statement of Income.
Warranties
— We provide customers with a
product warranty that requires us to repair or replace defective
products within a specified period of time (generally one year)
from the date of delivery or first use. An accrual is recorded
for expected warranty costs for products shipped through the end
of each accounting period. In determining the amount of the
accrual, we rely primarily on historical warranty claims.
Amounts charged to the warranty reserve were $6,068, $3,824 and
$6,070 in 2010, 2009 and 2008, respectively. The reserve balance
was $5,242, $4,587 and $5,336 at October 31, 2010, 2009 and
2008, respectively.
Long-Term Incentive Compensation Plan (LTIP)
—
Under the long-term incentive compensation plan, executive
officers and selected other employees receive stock payouts
based solely on corporate performance measures over three-year
performance periods. Payouts vary based on the degree to which
corporate performance equals or exceeds predetermined threshold,
target and maximum performance levels at the end of a
performance period. No payout will occur unless certain
threshold performance objectives are equaled or exceeded. 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 calculation is
also based upon the grant date fair value determined using a
Black-Scholes model. Payouts are recorded as capital in excess
of stated value in shareholders’ equity. The amount
recorded at October 31, 2010 for the plans originating in
2008, 2009 and 2010 was $3,879.
Compensation expense attributable to all LTIP performance
periods for executive officers and selected other employees for
2010 and 2008 was $3,879 and $4,762, respectively. There was
$5,014 credited to expense attributable to all LTIP performance
periods for executive officers and selected other employees for
2009 due to economic effects.
22
Table of Contents
2010 and
2009
Sales
— Worldwide sales for 2010 were
$1,041,551, an increase of 27.1 percent from 2009 sales of
$819,165. Sales volume increased 25.5 percent, and
favorable currency effects caused by the weaker U.S. dollar
increased sales by 1.6 percent.
As used throughout this
Form 10-K,
geographic regions include the Americas (Canada, Mexico and
Central and South America), Asia Pacific (excludes Japan),
Europe, Japan, and the United States.
Sales of the Adhesive Dispensing Systems segment were $525,290
in 2010, an increase of $64,544, or 14.0 percent, from 2009
sales of $460,746. The increase was the result of a sales volume
increase of 12.0 percent and favorable currency effects
that increased sales by 2.0 percent. Sales volume increased
in all geographic regions and was particularly strong in Asia
Pacific.
Sales of the Advanced Technology Systems segment were $380,304
in 2010, an increase of $131,477, or 52.8 percent, from
2009 sales of $248,827. The increase was the result of a sales
volume increase of 52.2 percent and favorable currency
effects that increased sales by 0.6 percent. Within the
segment, significant volume increases occurred in all geographic
regions and were most pronounced in Asia Pacific due to higher
demand in consumer electronics end markets.
Current year sales of the Industrial Coating Systems segment
were $135,957, an increase of $26,365, or 24.1 percent,
from prior year sales of $109,592. The increase was the result
of a sales volume increase of 22.2 percent and favorable
currency effects that increased sales by 1.9 percent. Sales
volume, which increased in all geographic regions except Japan,
was most pronounced in Asia Pacific.
Sales outside the United States accounted for 73.4 percent
of our sales in 2010, up from 71.3 percent last year. Sales
increased in all five geographic regions in which we operate. In
Asia Pacific, sales were $253,460 in 2010, an increase of
73.5 percent from 2009. Sales volume increased
70.4 percent, and favorable currency effects added
3.1 percent. In the Americas, sales were $77,592 up
29.5 percent from the prior year. Sales volume increased
21.8 percent and favorable currency effects increased sales
by 7.7 percent. In the United States, sales were $277,262
in 2010, an increase of 17.8 percent from 2009. In Japan,
sales were $95,789, up 16.9 percent from 2009. Sales volume
increased 11.0 percent, and favorable currency effects
added 5.9 percent. In Europe, sales were $337,448 in 2010,
an increase of 14.0 percent from 2009. Sales volume
increased 14.4 percent, and unfavorable currency effects
reduced sales by 0.4 percent.
It is estimated that the effect of pricing on total revenue was
neutral relative to the prior year.
Operating profit
— Cost of sales in 2010 were
$419,937, up 19.9 percent from 2009. The increase compared
to the prior year is due to increased sales volume, but produced
more favorable margins. Gross margins, expressed as a percentage
of sales, increased to 59.7 percent in 2010 from
57.2 percent in 2009. The gross margin percentage increase
in the current year was due to higher absorption of fixed
overhead costs, the impact of cost reduction activities taken in
2009, more profitable product line mix and favorable currency
effects.
Selling and administrative expenses, excluding severance and
restructuring costs, were $384,752 in 2010, an increase of
$47,458, or 14.1 percent, from 2009. The increase was
largely due to higher incentive compensation expenses resulting
from a higher level of business activity in the current year. In
addition, currency translation effects increased selling and
administrative costs by 1.5 percent. Selling and
administrative expenses as a percentage of sales decreased to
36.9 percent in 2010 from 41.2 percent in 2009 due to
the higher level of sales and the favorable effects of
restructuring activities.
On June 30, 2010, we sold our graphic arts and lamps
product lines to Baldwin Technology Company, Inc. These product
lines were reported in the Advanced Technology Systems segment.
We recognized a pretax loss on disposition of $357, which is
reflected in selling and administrative expenses in the
Consolidated Statement of Income. Results of operations and net
assets of the divested product lines were immaterial to our
consolidated results of operations, financial position and cash
flows.
23
Table of Contents
In September 2008, a cost reduction program that involved a
combination of non-workforce related efficiencies and workforce
reductions primarily in the United States and Europe was
announced. In response to the continuing economic crisis,
additional cost reduction actions were taken in 2009 and 2010.
Total severance and related costs of these actions were $5,561
in 2008 and $16,396 in 2009 and $2,029 in 2010. Severance costs
were recorded in the Corporate segment.
In 2009 we recognized goodwill and long-lived asset impairment
charges of $243,043. Of this amount, $232,789 related to
goodwill, $8,282 related to indefinite lived trade name assets
and $1,972 related to other long-lived assets. Additional
information regarding these charges is described in the Critical
Accounting Policies and Estimates section.
Operating profit as a percent of sales was 22.5 percent in
2010 compared to negative 15.6 percent in 2009. Goodwill
and long-lived impairment charges accounted for
29.7 percent of the 38.1 percent change. The remainder
of the change was primarily due to sales mix yielding higher
gross margins, effects of cost reduction activities taken in
2008 and 2009 that resulted in operating costs increasing at a
slower rate than sales, and higher severance and restructuring
costs in 2009.
Segment operating profit margins in 2010 and 2009 were as
follows:
|
Segment
|
2010 | 2009 | ||||||
|
Adhesive Dispensing Systems
|
31.7 | % | 27.7 | % | ||||
|
Advanced Technology Systems
|
22.7 | % | (86.2 | )% | ||||
|
Industrial Coating Systems
|
9.2 | % | (6.7 | )% | ||||
Operating capacity for each of our segments can support
fluctuations in order activity without significant changes in
operating costs. Also, currency translation affects reported
operating profit margins. Operating margins for each segment
were favorably impacted by a weaker dollar during the year as
compared to the prior year.
Operating profit as a percent of sales for the Adhesive
Dispensing Systems segment increased to 31.7 percent in
2010 from 27.7 percent in 2009. The increase was primarily
due to higher gross margin percentages and to sales volume
increasing at a higher rate than selling and administrative
expenses.
Operating profit as a percent of sales for the Advanced
Technology Systems segment was 22.7 percent in 2010
compared to an operating loss of 86.2 percent of sales in
2009. The change was due primarily to goodwill and long-lived
asset impairment charges of $239,427 in the prior year.
Excluding these impairment charges, operating margin was
10.1 percent. The increase from 10.1 percent to
22.7 percent was primarily due to sales volume increasing
at a higher rate than selling and administrative expenses.
Operating profit as a percent of sales for the Industrial
Coating Systems segment was 9.2 percent in 2010 compared to
an operating loss of 6.7 percent of sales in 2009. The
prior year included a goodwill impairment charge of $3,616.
Excluding this charge, operating margin was negative
3.4 percent in 2009. The profitability improvement in 2010
was primarily due to higher gross margin percentages and to
sales volume increasing at a higher rate than selling and
administrative expenses.
Interest and other income (expense)
— Interest
expense in 2010 was $6,263, a decrease of $1,508, or
19.4 percent, from 2009. The decrease was primarily due to
lower borrowing levels in the current year. Interest income was
$819 in 2010, up from $492 in 2009. The increase was primarily
due to a higher level of short-term investments in the current
year. Other income in 2010 was $1,930 compared to $7,895 in
2009. Included in these amounts were foreign currency gains of
$1,221 in 2010 and $1,571 in 2009. The prior year also included
a $5,011 gain on the sale of real estate in Westlake, Ohio.
Income taxes
— Income tax expense in 2010 was
$63,271, or 27.4 percent of pre-tax income. Income tax
expense in 2009 was $32,864. Most of the goodwill and long-lived
asset impairment charges recorded in 2009 were not deductible
for income tax purposes.
The 2010 effective tax rate was positively impacted by a tax
benefit of $10,243 from the write-off of the tax basis in our UV
graphics arts and lamps product lines. The current year tax rate
was also positively impacted by consolidation of certain
operations and legal entities, resulting in a $3,616 tax
benefit, and by the utilization of foreign operating tax loss
carryforwards.
24
Table of Contents
The 2010 effective rate was impacted by an additional tax charge
of $5,249 resulting from the enactment of the Patient Protection
and Affordable Care Act and the subsequent enactment of the
Health Care and Education Reconciliation Act of 2010. This
charge was due to a reduction in the value of a deferred tax
asset as a result of a change to the tax treatment associated
with Medicare Part D subsidies.
Net income (loss)
— Net income was $168,048, or
$4.91 per diluted share, in 2010. This compares to a net loss of
$160,055, or $4.77 per diluted share, in 2009.
Recently issued accounting standards
— In
September 2006, the FASB issued a standard regarding fair value
measurements. This standard provides a common definition of fair
value and establishes a framework to make the measurement of
fair value in generally accepted accounting principles more
consistent and comparable. It also requires expanded disclosures
to provide information about the extent to which fair value is
used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair
value measures on earnings. In February 2008, the FASB issued an
update that permitted a one-year deferral of the original
standard for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at
least annually). We adopted the non-deferred portion of the
standard as of November 1, 2008 and the deferred portion of
the standard as of November 1, 2009. The adoptions did not
impact our results of operations or financial position.
In December 2007, the FASB issued a standard that provides
greater consistency in the accounting and financial reporting of
business combinations. The standard requires the acquiring
entity in a business combination to recognize all assets
acquired and liabilities assumed in the transaction, establishes
the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed, and requires the
acquirer to disclose the nature and financial effect of the
business combination. We adopted this standard as of
November 1, 2009, and the adoption did not have a material
impact on our results of operations or financial position. The
future impact will depend on the nature and significance of
future acquisitions.
In December 2007, the FASB issued a pronouncement that
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. We adopted this pronouncement
as of November 1, 2009. The impact of adoption will depend
on future transactions. To date, there was no impact of the
adoption on our results of operations or financial position.
In December 2008, the FASB issued a standard that enhances the
required disclosures about plan assets in an employer’s
defined benefit pension or other postretirement plan, including
investment allocations decisions, inputs and valuations
techniques used to measure the fair value of plan assets and
significant concentrations of risks within plan assets. We
adopted this standard as of October 31, 2010, and the
required disclosures are contained in Note 3.
In October 2009, the FASB issued authoritative guidance on
multiple-deliverable revenue arrangements that addresses the
unit of accounting for arrangements involving multiple
deliverables. The guidance also addresses how arrangement
consideration should be allocated to separate units of
accounting, when applicable, and expands the disclosure
requirements for multiple-deliverable arrangements. We must
adopt this standard in 2011. The adoption is not expected to
have a material effect on our results of operations or financial
position.
2009 and
2008
Sales
— As a result of the global economic
slowdown, worldwide sales for 2009 were $819,165, a decrease of
27.2 percent from 2008 sales of $1,124,829. Sales volume
decreased 23.3 percent, and unfavorable currency
translation effects caused by the stronger United States dollar
decreased sales by an additional 3.9 percent over the prior
year.
Sales of the Adhesive Dispensing Systems segment were $460,746
in 2009, a decrease of $119,965, or 20.7 percent, from
2008. The change was the result of a sales volume decrease of
16.3 percent and unfavorable currency translation effects
that reduced sales by an additional 4.4 percent. The sales
decrease was largely attributable to large-dollar system product
lines, with sales to consumer non-durable end markets, such as
packaging and nonwovens, remaining more stable. All product
lines within this segment and all geographic regions experienced
sales volume decreases from the prior year.
25
Table of Contents
Sales of the Advanced Technology Systems segment were $248,827
in 2009, a decrease of $118,539, or 32.3 percent from 2008.
Sales volume decreased 28.2 percent, and unfavorable
currency translation effects decreased sales by
4.1 percent. Within the segment, volume decreases occurred
in all product lines and all geographic regions largely due to
reduced demand in semiconductor and consumer electronics end
markets.
Industrial Coating Systems segment sales in 2009 were $109,592,
a decrease of $67,160, or 38.0 percent, from the prior
year. The decrease was the result of a sales volume decrease of
35.9 percent and unfavorable currency translation effects
of 2.1 percent. The sales volume decline was largely due to
the lack of capital spending in consumer durable end markets.
Within the segment, volume decreases occurred in all product
lines and all geographic regions.
Sales outside the United States accounted for 71.3 percent
of total 2009 sales, compared to 71.9 percent in 2008.
Sales volume in 2009 decreased from the prior year in all five
geographic regions in which we operate. Sales volume was down
31.6 percent in Japan, 25.4 percent in the United
States, 22.9 percent in Europe, 19.3 percent in Asia
Pacific and 14.0 percent in the Americas. Sales in all
international regions, except Japan, were negatively impacted by
the stronger U.S. dollar.
It is estimated that the effect of pricing on total revenue was
neutral relative to the prior year.
Operating profit
— Cost of sales in 2009 was
$350,239, down 29.2 percent from 2008, due primarily to the
decrease in sales volume. Currency effects reduced cost of sales
by 2.8 percent. Gross margins, expressed as a percent of
sales, increased to 57.2 percent in 2009 from
56.0 percent in 2008. The increase was due primarily to a
higher mix of consumables and aftermarket part sales compared to
engineered systems sales. The gross margin percentage was also
impacted by a reduction of overhead costs related to initiatives
to reduce spending in response to the economic slowdown.
Selling and administrative expenses, excluding severance and
restructuring costs, were $337,294 in 2009, a decrease of
$97,182, or 22.4 percent, from 2008. The decrease was
largely due to reduced compensation expenses associated with
lower employment levels, furloughs, lower incentive compensation
expense, and tightened control over discretionary spending. In
addition, currency translation effects decreased selling and
administrative costs by 4.2 percent. Selling and
administrative expenses as a percentage of sales increased to
41.2 percent in 2009 from 38.6 percent in 2008 due to
the lower level of sales.
In September 2008, a cost reduction program that involved a
combination of non-workforce related efficiencies and workforce
reductions primarily in the United States and Europe was
announced. In response to the continuing economic crisis,
additional cost reduction actions were taken in 2009. The total
severance and related costs of these actions were $5,561 in 2008
and $16,396 in 2009. Severance costs were recorded in the
Corporate segment.
In 2009 we recognized goodwill and long-lived asset impairment
charges of $243,043. Of this amount, $232,789 related to
goodwill, $8,282 related to indefinite lived trade name assets
and $1,972 related to other long-lived assets. Additional
information regarding these charges is described in the Critical
Accounting Policies and Estimates section.
Operating margin was negative 15.6 percent in 2009 compared
to operating profit of 16.9 percent in 2008. Goodwill and
long-lived impairment charges accounted for 29.7 percent of
the 32.5 percent change. The remainder of the decrease was
due primarily to the reduction in sales volume.
Segment operating profit margins in 2009 and 2008 were as
follows:
|
Segment
|
2009 | 2008 | ||||||
|
Adhesive Dispensing Systems
|
27.7 | % | 25.0 | % | ||||
|
Advanced Technology Systems
|
(86.2 | )% | 16.8 | % | ||||
|
Industrial Coating Systems
|
(6.7 | )% | 6.2 | % | ||||
Operating capacity for each of our segments can support
fluctuations in order activity without significant changes in
operating costs. Also, currency translation affects reported
operating profit margins. Operating margins for each segment
were unfavorably impacted by a stronger dollar during the year
as compared to the prior year.
26
Table of Contents
Operating margin for the Adhesive Dispensing Systems segment was
27.7 percent, up from 25.0 percent in 2008. The
increase was due primarily to a higher gross margin percentage
resulting from a mix of more consumables and aftermarket part
sales compared to engineered systems sales in 2009.
Operating margin for the Advanced Technology Systems segment was
negative 86.2 percent in 2009 as compared to an operating
profit margin of 16.8 percent in 2008. The change was due
primarily to goodwill and long-lived asset impairment and
charges of $239,427. Excluding these impairment charges,
operating margin was 10.1 percent in 2009. The decrease
from the prior year was due primarily to sales volume decreasing
at a higher rate than both cost of sales and selling and
administrative expenses.
Operating margin for the Industrial Coating Systems segment was
negative 6.7 percent in 2009 as compared to an operating
profit margin of 6.2 percent in 2008. The current year
included a goodwill impairment charge of $3,616. Excluding this
charge, operating margin was negative 3.4 percent. The
change from 2008 was due primarily to sales volume decreasing at
a higher rate than selling and administrative expenses.
Interest and other income (expense)
— Interest
expense in 2009 was $7,771, a decrease of $8,943, or
53.5 percent from 2008 due to lower borrowing levels and
lower interest rates. Other income was $7,895 in 2009, compared
to $4,914 in 2008. Included in other income (expense) were
currency gains of $1,571 in 2009 and $2,153 in 2008. A $5,011
gain on the sale of real estate in Westlake, Ohio was included
in 2009 other income.
Income taxes
— Income tax expense was $32,864
in 2009. Most of the goodwill and long-lived asset impairment
charges in 2009 were non-deductible for income tax purposes.
Income tax expense for 2008 was $62,284.
Net income (loss)
— Net loss was $160,055, or
$4.77 per diluted share, in 2009. This compares to net income of
$117,504, or $3.43 per diluted share, in 2008.
Liquidity
and Capital Resources
Cash provided by operations in 2010 was $140,186, compared to
$168,677 in 2009. The primary sources were net income (loss),
non-cash items and the tax benefit from the exercise of stock
options, totaling $213,756 compared to $138,529 in 2009.
Operating assets and liabilities used $73,570 of cash in 2010
compared to 2009 when operating assets and liabilities generated
$30,148 of cash. The primary reasons for the change were a
higher level of business activity resulting in higher operating
assets and one-time postretirement payments and cash
contributions to U.S. pension plans in 2010 totaling
$79,514.
Cash used by investing activities was $41,324 in 2010 compared
to $3,939 in 2009. Capital expenditures were $14,317 in 2010, up
from $12,514 in the prior year. Significant capital expenditures
in 2010 included construction of our new corporate headquarters
facility to replace the facility sold in 2009, continuing
rollout of SAP enterprise management software and various
projects that improve manufacturing and distribution. In 2009,
proceeds from the sale of property, plant and equipment were
$8,611 and primarily consisted of the sale of our Westlake, Ohio
corporate headquarters building and a portion of the real
property surrounding the building. In 2010 the acquisition of
GLT used $18,576 of cash, and cash of $7,795 was used to
purchase marketable securities, primarily bank certificates of
deposit.
Cash of $79,275 was used for financing activities in 2010,
compared to $161,018 in 2009. The current year included net
repayments of $45,135 of short and long-term borrowings,
compared to $127,268 in the prior year. Issuance of common
shares related to employee benefit plans generated $13,828 of
cash in 2010, up from $2,986 in 2009, and the tax benefit from
stock option exercises was $7,798 in the current year, up from
$284 in the prior year. These increases were the result of more
stock option exercises due to the higher price of our common
stock. Purchases of treasury shares used $24,935 of cash in
2010, up from $7,115 in 2009, as we focused on repayment of debt
in the prior year. Dividend payments were $26,439 in 2010, up
from $24,747 in 2009 due to an increase in the annual dividend
to $0.78 per share from $0.7375 per share.
27
Table of Contents
The following is a summary of significant changes by balance
sheet caption from October 31, 2009 to
October 31, 2010. Receivables, inventories and
accounts payable increased due primarily to higher level of
business activity in the fourth quarter of 2010 compared to the
fourth quarter of 2009. Prepaid expenses decreased primarily due
to the sale of the UV Curing graphic arts and lamps product
lines in 2010. Goodwill increased primarily due to the purchase
of GLT in 2010. Long-term deferred income taxes changed from a
net asset position of $18,119 at the end of 2009 to a net
liability position of $9,745 at the end of 2010. The primary
reasons for the change were the acceleration of a tax deduction
related to a pension contribution made in 2010 and a change to
the tax treatment associated with Medicare Part D
subsidies. The increase in other long-term assets is largely due
to a long-term receivable associated with the sale of UV Curing
graphic arts and lamps product lines, and increases in pension
assets and in the market value of assets held in a rabbi trust
that serves as an investment to shadow our deferred compensation
plan liability. The increase in income taxes payable is largely
due to a higher profitability level in 2010. The increase in
accrued liabilities is primarily due to accruals for salaries
and incentive compensation offset by payments of supplemental
pension and deferred compensation liabilities. Current
maturities of long-term debt increased due to scheduled
repayments of Senior Notes. The decrease in long-term pension
and retirement obligations is the result of the pension plan
contributions referred to above partially offset by the effects
of lower discount rates.
On December 10, 2008, the board of directors approved a
stock repurchase program of up to 1,000 shares. Uses for
repurchased shares include the funding of benefit programs
including stock options, nonvested stock and 401(k) matching.
During 2010, we repurchased 348 shares authorized to be
repurchased under this program.
The following table summarizes contractual obligations as of
October 31, 2010:
| Payments Due by Period | ||||||||||||||||||||
|
Less than
|
After
|
|||||||||||||||||||
|
Obligations
|
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||
|
Long-term
debt
(1)
|
$ | 110,260 | $ | 14,260 | $ | 96,000 | $ | — | $ | — | ||||||||||
|
Interest payments on long-term
debt
(1)
|
6,362 | 3,084 | 3,278 | — | — | |||||||||||||||
|
Capital lease
obligations
(2)
|
9,260 | 4,880 | 3,999 | 373 | 8 | |||||||||||||||
|
Operating
leases
(2)
|
25,602 | 9,001 | 6,609 | 2,643 | 7,349 | |||||||||||||||
|
Notes
payable
(3)
|
2,160 | 2,160 | — | — | — | |||||||||||||||
|
Contributions related to pension and postretirement
benefits
(4)
|
5,214 | 5,214 | — | — | — | |||||||||||||||
|
Purchase
obligations
(5)
|
38,456 | 37,600 | 856 | — | — | |||||||||||||||
|
Total obligations
|
$ | 197,314 | $ | 76,199 | $ | 110,742 | $ | 3,016 | $ | 7,357 | ||||||||||
(1) We have a $400,000 unsecured, multicurrency credit
facility with a group of banks that expires in 2012 and may be
increased to $500,000 under certain conditions. At
October 31, 2010, $46,000 was outstanding under this
facility, compared to $88,000 outstanding at October 31,
2009. There are two primary financial covenants that must be met
under this facility. The first covenant limits the amount of
total indebtedness that can be incurred to 3.5 times
consolidated trailing EBITDA (both indebtedness and EBITDA as
defined in the credit agreement). The second covenant requires
consolidated trailing EBITDA to be at least three times
consolidated trailing interest expense (both as defined in the
credit agreement). At October 31, 2010, we were in
compliance with all debt covenants, and the amount we could
borrow under the credit facility would not have been limited by
any debt covenants.
28
Table of Contents
In 2008, we entered into a Note Purchase and Private Shelf
Agreement (the Agreement) with Prudential Investment Management,
Inc. The Agreement consists of a $50,000 Senior Note and a
$100,000 Private Shelf Facility. The Senior Note bears interest
at a rate of 4.98 percent and matures on February 22,
2013. The Agreement also contains customary events of default
and covenants related to limitations on indebtedness and the
maintenance of certain financial ratios. We were in compliance
with all covenants at October 31, 2010. Under the Private
Shelf Facility, we may also borrow during the next three years
up to $100,000 at interest rates in effect at the time of
borrowing. Borrowings can be for up to 12 years with an
average life not to exceed 10 years. At October 31,
2010, the amount we could borrow under the Private Shelf
Facility would not have been limited by any debt covenants.
See Note 8 for additional information.
(2) See Note 6 for additional information.
(3) We have various lines of credit with foreign banks
totaling $39,710, of which $37,550 was unused at
October 31, 2010. See Note 7 for additional
information.
(4) Pension and postretirement plan funding amounts after
2011 will be determined based on the future funded status of the
plans and therefore cannot be estimated at this time. See
Note 3 for additional information.
(5) Purchase obligations primarily represent commitments
for materials used in our manufacturing processes that are not
recorded in our Consolidated Balance Sheet.
We believe that the combination of present capital resources,
internally generated funds and unused financing sources are more
than adequate to meet cash requirements for 2011. There are no
significant restrictions limiting the transfer of funds from
international subsidiaries to the parent company.
Outlook
Our operating performance in 2010 rebounded from 2009, which was
affected by disruptions in global financial markets and the
general economic environment. Going forward, we are well
positioned to manage our liquidity. Our liquidity needs arise
from working capital requirements, capital expenditures and
principal and interest payments on indebtedness. Primary sources
of capital to meet these needs are cash provided by operations
and borrowings under our loan agreements. In 2010, cash from
operations was 13 percent of revenue, including voluntary
contributions to our U.S. pension plans and one-time
postretirement payments representing 8 percent of revenue,
compared to 20 percent in 2009. Comparatively, during the
2001 and 2002 recession years, cash from operations were
10 percent and 20 percent, respectively, and then
ranged from 10 percent to 14 percent in subsequent
years until 2009. Funds provided by borrowings occur under a
$400,000 five-year committed revolving line of credit with a
group of domestic and international banks that expires in 2012.
As of October 31, 2010 we were in compliance with the
financial covenant of this credit facility and have $354,000
available borrowing capacity. In addition, in February 2008, we
entered into a $100,000 Master Shelf Arrangement with the
Prudential Insurance Company to allow for the issuance of medium
to long-term unsecured notes. As of October 31, 2010, we
are in compliance with the financial covenant relating to a
$50,000 five-year note issued under this arrangement. While
these facilities provide the contractual terms for any
borrowing, we cannot be assured that these facilities would be
available in the event that these financial institutions failed
to remain sufficiently capitalized.
29
Table of Contents
Following the rebound in 2010, we move forward with caution in
our approach to 2011. Our priorities for 2011 are focused on
maintaining operational improvements achieved over the past two
years through a combination of non-workforce related
efficiencies and workforce reductions. We will continue to
utilize lean concepts within our operations. We expect these
efforts will provide sufficient cash from operations to meet our
liquidity needs, as well as enable us to invest in the
development of new applications and markets for our technologies
and pursue strategic acquisition opportunities. With respect to
spending, the table above presents our financial obligations as
$197,314, of which $76,199 is payable in 2011. On
December 10, 2008, our board of directors approved a stock
repurchase program of up to 1,000 shares. Under this
authorization, the timing and actual number of shares subject to
repurchase are at the discretion of management and are
contingent on a number of factors including levels of cash
generation from operations, cash requirements for acquisitions,
repayment of debt and our share price. Capital expenditures for
2011 will be focused primarily upon our in-process rollout of
SAP and various facility projects that improve manufacturing and
distribution.
Effects
of Foreign Currency
The impact of changes in foreign currency exchange rates on
sales and operating results cannot be precisely measured due to
fluctuating selling prices, sales volume, product mix and cost
structures in each country where we operate. As a general rule,
a weakening of the United States dollar relative to foreign
currencies has a favorable effect on sales and net income, while
a strengthening of the dollar has a detrimental effect.
In 2010, as compared with 2009, the United States dollar was
generally weaker against foreign currencies. If 2009 exchange
rates had been in effect during 2010, sales would have been
approximately $12,944 lower and third-party costs would have
been approximately $5,208 lower. In 2009, as compared with 2008,
the United States dollar was generally stronger against foreign
currencies. If 2008 exchange rates had been in effect during
2009, sales would have been approximately $43,952 higher and
third-party costs would have been approximately $31,898 higher.
These effects on reported sales do not include the impact of
local price adjustments made in response to changes in currency
exchange rates.
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 currencies are recorded and the dates
they are settled. We regularly use foreign exchange contracts to
reduce our risks related to most of these transactions. These
contracts, primarily associated with the Euro, Yen and British
Pound, typically have maturities of 90 days or less, and
generally require the exchange of foreign currencies for United
States dollars at rates stated in the contracts. Gains and
losses from changes in the market value of these contracts
offset foreign exchange losses and gains, respectively, on the
underlying transactions. Other transactions denominated in
foreign currencies are designated as hedges of our net
investments in foreign subsidiaries or are intercompany
transactions of a long-term investment nature. As a result of
the use of foreign exchange contracts on a routine basis to
reduce the risks related to most of our transactions denominated
in foreign currencies, as of October 31, 2010, we did not
have material foreign currency exposure.
Note 9 to the financial statements contains additional
information about our foreign currency transactions and the
methods and assumptions used to record these transactions.
A portion of our operations is financed with short-term and
long-term borrowings and is subject to market risk arising from
changes in interest rates.
30
Table of Contents
The tables that follow present principal repayments and related
weighted-average interest rates by expected maturity dates of
fixed-rate debt.
At
October 31, 2010
|
There-
|
Total
|
Fair
|
||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | after | Value | Value | |||||||||||||||||||||||||
|
Annual repayments of long-term debt
|
$14,260 | $— | $50,000 | $— | $ | — | $ | — | $ | 64,260 | $ | 66,495 | ||||||||||||||||||||
|
Average interest rate of total borrowings outstanding
during the year |
5.51 | % | 4.98 | % | 4.98 | % | — | % | — | % | — | % | 5.51 | % | ||||||||||||||||||
|
At October 31,
2009
|
||||||||||||||||||||||||||||||||
|
There-
|
Total
|
Fair
|
||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | after | Value | Value | |||||||||||||||||||||||||
|
Annual repayments of long-term debt
|
$4,290 | $14,260 | $— | $50,000 | $ | — | $ | — | $ | 68,550 | $ | 71,706 | ||||||||||||||||||||
|
Average interest rate of total borrowings
outstanding during the year |
5.61 | % | 5.51 | % | 4.98 | % | 4.98 | % | — | % | — | % | 5.61 | % | ||||||||||||||||||
We also have variable-rate notes payable and long-term debt. The
weighted average interest rate of this debt was 0.7 percent
at October 31, 2010 and 0.6 percent at
October 31, 2009. A one percent increase in interest rates
would have resulted in additional interest expense of
approximately $1,073 on the variable rate notes payable and
long-term debt in 2010.
Inflation
Inflation affects profit margins as the ability to pass cost
increases on to customers is restricted by the need for
competitive pricing. Although inflation has been modest in
recent years and has had no material effect on the years covered
by these financial statements, we continue to seek ways to
minimize the impact of inflation through focused efforts to
increase productivity.
Trends
The Five-Year Summary in Item 6 documents our historical
financial trends. Over this period, the world’s economic
conditions fluctuated significantly. Our solid performance is
attributed to our participation in diverse geographic and
industrial markets and our long-term commitment to develop and
provide quality products and worldwide service to meet our
customers’ changing needs.
Safe
Harbor Statements Under the Private Securities Litigation Reform
Act of 1995
This
Form 10-K,
particularly “Management’s Discussion and
Analysis,” 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 United States and global economies. Statements
in this
10-K
that are not historical are hereby identified as
“forward-looking statements” and may be indicated by
words or phrases such as “anticipates,”
“supports,” “plans,” “projects,”
“expects,” “believes,” “should,”
“would,” “could,” “hope,”
“forecast,” “management is of the opinion,”
use of the future tense and similar words or phrases.
In light of these risks and uncertainties, actual events and
results may vary significantly from those included in or
contemplated or implied by such statements. Readers are
cautioned not to place undue reliance on such forward-looking
statements. These forward-looking statements speak only as of
the date made. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required
by law. Factors that could cause our actual results to differ
materially from the expected results are discussed in
Item 1A, Risk Factors.
31
Table of Contents
Years ended
October 31, 2010, 2009 and 2008
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands except for per-share amounts) | ||||||||||||
|
Sales
|
$ | 1,041,551 | $ | 819,165 | $ | 1,124,829 | ||||||
|
Operating costs and expenses:
|
||||||||||||
|
Cost of sales
|
419,937 | 350,239 | 494,394 | |||||||||
|
Selling and administrative expenses
|
384,752 | 337,294 | 434,476 | |||||||||
|
Severance and restructuring costs
|
2,029 | 16,396 | 5,621 | |||||||||
|
Goodwill and long-lived asset impairments
|
— | 243,043 | — | |||||||||
| 806,718 | 946,972 | 934,491 | ||||||||||
|
Operating profit (loss)
|
234,833 | (127,807 | ) | 190,338 | ||||||||
|
Other income (expense):
|
||||||||||||
|
Interest expense
|
(6,263 | ) | (7,771 | ) | (16,714 | ) | ||||||
|
Interest and investment income
|
819 | 492 | 1,250 | |||||||||
|
Other — net
|
1,930 | 7,895 | 4,914 | |||||||||
| (3,514 | ) | 616 | (10,550 | ) | ||||||||
|
Income (loss) before income taxes
|
231,319 | (127,191 | ) | 179,788 | ||||||||
|
Income tax provision:
|
||||||||||||
|
Current
|
36,441 | 28,809 | 54,929 | |||||||||
|
Deferred
|
26,830 | 4,055 | 7,355 | |||||||||
| 63,271 | 32,864 | 62,284 | ||||||||||
|
Net income (loss)
|
$ | 168,048 | $ | (160,055 | ) | $ | 117,504 | |||||
|
Average common shares
|
33,805 | 33,565 | 33,746 | |||||||||
|
Incremental common shares attributable to outstanding stock
options, nonvested stock and deferred stock-based compensation
|
416 | — | 561 | |||||||||
|
Average common shares and common share equivalents
|
34,221 | 33,565 | 34,307 | |||||||||
|
Basic earnings (loss) per share
|
$ | 4.97 | $ | (4.77 | ) | $ | 3.48 | |||||
|
Diluted earnings (loss) per share
|
$ | 4.91 | $ | (4.77 | ) | $ | 3.43 | |||||
|
Dividends declared per common share
|
$ | 0.78 | $ | 0.7375 | $ | 0.73 | ||||||
The accompanying notes are an integral part of the
consolidated financial statements.
32
Table of Contents
October 31,
2010 and 2009
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 42,329 | $ | 18,781 | ||||
|
Marketable securities
|
7,840 | 43 | ||||||
|
Receivables — net
|
243,790 | 191,201 | ||||||
|
Inventories — net
|
117,721 | 97,636 | ||||||
|
Deferred income taxes
|
33,576 | 29,756 | ||||||
|
Prepaid expenses and other current assets
|
5,775 | 9,254 | ||||||
|
Total current assets
|
451,031 | 346,671 | ||||||
|
Property, plant and equipment — net
|
116,395 | 118,291 | ||||||
|
Goodwill
|
347,326 | 341,762 | ||||||
|
Intangible assets — net
|
42,927 | 42,144 | ||||||
|
Deferred income taxes
|
— | 18,119 | ||||||
|
Other assets
|
28,675 | 23,687 | ||||||
| $ | 986,354 | $ | 890,674 | |||||
|
Liabilities and shareholders’ equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Notes payable
|
$ | 2,160 | $ | 1,287 | ||||
|
Accounts payable
|
40,262 | 33,368 | ||||||
|
Income taxes payable
|
24,336 | 12,347 | ||||||
|
Accrued liabilities
|
96,133 | 92,285 | ||||||
|
Customer advance payments
|
10,999 | 8,807 | ||||||
|
Current maturities of long-term debt
|
14,260 | 4,290 | ||||||
|
Current obligations under capital leases
|
3,764 | 4,038 | ||||||
|
Total current liabilities
|
191,914 | 156,422 | ||||||
|
Long-term debt
|
96,000 | 152,260 | ||||||
|
Obligations under capital leases
|
3,316 | 2,982 | ||||||
|
Pension and retirement obligations
|
103,327 | 133,082 | ||||||
|
Postretirement obligations
|
53,919 | 50,790 | ||||||
|
Deferred income taxes
|
9,745 | — | ||||||
|
Other liabilities
|
23,061 | 25,162 | ||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred shares, no par value; 10,000 shares authorized;
none issued
|
— | — | ||||||
|
Common shares, no par value; 80,000 shares authorized;
|
||||||||
|
49,011 shares issued at October 31, 2010 and 2009
|
12,253 | 12,253 | ||||||
|
Capital in excess of stated value
|
255,595 | 241,494 | ||||||
|
Retained earnings
|
797,695 | 656,086 | ||||||
|
Accumulated other comprehensive loss
|
(66,306 | ) | (55,470 | ) | ||||
|
Common shares in treasury, at cost
|
(494,165 | ) | (484,387 | ) | ||||
|
Total shareholders’ equity
|
505,072 | 369,976 | ||||||
| $ | 986,354 | $ | 890,674 | |||||
The accompanying notes are an integral part of the
consolidated financial statements.
33
Table of Contents
Consolidated
Statements of Shareholders’ Equity
Years ended
October 31, 2010, 2009 and 2008
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Number of common shares in treasury
|
||||||||||||
|
Balance at beginning of year
|
15,334 | 15,304 | 15,301 | |||||||||
|
Shares issued under company stock and employee benefit plans
|
(724 | ) | (176 | ) | (804 | ) | ||||||
|
Purchase of treasury shares
|
466 | 206 | 807 | |||||||||
|
Balance at end of year
|
15,076 | 15,334 | 15,304 | |||||||||
|
Common shares
|
||||||||||||
|
Balance at beginning and ending of year
|
$ | 12,253 | $ | 12,253 | $ | 12,253 | ||||||
|
Capital in excess of stated value
|
||||||||||||
|
Balance at beginning of year
|
$ | 241,494 | $ | 244,096 | $ | 224,411 | ||||||
|
Shares issued under company stock and employee benefit plans
|
(1,330 | ) | (2,089 | ) | 874 | |||||||
|
Tax benefit from stock option and restricted stock transactions
|
7,798 | 285 | 9,002 | |||||||||
|
Stock-based compensation
|
7,633 | (798 | ) | 9,809 | ||||||||
|
Balance at end of year
|
$ | 255,595 | $ | 241,494 | $ | 244,096 | ||||||
|
Retained earnings
|
||||||||||||
|
Balance at beginning of year
|
$ | 656,086 | $ | 840,888 | $ | 748,229 | ||||||
|
Adoption of FIN 48
|
— | — | (200 | ) | ||||||||
|
Balance at beginning of year, adjusted
|
656,086 | 840,888 | 748,029 | |||||||||
|
Net income (loss)
|
168,048 | (160,055 | ) | 117,504 | ||||||||
|
Dividends paid ($.78 per share in 2010, $.7375 per share in
2009, and $.73 per share in 2008)
|
(26,439 | ) | (24,747 | ) | (24,645 | ) | ||||||
|
Balance at end of year
|
$ | 797,695 | $ | 656,086 | $ | 840,888 | ||||||
|
Accumulated other comprehensive income (loss)
|
||||||||||||
|
Balance at beginning of year
|
$ | (55,470 | ) | $ | (40,795 | ) | $ | 8,200 | ||||
|
Translation adjustments
|
(4,361 | ) | 40,240 | (41,665 | ) | |||||||
|
Remeasurement of supplemental pension liability, net of tax of
$1,648 in 2010 and $2,074 in 2009
|
(2,746 | ) | (3,457 | ) | — | |||||||
|
Settlement loss recognized, net of tax of $(3,085) in 2010 and
$(728) in 2009
|
5,126 | 1,188 | — | |||||||||
|
Net prior service cost (credit) occurring during the year, net
of tax of $3 in 2010, $(421) in 2009 and $343 in 2008
|
18 | 726 | (761 | ) | ||||||||
|
Net actuarial loss occurring during the year, net of tax of
$4,756 in 2010, $30,339 in 2009 and $354 in 2008
|
(8,873 | ) | (53,372 | ) | (6,569 | ) | ||||||
|
Balance at end of year
|
$ | (66,306 | ) | $ | (55,470 | ) | $ | (40,795 | ) | |||
|
Common shares in treasury, at cost
|
||||||||||||
|
Balance at beginning of year
|
$ | (484,387 | ) | $ | (482,330 | ) | $ | (461,976 | ) | |||
|
Shares issued under company stock and employee benefit plans
|
20,309 | 5,131 | 19,944 | |||||||||
|
Purchase of treasury shares
|
(30,087 | ) | (7,188 | ) | (40,298 | ) | ||||||
|
Balance at end of year
|
$ | (494,165 | ) | $ | (484,387 | ) | $ | (482,330 | ) | |||
|
Total shareholders’ equity
|
$ | 505,072 | $ | 369,976 | $ | 574,112 | ||||||
|
Comprehensive income
|
||||||||||||
|
Net income (loss)
|
$ | 168,048 | $ | (160,055 | ) | $ | 117,504 | |||||
|
Translation adjustments
|
(4,361 | ) | 40,240 | (41,665 | ) | |||||||
|
Remeasurement of supplemental pension liability, net of tax of
$1,648 in 2010 and $2,074 in 2009
|
(2,746 | ) | (3,457 | ) | — | |||||||
|
Settlement loss recognized, net of tax of $(3,085) in 2010 and
$(728) in 2009
|
5,126 | 1,188 | — | |||||||||
|
Net prior service cost (credit) occurring during the year, net
of tax of $3 in 2010, $(421) in 2009 and $343 in 2008
|
18 | 726 | (761 | ) | ||||||||
|
Net actuarial loss occurring during the year, net of tax of
$4,756 in 2010, $30,339 in 2009 and $354 in 2008
|
(8,873 | ) | (53,372 | ) | (6,569 | ) | ||||||
|
Total comprehensive income (loss)
|
$ | 157,212 | $ | (174,730 | ) | $ | 68,509 | |||||
The accompanying notes are an integral part of the
consolidated financial statements.
34
Table of Contents
Years ended
October 31, 2010, 2009 and 2008
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | 168,048 | $ | (160,055 | ) | $ | 117,504 | |||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation
|
22,625 | 26,310 | 26,440 | |||||||||
|
Amortization
|
6,263 | 5,100 | 5,797 | |||||||||
|
Goodwill and long-lived asset impairments
|
— | 243,043 | — | |||||||||
|
Provision for losses on receivables
|
607 | 1,998 | 413 | |||||||||
|
Deferred income taxes
|
26,830 | 4,055 | 7,355 | |||||||||
|
Tax benefit from the exercise of stock options
|
(7,798 | ) | (284 | ) | (9,002 | ) | ||||||
|
Non-cash stock compensation
|
7,633 | (814 | ) | 9,247 | ||||||||
|
Gain on sale of property, plant and equipment
|
(18 | ) | (4,324 | ) | (369 | ) | ||||||
|
Loss on divestiture
|
357 | — | — | |||||||||
|
Other
|
(10,791 | ) | 23,500 | (22,417 | ) | |||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Receivables
|
(50,732 | ) | 42,182 | (8,118 | ) | |||||||
|
Inventories
|
(15,004 | ) | 22,688 | (5,413 | ) | |||||||
|
Other current assets
|
222 | 1,170 | 156 | |||||||||
|
Other noncurrent assets
|
(2,837 | ) | (872 | ) | 7,534 | |||||||
|
Accounts payable
|
7,046 | (10,257 | ) | (7,678 | ) | |||||||
|
Income taxes payable
|
18,170 | 5,456 | 8,817 | |||||||||
|
Accrued liabilities
|
5,466 | (20,766 | ) | (3,102 | ) | |||||||
|
Customer advance payments
|
2,614 | 853 | (2,560 | ) | ||||||||
|
Other noncurrent liabilities
|
(38,515 | ) | (10,306 | ) | (10,562 | ) | ||||||
|
Net cash provided by operating activities
|
140,186 | 168,677 | 114,042 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Additions to property, plant and equipment
|
(14,317 | ) | (12,514 | ) | (26,386 | ) | ||||||
|
Proceeds from sale of property, plant and equipment
|
354 | 8,611 | 2,349 | |||||||||
|
Sale of product lines
|
(990 | ) | — | — | ||||||||
|
Acquisition of businesses, net of cash acquired
|
(18,576 | ) | — | (4,699 | ) | |||||||
|
Acquisition of non-controlling interest
|
— | — | (3,191 | ) | ||||||||
|
Proceeds from sale of (purchases of) marketable securities
|
(7,795 | ) | (36 | ) | 3 | |||||||
|
Net cash used in investing activities
|
(41,324 | ) | (3,939 | ) | (31,924 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from short-term borrowings
|
12,566 | 613 | 159,387 | |||||||||
|
Repayment of short-term borrowings
|
(11,411 | ) | (41,591 | ) | (136,663 | ) | ||||||
|
Proceeds from long-term debt
|
116,000 | 46,200 | 108,530 | |||||||||
|
Repayment of long-term debt
|
(162,290 | ) | (132,490 | ) | (192,820 | ) | ||||||
|
Repayment of capital lease obligations
|
(4,392 | ) | (5,158 | ) | (6,027 | ) | ||||||
|
Issuance of common shares
|
13,828 | 2,986 | 16,135 | |||||||||
|
Purchase of treasury shares
|
(24,935 | ) | (7,115 | ) | (35,615 | ) | ||||||
|
Tax benefit from the exercise of stock options
|
7,798 | 284 | 9,002 | |||||||||
|
Dividends paid
|
(26,439 | ) | (24,747 | ) | (24,645 | ) | ||||||
|
Net cash used in financing activities
|
(79,275 | ) | (161,018 | ) | (102,716 | ) | ||||||
|
Effect of exchange rate changes on cash
|
3,961 | 3,306 | 1,217 | |||||||||
|
Increase (decrease) in cash and cash equivalents
|
23,548 | 7,026 | (19,381 | ) | ||||||||
|
Cash and cash equivalents at beginning of year
|
18,781 | 11,755 | 31,136 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 42,329 | $ | 18,781 | $ | 11,755 | ||||||
The accompanying notes are an integral part of the
consolidated financial statements.
35
Table of Contents
Notes to
Consolidated Financial Statements
NOTE REGARDING
AMOUNTS AND FISCAL YEAR REFERENCES
In this annual 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.
Consolidation
— The consolidated financial
statements include the accounts of Nordson Corporation and
majority-owned and controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates
— The preparation of financial
statements in conformity with generally accepted accounting
principles in the United States requires management to make
estimates and assumptions that affect the amounts reported in
the consolidated financial statements and notes. Actual amounts
could differ from these estimates.
Fiscal year
— Our fiscal year ends on
October 31.
Revenue recognition
— Most of our revenues are
recognized upon shipment, provided that persuasive evidence of
an arrangement exists, the sales price is fixed or determinable,
collectibility is reasonably assured, and title and risk of loss
have passed to the customer. Revenues from contracts with
multiple element arrangements, such as those including
installation or other services, are recognized as each element
is earned based on objective evidence of the relative fair value
of each element. If the installation or other services are
inconsequential to the functionality of the delivered product,
the entire amount of revenue is recognized upon satisfaction of
the criteria noted above. Inconsequential installation or other
services are those that can generally be completed in a short
period of time, at insignificant cost, and the skills required
to complete these installations are not unique to us. If
installation or other services are essential to the
functionality of the delivered product, revenues attributable to
these obligations are deferred until completed. Amounts received
in excess of revenue recognized are included as deferred revenue
within accrued liabilities in the accompanying balance sheets.
Revenues deferred in 2010, 2009 and 2008 were not material.
Shipping and handling costs
— Amounts billed to
customers for shipping and handling are recorded as revenue.
Shipping and handling expenses are included in cost of sales.
Advertising costs
— Advertising costs are
expensed as incurred and were $8,267, $6,512 and $9,888 in 2010,
2009 and 2008, respectively.
Research and development
— Research and
development costs are expensed as incurred and were $23,835,
$25,528 and $33,566 in 2010, 2009 and 2008, respectively.
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
nonvested (restricted) stock and deferred stock-based
compensation. Options whose exercise price is higher than the
average market price are excluded from the calculation of
diluted earnings per share because the effect would be
anti-dilutive. For 2010 and 2008, the number of options excluded
from the calculation of diluted earnings per share was 9 and
189, respectively, as the effect would have been anti-dilutive.
When a loss is reported the denominator of diluted earnings per
share cannot be adjusted for the dilutive impact of stock
options and awards because doing so will result in
anti-dilution. Therefore, for 2009, basic weighted-average
shares outstanding are used in calculating diluted earnings per
share.
Cash and cash equivalents
— Highly liquid
instruments with maturities of 90 days or less at date of
purchase are considered to be cash equivalents. Cash and cash
equivalents are carried at cost.
36
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Marketable securities
— Marketable securities
consist primarily of short-term notes with maturities greater
than 90 days at date of purchase, and all contractual
maturities were within one year or could be callable within one
year. Our marketable securities are classified as available for
sale and are recorded at quoted market prices that approximate
cost.
Allowance for doubtful accounts
— An allowance
for doubtful accounts is maintained for estimated losses
resulting from the inability of customers to make required
payments. The amount of the allowance is determined principally
on the basis of past collection experience and known factors
regarding specific customers. Accounts are written off against
the allowance when it becomes evident that collection will not
occur.
Inventories
— Inventories are valued at the
lower of cost or market. Cost was determined using the
last-in,
first-out (LIFO) method for 25 percent of consolidated
inventories at October 31, 2010, and 26 percent at
October 31, 2009. The
first-in,
first-out (FIFO) method is used for all other inventories.
Consolidated inventories would have been $7,855 and $7,783
higher than reported at October 31, 2010 and
October 31, 2009, respectively, had the FIFO method, which
approximates current cost, been used for valuation of all
inventories. LIFO liquidations in 2009 increased cost of goods
sold by $85.
Property, plant and equipment and
depreciation
— Property, plant and equipment are
carried at cost. Additions and improvements that extend the
lives of assets are capitalized, while expenditures for repairs
and maintenance are expensed as incurred. Plant and equipment
are depreciated for financial reporting purposes using the
straight-line method over the estimated useful lives of the
assets or, in the case of property under capital leases, over
the terms of the leases. Leasehold improvements are depreciated
over the shorter of the lease term or their useful lives. Useful
lives are as follows:
|
Land improvements
|
15-25 years | |||
|
Buildings
|
20-40 years | |||
|
Machinery and equipment
|
3-12 years | |||
|
Enterprise management systems
|
5-10 years |
Depreciation expense is included in cost of sales and selling
and administrative expenses.
Internal use software costs are expensed or capitalized
depending on whether they are incurred in the preliminary
project stage, application development stage or the
post-implementation stage. Amounts capitalized are amortized
over the estimated useful lives of the software beginning with
the project’s completion. All re-engineering costs are
expensed as incurred. Interest costs on significant capital
projects are capitalized. No interest was capitalized in 2010,
2009 or 2008.
Goodwill and intangible assets
— Goodwill is
the excess of cost of an acquired entity over the amounts
assigned to assets acquired and liabilities assumed in a
business combination. The majority of goodwill relates to and is
assigned directly to specific reporting units. Goodwill and
indefinite-lived intangible assets consisting of certain
trademarks and trade names are not amortized but are subject to
annual impairment testing. Our annual impairment testing is
performed as of August 1. Testing is done more frequently
if an event occurs or circumstances change that would indicate
the fair value of a reporting unit or other indefinite lived
intangible assets is less than the carrying amount of those
assets.
37
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Other amortizable intangible assets, which consist primarily of
patent costs, customer relationships, noncompete agreements,
core/developed technology and finite-lived trade names, are
amortized over their useful lives. At October 31, 2010, the
weighted average useful lives for each major category of
amortizable intangible assets were:
|
Patent costs
|
12.1 years | |||
|
Customer relationships
|
12.5 years | |||
|
Noncompete agreements
|
10.5 years | |||
|
Core/developed technology
|
15.0 years | |||
|
Trade name
|
4.1 years |
Environmental remediation costs
— Losses
associated with environmental remediation obligations are
accrued when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of
the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Costs for
future expenditures for environmental remediation obligations
are not discounted to their present value.
Foreign currency translation
— The financial
statements of subsidiaries outside the United States are
generally measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are
translated at the rates of exchange at the balance sheet dates.
Income and expense items are translated at average monthly rates
of exchange. The resulting translation adjustments are included
in accumulated other comprehensive income (loss), a separate
component of shareholders’ equity. Generally, gains and
losses from foreign currency transactions, including forward
contracts, of these subsidiaries and the United States parent
are included in net income. Gains and losses from intercompany
foreign currency transactions of a long-term investment nature
are included in accumulated other comprehensive income (loss).
Accumulated other comprehensive loss
—
Accumulated other comprehensive loss at October 31, 2010
and 2009, consisted of:
| 2010 | 2009 | |||||||
|
Translation adjustments
|
$ | 36,478 | $ | 40,839 | ||||
|
Pension and postretirement benefit plan adjustments
|
(102,784 | ) | (96,309 | ) | ||||
| $ | (66,306 | ) | $ | (55,470 | ) | |||
Warranties
— Our standard warranty program
provides for repair or replacement of defective products within
a specified time period (generally one year) measured from the
date of delivery or first use. The estimate for future
warranty-related costs is calculated based on actual historical
return rates. Based on analysis of return rates and other
factors, warranty provisions are adjusted as necessary. The
liability for warranty costs is included in other accrued
liabilities in the Consolidated Balance Sheet.
Following is a reconciliation of the product warranty liability
for 2010 and 2009:
| 2010 | 2009 | |||||||
|
Balance at beginning of year
|
$ | 4,587 | $ | 5,336 | ||||
|
Accruals for warranties
|
6,068 | 3,824 | ||||||
|
Warranty assumed from acquisition
|
60 | — | ||||||
|
Warranty of divested product lines
|
(201 | ) | — | |||||
|
Warranty payments
|
(5,210 | ) | (4,913 | ) | ||||
|
Currency adjustments
|
(62 | ) | 340 | |||||
|
Balance at end of year
|
$ | 5,242 | $ | 4,587 | ||||
38
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
| Note 2 — | Recently issued accounting standards |
In September 2006, the FASB issued a standard regarding fair
value measurements. This standard provides a common definition
of fair value and establishes a framework to make the
measurement of fair value in generally accepted accounting
principles more consistent and comparable. It also requires
expanded disclosures to provide information about the extent to
which fair value is used to measure assets and liabilities, the
methods and assumptions used to measure fair value, and the
effect of fair value measures on earnings. In February 2008, the
FASB issued an update that permitted a one-year deferral of the
original standard for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at
least annually). We adopted the non-deferred portion of the
standard as of November 1, 2008 and the deferred portion of
the standard as of November 1, 2009. The adoptions did not
impact our results of operations or financial position.
In December 2007, the FASB issued a standard that provides
greater consistency in the accounting and financial reporting of
business combinations. The standard requires the acquiring
entity in a business combination to recognize all assets
acquired and liabilities assumed in the transaction, establishes
the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed, and requires the
acquirer to disclose the nature and financial effect of the
business combination. We adopted this standard as of
November 1, 2009, and the adoption did not have a material
impact on our results of operations or financial position. The
future impact will depend on the nature and significance of
future acquisitions.
In December 2007, the FASB issued a pronouncement that
establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. We adopted this pronouncement
as of November 1, 2009. The impact of adoption will depend
on future transactions. To date, there was no impact of the
adoption on our results of operations or financial position.
In December 2008, the FASB issued a standard that enhances the
required disclosures about plan assets in an employer’s
defined benefit pension or other postretirement plan, including
investment allocations decisions, inputs and valuations
techniques used to measure the fair value of plan assets and
significant concentrations of risks within plan assets. We
adopted this standard as of October 31, 2010, and the
required disclosures are contained in Note 3.
In October 2009, the FASB issued authoritative guidance on
multiple-deliverable revenue arrangements that addresses the
unit of accounting for arrangements involving multiple
deliverables. The guidance also addresses how arrangement
consideration should be allocated to separate units of
accounting, when applicable, and expands the disclosure
requirements for multiple-deliverable arrangements. We must
adopt this standard in 2011. The adoption is not expected to
have a material effect on our results of operations or financial
position.
| Note 3 — | Retirement, pension and other postretirement plans |
Retirement plans
— We have funded contributory
retirement plans covering certain employees. Our contributions
are primarily determined by the terms of the plans, subject to
the limitation that they shall not exceed the amounts deductible
for income tax purposes. We also sponsor unfunded contributory
supplemental retirement plans for certain employees. Generally,
benefits under these plans vest gradually over a period of
approximately three years from date of employment, and are based
on the employee’s contribution. The expense applicable to
retirement plans for 2010, 2009 and 2008 was approximately
$7,945, $7,703 and $9,311, respectively.
Pension plans
— We have various pension plans
covering a portion of our United States and international
employees. Pension plan benefits are generally based on years of
employment and, for salaried employees, the level of
compensation. Actuarially determined amounts are contributed to
United States plans to provide sufficient assets to meet future
benefit payment requirements. We also sponsor an unfunded
supplemental pension plan for certain employees. International
subsidiaries fund their pension plans according to local
requirements.
39
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
A reconciliation of the benefit obligations, plan assets,
accrued benefit cost and the amount recognized in financial
statements for pension plans is as follows:
| United States | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 224,966 | $ | 153,006 | $ | 61,631 | $ | 44,695 | ||||||||
|
Service cost
|
5,997 | 4,177 | 1,632 | 1,315 | ||||||||||||
|
Interest cost
|
11,883 | 11,897 | 2,791 | 2,625 | ||||||||||||
|
Participant contributions
|
— | — | 128 | 142 | ||||||||||||
|
Plan amendments
|
643 | — | — | — | ||||||||||||
|
Addition of plan
|
— | — | 1,241 | — | ||||||||||||
|
Foreign currency exchange rate change
|
— | — | (448 | ) | 4,823 | |||||||||||
|
Actuarial (gain) loss
|
18,336 | 67,033 | 7,966 | 10,827 | ||||||||||||
|
Benefits paid
|
(24,455 | ) | (11,147 | ) | (3,005 | ) | (2,796 | ) | ||||||||
|
Benefit obligation at end of year
|
$ | 237,370 | $ | 224,966 | $ | 71,936 | $ | 61,631 | ||||||||
|
Change in plan assets:
|
||||||||||||||||
|
Beginning fair value of plan assets
|
$ | 113,356 | $ | 104,790 | $ | 28,833 | $ | 24,590 | ||||||||
|
Actual return on plan assets
|
17,266 | 14,284 | 994 | 2,029 | ||||||||||||
|
Company contributions
|
69,697 | 5,429 | 3,446 | 3,413 | ||||||||||||
|
Participant contributions
|
— | — | 128 | 142 | ||||||||||||
|
Foreign currency exchange rate change
|
— | — | (597 | ) | 1,455 | |||||||||||
|
Benefits paid
|
(24,455 | ) | (11,147 | ) | (3,005 | ) | (2,796 | ) | ||||||||
|
Ending fair value of plan assets
|
$ | 175,864 | $ | 113,356 | $ | 29,799 | $ | 28,833 | ||||||||
|
Funded status at end of year
|
$ | (61,506 | ) | $ | (111,610 | ) | $ | (42,137 | ) | $ | (32,798 | ) | ||||
|
Amounts recognized in financial statements:
|
||||||||||||||||
|
Noncurrent asset
|
$ | — | $ | — | $ | 497 | $ | 298 | ||||||||
|
Accrued benefit liability
|
(467 | ) | (10,428 | ) | (346 | ) | (1,196 | ) | ||||||||
|
Pension and retirement obligations
|
(61,039 | ) | (101,182 | ) | (42,288 | ) | (31,900 | ) | ||||||||
|
Total amount recognized in financial statements
|
$ | (61,506 | ) | $ | (111,610 | ) | $ | (42,137 | ) | $ | (32,798 | ) | ||||
Benefits paid for United States plans for 2010 and 2009 included
lump sum settlement payments of $17,151 and $9,957,
respectively.
40
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
| United States | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Amounts recognized in accumulated other comprehensive (gain)
loss:
|
||||||||||||||||
|
Net actuarial (gain) loss
|
$ | 123,449 | $ | 121,865 | $ | 17,486 | $ | 9,499 | ||||||||
|
Prior service cost (credit)
|
2,695 | 2,631 | 14 | 70 | ||||||||||||
|
Accumulated other comprehensive (gain) loss
|
$ | 126,144 | $ | 124,496 | $ | 17,500 | $ | 9,569 | ||||||||
|
Amounts expected to be recognized during next fiscal year:
|
||||||||||||||||
|
Amortization of net actuarial (gain) loss
|
$ | 7,226 | $ | 6,180 | $ | 857 | $ | 391 | ||||||||
|
Amortization of prior service cost (credit)
|
666 | 580 | 5 | 53 | ||||||||||||
|
Total
|
$ | 7,892 | $ | 6,760 | $ | 862 | $ | 444 | ||||||||
The following table summarizes the changes in accumulated other
comprehensive (gain) loss:
| United States | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Balance at beginning of year
|
$ | 124,496 | $ | 62,852 | $ | 9,569 | $ | (769 | ) | |||||||
|
Net (gain) loss arising during the year
|
15,787 | 64,730 | 8,319 | 10,008 | ||||||||||||
|
Prior service cost (credit) arising during the year
|
643 | — | — | — | ||||||||||||
|
Net gain (loss) recognized during the year
|
(6,181 | ) | (854 | ) | (369 | ) | 19 | |||||||||
|
Settlement loss
|
(8,022 | ) | (1,629 | ) | (190 | ) | (287 | ) | ||||||||
|
Prior service (cost) credit recognized during the year
|
(579 | ) | (603 | ) | (49 | ) | (49 | ) | ||||||||
|
Exchange rate effect during the year
|
— | — | 220 | 647 | ||||||||||||
|
Balance at end of year
|
$ | 126,144 | $ | 124,496 | $ | 17,500 | $ | 9,569 | ||||||||
Information regarding the accumulated benefit obligation is as
follows:
| United States | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
For all plans:
|
||||||||||||||||
|
Accumulated benefit obligation
|
$ | 223,966 | $ | 213,238 | $ | 55,865 | $ | 49,195 | ||||||||
|
For plans with benefit obligations in excess of plan assets:
|
||||||||||||||||
|
Projected benefit obligation
|
237,370 | 224,966 | 60,050 | 55,881 | ||||||||||||
|
Accumulated benefit obligation
|
223,966 | 213,238 | 49,631 | 47,402 | ||||||||||||
|
Fair value of plan assets
|
175,864 | 113,356 | 23,047 | 26,731 | ||||||||||||
41
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Net pension benefit costs include the following components:
| United States | International | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Service cost
|
$ | 5,997 | $ | 4,177 | $ | 5,389 | $ | 1,632 | $ | 1,315 | $ | 2,099 | ||||||||||||
|
Interest cost
|
11,883 | 11,897 | 10,605 | 2,791 | 2,625 | 2,895 | ||||||||||||||||||
|
Expected return on plan assets
|
(14,716 | ) | (11,982 | ) | (11,642 | ) | (1,348 | ) | (1,210 | ) | (1,470 | ) | ||||||||||||
|
Amortization of prior service cost (credit)
|
579 | 603 | 633 | 49 | 49 | 55 | ||||||||||||||||||
|
Amortization of net actuarial (gain) loss
|
6,181 | 854 | 2,016 | 369 | (19 | ) | 233 | |||||||||||||||||
|
Settlement loss
|
8,022 | 1,629 | — | 190 | 287 | — | ||||||||||||||||||
|
Total benefit cost
|
$ | 17,946 | $ | 7,178 | $ | 7,001 | $ | 3,683 | $ | 3,047 | $ | 3,812 | ||||||||||||
Net periodic pension cost for 2010 and 2009 included settlement
losses of $8,212 and $1,916, respectively, due to lump sum
retirement payments.
The weighted average assumptions in the following table
represent the rates used to develop the actuarial present value
of projected benefit obligation for the year listed and also the
net periodic benefit cost for the following year.
| United States | International | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Discount rate
|
5.21 | % | 5.50 | % | 8.00 | % | 4.17 | % | 4.78 | % | 5.87 | % | ||||||||||||
|
Expected return on plan assets
|
8.25 | 8.51 | 8.48 | 4.84 | 4.85 | 5.04 | ||||||||||||||||||
|
Rate of compensation increase
|
3.30 | 3.30 | 3.30 | 3.21 | 2.86 | 3.45 | ||||||||||||||||||
The amortization of prior service cost is determined using a
straight-line amortization of the cost over the average
remaining service period of employees expected to receive
benefits under the plans.
In determining the expected return on plan assets, we consider
both historical performance and an estimate of future long-term
rates of return on assets similar to those in our plans. We
consult with and consider the opinions of financial and other
professionals in developing appropriate return assumptions.
42
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Economic assumptions have a significant effect on the amounts
reported. The effect of a one percent change in the discount
rate, expected return on assets and compensation increase is
shown in the table below. Bracketed numbers represent decreases
in expense and obligation amounts.
| United States | International | |||||||||||||||
| 1% Point Increase | 1% Point Decrease | 1% Point Increase | 1% Point Decrease | |||||||||||||
|
Discount rate:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | (2,077 | ) | $ | 2,953 | $ | (226 | ) | $ | 494 | ||||||
|
Effect on pension obligation as of October 31, 2010
|
$ | (24,337 | ) | $ | 30,486 | $ | (11,368 | ) | $ | 14,527 | ||||||
|
Expected return on assets:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | (1,727 | ) | $ | 1,728 | $ | (278 | ) | $ | 278 | ||||||
|
Effect on pension obligation as of October 31, 2010
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Compensation increase:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | 2,482 | $ | (2,435 | ) | $ | 251 | $ | (250 | ) | ||||||
|
Effect on pension obligation as of October 31, 2010
|
$ | 26,009 | $ | (13,568 | ) | $ | 8,644 | $ | (7,119 | ) | ||||||
The allocation of pension plan assets as of October 31,
2010 and 2009, is as follows:
| United States | International | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Asset Category
|
||||||||||||||||
|
Equity securities
|
83 | % | 70 | % | — | % | — | % | ||||||||
|
Debt securities
|
16 | 29 | — | — | ||||||||||||
|
Insurance contracts
|
— | — | 59 | 61 | ||||||||||||
|
Pooled investment funds
|
— | — | 40 | 38 | ||||||||||||
|
Other
|
1 | 1 | 1 | 1 | ||||||||||||
|
Total
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Our investment objective for defined benefit plan assets is to
meet the plans’ benefit obligations, while minimizing the
potential for future required plan contributions.
United States plans comprise 86 percent of the worldwide
pension assets. The investment strategies focus on asset class
diversification, liquidity to meet benefit payments and an
appropriate balance of long-term investment return and risk.
Target ranges for asset allocations are determined by matching
the actuarial projections of the plans’ future liabilities
and benefit payments with expected long-term rates of return on
the assets, taking into account investment return volatility and
correlations across asset classes. The target in
“return-seeking assets” is 60 percent and
40 percent in fixed income. Plan assets are diversified
across several investment managers and are generally invested in
liquid funds that are selected to track broad market equity and
bond indices. Investment risk is carefully controlled with plan
assets rebalanced to target allocations on a periodic basis and
continual monitoring of investment managers’ performance
relative to the investment guidelines established with each
investment manager.
International plans comprise 14 percent of the worldwide
pension assets. Asset allocations are developed on a
country-specific basis. Our investment strategy is to cover
pension obligations with insurance contracts or to employ
independent managers to invest the assets.
43
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The fair values of our pension plan assets at October 31,
2010 by asset category are in the table below. The
inputs and methodology used to measure fair value are
consistent with those described in Note 18.
| United States | International | |||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
|
Cash
|
$ | 580 | $ | 580 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
|
Money market funds
|
19,224 | 19,224 | — | — | 309 | 309 | — | — | ||||||||||||||||||||||||
|
Equity securities:
|
— | — | — | — | ||||||||||||||||||||||||||||
|
Basic materials
|
6,715 | 6,715 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Consumer goods
|
3,652 | 3,652 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Financial
|
9,586 | 9,586 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Healthcare
|
4,483 | 4,483 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Industrial goods
|
3,048 | 3,048 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Services
|
5,955 | 5,955 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Technology
|
4,339 | 4,339 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Utilities
|
1,839 | 1,839 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Mutual funds
|
87,339 | 87,339 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Fixed income securities:
|
||||||||||||||||||||||||||||||||
|
U.S. Government
|
14,329 | 4,068 | 10,261 | — | — | — | — | — | ||||||||||||||||||||||||
|
Corporate
|
14,489 | — | 14,489 | — | — | — | — | — | ||||||||||||||||||||||||
|
Other
|
57 | — | 57 | — | — | — | — | — | ||||||||||||||||||||||||
|
Other types of investments:
|
||||||||||||||||||||||||||||||||
|
Insurance contracts
|
— | — | — | — | 17,699 | — | — | 17,699 | ||||||||||||||||||||||||
|
Real estate
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Pooled investment funds
|
— | — | — | — | 11,791 | — | 11,791 | — | ||||||||||||||||||||||||
|
Other
|
229 | 229 | — | — | — | — | — | — | ||||||||||||||||||||||||
| $ | 175,864 | $ | 151,057 | $ | 24,807 | $ | — | $ | 29,799 | $ | 309 | $ | 11,791 | $ | 17,699 | |||||||||||||||||
At October 31, 2010 and 2009, the pension plans did not
have any investment in our common shares.
44
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Following are the valuation methodologies used to measure the
pension assets:
| • | Money market funds — Money market funds are public investment vehicles that are valued with a net asset value of one dollar. This is a quoted price in an active market and is classified as Level 1. | |
| • | Equity securities — Common stocks are valued at the closing price reported on the active market on which the individual securities are traded and are classified as Level 1. Mutual funds are valued at the net asset values of the shares at year-end, as determined by the closing price reported on the active market on which the individual securities are traded and are classified as Level 1. | |
| • | Fixed income securities — U.S. Treasury bills reflect the closing price on the active market in which the securities are traded and are classified as Level 1. Securities of U.S. agencies are valued using bid evaluations and a classified as Level 2. Corporate fixed income securities are valued using evaluated prices, such as dealer quotes, bids and offers and are therefore classified as Level 2. | |
| • | Insurance contracts — Insurance contracts are investments with various insurance companies. The assets are valued at the fair value as reported by the insurance companies. These contracts do not hold any specific assets. These investments are classified as Level 3. | |
| • | Pooled investment funds — These are public investment vehicles valued using the net asset value. The net asset value is based on the value of the assets owned by the plan, less liabilities. These investments are not quoted on an active exchange and are classified as Level 2. |
The following table sets forth a summary of changes in fair
value of the pension plan investments classified as Level 3
for the year ended October 31, 2010:
|
Balance at beginning of year
|
$ | 17,600 | ||
|
Net unrealized gains
|
692 | |||
|
Purchases, sales, issuances and settlements, net
|
(231 | ) | ||
|
Transfers in (out)
|
— | |||
|
Foreign currency translation
|
(362 | ) | ||
|
Balance at end of year
|
$ | 17,699 | ||
Contributions to pension plans in 2011 are estimated to be
approximately $2,811.
Retiree pension benefit payments, which reflect expected future
service, are anticipated to be paid as follows:
|
Year
|
United States | International | ||||||
|
2011
|
$ | 8,061 | $ | 1,716 | ||||
|
2012
|
8,522 | 2,009 | ||||||
|
2013
|
9,066 | 1,924 | ||||||
|
2014
|
9,643 | 2,232 | ||||||
|
2015
|
10,341 | 2,555 | ||||||
|
2016-2020
|
67,106 | 14,857 | ||||||
|
Total
|
$ | 112,739 | $ | 25,293 | ||||
45
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Other postretirement plans —
We have an
unfunded postretirement benefit plan covering the majority of
our United States employees. Employees hired after
January 1, 2002, are not eligible to participate in this
plan. The plan provides medical and life insurance benefits. The
plan is contributory, with retiree contributions in the form of
premiums that are adjusted annually, and contains other
cost-sharing features, such as deductibles and coinsurance. We
also sponsor an unfunded, non-contributory postretirement
benefit plan that provides medical and life insurance benefits
for certain international employees. A measurement date of
October 31 is used for all postretirement plans.
A reconciliation of the benefit obligations, accrued benefit
cost and the amount recognized in financial statements for other
postretirement plans is as follows:
| United States | International | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 52,858 | $ | 36,606 | $ | 605 | $ | 416 | ||||||||||||
|
Service cost
|
837 | 589 | 29 | 23 | ||||||||||||||||
|
Interest cost
|
2,504 | 2,926 | 45 | 35 | ||||||||||||||||
|
Participant contributions
|
1,143 | 880 | — | — | ||||||||||||||||
|
Amendment
|
(1,171 | ) | (1,365 | ) | — | — | ||||||||||||||
|
Foreign currency exchange rate change
|
— | — | 37 | 58 | ||||||||||||||||
|
Actuarial (gain) loss
|
1,326 | 15,391 | (53 | ) | 77 | |||||||||||||||
|
Benefits paid
|
(1,898 | ) | (2,169 | ) | (4 | ) | (4 | ) | ||||||||||||
|
Benefit obligation at end of year
|
$ | 55,599 | $ | 52,858 | $ | 659 | $ | 605 | ||||||||||||
|
Change in plan assets:
|
||||||||||||||||||||
|
Beginning fair value of plan assets
|
$ | — | $ | — | $ | — | $ | — | ||||||||||||
|
Company contributions
|
755 | 1,289 | 4 | 4 | ||||||||||||||||
|
Participant contributions
|
1,143 | 880 | — | — | ||||||||||||||||
|
Benefits paid
|
(1,898 | ) | (2,169 | ) | (4 | ) | (4 | ) | ||||||||||||
|
Ending fair value of plan assets
|
$ | — | $ | — | $ | — | $ | — | ||||||||||||
|
Funded status at end of year
|
$ | (55,599 | ) | $ | (52,858 | ) | $ | (659 | ) | $ | (605 | ) | ||||||||
|
Amounts recognized in financial statements:
|
||||||||||||||||||||
|
Accrued benefit liability
|
$ | (2,339 | ) | $ | (2,669 | ) | $ | (4 | ) | $ | (4 | ) | ||||||||
|
Postretirement obligations
|
(53,260 | ) | (50,189 | ) | (655 | ) | (601 | ) | ||||||||||||
|
Total amount recognized in financial statements
|
$ | (55,599 | ) | $ | (52,858 | ) | $ | (659 | ) | $ | (605 | ) | ||||||||
The 2010 Amendment noted in the preceding table relates to
changes in deductibles and
out-of-pocket
maximums and changes in limits for certain benefits. The 2009
Amendment relates to changes in life insurance benefits and
participant contributions.
46
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
| United States | International | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Amounts recognized in accumulated other comprehensive (gain)
loss:
|
||||||||||||||||||||
|
Net actuarial (gain) loss
|
$ | 24,887 | $ | 24,731 | $ | (203 | ) | $ | (146 | ) | ||||||||||
|
Prior service cost (credit)
|
(3,464 | ) | (3,440 | ) | — | — | ||||||||||||||
|
Accumulated other comprehensive (gain) loss
|
$ | 21,423 | $ | 21,291 | $ | (203 | ) | $ | (146 | ) | ||||||||||
|
Amounts expected to be recognized during next fiscal year:
|
||||||||||||||||||||
|
Amortization of net actuarial (gain) loss
|
$ | 1,498 | $ | 1,738 | $ | (5 | ) | $ | (5 | ) | ||||||||||
|
Amortization of prior service cost (credit)
|
(1,147 | ) | (1,010 | ) | — | — | ||||||||||||||
|
Total
|
$ | 351 | $ | 728 | $ | (5 | ) | $ | (5 | ) | ||||||||||
The following table summarizes the changes in accumulated other
comprehensive (gain) loss:
| United States | International | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Balance at beginning of year
|
$ | 21,291 | $ | 7,021 | $ | (146 | ) | $ | (216 | ) | ||||||||||
|
Net (gain) loss arising during the year
|
1,326 | 15,391 | (53 | ) | 77 | |||||||||||||||
|
Prior service cost (credit) arising during the year
|
(1,171 | ) | (1,365 | ) | — | — | ||||||||||||||
|
Net gain (loss) recognized during the year
|
(1,170 | ) | (765 | ) | 5 | 11 | ||||||||||||||
|
Prior service credit (cost) recognized during the year
|
1,147 | 1,009 | — | — | ||||||||||||||||
|
Exchange rate effect during the year
|
— | — | (9 | ) | (18 | ) | ||||||||||||||
|
Balance at end of year
|
$ | 21,423 | $ | 21,291 | $ | (203 | ) | $ | (146 | ) | ||||||||||
Net postretirement benefit costs include the following
components:
| United States | International | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Service cost
|
$ | 837 | $ | 589 | $ | 937 | $ | 29 | $ | 23 | $ | 46 | ||||||||||||
|
Interest cost
|
2,504 | 2,926 | 2,324 | 44 | 35 | 43 | ||||||||||||||||||
|
Amortization of prior service cost (credit)
|
(1,147 | ) | (1,009 | ) | (830 | ) | — | — | — | |||||||||||||||
|
Amortization of net actuarial (gain) loss
|
1,170 | 765 | 827 | (5 | ) | (11 | ) | 2 | ||||||||||||||||
|
Total benefit cost
|
$ | 3,364 | $ | 3,271 | $ | 3,258 | $ | 68 | $ | 47 | $ | 91 | ||||||||||||
47
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The weighted average assumptions in the following table
represent the rates used to develop the actuarial present value
of projected benefit obligation for the year listed and also the
net periodic benefit cost for the following year.
| United States | International | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Discount rate
|
5.25 | % | 5.50 | % | 8.00 | % | 5.75 | % | 6.75 | % | 7.70 | % | ||||||||||||
|
Health care cost trend rate
|
9.00 | 8.25 | 9.00 | 6.80 | 7.50 | 8.50 | ||||||||||||||||||
|
Rate to which health care cost trend rate is assumed to decline
(ultimate trend rate)
|
5.00 | 4.50 | 4.50 | 4.80 | 4.80 | 4.80 | ||||||||||||||||||
|
Year the rate reaches the ultimate trend rate
|
2020 | 2015 | 2015 | 2013 | 2013 | 2013 | ||||||||||||||||||
The discount rate and the health care cost trend rate
assumptions have a significant effect on the amounts reported.
For example, a one-percentage point change in the discount rate
and the assumed health care cost trend rate would have the
following effects:
| United States | International | |||||||||||||||
|
1% Point
|
1% Point
|
1% Point
|
1% Point
|
|||||||||||||
| Increase | Decrease | Increase | Decrease | |||||||||||||
|
Discount rate:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | (468 | ) | $ | 562 | $ | (9 | ) | $ | 11 | ||||||
|
Effect on postretirement obligation as of October 31, 2010
|
$ | (7,040 | ) | $ | 8,801 | $ | (131 | ) | $ | 176 | ||||||
|
Health care trend rate:
|
||||||||||||||||
|
Effect on total service and interest cost components in 2010
|
$ | 503 | $ | (406 | ) | $ | 19 | $ | (14 | ) | ||||||
|
Effect on postretirement obligation as of October 31, 2010
|
$ | 8,042 | $ | (6,556 | ) | $ | 169 | $ | (129 | ) | ||||||
Contributions to postretirement plans in 2011 are estimated to
be approximately $2,403.
Retiree postretirement benefit payments are anticipated to be
paid as follows:
| United States | ||||||||||||
|
With Medicare
|
Without Medicare
|
|||||||||||
|
Year
|
Part D Subsidy |
|
International | |||||||||
|
2011
|
$ | 2,399 | $ | 2,693 | $ | 4 | ||||||
|
2012
|
2,393 | 2,743 | 4 | |||||||||
|
2013
|
2,421 | 2,830 | 4 | |||||||||
|
2014
|
2,522 | 2,988 | 8 | |||||||||
|
2015
|
2,705 | 3,229 | 16 | |||||||||
|
2016-2020
|
16,520 | 20,417 | 99 | |||||||||
|
Total
|
$ | 28,960 | $ | 34,900 | $ | 135 | ||||||
48
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
| Note 4 — | Income taxes |
Income tax expense includes the following:
| 2010 | 2009 | 2008 | ||||||||||
|
Current:
|
||||||||||||
|
U.S. federal
|
$ | 9,811 | $ | 14,370 | $ | 25,528 | ||||||
|
State and local
|
29 | 858 | 960 | |||||||||
|
Foreign
|
26,601 | 13,581 | 28,441 | |||||||||
|
Total current
|
36,441 | 28,809 | 54,929 | |||||||||
|
Deferred:
|
||||||||||||
|
U.S. federal
|
34,097 | 7,281 | 6,392 | |||||||||
|
State and local
|
(2,771 | ) | 906 | 1,269 | ||||||||
|
Foreign
|
(4,496 | ) | (4,132 | ) | (306 | ) | ||||||
|
Total deferred
|
26,830 | 4,055 | 7,355 | |||||||||
| $ | 63,271 | $ | 32,864 | $ | 62,284 | |||||||
Earnings before income taxes of domestic operations, which are
calculated after intercompany profit eliminations, were
$130,149, $21,864 and $88,416 in 2010, 2009 and 2008,
respectively.
Foreign income tax expense includes a benefit related to the
utilization of loss carryforwards of $1,876, $5 and $376 in
2010, 2009 and 2008, respectively.
During 2010 we sold our UV Curing graphic arts and lamp product
lines to Baldwin Technology Company, Inc., as discussed in
Note 14, and we recognized $10,243 in tax benefits from the
write-off of our tax basis in the product lines. Income tax
expense for 2010 was negatively impacted by the enactment in
March 2010 of the Patient Protection and Affordable Care Act and
the subsequent enactment of the Health Care and Education
Reconciliation Act of 2010, resulting in an additional tax
charge of $5,249. The charge is due to a reduction in the value
of our deferred tax asset as a result of a change to the tax
treatment associated with Medicare Part D subsidies.
Expense in 2009 included a benefit of $2,752 related to
remeasurement of unrecognized tax benefits and a benefit of $531
related to an adjustment to a prior tax year.
On November 1, 2007 we adopted the provisions of a FASB
pronouncement regarding the accounting for uncertainty in income
taxes. The total unrecognized tax benefits at the time of
adoption were $5,188, of which $4,704 would impact the effective
tax rate, if recognized. At October 31, 2010 and 2009,
total unrecognized tax benefits were $4,078 and $3,969,
respectively. The amounts that, if recognized, would impact the
effective tax rate were $3,631 and $3,485 at October 31,
2010 and 2009, respectively. A reconciliation of the beginning
and ending amount of unrecognized tax benefits for 2010, 2009
and 2008 is as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Balance at beginning of year
|
$ | 3,969 | $ | 7,685 | $ | 5,188 | ||||||
|
Additions based on tax positions related to the current year
|
388 | 515 | 1,016 | |||||||||
|
Additions for tax positions of prior years
|
359 | — | 2,366 | |||||||||
|
Reductions for tax positions of prior years
|
(638 | ) | (3,267 | ) | (885 | ) | ||||||
|
Settlements
|
— | (964 | ) | — | ||||||||
|
Lapse of statute of limitations
|
— | — | — | |||||||||
|
Balance at end of year
|
$ | 4,078 | $ | 3,969 | $ | 7,685 | ||||||
49
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
At October 31, 2010 and 2009, we had accrued interest
expense related to unrecognized tax benefits of $468 and $374,
respectively. We include interest accrued related to
unrecognized tax benefits in interest expense. Penalties, if
incurred, would be recognized as other income (expense).
We are subject to United States Federal income tax as well as
income taxes in numerous state and foreign jurisdictions. We are
currently under audit in the U.S. by the Internal Revenue
Service (IRS) for the 2008 tax year; tax years prior to 2007 are
no longer subject to IRS examination. Generally, major state
jurisdiction tax years remain open to examination for tax years
after 2005; major foreign jurisdiction tax years remain open to
examination for tax years after 2006. We do not anticipate a
significant change to the total amount of unrecognized tax
benefits within the next twelve months.
The principal items accounting for the difference in income
taxes computed at the U.S. statutory rate and income tax
shown in the Consolidated Statements of Income for 2010, 2009,
and 2008 are as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Tax at statutory rate of 35%
|
$ | 80,962 | $ | (44,517 | ) | $ | 62,926 | |||||
|
Impact of goodwill charge
|
— | 79,064 | — | |||||||||
|
Domestic Production Deduction
|
(1,737 | ) | (1,134 | ) | (1,741 | ) | ||||||
|
Foreign tax rate variances, net of foreign tax credits
|
(10,550 | ) | 1,279 | (2,824 | ) | |||||||
|
State and local taxes, net of federal income tax benefit
|
(1,828 | ) | 1,160 | 1,499 | ||||||||
|
Tax expense related to tax law change
|
5,249 | — | — | |||||||||
|
Tax benefit from sale of UV product lines
|
(10,243 | ) | — | — | ||||||||
|
Amounts related to prior years
|
776 | (3,283 | ) | 1,525 | ||||||||
|
Other — net
|
642 | 295 | 899 | |||||||||
|
Provision for income taxes
|
$ | 63,271 | $ | 32,864 | $ | 62,284 | ||||||
The Domestic Production Deduction, enacted by the American Jobs
Creation Act of 2004, allows a deduction with respect to income
from certain United States manufacturing activities.
In October 2008, Congress passed and the President signed the
Tax Extenders and AMT Relief Act of 2008, which provided
retroactive reinstatement of a research credit. The 2008 impact
from this Act was an additional tax benefit of $800.
Earnings before income taxes of international operations, which
are calculated before intercompany profit elimination entries,
were $101,170, $(149,055) and $91,372 in 2010, 2009 and 2008,
respectively. Deferred income taxes are not provided on
undistributed earnings of international subsidiaries that are
intended to be permanently invested in those operations. These
undistributed earnings aggregated approximately $340,354 and
$258,416 at October 31, 2010 and 2009, respectively. Should
these earnings be distributed, applicable foreign tax credits
would substantially offset United States taxes due upon the
distribution.
50
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Significant components of deferred tax assets and liabilities
are as follows:
| 2010 | 2009 | |||||||
|
Deferred tax assets:
|
||||||||
|
Sales to international subsidiaries and related consolidation
adjustments
|
$ | 8,919 | $ | 6,657 | ||||
|
Employee benefits
|
63,520 | 91,985 | ||||||
|
Other accruals not currently deductible for taxes
|
11,681 | 8,252 | ||||||
|
Tax credit and loss carryforwards
|
5,664 | 7,116 | ||||||
|
Inventory adjustments
|
3,585 | 3,302 | ||||||
|
Translation of foreign currency accounts
|
316 | — | ||||||
|
Other — net
|
268 | 113 | ||||||
|
Total deferred tax assets
|
93,953 | 117,425 | ||||||
|
Valuation allowance
|
(5,729 | ) | (7,810 | ) | ||||
|
Total deferred tax assets
|
88,224 | 109,615 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Depreciation
|
64,198 | 61,232 | ||||||
|
Translation of foreign currency accounts
|
— | 355 | ||||||
|
Other — net
|
195 | 153 | ||||||
|
Total deferred tax liabilities
|
64,393 | 61,740 | ||||||
|
Net deferred tax assets
|
$ | 23,831 | $ | 47,875 | ||||
At October 31, 2010, we had $645 of tax credit
carryforwards that will expire in 2013 through 2017. We also had
$4,033 Federal, $41,050 state and $2,387 foreign operating
loss carryforwards, of which $45,854 will expire in 2011 through
2030, and $1,616 of which has an indefinite carryforward period.
The net change in the valuation allowance was a decrease of
$2,081 in 2010 and an increase of $3,261 in 2009. The valuation
allowance of $5,279 at October 31, 2010, relates primarily
to tax credits and loss carryforwards that may expire before
being realized. At October 31, 2010 the valuation allowance
includes $523 relating to loss carryforwards recorded in
purchase accounting.
51
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
| Note 5 — | Details of balance sheet |
| 2010 | 2009 | |||||||
|
Receivables:
|
||||||||
|
Accounts
|
$ | 215,960 | $ | 180,248 | ||||
|
Notes
|
11,035 | 6,548 | ||||||
|
Other
|
20,148 | 8,133 | ||||||
| 247,143 | 194,929 | |||||||
|
Allowance for doubtful accounts
|
(3,353 | ) | (3,728 | ) | ||||
| $ | 243,790 | $ | 191,201 | |||||
|
Inventories:
|
||||||||
|
Finished goods
|
$ | 72,633 | $ | 63,289 | ||||
|
Work-in-process
|
15,614 | 11,607 | ||||||
|
Raw materials and finished parts
|
54,131 | 46,263 | ||||||
| 142,378 | 121,159 | |||||||
|
Obsolescence and other reserves
|
(16,802 | ) | (15,740 | ) | ||||
|
LIFO reserve
|
(7,855 | ) | (7,783 | ) | ||||
| $ | 117,721 | $ | 97,636 | |||||
|
Property, plant and equipment:
|
||||||||
|
Land
|
$ | 7,810 | $ | 7,392 | ||||
|
Land improvements
|
2,325 | 2,328 | ||||||
|
Buildings
|
115,111 | 115,309 | ||||||
|
Machinery and equipment
|
207,740 | 200,300 | ||||||
|
Enterprise management system
|
37,249 | 36,716 | ||||||
|
Construction-in-progress
|
8,544 | 2,749 | ||||||
|
Leased property under capitalized leases
|
14,879 | 16,306 | ||||||
| 393,658 | 381,100 | |||||||
|
Accumulated depreciation and amortization
|
(277,263 | ) | (262,809 | ) | ||||
| $ | 116,395 | $ | 118,291 | |||||
|
Accrued liabilities:
|
||||||||
|
Salaries and other compensation
|
$ | 40,334 | $ | 28,772 | ||||
|
Pension and retirement
|
1,675 | 12,339 | ||||||
|
Taxes other than income taxes
|
8,110 | 7,740 | ||||||
|
Other
|
46,014 | 43,434 | ||||||
| $ | 96,133 | $ | 92,285 | |||||
52
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
We have lease commitments expiring at various dates, principally
for manufacturing, warehouse and office space, automobiles and
office equipment. Many leases contain renewal options and some
contain purchase options and residual guarantees.
Rent expense for all operating leases was approximately $12,266,
$11,801 and $12,353 in 2010, 2009 and 2008, respectively.
Amortization of assets recorded under capital leases is recorded
in depreciation expense.
Assets held under capitalized leases and included in property,
plant and equipment are as follows:
| 2010 | 2009 | |||||||
|
Transportation equipment
|
$ | 13,870 | $ | 15,337 | ||||
|
Other
|
1,009 | 969 | ||||||
|
Total capitalized leases
|
14,879 | 16,306 | ||||||
|
Accumulated amortization
|
(7,799 | ) | (9,286 | ) | ||||
|
Net capitalized leases
|
$ | 7,080 | $ | 7,020 | ||||
At October 31, 2010, future minimum lease payments under
noncancelable capitalized and operating leases are as follows:
|
Capitalized
|
Operating
|
|||||||
| Leases | Leases | |||||||
|
Year:
|
||||||||
|
2011
|
$ | 4,880 | $ | 9,001 | ||||
|
2012
|
2,752 | 4,126 | ||||||
|
2013
|
1,247 | 2,483 | ||||||
|
2014
|
310 | 1,505 | ||||||
|
2015
|
63 | 1,138 | ||||||
|
Later years
|
8 | 7,349 | ||||||
|
Total minimum lease payments
|
9,260 | $ | 25,602 | |||||
|
Less amount representing executory costs
|
1,063 | |||||||
|
Net minimum lease payments
|
8,197 | |||||||
|
Less amount representing interest
|
1,117 | |||||||
|
Present value of net minimum lease payments
|
7,080 | |||||||
|
Less current portion
|
3,764 | |||||||
|
Long-term obligations at October 31, 2010
|
$ | 3,316 | ||||||
53
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Bank lines of credit and notes payable are summarized as follows:
| 2010 | 2009 | |||||||
|
Available bank lines of credit:
|
||||||||
|
Domestic banks
|
$ | — | $ | — | ||||
|
Foreign banks
|
39,710 | 48,433 | ||||||
|
Total
|
$ | 39,710 | $ | 48,433 | ||||
|
Outstanding notes payable:
|
||||||||
|
Domestic bank debt
|
$ | — | $ | — | ||||
|
Foreign bank debt
|
2,160 | 1,287 | ||||||
|
Total
|
$ | 2,160 | $ | 1,287 | ||||
|
Weighted-average interest rate on notes payable
|
4.1 | % | 4.9 | % | ||||
|
Unused bank lines of credit
|
$ | 37,550 | $ | 47,146 | ||||
A summary of long-term debt is as follows:
| 2010 | 2009 | |||||||
|
Revolving credit agreement
|
$ | 46,000 | $ | 88,000 | ||||
|
Senior notes, due
2005-2011
|
14,260 | 18,550 | ||||||
|
Senior notes, due 2013
|
50,000 | 50,000 | ||||||
| 110,260 | 156,550 | |||||||
|
Less current maturities
|
14,260 | 4,290 | ||||||
|
Long-term maturities
|
$ | 96,000 | $ | 152,260 | ||||
Revolving credit agreement
— This $400,000
revolving credit agreement is with a group of banks and expires
in 2012. Payment of quarterly commitment fees is required. The
weighted average interest rate for borrowings under this
agreement was 0.59 percent at October 31, 2010.
Senior notes, due
2005-2011
—
These fixed rate notes with a group of insurance companies had
an original weighted-average life of 6.5 years at the time
of issuance in 2001. The weighted-average interest rate at
October 31, 2010 was 7.39 percent.
Senior note, due 2013
— This note is payable in
one installment and has a fixed interest rate of
4.98 percent.
Annual maturities
— The annual maturities of
long-term debt for the five years subsequent to October 31,
2010, are as follows: $14,260 in 2011; $46,000 in 2012; $50,000
in 2013; and $0 in 2014 and 2015.
54
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
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 hedges of balance sheet
positions are recognized in each accounting period in
“Other — net” on the Consolidated Statement
of Income together with the transaction gain or loss from the
hedged balance sheet position. Gains of $7,970 and $3,817 were
recognized from changes in fair value of these contracts in 2010
and 2009, respectively. A loss of $2,033 was recognized from
changes in fair value of these contracts in 2008. We do not use
financial instruments for trading or speculative purposes.
At October 31, 2010, we had outstanding forward exchange
contracts that mature at various dates through January 2011. The
following table summarizes, by currency, forward exchange
contracts outstanding at October 31, 2010 and 2009:
| Sell | Buy | |||||||||||||||
|
Notional
|
Fair Market
|
Notional
|
Fair Market
|
|||||||||||||
| Amounts | Value | Amounts | Value | |||||||||||||
|
October 31, 2010 contract amounts:
|
||||||||||||||||
|
Euro
|
$ | 17,145 | $ | 17,601 | $ | 171,870 | $ | 181,430 | ||||||||
|
British pound
|
— | — | 25,832 | 26,576 | ||||||||||||
|
Japanese yen
|
12,947 | 13,260 | 18,678 | 19,490 | ||||||||||||
|
Others
|
6,357 | 6,545 | 28,361 | 29,854 | ||||||||||||
|
Total
|
$ | 36,449 | $ | 37,406 | $ | 244,741 | $ | 257,350 | ||||||||
|
October 31, 2009 contract amounts:
|
||||||||||||||||
|
Euro
|
$ | 7,663 | $ | 7,698 | $ | 178,983 | $ | 181,831 | ||||||||
|
British pound
|
491 | 493 | 12,015 | 11,997 | ||||||||||||
|
Japanese yen
|
2,876 | 2,911 | 20,862 | 21,342 | ||||||||||||
|
Others
|
8,678 | 8,580 | 26,143 | 26,489 | ||||||||||||
|
Total
|
$ | 19,708 | $ | 19,682 | $ | 238,003 | $ | 241,659 | ||||||||
The following table shows the fair value of foreign currency
forward contracts in the consolidated balance sheet at
October 31, 2010. These contracts were not designated as
hedging instruments.
| Asset Derivatives | Liability Derivatives | |||||||||
|
Balance sheet
|
Balance sheet
|
|||||||||
| location | Fair value | location | Fair value | |||||||
|
Receivables
|
$ | 12,098 | Accrued liabilities | $ | 445 | |||||
We also use intercompany foreign currency transactions of a
long-term investment nature to hedge the value of investment in
wholly-owned subsidiaries. For hedges of the net investment in
foreign operations, realized and unrealized gains and losses are
shown in the cumulative translation adjustment account included
in total comprehensive income. For 2010 and 2009, a net loss of
$999 and a net gain of $1,202, respectively, were included in
the cumulative translation adjustment account related to foreign
denominated fixed-rate debt designated as a hedge of net
investment in foreign operations.
55
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
We are exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments. These
financial instruments include cash deposits and forward exchange
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.
As of October 31, 2010, there were no significant
concentrations of credit risk.
The carrying amounts and fair values of financial instruments,
other than receivables and accounts payable, are shown in the
table below. The carrying values of receivables and accounts
payable approximate fair value due to the short-term nature of
these instruments.
| 2010 | 2009 | |||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
Cash and cash equivalents
|
$ | 42,329 | $ | 42,329 | $ | 18,781 | $ | 18,781 | ||||||||
|
Marketable securities
|
7,840 | 7,840 | 43 | 43 | ||||||||||||
|
Notes payable
|
(2,160 | ) | (2,160 | ) | (1,287 | ) | (1,287 | ) | ||||||||
|
Long-term debt
|
(110,260 | ) | (112,495 | ) | (156,550 | ) | (159,706 | ) | ||||||||
|
Forward exchange contracts (net)
|
11,653 | 11,653 | 3,683 | 3,683 | ||||||||||||
We used the following methods and assumptions in estimating the
fair value of financial instruments:
| • | Cash, cash equivalents and notes payable are valued at their carrying amounts due to the relatively short period to maturity of the instruments. | |
| • | Marketable securities are valued at quoted market prices, which are considered to be Level 1 inputs under the fair value hierarchy. | |
| • | 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. | |
| • | Foreign exchange contracts are estimated using quoted exchange rates, which are considered to be Level 2 inputs under the fair value hierarchy. |
Preferred
— We have authorized 10,000
Series A convertible preferred shares without par value. No
preferred shares were outstanding in 2010, 2009 or 2008.
Common
— We have 80,000 authorized common
shares without par value. In March 1992, the shareholders
adopted an amendment to the articles of incorporation, which,
when filed with the Secretary of State for the State of Ohio,
would increase the number of authorized common shares to
160,000. At October 31, 2010 and 2009, there were 49,011
common shares issued. At October 31, 2010 and 2009, the
number of outstanding common shares, net of treasury shares, was
33,935 and 33,678, respectively.
Common shares repurchased during 2010, 2009 and 2008 were as
follows:
|
Number of
|
Total
|
Average
|
||||||||||
| Year | Shares | Amount | per Share | |||||||||
|
2010
|
348 | $ | 22,047 | $ | 63.27 | |||||||
|
2009
|
197 | $ | 6,826 | $ | 34.62 | |||||||
|
2008
|
664 | $ | 30,678 | $ | 46.22 | |||||||
56
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The amended and restated 2004 long-term performance plan,
approved by shareholders in 2008, provides for the granting of
stock options, stock appreciation rights, nonvested (restricted)
stock, stock purchase rights, stock equivalent units, restricted
stock units, cash awards and other stock- or performance-based
incentives. The number of common shares available for grant is
2.5 percent of the number of common shares outstanding as
of the first day of each year. At the end of 2010, there were
848 shares available for grant in 2011.
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 for executive officers and
20 percent per year for other employees and expire
10 years from the date of grant. Vesting accelerates upon
the occurrence of events that involve or may result in a change
of control. Option exercises are satisfied through the issuance
of treasury shares on a
first-in,
first-out basis. We recognized compensation expense of $2,231,
$3,026 and $3,066 for 2010, 2009 and 2008, respectively.
Following is a summary of stock options for 2010:
|
Weighted-Average
|
Aggregate
|
|||||||||||||||
|
Number of
|
Exercise Price Per
|
Intrinsic
|
Weighted-Average
|
|||||||||||||
| Options | Share | Value | Remaining Term | |||||||||||||
|
Outstanding at October 31, 2009
|
1,799 | $ | 35.30 | |||||||||||||
|
Granted
|
183 | $ | 55.82 | |||||||||||||
|
Exercised
|
(614 | ) | $ | 30.90 | ||||||||||||
|
Forfeited or expired
|
(187 | ) | $ | 38.29 | ||||||||||||
|
Outstanding at October 31, 2010
|
1,181 | $ | 40.30 | $ | 44,556 | 6.0 years | ||||||||||
|
Vested at October 31, 2010 or
expected to vest |
1,138 | $ | 40.13 | $ | 43,128 | 5.9 years | ||||||||||
|
Exercisable at October 31, 2010
|
709 | $ | 37.58 | $ | 28,660 | 4.7 years | ||||||||||
Summarized information on currently outstanding options follows:
| Range of Exercise Price | ||||||||||||
| $20 — $35 | $36 — $50 | $51 — $62 | ||||||||||
|
Number outstanding
|
416 | 441 | 324 | |||||||||
|
Weighted-average remaining contractual life, in years
|
5.4 | 5.0 | 8.1 | |||||||||
|
Weighted-average exercise price
|
$ | 27.77 | $ | 41.59 | $ | 54.59 | ||||||
|
Number exercisable
|
242 | 389 | 78 | |||||||||
|
Weighted-average exercise price
|
$ | 27.08 | $ | 41.01 | $ | 53.16 | ||||||
As of October 31, 2010, there was $5,131 of total
unrecognized compensation cost related to nonvested stock
options. That cost is expected to be amortized over a weighted
average period of approximately 2.0 years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. Option
valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. 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:
| 2010 | 2009 | |||||
|
Expected volatility
|
.429-.442 | .404-.408 | ||||
|
Expected dividend yield
|
1.35-1.40 | % | 1.36% | |||
|
Risk-free interest rate
|
2.27-3.18 | % | 1.58-1.76% | |||
|
Expected life of the option (in years)
|
5.4-6.3 | 5.4-6.2 | ||||
57
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The weighted-average expected volatility used to value options
granted in 2010 and 2009 was .436 and .405, respectively. The
weighted-average dividend yield used to value the 2010 options
was 1.39%.
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 United States Treasury issues with
terms equal to the expected life of the option being valued.
The weighted average grant date fair value of stock options
granted during 2010, 2009 and 2008 was $22.16, $10.62 and
$14.10, respectively.
The total intrinsic value of options exercised during 2010, 2009
and 2008 was $22,821, $2,024 and $30,589, respectively. Cash
received from the exercise of stock options for 2010, 2009 and
2008 was $13,828, $2,986 and $16,135, respectively. The tax
benefit realized from tax deductions from exercises for 2010,
2009 and 2008 was $7,798, $284 and $9,002, respectively.
Nonvested (restricted) stock
— We may grant
nonvested (restricted) stock to our employees and directors.
These shares may not be disposed of for a designated period of
time (generally six months to five years) defined at the date of
grant. For employee recipients, shares are forfeited on a
pro-rata basis in the event employment is terminated as a
consequence of the employee recipient’s retirement,
disability or death prior to the lapse of any restrictions.
Termination for any other reason prior to the lapse of any
restrictions results in forfeiture of the shares. For
non-employee directors, restrictions lapse upon the retirement,
disability or death of the non-employee director. Termination of
service as a director for any other reason prior to the lapse of
any restrictions results in a pro-rata forfeiture of shares.
As shares are issued, deferred stock-based compensation
equivalent to the fair market value on the date of grant is
charged to shareholders’ equity and subsequently amortized
over the restriction period. Tax benefits arising from the lapse
of restrictions on the stock are recognized when realized and
credited to capital in excess of stated value.
The following table summarizes 2010 activity related to
nonvested stock:
|
Weighted-Average
|
||||||||
|
Number of
|
Grant Date Fair
|
|||||||
| Shares | Value Per Share | |||||||
|
Nonvested at October 31, 2009
|
23 | $ | 38.49 | |||||
|
Granted
|
30 | $ | 56.77 | |||||
|
Vested
|
(13 | ) | $ | 47.20 | ||||
|
Forfeited
|
— | — | ||||||
|
Nonvested at October 31, 2010
|
40 | $ | 49.40 | |||||
As of October 31, 2010, there was $1,236 of unrecognized
compensation cost related to nonvested stock. The cost is
expected to be amortized over a weighted average period of
2.2 years. The amount charged to expense related to
nonvested stock was $774, $507 and $886 in 2010, 2009 and 2008,
respectively.
58
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Deferred directors compensation
— Non-employee
directors may defer all or part of their compensation until
retirement. Compensation may be deferred as cash or as stock
equivalent units. Deferred cash amounts are recorded as
liabilities. Additional stock equivalent units are earned when
common stock dividends are declared.
The following is a summary of the activity related to deferred
director compensation during 2010:
|
Weighted-Average
|
||||||||
|
Number of
|
Grant Date Fair
|
|||||||
| Shares | Value Per Share | |||||||
|
Outstanding at October 31, 2009
|
127 | $ | 30.51 | |||||
|
Deferrals
|
3 | $ | 67.65 | |||||
|
Restricted stock units vested
|
11 | $ | 41.80 | |||||
|
Dividend equivalents
|
2 | $ | 66.56 | |||||
|
Distributions
|
(9 | ) | $ | 26.77 | ||||
|
Outstanding at October 31, 2010
|
134 | $ | 33.09 | |||||
The amount charged to expense related to this plan was $351,
$333 and $305 in 2010, 2009 and 2008, respectively.
Long-Term Incentive Compensation Plan
— Under
the Long-Term Incentive Compensation Plan, executive officers
and selected other key employees receive common stock awards
based solely on corporate performance measures over three-year
performance periods. Awards vary based on the degree to which
corporate performance exceeds predetermined threshold, target
and maximum performance levels at the end of a performance
period. No payout will occur unless certain threshold
performance objectives are exceeded.
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 Black-Scholes model. The per share values
for 2010 were $52.19 and $59.04 for the executive officer group
and $52.19 for the selected other employees. The per-share
values for 2009 and 2008 were $26.45 and $50.74, respectively.
These performance-based equity grants are recorded in
shareholders’ equity. The cumulative amounts recorded in
shareholders’ equity at October 31, 2010 and
October 31, 2008 were $3,879 and $9,483, respectively.
There was no cumulative amount recorded in shareholders’
equity at October 31, 2009. The amounts charged to expense
for executive officers and selected other employees in 2010 and
2008 were $3,879 and $4,762, respectively. There was $5,014
credited to expense for executive officers and selected other
employees in 2009.
Shares reserved for future issuance
— At
October 31, 2010, there were 73,127 of common shares
reserved for future issuance through the exercise of outstanding
options or rights.
Cost reduction activities were taken in 2008 through 2010
primarily in response to economic conditions and with the
objective of improving operating efficiencies. Total severance
and related costs of these actions were $23,986 of which $5,561
occurred in 2008, $16,396 occurred in 2009, and $2,029 occurred
in 2010. The severance costs were recorded in the Corporate
segment.
In March 2007, we announced that the Adhesive Dispensing Systems
segment manufacturing operation located in Talladega, Alabama
would be closed and production activities would be moved to
other facilities that are closer to supplier locations. Total
severance costs were $493 and were recorded over the future
service period of April 2007 through March 2008.
59
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The following table summarizes activity in the severance and
restructuring accruals during 2008, 2009 and 2010:
|
Cost
|
Adhesive
|
|||||||||||
|
Reduction
|
Dispensing
|
|||||||||||
|
Actions -
|
Systems -
|
|||||||||||
| 2008-2010 | 2007 Action | Total | ||||||||||
|
Accrual balance at October 31, 2007
|
$ | — | $ | 403 | $ | 403 | ||||||
|
Additions to accrual
|
5,561 | 60 | 5,621 | |||||||||
|
Payments
|
(1,053 | ) | (463 | ) | (1,516 | ) | ||||||
|
Currency effects
|
(25 | ) | — | (25 | ) | |||||||
|
Accrual balance at October 31, 2008
|
4,483 | — | 4,483 | |||||||||
|
Additions to accrual
|
16,396 | — | 16,396 | |||||||||
|
Payments
|
(18,732 | ) | — | (18,732 | ) | |||||||
|
Currency effects
|
81 | — | 81 | |||||||||
|
Accrual balance at October 31, 2009
|
2,228 | — | 2,228 | |||||||||
|
Additions to accrual
|
2,029 | — | 2,029 | |||||||||
|
Payments
|
(3,161 | ) | — | (3,161 | ) | |||||||
|
Currency effects
|
(173 | ) | — | (173 | ) | |||||||
|
Accrual balance at October 31, 2010
|
$ | 923 | $ | — | $ | 923 | ||||||
Business acquisitions have been accounted for as purchases, 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 after the respective dates of acquisitions are
included in the Consolidated Statement of Income. Assuming the
acquisitions below had taken place at the beginning of 2008,
pro-forma results for 2010, 2009 and 2008 would not have been
materially different.
On January 5, 2010, we acquired 100 percent of the
outstanding shares of G L T Gesellschaft für
Löttechnik mbH (“GLT”), a German distributor of
Nordson EFD dispensing systems and related products. The
acquisition date fair value of the consideration transferred,
which consisted solely of cash, was $22,021 ($18,576, net of
cash acquired). Based on the fair value of the assets acquired
and the liabilities assumed, goodwill of $6,034 and identifiable
intangible assets of $7,270 were recorded. The identifiable
intangible assets consist primarily of $5,661 of customer
relationships that are being amortized over 10 years.
On October 1, 2008, we acquired certain assets of Wachter
Paul & Co., Dosier-Klebetechnik, a Swiss distributor
of Nordson EFD dispensing systems and related products.
On August 1, 2008, we acquired 100 percent of the
outstanding shares of MLT Systems Holdings (Pty) Ltd. and its
subsidiary, MLT Application Systems (Pty) Ltd. (MLT) of Cape
Town, South Africa. MLT had been the exclusive distributor of
our products in South Africa since 1989.
On May 26, 2008, we acquired the remaining 51 percent
interest in our South Korea joint venture. Purchase accounting
was applied to the acquisition of the remaining interest, with
the $2,485 difference between the purchase price and the
carrying value of our investment recorded as goodwill. The joint
venture was previously consolidated in accordance with current
accounting standards. The wholly-owned subsidiary operates as
Nordson Korea.
60
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
On June 30, 2010, we sold our UV Curing graphic arts and
lamps product lines to Baldwin Technology Company, Inc. These
product lines were reported in the Advanced Technology Systems
segment. This divestiture did not qualify for discontinued
operations treatment, because it was not a component of an
entity, as its operations and cash flows were not clearly
distinguished from the rest of the entity. During 2010, we
recognized a pretax loss on disposition of $357, which is
reflected in selling and administrative expenses in the
Consolidated Statement of Income. In the current year, results
of operations and net assets of the divested product lines were
immaterial to our consolidated results of operations, financial
position and cash flows. In the fourth quarter of 2009, we
recognized a pre-tax impairment charge of $14,101, including
$12,129 of goodwill impairment, to write down the carrying
amount of the assets held for sale to the estimated fair value
less costs to sell. The tax benefit related to the write-off of
our tax basis in the investment in these product lines is
discussed in Note 4.
| 2010 | 2009 | 2008 | ||||||||||
|
Cash operating activities:
|
||||||||||||
|
Interest paid
|
$ | 6,518 | $ | 7,986 | $ | 17,633 | ||||||
|
Income taxes paid
|
22,218 | 24,893 | 45,089 | |||||||||
|
Non-cash investing and financing activities:
|
||||||||||||
|
Capitalized lease obligations incurred
|
$ | 5,468 | $ | 3,257 | $ | 6,886 | ||||||
|
Capitalized lease obligations terminated
|
721 | 2,376 | 1,024 | |||||||||
|
Shares acquired and issued through exercise of stock options
|
5,151 | 73 | 4,682 | |||||||||
|
Non-cash assets and liabilities of businesses acquired:
|
||||||||||||
|
Working capital
|
$ | 4,062 | $ | — | $ | 1,082 | ||||||
|
Property, plant and equipment
|
1,320 | — | 112 | |||||||||
|
Intangibles and other long-term assets
|
14,880 | — | 4,271 | |||||||||
|
Long-term debt and other liabilities
|
(1,686 | ) | — | (766 | ) | |||||||
| $ | 18,576 | $ | — | $ | 4,699 | |||||||
We conduct business in three primary operating segments:
Adhesive Dispensing Systems, Advanced Technology Systems, and
Industrial Coating Systems. 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 Statement 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. In addition, the measure
of segment operating profit that is reported to and reviewed by
the chief operating decision maker excludes severance and
restructuring costs associated with the cost reduction program
that began in 2008. The accounting policies of the segments are
generally the same as those described in Note 1,
Significant Accounting Policies.
No single customer accounted for five percent or more of sales
in 2010, 2009 or 2008.
61
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The following table presents information about our reportable
segments:
|
Adhesive
|
Advanced
|
Industrial
|
||||||||||||||||||
|
Dispensing
|
Technology
|
Coating
|
||||||||||||||||||
| Systems | Systems | Systems | Corporate | Total | ||||||||||||||||
|
Year ended October 31, 2010
|
||||||||||||||||||||
|
Net external sales
|
$ | 525,290 | $ | 380,304 | $ | 135,957 | $ | — | $ | 1,041,551 | ||||||||||
|
Depreciation
|
8,014 | 7,656 | 2,836 | 4,119 | 22,625 | |||||||||||||||
|
Operating profit
|
166,255 | 86,329 | 12,506 | (30,257 | ) (a) | 234,833 | ||||||||||||||
|
Identifiable
assets
(b)
|
251,881 | 482,132 | 56,687 | 206,663 | (c) | 997,363 | ||||||||||||||
|
Expenditures for long-lived assets
|
1,857 | 2,823 | 517 | 9,120 | 14,317 | |||||||||||||||
|
Year ended October 31, 2009
|
||||||||||||||||||||
|
Net external sales
|
$ | 460,746 | $ | 248,827 | $ | 109,592 | $ | — | $ | 819,165 | ||||||||||
|
Depreciation
|
9,087 | 7,294 | 3,300 | 6,629 | 26,310 | |||||||||||||||
|
Operating profit (loss)
|
127,589 | (214,373 | ) (d) | (7,303 | ) (d) | (33,720 | ) (a) | (127,807 | ) | |||||||||||
|
Identifiable
assets
(b)
|
226,904 | 451,300 | 50,072 | 168,686 | (c) | 896,962 | ||||||||||||||
|
Expenditures for long-lived assets
|
1,922 | 7,097 | 857 | 2,638 | 12,514 | |||||||||||||||
|
Year ended October 31, 2008
|
||||||||||||||||||||
|
Net external sales
|
$ | 580,711 | $ | 367,366 | $ | 176,752 | $ | — | $ | 1,124,829 | ||||||||||
|
Depreciation
|
9,391 | 7,613 | 3,897 | 5,539 | 26,440 | |||||||||||||||
|
Operating profit
|
145,390 | 61,764 | 11,015 | (27,831 | ) (a) | 190,338 | ||||||||||||||
|
Identifiable
assets
(b)
|
248,782 | 700,767 | 69,897 | 149,819 | (c) | 1,169,265 | ||||||||||||||
|
Expenditures for long-lived assets
|
5,320 | 14,278 | 3,285 | 3,503 | 26,386 | |||||||||||||||
| (a) | Includes severance and restructuring charges $2,029, $16,396 and $5,561 in 2010, 2009 and 2008, respectively. | |
| (b) | Includes notes and accounts receivable net of customer advance payments and allowance for doubtful accounts, inventories net of reserves, property, plant and equipment net of accumulated depreciation and goodwill. | |
| (c) | Corporate assets are principally cash and cash equivalents, deferred income taxes, investments, capital leases, headquarter facilities, the major portion of our domestic enterprise management system, and intangible assets. | |
| (d) | Includes goodwill and long-lived asset impairments of $239,427 in the Advanced Technology Systems segment and $3,616 in the Industrial Coating Systems segment. |
62
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
We have significant sales and long-lived assets in the following
geographic areas:
| 2010 | 2009 | 2008 | ||||||||||
|
Net external sales
|
||||||||||||
|
United States
|
$ | 277,262 | $ | 235,295 | $ | 315,553 | ||||||
|
Americas
|
77,592 | 59,900 | 76,860 | |||||||||
|
Europe
|
337,448 | 295,952 | 431,583 | |||||||||
|
Japan
|
95,789 | 81,944 | 110,891 | |||||||||
|
Asia Pacific
|
253,460 | 146,074 | 189,942 | |||||||||
|
Total net external sales
|
$ | 1,041,551 | $ | 819,165 | $ | 1,124,829 | ||||||
|
Long-lived assets
|
||||||||||||
|
United States
|
$ | 80,974 | $ | 79,675 | $ | 89,618 | ||||||
|
Americas
|
1,865 | 1,703 | 1,571 | |||||||||
|
Europe
|
13,401 | 15,329 | 18,695 | |||||||||
|
Japan
|
3,587 | 3,257 | 3,457 | |||||||||
|
Asia Pacific
|
16,568 | 18,327 | 20,502 | |||||||||
|
Total long-lived assets
|
$ | 116,395 | $ | 118,291 | $ | 133,843 | ||||||
A reconciliation of total segment operating income to total
consolidated income before income taxes is as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Total profit (loss) for reportable segments
|
$ | 234,833 | $ | (127,807 | ) | $ | 190,338 | |||||
|
Interest expense
|
(6,263 | ) | (7,771 | ) | (16,714 | ) | ||||||
|
Interest and investment income
|
819 | 492 | 1,250 | |||||||||
|
Other-net
|
1,930 | 7,895 | 4,914 | |||||||||
|
Income (loss) before income taxes
|
$ | 231,319 | $ | (127,191 | ) | $ | 179,788 | |||||
A reconciliation of total assets for reportable segments to
total consolidated assets is as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Total assets for reportable segments
|
$ | 997,363 | $ | 896,962 | $ | 1,169,265 | ||||||
|
Customer advance payments
|
10,999 | 8,807 | 7,521 | |||||||||
|
Eliminations
|
(22,008 | ) | (15,095 | ) | (10,117 | ) | ||||||
|
Total consolidated assets
|
$ | 986,354 | $ | 890,674 | $ | 1,166,669 | ||||||
Goodwill is the excess of purchase price over the fair value of
tangible and identifiable intangible net assets acquired in
various business combinations. Goodwill is not amortized but is
tested for impairment annually at the reporting unit level, or
more often if indications of impairment exist. We assess the
fair value of reporting units on a non-recurring basis using a
combination of two valuation methods, a market approach and an
income approach, to estimate the fair value of our reporting
units. The implied fair value of our reporting units is
determined based on significant unobservable inputs;
accordingly, these inputs fall within Level 3 of the fair
value hierarchy.
For 2010 and 2009, our reporting units are the Adhesive
Dispensing Systems segment, the Industrial Coating Systems
segment and one level below the Advanced Technology Systems
segment. Reporting units in the Advanced Technology Systems
segment in 2010 are consistent with those used in 2009, except
that Picodostec and YESTech are now included in the EFD and Dage
reporting units, respectively.
63
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
The goodwill impairment test is a two-step process. In the first
step, performed in the fourth quarter of each year, we calculate
a fair value using a discounted cash flow valuation methodology
and compare the result against the carrying value for net assets
of each reporting unit. Indications of value derived for each
reporting unit using the market approach are corroborated with
the results of the discounted cash flow approach. If the
carrying value of a reporting unit exceeds its fair value, then
a second step is performed to determine if goodwill is impaired.
In the second step, a hypothetical purchase price allocation of
the reporting unit’s assets and liabilities is performed
using the fair value calculated in step one. The difference
between the fair value of the reporting unit and the
hypothetical fair value of assets and liabilities is the implied
goodwill amount. Impairment is recorded if the carrying value of
the reporting unit’s goodwill is higher than its implied
goodwill. Based upon results of step one in 2010, the second
step of the goodwill impairment test was not necessary. In 2009,
the second step of the goodwill impairment test was performed
and we recognized an impairment charge related to a reduction in
the carrying value of goodwill in the amount of $232,789,
relating to six reporting units as follows: Dage $166,916,
Picodostec $7,530, YESTech $26,149, March Plasma Systems
$16,449, UV Curing $12,129, and Industrial Coating Systems
$3,616.
Changes in the carrying amount of goodwill during 2010 by
operating segment follow:
|
Adhesive
|
Advanced
|
Industrial
|
||||||||||||||
|
Dispensing
|
Technology
|
Coating
|
||||||||||||||
| Systems | Systems | Systems | Total | |||||||||||||
|
Balance at October 31, 2009
|
||||||||||||||||
|
Goodwill
|
$ | 33,850 | $ | 537,085 | $ | 3,616 | $ | 574,551 | ||||||||
|
Accumulated impairment losses
|
— | (229,173 | ) | (3,616 | ) | (232,789 | ) | |||||||||
| 33,850 | 307,912 | — | 341,762 | |||||||||||||
|
Acquisition/Adjustment
|
200 | 6,034 | — | 6,234 | ||||||||||||
|
Currency effect
|
(267 | ) | (403 | ) | — | (670 | ) | |||||||||
|
Balance at October 31, 2010
|
||||||||||||||||
|
Goodwill
|
33,783 | 542,716 | 3,616 | 580,115 | ||||||||||||
|
Accumulated impairment losses
|
— | (229,173 | ) | (3,616 | ) | (232,789 | ) | |||||||||
| $ | 33,783 | $ | 313,543 | $ | — | $ | 347,326 | |||||||||
64
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Information regarding intangible assets subject to amortization
follows:
| October 31, 2010 | ||||||||||||
|
Carrying
|
Accumulated
|
|||||||||||
| Amount | Amortization | Net Book Value | ||||||||||
|
Patent costs
|
$ | 20,641 | $ | 6,961 | $ | 13,680 | ||||||
|
Customer relationships
|
30,630 | 8,273 | 22,357 | |||||||||
|
Noncompete agreements
|
5,982 | 4,857 | 1,125 | |||||||||
|
Core/developed technology
|
2,788 | 2,123 | 665 | |||||||||
|
Trade name
|
1,684 | 479 | 1,205 | |||||||||
|
Other
|
1,432 | 636 | 796 | |||||||||
|
Total
|
$ | 63,157 | $ | 23,329 | $ | 39,828 | ||||||
| October 31, 2009 | ||||||||||||
|
Carrying
|
Accumulated
|
|||||||||||
| Amount | Amortization | Net Book Value | ||||||||||
|
Patent costs
|
$ | 20,983 | $ | 5,242 | $ | 15,741 | ||||||
|
Customer relationships
|
25,402 | 5,689 | 19,713 | |||||||||
|
Noncompete agreements
|
5,935 | 4,223 | 1,712 | |||||||||
|
Core/developed technology
|
2,788 | 1,888 | 900 | |||||||||
|
Trade name
|
890 | — | 890 | |||||||||
|
Other
|
638 | 620 | 18 | |||||||||
|
Total
|
$ | 56,636 | $ | 17,662 | $ | 38,974 | ||||||
Indefinite-lived intangible assets are trademarks and trade
names associated with Dage, Picodostec and YESTech.
Indefinite-lived intangible assets are not subject to
amortization and need to be tested for impairment annually or
more often if indications of impairment exist. The impairment
test consists of a comparison of the fair value of the
intangible asset with its carrying amount. If the carrying
amount of an intangible asset exceeds its fair value, an
impairment charge is recognized in an amount equal to that
excess. After an impairment charge is recognized, the adjusted
carrying amount of the intangible asset becomes its new
accounting basis. Subsequent reversal of a previously recognized
impairment charge is prohibited.
The common valuation technique for determining the fair value of
trademark and trade names is the “relief from royalty
method” which is based on significant unobservable inputs;
accordingly, these inputs fall within Level 3 of the fair
value hierarchy. The theory is that these assets relieve the
owner from having to pay a hypothetical royalty attributable to
an exclusive license for selling products under the trademark or
trade name. The value of the hypothetical exclusive license is
based upon the present value of a stream of hypothetical royalty
payments, using assumptions for revenue growth (the same as for
goodwill testing), discount rates (slightly more risk premium
than for goodwill testing), royalty rates (based on market
data), and tax amortization benefits (based upon statutory
guidance). At October 31, 2010 and 2009, $3,099 and $3,170,
respectively, of trademark and trade name intangible assets were
not subject to amortization. No impairment charges were recorded
in 2010. In 2009, this testing resulted in impairment charges
totaling $8,282 as follows by reporting unit: Dage $5,365,
Picodostec $157, YESTech $350, and TAH Industries $2,410. The
charge for the TAH trade name was due to our branding program,
under which TAH product lines are being integrated into and
marketed as “Nordson EFD” over the next several years.
Accordingly, the TAH trade name was converted to a finite-lived
asset.
65
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
Amortization expense for 2010 and 2009 was $6,263 and $5,100,
respectively. Estimated amortization expense for each of the
five succeeding years follows:
|
Year
|
Amounts | |||
|
2011
|
$ | 6,270 | ||
|
2012
|
$ | 5,360 | ||
|
2013
|
$ | 4,679 | ||
|
2014
|
$ | 4,055 | ||
|
2015
|
$ | 3,476 | ||
In September 2006, the FASB issued a standard regarding fair
value measurements. This standard provides a common definition
of fair value and establishes a framework to make the
measurement of fair value in generally accepted accounting
principles more consistent and comparable. It also requires
expanded disclosures to provide information about the extent to
which fair value is used to measure assets and liabilities, the
methods and assumptions used to measure fair value, and the
effect of fair value measures on earnings. In February 2008, the
FASB issued an update that permitted a one-year deferral of the
original standard for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at
least annually). We adopted the non-deferred portion of the
standard as of November 1, 2008 and the deferred portion of
the standard as of November 1, 2009.
Fair value disclosures related to goodwill and indefinite-lived
intangible assets are in Note 17.
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 table presents the classification of our assets
and liabilities measured at fair value on a recurring basis at
October 31, 2010:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
|
Assets:
|
||||||||||||||||
|
Rabbi
trust
(a)
|
$ | 14,237 | $ | — | $ | 14,237 | $ | — | ||||||||
|
Forward exchange
contracts
(b)
|
12,098 | — | 12,098 | — | ||||||||||||
|
Total assets at fair value
|
$ | 26,335 | $ | — | $ | 26,335 | $ | — | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Deferred compensation
plans
(c)
|
$ | 7,073 | $ | 7,073 | $ | — | $ | — | ||||||||
|
Forward exchange
contracts
(b)
|
445 | — | 445 | — | ||||||||||||
|
Total liabilities at fair value
|
$ | 7,518 | $ | 7,073 | $ | 445 | $ | — | ||||||||
| (a) | We maintain a rabbi trust that serves as an investment to shadow our deferred compensation plan liability. The investment assets of the trust consist of life insurance policies for which we recognize income or expense based upon changes in cash surrender value. |
66
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
| (b) | 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. The maturities of these contracts are usually less than 90 days. Foreign exchange contracts are valued using market exchange rates. | |
| (c) | Senior management and other highly compensated employees may defer up to 100 percent of their salary and 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. |
| First | Second | Third | Fourth | |||||||||||||
|
2010:
|
||||||||||||||||
|
Sales
|
$ | 220,589 | $ | 251,659 | $ | 279,121 | $ | 290,182 | ||||||||
|
Gross margin
|
131,675 | 153,867 | 165,801 | 170,271 | ||||||||||||
|
Net income
|
26,732 | 32,431 | 55,329 | 53,556 | ||||||||||||
|
Earnings per share:
|
||||||||||||||||
|
Basic
|
.79 | .96 | 1.63 | 1.58 | ||||||||||||
|
Diluted
|
.78 | .94 | 1.61 | 1.56 | ||||||||||||
|
2009:
|
||||||||||||||||
|
Sales
|
$ | 186,608 | $ | 188,840 | $ | 206,273 | $ | 237,444 | ||||||||
|
Gross margin
|
107,237 | 102,883 | 121,737 | 137,069 | ||||||||||||
|
Net income (loss)
|
11,156 | 13,843 | 23,979 | (209,033 | ) | |||||||||||
|
Earnings (loss) per share:
|
||||||||||||||||
|
Basic
|
.33 | .41 | .71 | (6.22 | ) | |||||||||||
|
Diluted
|
.33 | .41 | .71 | (6.22 | ) | |||||||||||
The sum of the per-share amounts for the four quarters of 2010
and 2009 do not equal the annual per-share amounts due to
differences in the average number of shares outstanding during
the respective periods.
During the first quarter of 2010, net income tax benefits of
$3,062 were recorded. During the second quarter of 2010, an
additional tax charge of $5,255 was recorded resulting from the
enactment of the Patient Protection and Affordable Care Act and
the subsequent enactment of the Health Care and Education
Reconciliation Act of 2010. The charge was due to a reduction in
the value of our deferred tax asset as a result of a change to
the tax treatment associated with Medicare Part D
subsidies. During the third quarter of 2010, a tax benefit of
$10,700 was recognized as a result of the write-off of the tax
basis of the UV graphic arts business sold on June 30, 2010.
Pretax severance and restructuring costs of $531, $571, $347 and
$580 were recognized in the first, second, third and fourth
quarters, respectively, of 2010.
Pre-tax goodwill and long-lived asset impairments of $243,043
were recognized in the fourth quarter of 2009. During the first
quarter of 2009, a gain of $5,036 related to the sale of real
estate was recorded. Pretax severance and restructuring costs of
$8,064, $5,054, $977 and $2,301 were recognized in the first,
second, third and fourth quarters, respectively, of 2009.
67
Table of Contents
Notes
to Consolidated Financial
Statements
— (Continued)
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 environmental matter discussed below, it is our
opinion, after consultation with legal counsel, that resolutions
of these matters are not expected to result in a material effect
on our financial condition, quarterly or annual operating
results or cash flows.
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 constructing a potable water delivery
system serving the impacted area down gradient of the Site. At
October 31, 2010, and 2009 our accrual for the ongoing
operation, maintenance and monitoring obligation at the Site was
$885. 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.
On November 1, 2010, we acquired Micromedics Inc., a leader
in applying and dispensing biomaterials for controlling
bleeding, healing wounds, and other related medical procedures.
Micromedics, headquartered in St. Paul, Minnesota, will be
integrated into our Advanced Technology Systems segment.
We evaluated all events or transactions that occurred after
October 31, 2010 through the date the financial statements
were issued, and there were no material recognizable subsequent
events or other non-recognizable subsequent events.
68
Table of Contents
Management’s
Report on Internal Control Over Financial Reporting
The management of Nordson Corporation is responsible for
establishing and maintaining adequate internal control over
financial reporting.
Using criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework, Nordson’s management assessed
the effectiveness of our internal control over financial
reporting as of October 31, 2010.
Based on our assessment, management concluded that our internal
control over financial reporting was effective as of
October 31, 2010.
The independent registered public accounting firm,
Ernst & Young LLP, has also audited the effectiveness
of our internal control over financial reporting as of
October 31, 2010. Their report is included herein.
|
/s/
Michael
F. Hilton
|
/s/
Gregory
A. Thaxton
|
|
|
Director, President and Chief Executive Officer
|
Vice President, Chief Financial Officer | |
|
December 17, 2010
|
December 17, 2010 |
69
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Nordson Corporation
We have audited Nordson Corporation’s internal control over
financial reporting as of October 31, 2010, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Nordson
Corporation’s management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
“Management’s Report on Internal Control Over
Financial Reporting”. Our responsibility is to express an
opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Nordson Corporation maintained, in all material
respects, effective internal control over financial reporting as
of October 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Nordson Corporation as of
October 31, 2010 and 2009, and the related consolidated
statements of income, shareholders’ equity, and cash flows
for each of the three years in the period ended October 31,
2010 of Nordson Corporation and our report dated
December 17, 2010 expressed an unqualified opinion thereon.
Cleveland, Ohio
December 17, 2010
70
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Nordson Corporation
We have audited the accompanying consolidated balance sheets of
Nordson Corporation as of October 31, 2010 and 2009 and the
related consolidated statements of income, shareholders’
equity, and cash flows for each of the three years in the period
ended October 31, 2010. Our audits also included the
financial statement schedule listed in the Index at
Item 15(a)(2) and (c). These financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Nordson Corporation at October 31,
2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended October 31, 2010, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Nordson Corporation’s internal control over financial
reporting as of October 31, 2010, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated December 17, 2010 expressed
an unqualified opinion thereon.
Cleveland, Ohio
December 17, 2010
71
Table of Contents
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
(a)
Evaluation of disclosure controls and
procedures.
Our management, with the participation of the
principal executive officer (president and chief executive
officer) and the principal financial officer (vice president,
chief financial officer), has reviewed and evaluated our
disclosure controls and procedures (as defined in the Securities
Exchange Act
Rule 13a-15e)
as of October 31, 2010. 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 October 31, 2010 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 our management, including the
principal executive officer and the principal financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
(b)
Management’s report on internal control over
financial reporting.
The Report of Management on Internal
Control over Financial Reporting and the Report of Independent
Registered Public Accounting Firm thereon are set forth in
Part II, Item 8 of this Annual Report on
Form 10-K.
(c)
Changes in internal control over reporting.
There were no changes in our internal controls over financial
reporting that occurred during the fourth quarter of 2010 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
| Item 9B. | Other Information |
None.
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this Item is incorporated by
reference to the captions “Election of Directors” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” of our definitive Proxy Statement for the 2011
Annual Meeting of Shareholders. Information regarding Audit
Committee financial experts is incorporated by reference to the
caption “Election of Directors” of our definitive
Proxy Statement for the 2011 Annual Meeting of Shareholders.
Our executive officers serve for a term of one year from date of
election to the next organizational meeting of the board of
directors and until their respective successors are elected and
qualified, except in the case of death, resignation or removal.
Information concerning executive officers is contained in
Part I of this report under the caption “Executive
Officers of the Company.”
We have adopted a code of ethics for all employees and
directors, including the principal executive officer, other
executive officers, principal finance officer and other finance
personnel. A copy of the code of ethics is available free of
charge on our Web site at
http://www.nordson.com/governance.
We intend to satisfy our disclosure requirement under
Item 5.05 of
Form 8-K
regarding any amendment to or waiver of a provision of our code
of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or
controller or persons performing similar functions and that
relates to any element of the code of ethics definition
enumerated in Item 406(b) of
Regulation S-K
by posting such information on our Web site.
72
Table of Contents
| Item 11. | Executive Compensation |
The information required by this Item is incorporated by
reference to the captions “Directors Compensation for
Fiscal Year 2010,” “Summary Compensation for Fiscal
Year 2010,” “Grants of Plan-Based Awards for Fiscal
Year 2010,” “Option Exercises and Stock Vested for
Fiscal Year 2010,” “Pension Benefits for Fiscal Year
2010,” “Nonqualified Deferred Compensation for Fiscal
Year 2010” and “Potential Payments Upon Termination or
Change of Control” in our definitive Proxy Statement for
the 2011 Annual Meeting of Shareholders.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item is incorporated by
reference to the caption “Ownership of Nordson Common
Shares” in our definitive Proxy Statement for the 2011
Annual Meeting of Shareholders.
Equity
Compensation Table
The following table sets forth information regarding equity
compensation plans in effect as of October 31, 2010.
|
Number of securities
|
||||||||||||
|
remaining available for
|
||||||||||||
|
future issuance under
|
||||||||||||
|
Number of securities to be
|
Weighted-average
|
equity compensation plans
|
||||||||||
|
issued upon exercise of
|
exercise price of
|
(excluding securities
|
||||||||||
|
outstanding options,
|
outstanding options,
|
reflected in first reporting
|
||||||||||
|
Plan category
|
warrants and rights | warrants and rights | column) | |||||||||
|
Equity compensation plans approved by security holders
|
1,181 | $ | 40.30 | 848 | ||||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
1,181 | $ | 40.30 | 848 | ||||||||
The number of Common Shares available for grant is
2.5 percent of the number of Common Shares outstanding as
of the first day of each year.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is incorporated by
reference to the caption “Review of Transactions with
Related Persons” in our definitive Proxy Statement for the
2011 Annual Meeting of Shareholders.
| Item 14. | Principal Accountant Fees and Services |
The information required by this Item is incorporated by
reference to the caption “Independent Auditors” in our
definitive Proxy Statement for the 2011 Annual Meeting of
Shareholders.
73
Table of Contents
| Item 15. | Exhibits and Financial Statement Schedule |
The following are filed as part of this report:
(a) 1.
Financial Statements
The following financial statements are included in Part II,
Item 8:
Consolidated Statements of Income for each of the three years in
the period ending October 31, 2010
Consolidated Balance Sheets as of October 31, 2010 and
October 31, 2009
Consolidated Statements of Shareholders’ Equity for each of
the three years in the period ending October 31, 2010
Consolidated Statements of Cash Flows for each of the three
years in the period ending October 31, 2010
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
(a) 2.
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves
for each of the three years in the period ending
October 31, 2010.
No other consolidated financial statement schedules are
presented because the schedules are not required, because the
required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the financial statements,
including the notes thereto.
(a) 3.
Exhibits
The exhibits listed on the accompanying index to exhibits are
filed as part of this Annual Report on
Form 10-K.
74
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
NORDSON CORPORATION
Date: December 17, 2010
By:
/s/
Gregory
A. Thaxton
Gregory A. Thaxton
Vice President, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
/s/
Michael
F. Hilton
Director, President and Chief Executive Officer (Principal Executive Officer) |
December 17, 2010 | |||||
|
/s/
Gregory
A. Thaxton
Vice President, Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) |
December 17, 2010 | |||||
|
/s/
Joseph
P. Keithley
Chairman of the Board |
December 17, 2010 | |||||
|
/s/
Lee
C. Banks
Director |
December 17, 2010 | |||||
|
/s/
Randolph
W. Carson
Director |
December 17, 2010 | |||||
|
/s/
Dr. David
W. Ignat
Director |
December 17, 2010 | |||||
|
/s/
William
P. Madar
Director |
December 17, 2010 | |||||
|
/s/
Michael
J. Merriman, Jr.
Director |
December 17, 2010 | |||||
75
Table of Contents
Signatures
— Continued
|
/s/
Mary
G. Puma
Director |
December 17, 2010 | |||||
|
/s/
Victor
L. Richey, Jr.
Director |
December 17, 2010 | |||||
|
/s/
William
L. Robinson
Director |
December 17, 2010 | |||||
|
/s/
Benedict
P. Rosen
Director |
December 17, 2010 | |||||
76
Table of Contents
Schedule II —
Valuation and Qualifying Accounts and Reserves
|
Balance at
|
Assumed
|
Balance
|
||||||||||||||||||||||
|
Beginning
|
from
|
Charged to
|
Currency
|
at End
|
||||||||||||||||||||
| of Year | Acquisitions | Expense | Deductions | Effects | of Year | |||||||||||||||||||
|
Allowance for Doubtful Accounts
|
||||||||||||||||||||||||
|
2008
|
$ | 4,302 | — | 413 | 1,393 | (255 | ) | $ | 3,067 | |||||||||||||||
|
2009
|
$ | 3,067 | — | 1,998 | 1,654 | 317 | $ | 3,728 | ||||||||||||||||
|
2010
|
$ | 3,728 | 6 | 607 | 901 | (87 | ) | $ | 3,353 | |||||||||||||||
|
Inventory Obsolescence and Other Reserves
|
||||||||||||||||||||||||
|
2008
|
$ | 12,365 | 60 | 5,492 | 3,092 | (1,692 | ) | $ | 13,133 | |||||||||||||||
|
2009
|
$ | 13,133 | — | 5,654 | 4,234 | 1,187 | $ | 15,740 | ||||||||||||||||
|
2010
|
$ | 15,740 | 187 | 4,233 | 3,061 | (297 | ) | $ | 16,802 | |||||||||||||||
77
Table of Contents
NORDSON
CORPORATION
Index to
Exhibits
(Item 15(a) (3))
|
Exhibit
|
||
| Number |
Description
|
|
|
(3)
|
Articles of Incorporation and By-Laws | |
|
3-a
|
1989 Amended Articles of Incorporation (incorporated herein by reference to Exhibit 3-a to Registrant’s Annual Report on Form 10-K for the year ended October 30, 2005) | |
|
3-b
|
1998 Amended Regulations | |
|
(4)
|
Instruments Defining the Rights of Security Holders, including indentures | |
|
4-a
|
$400 million Credit Agreement between Nordson Corporation and various financial institutions (incorporated herein by reference to Exhibit 10.1 to Registrant’s Form 8-K dated July 16, 2007) | |
|
4-b
|
$100 million Senior Note Purchase Agreement between Nordson Corporation and various insurance companies (incorporated herein by reference to Exhibit 4-c to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2006) | |
|
4-c
|
Note Purchase and Private Shelf Agreement dated February 22, 2008 (incorporated herein by reference to Exhibit 10.1 to Registrant’s Form 8-K dated February 25, 2008) | |
|
(10)
|
Material Contracts | |
|
10-a
|
Amended and Restated Nordson Corporation 2004 Management Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.1 to Registrant’s Form 8-K dated February 25, 2008)* | |
|
10-b
|
Nordson Corporation Deferred Compensation Plan (incorporated herein by reference to Exhibit 10-b to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2006)* | |
|
10-b-1
|
Nordson Corporation 2005 Deferred Compensation Plan* | |
|
10-b-2
|
Nordson Corporation 2005 Deferred Compensation Plan (as Amended and Restated Effective January 1, 2009) (incorporated herein by reference to Exhibit 10.01-a to Registrant’s Form 8-K dated December 16, 2008)* | |
|
10-c
|
Indemnity Agreement (incorporated herein by reference to Exhibit 10-c to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2007)* | |
|
10-d
|
Restated Nordson Corporation Excess Defined Contribution Retirement Plan Agreement (incorporated herein by reference to Exhibit 10-d to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2009)* | |
|
10-d-1
|
First Amendment to Nordson Corporation Excess Defined Contribution Retirement Plan (incorporated herein by reference to Exhibit 10-d-1 to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2006)* | |
|
10-d-2
|
Nordson Corporation 2005 Excess Defined Contribution Benefit Plan (incorporated herein by reference to Exhibit 10-d-2 to Registrant’s Annual Report on Form 10-K for the year ended October 30, 2005)* | |
|
10-d-3
|
Nordson Corporation 2005 Excess Defined Contribution Retirement Plan (as Amended and Restated Effective January 1, 2009) (incorporated herein by reference to Exhibit 10.01-c to Registrant’s Form 8-K dated December 16, 2008)* | |
|
10-e
|
Nordson Corporation Excess Defined Benefit Pension Plan (incorporated herein by reference to Exhibit 10-d to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2009)* | |
|
10-e-1
|
Second Amendment to Nordson Corporation Excess Defined Benefit Pension Plan (incorporated herein by reference to Exhibit 10-e-1 to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2006)* | |
|
10-e-2
|
Nordson Corporation 2005 Excess Defined Benefit Pension Plan* | |
|
10-e-3
|
Nordson Corporation 2005 Excess Defined Benefit Pension Plan (as Amended and Restated Effective January 1, 2009) (incorporated herein by reference to Exhibit 10.01-b to Registrant’s Form 8-K dated December 16, 2008)* | |
|
10-f
|
Employment Agreement between the Registrant and Edward P. Campbell* |
78
Table of Contents
Index to
Exhibits —
Continued
|
Exhibit
|
||
| Number |
Description
|
|
|
10-g
|
Nordson Corporation 1993 Long-Term Performance Plan, as amended March 12, 1998 Agreement (incorporated herein by reference to Exhibit 10-g to Registrant’s Annual Report on Form 10-K for the year ended October 31, 2008)* | |
|
10-g-1
|
Amended and Restated Nordson Corporation 2004 Long-Term Performance Plan (incorporated herein by reference to Exhibit 10.2 to Registrant’s Form 8-K dated February 25, 2008)* | |
|
10-h
|
Nordson Corporation Assurance Trust Agreement* | |
|
10-h-1
|
Employment Agreement (Change in Control) between the Registrant and Edward P. Campbell* | |
|
10-h-2
|
Amended Employment Agreement (Change in Control) between the Registrant and Edward P. Campbell (incorporated herein by reference to Exhibit 10.3 to Registrant’s Form 8-K dated December 16, 2008)* | |
|
10-h-3
|
Supplemental Pension and Severance Benefits Arrangement with Edward P. Campbell between the Registrant and Edward P. Campbell (incorporated herein by reference to Exhibit 10.4 to Registrant’s Form 8-K dated December 16, 2008)* | |
|
10-h-4
|
Form of Change in Control Retention Agreement between the Registrant and Executive Officers (incorporated herein by reference to Exhibit 10.2 to Registrant’s Form 8-K dated December 16, 2008)* | |
|
10-i
|
Compensation Committee Rules of the Nordson Corporation 2004 Long Term Performance Plan governing directors’ deferred compensation* | |
|
10-j
|
Compensation Committee Rules of the Nordson Corporation Amended and Restated Nordson Corporation 2004 Long Term Performance Plan governing directors’ deferred compensation* | |
|
10-l
|
Stock Purchase Agreement between John Greasley, Nordson Corporation and Dage Holdings Limited (incorporated herein by reference to Exhibit 99.3(b) to Registrant’s Form 8-K dated December 19, 2006) | |
|
10-m
|
Employment Agreement between Registrant and Michael F. Hilton (incorporated herein by reference to Exhibit 99.3 to Registrant’s Form 8-K dated December 21, 2009)* | |
|
10-n
|
Employment Agreement (Change in Control Retention Agreement) between Registrant and Michael F. Hilton (incorporated herein by reference to Exhibit 99.4 to Registrant’s Form 8-K dated December 21, 2009)* | |
|
10-o
|
Supplemental Retirement Agreement between the Registrant and Michael F. Hilton* | |
|
(21)
|
Subsidiaries of the Registrant | |
|
(23)
|
Consent of Independent Registered Public Accounting Firm | |
|
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 CEO 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 CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
|
99-a
|
Form S-8 Undertakings (Nos. 33-18309 and 33-33481) | |
|
101
|
The following financial information from Nordson Corporation’s Annual Report on Form 10-K for the year ended October 31, 2010, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income for the years ended October 31, 2010, 2009 and 2008, (ii) the Consolidated Balance Sheets at October 31, 2010 and 2009, (iii) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended October 31, 2010, 2009 and 2008, (iv) the Consolidated Statements of Cash Flows for the years ended October 31, 2010, 2009 and 2008, and (iv) Notes to Consolidated Financial Statements (tagged as blocks of text). |
*Indicates management contract or compensatory plan, contract or
arrangement in which one or more directors and/or executive
officers of Nordson Corporation may be participants.
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TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Removed and ReservedPart IIItem 5. Market For The Company S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 Significant Accounting PoliciesNote 2 Recently Issued Accounting StandardsNote 3 Retirement, Pension and Other Postretirement PlansPart D SubsidyNote 4 Income TaxesNote 5 Details Of Balance SheetNote 6 LeasesNote 7 Notes PayableNote 8 Long-term DebtNote 9 Financial InstrumentsNote 10 Capital SharesNote 11 Stock-based CompensationNote 12 Severance and Restructuring CostsNote 13 AcquisitionsNote 14 DivestitureNote 15 Supplemental Information For The Statement Of Cash FlowsNote 16 Operating Segments and Geographic Area DataNote 17 Goodwill and Intangible AssetsNote 18 Fair Value MeasurementsNote 19 Quarterly Financial Data (unaudited)Note 20 ContingenciesNote 21 Subsequent EventsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedule