NORDSON CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated Statements of Income Three Months Ended (In thousands, except for per share data) January 31, 2023 January 31, 2022 Sales $ 610,477 $ 609,166 Operating costs and expenses: Cost of sales 281,610 269,032 Selling and administrative expenses 184,648 184,274 466,258 453,306 Operating profit 144,219 155,860 Other income (expense): Interest expense ( 10,530 ) ( 5,650 ) Interest and investment income 587 465 Other - net ( 3,196 ) 1,292 ( 13,139 ) ( 3,893 ) Income before income taxes 131,080 151,967 Income taxes 26,819 31,558 Net income $ 104,261 $ 120,409 Average common shares 57,170 58,152 Incremental common shares attributable to equity compensation 592 667 Average common shares and common share equivalents 57,762 58,819 Basic earnings per share $ 1.82 $ 2.07 Diluted earnings per share $ 1.81 $ 2.05 See accompanying notes. Page 3 Table of Contents Nordson Corporation Consolidated Statements of Comprehensive Income Three Months Ended (In thousands) January 31, 2023 January 31, 2022 Net income $ 104,261 $ 120,409 Components of other comprehensive income (loss): Foreign currency translation adjustments 76,821 ( 13,358 ) Pension and other postretirement plan adjustments, net of tax ( 576 ) 3,060 Total other comprehensive income (loss) 76,245 ( 10,298 ) Total comprehensive income $ 180,506 $ 110,111 See accompanying notes. Page 4 Table of Contents Nordson Corporation Consolidated Balance Sheets (In thousands) Assets Current assets: January 31, 2023 October 31, 2022 Cash and cash equivalents $ 121,994 $ 163,457 Receivables - net 546,649 537,313 Inventories - net 447,727 383,398 Prepaid expenses and other current assets 62,046 48,803 Total current assets 1,178,416 1,132,971 Goodwill 2,107,113 1,804,693 Intangible assets - net 377,835 329,402 Property, plant and equipment - net 361,447 353,442 Operating right of use lease assets 111,375 102,279 Deferred income taxes 11,994 10,447 Other assets 89,243 87,141 Total assets $ 4,237,423 $ 3,820,375 Liabilities and shareholders' equity Current liabilities: Current maturities of long-term debt and notes payable $ 420,947 $ 392,537 Accrued liabilities 156,864 206,828 Accounts payable 90,602 99,276 Customer advanced payments 97,683 92,584 Income taxes payable 37,161 22,333 Operating lease liability - current 17,319 15,738 Finance lease liability - current 4,885 4,907 Total current liabilities 825,461 834,203 Long-term debt 595,166 345,320 Operating lease liability - noncurrent 97,179 90,768 Deferred income taxes 121,152 110,781 Postretirement obligations 56,953 56,804 Pension obligations 45,114 40,551 Finance lease liability - noncurrent 11,070 11,184 Other long-term liabilities 38,643 36,389 Shareholders' equity: Common shares 12,253 12,253 Capital in excess of stated value 640,800 626,697 Retained earnings 3,719,278 3,652,216 Accumulated other comprehensive loss ( 131,537 ) ( 207,782 ) Common shares in treasury, at cost ( 1,794,109 ) ( 1,789,009 ) Total shareholders' equity 2,446,685 2,294,375 Total liabilities and shareholders' equity $ 4,237,423 $ 3,820,375 See accompanying notes. Page 5 Table of Contents Nordson Corporation Consolidated Statements of Shareholders’ Equity Three Months Ended January 31, 2023 (In thousands, except for share and per share data) Common Shares Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Common Shares in Treasury, at cost TOTAL November 1, 2022 $ 12,253 $ 626,697 $ 3,652,216 $ ( 207,782 ) $ ( 1,789,009 ) $ 2,294,375 Shares issued under company stock and employee benefit plans — 7,032 — — 1,775 8,807 Stock-based compensation — 7,071 — — — 7,071 Purchase of treasury shares — — — — ( 6,875 ) ( 6,875 ) Dividends declared ($ 0.65 per share) — — ( 37,199 ) — — ( 37,199 ) Net income — — 104,261 — — 104,261 Other Comprehensive Income (Loss): Foreign currency translation adjustments — — — 76,821 — 76,821 Defined benefit pension and post-retirement plan adjustments — — — ( 576 ) — ( 576 ) January 31, 2023 $ 12,253 $ 640,800 $ 3,719,278 $ ( 131,537 ) $ ( 1,794,109 ) $ 2,446,685 Three Months Ended January 31, 2022 (In thousands, except for share and per share data) Common Shares Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Common Shares in Treasury, at cost TOTAL November 1, 2021 $ 12,253 $ 585,334 $ 3,265,027 $ ( 175,835 ) $ ( 1,527,649 ) $ 2,159,130 Shares issued under company stock and employee benefit plans — 5,046 — — 675 5,721 Stock-based compensation — 8,392 — — — 8,392 Purchase of treasury shares — — — — ( 35,002 ) ( 35,002 ) Dividends declared ($ 0.51 per share) — — ( 29,724 ) — — ( 29,724 ) Net income — — 120,409 — — 120,409 Other Comprehensive Income (Loss): Foreign currency translation adjustments — — — ( 13,358 ) — ( 13,358 ) Defined benefit pension and post-retirement plan adjustments — — — 3,060 — 3,060 January 31, 2022 $ 12,253 $ 598,772 $ 3,355,712 $ ( 186,133 ) $ ( 1,561,976 ) $ 2,218,628 See accompanying notes. Page 6 Table of Contents Nordson Corporation Condensed Consolidated Statements of Cash Flows (In thousands) Three Months Ended Cash flows from operating activities: January 31, 2023 January 31, 2022 Net income $ 104,261 $ 120,409 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26,434 25,390 Non-cash stock compensation 6,239 8,392 Deferred income taxes ( 278 ) 1,785 Other non-cash expense 253 653 Loss on sale of property, plant and equipment 10 193 Changes in operating assets and liabilities ( 58,371 ) ( 29,217 ) Other 44,789 ( 9,518 ) Net cash provided by operating activities 123,337 118,087 Cash flows from investing activities: Additions to property, plant and equipment ( 9,302 ) ( 12,491 ) Proceeds from sale of property, plant and equipment 9 7 Acquisition of business, net of cash acquired ( 377,843 ) ( 171,613 ) Net cash used in investing activities ( 387,136 ) ( 184,097 ) Cash flows from financing activities: Proceeds from long-term debt 566,978 361 Repayment of long-term debt ( 314,700 ) ( 1,618 ) Repayment of finance lease obligations ( 1,318 ) ( 1,640 ) Issuance of common shares 8,807 5,721 Purchase of treasury shares ( 6,875 ) ( 35,002 ) Dividends paid ( 37,199 ) ( 29,724 ) Net cash provided by (used in) financing activities 215,693 ( 61,902 ) Effect of exchange rate changes on cash 6,643 ( 1,521 ) Decrease in cash and cash equivalents ( 41,463 ) ( 129,433 ) Cash and cash equivalents at beginning of period 163,457 299,972 Cash and cash equivalents at end of period $ 121,994 $ 170,539 See accompanying notes. Page 7 Table of Contents Nordson Corporation Notes to Condensed Consolidated Financial Statements January 31, 2023 NOTE REGARDING AMOUNTS AND FISCAL YEAR REFERENCES In this quarterly report, all amounts related to United States dollars and foreign currency and to the number of Nordson Corporation’s common shares, except for per share earnings and dividend amounts, are expressed in thousands. Unless the context otherwise indicates, all references to “we” or the “Company” mean Nordson Corporation. Unless otherwise noted, all references to years relate to our fiscal year ending October 31. Significant accounting policies Basis of presentation . The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States (U.S. GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended January 31, 2023 are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the Consolidated Financial Statements and notes included in our Annual Report on Form 10-K for the year ended October 31, 2022. Consolidation . The Condensed Consolidated Financial Statements include the accounts of Nordson Corporation and its 100%-owned and controlled subsidiaries. Investments in affiliates and joint ventures in which our ownership is 50 % or less or in which we do not have control but have the ability to exercise significant influence, are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of estimates . The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. Actual amounts could differ from these estimates. Revenue recognition . A contract exists when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. Revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied. Generally, our revenue results from short-term, fixed-price contracts and primarily is recognized as of a point in time when the product is shipped or at a later point when the control of the product transfers to the customer. Revenue for undelivered items is deferred and included within Accrued liabilities in our Consolidated Balance Sheets. Revenues deferred as of January 31, 2023 and 2022 were not material. However, for certain contracts related to the sale of customer-specific products within our Medical and Fluid Solutions segment, revenue is recognized over time as we satisfy performance obligations because of the continuous transfer of control to the customer. The continuous transfer of control to the customer occurs as we enhance assets that are customer controlled and we are contractually entitled to payment for work performed to date plus a reasonable margin. As control transfers over time, revenue is recognized based on progress toward completion of the performance obligations. The selection method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We have elected to use the input method – costs incurred for these contracts because it best depicts the transfer of products or services to the customer based on incurring costs on the contract. Under this method, revenues are recorded proportionally as costs are incurred. Contract assets recognized are recorded in Prepaid expenses and other current assets and contract liabilities are recorded in Accrued liabilities in our Consolidated Balance Sheets and were not material on January 31, 2023 and October 31, 2022. Revenue recognized over time represented approximately less than ten percent of our overall consolidated revenues at January 31, 2023 and October 31, 2022. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Taxes, including sales and value add, that we collect concurrently with revenue-producing activities are excluded from revenue. As a practical expedient, we may exclude the assessment of whether goods or services are performance obligations, if they are immaterial in the context of the contract, and combine these with other performance obligations. While payment terms and conditions vary by contract type, we have determined that our contracts generally do not include a significant financing component. We have elected to apply the practical expedient to treat all shipping and handling costs as fulfillment costs as a significant portion of these costs are incurred prior to transfer of control to the customer. We have also elected to apply the practical expedient to expense sales commissions as they are incurred as the amortization period resulting from capitalizing the Page 8 Table of Contents Nordson Corporation costs is one year or less. These costs are recorded within Selling and administrative expenses in our Condensed Consolidated Statements of Income. We offer assurance-type warranties on our products as well as separately sold warranty contracts. Revenue related to warranty contracts that are sold separately is recognized over the life of the warranty term and are not material. Certain arrangements may include installation, installation supervision, training, and spare parts, which tend to be completed in a short period of time, at an insignificant cost, and utilizing skills not unique to us, and, therefore, these items are typically regarded as inconsequential or not material. We disclose disaggregated revenues by operating segment and geography in accordance with the revenue standard and on the same basis used internally by the chief operating decision maker for evaluating performance of operating segments and for allocating resources. Refer to our Operating segments Note for details. Earnings per share . Basic earnings per share are computed based on the weighted-average number of common shares outstanding during each year, while diluted earnings per share are based on the weighted-average number of common shares and common share equivalents outstanding. Common share equivalents consist of shares issuable upon exercise of stock options computed using the treasury stock method, as well as restricted shares and deferred stock-based compensation. Options 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. Options excluded from the calculation of diluted earnings per share for the three months ended January 31, 2023 and 2022 were 144 and 83 , respectively. Recently issued accounting standards There have been no new accounting standards issued which would require either disclosure or adoption during the current period. Acquisitions Business acquisitions have been accounted for using the acquisition method, with the acquired assets and liabilities recorded at estimated fair value on the dates of acquisition. The cost in excess of the net assets of the business acquired is included in goodwill. Operating results since the respective dates of acquisitions are included in the Condensed Consolidated Statements of Income. 2023 Acquisition On November 3, 2022 we acquired 100 % of CyberOptics Corporation (CyberOptics). CyberOptics is a leading global developer and manufacturer of high-precision 3D optical sensing technology solutions. The CyberOptics acquisition expanded our test and inspection platform, providing differentiated technology that expands our product offering in the semiconductor and electronics industries and is reported in our Advanced Technology Solutions segment. We acquired CyberOptics for an aggregate purchase price of $ 377,843 , net of cash of approximately $ 40,890 , funded using borrowing under our revolving credit facility and cash on hand. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $ 279,630 and identifiable intangible assets of $ 58,600 were recorded. The identifiable intangible assets consist primarily of $ 15,200 of tradenames (amortized over fifteen years ), $ 14,600 of technology (amortized over seven years ), and $ 28,800 of customer contracts (amortized over twelve years ). T he results of CyberOptics are not material to our Consolidated Financial Statements. As of January 31, 2023, t he purchase price allocation remains preliminary as we complete our assessment of intangibles and income taxes. The assets and liabilities acquired were as follows: November 3, 2022 Cash $ 40,890 Receivables - net 21,364 Inventories - net 35,300 Goodwill 279,630 Intangibles 58,600 Other assets 14,046 Total Assets $ 449,830 Accounts payable $ 8,109 Deferred income taxes 14,294 Other liabilities 8,694 Total Liabilities $ 31,097 Page 9 Table of Contents Nordson Corporation 2022 Acquisition On November 1, 2021, we acquired 100 % of NDC Technologies (NDC), a leading global provider of precision measurement solutions for in-line manufacturing process control. NDC's technology portfolio includes in-line measurement sensors, gauges and analyzers using near-infrared, laser, X-ray, optical and nucleonic technologies, as well as proprietary algorithms and software. We acquired NDC for an aggregate purchase price of $ 171,613 , net of cash of approximately $ 7,533 and other working capital adjustments of $ 2,763 , utilizing cash on hand. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $ 131,129 and identifiable intangible assets of $ 31,130 were recorded. The identifiable intangible assets consist primarily of $ 10,800 of tradenames (amortized over thirteen years ), $ 10,000 of technology (amortized over seven years ), $ 9,500 of customer relationships (amortized over four years ) and $ 830 of non-compete agreements (amortized over three years ). Goodwill associated with this acquisition of $ 72,018 is tax deductible. This acquisition is being reported in our Industrial Precision Solutions segment and the results of NDC are not material to our Consolidated Financial Statements. Receivables Our allowance for credit losses is principally determined based on aging of receivables. Receivables are exposed to credit risk based on the customers' ability to pay which is influenced by, among other factors, their financial liquidity. We perform ongoing customer credit evaluation to maintain sufficient allowances for potential credit losses. Our segments perform credit evaluation and monitoring to estimate and manage credit risk through the review of customer information, credit ratings, approval and monitoring of customer credit limits, and assessment of market conditions. We may also require prepayments or bank guarantees from customers to mitigate credit risk. Our receivables are generally short-term in nature with a majority of receivables outstanding less than 90 days. Accounts receivable balances are written-off against the allowance if deemed uncollectible. Accounts receivable are net of an allowance for credit losses of $ 9,148 and $ 8,218 on January 31, 2023 and October 31, 2022, respectively. The provision for losses on receivables was $ 348 and $ 471 for the three months ended January 31, 2023 and 2022, respectively. The remaining change in the allowance for credit losses is principally related to net write-off/recoveries of uncollectible accounts as well as currency translation. Inventories Components of inventories were as follows: January 31, 2023 October 31, 2022 Finished goods $ 256,243 $ 218,491 Raw materials and component parts 191,185 157,447 Work-in-process 57,917 53,195 505,345 429,133 Obsolescence and other reserves ( 57,618 ) ( 45,735 ) $ 447,727 $ 383,398 See Acquisitions Note for inventory increase attributable to acquisition of CyberOptics. Property, Plant and Equipment Components of property, plant and equipment were as follows: January 31, 2023 October 31, 2022 Land $ 9,780 $ 9,278 Land improvements 5,029 4,979 Buildings 284,065 271,450 Machinery and equipment 522,574 505,343 Enterprise management system 52,564 52,513 Construction-in-progress 28,774 31,466 Leased property under finance leases 28,221 27,512 931,007 902,541 Accumulated depreciation and amortization ( 569,560 ) ( 549,099 ) $ 361,447 $ 353,442 Depreciation expense was $ 12,562 and $ 12,305 for the three months ended January 31, 2023 and 2022, respectively. Page 10 Table of Contents Nordson Corporation Goodwill and other intangible assets Changes in the carrying amount of goodwill for th e three months ended January 31, 2023 by operating segment were as follows: Industrial Precision Solutions Medical Fluid Systems Advanced Technology Solutions Total Balance at October 31, 2022 $ 520,236 $ 1,172,069 $ 112,388 $ 1,804,693 Acquisitions — — 279,630 279,630 Currency effect 15,734 3,751 3,305 22,790 Balance at January 31, 2023 $ 535,970 $ 1,175,820 $ 395,323 $ 2,107,113 The increase in goodwill for the three months ended January 31, 2023 was due to the acquisition of CyberOptics. See Acquisitions Note for additional details. Information regarding our intangible assets subject to amortization was as follows: January 31, 2023 Carrying Amount Accumulated Amortization Net Book Value Customer relationships $ 516,035 $ 264,296 $ 251,739 Patent/technology costs 175,436 102,181 73,255 Trade name 99,141 47,151 51,990 Non-compete agreements 10,516 9,665 851 Other 157 157 — Total $ 801,285 $ 423,450 $ 377,835 October 31, 2022 Carrying Amount Accumulated Amortization Net Book Value Customer relationships $ 480,058 $ 250,798 $ 229,260 Patent/technology costs 157,549 96,426 61,123 Trade name 82,759 44,707 38,052 Non-compete agreements 10,253 9,290 963 Other 446 442 4 Total $ 731,065 $ 401,663 $ 329,402 Amortization expense for the three months ended January 31, 2023 and 2022 was $ 13,872 and $ 13,085 , respectively. See Acquisitions Note for details regarding intangibles recorded due to the acquisition of CyberOptics. Pension and other postretirement plans The components of net periodic pension and other postretirement cost for the three months ended January 31, 2023 and 2022 were: U.S. International Three Months Ended 2023 2022 2023 2022 Service cost $ 2,744 $ 5,187 $ 275 $ 489 Interest cost 4,175 3,583 603 298 Expected return on plan assets ( 6,529 ) ( 7,878 ) ( 377 ) ( 393 ) Amortization of prior service cost (credit) — 12 ( 13 ) ( 18 ) Amortization of net actuarial loss — 2,766 20 607 Total benefit cost $ 390 $ 3,670 $ 508 $ 983 Page 11 Table of Contents Nordson Corporation The components of other postretirement benefit costs for the three months ended January 31, 2023 and 2022 were: U.S. International Three Months Ended 2023 2022 2023 2022 Service cost $ 100 $ 195 $ 1 $ 3 Interest cost 765 488 3 3 Amortization of net actuarial (gain) loss — 263 ( 16 ) ( 12 ) Total benefit cost (income) $ 865 $ 946 $ ( 12 ) $ ( 6 ) The components of net periodic pension and other postretirement cost other than service cost are included in Other – net in our Condensed Consolidated Statements of Income. Income taxes We record our interim provision for income taxes based on our estimated annual effective tax rate, as well as certain items discrete to the current period. The effective tax rate for the three months ended January 31, 2023 and 2022 was 20.5 % and 20.8 %, respectively. Due to our share-based payment transactions, our income tax provision included a discrete tax benefit of $ 1,166 and $ 1,115 , for the three months ended January 31, 2023 and 2022, respectively. Accumulated other comprehensive loss The components of accumulated other comprehensive income (loss), including adjustments for items that are reclassified from accumulated other comprehensive loss to net income, are shown below. Cumulative translation adjustments Pension and postretirement benefit plan adjustments Accumulated other comprehensive income (loss) Balance at October 31, 2022 $ ( 160,046 ) $ ( 47,736 ) $ ( 207,782 ) Pension and other postretirement plan adjustments, net of tax of ($ 195 ) — ( 576 ) ( 576 ) Foreign currency translation adjustments 76,821 — 76,821 Balance at January 31, 2023 $ ( 83,225 ) $ ( 48,312 ) $ ( 131,537 ) Stock-based compensation During the 2021 Annual Meeting of Shareholders, our shareholders approved the Nordson Corporation 2021 Stock Incentive and Award Plan (the "2021 Plan") as the successor to the Amended and Restated 2012 Stock Incentive and Award Plan (the "2012 Plan"). The 2021 Plan provides for the granting of stock options, stock appreciation rights, restricted shares, restricted share units, performance shares, cash awards and other stock or performance-based incentives. A maximum of 900 common shares were authorized for grant under the 2021 Plan plus the number of shares that remained available to be granted under the 2012 Plan and additional shares registered related to the acquisition of CyberOptics. As of January 31, 2023, a total of 2,005 common shares were available to be granted under the 2021 Plan. Stock Options Nonqualified or incentive stock options may be granted to our employees and directors. Generally, options granted to employees may be exercised beginning one year from the date of grant at a rate not exceeding 25 % per year and expire 10 years from the date of grant. Vesting accelerates upon a qualified termination in connection with a change in control. In the event of termination of employment due to early retirement or normal retirement at age 65 , options granted within 12 months prior to termination are forfeited, and vesting continues post retirement for all other unvested options granted. In the event of disability or death, all unvested stock options granted within 12 months prior to termination fully vest. Termination for any other reason results in forfeiture of unvested options and vested options in certain circumstances. The amortized cost of options is accelerated if the retirement eligibility date occurs before the normal vesting date. Option exercises are satisfied through the issuance of treasury shares on a first-in, first-out basis. We recognized compensation expense related to stock options of $ 1,663 and $ 1,772 for the three months ended January 31, 2023 and 2022, respectively. Page 12 Table of Contents Nordson Corporation The following table summarizes activity related to stock options for the three months ended January 31, 2023: Number of Options Weighted- Average Exercise Price Per Share Aggregate Intrinsic Value Weighted Average Remaining Term Outstanding at October 31, 2022 1,187 $ 141.82 Granted 78 240.01 Exercised ( 73 ) 122.96 Forfeited or expired ( 2 ) 132.92 Outstanding at January 31, 2023 1,190 $ 148.33 $ 114,851 5.4 years Expected to vest 257 $ 213.45 $ 9,021 7.9 years Exercisable at January 31, 2023 930 $ 130.05 $ 105,762 4.7 years As of January 31, 2023, there was $ 10,669 of total unrecognized compensation cost related to unvested stock options. That cost is expected to be amortized over a weighted average period of approximately 1.9 years. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: Three Months Ended January 31, 2023 January 31, 2022 Expected volatility 30.4 % - 31.8 % 30.6 % - 30.8 % Expected dividend yield 1.12 % - 1.12 % 0.76 % - 0.76 % Risk-free interest rate 3.79 % - 3.82 % 1.36 % - 1.47 % Expected life of the option (in years) 5.0 - 6.1 5.3 - 6.2 The weighted-average expected volatility used to value the 2023 and 2022 options was 30.6 % and 30.6 %, respectively. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. The weighted average grant date fair value of stock options granted during the three months ended January 31, 2023 and 2022 was $ 78.12 and $ 79.03 , respectively. The total intrinsic value of options exercised during the three months ended January 31, 2023 and 2022 was $ 8,350 and $ 6,961 , respectively. Cash received from the exercise of stock options for the three months ended January 31, 2023 and 2022 was $ 8,807 and $ 5,721 , respectively. Restricted Shares and Restricted Share Units We may grant restricted shares and/or restricted share units to our employees and directors. These shares or units may not be transferred for a designated period of time (generally one to three years ) defined at the date of grant. We may also grant continuation awards in the form of restricted share units with cliff vesting and a performance measure that must be achieved for the restricted share units to vest. For employee recipients, in the event of termination of employment due to early retirement, with the consent of the Company, restricted shares and units granted within 12 months prior to termination are forfeited, and other restricted shares and units vest on a pro-rata basis, subject to the consent of the Compensation Committee. In the event of termination of employment due to normal retirement at age 65 , restricted shares and units granted within 12 months prior to termination are forfeited, and, for other restricted shares and units, the restriction period applicable to restricted shares will lapse and the shares will vest and be transferable and all unvested units will become vested in full, subject to the consent of the Compensation Committee. In the event of a recipient's disability or death, all restricted shares and units granted within 12 months prior to termination fully vest. Termination for any other reason prior to the lapse of any restrictions or vesting of units results in forfeiture of the shares or units. For non-employee directors, all restrictions lapse in the event of disability or death of the non-employee director. Termination of service as a director for any other reason within one year of date of grant results in a pro-rata vesting of shares or units. As shares or units are issued, deferred stock-based compensation equivalent to the fair value on the date of grant is expensed over the vesting period. Page 13 Table of Contents Nordson Corporation The following table summarizes activity related to restricted shares during the three months ended January 31, 2023: Number of Shares Weighted-Average Grant Date Fair Value Restricted shares at October 31, 2022 6 $ 167.99 Vested ( 3 ) 165.21 Restricted shares at January 31, 2023 3 $ 170.56 As of January 31, 2023, there was $ 173 of unrecognized compensation cost related to restricted shares. The cost is expected to be amortized over a weighted average period of 0.5 years. The amount charged to expense related to restricted shares during the three months ended January 31, 2023 and 2022 was $ 160 and $ 314 , respectively, which included common share dividends of $ 2 and $ 5 , respectively. The following table summarizes activity related to restricted share units during the three months ended January 31, 2023: Number of Units Weighted-Average Grant Date Fair Value Restricted share units at October 31, 2022 81 $ 223.77 Granted 36 237.68 Forfeited ( 2 ) 242.02 Vested ( 42 ) 218.85 Restricted share units at January 31, 2023 73 $ 233.00 As of January 31, 2023, there was $ 14,661 of remaining expense to be recognized related to outstanding restricted share units, which is expected to be recognized over a weighted average period of 2.1 years. The amount charged to expense related to restricted share units during each of the three months ended January 31, 2023 and 2022 was $ 2,258 and $ 2,273 . Performance Share Incentive Awards Executive officers and selected other key employees are eligible to receive common share-based incentive awards. Payouts, in the form of unrestricted common shares, vary based on the degree to which corporate financial performance exceeds predetermined threshold, target and maximum performance goals over three-year performance periods. No payout will occur unless threshold performance is achieved. The amount of compensation expense is based upon current performance projections and the percentage of the requisite service that has been rendered. The calculations are based upon the grant date fair value, which is principally driven by the stock price on the date of grant or a Monte Carlo valuation for awards with market conditions. The per share values were $ 231.34 in 2023, and $ 260.60 , $ 273.50 , and $ 221.94 for 2022. The amount charged to expense related to performance awards for the three months ended January 31, 2023 and 2022 was $ 2,062 and $ 3,944 , respectively. The cumulative amount recorded in shareholders' equity at January 31, 2023 and 2022 was $ 10,603 and $ 10,959 , respectively. As of January 31, 2023, there was $ 12,980 of unrecognized compensation cost related to performance share incentive awards. Deferred Compensation Our executive officers and other highly compensated employees may elect to defer up to 100 % of their base pay and cash incentive compensation, and for executive officers, up to 90 % of their share-based performance incentive payout each year. Additional share units are credited for quarterly dividends paid on our common shares. Expense related to dividends paid under this plan for the three months ended January 31, 2023 and 2022 was $ 18 and $ 18 , respectively. Deferred Directors' Compensation Non-employee directors may defer all or part of their cash and equity-based compensation until retirement. Cash compensation may be deferred as cash or as share equivalent units. Deferred cash amounts are recorded as liabilities, and share equivalent units are recorded as equity. Additional share equivalent units are earned when common share dividends are declared. Page 14 Table of Contents Nordson Corporation The following table summarizes activity related to director deferred compensation share equivalent units during the three months ended January 31, 2023: Number of Shares Weighted-Average Grant Date Fair Value Outstanding at October 31, 2022 90 $ 77.70 Distributions ( 4 ) 50.88 Outstanding at January 31, 2023 86 $ 79.73 The amount charged to expense related to director deferred compensation for the three months ended January 31, 2023 and 2022 was $ 80 and $ 76 , respectively . Warranties We offer warranties to our customers depending on the specific product and terms of the customer purchase agreement. A typical warranty program requires that we repair or replace defective products within a specified time period (generally one year ) from the date of delivery or first use. We record an estimate for future warranty-related costs based on actual historical return rates. Based on analysis of return rates and other factors, the adequacy of our warranty provisions are adjusted as necessary. The liability for warranty costs is included in Accrued liabilities in the Consolidated Balance Sheets. Following is a reconciliation of the product warranty liability for the three months ended January 31, 2023 and 2022: January 31, 2023 January 31, 2022 Beginning balance at October 31 $ 11,723 $ 11,113 Accruals for warranties 4,809 3,865 Warranty payments ( 3,186 ) ( 3,051 ) Currency effect 215 ( 10 ) Ending balance $ 13,561 $ 11,917 Operating segments We conduct business in three p rimary operating segments: Industrial Precision Solutions, Medical and Fluid Solutions, and Advanced Technology Solutions. The composition of segments and measure of segment profitability is consistent with that used by our chief operating decision maker. The primary measure used by the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing performance is operating profit, which equals sales less cost of sales and certain operating expenses. Items below the operating profit line of the Condensed Consolidated Statements of Income (interest and investment income, interest expense and other income/expense) are excluded from the measure of segment profitability reviewed by our chief operating decision maker and are not presented by operating segment. The accounting policies of the segments are the same as those described in the Significant accounting policies Note. Industrial Precision Solutions: This segment focuses on delivering proprietary dispensing and processing technology, both standard and highly customized equipment, to diverse end markets. Product lines commonly reduce material consumption, increase line efficiency through precision dispense and measurement and control, and enhance product brand and appearance. Components are used for dispensing adhesives, coatings, paint, finishes, sealants and other materials. This segment primarily serves the industrial, consumer durables and non-durables markets. Medical and Fluid Solutions: This segment includes the Company’s fluid management solutions for medical, high-tech industrial and other diverse end markets. Related plastic tubing, balloons, catheters, syringes, cartridges, tips and fluid connection components are used to dispense or control fluids within customers’ medical devices or products, as well as production processes. Advanced Technology Solutions: This segment focuses on products serving electronics end markets. Advanced Technology Solutions products integrate our proprietary product technologies found in progressive stages of an electronics customer’s production processes, such as surface treatment, precisely controlled dispensing of material and test and inspection to ensure quality and reliability. Applications include, but are not limited to, semiconductors, printed circuit boards, electronic components and automotive electronics. Page 15 Table of Contents Nordson Corporation The following table presents information about our segments: Three Months Ended Industrial Precision Solutions Medical and Fluid Solutions Advanced Technology Solutions Corporate Total January 31, 2023 Net external sales $ 311,546 $ 154,287 $ 144,644 $ — $ 610,477 Operating profit (loss) 102,319 39,384 16,963 ( 14,447 ) 144,219 January 31, 2022 Net external sales $ 323,933 $ 158,784 $ 126,449 $ — $ 609,166 Operating profit (loss) 102,187 49,093 27,234 ( 22,654 ) 155,860 We had significant sales in the following geographic regions: Three Months Ended January 31, 2023 January 31, 2022 Americas $ 264,878 $ 239,901 Europe 162,939 155,985 Asia Pacific 182,660 213,280 Total net external sales $ 610,477 $ 609,166 Fair value measurements The inputs to the valuation techniques used to measure fair value are classified into the following categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. The following tables present the classification of our assets and liabilities measured at fair value on a recurring basis: January 31, 2023 Total Level 1 Level 2 Level 3 Assets: Foreign currency forward contracts (a) $ 12,851 $ — $ 12,851 $ — Total assets at fair value $ 12,851 $ — $ 12,851 $ — Liabilities: Deferred compensation plans (b) $ 11,118 $ — $ 11,118 $ — Foreign currency forward contracts (a) 3,401 — 3,401 — Total liabilities at fair value $ 14,519 $ — $ 14,519 $ — October 31, 2022 Total Level 1 Level 2 Level 3 Assets: Foreign currency forward contracts (a) $ 5,035 $ — $ 5,035 $ — Total assets at fair value $ 5,035 $ — $ 5,035 $ — Liabilities: Deferred compensation plans (b) $ 9,076 $ — $ 9,076 $ — Foreign currency forward contracts (a) 11,724 — 11,724 — Total liabilities at fair value $ 20,800 $ — $ 20,800 $ — (a) We enter into foreign currency forward contracts to reduce the risk of foreign currency exposures resulting from receivables, payables, intercompany receivables, intercompany payables and loans denominated in foreign currencies. Foreign exchange contracts are valued using market exchange rates. These foreign exchange contracts are not designated as hedges. Page 16 Table of Contents Nordson Corporation (b) Executive officers and other highly compensated employees may defer up to 100 % of their salary and annual cash incentive compensation and for executive officers, up to 90 % of their long-term incentive compensation, into various non-qualified deferred compensation plans. Deferrals can be allocated to various market performance measurement funds. Changes in the value of compensation deferred under these plans are recognized each period based on the fair value of the underlying measurement funds. The carrying amounts and fair values of financial instruments, other than cash and cash equivalents, receivables, and accounts payable, are shown in the table below. The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term nature of these instruments. January 31, 2023 Carrying Amount Fair Value Long-term debt (including current portion) $ 1,016,113 $ 1,003,337 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. The carrying amount of long-term debt is shown net of unamortized debt issuance costs as disclosed in the Long-term Debt Note. Derivative financial instruments We operate internationally and enter into intercompany transactions denominated in foreign currencies. Consequently, we are subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. We regularly use foreign currency forward contracts to reduce our risks related to most of these transactions. These contracts usually have maturities of 90 days or less and generally require us to exchange foreign currencies for U.S. dollars at maturity, at rates stated in the contracts. These contracts are not designated as hedging instruments under U.S. GAAP. Accordingly, the changes in the fair value of the foreign currency forward contracts are recognized in each accounting period in “Other – net” on the Condensed Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. For the three months ended January 31, 2023, we recognized a net gain of $ 16,139 on foreign currency forward contracts and a net loss of $ 20,710 from the change in fair value of balance sheet positions. For the three months ended January 31, 2022, we recognized a net loss of $ 3,598 on foreign currency forward contracts and a net gain of $ 3,962 from the change in fair value of balance sheet positions. The fair values of our foreign currency forward contract assets and liabilities are included in Receivable-net and Accrued liabilities, respectively, in our Consolidated Balance Sheets. The following table summarizes, by currency, the foreign currency forward contracts outstanding at January 31, 2023 and 2022: January 31, 2023 contract amounts: Notional Sell Amounts Notional Buy Amounts Euro $ 93,142 $ 398,560 British pound 27,965 112,945 Mexican Peso 11,658 31,315 Japanese yen 11,644 35,772 Hong Kong dollar 4,180 148,653 Australian dollar 375 8,821 Singapore dollar 245 18,862 Taiwan Dollar — 35,047 Others 3,395 65,175 Total $ 152,604 $ 855,150 January 31, 2022 contract amounts: Notional Sell Amounts Notional Buy Amounts Euro $ 102,132 $ 338,128 British pound 34,657 70,869 Japanese yen 12,315 40,384 Singapore dollar 1,079 18,214 Australian dollar 325 10,026 Hong Kong dollar — 49,595 Others 15,792 87,704 Total $ 166,300 $ 614,920 Page 17 Table of Contents Nordson Corporation We are exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments. These financial instruments include cash deposits and foreign currency forward contracts. We periodically monitor the credit ratings of these counterparties in order to minimize our exposure. Our customers represent a wide variety of industries and geographic regions. For the three months ended January 31, 2023 and 2022, there were no significant concentrations of credit risk. Long-term debt A summary of long-term debt is as follows: January 31, 2023 October 31, 2022 Revolving credit agreement, due 2024 $ 250,000 $ — Senior notes, due 2023-2025 55,500 55,500 Senior notes, due 2023-2027 71,429 71,429 Senior notes, due 2023-2030 350,000 350,000 Euro loan, due 2023 287,851 261,893 Notes payable and other 2,453 — 1,017,233 738,822 Less current maturities and notes payable 420,947 392,537 Less unamortized debt issuance costs 1,120 965 Long-term maturities $ 595,166 $ 345,320 Revolving credit agreement, due 2024 — In April 2019, we entered into a $ 850,000 unsecured multi-currency credit facility with a group of banks, which amended, restated and extended our then existing syndicated revolving credit agreement. This facility has a five-year term and includes a $ 75,000 subfacility for swing-line loans. It expires in April 2024. The weighted-average interest rate at January 31, 2023 was 5.07 %. Senior notes, due 2023-2025 — These unsecured fixed-rate notes entered into in 2012 with a group of insurance companies had a remaining weighted-average life of 1.21 years. The weighted-average interest rate at January 31, 2023 was 3.10 %. Senior notes, due 2023-2027 — These unsecured fixed-rate notes entered into in 2015 with a group of insurance companies had a remaining weighted-average life of 2.19 years. The weighted-average interest rate at January 31, 2023 was 3.10 %. Senior notes, due 2023-2030 — These unsecured fixed-rate notes entered into in 2018 with a group of insurance companies had a remaining weighted-average life of 2.79 years. The weighted-average interest rate at January 31, 2023 was 3.90 %. Euro loan, due 2023 — In March 2020, we amended, restated and extended the term of our existing euro term loan facility with Bank of America Merrill Lynch International Limited. The interest rate is variable based on the EURIBOR rate. The term loan agreement provides for the following term loans due in two tranches: € 115,000 is due in March 2023 and an additional € 150,000 that was drawn down in March 2020 is due in March 2023. The weighted average interest rate at January 31, 2023 was 2.12 %. Term loan, due 2024 — In January 2023, we entered into a $ 200,000 unsecured term loan facility. This facility has a 1.25 year term and expires in April 2024. At January 31, 2023, we had no balance outstanding under this facility. We were in compliance with all covenants at January 31, 2023 and the amount we could borrow would not have been limited by any debt covenants. Contingencies We are involved in pending or potential litigation regarding environmental, product liability, patent, contract, employee and other matters arising from the normal course of business. Including the environmental matters discussed below, after consultation with legal counsel, we do not believe that losses in excess of the amounts we have accrued would have a material adverse effect on our financial condition, quarterly or annual operating results or cash flows. Environmental We have voluntarily agreed with the City of New Richmond, Wisconsin and other potentially responsible parties to share costs associated with the remediation of the City of New Richmond municipal landfill (the "Site") and the construction of a potable water delivery system serving the impacted area down gradient of the Site. As of January 31, 2023 and October 31, 2022, our accrual for the ongoing operation, maintenance and monitoring obligation at th e Site was $ 266 a nd $ 266 , respectively. The liability for environmental remediation represents management’s best estimate of the probable and reasonably estimable undiscounted costs related to known remediation obligations. The accuracy of our estimate of environmental liability is affected by several uncertainties such as additional requirements that may be identified in connection with remedial activities, the Page 18 Table of Contents Nordson Corporation 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. Page 19 Table of Contents Nordson Corporation