Nordson Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended October 31, 2015; the filing also reports fourth-quarter results. Unless stated otherwise, dollar amounts below are in millions. Nordson manufactures precision dispensing, coating, testing and inspection systems. Approximately 68.6% of FY2015 sales were generated outside the United States.
Financial performance and liquidity
- Revenue: FY2015 sales were $1,688.7, down 0.9% from $1,704.0 in FY2014. Sales volume rose 5.8%—3.4% organic and 2.4% acquisitions—but unfavorable currency translation reduced sales 6.7%.
- Profit and margins: Gross margin declined to 54.1% from 55.5%; operating margin fell to 18.8% from 21.5%. Operating profit was $317.7 versus $367.1, and net income was $211.1 versus $246.8. Diluted EPS was $3.45 versus $3.84.
- Fourth quarter: Sales were $446.2 versus $468.6 in Q4 2014; net income was $49.6 versus $72.1; diluted EPS was $0.84 versus $1.13.
- Cash flow: Operating cash flow was $262.0, down from $288.2. Capital expenditures were $62.1, implying approximately $199.9 of operating cash flow less capital expenditures. Acquisitions used $75.6; treasury-share purchases used $383.9. Cash increased $8.0 to $50.3.
- Debt and liquidity: Long-term debt, including current maturities, was $1,115.5, with notes payable of $1.1; cash was $50.3. Working capital was $420.8. The $600 million revolving facility had $457.0 outstanding and $143.0 available; the company reported compliance with debt covenants. Approximately 88% of cash was held at foreign subsidiaries.
- Shareholder returns: Dividends were $0.90 per share for the year, up from $0.76. The company repurchased $383.9 of shares and reported $150.8 remaining under its expanded repurchase authorization.
Changes versus FY2014
- Revenue volume grew, but currency translation more than offset that growth. Segment sales varied: Adhesive Dispensing Systems declined 7.1%; Advanced Technology Systems rose 5.7%; Industrial Coating Systems rose 6.7%.
- Higher product/customer mix effects and currency headwinds pressured gross and operating margins. Selling and administrative expense rose to $584.8 from $575.4, while restructuring costs increased to $11.4 from $2.6.
- Interest expense increased 20.4% to $18.1, primarily reflecting borrowing for acquisitions and share repurchases. Debt rose substantially year over year.
- FY2015 included three acquisitions—Liquidyn, WAFO and MatriX—with $75.6 of net cash outflow reported for business acquisitions. Goodwill impairment testing identified no impairment.
Outlook, risks and unusual items
- Outlook: Management expressed optimism about longer-term opportunities but cautioned about the near term, citing the strong U.S. dollar, slow emerging-market growth, low expected global GDP growth and political instability. It expected operating cash flow and available borrowing capacity to support liquidity, dividends and investment; no specific 2016 revenue or earnings guidance was provided.
- Unusual items: FY2015 restructuring costs were $11.4, including $9.1 in Q4. The company recorded $1.6 of income from a favorable litigation settlement and a $1.6 pre-tax pension settlement loss in Q1. The 2015 tax provision included $2.5 of discrete benefits, primarily related to the R&D tax credit.
- Key risks: Foreign-exchange exposure and international economic/political conditions; cyclical end markets; acquisition execution and integration; product innovation and market acceptance; cybersecurity and intellectual-property risks; goodwill impairment; pension assumptions and funding; and debt, covenant, refinancing and interest-rate exposure. 67% of debt was floating-rate; management estimated a 1% rate increase would add about $7.5 of annual interest expense.
- Contingencies and controls: The New Richmond, Wisconsin environmental matter had a $0.565 accrual; management did not expect a material effect. The auditor issued unqualified opinions on the financial statements and internal controls. Internal-control assessment excluded the three recent acquisitions, representing 4% of total assets.
Investor verification priorities
- Confirm whether organic sales growth and segment demand trends persisted after FY2015, particularly amid currency headwinds.
- Review the drivers and sustainability of lower gross and operating margins, restructuring charges and Q4 earnings decline.
- Assess acquisition performance, integration, preliminary purchase-price allocations and the substantial goodwill balance.
- Evaluate debt maturities, floating-rate exposure, covenant headroom, foreign-held cash and the funding of continued buybacks and dividends.
- Check subsequent environmental or other litigation developments, pension funding requirements and the effect of implementing the new revenue-recognition standard.