Nordson Corporation — FY2011 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended October 31, 2011; the filing also reports fourth-quarter results. Nordson designs and sells precision dispensing, fluid-management, testing, inspection, coating, curing and surface-treatment equipment across three segments: Adhesive Dispensing Systems, Advanced Technology Systems and Industrial Coating Systems. Approximately 75% of FY2011 revenue came from outside the United States. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Sales | $1,233.2 | $1,041.6 |
| Gross margin | 60.7% | 59.7% |
| Operating profit / margin | $315.5 / 25.6% | $234.8 / 22.5% |
| Net income / net margin | $222.4 / 18.0% | $168.0 / 16.1% |
| Diluted EPS | $3.25 | $2.46 |
| Cash from operating activities | $246.7 | $140.2 |
| Capital expenditures | $20.2 | $14.3 |
- Sales rose 18.4%; management attributed 15.2 percentage points to volume and 3.2 points to favorable currency. Pricing was approximately neutral. Sales increased in all segments and geographic regions.
- Segment sales and operating margins: Adhesive Dispensing Systems, $611.9 and 34.4%; Advanced Technology Systems, $438.6 and 26.2%; Industrial Coating Systems, $182.6 and 14.8%. Each segment’s margin improved year over year.
- Operating cash flow rose substantially as operating assets and liabilities used less cash than in 2010. Investing activities used $305.5, including $293.0 for three acquisitions. Financing activities provided $50.7.
- At year-end, cash was $37.4, working capital $294.8 and total assets $1,304.5. Debt and notes payable totaled approximately $319.2; shareholders’ equity was $571.3. Long-term debt increased from $96.0 to $313.5.
- Year-end backlog was approximately $131.0, versus $128.0 a year earlier; the company expected these orders to ship in FY2012.
Fourth quarter and changes versus prior period
- Fourth-quarter sales were $331.0 versus $290.2 in FY2010 Q4, an increase of about 14.1%. Net income was $54.7 versus $53.6; diluted EPS was $0.81 versus $0.78.
- Annual earnings improved from FY2010, with stronger sales, higher gross margin and lower selling and administrative expenses as a share of sales. FY2009 had included $243.0 of goodwill and long-lived asset impairments; FY2011 included $1.8 of asset impairment and $1.6 of severance and restructuring costs.
- Three FY2011 acquisitions were Micromedics, Verbruggen and Value Plastics. Acquisition-related goodwill increased by approximately $200.8. Acquisitions contributed less than 1% to total sales growth net of divested product lines, according to management.
Outlook, risks and unusual items
- Outlook: Management described the near-term global outlook as uncertain, citing European sovereign-debt concerns, and said order growth had moderated toward normal levels. It was cautious on FY2012 and gave no specific revenue or earnings guidance. Management expected operating cash flow and available borrowing capacity to meet liquidity needs and support investment, operational improvements and potential acquisitions.
- Liquidity and debt: The company said available capital, operating cash flow and unused financing were adequate for FY2012. A $500 million, five-year unsecured multicurrency credit facility was entered into on December 9, 2011, replacing the facility scheduled to expire in 2012; the new facility may be increased to $750 million under specified conditions. The company reported compliance with debt covenants at October 31, 2011.
- Interest-rate exposure: 60% of debt was floating-rate; a one-percentage-point rate increase was estimated to add approximately $0.8 million of annual interest expense.
- Capital returns: Dividends paid were $29.8 million, or $0.44 per share. The company repurchased 3.024 million shares for $134.2 million during FY2011 and authorized an additional repurchase program of up to $100 million.
- Unusual and recurring estimates: FY2011 tax expense was $92.2 million, or 29.3% of pretax income, compared with 27.4% in FY2010; the periods included different tax benefits and charges. Management expected pension and postretirement expense in FY2012 to be about $7 million higher, primarily reflecting discount-rate, asset-return and demographic assumptions.
- Contingencies: The New Richmond, Wisconsin landfill remediation accrual was $0.795 million. Management did not expect litigation or the known environmental matter to have a material financial effect, but noted that actual environmental costs could exceed estimates. Other identified risks include economic and end-market cyclicality, foreign currency, international operations, acquisitions, innovation, key personnel, intellectual property and access to capital.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Key facts for investors to verify
- Whether the FY2011 sales and margin gains persist as order growth normalizes, especially in cyclical technology and industrial end markets.
- Acquisition performance and integration, including Value Plastics’ purchase accounting, goodwill and expected contribution to growth and cash flow.
- Debt repayment, borrowing capacity and covenant headroom under the replacement credit facility, alongside the share-repurchase program.
- Cash conversion and working-capital trends, given acquisition spending and year-end receivables and inventory increases.
- Sensitivity of pension and postretirement obligations and expense to discount rates, asset returns and healthcare-cost assumptions; and any changes in environmental remediation estimates.