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 the context otherwise indicates, all references to “we,” “us,” “our,” or the “Company” mean Nordson Corporation.

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. 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, are typically regarded as inconsequential or perfunctory. Revenue for undelivered items is deferred and included within accrued liabilities in the accompanying balance sheet. Revenues deferred in 2016, 2015 and 2014 were not material.

Translation of foreign currency financial statements and foreign currency transactions – Our reporting currency is the U.S. dollar. However, the functional currency for each of our foreign subsidiaries is its principal operating currency. We translate the amounts included in our Consolidated Statements of Income from our foreign subsidiaries into U.S. dollars at weighted-average exchange rates, which we believe are representative of the actual exchange rates on the dates of the transactions. Our foreign subsidiaries’ assets and liabilities are translated into U.S. dollars from local currency at the actual exchange rates as of the end of each reporting date, and we record the resulting foreign exchange translation adjustments in our Consolidated Balance Sheets as a component of accumulated other comprehensive income (loss). If the U.S. dollar strengthens, we reflect the resulting losses as a component of accumulated other comprehensive income (loss). Conversely, if the U.S. dollar weakens, foreign exchange translation gains result, which favorably impact accumulated other comprehensive income (loss). Translation adjustments may be included in net earnings in the event of a sale or liquidation of certain of our underlying foreign investments. If we determine that the functional currency of any of our foreign subsidiaries should be the U.S. dollar, our financial statements will be affected. Should this occur, we will adjust our reporting to appropriately account for any such changes.

As appropriate, we use permanently invested intercompany loans as a source of capital to reduce exposure to foreign currency fluctuations at our foreign subsidiaries. These loans, on a consolidated basis, are treated as being analogous to equity for accounting purposes. Therefore, foreign exchange gains or losses on these intercompany loans are recorded in accumulated other comprehensive income (loss).

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. Our reporting units are the Adhesive Dispensing Systems segment, the Industrial Coating Systems segment and one level below the Advanced Technology Systems segment.

We test goodwill in accordance with Accounting Standards Codification (ASC) 350. The goodwill impairment test is a two-step process. In the first step, performed in the fourth quarter of each year, we estimate a reporting unit’s fair value using a combination of the discounted cash flow method of the Income Approach and the guideline public company method of the Market Approach 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. We use an independent valuation specialist to assist with

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refining our assumptions and methods used to determine fair values using these methods. In step one, the discounted cash flow method uses assumptions for revenue growth, operating margin, and working capital turnover that 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 (WACC) methodology and growth rate. For each reporting unit, a sensitivity analysis is performed to vary the discount and terminal growth rates in order to provide a range of reasonableness for detecting impairment.

Discount rates are 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 2016, the discount rates used ranged from 9 percent to 15 percent depending upon the reporting unit's size, end market volatility, and projection risk. The calculated internal rate of return for the discounted cash flow method was 10 percent, the same as the calculated WACC for total Nordson. In the application of the guideline public company method, fair value is determined using transactional evidence for similar publicly traded equity. The comparable company guideline group is determined based on relative similarities to each reporting unit since exact correlations are not available. An indication of fair value for each reporting unit is based on the placement of each reporting unit within a range of multiples determined for its comparable guideline company group. Valuation multiples are derived by dividing latest twelve month performance for revenues and EBITDA into total invested capital, which is the sum of traded equity plus interest bearing debt less cash. These multiples are applied against the revenue and EBITDA of each reporting unit. While the implied indications of fair value using the guideline public company method yield meaningful results, the discounted cash flow method of the income approach includes management’s thoughtful projections and insights as to what the reporting units will accomplish in the near future. Accordingly, the reasonable, implied fair value of each reporting unit is a blend based on the relative strength of the approaches employed.

To test the reasonableness of the aggregate fair value, we performed the control premium test, which compares the sum of the implied fair values calculated for our reporting units (net of debt) to the market value of equity. The control premium was 1 percent as of the test date of August 1, 2016 and a slight discount to the market value of equity as of October 31, 2016. The control premium indicated that the discounted cash flow valuation was reasonable.

In 2016 and 2015, the results of our step one testing indicated no impairment; therefore, the second step of impairment testing was not necessary.

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 and based on our measurement date of August 1, 2016, our conclusion is that no indicators of impairment exist in 2016. Potential events or circumstances, such as a sustained downturn in global economies, could have a negative effect on estimated fair values.

		WACC				Excess of FV over CV				Goodwill
Adhesive Dispensing Systems Segment			9%				402%			$	387,649
Industrial Coating Systems Segment			12%				287%			$	24,058
Advanced Technology Systems Segment - Electronics Systems			11%				235%			$	17,495
Advanced Technology Systems Segment - Fluid Management			10%				92%			$	608,955
Advanced Technology Systems Segment - Test & Inspection			15%				33%			$	46,650

The table above does not include acquisitions that occurred after the August 1 measurement date but before our fiscal year-end. We acquired LinkTechTM Quick Couplings, Inc. (“LinkTech”) on September 1, 2016. Determination of the preliminary goodwill associated with this acquisition was completed with the assistance of an independent valuation specialist in the fourth quarter of 2016. Since the date of the valuation, no events or changes in circumstances have occurred that would more likely than not reduce the fair value of the acquisition below its carrying value. For future valuation purposes, LinkTech will be included in the Advanced Technology Systems – Fluid Management reporting unit.

Other long-lived assets – We test other depreciable and amortizable long-lived assets for recoverability in accordance with ASC 360 using undiscounted cash flows if indicators of impairment exist. The total carrying value of long-lived assets for each reporting unit is 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.

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Inventories - Inventories are valued at the lower of cost or market. Cost was determined using the last-in, first-out (LIFO) method for 20 percent of consolidated inventories at October 31, 2016 and October 31, 2015, 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 $29,324, $28,230 and $26,744 at October 31, 2016, 2015 and 2014, 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.

The weighted-average discount rate used to determine the present value of our domestic pension plan obligations was 3.94 percent at October 31, 2016 and 4.39 percent at October 31, 2015. The weighted-average discount rate used to determine the present value of our various international pension plan obligations was 1.86 percent at October 31, 2016, compared to 2.81 percent at October 31, 2015. The discount rates used for all 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 used to determine net benefit costs was 6.72 percent in 2016 and 6.76 percent in 2015. The average expected rate of return on international pension assets used to determine net benefit costs was 4.22 percent in 2016 and 4.39 percent in 2015.

The assumed rate of compensation increases used to determine the present value of our domestic pension plan obligations was 3.61 percent at October 31, 2016, compared to 3.50 percent at October 31, 2015. The assumed rate of compensation increases used to determine the present value of our international pension plan obligations was 3.12 percent at October 31, 2016, compared to 3.22 percent at October 31, 2015.

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 Increase				1% Point Decrease				1% Point Increase				1% Point Decrease
Discount rate:
Effect on total service and interest cost components in 2016		$	(5,561	)		$	6,767			$	(887	)		$	1,048
Effect on pension obligation as of October 31, 2016		$	(54,984	)		$	69,133			$	(15,416	)		$	19,961
Expected return on assets:
Effect on total service and interest cost components in 2016		$	(3,017	)		$	3,017			$	(361	)		$	361
Compensation increase:
Effect on total service and interest cost components in 2016		$	4,017			$	(2,394	)		$	708			$	(638	)
Effect on pension obligation as of October 31, 2016		$	21,485			$	(13,463	)		$	3,626			$	(3,289	)

With respect to the domestic postretirement medical plan, the discount rate used to value the benefit plan was 4.05 percent at October 31, 2016 and 4.50 percent at October 31, 2015. The annual rate of increase in the per capita cost of covered benefits (the health care cost trend rate) is assumed to be 3.63 percent in 2017, decreasing gradually to 3.24 percent in 2026.

For the international postretirement plan, the discount rate used to value the benefit obligation was 3.40 percent at October 31, 2016 and 4.35 percent at October 31, 2015. The annual rate of increase in the per capita cost of covered benefits (the health care cost trend rate) is assumed to be 6.13 percent in 2017, decreasing gradually to 3.50 percent in 2031.

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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. 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 2016		$	(710	)		$	860			$	(6	)		$	6
Effect on postretirement obligation as of October 31, 2016		$	(10,287	)		$	12,776			$	(94	)		$	123
Health care trend rate:
Effect on total service and interest cost components in 2016		$	628			$	(495	)		$	10			$	(8	)
Effect on postretirement obligation as of October 31, 2016		$	11,024			$	(8,836	)		$	146			$	(113	)

Employees hired after January 1, 2002, are not eligible to participate in the domestic postretirement medical plan.

In the fourth quarter of 2016, we adopted a change in the method used to estimate the service and interest cost components of net periodic benefit cost for defined benefit pension plans and postretirement benefit plans. Historically, for the vast majority of our plans, the service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2017, we will use a spot rate approach by applying the specific spot rates along the yield curve to the relevant projected cash flows in the estimation of the service and interest components of benefit cost, resulting in a more precise measurement. This change does not affect the measurement of total benefit obligations. The change will be accounted for as a change in estimate that is inseparable from a change in accounting principle and, accordingly, will be accounted for prospectively starting in 2017. The reductions in service and interest costs for 2017 associated with this change are expected to be $1,100 and $3,700, respectively.

Pension and postretirement expenses in 2017 are expected to be approximately $1,211 lower than 2016, primarily due to the adoption of the spot rate approach as noted above.

Income taxes – Income taxes are estimated based on income for financial reporting purposes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Management believes the valuation allowances are adequate after considering future taxable income, allowable carryforward periods and ongoing prudent and feasible tax planning strategies. In the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of the net recorded amount (including the valuation allowance), an adjustment to the valuation allowance would increase income in the period such determination was made. Conversely, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the valuation allowance would be expensed in the period such determination was made.

Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.

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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 $14,487, $12,531 and $10,813 in 2016, 2015 and 2014, respectively. The reserve balance was $11,770, $10,537 and $9,918 at October 31, 2016, 2015 and 2014, respectively.

Performance share incentive awards - Executive officers and selected other key employees are eligible to receive share awards with payouts based on corporate financial performance over three-year periods. Award payouts vary based on the degree to which corporate financial performance equals or exceeds predetermined threshold, target and maximum performance levels at the end of a performance period. No award payout will occur unless certain threshold performance levels are equaled or exceeded. The amount of compensation expense is based upon current performance projections for each three-year performance 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 closing market price of Nordson Common Stock at the grant date, reduced by the implied value of dividends not to be paid. Awards are recorded as capital in excess of stated value in shareholders’ equity. The cumulative amount recorded at October 31, 2016 for the plans originating in 2014, 2015 and 2016 was $10,951. Compensation expense attributable to all performance share incentive award periods for executive officers and selected other key employees for 2016, 2015 and 2014 was $7,083, $3,459 and $4,304, respectively.

2016 compared to 2015

Sales – Worldwide sales for 2016 were $1,808,994, an increase of 7.1 percent from 2015 sales of $1,688,666. Sales volume increased 8.5 percent and unfavorable currency translation effects reduced sales by 1.4 percent. The volume increase consisted of 6.5 percent from organic growth and 2.0 percent from acquisitions. We had one acquisition during 2016, LinkTech, which is included within the Advanced Technology Systems segment. Three acquisitions were made during 2015: Liquidyn GmbH (“Liquidyn”) and MatriX Technologies GmbH (“MatriX”), which were included within the Advanced Technology Systems segment, and WAFO Produktionsgesellschaft GmbH (“WAFO”), which was included in the Adhesives Dispensing Systems segment. As used throughout this Form 10-K, geographic regions include the Americas (Canada, Mexico and Central and South America), Asia Pacific (excluding Japan), Europe, Japan, and the United States.

Sales of the Adhesive Dispensing Systems segment were $879,573 in 2016, an increase of $43,507, or 5.2 percent, from 2015 sales of $836,066. The increase was the net result of a sales volume increase of 6.9 percent partially offset by unfavorable currency effects that reduced sales by 1.7 percent. The sales volume increase consisted of 0.7 percent from the WAFO acquisition and 6.2 percent from organic volume. Within this segment, sales volume increased in all geographic regions except for the Americas and Japan, and was particularly strong in Europe. Organic growth was driven by product lines serving consumer non-durable, disposable hygiene, general product assembly, rigid packaging and polymer processing end markets.

Sales of the Advanced Technology Systems segment were $676,329 in 2016, an increase of $82,471, or 13.9 percent, from 2015 sales of $593,858. The increase was the result of a sales volume increase of 14.7 percent partially offset by unfavorable currency effects that reduced sales by 0.8 percent. The sales volume increase consisted of 10.1 percent from organic volume and 4.6 percent from the first-year effect of acquisitions. Within the segment, sales volume, inclusive of acquisitions, increased in all geographic regions, and was most pronounced in Japan and Asia Pacific. Growth was driven by increased demand for test and inspection and automated dispensing solutions serving electronics end markets, as well continued strength in fluid management product lines serving medical and industrial end markets.

Sales of the Industrial Coating Systems segment were $253,092 in 2016, a decrease of $5,650, or 2.2 percent, from 2015 sales of $258,742. The decrease was the result of a sales volume decrease of 0.6 percent and unfavorable currency effects that reduced sales by 1.6 percent. Within this segment, sales volume increased in the Americas and Asia Pacific regions, and was offset by decreases in the United States, Europe and Japan. Growth in cold material product lines serving automotive end markets was offset by softness in powder coating and container product lines serving industrial end markets.

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Sales outside the United States accounted for 70.6 percent of our sales in 2016, as compared to 68.6 percent in 2015. On a geographic basis, sales in the United States were $531,117, an increase of 0.2 percent from 2015. The increase in sales volume consisted of 0.4 percent from acquisitions, offset by an organic volume decline of 0.2 percent. In the Americas region, sales were $124,657, a decrease of 3.6 percent from 2015, with volume increasing 2.5 percent offset by unfavorable currency effects of 6.1 percent. The increase in sales volume consisted of 1.7 percent from organic volume and 0.8 percent from acquisitions. Sales in Europe were $503,869, an increase of 8.9 percent from 2015, with volume increasing 12.3 percent partially offset by unfavorable currency effects of 3.4 percent. The increase in sales volume consisted of 9.2 percent from organic volume and 3.1 percent from acquisitions. Sales in Japan were $122,054, an increase of 13.2 percent from 2015, with volume increasing 2.2 percent and favorable currency effects of 11.0 percent. The increase in sales volume consisted of 1.9 percent from organic volume and 0.3 percent from acquisitions. Sales in the Asia Pacific region were $527,297, an increase of 14.9 percent from the prior year, with volume increasing 17.4 percent partially offset by unfavorable currency effects of 2.5 percent. The increase in sales volume consisted of 14.0 percent from organic growth and 3.4 percent from acquisitions.

It is estimated that the effect of pricing on total revenue was not material relative to 2015.

Operating profit – Cost of sales were $815,495 in 2016, up 5.3 percent from 2015. Gross profit, expressed as a percentage of sales, increased to 54.9 percent in 2016 from 54.1 percent in 2015. Of the 0.8 percentage point improvement in gross margin, favorable product mix added 1.3 percentage points primarily related to higher sales growth in our Adhesive Dispensing Systems and Advanced Technology Systems segments, which have higher margins relative to our Industrial Coating Systems segment. The 0.5 percentage point offset is primarily due to unfavorable currency translation effects.

Selling and administrative expenses were $594,293 in 2016, compared to $584,823 in 2015. The 1.6 percent increase includes 2.9 percent primarily in support of higher sales growth, offset by 1.3 percent due to currency translation effects.

Selling and administrative expenses as a percentage of sales decreased to 32.9 percent in 2016 from 34.6 percent in 2015. The 1.7 percentage point improvement is primarily due to leveraging higher sales growth in our Adhesive Dispensing Systems and Advanced Technology Systems segments.

Severance and restructuring costs of $10,775 were recorded in 2016. Within the Adhesives Dispensing Systems segment, restructuring initiatives to optimize operations in the U.S. and Belgium and consolidate certain polymer processing product line facilities in the U.S. resulted in severance and restructuring costs of $7,800. To enhance operational efficiency and customer service within the Advanced Technology Systems segment, a restructuring initiative resulted in severance and restructuring costs of $1,054. Within the Industrial Coatings Systems segment, a restructuring program to enhance operational efficiency and customer service resulted in severance costs of $1,921. Additional costs related to these initiatives are not expected to be material in future periods. All severance and restructuring costs are included in selling and administrative expenses in the Consolidated Statements of Income.

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 margins. Operating margins for each segment were unfavorably impacted by a stronger dollar primarily against the British Pound and Chinese Yuan during 2016 as compared to 2015.

Operating profit as a percentage of sales increased to 21.5 percent in 2016 compared to 18.8 percent in 2015. Of the 2.7 percentage point improvement in operating margin, favorable leverage of our selling and administrative expenses contributed 1.8 percentage points, favorable product mix added 1.3 percentage points primarily related to higher sales growth in our Adhesives Dispensing Systems and Advanced Technology Systems segments, which have higher margins relative to our Industrial Coating Systems segment, and lower severance and restructuring expenses contributed 0.1 percentage points. The 0.5 percentage point offset is primarily due to unfavorable currency translation effects.

For the Adhesive Dispensing Systems segment, operating profit as a percentage of sales increased to 26.1 percent in 2016 compared to 23.4 percent in 2015. Of the 2.7 percentage point improvement in operating margin, favorable leverage of our selling and administrative expenses contributed 2.0 percentage points, favorable product mix added 1.2 percentage points due to increased sales to consumer non-durable, disposable hygiene, general product assembly and rigid packaging end markets, and lower severance and restructuring expense added 0.1 percentage points. The 0.6 percentage point offset is primarily due to unfavorable currency translation effects.

For the Advanced Technology Systems segment, operating profit as a percentage of sales increased to 23.6 percent in 2016 compared to 20.4 percent in 2015. Of the 3.2 percentage point improvement in operating margin, favorable leverage of our selling and administrative expenses contributed 2.2 percentage points, favorable product mix added 0.9 percentage points, and lower severance and restructuring expenses contributed 0.3 percentage points. The 0.2 percentage point offset is primarily due to unfavorable currency translation effects.

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For the Industrial Coating Systems segment, operating profit as a percentage of sales increased to 17.2 percent in 2016 compared to 16.0 percent in 2015. Of the 1.2 percentage point improvement in operating margin, favorable product mix added 2.3 percentage points, primarily related to sales of engineered systems for which margins vary depending on the type of customer application, and favorable leverage of our selling and administrative expenses contributed 0.2 percentage points. The remaining 1.3 percentage point offset was primarily due to severance and restructuring expenses and unfavorable currency translation effects.

Interest and other income (expense) - Interest expense in 2016 was $21,322, an increase of $3,218, or 17.8 percent, from 2015. The increase was due to higher average borrowing levels between periods, offset by reversals of interest accruals related to the effective settlement of a tax exam. Other income in 2016 was $657 compared to $678 in 2015. Included in the current year’s other income were a litigation settlement of $800 and $2,004 of foreign currency gains. These gains were partially offset by $1,530 of charges primarily related to the reversal of an indemnification asset resulting from the effective settlement of a tax exam. Significant items in 2015 were proceeds from a favorable litigation settlement of $1,608 and loss on disposal of fixed assets of $653.

Income taxes – Income tax expense in 2016 was $96,651, or 26.2 percent of pre-tax income, as compared to $89,751, or 29.8 percent of pre-tax income in 2015.

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 was enacted which retroactively reinstated the Federal Research and Development Tax Credit (Federal R&D Tax Credit) as of January 1, 2015, and made it permanent. As a result, our income tax provision for 2016 includes a discrete tax benefit of $2,200 related to 2015. The tax rate for 2016 also includes a discrete tax benefit of $6,154 related to dividends paid from previously taxed foreign earnings generated prior to 2015, and a benefit of $2,682 related to the effective settlement of a tax exam.

Net income – Net income was $271,843, or $4.73 per diluted share, in 2016, compared to net income of $211,111, or $3.45 per diluted share, in 2015. This represents a 28.8 percent increase in net income and a 37.1 percent increase in diluted earnings per share. The percentage change in earnings per share is more than the percentage change in net income due to a lower number of shares outstanding in the current year as a result of share repurchases.

Recently issued accounting standards – In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard regarding revenue recognition. Under this standard, a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard implements a five-step process for customer contract revenue recognition that focuses on transfer of control. In August 2015, the FASB issued a standard to delay the effective date by one year. In accordance with this delay, the new standard is effective for us beginning in the first quarter of 2019. Early adoption is permitted, but not before the original effective date of the standard. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We are performing a preliminary review of the new guidance as compared to our current accounting policies. We are currently assessing the impact this standard, along with the subsequent updates and clarifications, will have on our consolidated financial statements and disclosures. During 2017, we plan to assess our contracts and consider our method of adoption.

In April 2015, the FASB issued a new standard regarding the presentation of debt issuance costs. Under this standard, a company is required to present unamortized debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of that debt liability, rather than as a separate asset. The recognition and measurement guidance for debt issuance costs are not affected by this new standard. In August 2015, the FASB issued an amendment to this standard, which added clarification to the presentation of debt issuance costs. This amendment allows debt issuance costs related to line-of-credit arrangements to be presented as an asset and subsequently amortized ratably over the term of the line-of-credit agreement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. It will be effective for us beginning in 2017. We do not expect this standard to have a material impact on our consolidated financial statements as it will only impact presentation.

In July 2015, the FASB issued a new standard regarding the measurement of inventory. Under this standard, inventory that is measured using the first-in, first-out (“FIFO”) or average cost methods is required to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This standard does not impact inventory measured on a last-in, last-out (“LIFO”) method. It will be effective for us beginning in 2017. We do not expect this standard to have a material impact on our consolidated financial statements.

In September 2015, the FASB issued a new standard intended to simplify the accounting for measurement period adjustments in a business combination. Measurement period adjustments are changes to provisional amounts recorded when the accounting for a business combination is incomplete as of the end of a reporting period. The measurement period can extend for up to a year following the transaction date. During the measurement period, companies may make adjustments to provisional amounts when information

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necessary to complete the measurement is received. The new guidance requires companies to recognize these adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. Companies are no longer required to retroactively apply measurement period adjustments to all periods presented. It will be effective for us beginning in 2017. The new guidance will be applied prospectively and the impact of adoption will be dependent on the nature of measurement period adjustments that may be necessary.

In November 2015, the FASB issued a new standard regarding the balance sheet classification of deferred taxes, which will require entities to present deferred tax assets and liabilities as noncurrent on the balance sheet. This guidance simplifies the current guidance, which requires entities to separately present deferred tax assets and liabilities as current and noncurrent on the balance sheet. We have elected to early adopt this standard prospectively as of October 31, 2016, as is permitted under the standard. Due to the prospective treatment, prior periods presented in these financial statements have not been adjusted.

In February 2016, the FASB issued a new standard which requires a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. It will be effective for us beginning in 2020. We are currently assessing the impact this standard will have on our consolidated financial statements.

In March 2016, the FASB issued a new standard which simplifies the accounting for share-based payment transactions. This guidance requires that excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the Consolidated Statements of Income rather than additional paid-in capital. Additionally, the excess tax benefits will be classified along with other income tax cash flows as an operating activity, rather than a financing activity, on the Statement of Cash Flows. Further, the update allows an entity to make a policy election to recognize forfeitures as they occur or estimate the number of awards expected to be forfeited. It will be effective for us beginning in 2018 and should be applied prospectively, with certain cumulative effect adjustments. Early adoption is permitted. We are currently assessing the impact this standard will have on our consolidated financial statements.

2015 compared to 2014

Sales – Worldwide sales for 2015 were $1,688,666, a decrease of 0.9 percent from 2014 sales of $1,704,021. Sales volume increased 5.8 percent, and unfavorable currency translation effects caused by the stronger U.S. dollar reduced sales by 6.7 percent. The volume increase consisted of 3.4 percent from organic growth and 2.4 percent from acquisitions. Three acquisitions were made during 2015: Liquidyn and MatriX, which are included within the Advanced Technology Systems segment, and WAFO, which is included in the Adhesives Dispensing Systems segment. Two acquisitions were made during 2014: Avalon Laboratories and Dima Group B.V., both of which were included within the Advanced Technology Systems segment. As used throughout this Form 10-K, geographic regions include the Americas (Canada, Mexico and Central and South America), Asia Pacific (excluding Japan), Europe, Japan, and the United States.

Sales of the Adhesive Dispensing Systems segment were $836,066 in 2015, a decrease of $63,630, or 7.1 percent, from 2014 sales of $899,696. The decrease was the net result of a sales volume increase of 2.3 percent offset by unfavorable currency effects that reduced sales by 9.4 percent. The sales volume increase consisted of 0.3 percent from acquisitions and 2.0 percent from organic volume. Within this segment, sales volume, inclusive of acquisitions, increased in all geographic regions except for the United States, and was particularly strong in the Americas. Organic growth in product lines serving disposable hygiene, general product assembly, rigid packaging and injection molding end markets was offset by softness in product lines serving extrusion, polymer compounding and pelletizing end markets.

Sales of the Advanced Technology Systems segment were $593,858 in 2015, an increase of $32,074, or 5.7 percent, from 2014 sales of $561,784. The increase was the result of a sales volume increase of 8.6 percent offset by unfavorable currency effects that reduced sales by 2.9 percent. The sales volume increase consisted of 1.7 percent from organic volume and 6.9 percent from the first-year effect of acquisitions. Within the segment, sales volume, inclusive of acquisitions, increased in all geographic regions, except for Japan, and was most pronounced in the United States, Europe and the Americas. Growth in surface treatment, test and inspection and plasma solutions in electronics end markets, as well as growth in fluid management applications serving medical end markets, was offset by lower demand for automated dispensing systems.

Sales of the Industrial Coating Systems segment were $258,742 in 2015, an increase of $16,201, or 6.7 percent, from 2014 sales of $242,541. The increase was the result of a sales volume increase of 12.5 percent offset by unfavorable currency effects that reduced sales by 5.8 percent. The sales volume increase was entirely due to organic growth. Within this segment, sales volume increased in all geographic regions, and was most pronounced in the Americas and Europe. Sales growth was driven by demand in our consumer durable, automotive, cold materials, industrial and container end markets.

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Sales outside the United States accounted for 68.6 percent of our sales in 2015, as compared to 70.4 percent in 2014. On a geographic basis, sales in the United States were $529,893, an increase of 5.2 percent from 2014. The increase consisted of 0.6 percent organic volume and 4.6 percent from acquisitions. In the Americas region, sales were $129,325, an increase of 6.9 percent from 2014, with volume increasing 18.8 percent offset by unfavorable currency effects of 11.9 percent. The increase in sales volume consisted of 18.6 percent from organic volume and 0.2 percent from acquisitions. Sales in Europe were $462,565, down 6.5 percent from 2014, with volume increasing 8.1 percent offset by unfavorable currency effects of 14.6 percent. The increase in sales volume consisted of 5.5 percent from organic growth and 2.6 percent from acquisitions. Sales in Japan were $107,797, down 15.2 percent from the prior year. The decrease was due to lower volume of 1.3 percent and unfavorable currency effects of 13.9 percent. The decrease in sales volume consisted of an organic volume decline of 1.4 percent offset by a 0.1 percent increase from acquisitions. Sales in the Asia Pacific region were $459,086, an increase of 0.3 percent from the prior year, with volume increasing 2.6 percent, offset by unfavorable currency effects of 2.3 percent. The increase in sales volume consisted of 1.4 percent from organic growth and 1.2 percent from acquisitions.

It is estimated that the effect of pricing on total revenue was not material relative to 2014.

Operating profit – Cost of sales were $774,702 in 2015, up 2.1 percent from 2014. Gross profit, expressed as a percentage of sales, decreased to 54.1 percent in 2015 from 55.5 percent in 2014. The reduction in gross margin was primarily a result of unfavorable currency translation effects.

Selling and administrative expenses, were $584,823 in 2015, an increase of $9,381, or 1.6 percent, from 2014. Of the 1.6 percent increase, 7.5 percent was due to the addition of acquired businesses in the second half of 2014 and 2015 and higher compensation expenses related to increased employment levels. The 5.9 percent offset was due to unfavorable currency translation effects.

Selling and administrative expenses as a percentage of sales increased to 34.6 percent in 2015 from 33.8 percent in 2014. Of the 0.8 percent increase, 0.4 percent was due to acquisitions and higher compensation expenses related to increased employment levels and 0.4 percent was due to unfavorable currency translation effects.

Severance and restructuring costs of $11,411 were recorded in 2015. Within the Adhesives Dispensing Systems segment, restructuring initiatives to optimize operations in the U.S. and Belgium resulted in severance and restructuring costs of $7,972. Within the Advanced Technology Systems segment, certain restructuring programs to enhance operational efficiency and customer service in the U.S. and Germany resulted in severance and restructuring costs of $3,060. Within the Industrial Coatings Systems segment, a restructuring program to enhance operational efficiency and customer service resulted in severance costs of $379.

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 margins. Operating margins for each segment were unfavorably impacted by a much stronger dollar during 2015 as compared to 2014.

Operating profit as a percentage of sales decreased to 18.8 percent in 2015 compared to 21.5 percent in 2014. Of the 2.7 percentage point decrease in operating margin, 1.9 percentage points were due to unfavorable currency translation effects, 0.5 percentage points were due to higher severance and restructuring costs and 0.3 percentage points were due to higher selling and administrative expenses.

For the Adhesive Dispensing Systems segment, operating profit as a percentage of sales decreased to 23.4 percent in 2015 compared to 25.5 percent in 2014. Of the 2.1 percentage point decline in operating margin, 2.3 percentage points were attributed to unfavorable currency translation effects, 1.5 percentage points were attributed to higher selling and administrative expenses, and 0.7 percentage points were attributed to higher severance and restructuring costs. The 2.4 percentage point offset was due to 2.2 percentage points attributed to favorable product mix and 0.2 percentage points due to lower inventory purchase price adjustments.

For the Advanced Technology Systems segment, operating profit as a percentage of sales decreased to 20.4 percent in 2015 compared to 25.0 percent in 2014. Of the 4.6 percentage point decline in operating margin, 2.2 percentage points were attributed to higher selling and administrative expenses, 1.3 percentage points were attributed to product line and customer mix, 0.7 percentage points were attributed to unfavorable currency translation effects, and 0.4 percentage points were attributed to higher severance and restructuring costs.

For the Industrial Coating Systems segment, operating profit as a percentage of sales increased to 16.0 percent in 2015 from 15.7 percent in 2014. Of the 0.3 percentage point improvement in operating margin, favorable leverage of our selling and administrative expenses contributed 2.0 percentage points and favorable product mix added 0.2 percentage points. The remaining 1.9 percentage point offset was primarily due to unfavorable currency translation effects.

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Interest and other income (expense) - Interest expense in 2015 was $18,104, an increase of $3,069, or 20.4 percent, from 2014. The increase was due to higher borrowing levels used primarily to fund acquisitions in the second half of 2014 and in 2015, and to fund the purchase of treasury shares in 2015.

Other income in 2015 was $678 compared to other expense of $138 in 2014. Significant items included in 2015 were proceeds from a favorable litigation settlement of $1,608 and loss on disposal of fixed assets of $653. Significant items included in 2014 were a gain on property insurance settlement of $1,005 and foreign currency losses of $478.

Income taxes – Income tax expense in 2015 was $89,751, or 29.8 percent of pre-tax income, as compared to $105,740, or 30.0 percent of pre-tax income in 2014.

On December 19, 2014, the Tax Increase Prevention Act of 2014 was enacted which retroactively reinstated the Federal Research and Development Tax Credit (Federal R&D Tax Credit) from January 1, 2014 to December 31, 2014 and extended certain other tax provisions. As a result, our income tax provision for 2015 included discrete tax benefits of $2,486 primarily related to 2014.

Net income – Net income was $211,111, or $3.45 per diluted share, in 2015, compared to net income of $246,773, or $3.84 per diluted share, in 2014. This represents a 14.5 percent decrease in net income and a 10.2 percent decrease in diluted earnings per share.

Liquidity and Capital Resources

Cash and cash equivalents increased $16,971 in 2016. Cash provided by operating activities was $331,158 in 2016, compared to $261,951 in 2015. The primary sources were net income adjusted for non-cash income and expenses (consisting of depreciation and amortization, non-cash stock compensation, deferred income taxes, other non-cash expense and loss on sale of property, plant and equipment) and the tax benefit from the exercise of stock options, the sum of which was $358,984 in 2016, compared to $291,452 in 2015. The increase in cash provided by operating activities was primarily due to higher net income. Operating assets and liabilities used $27,826 of cash in 2016, compared to $29,501 in 2015.

Cash used by investing activities was $102,201 in 2016, down from $138,535 in 2015. In the current year, cash of $42,650 was used for the LinkTech acquisition, compared to the 2015 acquisitions of Liquidyn, WAFO and MatriX which used $75,565 of cash.

Cash of $210,280 was used by financing activities in 2016, compared to $110,978 in 2015. Included in 2016 were net short and long-term repayments of $130,217, compared to net borrowings of $325,486 in the prior year. The change was primarily due to increased repayments on our revolving credit facility in 2016. Issuance of common shares related to employee benefit plans generated $11,476 of cash in 2016, up from $5,372 in 2015. This increase was the result of higher stock option exercises. In 2016 cash of $33,421 was used for the purchase of treasury shares, down from $383,851 in 2015. Dividend payments were $56,436 in 2016, up from $54,849 in 2015 due to an increase in the annual dividend to $0.99 per share from $0.90 per share.

The following is a summary of significant changes by balance sheet caption from October 31, 2015 to October 31, 2016. Receivables increased $39,010 primarily due to higher year-end shipments. Net property, plant and equipment increased $23,189 primarily due to capital expenditures and the LinkTech acquisition, partially offset by depreciation expense. Goodwill increased $24,762 due to the LinkTech acquisition completed in 2016 that added $25,169 of goodwill, offset by $407 from the effects of currency translation. The decrease in net other intangibles of $17,124 was due to $14,610 of intangibles added as a result of the LinkTech acquisition, offset by $29,061 of amortization expense and $2,673 from the effects of currency translation.

The decrease in income taxes payable of $5,880 was due to the timing of required tax payments. The increase of $21,867 in accrued liabilities was primarily due to higher compensation-related accruals. Current maturities of long-term debt increased $15,251 primarily as a result of the $37,956 reclassification from long-term debt to current maturities for the scheduled repayments of our senior notes and New York Life credit facility, partially offset by $11,287 repayments under our €100,000 agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. and $10,556 repayments under our New York Life credit facility. The long-term debt decrease of $148,090 primarily reflects $212,345 of net repayments under our revolving credit agreement, the $37,956 reclassification from long-term debt to current maturities as noted above, partially offset by $100,000 in borrowings under our New York Life credit facility. The $12,305 increase in long-term pension obligations and the $3,707 increase in postretirement obligations were primarily the result of lower global weighted-average discount rates.

In December 2014, the board of directors authorized a new $300,000 common share repurchase program. This program replaced the $200,000 program approved by the board in August 2013. In August 2015, the board of directors authorized the repurchase of up to an additional $200,000 of the Company’s common shares. This new authorization added capacity to the board’s December 2014 authorization to repurchase $300,000 of shares. Approximately $118,971 remained available for share repurchases at October 31, 2016. Uses for repurchased shares include the funding of benefit programs including stock options, restricted stock and 401(k) matching. Shares purchased are treated as treasury shares until used for such purposes. The repurchase program is being funded using cash from operations and proceeds from borrowings under our credit facilities.

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As of October 31, 2016, approximately 93 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries. 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 represent the post-income tax earnings under U.S. GAAP not adjusted for previously taxed income which aggregated approximately $757,501 and $712,913 at October 31, 2016 and 2015, respectively. Should these earnings be distributed, applicable foreign tax credits, distributions of previously taxed income, and utilization of other attributes would substantially offset taxes due upon the distribution. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.

Contractual Obligations

The following table summarizes contractual obligations as of October 31, 2016:

		Payments Due by Period
						Less than				1-3				4-5				After 5
		Total				1 Year				Years				Years				Years
Long-term debt (1)		$	982,646			$	38,093			$	234,710			$	451,605			$	258,238
Interest payments on long-term debt (1)			54,243				11,019				17,768				12,834				12,622
Capital lease obligations (2)			19,230				5,966				6,335				1,546				5,383
Operating leases (2)			53,565				13,725				17,838				10,707				11,295
Notes payable (3)			2,141				2,141				—				—				—
Contributions related to pension and postretirement benefits (4)			20,100				20,100				—				—				—
Purchase obligations (5)			80,563				80,336				227				—				—
Total obligations		$	1,212,488			$	171,380			$	276,878			$	476,692			$	287,538

(1)

In February 2015, we increased, amended and extended our existing syndicated revolving credit agreement that was scheduled to expire in December 2016. We entered into a $600,000 unsecured, multicurrency credit facility with a group of banks. This facility has a five-year term and includes a $50,000 subfacility for swing-line loans and may be increased from $600,000 to $850,000 under certain conditions. It expires in February 2020. At October 31, 2016, $244,680 was outstanding under this facility, compared to $457,025 outstanding at October 31, 2015. Balances outstanding under the prior credit agreement were transferred to the new credit agreement. The weighted average interest rate for borrowings under this agreement was 1.53 percent at October 31, 2016. There are two primary financial covenants that must be met under this facility. The first covenant limits the amount of total net indebtedness that can be incurred to 3.50 times consolidated trailing four-quarter EBITDA (both indebtedness and EBITDA as defined in the credit agreement). The second covenant requires consolidated trailing four-quarter EBITDA to be at least 3.0 times consolidated trailing four-quarter interest expense (both as defined in the credit agreement). At October 31, 2016, 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.

In 2011, we entered into a $150,000 three-year Note Purchase and Private Shelf Note agreement with New York Life Investment Management LLC. In 2013, the amount of the facility was increased from $150,000 to $175,000. In 2015, the amount of the facility was increased to $180,000. In 2016, the amount of the facility was increased to $200,000. Notes issued under the agreement may have a maturity of up to 12 years, with an average life of up to 10 years, and are unsecured. The interest rate on each note can be fixed or floating and is based upon the market rate at the borrowing date. This agreement contains customary events of default and covenants related to limitations on indebtedness and the maintenance of certain financial ratios. At October 31, 2016, there was $157,222 outstanding under this facility, compared to $67,778 at October 31, 2015. The interest rates for notes within this agreement were 2.21 percent and 2.56 percent at October 31, 2016. We were in compliance with all covenants at October 31, 2016, and the amount we could borrow would not have been limited by any debt covenants.

In 2012, we entered into a Note Purchase Agreement with a group of insurance companies under which we sold $200,000 of Senior Notes. The notes mature between July 2017 and July 2025 and bear interest at fixed rates between 2.27 percent and 3.13 percent. We were in compliance with all covenants at October 31, 2016.

In 2013, we entered into a €100,000 agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. The term of the agreement was three years and could be extended by one year at the end of the third and fourth anniversaries. The interest rate was variable based upon the EUR LIBOR rate. We paid down the remaining $11,501 balance of the loan in 2016.

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In April 2015, we entered into a $200,000 term loan facility with a group of banks. The interest rate is variable based on the LIBOR rate plus applicable margin based on our leverage ratio. As of October 31, 2016, $100,000 is due in three years and has an interest rate spread of 1.00 percent over LIBOR and $100,000 is due in five years and has an interest rate spread of 1.10 percent over LIBOR. This loan was used to pay down $100,000 of our 364-day unsecured credit facility with PNC Bank and $100,000 of our revolving credit facility in 2015. We were in compliance with all covenants at October 31, 2016.

In July 2015, we entered into a Note Purchase Agreement under which $100,000 of Senior Unsecured Notes were purchased primarily by a group of insurance companies. The notes mature in July 2025 and July 2027 and bear interest at fixed rates of 2.89 percent and 3.19 percent. We were in compliance with all covenants at October 31, 2016.

In October 2015, we entered into a €70,000 agreement with Bank of America Merrill Lynch International Limited. The term of the agreement is three years and can be extended by one year on two annual occasions if notice is given between 180 days and 30 days before the maturity date. The interest rate is variable based on the LIBOR rate plus applicable margin based on our leverage ratio. The loan was amended in 2016 to extend the term by one year and increase the principal amount. At October 31, 2016, the balance outstanding was €72,300 ($79,389) and the interest rate was 0.875 percent over LIBOR. We were in compliance with all covenants at October 31, 2016.

See Note 10 for additional information.

(2)	See Note 11 for additional information.

(3)	See Note 9 for additional information.

(4)	Pension and postretirement plan funding amounts after 2016 will be determined based on the future funded status of the plans and therefore cannot be estimated at this time. See Note 7 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, cash from operations and unused financing sources are more than adequate to meet cash requirements for 2017. There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent company.

Outlook

Our operating performance, balance sheet position, and financial ratios for 2016 remained strong relative to recent years, although uncertainties persisted in global financial markets and the general economic environment. Going forward, we are well-positioned to manage our liquidity needs that arise from working capital requirements, capital expenditures, contributions related to pension and postretirement obligations, and principal and interest payments on indebtedness. Primary sources of capital to meet these needs as well as other opportunistic investments are cash provided by operations and borrowings under our loan agreements. In 2016, cash from operations was 18.3 percent of revenue. With respect to borrowing under existing loan agreements, as of October 31, 2016, we had $355,320 available capacity under our five-year term, $600,000 unsecured, multicurrency credit facility which may be increased to $850,000 under certain conditions. This credit facility expires in February 2020. In addition, we had $42,778 borrowing capacity remaining on our $200,000 three-year Private Shelf agreement with New York Life Investment Management LLC. 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.

Other loan agreements exist with no remaining borrowing capacity, but factor into debt covenant calculations that affect future borrowing capacity. In July 2012, we entered into a note purchase agreement with a group of insurance companies under which we sold $200,000 of senior notes. The notes mature between July 2017 and July 2025 and bear interest at fixed rates between 2.27 percent and 3.13 percent. As of April 2015, we entered into a $200,000 term loan facility with PNC Bank. $100,000 is due in three years and has an interest rate spread of 1 percent over LIBOR, and $100,000 is due in five years and has an interest rate spread of 1.1 percent over LIBOR. In July 2015, we entered into a Note Purchase Agreement under which $100,000 of senior unsecured notes were purchased primarily by a group of insurance companies. The notes consist of two tranches, Series A and B at $50,000 each, maturing in July 2025 and July 2027, and bearing interest at fixed rates of 2.89 percent and 3.19 percent, respectively. In October 2015, we entered into a €70,000 three year term loan agreement with Bank of America Merrill Lynch International in London. This agreement was amended in September 2016 to extend the term by one year and increase the principal balance. The balance of this loan at October 31, 2016 was €72,300. The interest rate is variable based on the LIBOR rate plus applicable margin based on our leverage ratio, and was 0.875 percent over LIBOR at October 31, 2016.

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Respective to all of these loans are two primary covenants, the leverage ratio that restricts indebtedness (net of cash) to a maximum 3.50 times consolidated four-quarter trailing EBITDA and the interest coverage ratio that requires four-quarter trailing EBITDA to be at minimum 3.0 times consolidated trailing four-quarter interest expense. (Debt, EBITDA, and interest expense are as defined in respective credit agreements.) With respect to these two primary covenants as of October 31, 2016, we were approximately 54 percent of the most restrictive leverage ratio and approximately 13 percent of the most restrictive interest coverage ratio. Unused borrowing capacity under existing loan agreements would amount to an additional 23 percent of the most restrictive leverage ratio.

Regarding expectations for 2017, we are optimistic about longer term growth opportunities in the diverse consumer durable, non-durable, medical, electronics and industrial end markets we serve. However, we move forward in the near-term with caution given continued slow growth in emerging markets, expectations for global GDP indicating a low-growth macroeconomic environment, and marketplace effects of political instability in certain areas of the world. With respect to the United Kingdom’s (UK) expected exit (Brexit) from the European Union (EU), resulting effects upon markets we serve and tax jurisdictions in which we operate will depend upon terms of agreements the UK makes to retain access to EU markets during the near-term and more permanently and also to national laws and regulations that may replace and diverge from EU laws and regulations. Until more specific details are determined, the economic and political uncertainty in the UK and EU likely will continue along with implications upon the global economy. While the announcement of Brexit initially resulted in significant volatility in global stock markets and currency exchange markets, the interim effects at this time upon the way we do business and results from operations have not been material.

Though the pace of improvement in the global economy remains unclear, our growth potential has been demonstrated over time from our capacity to build and enhance our core businesses by entering emerging markets and pursuing market adjacencies. We drive value for our customers through our application expertise, differentiated technology, and direct sales and service support. Our priorities also are focused on operational efficiencies by employing continuous improvement methodologies in our business processes. We expect our efforts will continue to provide more than sufficient cash from operations for meeting our liquidity needs and paying dividends to common shareholders, as well as enabling us to invest in the development of new applications and markets for our technologies. Cash from operations have been 16 to 19 percent of revenues over the past five years, resulting in more than sufficient cash for our ordinary business requirements. We believe our cash provided from operations and available borrowing capacity will enable us to make other opportunistic investments in our own common shares and strategic business combinations.

With respect to contractual spending, the table above presents our financial obligations as $1,212,488 of which $171,380 is payable in 2017. In August 2015, the board of directors approved a $200,000 common share repurchase program that added capacity to the board’s December 2014 approval authorizing management at its discretion to repurchase shares up to $300,000. Approximately $118,971 remained available for share repurchases as of October 31, 2016. The repurchase program is funded using cash from operations and proceeds from borrowings under our credit facilities. Timing and actual number of shares subject to repurchase 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 2017 will be focused on continued investments in our information systems and projects that improve both capacity and efficiency of manufacturing and distribution operations.

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 2016, as compared with 2015, the United States dollar was generally stronger against foreign currencies. If 2015 exchange rates had been in effect during 2016, sales would have been approximately $23,249 higher and third-party costs would have been approximately $8,332 higher. In 2015, as compared with 2014, the United States dollar was stronger against foreign currencies. If 2014 exchange rates had been in effect during 2015, sales would have been approximately $114,844 higher and third-party costs would have been approximately $67,414 higher. These effects on reported sales do not include the impact of local price adjustments made in response to changes in currency exchange rates.

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.

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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.