Item 8. Financial Statements and Supplementary Data

Consolidated Statements of Income

Years ended October 31, 2019, 2018 and 2017		2019				2018				2017
(In thousands except for per-share amounts)
Sales		$	2,194,226			$	2,254,668			$	2,066,982
Operating costs and expenses:
Cost of sales			1,002,123				1,018,340				927,692
Selling and administrative expenses			708,990				733,749				672,888
			1,711,113				1,752,089				1,600,580
Operating profit			483,113				502,579				466,402
Other income (expense):
Interest expense			(47,145	)			(49,576	)			(36,601	)
Interest and investment income			1,844				1,384				1,124
Other - net			(6,708	)			(5,868	)			(10,634	)
			(52,009	)			(54,060	)			(46,111	)
Income before income taxes			431,104				448,519				420,291
Income tax provision:
Current			95,031				105,093				124,961
Deferred			(1,018	)			(33,949	)			(472	)
			94,013				71,144				124,489
Net income		$	337,091			$	377,375			$	295,802
Average common shares			57,462				57,970				57,533
Incremental common shares attributable to outstanding stock options, restricted stock and deferred stock-based compensation			740				961				671
Average common shares and common share equivalents			58,202				58,931				58,204
Basic earnings per share		$	5.87			$	6.51			$	5.14
Diluted earnings per share		$	5.79			$	6.40			$	5.08
Dividends declared per common share		$	1.43			$	1.25			$	1.11

The accompanying notes are an integral part of the consolidated financial statements.

Nordson Corporation 33

Consolidated Statements of Comprehensive Income

Years ended October 31, 2019, 2018 and 2017		2019				2018				2017
(In thousands)
Net income		$	337,091			$	377,375			$	295,802
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			3,710				(28,619	)			22,697
Pension and postretirement benefit plans:
Prior service (cost) credit arising during the year			(148	)			(45	)			—
Net actuarial gain (loss) arising during the year			(63,138	)			(7,783	)			2,641
Amortization of prior service (cost) credit			(322	)			(322	)			(210	)
Amortization of actuarial loss			6,946				10,536				7,972
Settlement loss recognized			385				200				712
Total pension and postretirement benefit plans			(56,277	)			2,586				11,115
Total other comprehensive income (loss)			(52,567	)			(26,033	)			33,812
Reclassification due to adoption of ASU 2018-02			—				(18,846	)			—
Total comprehensive income		$	284,524			$	332,496			$	329,614

The accompanying notes are an integral part of the consolidated financial statements.

Nordson Corporation 34

Consolidated Balance Sheets

October 31, 2019 and 2018		2019				2018
(In thousands)
Assets
Current assets:
Cash and cash equivalents		$	151,164			$	95,678
Receivables - net			530,765				491,423
Inventories - net			283,399				264,477
Prepaid expenses and other current assets			45,867				32,524
Total current assets			1,011,195				884,102
Property, plant and equipment - net			398,895				386,666
Goodwill			1,614,739				1,608,018
Intangible assets - net			445,575				499,741
Deferred income taxes			11,261				9,780
Other assets			34,782				32,705
		$	3,516,447			$	3,421,012
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		$	85,139			$	83,590
Income taxes payable			15,601				19,319
Accrued liabilities			161,655				175,085
Customer advance payments			41,131				38,997
Current maturities of long-term debt			168,738				28,734
Current obligations under capital leases			5,362				4,555
Total current liabilities			477,626				350,280
Long-term debt			1,075,404				1,285,357
Obligations under capital leases			9,513				8,850
Pension obligations			158,506				113,222
Postretirement obligations			86,368				70,154
Deferred income taxes			83,564				100,704
Other liabilities			44,421				41,704
Shareholders' equity:
Preferred shares, no par value; 10,000 shares authorized;
none issued			—				—
Common shares, no par value; 160,000 shares authorized;
98,023 shares issued at October 31, 2019 and 2018			12,253				12,253
Capital in excess of stated value			483,116				446,555
Retained earnings			2,747,650				2,488,375
Accumulated other comprehensive loss			(231,881	)			(179,314	)
Common shares in treasury, at cost			(1,430,093	)			(1,317,128	)
Total shareholders' equity			1,581,045				1,450,741
		$	3,516,447			$	3,421,012

The accompanying notes are an integral part of the consolidated financial statements.

Nordson Corporation 35

Condensed Consolidated Statements of Shareholders’ Equity

		Years ended October 31, 2019, 2018 and 2017
(In thousands, except for per share data)		Common Shares				Additional Paid-in- Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Common Shares in Treasury, at cost				TOTAL
October 31, 2016		$	12,253			$	376,625			$	1,932,635			$	(168,247	)		$	(1,301,663	)		$	851,603
Shares issued under company stock and employee benefit plans			—				8,913				—				—				5,342				14,255
Tax benefit from stock option and restricted stock transactions			—				7,079				—				—				—				7,079
Stock-based compensation			—				20,168				—				—				—				20,168
Purchase of treasury shares (30,148 shares)			—				—				—				—				(3,386	)			(3,386	)
Dividends declared ($1.11 per share)			—				—				(63,840	)			—				—				(63,840	)
Net income			—				—				295,802				—				—				295,802
Other comprehensive income:
Foreign currency translation adjustments			—				—				—				22,697				—				22,697
Defined benefit pension and post-retirement plans adjustment			—				—				—				11,115				—				11,115
October 31, 2017		$	12,253			$	412,785			$	2,164,597			$	(134,435	)		$	(1,299,707	)		$	1,155,493
Shares issued under company stock and employee benefit plans			—				12,220				—				—				6,591				18,811
Stock-based compensation			—				21,550				—				—				—				21,550
Purchase of treasury shares (180,735 shares)			—				—				—				—				(24,012	)			(24,012	)
Dividends declared ($1.25 per share)			—				—				(72,443	)			—				—				(72,443	)
Net income			—				—				377,375				—				—				377,375
Reclassification due to adoption of ASU 2018-02			—				—				18,846				(18,846	)			—				—
Other comprehensive income (loss):
Foreign currency translation adjustments			—				—				—				(28,619	)			—				(28,619	)
Defined benefit pension and post-retirement plans adjustment			—				—				—				2,586				—				2,586
October 31, 2018		$	12,253			$	446,555			$	2,488,375			$	(179,314	)		$	(1,317,128	)		$	1,450,741
Shares issued under company stock and employee benefit plans			—				18,475				—				—				7,545				26,020
Stock-based compensation			—				18,086				—				—				—				18,086
Purchase of treasury shares (998,004 shares)			—				—				—				—				(120,510	)			(120,510	)
Dividends declared ($1.43 per share)			—				—				(82,145	)			—				—				(82,145	)
Net income			—				—				337,091				—				—				337,091
Impact of adoption of ASU 2014-09			—				—				4,329				—				—				4,329
Other comprehensive income (loss):
Foreign currency translation adjustments			—				—				—				3,710				—				3,710
Defined benefit pension and post-retirement plans adjustment			—				—				—				(56,277	)			—				(56,277	)
October 31, 2019		$	12,253			$	483,116			$	2,747,650			$	(231,881	)		$	(1,430,093	)		$	1,581,045

The accompanying notes are an integral part of the consolidated financial statements.

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Consolidated Statements of Cash Flows

Years ended October 31, 2019, 2018 and 2017		2019				2018				2017
(In thousands)
Cash flows from operating activities:
Net income		$	337,091			$	377,375			$	295,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			55,454				52,959				45,947
Amortization			54,790				55,448				44,907
Provision for losses on receivables			2,254				1,185				4,030
Deferred income taxes			(1,018	)			(33,949	)			(472	)
Non-cash stock compensation			18,086				21,550				20,168
Loss on sale of property, plant and equipment			953				830				188
Other non-cash			(669	)			1,359				2,770
Changes in operating assets and liabilities:
Receivables			(39,992	)			10,236				(46,152	)
Inventories			(23,117	)			5,532				(19,667	)
Prepaid expenses			(2,024	)			(4,046	)			4,737
Other assets			(74	)			320				(3,429	)
Accounts payable			654				(2,671	)			4,805
Income taxes payable			(3,832	)			(2,718	)			7,522
Accrued liabilities			(14,027	)			2,134				(5,629	)
Customer advance payments			2,193				5,047				5,163
Other liabilities			(4,325	)			18,402				2,266
Other			496				(4,355	)			(6,204	)
Net cash provided by operating activities			382,893				504,638				356,752
Cash flows from investing activities:
Additions to property, plant and equipment			(64,244	)			(89,790	)			(71,558	)
Proceeds from sale of property, plant and equipment			1,285				458				4,007
Acquisition of businesses, net of cash acquired			(12,486	)			(50,586	)			(805,943	)
Equity investments			(844	)			—				(4,470	)
Net cash used in investing activities			(76,289	)			(139,918	)			(877,964	)
Cash flows from financing activities:
Proceeds from short-term borrowings			—				996				6,017
Repayment of short-term borrowings			—				(1,006	)			(8,149	)
Proceeds from long-term debt			186,635				585,661				841,536
Repayment of long-term debt			(254,473	)			(854,538	)			(237,183	)
Repayment of capital lease obligations			(4,859	)			(5,333	)			(5,287	)
Payment of debt issuance costs			(1,742	)			(1,826	)			(3,214	)
Issuance of common shares			26,020				18,811				14,086
Purchase of treasury shares			(120,510	)			(24,012	)			(3,216	)
Dividends paid			(82,145	)			(72,443	)			(63,840	)
Net cash provided by (used in) financing activities			(251,074	)			(353,690	)			540,750
Effect of exchange rate changes on cash			(44	)			(5,735	)			3,606
Increase in cash and cash equivalents			55,486				5,295				23,144
Cash and cash equivalents at beginning of year			95,678				90,383				67,239
Cash and cash equivalents at end of year		$	151,164			$	95,678			$	90,383

The accompanying notes are an integral part of the consolidated financial statements.

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Notes to Consolidated Financial Statements

NOTE REGARDING AMOUNTS AND FISCAL YEAR REFERENCES

In this annual report, all amounts related to United States dollars and foreign currency and to the number of Nordson Corporation’s common shares, except for per share earnings and dividend amounts, are expressed in thousands. Unless 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.

Note 1 — Significant accounting policies

Consolidation — The consolidated financial statements include the accounts of Nordson Corporation and its majority-owned and controlled subsidiaries. Investments in affiliates and joint ventures in which our ownership is 50 percent 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 Consolidated Financial Statements and notes. Actual amounts could differ from these estimates.

Fiscal year — Our fiscal year is November 1 through October 31.

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 October 31, 2019 and 2018 were not material.

However, for certain contracts related to the sale of customer-specific products within our Advanced Technology Systems segment, there was a change in revenue recognition upon adoption of the new revenue standard. Previously, these contracts were recognized at the point in time when the shipping terms were satisfied. Under the new revenue standard, we now recognize revenue for these contracts 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 for these products or services, 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 at October 31, 2019. Revenue recognized over time is not material to our overall Consolidated Financial Statements.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales, value add, and other taxes 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 costs is one year or less. These costs are recorded within Selling, general and administrative expenses in our 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.

Nordson Corporation 38

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, therefore, 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 Note 15 for details on our operating segments.

Shipping and handling costs — Amounts billed to customers for shipping and handling are recorded as revenue. Shipping and handling expenses are included in cost of sales.

Advertising costs — Advertising costs are expensed as incurred and were $10,479, $12,451 and $11,296 in 2019, 2018 and 2017, respectively.

Research and development — Investments in research and development are important to our long-term growth, enabling us to keep pace with changing customer and marketplace needs through the development of new products and new applications for existing products. We place strong emphasis on technology developments and improvements through internal engineering and research teams. Research and development costs are expensed as incurred and were $60,018, $58,806 and $52,462 in 2019, 2018 and 2017, respectively. As a percentage of sales, research and development expenses were 2.7, 2.6 and 2.5 percent in 2019, 2018 and 2017, respectively.

Earnings per share — Basic earnings per share are computed based on the weighted-average number of common shares outstanding during each year, while diluted earnings per share are based on the weighted-average number of common shares and common share equivalents outstanding. Common share equivalents consist of shares issuable upon exercise of stock options computed using the treasury stock method, as well as restricted stock and deferred stock-based compensation. Options whose exercise price is higher than the average market price are excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive. Options for 176 common shares were excluded from the diluted earnings per share calculation in 2019, because their effect would have been anti-dilutive. No options were excluded from the calculation of diluted earnings per share in 2018 and 2017. Under the Amended & Restated 2012 Stock Incentive and Award Plan, executive officers and selected other key employees receive common share awards based on corporate performance measures over three-year performance periods. Awards for which performance measures have not been met were excluded from the calculation of diluted earnings per share.

Cash — Highly liquid instruments with maturities of 90 days or less at date of purchase are considered to be cash equivalents.

Allowance for doubtful accounts — An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of customers to make required payments. The amount of the allowance is determined principally on the basis of past collection experience and known factors regarding specific customers. Accounts are written off against the allowance when it becomes evident that collection will not occur. Credit is extended to customers satisfying pre-defined credit criteria. We believe we have limited concentration of credit risk due to the diversity of our customer base.

Inventories — Inventories are valued at the lower of cost or net realizable value. Cost was determined using the last-in, first-out (LIFO) method for 19 percent of consolidated inventories at October 31, 2019 and 15 percent of consolidated inventories at October 31, 2018. The first-in, first-out (FIFO) method is used for all other inventories. Consolidated inventories would have been $6,145 and $6,545 higher than reported at October 31, 2019 and 2018, respectively, had the FIFO method, which approximates current cost, been used for valuation of all inventories.

Property, plant and equipment and depreciation — Property, plant and equipment are carried at cost. Additions and improvements that extend the lives of assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Plant and equipment are depreciated for financial reporting purposes using the straight-line method over the estimated useful lives of the assets or, in the case of property under capital leases, over the terms of the leases. Leasehold improvements are depreciated over the shorter of the lease term or their useful lives. Useful lives are as follows:

Land improvements	15-25 years
Buildings	20-40 years
Machinery and equipment	3-18 years
Enterprise management systems	5-13 years

Depreciation expense is included in cost of sales and selling and administrative expenses.

Nordson Corporation 39

Internal use software costs are expensed or capitalized depending on whether they are incurred in the preliminary project stage, application development stage or the post-implementation stage. Amounts capitalized are amortized over the estimated useful lives of the software beginning with the project’s completion. All re-engineering costs are expensed as incurred. Interest costs on significant capital projects are capitalized. No interest was capitalized in 2019, 2018 or 2017.

Goodwill and intangible assets — Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to specific reporting units. Goodwill is not amortized but is subject to annual impairment testing. Our annual impairment testing is performed as of August 1. Testing is done more frequently if an event occurs or circumstances change that would indicate the fair value of a reporting unit is less than the carrying amount of those assets.

Other amortizable intangible assets, which consist primarily of patent/technology costs, customer relationships, noncompete agreements, and trade names, are amortized over their useful lives on a straight-line basis. At October 31, 2019, the weighted-average useful lives for each major category of amortizable intangible assets were:

Patent/technology costs	13 years
Customer relationships	14 years
Noncompete agreements	3 years
Trade names	15 years

Foreign currency translation — The financial statements of subsidiaries outside the United States are generally measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet dates. Income and expense items are translated at average monthly rates of exchange. The resulting translation adjustments are included in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Generally, gains and losses from foreign currency transactions, including forward contracts, of these subsidiaries and the United States parent are included in net income. Gains and losses from intercompany foreign currency transactions of a long-term investment nature are included in accumulated other comprehensive income (loss).

Accumulated other comprehensive loss — Accumulated other comprehensive loss at October 31, 2019 and 2018 consisted of:

		Cumulative				Pension and				Accumulated
		translation				postretirement benefit				other comprehensive
		adjustments				plan adjustments				loss
Balance at October 31, 2018		$	(57,042	)		$	(122,272	)		$	(179,314	)
Pension and postretirement plan changes, net of tax of $(17,167)			—				(56,277	)			(56,277	)
Currency translation losses			3,710				—				3,710
Balance at October 31, 2019		$	(53,332	)		$	(178,549	)		$	(231,881	)

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) measured 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 Sheet.

Following is a reconciliation of the product warranty liability for 2019 and 2018:

		2019				2018
Balance at beginning of year		$	12,195			$	13,377
Accruals for warranties			9,670				11,937
Warranty payments			(10,881	)			(12,966	)
Currency adjustments			22				(153	)
Balance at end of year		$	11,006			$	12,195

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Note 2 — Recently issued accounting standards

New accounting guidance adopted:

On November 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09 (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of November 1, 2018. Results for reporting periods beginning after November 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. The cumulative impact of adopting Topic 606 as of November 1, 2018 did not have a material impact to the Consolidated Financial Statements.

In March 2017, the Financial Accounting Standards Board (FASB) issued a new standard which requires the presentation of the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. All other components of net periodic benefit cost are presented below operating income. Additionally, only the service cost component is eligible for capitalization in assets. We adopted the standard beginning November 1, 2018. During the twelve months ended October 31, 2018 and 2017, the reclassification resulted in an increase in Other expense of $8,022 and $8,700, respectively, a decrease in Cost of sales of $363 and $289, respectively, and a decrease in Selling, general & administrative expenses of $7,659 and $8,411, respectively.

New accounting guidance issued and not yet adopted:

In February 2016, the FASB issued ASU 2016-02, “Leases (ASC 842)” 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.

We adopted the new standard on November 1, 2019 using the transition option, established in ASU 2018-11, Leases (ASC 842), Targeted Improvements which provides a transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. We elected the practical expedient package related to the identification of leases in contracts, lease classification, and accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before the effective date. As we did not reassess such conclusions, we did not adopt the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended, terminated or whether a purchase option will be exercised. As part of our adoption of the new standard, we compiled an inventory of our lease agreements and implemented an enterprise-wide lease management system to help with the standard’s additional reporting requirements. We are complete with our assessment of ASC 842 and expect to record right-of-use assets and corresponding lease liabilities of approximately 3 percent and 6 percent of total assets and liabilities, respectively, in our consolidated balance sheet as of November 1, 2019. We do not expect the new standard to have a material impact our Consolidated Statement of Income or Consolidated Statement of Cash Flows.

In June 2016, the FASB issued a new standard that changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. We will be required to use a current expected credit loss model that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. ASU 2016-13 does not prescribe a specific method to make an estimate so the application will require judgment and should consider historical information, current information, reasonable and supportable forecasts, and includes estimates of prepayment. This guidance will become effective for us on November 1, 2020. Early adoption is permitted. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.

In August 2018, the FASB issued a new standard which removes, modifies, and adds certain disclosure requirements on fair value measurements. The guidance removes disclosure requirements pertaining to the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly. In addition, the amendment clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The guidance adds disclosure requirements for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. It will be effective for us beginning November 1, 2020. Early adoption is permitted. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.

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In August 2018, the FASB issued a new standard which addresses defined benefit plans. The amendments modify the following disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans: the amounts in accumulated other comprehensive income expected to be recognized as components of net period benefit cost over the next fiscal year, amount and timing of plan assets expected to be returned to the employer, related party disclosure about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan, and the effects of a one-percentage point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligations for postretirement health care benefits are removed. A disclosure requirement was added for the explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. Additionally, the standard clarifies disclosure requirement surrounding the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. It will be effective for us beginning November 1, 2021. Early adoption is permitted. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.

In August 2018, the FASB issued a new standard which makes a number of changes meant to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance in determining when the arrangement includes a software license. It will be effective for us beginning November 1, 2020. Early adoption is permitted. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.

Note 3 — 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 Consolidated Statement of Income.

2019 acquisition

On July 1, 2019, we purchased certain assets of Optical Control GmbH & Co. KG (“Optical”), a Nuremberg, Germany designer and developer of high speed, fully automatic counting systems utilizing x-ray technology. This transaction was not material to our Consolidated Financial Statements. We recorded the acquisition of Optical based on the fair value of the assets acquired and the liabilities assumed. Goodwill associated with this acquisition is tax deductible. This acquisition is being reported in our Advanced Technology Systems segment. As of October 31, 2019, the purchase price allocations remain preliminary as we complete our assessments of income taxes.

2018 acquisitions

On October 17, 2018, we purchased 100 percent of the outstanding shares of Cladach Nua Teoranta (“Clada”), a Galway, Ireland designer and developer primarily focused on medical balloons and balloon catheters. Clada’s technologies are used in key applications such as angioplasty and the treatment of vascular disease. We acquired Clada for an aggregate purchase price of $5,236, which included an earn-out liability of $1,131. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $3,776 and identifiable intangible assets of $697 were recorded. The identifiable intangible assets consist primarily of $58 of customer relationships (amortized over 6 years), $70 of tradenames (amortized over 9 years), $499 of technology (amortized over 7 years) and $70 of non-compete agreements (amortized over 3 years). Goodwill associated with this acquisition is not tax deductible. This acquisition is being reported in our Advanced Technology Systems segment.

On January 2, 2018, we purchased 100 percent of the outstanding shares of Sonoscan, Inc. (“Sonoscan”), an Elk Grove Village, Illinois leading designer and manufacturer of acoustic microscopes and sophisticated acoustic micro imaging systems used in a variety of microelectronic, automotive, aerospace and industrial electronic assembly applications. We acquired Sonoscan for an aggregate purchase price of $46,018, net of $655 of cash. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $22,775 and identifiable intangible assets of $7,910 were recorded. The identifiable intangible assets consist primarily of $1,700 of customer relationships (amortized over 7 years), $3,300 of tradenames (amortized over 11 years), $2,500 of technology (amortized over 7 years) and $410 of non-compete agreements (amortized over 5 years). Goodwill associated with this acquisition is tax deductible. This acquisition is being reported in our Advanced Technology Systems segment.

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2017 acquisitions

On March 31, 2017, we completed the acquisition of Vention Medical’s Advanced Technologies business (“Vention”), a Salem, New Hampshire leading designer, developer and manufacturer of minimally invasive interventional delivery devices, catheters and advanced components for the global medical technology market. This is a highly complementary business that adds significant scale and enhances strategic capabilities of our existing medical platform. We acquired Vention for an aggregate purchase price of $705,000, net of $3,313 of cash and other closing adjustments of $10,726. The acquisition was funded primarily through a new term loan facility, as well as through cash and borrowings on our credit facility. The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determined the estimated fair values based on independent appraisals, discounted cash flow analyses, quoted market prices, replacement cost analyses and estimates made by management.

Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $434,123, of which $37,200 is tax deductible, and identifiable intangible assets of $286,000 were recorded. The identifiable intangible assets consist primarily of $240,000 of customer relationships (amortized over 14 years), $2,000 of tradenames (amortized over 6 years), and $44,000 of technology, consisting of $36,000 (amortized over 14 years) and $8,000 (amortized over 10 years). Goodwill represents the value we expect to achieve through the expansion of our existing medical platform. This acquisition is being reported in our Advanced Technology Systems segment.

The following table summarizes the purchase price allocation of the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

Assets acquired:
Cash		$	3,313
Receivables			26,742
Inventories			14,279
Prepaid expenses			3,079
Property, plant and equipment			34,319
Goodwill			434,123
Intangible assets			286,000
Other assets			1,071
Total assets acquired		$	802,926
Liabilities assumed:
Current liabilities			19,130
Deferred tax liabilities			64,757
Total liabilities assumed		$	83,887
Net assets acquired		$	719,039

On February 16, 2017, we purchased 100 percent of the outstanding shares of InterSelect GmbH (“InterSelect”), a German designer and manufacturer of selective soldering systems used in a variety of automotive, aerospace and industrial electronics assembly applications. We acquired InterSelect for an aggregate purchase price of $5,432, net of cash acquired of $492. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $3,548 and identifiable intangible assets of $1,879 were recorded. The identifiable intangible assets consist primarily of $1,109 of customer relationships (amortized over 9 years), $348 of tradenames (amortized over 12 years), and $422 of technology (amortized over 9 years). Goodwill associated with this acquisition is not tax deductible. This acquisition is being reported in our Advanced Technology Systems segment.

On February 1, 2017, we purchased 100 percent of the outstanding shares of Plas-Pak Industries, Inc. (“Plas-Pak”), a Norwich, Connecticut designer and manufacturer of injection molded, single-use plastic dispensing products. Plas-Pak’s broad product offering includes two-component (2K) cartridges for industrial and commercial do-it-yourself adhesives, dial-a-dose calibrated syringes for veterinary and animal health applications, and specialty syringes for pesticide, dental and other markets. We acquired Plas-Pak for an aggregate purchase price of $70,798, net of cash acquired of $543. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $24,995 and identifiable intangible assets of $33,800 were recorded. The identifiable intangible assets consist primarily of $23,700 of customer relationships (amortized over 17 years), $4,100 of tradenames (amortized over 12 years), $5,000 of technology (amortized over 9 years) and $1,000 of non-compete agreements (amortized over 5 years). Goodwill associated with this acquisition is tax deductible. This acquisition is being reported in our Advanced Technology Systems segment.

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On January 3, 2017, we purchased certain assets of ACE Production Technologies, Inc. (“ACE”), a Spokane, Washington based designer and manufacturer of selective soldering systems used in a variety of automotive and industrial electronics assembly applications. We acquired the assets for an aggregate purchase price of $13,761. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $6,383 and identifiable intangible assets of $5,010 were recorded. The identifiable intangible assets consist primarily of $2,800 of customer relationships (amortized over 7 years), $1,000 of tradenames (amortized over 11 years), $1,100 of technology (amortized over 7 years) and $110 of non-compete agreements (amortized over 3 years). Goodwill associated with this acquisition is tax deductible. This acquisition is being reported in our Advanced Technology Systems segment.

Note 4 — Details of Consolidated Balance Sheet

		2019				2018
Receivables:
Accounts		$	506,318			$	475,638
Notes			3,980				4,476
Other			30,268				20,889
			540,566				501,003
Allowance for doubtful accounts			(9,801	)			(9,580	)
		$	530,765			$	491,423
Inventories:
Raw materials and component parts		$	102,044			$	112,823
Work-in-process			42,904				47,126
Finished goods			183,973				148,618
			328,921				308,567
Obsolescence and other reserves			(39,377	)			(37,545	)
LIFO reserve			(6,145	)			(6,545	)
		$	283,399			$	264,477
Property, plant and equipment:
Land		$	10,468			$	10,544
Land improvements			4,390				4,294
Buildings			256,195				252,127
Machinery and equipment			489,864				456,307
Enterprise management system			53,020				53,234
Construction-in-progress			34,944				24,266
Leased property under capitalized leases			29,528				26,118
			878,409				826,890
Accumulated depreciation and amortization			(479,514	)			(440,224	)
		$	398,895			$	386,666
Accrued liabilities:
Salaries and other compensation		$	49,908			$	72,364
Pension and retirement			9,993				5,095
Taxes other than income taxes			8,606				8,060
Other			93,148				89,566
		$	161,655			$	175,085

Note 5 — Goodwill and intangible assets

We account for goodwill and other intangible assets in accordance with the provisions of ASC 350 and account for business combinations using the acquisition method of accounting and accordingly, the assets and liabilities of the entities acquired are recorded at their estimated fair values at the acquisition date. 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 subject to annual impairment testing. Our annual impairment testing is performed as of August 1. Testing is done more frequently if an event occurs or circumstances change that would indicate the fair value of a reporting unit is less than the carrying amount of those assets. We assess the fair value of reporting units on a non-recurring basis using a quantitative analysis that uses 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. The implied fair value of our reporting units is determined based on significant unobservable inputs, as discussed below; accordingly, these inputs fall within Level 3 of the fair value hierarchy.

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The discounted cash flow method (Income Approach) uses assumptions for revenue growth, operating margin, and working capital turnover that are based on 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.

In the application of the guideline public company method (Market Approach), 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 Earnings Before Interest, Taxes, Depreciation and Amortization (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 consideration of both the Income and Market approaches.

An impairment charge is recorded for the amount by which the carrying value of the reporting unit exceeds the fair value of the reporting unit, as calculated in the quantitative analysis described above. Based on our annual impairment tests in 2019, 2018 and 2017, the fair value of each reporting unit exceeded its carrying value, and accordingly we did not record any goodwill impairment charges in 2019, 2018 or 2017.

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

Changes in the carrying amount of goodwill during 2019 by operating segment:

		Adhesive Dispensing Systems				Advanced Technology Systems				Industrial Coating Systems				Total
Balance at October 31, 2018		$	388,991			$	1,194,969			$	24,058			$	1,608,018
Acquisitions			—				9,225				—				9,225
Currency effect			(1,588	)			(916	)			—				(2,504	)
Balance at October 31, 2019		$	387,403			$	1,203,278			$	24,058			$	1,614,739

Changes in the carrying amount of goodwill during 2018 by operating segment:

		Adhesive Dispensing Systems				Advanced Technology Systems				Industrial Coating Systems				Total
Balance at October 31, 2017		$	392,295			$	1,172,857			$	24,058			$	1,589,210
Acquisition			—				24,679				—				24,679
Currency effect			(3,304	)			(2,567	)			—				(5,871	)
Balance at October 31, 2018		$	388,991			$	1,194,969			$	24,058			$	1,608,018

Accumulated impairment losses, which were recorded in 2009, were $232,789 at October 31, 2019 and October 31, 2018. Of these losses, $229,173 related to the Advanced Technology Systems segment and $3,616 related to the Industrial Coating Systems segment.

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Information regarding intangible assets subject to amortization:

		October 31, 2019
		Carrying Amount				Accumulated Amortization				Net Book Value
Customer relationships		$	480,007			$	173,996			$	306,011
Patent/technology costs			154,735				71,663				83,072
Trade name			96,655				41,303				55,352
Noncompete agreements			11,540				10,406				1,134
Other			1,400				1,394				6
Total		$	744,337			$	298,762			$	445,575

		October 31, 2018
		Carrying Amount				Accumulated Amortization				Net Book Value
Customer relationships		$	480,404			$	137,640			$	342,764
Patent/technology costs			153,602				59,845				93,757
Trade name			96,433				34,768				61,665
Noncompete agreements			11,469				9,919				1,550
Other			1,386				1,381				5
Total		$	743,294			$	243,553			$	499,741

Amortization expense for 2019, 2018 and 2017 was $54,790, $55,448 and $44,907 respectively.

Estimated amortization expense for each of the five succeeding years:

Year		Amounts
2020		$	55,241
2021		$	49,799
2022		$	45,794
2023		$	44,822
2024		$	42,109

Note 6 — Retirement, pension and other postretirement plans

Retirement plans — We have funded contributory retirement plans covering certain employees. Our contributions are primarily determined by the terms of the plans, subject to the limitation that they shall not exceed the amounts deductible for income tax purposes. We also sponsor unfunded contributory supplemental retirement plans for certain employees. Generally, benefits under these plans vest gradually over a period of approximately three years from date of employment, and are based on the employee’s contribution. The expense applicable to retirement plans for 2019, 2018 and 2017 was approximately $22,573, $22,634 and $19,259, respectively.

Pension plans — We have various pension plans covering a portion of our United States and international employees. Pension plan benefits are generally based on years of employment and, for salaried employees, the level of compensation. Actuarially determined amounts are contributed to United States plans to provide sufficient assets to meet future benefit payment requirements. We also sponsor an unfunded supplemental pension plan for certain employees. International subsidiaries fund their pension plans according to local requirements.

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A reconciliation of the benefit obligations, plan assets, accrued benefit cost and the amount recognized in financial statements for pension plans is as follows:

		United States								International
		2019				2018				2019				2018
Change in benefit obligation:
Benefit obligation at beginning of year		$	425,605			$	430,816			$	87,227			$	88,761
Service cost			14,587				13,052				1,933				2,048
Interest cost			18,304				14,797				1,670				1,656
Participant contributions			—				—				83				90
Plan amendments			—				—				186				50
Settlements			—				—				(3,018	)			(1,431	)
Foreign currency exchange rate change			—				—				106				(2,676	)
Actuarial (gain) loss			107,662				(20,502	)			11,852				107
Benefits paid			(14,161	)			(12,558	)			(2,049	)			(1,378	)
Benefit obligation at end of year		$	551,997			$	425,605			$	97,990			$	87,227
Change in plan assets:
Beginning fair value of plan assets		$	361,073			$	369,234			$	39,617			$	37,504
Actual return on plan assets			76,700				(13,890	)			707				2,370
Company contributions			25,319				18,287				3,696				3,728
Participant contributions			—				—				83				90
Settlements			—				—				(3,018	)			(1,431	)
Foreign currency exchange rate change			—				—				604				(1,266	)
Benefits paid			(14,161	)			(12,558	)			(2,049	)			(1,378	)
Ending fair value of plan assets		$	448,931			$	361,073			$	39,640			$	39,617
Funded status at end of year		$	(103,066	)		$	(64,532	)		$	(58,350	)		$	(47,610	)
Amounts recognized in financial statements:
Noncurrent asset		$	2,171			$	1,544			$	1,375			$	748
Accrued benefit liability			(6,435	)			(1,176	)			(21	)			(36	)
Long-term pension obligations			(98,802	)			(64,900	)			(59,704	)			(48,322	)
Total amount recognized in financial statements		$	(103,066	)		$	(64,532	)		$	(58,350	)		$	(47,610	)

		United States								International
		2019				2018				2019				2018
Amounts recognized in accumulated other comprehensive (gain) loss:
Net actuarial loss		$	178,390			$	130,788			$	33,826			$	23,304
Prior service credit			(100	)			(161	)			(2,342	)			(2,844	)
Accumulated other comprehensive loss		$	178,290			$	130,627			$	31,484			$	20,460
Amounts expected to be recognized during next fiscal year:
Amortization of net actuarial loss		$	13,591			$	6,221			$	2,945			$	1,700
Amortization of prior service credit			(84	)			(61	)			(288	)			(302	)
Total		$	13,507			$	6,160			$	2,657			$	1,398

The following table summarizes the changes in accumulated other comprehensive loss:

		United States								International
		2019				2018				2019				2018
Balance at beginning of year		$	130,627			$	124,733			$	20,460			$	23,855
Net (gain) loss arising during the year			54,304				15,351				12,737				(752	)
Prior service cost arising during the year			—				—				186				50
Net gain recognized during the year			(6,702	)			(9,479	)			(1,696	)			(2,115	)
Prior service credit recognized during the year			61				22				303				316
Settlement loss			—				—				(470	)			(252	)
Exchange rate effect during the year			—				—				(36	)			(642	)
Balance at end of year		$	178,290			$	130,627			$	31,484			$	20,460

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Information regarding the accumulated benefit obligation is as follows:

		United States								International
		2019				2018				2019				2018
For all plans:
Accumulated benefit obligation		$	513,861			$	403,590			$	83,439			$	74,690
For plans with benefit obligations in excess of plan assets:
Projected benefit obligation			491,816				373,531				86,534				46,292
Accumulated benefit obligation			453,681				351,516				73,293				42,363
Fair value of plan assets			386,580				307,455				27,769				5,355

Net periodic pension costs include the following components:

		United States												International
		2019				2018				2017				2019				2018				2017
Service cost		$	14,587			$	13,052			$	11,992			$	1,933			$	2,048			$	2,343
Interest cost			18,304				14,797				13,308				1,670				1,656				1,572
Expected return on plan assets			(23,341	)			(21,964	)			(20,784	)			(1,592	)			(1,512	)			(1,338	)
Amortization of prior service cost (credit)			(61	)			(22	)			44				(303	)			(316	)			(302	)
Amortization of net actuarial loss			6,702				9,479				9,537				1,696				2,115				2,605
Settlement loss			—				—				648				470				252				363
Total benefit cost		$	16,191			$	15,342			$	14,745			$	3,874			$	4,243			$	5,243

Net periodic pension cost for 2019, 2018 and 2017 included a settlement loss of $470, $252 and $1,011, respectively, due to lump sum retirement payments.

The components of net periodic pension cost other than service cost are included in Other – net in our Consolidated Statements of Income.

The weighted average assumptions used in the valuation of pension benefits were as follows:

		United States												International
		2019				2018				2017				2019				2018				2017
Assumptions used to determine benefit obligations at October 31:
Discount rate			3.25	%			4.53	%			3.80	%			1.26	%			2.14	%			2.07	%
Rate of compensation increase			4.00				3.90				3.61				3.12				3.12				3.13
Assumptions used to determine net benefit costs for the years ended October 31:
Discount rate - benefit obligation			4.53				3.80				3.94				2.14				2.07				1.86
Discount rate - service cost			4.70				4.01				4.31				1.82				1.76				1.55
Discount rate - interest cost			4.15				3.31				3.20				1.90				1.83				1.66
Expected return on plan assets			6.00				6.00				6.25				3.96				3.91				3.51
Rate of compensation increase			3.90				3.61				3.61				3.12				3.13				3.12

The amortization of prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the plans.

The discount rate reflects the current rate at which pension liabilities could be effectively settled at the end of the year. The discount rate used considers a yield derived from matching projected pension payments with maturities of a portfolio of available bonds that receive the highest rating given from a recognized investments ratings agency. The changes in the discount rates in 2019, 2018, and 2017 are due to changes in yields for these types of investments as a result of the economic environment.

In determining the expected return on plan assets using the calculated value of plan assets, we consider both historical performance and an estimate of future long-term rates of return on assets similar to those in our plans. We consult with and consider the opinions of financial and other professionals in developing appropriate return assumptions. The rate of compensation increase is based on management’s estimates using historical experience and expected increases in rates.

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Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor, which is set at 10 percent of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by plan. If substantially all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used.

The allocation of pension plan assets as of October 31, 2019 and 2018 is as follows:

		United States								International
		2019				2018				2019				2018
Asset Category
Equity securities			11	%			13	%			—	%			—	%
Debt securities			53				50				—				—
Insurance contracts			—				—				54				55
Pooled investment funds			35				36				45				44
Other			1				1				1				1
Total			100	%			100	%			100	%			100	%

Our investment objective for defined benefit plan assets is to meet the plans’ benefit obligations, while minimizing the potential for future required plan contributions.

Our United States plans comprise 92 percent of the worldwide pension assets. In general, the investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by dynamically matching the actuarial projections of the plans’ future liabilities and benefit payments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. For 2019, the target in “return-seeking assets” is 30 percent and 70 percent in fixed income. Plan assets are diversified across several investment managers and are invested in liquid funds that are selected to track broad market indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and continual monitoring of investment managers’ performance relative to the investment guidelines established with each investment manager.

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Our international plans comprise 8 percent of the worldwide pension assets. Asset allocations are developed on a country-specific basis. Our investment strategy is to cover pension obligations with insurance contracts or to employ independent managers to invest the assets.

The fair values of our pension plan assets at October 31, 2019 by asset category are in the table below:

		United States																International
		Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Cash		$	1,208			$	1,208			$	—			$	—			$	441			$	441			$	—			$	—
Money market funds			5,566				5,566				—				—				—				—				—				—
Equity securities:
Basic materials			2,318				2,318				—				—				—				—				—				—
Consumer goods			4,412				4,412				—				—				—				—				—				—
Financial			6,120				6,120				—				—				—				—				—				—
Healthcare			4,460				4,460				—				—				—				—				—				—
Industrial goods			3,152				3,152				—				—				—				—				—				—
Technology			5,064				5,064				—				—				—				—				—				—
Utilities			937				937				—				—				—				—				—				—
Mutual funds			19,674				19,674				—				—				—				—				—				—
Fixed income securities:
U.S. Government			83,025				13,094				69,931				—				—				—				—				—
Corporate			151,607				—				151,607				—				—				—				—				—
Other			5,051				—				5,051				—				—				—				—				—
Other types of investments:
Insurance contracts			—				—				—				—				21,245				—				—				21,245
Other			1,101				1,101				—				—				—				—				—				—
Total investments in the fair value hierarchy		$	293,695			$	67,106			$	226,589			$	—			$	21,686			$	441			$	—			$	21,245
Investments measured at Net Asset Value:
Real estate collective funds			33,917																—
Pooled investment funds			121,319																17,954
Total Investments at Fair Value		$	448,931															$	39,640

Nordson Corporation 50

The fair values of our pension plan assets at October 31, 2018 by asset category are in the table below:

		United States																International
		Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Cash		$	1,083			$	1,083			$	—			$	—			$	528			$	528			$	—			$	—
Money market funds			1,620				1,620				—				—				—				—				—				—
Equity securities:
Basic materials			2,763				2,763				—				—				—				—				—				—
Consumer goods			3,703				3,703				—				—				—				—				—				—
Financial			5,306				5,306				—				—				—				—				—				—
Healthcare			4,179				4,179				—				—				—				—				—				—
Industrial goods			2,516				2,516				—				—				—				—				—				—
Technology			4,690				4,690				—				—				—				—				—				—
Utilities			732				732				—				—				—				—				—				—
Mutual funds			21,987				21,987				—				—				—				—				—				—
Fixed income securities:
U.S. Government			50,602				10,224				40,378				—				—				—				—				—
Corporate			123,159				—				123,159				—				—				—				—				—
Other			5,589				—				5,589				—				—				—				—				—
Other types of investments:
Insurance contracts			—				—				—				—				21,645				—				—				21,645
Other			1,967				1,967				—				—				—				—				—				—
Total investments in the fair value hierarchy		$	229,896			$	60,770			$	169,126			$	—			$	22,173			$	528			$	—			$	21,645
Investments measured at Net Asset Value:
Real estate collective funds			23,109																—
Pooled investment funds			108,068																17,444
Total Investments at Fair Value		$	361,073															$	39,617

These investment funds did not own a significant number of shares of Nordson Corporation common stock for any year presented.

The inputs and methodology used to measure fair value of plan assets are consistent with those described in Note 10. Following are the valuation methodologies used to measure these assets:

•	Money market funds - Money market funds are public investment vehicles that are valued with a net asset value of one dollar. This is a quoted price in an active market and is classified as Level 1.

•	Equity securities - Common stocks and mutual funds are valued at the closing price reported on the active market on which the individual securities are traded and are classified as Level 1.

•	Fixed income securities - U.S. Treasury bills reflect the closing price on the active market in which the securities are traded and are classified as Level 1. Securities of U.S. agencies are valued using bid evaluations and are classified as Level 2. Corporate fixed income securities are valued using evaluated prices, such as dealer quotes, bids and offers and are therefore classified as Level 2.

•	Insurance contracts - Insurance contracts are investments with various insurance companies. The contract value represents the best estimate of fair value. These contracts do not hold any specific assets. These investments are classified as Level 3.

•	Real estate collective funds – These funds are valued using the net asset value of the underlying properties. Net asset value is calculated using a combination of key inputs, such as revenue and expense growth rates, terminal capitalization rates and discount rates.

•	Pooled investment funds - These are public investment vehicles valued using the net asset value. The net asset value is based on the value of the assets owned by the plan, less liabilities. These investments are not quoted on an active exchange.

Nordson Corporation 51

The following tables present an analysis of changes during the years ended October 31, 2019 and 2018 in Level 3 plan assets, by plan asset class, for U.S. and international pension plans using significant unobservable inputs to measure fair value:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Insurance contracts				Total
Beginning balance at October 31, 2018		$	21,645			$	21,645
Actual return on plan assets:
Assets held, end of year			913				913
Assets sold during the period			—				—
Purchases			2,431				2,431
Sales			(4,102	)			(4,102	)
Foreign currency translation			358				358
Ending balance at October 31, 2019		$	21,245			$	21,245

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Insurance contracts				Total
Beginning balance at October 31, 2017		$	21,037			$	21,037
Actual return on plan assets:
Assets held, end of year			862				862
Assets sold during the period			—				—
Purchases			2,760				2,760
Sales			(2,501	)			(2,501	)
Foreign currency translation			(513	)			(513	)
Ending balance at October 31, 2018		$	21,645			$	21,645

Contributions to pension plans in 2020 are estimated to be approximately $41,100.

Retiree pension benefit payments, which reflect expected future service, are anticipated to be paid as follows:

Year		United States				International
2020		$	22,543			$	2,277
2021			18,439				3,225
2022			20,173				2,797
2023			21,760				2,852
2024			23,096				3,292
2025-2029			140,195				18,378

Other postretirement plans - We sponsor an unfunded postretirement health care benefit plan covering certain of our United States employees. Employees hired after January 1, 2002, are not eligible to participate in this plan. For eligible retirees under the age of 65 who enroll in the plan, the plan is contributory in nature, with retiree contributions in the form of premiums that are adjusted annually. For eligible retirees age 65 and older who enroll in the plan, the plan delivers a benefit in the form of a Health Reimbursement Account (HRA), which retirees use for eligible reimbursable expenses, including premiums paid for purchase of a Medicare supplement plan or other out-of-pocket medical expenses such as deductibles or co-pays.

Nordson Corporation 52

A reconciliation of the benefit obligations, accrued benefit cost and the amount recognized in financial statements for other postretirement plans is as follows:

		United States								International
			2019				2018				2019				2018
Change in benefit obligation:
Benefit obligation at beginning of year		$	72,010			$	75,146			$	512			$	599
Service cost			545				709				16				20
Interest cost			2,984				2,557				19				20
Participant contributions			684				663				—				—
Foreign currency exchange rate change			—				—				(1	)			(11	)
Actuarial (gain) loss			15,101				(4,519	)			(86	)			(110	)
Benefits paid			(2,664	)			(2,546	)			(6	)			(6	)
Benefit obligation at end of year		$	88,660			$	72,010			$	454			$	512
Change in plan assets:
Beginning fair value of plan assets		$	—			$	—			$	—			$	—
Company contributions			1,980				1,883				6				6
Participant contributions			684				663				—				—
Benefits paid			(2,664	)			(2,546	)			(6	)			(6	)
Ending fair value of plan assets		$	—			$	—			$	—			$	—
Funded status at end of year		$	(88,660	)		$	(72,010	)		$	(454	)		$	(512	)
Amounts recognized in financial statements:
Accrued benefit liability		$	(2,740	)		$	(2,360	)		$	(6	)		$	(8	)
Long-term postretirement obligations			(85,920	)			(69,650	)			(448	)			(504	)
Total amount recognized in financial statements		$	(88,660	)		$	(72,010	)		$	(454	)		$	(512	)

		United States								International
			2019				2018				2019				2018
Amounts recognized in accumulated other comprehensive (gain) loss:
Net actuarial (gain) loss		$	28,992			$	14,526			$	(482	)		$	(423	)
Prior service credit			(16	)			(43	)			—				—
Accumulated other comprehensive (gain) loss		$	28,976			$	14,483			$	(482	)		$	(423	)
Amounts expected to be recognized during next fiscal year:
Amortization of net actuarial (gain) loss		$	1,674			$	609			$	(37	)		$	(28	)
Amortization of prior service credit			(16	)			(27	)			—				—
Total		$	1,658			$	582			$	(37	)		$	(28	)

The following table summarizes the changes in accumulated other comprehensive (gain) loss:

		United States								International
			2019				2018				2019				2018
Balance at beginning of year		$	14,483			$	19,982			$	(423	)		$	(342	)
Net (gain) loss arising during the year			15,101				(4,519	)			(86	)			(110	)
Net gain (loss) recognized during the year			(634	)			(1,079	)			28				20
Prior service credit recognized during the year			26				99				—				—
Exchange rate effect during the year			—				—				(1	)			9
Balance at end of year		$	28,976			$	14,483			$	(482	)		$	(423	)

Nordson Corporation 53

Net postretirement benefit costs include the following components:

		United States												International
			2019				2018				2017				2019				2018				2017
Service cost		$	545			$	709			$	722			$	16			$	20			$	20
Interest cost			2,984				2,557				2,337				19				20				20
Amortization of prior service credit			(26	)			(99	)			(164	)			—				—				—
Amortization of net actuarial (gain) loss			634				1,079				874				(28	)			(20	)			(17	)
Total benefit cost		$	4,137			$	4,246			$	3,769			$	7			$	20			$	23

The weighted average assumptions used in the valuation of postretirement benefits were as follows:

		United States												International
		2019				2018				2017				2019				2018				2017
Assumptions used to determine benefit obligations at October 31:
Discount rate			3.27	%			4.56	%			3.86	%			3.03	%			3.88	%			3.52	%
Health care cost trend rate			3.62				3.75				3.70				4.00				6.35				6.50
Rate to which health care cost trend rate is assumed to incline/decline (ultimate trend rate)			3.24				3.27				3.23				4.05				3.50				3.50
Year the rate reaches the ultimate trend rate			2026				2026				2026				2040				2037				2037
Assumption used to determine net benefit costs for the years ended October 31:
Discount rate - benefit obligation			4.56	%			3.86	%			4.03	%			3.88	%			3.52	%			3.40	%
Discount rate - service cost		4.77				4.11					4.48				3.90			3.54				3.56
Discount rate - interest cost		4.18				3.39					3.27				3.80				3.40				3.20

The weighted average health care trend rates reflect expected increases in the Company’s portion of the obligation.

Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor, which is set at 10 percent of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by plan. If substantially all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used.

A one-percentage point change in 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
Health care trend rate:
Effect on total net postretirement benefit cost components in 2019		$	494			$	(400	)		$	9			$	(7	)
Effect on postretirement obligation as of October 31, 2019		$	11,984			$	(9,800	)		$	108			$	(84	)

Contributions to postretirement plans in 2020 are estimated to be approximately $2,800.

Retiree postretirement benefit payments are anticipated to be paid as follows:

Year		United States				International
2020		$	2,747			$	6
2021			2,990				6
2022			3,230				6
2023			3,505				6
2024			3,769				6
2025-2029			21,330				46

Nordson Corporation 54

Note 7 — Income taxes

Income tax expense includes the following:

		2019				2018				2017
Current:
U.S. federal		$	40,012			$	39,837			$	54,878
State and local			3,429				1,734				3,731
Foreign			51,590				63,522				66,352
Total current			95,031				105,093				124,961
Deferred:
U.S. federal			1,470				(32,829	)			3,596
State and local			633				891				1,164
Foreign			(3,121	)			(2,011	)			(5,232	)
Total deferred			(1,018	)			(33,949	)			(472	)
		$	94,013			$	71,144			$	124,489

Earnings before income taxes of domestic operations, which are calculated after intercompany profit eliminations, were $222,435 $192,643 and $181,840 in 2019, 2018 and 2017, respectively.

On December 22, 2017 the U.S. Tax Cuts and Jobs Act ("the Act") was enacted. It reduces the U.S. federal corporate income tax rate from 35 percent to 21 percent. We have an October 31 fiscal year end, therefore the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of 23.34 percent for our fiscal year ended October 31, 2018, and 21.00 percent for subsequent fiscal years. The statutory tax rate of 21.00 percent was applied to earnings in the current year.

Our income tax provision for 2018 included a provisional tax benefit of $49,082 to reflect the revaluation of our tax assets and liabilities at the reduced corporate tax rate. We also recorded a provisional tax expense of $27,618 to reflect the transition tax on previously deferred foreign earnings. The net tax effect of these discrete items resulted in a decrease of $21,464 in income tax expense for 2018.

Subsequent to the enactment of the Act, the SEC staff issued SAB 118, which provided a measurement period of up to one year after the enactment date for companies to finalize the recognition of the income tax effects of the Act. As of January 31, 2019, our provisional accounting for the effects of the Act was complete. As a result, during 2019, and within the one year measurement period provided by SAB 118, we recorded tax expense of $4,866 to the provisional amounts recognized in 2018 due to changes in interpretations and assumptions and the finalizations of estimates. We are paying the transition tax in installments over the eight-year period allowable under the Act. The remaining transition tax is included in other long-term liabilities in the Consolidated Balance Sheet at October 31, 2019.

Other provisions of the Act became effective for us in 2019. The Foreign-Derived Intangible Income provision generates a deduction against our U.S. taxable income for U.S. earnings derived offshore that utilize intangibles held in the U.S. Conversely, the Global Intangible Low-Taxed Income (“GILTI”) provision requires us to subject to U.S. taxation a portion of our foreign subsidiary earnings that exceed an allowable return. We elected to treat any GILTI inclusion as a period expense in the year incurred.

Nordson Corporation 55

A reconciliation of the U.S. statutory federal rate to the worldwide consolidated effective tax rate follows:

		2019				2018				2017
Statutory federal income tax rate			21.00	%			23.34	%			35.00	%
Transition tax			1.46				6.16				—
Tax rate change deferred tax remeasurement			—				(10.94	)			—
Share-based and other compensation			(0.55	)			(1.45	)			—
Domestic production deduction			—				(0.82	)			(1.48	)
Foreign tax rate variances, net of foreign tax credits			1.16				(0.46	)			(4.69	)
State and local taxes, net of federal income tax benefit			0.74				0.45				0.76
Amounts related to prior years			(0.55	)			(0.21	)			0.03
Foreign-Derived Intangible Income Deduction			(1.51	)			—				—
Global Intangible Low-Taxed Income net of foreign tax credits			0.85				—				—
Other – net			(0.79	)			(0.21	)			—
Effective tax rate			21.81	%			15.86	%			29.62	%

Earnings before income taxes of international operations, which are calculated before intercompany profit elimination entries, were $208,669, $255,877 and $238,451 in 2019, 2018 and 2017, respectively. Deferred income taxes are not provided on undistributed earnings of international subsidiaries that are intended to be permanently invested in their operations. These undistributed earnings represent the post-income tax earnings under U.S. GAAP not adjusted for previously taxed income which aggregated approximately $1,101,736 and $1,088,183 at October 31, 2019 and 2018, 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 these basis differences because of the multiple methods by which these differences could reverse and the impact of withholding, US state and local taxes and currency translation considerations.

At October 31, 2019 and 2018, total unrecognized tax benefits were $2,909 and $2,891, respectively. The amounts that, if recognized, would impact the effective tax rate were $2,429 and $2,411 at October 31, 2019 and 2018, respectively. During 2019, unrecognized tax benefits related primarily to foreign positions and, as recognized, a portion of the gross unrecognized tax benefits were offset against assets recorded in the Consolidated Balance Sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2019, 2018 and 2017 is as follows:

		2019				2018				2017
Balance at beginning of year		$	2,891			$	3,781			$	3,336
Additions based on tax positions related to the current year			370				310				529
Additions for tax positions of prior years			547				40				621
Reductions for tax positions of prior years			—				(120	)			(150	)
Lapse of statute of limitations			(899	)			(1,120	)			(555	)
Balance at end of year		$	2,909			$	2,891			$	3,781

At October 31, 2019 and 2018, we had accrued interest and penalty expense related to unrecognized tax benefits of $593 and $538, respectively. We include interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as other income (expense).

We are subject to United States Federal income tax as well as income taxes in numerous state and foreign jurisdictions. We are subject to examination in the U.S. by the Internal Revenue Service (IRS) for the 2016 through 2019 tax years; tax years prior to the 2016 year are closed to further examination by the IRS. Generally, major state and foreign jurisdiction tax years remain open to examination for tax years after 2013. Within the next twelve months, it is reasonably possible that certain statute of limitations periods would expire, which could result in a minimal decrease in our unrecognized tax benefits.

Nordson Corporation 56

Significant components of deferred tax assets and liabilities are as follows:

		2019				2018
Deferred tax assets:
Employee benefits		$	73,025			$	56,622
Other accruals not currently deductible for taxes			16,294				18,186
Tax credit and loss carryforwards			18,074				16,652
Inventory adjustments			5,269				4,451
Total deferred tax assets			112,662				95,911
Valuation allowance			(15,301	)			(14,862	)
Total deferred tax assets			97,361				81,049
Deferred tax liabilities:
Depreciation and amortization			169,009				171,304
Other - net			655				669
Total deferred tax liabilities			169,664				171,973
Net deferred tax liabilities		$	(72,303	)		$	(90,924	)

At October 31, 2019, we had $8,132 of tax credit carryforwards, $1,424 of which expires in 2028-2029 and $6,708 of which has an indefinite carryforward period. We also had $169 Federal, $61,136 state, $18,435 foreign operating loss carryforwards, and a $20,149 capital loss carryforward, of which $84,464 will expire in 2020 through 2039, and $15,425 of which has an indefinite carryforward period. The net change in the valuation allowance was an increase of $439 in 2019 and a decrease of $29 in 2018. The valuation allowance of $15,301 at October 31, 2019, related primarily to tax credits and loss carryforwards that may expire before being realized. We continue to assess the need for valuation allowances against deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized.

Note 8 — Notes payable

Bank lines of credit and notes payable are summarized as follows:

		2019				2018
Maximum borrowings available under bank lines of credit (all foreign banks)		$	79,930			$	76,151
Outstanding borrowings / notes payable (all foreign bank debt)			—				—
Weighted-average interest rate on notes payable			—				—
Unused bank lines of credit		$	79,930			$	76,151

Note 9 — Long-term debt

A summary of long-term debt is as follows:

		2019				2018
Revolving credit agreement, due 2024		$	—			$	52,200
Senior notes, due 2020-2025			140,800				156,700
Senior notes, due 2020-2027			92,857				100,000
Senior notes, due 2023-2030			350,000				350,000
Term loan, due 2020-2024			505,000				605,000
Euro loan, due 2021			128,219				16,967
Private shelf facility, due 2020			30,556				36,111
Development loans, due 2019-2026			951				1,086
			1,248,383				1,318,064
Less current maturities			168,738				28,734
Less unamortized debt issuance costs			4,241				3,973
Long-term maturities		$	1,075,404			$	1,285,357

Nordson Corporation 57

Revolving credit agreement — 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 existing syndicated revolving credit agreement that was scheduled to expire in February 2020. This facility has a five-year term and includes a $75,000 subfacility for swing-line loans. It expires in April 2024. At October 31, 2019, we had no balances outstanding under this facility, compared to $52,200 outstanding at October 31, 2018. We were in compliance with all covenants at October 31, 2019, and the amount we could borrow under the facility would not have been limited by any debt covenants.

Senior notes, due 2020-2025 — These unsecured fixed-rate notes entered into in 2012 with a group of insurance companies had a remaining weighted-average life of 2.76 years. The weighted-average interest rate at October 31, 2019 was 3.05 percent.

Senior notes, due 2020-2027 — These unsecured fixed-rate notes entered into in 2015 with a group of insurance companies had a remaining weighted-average life of 4.59 years. The weighted-average interest rate at October 31, 2019 was 3.05 percent.

Senior notes, due 2023-2030 — These unsecured fixed-rate notes entered in 2018 with a group of insurance companies had a remaining weighted-average life of 6.05 years. The weighted-average interest rate at October 31, 2019 was 3.90 percent.

Term loan, due 2020-2024 — In April 2019, we amended, restated and extended the term of our existing $605,000 term loan facility with a group of banks. The interest rate is variable based upon the LIBOR rate. The Term Loan Agreement provides for the following term loans due in three tranches. $100,000 is due in March 2020, $200,000 is due in September 2022, and $305,000 is due in March 2024 . The weighted average interest rate for borrowings under this agreement was 2.52 percent at October 31, 2019. For the portion that is due in March 2024, $100,000 of this term loan facility was paid down in 2019. We were in compliance with all covenants at October 31, 2019.

Euro loan, due 2021 — In October 2018, we entered into a €150,000 unsecured Term Loan Agreement with Bank of America Merrill Lynch International Limited. The interest rate is variable based upon the EUR LIBOR rate. The weighted average interest rate at October 31, 2019 was 1.00 percent.

Private shelf facility — In 2011, we entered into a $150,000 three-year Private Shelf Note agreement with New York Life Investment Management LLC (NYLIM). The amount of the facility was increased to $180,000 in 2015, and then increased to $200,000 in 2016. Borrowings under the agreement may be for up to 12 years and are unsecured. The interest rate on each borrowing is fixed based upon the market rate at the borrowing date or is variable based upon the LIBOR rate. At October 31, 2019, the amount outstanding under this facility was at fixed rates of 2.21 percent and 2.56 percent.

Development loans, due 2019-2026 — These fixed-rate loans with the State of Ohio and Cuyahoga County, Ohio were issued in 2011 in connection with the construction of our corporate headquarters building and are payable in monthly installments over 15 years beginning in 2011. The interest rate on the State of Ohio loan is 3.00 percent, and the interest rate on the Cuyahoga County loan is 3.50 percent.

Annual maturities — The annual maturities of long-term debt for the five years subsequent to October 31, 2019, are as follows: $168,738 in 2020; $166,406 in 2021; $230,791 in 2022; $130,796 in 2023 and $315,801 in 2024.

Note 10 — Leases

We have lease commitments expiring at various dates, principally for manufacturing, warehouse and office space, automobiles and office equipment. Many leases contain renewal options and some contain purchase options and residual guarantees.

Rent expense for all operating leases was approximately $22,061, $19,131 and $17,938 in 2019, 2018 and 2017, respectively.

Amortization of assets recorded under capital leases is recorded in depreciation expense.

Assets held under capitalized leases and included in property, plant and equipment are as follows:

		2019				2018
Transportation equipment		$	21,602			$	18,226
Other			7,926				7,892
Total capitalized leases			29,528				26,118
Accumulated amortization			(14,940	)			(12,956	)
Net capitalized leases		$	14,588			$	13,162

Nordson Corporation 58

At October 31, 2019, future minimum lease payments under non-cancelable capitalized (which include executory and interest costs) and operating leases are as follows:

		Capitalized Leases				Operating Leases
Year:
2020		$	5,685			$	20,194
2021			3,832				17,579
2022			1,893				16,238
2023			952				13,540
2024			647				11,925
Later years			3,562				60,672
Total minimum lease payments		$	16,571			$	140,148

Note 11 — 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:

October 31, 2019		Total				Level 1				Level 2				Level 3
Assets:
Foreign currency forward contracts (a)		$	5,042			$	—			$	5,042			$	—
Total assets at fair value		$	5,042			$	—			$	5,042			$	—
Liabilities:
Deferred compensation plans (b)		$	11,850			$	—			$	11,850			$	—
Foreign currency forward contracts (a)			2,381				—				2,381				—
Total liabilities at fair value		$	14,231			$	—			$	14,231			$	—

October 31, 2018		Total				Level 1				Level 2				Level 3
Assets:
Foreign currency forward contracts (a)		$	6,428			$	—			$	6,428			$	—
Total assets at fair value		$	6,428			$	—			$	6,428			$	—
Liabilities:
Deferred compensation plans (b)		$	11,018			$	—			$	11,018			$	—
Foreign currency forward contracts (a)			9,289				—				9,289				—
Total liabilities at fair value		$	20,307			$	—			$	20,307			$	—

(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.

(b)

Executive officers and other highly compensated employees may defer up to 100 percent of their salary and annual cash incentive compensation and for executive officers, up to 90 percent 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.

Fair value disclosures related to goodwill and indefinite-lived intangible assets are disclosed in Note 5.

Nordson Corporation 59

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.

		2019								2018
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
Long-term debt (including current portion)			1,244,142				1,278,142				1,314,091				1,293,899

We used the following methods and assumptions in estimating the fair value of financial instruments:

•	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 described in Note 9.

Note 12 — 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 Consolidated Statement of Income together with the transaction gain or loss from the related balance sheet position. In 2019, we recognized net gains of $2,373 on foreign currency forward contracts and net losses of $2,231 from the change in fair value of balance sheet positions. In 2018, we recognized net losses of $3,151 on foreign currency forward contracts and net gains of $4,284 from the change in fair value of balance sheet positions. In 2017, we recognized net gains of $329 on foreign currency forward contracts and net losses of $1,015 from the change in fair value of balance sheet positions.

The following table summarizes, by currency, the contracts outstanding at October 31, 2019 and 2018:

		Notional Amounts
		Sell				Buy
October 31, 2019 contract amounts:
Euro		$	264,661			$	107,598
Pound sterling			32,600				48,867
Japanese yen			29,397				51,217
Australian dollar			168				7,767
Hong Kong dollar			189				135,862
Singapore dollar			1,108				15,684
Others			4,485				66,349
Total		$	332,608			$	433,344
October 31, 2018 contract amounts:
Euro		$	323,571			$	184,170
Pound sterling			23,879				60,007
Japanese yen			25,408				46,671
Australian dollar			178				7,912
Hong Kong dollar			—				112,414
Singapore dollar			604				14,092
Others			4,730				57,546
Total		$	378,370			$	482,812

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. As of October 31, 2019 and 2018, there were no significant concentrations of credit risk.

Nordson Corporation 60

Note 13 — Capital shares

Preferred — We have authorized 10,000 Series A convertible preferred shares without par value. No preferred shares were outstanding in 2019, 2018 or 2017.

Common — We have 160,000 authorized common shares without par value. At October 31, 2019 and 2018, there were 98,023 common shares issued. At October 31, 2019 and 2018, the number of outstanding common shares, net of treasury shares, was 57,600 and 58,037, respectively.

Common shares repurchased as part of publicly announced programs during 2019, 2018 and 2017 were as follows:

		Number				Total				Average
Year		of Shares				Amount				per Share
2019			949			$	114,790			$	121.01
2018			145			$	18,939			$	130.21
2017			—			$	—			$	—

Note 14 — Stock-based compensation

During the 2018 Annual Meeting of Shareholders, our shareholders approved the Amended and Restated 2012 Stock Incentive and Award Plan (the “2012 Plan”). The 2012 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 4,525 common shares are available for grant under the 2012 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 percent 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 (or at any time prior to December 28, 2017) 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 $10,067, $9,964 and $9,326 for 2019, 2018 and 2017, respectively.

The following table summarizes activity related to stock options during 2019:

		Number of Options				Weighted˗Average Exercise Price Per Share				Aggregate Intrinsic Value				Weighted˗Average Remaining Term
Outstanding at October 31, 2018			1,885			$	85.33
Granted			348			$	124.89
Exercised			(416	)		$	62.51
Forfeited or expired			(30	)		$	121.60
Outstanding at October 31, 2019			1,787			$	97.74			$	105,567			6.6 years
Expected to vest			873			$	115.26			$	36,255			8.0 years
Exercisable at October 31, 2019			902			$	80.42			$	68,915			5.3 years

Summarized information on currently outstanding options follows:

		Range of Exercise Price
		$43 - $62				$63 - $81				$82 - $129
Number outstanding			160				638				989
Weighted-average remaining contractual life, in years			2.6				5.4				8.1
Weighted-average exercise price		$	55.20			$	73.48			$	120.26
Number exercisable			160				527				215
Weighted-average exercise price		$	55.20			$	74.03			$	114.72

Nordson Corporation 61

As of October 31, 2019, there was $7,904 of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be amortized over a weighted average period of approximately 1.5 years.

The Black-Scholes option valuation model was used to estimate the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of subjective assumptions, including the expected stock price volatility. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

			2019				2018				2017
Expected volatility		24.1%-24.5%				24.0%-26.7%				26.0%-29.2%
Expected dividend yield		1.04%				0.97%				0.91%-1.17%
Risk-free interest rate		2.84%-2.95%				2.09%-2.20%				1.89%-2.06%
Expected life of the option (in years)		5.3-6.2				5.4-6.2				5.4-6.2

The weighted-average expected volatility used to value options granted in 2019, 2018 and 2017 was 24.3 percent, 25.0 percent and 29.1 percent, 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 United States Treasury issues with terms equal to the expected life of the option being valued.

The weighted average grant date fair value of stock options granted during 2019, 2018 and 2017 was $31.74, $31.42 and $28.86, respectively.

The total intrinsic value of options exercised during 2019, 2018 and 2017 was $31,881, $35,696 and $22,317, respectively.

Cash received from the exercise of stock options for 2019, 2018 and 2017 was $26,020, $18,811 and $14,086, 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.

For employee recipients, in the event of termination of employment due to early retirement, with consent of the Company, restricted shares granted within 12 months prior to termination are forfeited, and other restricted shares vest on a pro-rata basis. In the event of termination of employment due to normal retirement at age 65, restricted shares granted within 12 months prior to termination are forfeited, and, for other restricted shares, the restriction period will lapse and the shares will vest and be transferable. For restricted shares granted within 12 months prior to termination (or at any time prior to December 28, 2017), the restrictions lapse in the event of a recipient’s disability or death. Termination for any other reason prior to the lapse of any restrictions results in forfeiture of the shares.

For non-employee directors, all restrictions lapse in the event of disability or death. 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 market value on the date of grant is expensed over the vesting period. Tax benefits arising from the lapse of restrictions are recognized when realized and credited to capital in excess of stated value.

The following table summarizes activity related to restricted shares during 2019:

		Number of Shares				Weighted˗Average Grant Date Fair Value Per Share
Restricted at October 31, 2018			53			$	108.82
Granted			41			$	131.30
Forfeited			(2	)		$	111.75
Vested			(26	)		$	97.84
Restricted at October 31, 2019			66			$	126.83

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As of October 31, 2019, there was $4,579 of unrecognized compensation cost related to restricted shares. The cost is expected to be amortized over a weighted average period of 1.6 years. The amount charged to expense related to restricted shares was $3,608, $2,610 and $2,127 in 2019, 2018 and 2017, respectively. These amounts included common share dividends of $84, $70, and $64 in 2019, 2018 and 2017, respectively.

The following table summarizes activity related to restricted share units in 2019:

		Number of Units				Weighted˗Average Grant Date Fair Value
Restricted share units at October 31, 2018			—			$	—
Granted			8			$	126.83
Vested			(8	)		$	126.83
Restricted share units at October 31, 2019			—			$	—

As of October 31, 2019, there was no remaining expense to be recognized related to outstanding restricted share units. The amount charged to expense related to restricted share units during 2019 was $1,052, and was $1,011 for both 2018 and 2017, 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.

The following table summarizes activity related to director deferred compensation share equivalent units during 2019:

		Number of Shares				Weighted˗Average Grant Date Fair Value Per Share
Outstanding at October 31, 2018			107			$	51.24
Restricted stock units vested			5			$	126.89
Dividend equivalents			2			$	132.49
Outstanding at October 31, 2019			114			$	55.52

The amount charged to expense related to director deferred compensation was $154, $127 and $106 in 2019, 2018 and 2017, respectively.

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 for each three-year period and the percentage of the requisite service that has been rendered. The calculations are also based upon the grant date fair value determined using the closing market price of our common shares at the grant date, reduced by the implied value of dividends not to be paid. The per share values were $120.12 and $138.53 for 2019, $123.45 and $138.53 for 2018, and $103.75, $104.49 and $138.53 for 2017. The amounts charged to expense for executive officers and selected other key employees in 2019, 2018 and 2017 were $2,989, $7,635 and $7,398, respectively. The cumulative amount recorded in shareholders’ equity at October 31, 2019, and 2018 was $10,459 and $14,757, respectively.

Deferred compensation — Our executive officers and other highly compensated employees may elect to defer up to 100 percent of their base pay and cash incentive compensation and, for executive officers, up to 90 percent of their share-based performance incentive award payout each year. Additional share units are credited for quarterly dividends paid on our common shares. Expense related to dividends paid under this plan was $300, $273 and $264 for 2019, 2018 and 2017, respectively.

Shares reserved for future issuance — At October 31, 2019, there were 2,460 of common shares reserved for future issuance through the exercise of outstanding options or rights.

Nordson Corporation 63

Note 15 — Operating segments and geographic area data

We conduct business in three primary operating segments: Adhesive Dispensing Systems, Advanced Technology Systems, and Industrial Coating Systems. The composition of segments and measure of segment profitability is consistent with that used by our chief operating decision maker. The primary measure used by the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing performance is operating profit, which equals sales less cost of sales and certain operating expenses. Items below the operating profit line of the Consolidated Statement of Income (interest and investment income, interest expense and other income/expense) are excluded from the measure of segment profitability reviewed by our chief operating decision maker and are not presented by operating segment. The accounting policies of the segments are generally the same as those described in Note 1, Significant Accounting Policies.

No single customer accounted for 10 percent or more of sales in 2019, 2018 or 2017.

The following table presents information about our reportable segments:

		Adhesive Dispensing Systems				Advanced Technology Systems				Industrial Coating Systems				Corporate				Total
Year ended October 31, 2019
Net external sales		$	950,917			$	985,850			$	257,459			$	—			$	2,194,226
Depreciation and amortization			32,401				62,836				5,932				9,075				110,244
Operating profit (loss)			275,216				205,609				53,838				(51,550	)			483,113
Identifiable assets (b)			839,997				1,740,259				157,463				782,188		(a)		3,519,907
Expenditures for long-lived assets			26,005				26,010				4,395				7,834				64,244
Year ended October 31, 2018
Net external sales		$	955,192			$	1,039,366			$	260,110			$	—			$	2,254,668
Depreciation and amortization			31,597				62,594				6,166				8,050				108,407
Operating profit (loss)			262,627				244,880				52,421				(57,349	)			502,579
Identifiable assets (b)			829,696				1,713,404				122,088				763,734		(a)		3,428,922
Expenditures for long-lived assets			46,911				16,205				8,546				18,128				89,790
Year ended October 31, 2017
Net external sales		$	916,019			$	897,623			$	253,340			$	—			$	2,066,982
Depreciation and amortization			29,118				49,535				5,559				6,642				90,854
Operating profit (loss)			256,812				229,611				45,528				(65,549	)			466,402
Identifiable assets (b)			794,699				1,718,844				120,458				790,940		(a)		3,424,941
Expenditures for long-lived assets			35,310				21,135				9,108				6,005				71,558

(a)	Corporate assets are principally cash and cash equivalents, deferred income taxes, capital leases, headquarter facilities, the major portion of our enterprise management system, and intangible assets.

(b)	Operating segment identifiable assets include notes and accounts receivable net of customer advance payments and allowance for doubtful accounts, inventories net of reserves, property, plant and equipment net of accumulated depreciation and goodwill.

Nordson Corporation 64

We have significant sales and long-lived assets in the following geographic areas:

		2019				2018				2017
Net external sales
United States		$	758,383			$	720,832			$	647,657
Americas			167,661				158,837				147,026
Europe			571,596				622,108				530,812
Japan			126,756				161,771				147,189
Asia Pacific			569,830				591,120				594,298
Total net external sales		$	2,194,226			$	2,254,668			$	2,066,982
Long-lived assets
United States		$	286,894			$	279,437			$	266,921
Americas			1,948				2,158				2,322
Europe			44,041				41,663				39,102
Japan			6,169				5,492				5,594
Asia Pacific			59,843				57,916				32,472
Total long-lived assets		$	398,895			$	386,666			$	346,411

A reconciliation of total segment operating profit to total consolidated income before income taxes is as follows:

		2019				2018				2017
Total profit for reportable segments		$	483,113			$	502,579			$	466,402
Interest expense			(47,145	)			(49,576	)			(36,601	)
Interest and investment income			1,844				1,384				1,124
Other-net			(6,708	)			(5,868	)			(10,634	)
Income before income taxes		$	431,104			$	448,519			$	420,291

A reconciliation of total assets for reportable segments to total consolidated assets is as follows:

		2019				2018				2017
Total assets for reportable segments		$	3,519,907			$	3,428,922			$	3,424,941
Customer advance payments			41,131				38,997				34,654
Eliminations			(44,591	)			(46,907	)			(45,056	)
Total consolidated assets		$	3,516,447			$	3,421,012			$	3,414,539

Note 16 — Supplemental information for the statement of cash flows

		2019				2018				2017
Cash operating activities:
Interest paid		$	50,578			$	42,305			$	36,450
Income taxes paid			104,326				87,879				118,096

Nordson Corporation 65

Note 17 — Quarterly financial data (unaudited)

		First				Second				Third				Fourth
2019:
Sales		$	497,910			$	551,119			$	559,746			$	585,451
Gross margin			268,976				301,529				302,623				318,975
Net income			48,567				91,923				93,928				102,673
Earnings per share:
Basic			0.84				1.60				1.64				1.79
Diluted			0.83				1.58				1.62				1.76
2018:
Sales		$	550,424			$	553,706			$	581,243			$	569,295
Gross margin			300,973				307,015				320,476				307,864
Net income			104,555				91,235				94,884				86,702
Earnings per share:
Basic			1.81				1.57				1.63				1.49
Diluted			1.78				1.55				1.61				1.47

The sum of the per-share amounts for the four quarters may not always equal the annual per-share amounts due to differences in the average number of shares outstanding during the respective periods. The sum of other amounts for the four quarters may not always equal the annual amounts due to rounding.

During the first quarter of 2019, we recorded a discrete tax expense of $4,866 related to the Act. During the first quarter of 2018, we recorded discrete items to income tax expense as a result of the Act. Refer to Note 7 for additional information.

Note 18 — 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. It is our opinion, after consultation with legal counsel, that resolutions of these matters are not expected to result in a material effect on our financial condition, quarterly or annual operating results or cash flows.

Nordson Corporation 66

Management’s Report on Internal Control Over Financial Reporting

The management of Nordson Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.

Using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework), Nordson’s management assessed the effectiveness of our internal control over financial reporting as of October 31, 2019.

Based on our assessment, management concluded that our internal control over financial reporting was effective as of October 31, 2019.

The independent registered public accounting firm, Ernst & Young LLP, has also audited the effectiveness of our internal control over financial reporting as of October 31, 2019. Their report is included herein.

/s/ Sundaram Nagarajan		/s/ Gregory A. Thaxton
President and		Executive Vice President, Chief Financial Officer
Chief Executive Officer		December 13, 2019
December 13, 2019

Nordson Corporation 67

Report of Independent Regist****ered Public Accounting Firm

To the Shareholders and the Board of Directors of Nordson Corporation

Opinion on Internal Control over Financial Reporting

We have audited Nordson Corporation’s internal control over financial reporting as of October 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Nordson Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of October 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders‘ equity and cash flows, for each of the three years in the period ended October 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated December 13, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Cleveland, Ohio

December 13, 2019

Nordson Corporation 68

Report of Independent Regist****ered Public Accounting Firm

To the Shareholders and the Board of Directors of Nordson Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Nordson Corporation (the Company) as of October 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended October 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of October 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 13, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Nordson Corporation 69

			Valuation of Goodwill
Description of the Matter			At October 31, 2019, the Company had $1,614,739 thousand of goodwill. As discussed in Note 5 to the consolidated financial statements, the Company evaluates the carrying amount of goodwill for impairment annually as of August 1, and between annual evaluations if an event occurs or circumstances change that would indicate the fair value of a reporting unit is less than the carrying amount of those assets. The Company performed a quantitative impairment test for all reporting units in fiscal 2019. As part of the quantitative impairment test, the Company estimated the fair value of each reporting unit using a combination of valuation techniques including the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. Auditing management’s annual goodwill impairment assessment relating to goodwill was complex due to the use of valuation methodologies in the determination of the estimated fair values of the reporting units. These fair value estimates are impacted by significant assumptions such as the selection of comparable guideline companies and the related valuation multiples, as well as discount rates, revenue growth rates, and operating margins which are affected by expectations about future market or economic conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment process whereby the Company develops significant assumptions that are used as inputs to the annual goodwill impairment test. This included controls over management's review of the valuation model and the significant assumptions, described above. To test the implied fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing the methodologies, testing the significant assumptions, and testing the completeness and accuracy of the underlying data. We utilized internal valuation specialists in assessing the fair value methodologies applied and evaluating the reasonableness of certain assumptions selected by management. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company. We also assessed the appropriateness of the disclosures in the consolidated financial statements.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1956.

Cleveland, Ohio

December 13, 2019

Nordson Corporation 70