FORM 10-QUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
(Mark One)
For the quarterly period ended January 28, 2001
OR
For the transition period from ___________________ to ___________________
Commission file number 0-7977
Registrant’s telephone number, including area code: (440) 892-1580
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Shares without par value as of January 31, 2001: 32,576,554
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NORDSON CORPORATION
INDEX
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PART I — FINANCIAL INFORMATION
See accompanying notes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 28, 2001
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The following table presents information about the Company’s reportable segments:
A reconciliation of total segment operating income to total consolidated income before income taxes is as follows:
The Company has significant sales in the following geographic regions:
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The purchase price paid for EFD pursuant to the stock purchase agreement was $280 million. The acquisition was accounted for using the purchase method of accounting. Funds to finance the acquisition were obtained from cash on hand, existing credit facility agreements and proceeds from long-term debt. Internally generated cash flow of the Company and EFD will be used to pay down this debt.
EFD is the one of the world’s leading producers of precision, low-pressure, industrial dispensing valves and components. EFD’s valve applicators are used to dispense a variety of fluids, including solder paste, electronic coatings and adhesives, fluxes, inks, paints, sealants and solvents. EFD’s products are especially well suited for the high-growth electronics and medical products markets. Nordson intends to continue to utilize the assets acquired in this transaction in substantially the same manner as they were employed prior to the acquisition.
The assets acquired and liabilities assumed were recorded at estimated fair market values. Goodwill is being amortized on a straight-line basis over 25 years. The preliminary allocation of the purchase price and the estimated goodwill are as follows:
Pro Forma Financial Information
The following unaudited pro forma financial information for the thirteen weeks ended January 30, 2000 assumes the acquisition occurred as of the beginning of the respective period, after giving effect to certain adjustments, including amortization of intangible assets, interest expense on acquisition debt and income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations which may occur in the future or that would have occurred had the acquisition of EFD been effected on the date indicated, nor are they necessarily indicative of Nordson’s future results of operations.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS
The following is Management’s discussion and analysis of certain significant factors affecting the Company’s financial condition and results of operations for the periods included in the accompanying condensed consolidated financial statements.
RESULTS OF OPERATIONS
SALES
Worldwide sales for the first quarter of 2001 were $175.3 million, a 14.7% increase over sales of $152.9 million for the comparable period of 2000. Volume increased 20.5%, with the effect of the stronger dollar on currency translations accounting for the difference.
The Company’s advanced technology systems segment drove overall gains. Sales volume, excluding EFD, grew 33% compared to the same period of 2000. Volume for the Company’s adhesive dispensing systems business grew 7%, led by accelerated sales in the nonwoven and fiber systems businesses. Volume for the Company’s coating and finishing systems business grew 3% when compared to the same period of 2000. It is estimated that the effect of price increases on total revenues was less than 1%.
In North America and Europe, volume increased 24% and 10%, respectively, primarily as a result of the acquisition of EFD at the beginning of the quarter. Activity in the Company’s Pacific South region was particularly strong, led by significant growth in the Company’s advanced technology systems business. In Japan, local sales volume was up 9%, mainly attributable to increased sales in the nonwoven systems business.
OPERATING PROFIT
Operating profit, as a percentage of sales, including the effect of severance and restructuring costs, increased to 10.5% for the first quarter of 2001 from 5.7% for the first quarter of 2000. Excluding these costs, operating profit as a percentage of sales was 10.5% for the first quarter of 2001 and 7.6% for 2000.
The gross margin rate decreased for the first quarter from 56.4% in 2000 to 55.9% in 2001. Lower margins are mainly attributable to unfavorable currency effects combined with the mix of products sold in the adhesive dispensing systems and coating and finishing systems businesses.
At the beginning of fiscal 2000, the Company announced Action 2000, a two-year program of broad-based initiatives to improve performance and reduce costs. During 2000, the Company’s Action 2000 initiative resulted in the recognition of $9.0 million of non-recurring charges. Of this amount, $7.5 million of severance and related benefit payments were made to approximately 250 salaried
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employees. The remainder represents severance obligations due to approximately 125 hourly manufacturing employees. It is anticipated that the program will be substantially complete by the end of fiscal year 2001 and that additional costs of approximately $2.0 million, primarily related to severance payments, will be incurred during the last three quarters of 2001.
Selling and administrative expenses increased 3.3% for the first quarter of 2001 compared to the same period of 2000. The increase is mainly attributable to the operating expenses of EFD. Goodwill amortization for the first quarter of 2001 increased $2.5 million, mainly as a result of goodwill related to the EFD acquisition.
NET INCOME
For the first quarter of 2001, net income, as a percentage of sales, increased to 4.3% from 3.1% for the same period of 2000. Net interest expense increased $5.2 million as a result of higher levels of borrowing to fund the EFD acquisition.
Net income for the first quarter of 2001 was $7.5 million or $.23 per share on a diluted basis compared with $4.8 million or $.15 per share on a diluted basis in 2000. Excluding the effect of severance costs associated with the Company’s Action 2000 initiative, net income for the first quarter of 2001 was $7.6 million or $.23 per share on a diluted basis compared with $6.6 million or $.20 per share for the same period of 2000. Cash earnings per share on a diluted basis, which consists of net earnings adjusted for goodwill amortization related to business acquisitions, was $.35 per share for 2001 and $.19 per share for 2000. All per-share amounts have been restated to reflect a two-for-one stock split effective September 12, 2000.
FOREIGN CURRENCY EFFECTS
In the aggregate, average exchange rates for the first quarter 2001 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates existing during the comparable 2000 periods. It is not possible to precisely measure the impact on operating results arising from foreign currency exchange rate changes, because of changes in selling prices, sales volume, product mix and cost structure in each country in which the Company operates. However, if transactions for the first quarter 2001 were translated at exchange rates in effect during the first quarter of 2000, sales would have been approximately $8,906,000 higher while third-party costs and expenses would have been approximately $5,906,000 higher.
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FINANCIAL CONDITION
During the first quarter of 2001, net assets increased $6,175,000. This increase is primarily due to earnings of $7,526,000, an increase of $994,000 from translating foreign net assets at the end of the first quarter when the U.S. dollar was weaker against other currencies than at the prior year end and the net issuance of Nordson stock totaling $2,479,000, offset by the payment of $4,541,000 in dividends.
Working capital, as of the end of the quarter, decreased $221,953,000 over the prior year-end. This change consisted primarily of an increase in notes payable and current portion of long-term debt, offset by increases in inventories and decreases in accounts payable and accrued liabilities. All changes include slight increases from the effects of translating into U.S. dollars current amounts denominated in generally stronger foreign currencies.
Inventories increased as a result of acquired inventory from EFD as well as replenishment of stock depleted from strong fourth quarter sales, accounts payable decreased as a result of payments made for purchases from year-end and accrued liabilities decreased from the payment of bonuses and profit sharing incentives during the first quarter of 2001. Notes payable, current portion of long-term debt and long-term debt all increased to fund the EFD acquisition.
Cash and cash equivalents decreased $614,000 during the first quarter of 2001. Cash used by operating and investing activities was $304,912,000 and cash provided by net proceeds from financing activities was $304,214,000. Uses for cash included the acquisition of EFD, outlays for capital expenditures and payments of dividends. Available lines of credit continue to be adequate to meet additional cash requirements over the next year.
OUTLOOK
The Company continues to move forward with Action 2000 Initiatives with the consolidation of its domestic adhesive dispensing businesses and the restructuring of operations in Japan. With the completion of the acquisition of EFD, the alignment of the two companies continues to progress smoothly. While the pace of business in the first quarter was strong, in recent weeks there has been a slowing in order rate.
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SAFE HARBOR STATEMENTSUNDER THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995
The statements in the paragraph titled “Outlook” that refer to anticipated trends, events or occurrences in, or expectations for, the future (generally indicated by the use of phrases such as “Nordson expects” or “Nordson believes” or words of similar import or by references to “risks”) are “forward-looking statements” intended to qualify for the protection afforded by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and involve risks and uncertainties. Consequently, the Company’s actual results could differ materially from the expectations expressed in the forward-looking statements. Factors that could cause the Company’s actual results to differ materially from the expected results include, but are not limited to: deferral of orders, customer-requested delays in system installations, currency exchange rate fluctuations, a sales mix different from assumptions and significant changes in local business conditions in geographic regions in which the Company conducts business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding the Company’s financial instruments that are sensitive to changes in interest rates and foreign currency exchange rates was disclosed in Form 10-K filed by the Company on January 26, 2001. The information disclosed has not changed materially in the interim period since October 29, 2000, except that the Company is now subject to interest rate risk as it relates to a portion of its long-term debt.
The tables below present principal cash flows (in thousands) and related weighted-average interest rates by expected maturity dates of long-term debt.
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Part II — Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Current report on Form 8-K, dated November 13, 2000, related to the acquisition of EFD.
Current report on Form 8-K/A, dated January 12, 2001, attaching the required information related to the acquisition of EFD, including audited financial statements of EFD for the three years ended December 31, 1999, 1998 and 1997, unaudited pro forma condensed combined statements of income for the nine months ended July 30, 2000 and the year-ended October 31, 1999 and an unaudited pro forma condensed combined balance sheet as of July 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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