FORM 10-QUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
(Mark One)
For the quarterly period ended April 28, 2002
OR
For the transition period from _________ to __________
Commission file number 0-7977
NORDSON CORPORATION
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 April 28, 2002: 33,527,469
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TABLE OF CONTENTS
INDEX
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Part I — FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
NORDSON CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF INCOME(Dollars and shares in thousands except for per share amounts)
See accompanying notes.
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NORDSON CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEET(Dollars in thousands)
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NORDSON CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)(Dollars in thousands)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 28, 2002
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Changes in the carrying amount of goodwill for the twenty-six weeks ended April 28, 2002 by operating segment are as follows:
Information regarding the Company’s intangible assets subject to amortization is as follows:
(Dollars in thousands)
At April 28, 2002 and October 28, 2001 $2,000,000 of intangible assets related to a minimum pension liability for the Company’s pension plans were not subject to amortization.
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Amortization expense for the thirteen and twenty-six weeks ended April 28, 2002 was $352,000 and $642,000, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows:
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Standards No. 143, “Accounting for Asset Retirement Obligations.” No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When a liability is initially recorded, the entity capitalizes a cost by increasing the carrying value of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company is required to adopt No. 143 in fiscal 2003 and has not yet determined the impact of adoption on its consolidated financial position or results of operations.
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” No. 144, which supersedes No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of No. 121, this Statement significantly changes the criteria that would have to be met to classify an asset as held-for-sale. This distinction is important because assets held-for-sale are stated at the lower of their fair values or carrying amounts, and depreciation is no longer recognized. The Company is required to adopt No. 144 in fiscal 2003 and has not yet determined the impact of adoption on its consolidated financial position or results of operations.
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The following table presents information about the Company’s reportable segments:
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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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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 second quarter of 2002 were $163.5 million, a 15.2% decrease from record sales of $192.8 million for the comparable period of 2001. Volume decreased 13.0%, with the effect of the stronger dollar on currency translations accounting for the difference.
Volume in the Company’s advanced technology systems segment was down 39%, primarily due to the continued global slowdown in the semiconductor and electronics industries. Volume for the Company’s adhesive dispensing systems business was flat compared to the second quarter of 2001. Volume of the coating and finishing segment was down 15% due to continued slow demand for large, engineered systems.
Second quarter sales volume was down 24% in North America, 2% in Europe, 5% in Japan and 3% in the Pacific South region. Lower advanced technology sales impacted all four geographic regions.
On a year-to-date basis, worldwide sales were $308.5 million, a decrease of 16.2% from 2001. Sales volume decreased 14.9%, with the remainder of the decrease traced to unfavorable currency translations. Volume of the advanced technology segment decreased 41%. Sales volume of the adhesive dispensing segment decreased 3%, and volume of the coating and finishing segment was down 11% from 2001.
Sales volume for the first two quarters of 2002 decreased in all four geographic regions, with North America down 20%, Europe down 3%, Japan down 18% and Pacific South down 22%. Lower advanced technology sales impacted all four geographic regions.
OPERATING PROFIT
Operating profit, as a percentage of sales, was 10.3% for the second quarter of 2002, compared to 10.9% for the second quarter of 2001. Excluding goodwill amortization, operating profit was 12.9% of sales last year. Operating profit, excluding severance and restructuring costs, was 10.9% for the second quarter of 2002, compared to 11.6% for 2001.
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For the first half of 2002, operating profit, as a percentage of sales, was 9.8%, compared to 10.7% last year. Excluding goodwill amortization, operating profit was 12.8% of sales for the first half of last year. Operating profit, excluding severance and restructuring costs, as a percentage of sales decreased from 11.1% in 2001 to 10.1% in the current year.
The gross margin percentage for the second quarter of 2002 was 53.7%, down from 55.6% in 2001. The year-to-date gross margin percentage decreased from 55.7% last year to 54.3% this year. The lower margins were mainly attributable to the mix of products sold, unfavorable production volume variances and unfavorable currency effects.
At the beginning of fiscal 2000, the Company announced Action 2000, a program of broad-based initiatives to improve performance and reduce costs. During 2001, the Company’s initiative resulted in the recognition of $14.0 million of severance and restructuring charges. Of this amount, $13.3 million of severance and related benefit payments were made to approximately 400 employees. The remainder related to inventory write-offs associated with the combination of certain businesses. It is anticipated that Action 2000 and its progeny programs will be substantially complete by the end of fiscal year 2002. Of the unpaid amount of $7.6 million at October 28, 2001, $2.5 million remained at April 28, 2002. During the second quarter of 2002, additional severance and restructuring costs of $1.0 million were recognized. Of this amount, $.8 million was recorded in the income statement below selling and administrative expenses and consisted primarily of severance payments to approximately fifty employees. The remaining amount of $.2 million was included in cost of sales and related to inventory write-offs that occurred as a result of the combination of certain businesses.
Selling and administrative expenses decreased 13.2% and 12.8% for the thirteen and twenty-six weeks, respectively, of 2002 compared to the same period of 2001. The decrease is mainly attributable the results of Action 2000 described above. Due to the decrease in sales, selling and administrative expenses as a percent of sales increased from 41.9% in 2001 to 42.9% for the second quarter and from 42.5% to 44.3% for the year-to-date period.
NET INCOME
Compared to 2001, net income, as a percentage of sales before severance and restructuring costs, increased to 5.2% from 5.1% for the second quarter, but decreased from 4.7% to 4.6% for the first half. Net interest expense decreased $2.5 million for the quarter and $4.8 million for the first half, mainly as a result of lower borrowing levels.
Net income for the second quarter of 2002 was $7.8 million or $.23 per share on a diluted basis compared with $9.0 million or $.27 per share on a diluted basis in 2001. Excluding goodwill amortization, net income for the second quarter of 2001 was $11.8 million, or $.36 per diluted share. Excluding the effect of severance and restructuring costs, net income for the second quarter of 2002 was $8.5 million or $.25 per share on a diluted basis compared with $9.9 million or $.30 per share for the same period of 2001.
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Year-to-date net income for 2002 was $13.5 million or $.40 per share on a diluted basis compared with $16.5 million or $.50 per share on a diluted basis in 2001. Excluding goodwill amortization, net income for 2001 was $22.2 million, or $.67 per share. Excluding the effect of severance and restructuring costs, year-to-date net income was $14.1 million or $.42 per share on a diluted basis in 2001, compared with $17.5 million or $.53 per share in 2001.
FOREIGN CURRENCY EFFECTS
In the aggregate, average exchange rates for the second quarter and the first half of 2002 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates existing during the comparable 2001 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 second quarter 2002 were translated at exchange rates in effect during the second quarter of 2001, sales would have been approximately $4.3 million higher while third-party costs and expenses would have been approximately $2.5 million higher. If the transactions for year-to-date 2002 were translated at exchange rates in effect during 2001, sales would have been approximately $4.9 million higher, and third party costs and expenses would have been approximately $2.8 million higher.
FINANCIAL CONDITION
During the first half of 2002, net assets increased $9.9 million. This increase is primarily due to earnings of $13.5 million and the net issuance of Nordson common stock related to stock option exercises totaling $8.9 million, offset by the payment of $9.3 million in dividends and $3.4 million from translating foreign net assets at the end of the second quarter when the U.S. dollar was stronger against other currencies than at the prior year end.
Working capital, as of the end of the second quarter, increased $13.2 million over the prior year-end. This change consisted primarily of decreases in notes payable, accounts payable and other current liabilities, offset by decreases in accounts receivables and inventories. All changes include slight decreases from the effects of translating into U.S. dollars current amounts denominated in generally weaker foreign currencies.
Receivables decreased from the collection of year-end receivables arising from strong sales in the fourth quarter of 2001. Inventories and accounts payable decreased as a result of lower level of business activity and the Company’s effort to improve working capital efficiencies. Accrued liabilities decreased as a result of severance payments, bonuses and profit sharing incentives during the first half of 2002.
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Cash and cash equivalents decreased $3.2 million during the first half of 2002. Cash provided by operations was $67.8 million, which was used to pay off $63.4 million of notes payable and long-term debt. Uses of cash included 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
Although there has been steady improvement in the packaging and product assembly businesses, a meaningful change in order activity across all businesses has not been seen. Earnings per share for the second half of 2002 are expected to be higher than the second half of 2001. Substantial progress has been made in the Company’s efforts to improve its cost structure and working capital efficiencies.
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 25, 2002. The information disclosed has not changed materially in the interim period since October 28, 2001.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Nordson Corporation was held on March 7, 2002 for the purposes of electing six directors.
All of management’s nominees for directors, as listed in the proxy statement, were elected by the following votes:
In addition to the above directors, the following director’s terms of office continued after the meeting: Edward P. Campbell, William W. Colville, William D. Ginn, Stephen R. Hardis, William P. Madar, William L. Robinson and Benedict P. Rosen.
Part II — Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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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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