Nordson - 10-Q quarterly report FY

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Commission file number 0-7977

NORDSON CORPORATION

(440) 892-1580
(Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares with no par value

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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
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 with no par value as of May 30, 2003: 33,731,239

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Part I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Statements of Income

See accompanying notes.

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Condensed Consolidated Balance Sheet

See accompanying notes.

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Condensed Consolidated Statement of Cash Flows

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Notes to Condensed Consolidated Financial Statements

May 4, 2003

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(a)  For the thirteen and twenty-six weeks ended May 4, 2003 this amount included severance and restructuring costs of $1,446 and $1,468, respectively. For the thirteen and twenty-six weeks ended April 28, 2002, this amount included severance and restructuring costs of $1,005.

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

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 2003 were $166.7 million, a 2% increase from sales of $163.5 million for the comparable period of 2002. Sales volume decreased 5%, while favorable currency effects traced to the weaker U.S dollar increased sales by 7%.

Sales volume for the Company’s Adhesive Dispensing segment was down 4%, largely due to a large Fiber system sale in 2002. Advanced Technology sales volume was down 2%. Lower Asymtek sales traced to the continuing global slowdown in the semiconductor and electronics industries were partially offset by higher EFD sales. Sales volume for the Coating and Finishing segment was down 14%, due to continued slow demand for large, engineered systems.

Second quarter sales volume was down 6% in North America, 9% in Europe and 2% in the Pacific South region. Offsetting these decreases was an increase in Japan sales volume of 8% due to higher Advanced Technology sales in that region.

On a year-to-date basis, worldwide sales were $312.0 million, up 1% from 2002. Volume decreased 4%, while favorable currency effects increased sales by 5%. Volume was down 5% in the Adhesive Dispensing segment due to a large Fiber system sale in 2002. Volume was also down 5% in the Coating and Finishing segment because of the continued weak demand for large, engineered systems. Volume in the Advanced Technology segment was flat compared to 2002. Increases in the EFD, UV Curing and Plasma businesses were offset by lower Asymtek sales.

Sales for the twenty-six weeks ended May 4, 2003 were down 12% in North America and 4% in Europe from 2002, while volume in Japan and the Pacific South regions were up 24% and 5%, respectively.

Operating Profit

Operating profit, as a percentage of sales, was 9.4% in the second quarter of 2003, down from 10.3% in 2002. For the first half of 2003, operating profit, as a percent of sales was 8.6%, compared to 9.8% last year. On a segment basis, operating profit as a percent of sales decreased for the Adhesive and the Coating and Finishing segments, both for the second quarter and on a year-to-date basis. The decreases were attributable to lower sales volume and the high level of fixed expenses related to the Company’s direct distribution organization and product development activities. Compared to 2002, operating profit as a percent of sales for the Advanced Technology segment increased for both the second quarter and year-to-date periods, because of a sales mix change towards more higher margin EFD sales.

The gross margin percentage for the second quarter of 2003 was 55.9%, up from 53.7% for the second quarter of 2002. The year-to-date gross margin percentage increased from 54.3% in 2002 to 55.2% this year. The increases were primarily due to favorable currency effects. Changes in sales mix also impacted margins favorably.

In light of the difficult economic conditions in 2001 and 2002 the Company incurred costs as a result of workforce reductions. At the end of fiscal 2002, $1.7 million related to these reductions was unpaid. During the first half of 2003 the Company recognized additional expense of $1.5 million related to severance payments to approximately 55 people in the Coating and Finishing and Advanced Technology segments in North America. At May 4, 2003, $1.2 million relating to the year-end 2002 accrual and the 2003 charge was unpaid. It is expected that additional costs of approximately $500,000 related to severance payments will be incurred during the last half of 2003.

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Selling and administrative expenses increased 8.4% and 5.6% for the thirteen and twenty-six weeks ended May 4, 2003 compared to the comparable periods of 2002. The increases were due to the effect of currency changes and increases in compensation and benefit costs. Due to the decrease in sales volume, selling and administrative expenses as a percent of sales were 45.6% in the second quarter of 2003, an increase from 42.9% last year. On a year-to-date basis these percentages were 46.2% in 2003 and 44.3% in 2002.

Net Income

Net income for the second quarter of 2003 was $8.1 million or $.24 per share on a diluted basis compared with $7.8 million or $.23 per share on a diluted basis in 2002. Year-to-date net income in 2003 was $13.1 million or $.39 per share, compared to $13.5 or $.40 per share last year.

Compared to 2002, interest expense decreased $.9 million for second quarter and $1.9 million for the first half as a result of lower borrowing levels and lower interest rates. Other income increased $.9 million for the quarter and $1.2 million for the first half, largely due to foreign exchange gains.

Foreign Currency Effects

In the aggregate, average exchange rates for the second quarter and first half of 2003 used to translate international sales and operating results into U.S. dollars compared favorably with average exchange rates existing during the comparable 2002 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 2003 were translated at exchange rates in effect during the second quarter of 2002, sales would have been approximately $11.7 million lower while third-party costs and expenses would have been approximately $6.7 million lower. If the 2003 year-to-date transactions were translated at exchange rates in effect during 2002, sales would have been approximately $16.9 million lower and third party costs would have been approximately $9.9 million lower.

Financial Condition

At the end of March 2003 the Company acquired full ownership interest in land and a building owned by a partnership that leased office and manufacturing space to the Company. The real estate is located in Duluth, Georgia and serves as the worldwide headquarters for the Company’s adhesives businesses. As a result, the Company assumed $10.7 million of debt owed by the partnership and real estate with a net book value of $10.3 million. Prior to March the Company leased the property under an operating lease with a partnership in which the Company was a partner.

During the first half of 2003, net assets increased $10.2 million. This increase is primarily the result of earnings of $13.1 million and $5.5 million from translating foreign net assets at the end of the second quarter when the U.S. dollar was weaker against other currencies than at the prior year-end. Offsetting these increases were dividend payments of $10.1 million.

Working capital, as of the end of the second quarter, increased $25.6 million over the prior year-end. This change consisted primarily of decreases in notes payable, other current liabilities and accounts payable, offset by a decrease in accounts receivable. All changes include increases from the effects of translating into U.S. dollars current amounts denominated in generally stronger foreign currencies.

Receivables decreased as a result of the collection of year-end accounts receivable arising from the higher level of sales in the fourth quarter of 2002 compared to the second quarter of 2003. Accounts payable decreased as a result of lower level of business activity, and other current liabilities decreased as a result of bonus, profit sharing and severance payments during the first quarter.

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Cash and cash equivalents increased $1.7 million from the 2002 year-end. Cash provided by operations was $32.0 million, which was used to repay $18.4 million of notes payable. Cash was also used for dividend payments of $10.1 million and for capital expenditures of $2.3 million. Available lines of credit continue to be adequate to meet additional cash requirements over the next year.

Outlook

Improvements have been seen in a number of the Company’s business units, with year-to-date orders up 2% from 2002 and backlog approaching the second quarter 2002 level. However, the current economic downturn is still impacting orders for large, engineered systems. Substantial progress continues to be made in the Company’s efforts to improve its cost structure and working capital efficiencies and it is well positioned to return to sales and earnings growth when the recovery occurs.

Safe Harbor Statements Under The Private Securities Litigation Reform Act Of 1995

Statements 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 the Form 10-K filed by the Company on January 27, 2003. The information disclosed has not changed materially in the interim period since November 3, 2002, except for the long-term debt related to real estate in Duluth, Georgia described above. This debt is payable in annual installments through 2010. The variable interest rate is reset weekly and was 1.35 percent at the end of the second quarter.

ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer along with the Executive Vice President, Chief Financial and Administrative Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s President and Chief Executive Officer and the Executive Vice President, Chief Financial and Administrative Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in periodic SEC filings. There have been no significant changes in the Company’s disclosure controls or in other factors that would significantly affect disclosure controls subsequent to the date the evaluation was carried out.

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Part II – Other Information

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Shareholders of Nordson Corporation was held on March 6, 2003 for the purpose of electing four directors.

All of management’s nominees for directors, as listed in the proxy statement, were elected by the following votes:

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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CERTIFICATIONS

I, Edward P. Campbell, certify that:

Date: June 16, 2003

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I, Peter S. Hellman, certify that:

Date: June 16, 2003

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