Nordson - 10-Q quarterly report FY

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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

For the quarterly period ended                      July 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 July 28, 2002: 33,552,275

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NORDSON CORPORATION

INDEX

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Part I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

NORDSON CORPORATION

See accompanying notes.

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NORDSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

See accompanying notes.

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NORDSON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

See accompanying notes.

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NORDSON CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 28, 2002

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Changes in the carrying amount of goodwill for the thirty-nine weeks ended July 28, 2002 by operating segment are
as follows:

     Information regarding the Company’s intangible assets subject to amortization is as follows:

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Amortization expense for the thirteen and thirty-nine weeks ended July 28, 2002 was $285,000 and $927,000, 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 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 third quarter of 2002 were $160.2 million, an 8.6% decrease from sales of $175.3 million for the comparable period of 2001. Volume decreased 9.5%, with favorable currency effects accounting for the difference.

Sales volume for the Company’s adhesive dispensing segment was down 6%, primarily due to lower nonwoven fiber system sales in North America. The coating and finishing segment’s sales volume was down 14%, primarily due to lower engineered systems sales in North America. Sales volume for the Advanced Technology segment decreased 17%, reflecting the continuing global downturn in the technology sector.

Third quarter sales volume was down 17% in North America, 5% in Europe and 6% in Japan, with lower Advanced Technology sales impacting these regions. In the Pacific South region volume was up in all three segments, particularly finishing and advanced technology, resulting in volume growth of 11%.

On a year-to-date basis, worldwide sales decreased 13.8% from 2001. Volume declined 13.2%, with unfavorable currency effects accounting for the difference. Sales volume of the advanced technology segment decreased 35%, volume of the adhesive dispensing segment decreased 4% and volume of the coating and finishing segment was down 12% from 2001.

Sales volume for the first three quarters of 2002 decreased in all four geographic regions, with North America down 19%, Europe down 4%, Japan down 14% and Pacific South down 13%. Lower advanced technology sales impacted all four geographic regions.

OPERATING PROFIT

Operating profit was $16.0 million for the third quarter of 2002, up from $9.9 million last year. Operating profit, as a percentage of sales, including the effect of severance and restructuring costs, increased to 10.0% for the third quarter of 2002 from 5.6% for the third quarter of 2001. Excluding goodwill amortization, operating profit was 7.8% of sales last year. Operating profit, excluding severance and restructuring costs, was 10.4% for the third quarter of 2002, compared to 6.1% for 2001 (8.3% excluding severance and restructuring and goodwill amortization).

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On a year-to-date basis, operating profit was $46.3 million in 2002, compared to $49.3 million in 2001. Operating profit, as a percentage of sales was 9.9% this year, compared to 9.1% last year. Excluding goodwill amortization, operating profit was 11.2% of sales last year. Excluding severance and restructuring costs, operating profit as a percentage of sales increased to 10.2% in the current year from 9.5% in 2001. Last year’s percentage was 11.6% without severance and restructuring costs and goodwill amortization.

The gross margin percentage increased for the third quarter from 52.3% in 2001 to 53.5% in 2002. The year-to-date gross margin percentage decreased from 54.6% last year to 54.1% this year. Currency effects and the mix of products sold were largely responsible for the quarter and year-to-date changes.

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, $2.0 million remained at July 28, 2002. During 2002, additional severance and restructuring costs of $1.7 million were recognized. Of this amount, $1.5 million was recorded in the income statement below selling and administrative expenses and consisted primarily of severance payments to approximately eighty 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. The unpaid amount at July 28, 2002 related to current year severance costs was $.4 million.

Selling and administrative expenses decreased 11.0% and 12.0% for the thirteen and thirty-nine weeks, respectively, of 2002 compared to the same period of 2001. The decrease is mainly attributable the results of programs described above. Selling and administrative expenses as a percent of sales decreased from 44.0% in 2001 to 43.1% for the third quarter but increased from 43.0% to 43.9% for the year-to-date period.

NET INCOME

Net income for the third quarter of 2002 was $7.2 million or $.21 per share on a diluted basis compared with $5.6 million or $.17 per share on a diluted basis in 2001. Excluding goodwill amortization, net income for the third quarter of 2001 was $8.4 million, or $.25 per diluted share. Excluding the effect of severance and restructuring costs, net income for the third quarter of 2002 was $7.7 million or $.23 per share on a diluted basis compared with $6.1 million or $.19 per share for the same period of 2001.

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Year-to-date net income for 2002 was $20.7 million or $.61 per share on a diluted basis compared with $22.2 million or $.67 per share on a diluted basis in 2001. Excluding goodwill amortization, net income for 2001 was $30.6 million, or $.93 per share. Excluding the effect of severance and restructuring costs, year-to-date net income was $21.8 million or $.65 per share on a diluted basis in 2002, compared with $23.6 million or $.72 per share in 2001.

Net interest expense decreased $1.7 million for the quarter and $6.6 million for the year-to-date, primarily as a result of lower borrowing levels. Third quarter 2001 results include a pre-tax gain of $5.1 million, or $.10 per share, associated with the sale of real estate.

FOREIGN CURRENCY EFFECTS

In the aggregate, average exchange rates for the third quarter of 2002 used to translate international sales and operating results into U.S. dollars compared favorably with average exchange rates existing during the comparable 2001 periods, while the year-to-date average exchange rates for 2002 compared unfavorably to 2001. 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 third quarter 2002 were translated at exchange rates in effect during the third quarter of 2001, sales would have been approximately $1.5 million lower while third-party costs and expenses would have been approximately $.9 million lower. If the transactions for year-to-date 2002 were translated at exchange rates in effect during 2001, sales would have been approximately $3.4 million higher, and third party costs and expenses would have been approximately $2.0 million higher.

FINANCIAL CONDITION

During the first three quarters of 2002, net assets increased $18.5 million. This increase is primarily due to earnings of $20.7 million, the net issuance of Nordson common stock related to stock option exercises totaling $9.3 million and $2.3 million from translating foreign net assets at the end of the third quarter when the U.S. dollar was weaker against other currencies than at the prior year end, offset by the payment of $14.0 million in dividends.

Working capital, as of the end of the third quarter, increased $28.9 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 increases from the effects of translating into U.S. dollars current amounts denominated in generally stronger foreign currencies.

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Receivables decreased as a result of the downturn in business activity and improvement in day’s sales outstanding. Inventories and accounts payable decreased as a result of lower level of business activity and the Company’s effort to improve working capital efficiencies. Other current liabilities decreased as a result of severance payments during 2002. Net long-term deferred taxes had a debit balance at year-end 2001 and were included in other long-term assets. At the end of the third quarter they had a credit balance and were included in other long-term liabilities. That was the primary reason for the changes in those two balance sheet categories.

Cash and cash equivalents decreased $2.2 million during the first three quarters of 2002. Cash provided by operations was $90.5 million, which was used to pay off $80.0 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

We continue to face a challenging business environment resulting from the downturn in capital equipment markets. Substantial progress continues to be made in the Company’s efforts to improve its cost structure and working capital efficiencies.

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SAFE HARBOR STATEMENTS
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

The statements in the paragraphs titled “Financial Condition” and “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 were 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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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.

Date: September 10, 2002

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CERTIFICATIONS

I, Edward P. Campbell, certify that:

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