Nordson - 10-Q quarterly report FY

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Commission file number 0-7977

(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 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 August 29, 2003: 33,892,727

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Nordson Corporation

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

See accompanying notes.

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Notes to Condensed Consolidated Financial Statements

August 3, 2003

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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 2003 were $166.3 million, a 4% increase from sales of $160.2 million for the comparable period of 2002. Sales volume decreased 4%, while favorable currency effects traced to the weaker U.S dollar increased sales by 8%.

Sales volume for the Company’s Adhesive Dispensing segment was down 6%, largely due to a large Fiber system sale in 2002. Advanced Technology sales volume was up 6%. Lower Asymtek sales traced to the global slowdown in the semiconductor and electronics industries were partially offset by higher EFD and UV Curing sales. Sales volume for the Coating and Finishing segment was down 6%, due to continued slow demand in North America for large, engineered systems.

Third quarter sales volume was down 11% in North America and 3% in Europe. Offsetting these decreases were sales volume increases of 1% in Japan and 20% in the Pacific South region. Both of these regions experienced significant increases in Advanced Technology sales.

On a year-to-date basis, worldwide sales were $478.3 million, up 2% from 2002. Volume decreased 4%, while favorable currency effects increased sales by 6%. Volume was down 6% in the Adhesive Dispensing segment due primarily to a decline in large Fiber system revenue. Volume was also down 6% in the Coating and Finishing segment traced to continued weak demand for large, engineered systems. Volume in the Advanced Technology segment was up 2% compared to 2002. Increases in the EFD, UV Curing and Plasma businesses were offset by lower Asymtek sales.

Sales for the thirty-nine weeks ended August 3, 2003 were down 12% in North America and 3% in Europe from 2002, while volume in Japan and the Pacific South regions were up 16% and 10%, respectively.

Operating Profit

Operating profit, as a percentage of sales, was 10.6% in the third quarter of 2003, up from 10.0% in 2002. For the three quarters of 2003, operating profit, as a percent of sales was 9.3%, compared to 9.9% last year. On a segment basis, operating profit as a percent of sales decreased for the Adhesive segment, both for the third quarter and on a year-to-date basis. The decreases were primarily attributable to lower sales volume relative to 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 and the Coating and Finishing segments increased for both the third quarter and year-to-date periods, due to higher gross margin percentages in both segments.

The gross margin percentage for the third quarter of 2003 was 55.0%, up from 53.5% for the third quarter of 2002. The year-to-date gross margin percentage increased from 54.1% in 2002 to 55.2% this year. The increases were primarily due to favorable currency effects, offset by higher costs related to new product introductions. 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 three quarters of 2003 the Company recognized additional expense of $1.6 million related to severance payments to approximately 60 people in the Coating and Finishing and Advanced Technology segments in North America. At August 3, 2003,

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$236,000 relating to the year-end 2002 accrual and the 2003 charge was unpaid. It is expected that additional costs of approximately $400,000 related to severance payments will be incurred during the fourth quarter of 2003.

Selling and administrative expenses increased 6.8% and 6.0% for the thirteen and thirty-nine weeks ended August 3, 2003 compared to the comparable periods of 2002. The increases were due to the effect of currency changes and increases in compensation rates. Due to the decrease in sales volume, selling and administrative expenses as a percent of sales were 44.3% in the third quarter of 2003, an increase from 43.1% last year. On a year-to-date basis these percentages were 45.6% in 2003 and 43.9% in 2002.

Net Income

Net income for the third quarter of 2003 was $8.7 million or $.26 per share on a diluted basis compared with $7.2 million or $.21 per share on a diluted basis in 2002. Prior year pre-tax earnings were impacted by $736,000 of severance and restructuring costs, compared to $157,000 in 2003. Year-to-date net income in 2003 was $21.8 million or $.65 per share, compared to $20.7 or $.61 per share last year.

Compared to 2002, interest expense decreased $.8 million for third quarter and $2.6 million year-to-date as a result of lower borrowing levels and lower interest rates. Year-to-date other income increased $1.1 million, largely due to foreign exchange gains.

Foreign Currency Effects

In the aggregate, average exchange rates for the third quarter and first nine months 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 third quarter 2003 were translated at exchange rates in effect during the third quarter of 2002, sales would have been approximately $12.1 million lower while third-party costs and expenses would have been approximately $7.6 million lower. If the 2003 year-to-date transactions were translated at exchange rates in effect during 2002, sales would have been approximately $29.0 million lower and third-party costs would have been approximately $17.4 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, real estate with a net book value of $10.3 million, cash and other current liabilities. Prior to March, the Company leased the property under an operating lease with a partnership in which the Company was a partner.

During the three quarters of 2003, net assets increased $23.2 million. This increase is primarily the result of earnings of $21.8 million, issuance of common stock of $5.2 million and $10.9 million from favorable translation effects at the end of the third quarter relative to net assets denominated in currencies other than the U.S. dollar. Offsetting these increases were dividend payments of $15.1 million.

Working capital, as of the end of the second quarter, increased $45.7 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 third quarter of 2003. Accounts payable decreased as a result of the

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lower level of business activity, and other current liabilities decreased as a result of bonus, profit sharing and severance payments and contributions to the Company’s pension plans during 2003.

Other long-term liabilities increased primarily due to pension and other benefit accruals.

Cash and cash equivalents increased $2.2 million from the 2002 year-end. Cash provided by operations was $45.4 million, a decrease from $90.5 million in 2002. The decrease was primarily due to a larger reduction in inventories in 2002. Cash provided by operations in 2003 was used to repay $27.4 million of notes payable. Cash was also used for dividend payments of $15.1 million and for capital expenditures of $4.5 million. Available lines of credit continue to be adequate to meet additional cash requirements over the next year.

Outlook

Steady improvements have been seen in the Company’s advanced technology businesses, but system sales in the Company’s core adhesive and finishing businesses continue to lag compared to prior year levels. Year-to-date orders in constant currency are up 2% from 2002 and backlog is up over $7 million from the third quarter of 2002. While we expect to see improved demand over the next year, we remain cautious in the near term. 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 1.15 percent at the end of the third quarter.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation under the supervision and participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, which disclosed no significant deficiencies or material weaknesses, the Company’s Chief Executive Officer and Chief financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end the period covered by this quarterly report. There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal over financial reporting.

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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.

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