FORM 10-QUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
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 29, 2001: 33,044,786
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NORDSON CORPORATION
INDEX
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Part I – FINANCIAL INFORMATION
NORDSON CORPORATIONCONDENSED CONSOLIDATED STATEMENT OF INCOME(Dollars and shares in thousands except for per share amounts)
See accompanying notes.
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(Dollars in thousands)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 29, 2001
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For the quarter ended January 28, 2001, the Company adopted the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements” which summarizes the staff’s views regarding the application of generally accepted accounting principles to selected revenue recognition issues. The adoption of this Bulletin did not require the Company to alter its current revenue recognition policies. Therefore, it did not have a material effect on the financial statements of the Company.
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets” effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. The Company is required to adopt statements 141 and 142 effective November 4, 2002. Early adoption of the statements is permitted. The Company has not yet determined what the effect of the new rules will be on the earnings and financial position of the Company.
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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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Pro Forma Financial Information
The following unaudited pro forma financial information for the thirteen and thirty-nine weeks ended July 31, 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 third quarter of 2001 were $175.3 million, a 4.8% decrease from sales of $184.1 million for the comparable period of 2000. Volume decreased 1.4%, with the effect of the stronger dollar on currency translations accounting for the difference.
Sales volume for the Company’s adhesive dispensing segment was down 1%. The coating and finishing segment’s sales volume was down 11%, primarily due to lower engineered systems sales in the North America and Pacific South regions. Sales volume for the Advanced Technology segment increased 8% including revenue from EFD. Without EFD, Advanced Technology volume decreased 30%, reflecting the global downturn in the technology sector. It is estimated that the effect of price increases on total revenues was less than 1%.
Third quarter sales volume in the Pacific South region decreased 14%, with soft demand experienced within all three segments. Sales volume increased 4% in Japan, primarily due to higher advanced technology sales in that region. Sales volume decreased 1% in North America, with the acquisition of EFD and higher fiber system sales being offset by lower powder system and electronics sales. Sales volume in Europe increased less than 1%.
On a year-to-date basis, worldwide sales increased 3.8% from 2000. Volume gains of 7.9% were partially offset by the effect of the stronger dollar. Sales volume of the advanced technology segment grew 40.6%. Excluding EFD, sales volume of this segment decreased less than 1%. Sales volume of the adhesive dispensing segment increased 1.6%, primarily due to the nonwoven fiber business. Sales volume of the coating and finishing segment was down 3.6% from 2000, primarily due to lower powder system sales.
Sales volume for the first three quarters of 2001 increased in all four geographic regions, with North America up 9%, Europe up 5%, Japan up 11% and Pacific South up 10%. Excluding EFD, sales volume in Japan and Pacific South was up 7% and 3%, respectively, with North American and European volume down 1% and 3%, respectively.
OPERATING PROFIT
Operating profit, as a percentage of sales, including the effect of severance and restructuring costs, decreased to 5.6% for the third quarter of 2001 from 13.7% for the third quarter of 2000. Excluding these costs, operating profit as a percentage of sales, was 6.1% for the third quarter of 2001 and 14.2% for 2000.
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On a year-to-date basis, operating profit, as a percentage of sales was 9.1% this year, compared to 10.6% last year. Excluding severance and restructuring costs, operating profit as a percentage of sales decreased from 12.1% in 2000 to 9.5% in the current year.
The gross margin percentage decreased for the third quarter from 55.3% in 2000 to 52.3% in 2001. The year-to-date gross margin percentage decreased from 55.4% last year to 54.6% this year. Unfavorable currency effects, a change in the mix of products sold, pricing pressures and higher indirect costs were partially offset by high EFD margins.
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 for severance and related benefit payments. Of this amount, $7.5 million was paid in fiscal 2000, and the remainder was paid during the second quarter of 2001. Additional severance payments of $2.2 million were made in the first three quarters of 2001.
Subsequent to the end of the third quarter, the Company announced a further workforce reduction initiative that anticipates non-recurring charges of approximately $15 million, of which $12 million will be recorded in the fourth quarter of 2001 and the remainder in the first half of fiscal 2002. The total worldwide workforce will be reduced by approximately 10%, or 450 people. Along with the workforce reduction, certain businesses will be combined.
Selling and administrative expenses increased 3.8% and 4.9% for the thirteen and thirty-nine weeks, respectively, of 2001 compared to the same period of 2000. Excluding EFD, selling and administrative expenses were down 2% for the quarter and 1% on a year-to-date basis. Goodwill amortization increased $2.6 million for the third quarter and $7.7 million year-to-date, mainly as a result of the EFD acquisition.
NET INCOME
Net income for the third quarter of 2001 was $5.6 million or $.17 per share on a diluted basis compared with $15.0 million or $.46 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 third quarter of 2001 was $6.1 million or $.19 per share on a diluted basis compared with $15.6 million or $.48 per share for the same period of 2000.
Compared to 2000, net income, as a percentage of sales before severance and restructuring costs, decreased to 3.5% from 8.5% for the third quarter, and from 7.2% to 4.3% for the year-to-date. Net interest expense increased $4.0 million for the quarter and $14.4 million for the year-to-date as a result of higher levels of borrowing to fund the EFD acquisition. Third quarter 2001 results include a pre-tax gain of $5.1 million, or $.10 per share, associated with the sale of real estate.
Year-to-date net income for 2001 was $22.2 million or $.67 per share on a diluted basis compared with $32.6 million or $1.00 per share on a diluted basis in 2000. Excluding the effect of severance costs associated with the Company’s Action 2000 initiative, year-to-date net income was $23.6 million or $.72 per share on a diluted basis in 2001, compared with $37.7 million or $1.15 per share in 2000.
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Cash earnings per share on a diluted basis, which consists of net income adjusted for goodwill amortization related to business acquisitions, was $.29 per share for the third quarter 2001 and $.50 per share for 2000. Year-to-date cash earnings were $1.04 per share this year compared to $1.13 per share last year. 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 third quarter and the first nine months of 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 third quarter 2001 were translated at exchange rates in effect during the third quarter of 2000, sales would have been approximately $6.2 million higher while third-party costs and expenses would have been approximately $3.8 million higher. If the transactions for year-to-date 2001 were translated at exchange rates in effect during 2000, sales would have been approximately $21.3 million higher, and third party costs and expenses would have been approximately $13.2 million higher.
FINANCIAL CONDITION
During the first three quarters of 2001, net assets increased $17.0 million. This increase is primarily due to earnings of $22.2 million and the net issuance of Nordson stock totaling $13.5 million, offset by the payment of $13.7 million in dividends and $5.3 million from translating foreign net assets at the end of the third 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 quarter, decreased $117.3 million over the prior year-end. This change consisted primarily of an increase in notes payable and current portion of long-term debt and a decrease in accounts receivable, offset by an increase in inventories and decreases in accounts payable and accrued liabilities. All changes include slight decreases from the effects of translating into U.S. dollars current amounts denominated in generally weaker foreign currencies.
The decrease in accounts receivable is traced to the collection of year-end receivables arising from strong sales in the fourth quarter of 2000, as well as the drop-off in business activity in the current year. 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 2001. Notes payable, current portion of long-term debt and long-term debt all increased to fund the EFD acquisition.
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Cash and cash equivalents decreased $.1 million during the first three quarters of 2001. Cash used by investing activities was $301.2 million and cash provided by net proceeds from financing activities was $275.7 million. 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.
On May 17, 2001 the Company replaced its short and long term revolving credit agreements with an agented $350 million revolving credit line. This facility consists of two parts: a $100 million 364 day facility that can be extended for one year and a $250 million 5 year facility. There was $160 million outstanding under this credit line at the end of the third quarter. In addition, also on May 17, 2001, the company placed a $100 million unsecured Senior Note with a number of insurance companies. The weighted average interest rate was 7.02% and the weighted average life was 6.5 years.
OUTLOOK
The Company’s performance has clearly been affected by the downturn in capital equipment markets. We are aggressively responding to the weak economic climate by further reducing staff levels while not adversely impacting quality or customer service or lessening our ability to respond to an upturn in business conditions.
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SAFE HARBOR STATEMENTSUNDER THE PRIVATE SECURITIESLITIGATION 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 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 fixed rate long-term debt.
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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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