FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 3, 1997 ---------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- --------- Commission file number 0-7977 -------------- NORDSON CORPORATION --------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0590250 ------------------------------ -------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 28601 Clemens Road, Westlake, Ohio 44145 -------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 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 August 3, 1997: 17,118,834 Page 1
NORDSON CORPORATION INDEX Part I - Financial Information Page Number Condensed Consolidated Statement of Income - Third Quarter and Three Quarters Ended August 3, 1997 and August 4, 1996 3 Condensed Consolidated Balance Sheet - August 3, 1997 and November 3, 1996 4 Condensed Consolidated Statement of Cash Flows - Three Quarters Ended August 3, 1997 and August 4, 1996 5 Notes to Condensed Consolidated Financial Statements 6-7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Part II - Other Information Item 6, Exhibits and Reports on Form 8-K 11 Signature 12 Exhibit Index 13 2
<TABLE> <CAPTION> Part I - Financial Information NORDSON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Dollars and shares in thousands except for per share amounts) Third Quarter Ended Three Quarters Ended August 3, August 4, August 3, August 4, 1997 1996 1997 1996 --------- --------- --------- --------- <C> <C> <C> <C> Sale $158,888 $146,699 $452,293 $429,905 Cost of sales 70,087 61,290 193,884 176,676 Selling & administrative expenses 70,228 66,708 209,808 198,102 ------- ------- ------- ------- Operating profit 18,573 18,701 48,601 55,127 Other income (expense): Interest expense (1,879) (1,259) (5,891) (3,954) Interest and investment income 138 236 509 582 Other - net 1,262 335 2,581 1,658 ------- ------- ------- ------- Income before income taxes 18,094 18,013 45,800 53,413 Income taxes 5,899 6,144 15,458 18,534 -------- ------- ------- ------- Net income $ 12,195 $ 11,869 $ 30,342 $ 34,879 ======== ======== ======== ======== Weighted average common shares and common share equivalents 17,491 18,227 17,675 18,275 ======== ======== ======== ======== Primary earnings per share $ .70 $ .65 $ 1.72 $ 1.91 ======== ======== ======== ======== Dividends per common share $ .20 $ .18 $ .60 $ .54 ======== ======== ======== ======== <FN> See accompanying notes. </TABLE> 3
<TABLE> <CAPTION> NORDSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in thousands) August 3, 1997 November 3, 1996 --------------- ---------------- <C> <C> ASSETS Current assets: Cash and cash equivalents $ 8,786 $ 9,221 Marketable securities 200 310 Receivables 148,424 159,573 Inventories 129,601 118,388 Deferred income taxes 23,689 23,368 Prepaid expenses 5,538 6,842 -------- -------- Total current assets 316,238 317,702 Property, plant and equipment 209,436 207,080 Less accumulated depreciation and amortization of property, plant and equipment (105,191) (100,062) Intangible assets - net 60,837 65,282 Other assets 20,366 20,491 -------- -------- $501,686 $510,493 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $113,101 $ 97,688 Accounts payable 28,925 35,022 Current portion of long-term debt 5,538 5,152 Other current liabilities 72,924 69,354 -------- -------- Total current liabilities 220,488 207,216 Long-term debt 18,237 20,562 Other liabilities 40,615 37,418 Shareholders' equity: Common shares 12,253 12,253 Capital in excess of stated value 71,519 63,996 Cumulative translation adjustments 1,437 7,392 Retained earnings 401,355 381,436 Common shares in treasury, at cost (263,762) (219,398) Deferred stock-based compensation (456) (382) -------- -------- Total shareholders' equity 222,346 245,297 -------- -------- $501,686 $510,493 ======== ======== <FN> See accompanying notes. </TABLE> 4
<TABLE> <CAPTION> NORDSON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Three Quarters Ended August 3, 1997 August 4,1996 --------------- -------------- <C> <C> Cash flows from operating activities: Net income $30,342 $34,879 Changes in operating assets and liabilities ( 6,805) ( 9,872) Other - net 22,806 14,798 -------- ------- 46,343 39,805 Cash flows from investing activities: Additions to property, plant and equipment (11,568) (15,113) Proceeds from sale of property, plant and equipment 74 21 Acquisition of new businesses -- (11,693) Proceeds from sale of marketable securities 110 915 -------- -------- (11,384) (25,870) Cash flows from financing activities: Net proceeds from notes payable 17,550 18,335 Proceeds from long-term debt -- 2,620 Payment of long-term debt (4,637) (4,721) Issuance of common shares 3,150 2,050 Purchase of treasury shares (40,311) (14,271) Dividends paid (10,423) (9,675) ------- ------- (34,671) (5,662) Effect of exchange rate changes on cash (723) (725) ------- ------- (Decrease)/increase in cash (435) 7,548 Cash and cash equivalents Beginning of fiscal year 9,221 359 ------- ------- End of period $ 8,786 $ 7,907 ======= ======= <FN> See accompanying notes. </TABLE> 5
NORDSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS August 3, 1997 1. BASIS OF PRESENTATION. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three quarters ended August 3, 1997 are not necessarily indicative of the results that may be expected for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended November 3, 1996. The fiscal year for the Company's domestic operations ends on the Sunday closest to October 31 and in 1997, 1996 and 1995 contains 52, 53, and 52 weeks, respectively. Each quarter contains 13 weeks, except the third quarter of 1996 which contains 14 weeks. For international operations, the Company's fiscal year ends on September 30. Each quarter contains 3 calendar months. 2. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumption that affect the amounts reported in the consolidated financial statements. Actual amounts could differ from these estimates. Estimates are reevaluated frequently, and changes in estimates are recorded throughout the year. During the first quarter of fiscal 1997, an accrual representing the Company's estimated annual obligation to its Employee Stock Ownership Plan was reduced by $1.4 million to reflect the actual amount contributed. 3. INVENTORIES. Inventories consisted of the following (in thousands of dollars): August 3, 1997 November 3, 1996 -------------- ---------------- Finished goods $ 53,267 $ 43,818 Work-in-process 16,811 14,083 Raw materials and finished parts 59,523 60,487 -------- -------- $129,601 $118,388 ======== ======== 6
4. ACCOUNTING CHANGES. In 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings Per Share" (FAS 128), which is effective for financial statements issued for periods ending after December 15, 1997. FAS 128 establishes new computation and presentation requirements for earnings per share. The Company must adopt FAS 128 for fiscal year 1998 and believes the impact on earnings per share will not be material. In addition, the FASB issued Statement No. 130, "Reporting Comprehensive Income" (FAS 130), and Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information" (FAS 131). FAS 130 establishes standards for reporting comprehensive income and FAS 131 requires reporting certain information about operating segments. These statements, which must be adopted by the Company no later than fiscal year 1999, are not expected to have a material effect on the financial statements. 5. SUBSEQUENT EVENT. On August 29, 1997, the Company received $50,000,000 million under a new long-term debt agreement. This debt is due in 10 years. Interest, payable at a fixed rate, was converted to a variable rate through an interest rate swap. Proceeds from this debt were used to reduce short-term debt. 6. ACCOUNTING POLICIES FOR DERIVATIVE INSTRUMENTS. The Company operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the transaction exposures that arise from exchange rate movements between the dates foreign currency transactions are recorded and the dates they are consummated. The Company enters into foreign currency forward contracts to reduce these exposures, and not for trading purposes. The maturities of these contracts are generally less than one year and usually less than 90 days. The carrying amounts of these forward contracts are included in receivables at the differential between the contract rates and the spot rate. Gains and losses from foreign currency forward contracts are included in other income/expense. The Company also enters into interest rate swap agreements to manage interest rate exposure. There is no carrying value assigned to these swaps. Net amounts to be paid or received under these agreements are recognized as an adjustment to interest expense. 7
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 - ----- Sales for the third quarter and year-to-date 1997 increased 8% and 5%, respectively, over the comparable period of 1996. Price/volume gains of 13% for the quarter and 9% year-to-date were partially offset by unfavorable currency effects. In both the third quarter and year-to-date periods, the Company experienced volume gains in all four of its geographic regions. In the third quarter, shipments in North America increased 16% primarily due to strong sales of automated fluid dispensing equipment. In the Pacific Rim countries and Latin America, sales volume for the third quarter increased 22% due to continued growth in Australia and Brazil. Local sales volume in Japan increased 9% over the third quarter of 1996. Results in Japan were concentrated in nonwovens sales and packaging and product assembly system sales. Third quarter European activity was up 9%, driven by powder sales and packaging and product assembly sales. For the year-to-date period, sales volume in North America increased 15% reflecting continuing demand for automated fluid dispensing equipment. Local volume in the Pacific Rim countries and Latin America was up 14% due primarily to rising sales in Brazil, Australia, and China. Activity in Japan increased 3%, driven by electronics, liquid, and packaging and product assembly sales. Sales in Europe rose 5% due to continued strong sales of ultraviolet curing equipment, powder systems, and packaging and product assembly systems. Sales to international customers for year-to-date 1997 comprised approxi- mately 60.9% of total sales. Translating international sales at exchange rates reflecting a generally stronger U.S. dollar as compared to the prior year had the effect of decreasing sales by 5% for the third quarter and 4% for the year-to-date period. OPERATING PROFIT - ---------------- For the third quarter of 1997, operating profit, as a percentage of sales, decreased to 11.7% from 12.7% in 1996. Year-to-date operating profit decreased to 10.7% of sales for 1997 from 12.8% in the same period in 1996. As a percentage of sales, gross margins decreased for both the third quarter and year-to-date periods of 1997 as compared to 1996. These decreases can be attributed to the mix of products sold, as well as unfavorable currency effects. Selling and administrative expenses for the third quarter of 1997 and year-to-date increased 5.3% and 5.9%, respectively, over the comparable periods in the prior year due to higher sales volumes and continuing programs for product and market expansion. 8
NET INCOME - ---------- For the third quarter of 1997, net income, as a percentage of sales, decreased to 7.7% from 8.1% for the same period of 1996. Year-to-date income was 6.7% of sales in 1997, compared to 8.1% in 1996. In addition to the factors impacting operating profit discussed above, year-to-date interest expense increased $1,937,000 due to higher levels of short-term borrowing, driven primarily by the funding of two 1996 business acquisitions and continuing repurchases of Nordson stock. Also, the income tax rate was lowered in the third quarter of 1997 and 1996 to reflect a year-to-date effective rate of 33.75% and 34.7%, respectively. FOREIGN CURRENCY EFFECTS - ------------------------ In the aggregate, average exchange rates for the third quarter and year-to- date 1997 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates existing during the comparable 1996 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 1997 were translated at exchange rates in effect during 1996, sales would have been approximately $7,100,000 higher while third-party costs and expenses would have been $4,800,000 higher. If transactions for year-to-date 1997 were translated at exchange rates in effect during 1996, sales would have been approximately $17,800,000 higher and third-party costs and expenses would have been $11,900,000 higher. FINANCIAL CONDITION During the first three quarters of 1997, net assets decreased $22,951,000. This decrease is primarily due to net repurchases of Nordson stock totalling $37,161,000, the payment of $10,423,000 in dividends and a decrease of $5,955,000 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, offset by earnings of $30,342,000. Working capital, as of the end of the quarter, decreased $14,736,000 over the prior year-end. This change consisted primarily of decreases in accounts receivable and increases in notes payable, offset by increases in inventories and a decrease in accounts payable. All changes include decreases from the effects of translating into U.S. dollars current amounts denominated in generally weaker foreign currencies. In addition, receivables decreased due to lower sales in the third quarter of 1997 as compared to the fourth quarter of 1996, notes payable increased from net borrowings, inventories grew in anticipation of increased demand for Nordson products, and accounts payable decreased from the repayment of additional purchases at year-end. Cash and cash equivalents decreased $435,000 during the first three quarters of 1997. Cash provided from operating activities was $46,343,000 and cash provided by net proceeds from notes payable was $17,550,000. Uses for cash included purchases of treasury shares, outlays for capital expenditures, and dividends. Available lines of credit continue to be more than adequate to meet additional cash requirements over the next year. 9
OUTLOOK The pace of Nordson's business activity continued to accelerate during the third quarter as evidenced by strong local volume growth in all regions. Our order backlog remains strong, increasing in the third quarter to a new record level. For the fourth quarter of 1997, worldwide volume growth is expected to be approximately 11% over a very strong fourth quarter in 1996. Gross margins, expressed as a percentage of sales, are expected to remain at recent levels. Fourth quarter selling and administrative expenses should grow at a lower rate than sales. Currency effects could continue to have a negative impact on reported sales and overall results. Currency effects are expected to reduce fourth quarter sales by approximately $12 million. SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements in the preceding paragraph 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 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 we conduct business. 10
Part II - Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit 11 Calculation of Earnings Per Share Exhibit 27 Financial Data Schedule (b) There were no reports on Form 8-K filed for the quarter ended August 3, 1997. 11
SIGNATURE 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 16, 1997 Nordson Corporation /s/ Nicholas D. Pellecchia Vice President-Finance and Controller (Principal Financial Officer and Chief Accounting Officer) 12
NORDSON CORPORATION EXHIBIT INDEX Page Number Exhibit 11 Calculation of Earnings Per Share 14 Exhibit 27 Financial Data Schedule 15 13