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 February 1, 1998 ---------------------- 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 no. 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: (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 February 1, 1998: 16,703,440 1
NORDSON CORPORATION INDEX Part I - Financial Information Page Number ----------- Condensed Consolidated Statement of Income - Thirteen Weeks Ended February 1, 1998 and February 2, 1997 3 Condensed Consolidated Balance Sheet - February 1, 1998 and November 2, 1997 4 Condensed Consolidated Statement of Cash Flows - Thirteen Weeks Ended February 1, 1998 and February 2, 1997 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 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) Thirteen Weeks Ended February 1, 1998 February 2, 1997 ---------------- ---------------- <S> <C> <C> Sales $139,226 $137,261 Cost of sales 60,609 55,461 Selling & administrative expenses 69,731 66,230 ------- ------- Operating profit 8,886 15,570 Other income (expense): Interest expense (2,291) (1,918) Interest and investment income 115 215 Other - net 895 236 ------- ------- Income before income taxes 7,605 14,103 Income taxes 2,586 4,866 ------- ------- Net income $ 5,019 $ 9,237 ======= ======= Shares used in computing per share amounts: Basic 16,749 17,518 ======= ======= Diluted 16,890 17,870 ======= ======= Earnings per share: Basic $ .30 $ .53 ======= ======= Diluted $ .30 $ .52 ======= ======= Dividends per share $ .22 $ .20 ======= ======= <FN> See accompanying notes. </TABLE> 3
<TABLE> <CAPTION> NORDSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in thousands) February 1, 1998 November 2, 1997 ---------------- ---------------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 4,109 $ 1,517 Marketable securities 30 200 Receivables 146,880 163,692 Inventories 130,652 122,084 Deferred income taxes 24,382 23,263 Prepaid expenses 6,641 8,059 -------- -------- Total current assets 312,694 318,815 Property, plant and equipment 212,128 210,129 Less accumulated depreciation and amortization of property, plant and equipment (111,520) (108,462) Intangible assets - net 59,922 60,378 Other assets 21,367 22,136 -------- -------- $494,591 $502,996 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 91,118 $ 74,500 Accounts payable 27,454 37,699 Current portion of long-term debt 6,116 6,175 Other current liabilities 56,622 61,289 -------- -------- Total current liabilities 181,310 179,663 Long-term debt 66,036 66,502 Other liabilities 35,656 36,286 Shareholders' equity: Common shares 12,253 12,253 Capital in excess of stated value 76,606 75,899 Cumulative translation adjustments (3,490) (977) Retained earnings 418,921 417,589 Common shares in treasury, at cost (292,249) (283,816) Deferred stock-based compensation (452) (403) -------- -------- Total shareholders' equity 211,589 220,545 -------- -------- $494,591 $502,996 ======== ======== <FN> See accompanying notes. </TABLE> 4
<TABLE> <CAPTION> NORDSON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Thirteen Weeks Ended February 1, 1998 February 2, 1997 ---------------- ---------------- <S> <C> <C> Cash flows from operating activities: Net income $ 5,019 $ 9,237 Changes in operating assets and liabilities (9,148) (15,230) Other - net 6,906 4,722 ------- ------- 2,777 (1,271) Cash flows from investing activities: Additions to property, plant and equipment (4,127) (3,509) Acquisition of new business (504) - Proceeds from sale of marketable securities 170 100 ------- ------- (4,461) (3,409) Cash flows from financing activities: Net proceeds from notes payable 17,713 17,695 Payment of long-term debt (1,020) (1,123) Issuance of common shares 62 1,529 Purchase of treasury shares (7,917) (14,066) Dividends paid (3,687) (3,500) ------- ------- 5,151 535 Effect of exchange rate changes (875) (328) ------- ------- Increase (decrease) in cash 2,592 (4,473) Cash and cash equivalents Beginning of fiscal year 1,517 9,221 ------- ------- End of period $ 4,109 $ 4,748 ======= ======= <FN> See accompanying notes. </TABLE> 5
NORDSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS February 1, 1998 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 thirteen week period ended February 1, 1998 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 2, 1997. 2. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions 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 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): February 1, 1998 November 2, 1997 ---------------- ---------------- Finished goods $ 52,564 $ 51,639 Work-in-process 16,320 12,056 Raw materials and finished parts 61,768 58,389 -------- -------- $130,652 $122,084 ======== ======== 6
4. ACCOUNTING CHANGES. In the first quarter of 1998, the Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings per Share." Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. 5. EARNINGS PER SHARE. The following table sets forth the computation of basic and diluted earnings per share: Thirteen Weeks Ended February 1, 1998 February 2, 1997 ---------------- ---------------- Numerator - net income $ 5,019 $ 9,237 ======= ======= Denominator for basic EPS - weighted-average common shares outstanding 16,749 17,518 Incremental common shares attributable to outstanding stock options, nonvested stock, and deferred stock- based compensation 141 352 ------- ------- Denominator for diluted EPS 16,890 17,870 ======= ======= Basic earnings per share $ .30 $ .53 ====== ====== Diluted earnings per share $ .30 $ .52 ====== ====== 6. ACQUISITIONS. In October, 1997, Nordson acquired a provider of ultraviolet curing equipment to the container industry. The acquisition of its U.S. operations was recorded in the fourth quarter of 1997; the acquisition of its U.K. operations was recorded in the first quarter of 1998. 7. SUBSEQUENT EVENT. On February 25, 1998, Nordson announced a company- wide program to reduce operating expense growth. The program includes offers of early retirement with enhanced benefits to employees at some U.S. locations. As a result of this program, there will be a one-time charge in the second quarter of 1998. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following is Management's discussion and analysis of certain significant factors affecting the Company's results of operations and financial condition for the periods included in the accompanying condensed consolidated financial statements. RESULTS OF OPERATIONS SALES - ----- Worldwide sales for the first quarter of 1998 were $139.2 million, a 1% increase over sales of $137.3 million for the first quarter of 1997. Local volume gains and price increases accounted for a 7% increase in sales, while the effects of unfavorable currency translations reduced reported sales by 6%. Compared with the first quarter of 1997, the pace of business activity in Europe accelerated substantially, with sales volume up 23% across all markets served. Sales volume in North America increased 8%, led by strong sales of powder coating and ultraviolet curing systems as well as automated fluid dispensing equipment to the electronics industry. Offsetting this growth in Europe and North America was a significant sales volume drop in Japan and the Asian markets, with unfavorable currency effects further reducing reported revenues. In Japan, sales volume was down 16% due to decreased demand from both local customers as well as customers who export goods to other Asian markets. In our Pacific South division, which spans the Pacific Rim, South Asia and Latin America, sales volume was down 19%. The sales activity in this division reflects a wide performance range, with weakness in Asia offset by strong performance in Latin America. Price increases averaging 2% were implemented on orders taken after the beginning of the year on standardized small systems and parts. Sales to international customers for the first quarter of 1998 comprised 62% of total sales. Translating international sales at generally higher average exchange rates as compared to the same period in the prior year decreased reported sales by $8.1 million for the quarter. OPERATING PROFIT - ---------------- Operating profit, as a percentage of sales, decreased to 6.4% for the first quarter of 1998 from 11.3% for the first quarter of 1997. Gross margins, expressed as a percentage of sales, were 56.5%, compared with 59.6% a year ago. The decrease in margins is traced to the unfavorable currency effects, combined with the mix of products sold in both North America and Europe. Selling and administrative expenses increased 5.3% over the first quarter of 1997. The increase in expenses was influenced by a $1.4 million credit recognized in the first quarter of 1997 from a reduction in the Company's estimated obligation to its Employee Stock Ownership Plan. Excluding this item, spending increased 3.2%. 8
NET INCOME - ---------- Net income, as a percentage of sales, decreased from 6.7% in the first quarter of 1997 to 3.6% in the first quarter of 1998, due to the factors discussed above. In the first quarter of 1998, the Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings per Share." Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Basic and diluted earnings per share were $.30 and $.30, respectively, for the first quarter of 1998 and $.53 and $.52, respectively, for the first quarter of 1997. FOREIGN CURRENCY EFFECTS - ------------------------ In the aggregate, average exchange rates for first quarter 1998 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates which existed during the comparable 1997 period. 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 structures in each country in which the Company operates. However, the Company estimates that first quarter sales would have been approximately $8,100,000 higher and third-party costs would have been $5,200,000 higher if exchange rates for 1997 had been in effect during 1998. FINANCIAL CONDITION During the first quarter of 1998, net assets decreased $8,956,000. This decrease is primarily attributable to net repurchases of Nordson stock amounting to $7,855,000, the payment of $3,687,000 in dividends, and a reduction of $2,513,000 from translating foreign net assets at the end of the first quarter when the U.S. dollar was generally stronger against other currencies than at the prior year end, offset by earnings of $5,019,000. Working capital decreased $7,768,000 during the quarter. This change consisted primarily of decreases in receivables and increases in notes payable, offset by increases in inventories and decreases in accounts payable and other current liabilities. All balances reflect decreases from the effects of translating amounts denominated in generally weaker foreign currencies into U.S. dollars. In addition, receivables decreased from the collection of year-end receivables arising from strong sales in the fourth quarter of 1997, notes payable increased from net borrowings, inventories increased in anticipation of demand for Nordson products, accounts payable decreased from the repayment of additional purchases at year-end, and other current liabilities decreased due to the payment of fiscal 1997 bonuses and other employee benefits. Cash and cash equivalents increased $2,592,000 during the quarter. Cash provided by the net proceeds from notes payable was $17,713,000. 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 Based on information available through the third week of February, order trends in our North American and European divisions are similar to those in the first quarter. In the Pacific South and Japan, there is slight improvement, but it is still too early to characterize this as a collective trend. In the second quarter, worldwide volume growth over the previous year is expected to be in the range of 10% to 12%. Gross margins, expressed as a percentage of sales, should be close to first quarter levels with the mix of products sold and currency effects continuing to be the major factors influencing the actual margin rate. The growth rate of selling and administrative expenses in the second quarter over the comparable period in the prior year should be lower than the sales growth rate. On February 25, 1998, Nordson announced a company-wide program to reduce operating expense growth. Discretionary spending that is not critical to improvement, innovation and growth plans will be eliminated. An early retirement program is being offered to employees at some U.S. locations. Further staff reductions will be made across Nordson's worldwide operations by the end of the fiscal year, with the level of participation in the early retirement program influencing the scope of further reductions. This program will result in a one-time charge in the second quarter. We are also re- evaluating the valuation of inventories and certain long-lived assets. The outlook for gross margins and spending excludes the effect of any one-time charges. Based on currency exchange rates through the third week of February, currency effects should continue to have negative effect on reported sales. Currency rates are expected to reduce the second quarter's reported sales by approximately $6 million. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements under the heading "Outlook" 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, 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 27 Financial Data Schedule (b) There were no reports on Form 8-K filed for the quarter ended February 1, 1998. 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: March 17, 1998 Nordson Corporation /s/ Nicholas D. Pellecchia -------------------------- Nicholas D. Pellecchia Vice President, Finance and Controller (Principal Financial Officer and Chief Accounting Officer) 12
NORDSON CORPORATION EXHIBIT INDEX Page Number Exhibit 27 Financial Data Schedule 14 13