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 May 3, 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 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: (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 MAY 3, 1998: 16,423,879 Page 1
NORDSON CORPORATION INDEX Part I - Financial Information Page Number Condensed Consolidated Statement of Income - Thirteen and Twenty-Six Weeks ended May 3, 1998 and May 4, 1997 3 Condensed Consolidated Balance Sheet - May 3, 1998 and November 2, 1997 4 Condensed Consolidated Statement of Cash Flows - Twenty-Six Weeks ended May 3, 1998 and May 4, 1997 5 Notes to Condensed Consolidated Financial Statements 6-7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8-11 Part II - Other Information Item 4, Submission of Matters to a Vote of Security Holders 12-13 Item 6, Exhibits and Reports on Form 8-K 13 Signature 14 Exhibit Index 15 2
<TABLE> Part I - Financial Information NORDSON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Dollars and shares in thousands except for per share amounts) Thirteen Weeks Ended Twenty-Six Weeks Ended May 3, 1998 May 4, 1997 May 3, 1998 May 4, 1997 -------------- -------------- -------------- ------------- <S> <C> <C> <C> <C> Sales $167,814 $156,144 $307,040 $293,405 Cost of sales 81,930 68,336 142,539 123,797 Selling & administrative expenses 73,860 73,350 143,591 139,580 Asset impairment, retirement and severance costs 9,718 -- 9,718 -- -------- -------- -------- -------- Operating profit 2,306 14,458 11,192 30,028 Other income (expense): Interest expense (2,274) (2,094) (4,565) (4,012) Interest and investment income 106 156 221 371 Other - net 689 1,083 1,584 1,319 -------- -------- -------- -------- Income before income taxes 827 13,603 8,432 27,706 Income taxes 281 4,693 2,867 9,559 -------- -------- -------- -------- Net income $ 546 $ 8,910 $ 5,565 $ 18,147 ======== ======== ======== ======== Shares used in computing per share amounts: Basic 16,525 17,388 16,637 17,453 ======== ======== ======== ======== Diluted 16,649 17,660 16,769 17,765 ======== ======== ======== ======== Earnings per share: Basic $ .03 $ .51 $ .33 $ 1.04 ======== ======== ======== ======== Diluted $ .03 $ .50 $ .33 $ 1.02 ======== ======== ======== ======== Dividends per common share $ .22 $ .20 $ .44 $ .40 ======== ======== ======== ======== <FN> See accompanying notes. </TABLE> 3
<TABLE> NORDSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in thousands) May 3, 1998 November 2, 1997 ------------- ---------------- <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 4,473 $ 1,517 Marketable securities 30 200 Receivables 149,496 163,692 Inventories 126,261 122,084 Deferred income taxes 29,157 23,263 Prepaid expenses 4,900 8,059 -------- -------- Total current assets 314,317 318,815 Property, plant and equipment 213,975 210,129 Less accumulated depreciation and amortization of property, plant and equipment (115,658) (108,462) Intangible assets - net 59,126 60,378 Other assets 21,801 22,136 -------- -------- $493,561 $502,996 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 91,545 $ 74,500 Accounts payable 29,866 37,699 Current portion of long-term debt 5,617 6,175 Other current liabilities 64,677 61,289 -------- -------- Total current liabilities 191,705 179,663 Long-term debt 65,380 66,502 Other liabilities 43,210 36,286 Shareholders' equity: Common shares 12,253 12,253 Capital in excess of stated value 77,007 75,899 Cumulative translation adjustments (4,107) (977) Retained earnings 415,815 417,589 Common shares in treasury, at cost (307,332) (283,816) Deferred stock-based compensation (370) (403) -------- -------- Total shareholders' equity 193,266 220,545 -------- -------- $493,561 $502,996 ======== ======== <FN> See accompanying notes. </TABLE> 4
<TABLE> NORDSON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) Twenty-Six Weeks Ended May 3, 1998 May 4, 1997 ----------- ----------- <S> <C> <C> Cash flows from operating activities: Net income $ 5,565 $18,147 Non-recurring charge 15,670 -- Changes in operating assets and liabilities (8,965) (8,317) Other - net 13,218 14,987 ------- ------- 25,488 24,817 Cash flows from investing activities: Additions to property, plant and equipment (7,326) (7,676) Proceeds from sale of property, plant and equipment -- 57 Acquisition of new businesses (504) -- Proceeds from sale of marketable securities 170 100 ------- ------- (7,660) (7,519) Cash flows from financing activities: Net proceeds from notes payable 19,080 17,378 Payment of long-term debt (3,417) (3,571) Issuance of common shares 308 2,569 Purchase of treasury shares (22,840) (28,097) Dividends paid (7,339) (6,979) ------- ------- (14,208) (18,700) Effect of exchange rate changes (664) (846) ------- ------- Increase (decrease) in cash 2,956 (2,248) Cash and cash equivalents Beginning of fiscal year 1,517 9,221 ------- ------- End of period $ 4,473 $ 6,973 ======= ======= <FN> See accompanying notes. </TABLE> 5
NORDSON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS May 3, 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 twenty-six week period ended May 3, 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 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): May 3, 1998 November 2, 1997 -------------- ---------------- Finished goods $ 50,553 $51,639 Work-in-process 17,199 12,056 Raw materials and finished parts 58,509 58,389 -------- ------- $126,261 $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 (dollars and shares in thousands except for per share amounts): <TABLE> Thirteen Weeks Ended Twenty-Six Weeks Ended May 3, 1998 May 4, 1997 May 3, 1998 May 4, 1997 ------------- -------------- -------------- ------------- <S> <C> <C> <C> <C> Numerator - net income $ 546 $ 8,910 $ 5,565 $18,147 ======= ======= ======= ======= Denominator for basic EPS - weighted- average common shares outstanding 16,525 17,388 16,637 17,453 Incremental common shares attributable to outstanding stock options, nonvested stock, and deferred stock-based compensation 124 272 132 312 ------- ------ ------- ------- Denominator for diluted EPS 16,649 17,660 16,769 17,765 ======= ======= ======= ======= Basic earnings per share $ .03 $ .51 $ .33 $ 1.04 ======= ======== ======= ======= Diluted earnings per share $ .03 $ .50 $ .33 $ 1.02 ======= ======== ======= ======= </TABLE> 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. ONE-TIME CHARGE. In the second quarter of fiscal 1998, Nordson recognized a one-time pre-tax charge of $15,670,000. This charge includes $5,952,000 related to inventory valuations and charged to cost of sales. The balance relates to an early retirement program, involuntary severances and fixed asset write-downs, and is reported below selling and administrative expenses. The one-time charge on an after-tax basis was $10,342,000 or $.62 per share. 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 Sales for the second quarter and year-to-date 1998 increased 7% and 5%, respectively, over the comparable 1997 periods. Local volume gains and price increases accounted for increased sales of 11% for the quarter and 10% for the year-to-date, while the effects of unfavorable currency translations reduced reported sales by 4% and 5%, respectively. Price increases averaging 2% were implemented on orders taken after the beginning of the year on standardized small systems and parts. Performance in the second quarter was driven by continued strong sales volume growth in Europe and solid performance in several North American businesses. Compared with 1997, activity in Europe remained strong, with sales volume up 23% for the quarter and 22% for the first half across all business and geographic markets. Sales volume in North America increased 11% for the quarter and 10% for the year-to-date, led by strong sales of powder coating and ultraviolet curing systems as well as automated fluid dispensing equipment to the electronics industry. Offsetting growth in Europe and North America was a sales volume decline in Japan and the Asian markets, with unfavorable currency effects further reducing reported revenues. However, the decline in the second quarter was not as steep as that of the first quarter. Compared with 1997, sales volume in Japan was down 6% for the second quarter and 11% for the first half, due to the lingering effects of Japan's sluggish economy. In the Pacific South division, which spans the Pacific Rim, South Asia and Latin America, sales volume was down 3% for the second quarter and 10% year-to-date. Weaknesses in Asia were partially offset by strong performance in Latin America and Australia. Sales to international customers for the first half of 1998 comprised approximately 59% of total sales. Translating international sales at generally higher average exchange rates, as compared to the same periods in the prior year, decreased reported sales by $6,600,000 for the second quarter and $14,700,000 for the year-to-date. 8
OPERATING PROFIT For the second quarter of fiscal 1998, Nordson recognized a one-time pre-tax charge of $15.7 million. The charge includes $8.3 million for costs associated with an early retirement program and other staff reductions implemented during the quarter. The balance of this charge relates to asset write-downs, primarily inventory and fixed assets. The amount related to inventories has been charged to cost of sales. Excluding the one-time charge, operating profit, as a percentage of sales, increased to 10.7% for the second quarter of 1998 from 9.3% for the second quarter of 1997. Year-to-date operating profit declined to 8.7% of sales for 1998 from 10.2% for the same period of 1997. The gross margin rate, before the one-time charge, decreased for the second quarter from 56.2% in 1997 to 54.7% in 1998 and for the first half from 57.8% in 1997 to 55.5% in 1998. The influencing factors behind the lower margin were the unfavorable currency effects, combined with the mix of products sold in both North America and Europe. Selling and administrative expenses for the second quarter and first half of 1998 increased .7% and 2.9%, respectively, over the comparable periods in 1997. The increase in first half 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, first half spending increased 1.9%. NET INCOME Excluding the one-time charge, net income, as a percentage of sales, increased in the second quarter from 5.7% in 1997 to 6.5% in 1998 and decreased in the first half from 6.2% in 1997 to 5.2% in 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. For 1998 and 1997, diluted earnings per share were $.03 and $.50, respectively, for the second quarter and $.33 and $1.02, respectively, for the first half. The one-time charge on an after-tax basis was $10.3 million or $.62 per share on a diluted basis. Diluted earnings per share, before the one-time charge, were $.65 for the quarter and $.95 for the year-to-date period. 9
FOREIGN CURRENCY EFFECTS In the aggregate, average exchange rates for second quarter and year-to-date 1998 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates during the comparable 1997 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 structures in each country in which the Company operates. However, if transactions for the second quarter 1998 were translated at exchange rates in effect during 1997, sales would have been approximately $6,600,000 higher while third-party costs and expenses would have been $3,700,000 higher. If transactions for year-to-date 1998 were translated at exchange rates in effect during 1997, sales would have been approximately $14,700,000 higher and third-party costs and expenses $8,900,000 higher. FINANCIAL CONDITION During the first half of 1998, net assets decreased $27,279,000. This decrease is primarily attributable to net repurchases of Nordson stock amounting to $22,532,000, the payment of $7,339,000 in dividends, and a reduction of $3,130,000 from translating foreign net assets at the end of the second quarter when the U.S. dollar was generally stronger against other currencies than at the prior year end, offset by earnings of $5,565,000. Working capital, as of the end of the quarter, decreased $16,540,000 over the prior year-end. This change consisted primarily of decreases in accounts receivable and increases in notes payable. 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, and notes payable increased from net borrowings. Cash and cash equivalents increased $2,956,000 during the first half of 1998. Sources of cash included $25,488,000 from operations and $19,080,000 in net proceeds from notes payable. 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 cash requirements for operations over the next year. Other liabilities increased $6,924,000 from the prior year-end, primarily from pension and other postretirement plan accruals, related to the early retirement program, which will be paid over an extended number of years and will not materially effect any individual year. OUTLOOK Although we are encouraged by our second quarter sales performance, we are still facing a challenging international business environment and will continue to look for ways to improve the efficiency and effectiveness of our operations. The steps we have taken have positioned us to weather these difficult conditions while enabling us to invest in those critical areas that will provide for Nordson's growth. 10
SAFE HARBOR STATEMENT 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. 11
Part II - Other Information ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders of Nordson Corporation was held on March 12, 1998 for the purpose of electing three directors, and approving amendments to the Nordson Corporation Regulations. All of management's nominees for directors, as listed in the proxy statement, were elected by the following votes: William D. Ginn: For 14,324,315 Withheld 429,292 Stephen R. Hardis: For 14,534,614 Withheld 218,993 William L. Robinson: For 14,531,963 Withheld 221,644 In addition to the above directors, the following directors' terms of office continued after the meeting: Dr. Glenn R. Brown, Edward P. Campbell, William W. Colville, Dr. Anne O. Krueger, William P. Madar, Eric T. Nord and Evan W. Nord. The Amendment to Nordson Corporation's Regulations to increase shareholder vote required to call a special meeting of shareholders was approved: For: 11,171,703 Against: 2,578,679 Abstain: 393,480 Non Vote: 609,745 The Amendment to Nordson Corporation's Regulations to increase shareholder vote required to change the number of directors, and to give the Board of Directors unlimited discretion in changing the number of directors was approved: For: 11,099,224 Against: 2,626,898 Abstain: 417,740 Non Vote: 609,745 The Amendment to Nordson Corporation's Regulations to establish procedures for the proposal of business at a shareholders meeting and to increase the notice period for the nomination of directors was approved: For: 11,551,457 Against: 2,188,229 Abstain: 421,587 Non Vote: 592,334 12
The Amendment to Nordson Corporation's Regulations to obligate the Company to advance legal fees to directors and officers in connection with an action for which indemnification is required was approved: For: 13,882,485 Against: 555,916 Abstain: 315,206 The Amendment to Nordson Corporation's Regulations to increase the shareholder vote required to amend certain provisions of the Company's Regulations was approved: For: 11,214,075 Against: 2,556,999 Abstain: 372,788 Non Vote: 609,745 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits - Exhibit 27 Financial Data Schedules (b) There were no reports on Form 8-K filed for the quarter ended May 3, 1998. 13
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: June 15, 1998 Nordson Corporation /s/ Nicholas D. Pellecchia --------------------------- Nicholas D. Pellecchia Vice President, Finance and Controller (Principal Financial Officer and Chief Accounting Officer) 14
NORDSON CORPORATION EXHIBIT INDEX Exhibit 27 Financial Data Schedules Exhibit 27-a Period Ending May 3, 1998 Exhibit 27-b Period Ending May 4, 1997 15