Nordson - 10-Q quarterly report FY

FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

For the quarterly period ended      July 30, 2000

OR

For the transition period from _____________ to _____________

Commission file number    0-7977

      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 July 30, 2000: 16,142,313

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NORDSON CORPORATION

INDEX

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Part I — Financial Information

NORDSON CORPORATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

(Dollars and shares in thousands except for per share amounts)

See accompanying notes.

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NORDSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

See accompanying notes.

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NORDSON CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

See accompanying notes.

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NORDSON CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 30, 2000

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The Company conducts business across four geographical areas: North America, Europe, Japan and Pacific South. The composition of segments and measure of segment profitability is consistent with that used by the Company’s management. The primary measurement focus is operating profit, which equals sales less operating costs and expenses. Operating profit excludes interest income (expense), investment income (net) and other income (expense). Intersegment sales and transfers are based on the costs to manufacture plus a reasonable profit element. Items below the operating income line of the Condensed Consolidated Statement of Income are not presented by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s management.

End markets for Nordson products include food and beverage, metal furniture, appliances, electronic components, disposable nonwoven products and automotive components. Nordson sells its products primarily though a direct, geographically dispersed sales force.

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’s revenues are generated via the sale of products sold in the following categories:

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AND RESULTS OF OPERATIONS" -->

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

Sales for the third quarter of 2000 were a record $184.1 million, a 6% increase over sales of $174.4 million of the comparable period of 1999. Volume gains were 8%, with the effect of the stronger dollar on currency translations accounting for the difference. Sales on a year-to-date basis were $523.6 million, a 3% increase over the same period of 1999, with volume gains of 6% offset by currency effects.

Performance during the third quarter of 2000 was driven by continued strong sales volume growth in North America, with third-quarter sales volume up 17% over the same period of 1999. In the Company’s Pacific South region, which covers the Pacific Rim, South Asia and Latin America, sales volume was up 4% over the third quarter of 1999. In Japan, sale volume increased 3% over the comparable period of 1999, with Japanese economic conditions showing early signs of recovery. Sales volume in Europe decreased 1% for the third quarter, traced primarily to the timing of engineered system installations.

Looking at third quarter performance from a product viewpoint, worldwide volume gains were driven by strong sales in the advanced technology group which includes electronics, plasma and ultra-violet curing. This group experienced a 12% volume growth rate over the third quarter of 1999. Sales of adhesive systems experienced volume growth of 10% over the comparable period of 1999, reflecting strong demand for nonwovens products.

OPERATING PROFIT

Operating profit, as a percentage of sales, excluding the effect of severance costs associated with the Company’s Action 2000 Initiative, was 14.2% of sales for the third quarter of 2000, an improvement from the 12.2% for the third quarter of 1999. Year-to-date operating profit, as a percentage of sales, excluding the effect of severance costs, increased to 12.1% of sales for 2000 from 10.8% for the same period of 1999.

The gross margin rate increased for the third quarter of 2000 to 55.3% compared to 54.9% in 1999. Improved margins are mainly attributable to a product mix skewed to the Company’s standard products. Gross margin for the first three quarters increased to 55.4% in 2000 from 54.7% in 1999.

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During the third quarter of fiscal 2000, severance payments in the amount of nearly $1.0 million were recognized as part of Action 2000 initiatives, bringing the year-to-date total to $7.7 million. Additional costs related to Action 2000 are estimated to be approximately $1.4 million and will be incurred over the remainder of fiscal year 2000.

On a year-to-date basis, selling and administrative expenses, excluding currency and severance costs, increased approximately 3.8% compared to the prior year. This increase is attributable to additional operating expenses incurred relative to the growth of the electronics line of business as well as the recognition of a full year of expenses related to 1999 acquisitions. Additionally, costs associated with the implementation of the Company’s enterprise management system were incurred and depreciation expense on the system commenced in March 2000.

NET INCOME

For the third quarter and the year-to-date, net income, as a percentage of sales excluding severance costs, increased to 8.5% for 2000 from 7.7% in 1999, and to 7.2% for 2000 from 6.6% in 1999, respectively.

Net income for the third quarter of 2000 was $15.0 million or $.92 per share on a diluted basis compared with $13.4 million or $.80 per share on a diluted basis in 1999. Net income for the first three quarters of 2000 was $32.6 million or $2.01 per share on a diluted basis compared with $33.4 million or $2.02 per share on a diluted basis for 1999. Excluding the effect of severance costs associated with the Company’s Action 2000 Initiative, net income for the third quarter was $15.6 million or $.96 per share on a diluted basis, and for the year-to-date, net income was $37.7 million or $2.31 per share on a diluted basis.

FOREIGN CURRENCY EFFECTS

In the aggregate, average exchange rates for the first three quarters of 2000 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates during the comparable 1999 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, if transactions for the first three quarters of 2000 were translated at exchange rates in effect during 1999, sales would have been approximately $3,964,000 higher while third-party costs and expenses would have been $3,602,000 higher. If transactions for year-to-date 2000 were translated at exchange rates in effect during 1999, sales would have been approximately $10,582,000 higher and third-party costs and expenses would have been $8,625,000 higher.

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FINANCIAL CONDITION

During the first three quarters of 2000, net assets increased $6,347,000. This increase is primarily attributable to earnings of $32,632,000 offset by net repurchases of Nordson stock amounting to $15,839,000, the payment of $12,662,000 in dividends, and a reduction of $1,903,000 from translating foreign net assets at the end of the third quarter when the U.S. dollar was generally stronger against other currencies than at the prior year end.

Working capital, as of the end of the third quarter of 2000, increased $7,569,000 over the prior year-end. This change consisted primarily of increases in cash and inventories offset by increases in customer advance payments. Inventories increased in anticipation of demand for Nordson products and customer advance payments increased as a result of increased customer orders, reflective of the record backlog for the first three quarters of 2000. All balances reflect the effects of translating amounts denominated in generally weaker foreign currencies into U.S. dollars.

Cash and cash equivalents increased $4,873,000 during the first three quarters of 2000. Sources of cash included $47,362,000 from operations and $7,592,000 of net proceeds from notes payable. Uses for cash included repurchases of treasury shares, outlays for capital expenditures, repayment of debt and dividends. Available lines of credit continue to be more than adequate to meet cash requirements for operations over the next year.

OUTLOOK

The pace of business at Nordson continues to accelerate with increased order volume and the resultant record backlog of customer orders is a positive indicator for the remainder of the year. Encouraged by this progress, Nordson remains committed to improving profitability and will continue to streamline operations. Delivering on Nordson’s commitment to customers will continue to be a key focus during this period of accelerated demand.

Nordson implemented an enterprise management system at the end of February, 2000. This system is expected to improve the Company’s competitiveness by providing common streamlined processes which produce more timely information on Nordson products, customers and market segments, reducing manufacturing times, lowering purchasing costs and improving inventory turnover. Although a minor period of system downtime was incurred shortly after conversion, the Company has not experienced any significant operational difficulties since the system’s implementation at the end of February, 2000.

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SAFE HARBOR STATEMENTS
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

The statements in the paragraphs titled “Operating Profit” 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 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 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 28, 2000. The information disclosed has not changed materially in the interim period since October 31, 1999.

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Part II — Other Information

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

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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.

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NORDSON CORPORATION

EXHIBIT INDEX

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