FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July January 31, 20052006
OR
   
o 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)
   
Ohio34-0590250

(State of incorporation)		 34-0590250
(I.R.S. Employer Identification No.)
   
28601 Clemens Road

Westlake, Ohio		44145

(Address of principal executive offices)		 44145
(Zip Code)
(440) 892-1580

(Telephone Number)


Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares with no par value
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)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.
Yesþ Noo
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act)
Yes  Act. (Check one):
Large accelerated filerþ No  Accelerated filero Non-accelerated filero
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Shares with nowithout par value as of July 29, 2005: 36,312,314January 31, 2006: 33,467,490
 
 

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Nordson Corporation
Table of Contents
     
PART I —– FINANCIAL INFORMATION
  3 
     
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
  3 
Condensed Consolidated Statements of Income
  3 
Condensed Consolidated Balance Sheet
  4 
Condensed Consolidated Statement of Cash Flows
  5 
Notes to Condensed Consolidated Financial Statements
  6 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  1716 
Results of Operations
  1716 
Financial Condition
  1918 
Critical Accounting Policies
  1918 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  2019 
ITEM 4. CONTROLS AND PROCEDURES
  2019 
     
PART II —– OTHER INFORMATION
  2120 
     
ITEM 1. LEGAL PROCEEDINGS
  2120 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  2221 
ITEM 6. EXHIBITS
  2321 
     
SIGNATURES
  2422 
 EX-31.1 Certification of CEO
 EX-31.2 Certification of CFO
 EX-32.1 Certification of CEO
 EX-32.2 Certification of CFO

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Nordson Corporation
Part I —– FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Income
                    
 Thirteen Weeks Ended Thirty-Nine Weeks Ended 
 July 31, 2005 August 1, 2004 July 31, 2005 August 1, 2004 
 
Quarter Ended January 31, 2006 January 30, 2005 
(In thousands, except for per share data)  
Sales $201,570 $197,949 $599,359 $565,191  $197,452 $190,166 
  
Operating costs and expenses:  
Cost of sales 87,748 85,835 263,441 247,578  83,654 83,625 
Selling and administrative expenses 85,794 83,261 255,962 242,493  84,368 82,791 
Severance and restructuring costs 1,233 — 
 173,542 169,096 519,403 490,071  169,255 166,416 
Operating profit 28,028 28,853 79,956 75,120  28,197 23,750 
  
Other income (expense):  
Interest expense  (3,409)  (3,677)  (10,184)  (11,524)  (3,491)  (3,296)
Interest and investment income 622 �� 243 1,415 867  212 346 
Other — net  (130) 363 1,100 628   (707) 483 
  (2,917)  (3,071)  (7,669)  (10,029)  (3,986)  (2,467)
Income before income taxes 25,111 25,782 72,287 65,091  24,211 21,283 
  
Income taxes 6,520 8,508 21,852 21,480  8,144 6,917 
Net income $18,591 $17,274 $50,435 $43,611  $16,067 $14,366 
  
Average common shares 36,208 35,861 36,251 35,267  33,002 36,226 
 
Incremental common shares attributable to outstanding stock options, nonvested stock, and deferred stock-based compensation 635 1,188 812 1,118  845 974 
Average common shares and common share equivalents 36,843 37,049 37,063 36,385  33,847 37,200 
  
Basic earnings per share $0.51 $0.48 $1.39 $1.24  $0.49 $0.40 
Diluted earnings per share $0.50 $0.47 $1.36 $1.20  $0.47 $0.39 
  
Dividends per share $0.16 $0.155 $0.48 $0.465  $0.165 $0.16 
See accompanying notes.

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Nordson Corporation
Condensed Consolidated Balance Sheet
        
 July 31, 2005 October 31, 2004  
  January 31, 2006 October 30, 2005 
(In thousands)  
Assets  
Current assets:  
Cash and cash equivalents $63,957 $11,176  $17,766 $11,269 
Marketable securities 35,715 49,403  215 215 
Receivables 156,509 175,013  151,539 181,660 
Inventories 90,530 85,330  92,936 81,868 
Deferred income taxes 39,349 37,093  30,564 30,954 
Prepaid expenses 6,570 6,257  7,301 5,750 
Total current assets 392,630 364,272  300,321 311,716 
  
Property, plant and equipment — net 109,429 111,607  111,263 110,531 
Goodwill — net 331,513 331,659  331,468 331,356 
Other intangible assets — net 16,088 17,331  14,978 15,457 
Other assets 19,563 15,679  18,951 19,466 
 $869,223 $840,548  $776,981 $788,526 
Liabilities and shareholders’ equity  
Current liabilities:  
Notes payable $14,423 $15,301  $14,180 $18,393 
Accounts payable 45,838 58,740  37,078 49,609 
Current maturities of long-term debt 53,810 12,290  45,711 53,686 
Other current liabilities 118,359 110,579  115,325 128,386 
Total current liabilities 232,430 196,910  212,294 250,074 
  
Long-term debt 101,420 148,033  101,420 101,420 
Other liabilities 103,148 92,272  102,039 106,120 
  
Shareholders’ equity:  
Common shares 12,253 12,253  12,253 12,253 
Capital in excess of stated value 180,876 174,440  200,559 188,132 
Retained earnings 591,645 558,620  623,403 613,580 
Accumulated other comprehensive loss  (17,746)  (16,471)  (24,788)  (25,883)
Common shares in treasury, at cost  (332,037)  (323,531)  (450,199)  (454,365)
Deferred stock-based compensation  (2,766)  (1,978) —  (2,805)
Total shareholders’ equity 432,225 403,333  361,228 330,912 
 869,223 $840,548  $776,981 $788,526 
See accompanying notes.

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Nordson Corporation
Condensed Consolidated Statement of Cash Flows
                
Thirty-Nine Weeks Ended July 31, 2005 August 1, 2004 
Quarter Ended January 31, 2006 January 30, 2005 
(In thousands) 
  
(In thousands) 
Cash flows from operating activities:  
Net income $50,435 $43,611  $16,067 $14,366 
Depreciation and amortization 19,117 20,152  6,062 6,387 
Tax benefit from the exercise of stock options  (3,549) 55 
Changes in operating assets and liabilities 5,123  (6,522)  (1,397)  (21,145)
Other 6,109 5,177   (1,928) 8,037 
 
Net cash provided by operating activities 80,784 62,418  15,255 7,700 
  
Cash flows from investing activities:  
Additions to property, plant and equipment  (10,718)  (7,059)  (4,531)  (3,136)
Proceeds from sale of marketable securities 118,765 —  — 59,075 
Purchases of marketable securities  (105,077)  (3,045) —  (45,276)
Consolidation of joint venture — 295 
Acquisition of new business  (557)  (4,013)
Net cash used in investing activities 2,413  (13,822)
Net cash provided by (used in) investing activities  (4,531) 10,663 
  
Cash flows from financing activities:  
Repayment of short-term borrowings  (929)  (49,400)
Net proceeds from (repayment of) short-term borrowings  (5,107) 2,078 
Repayment of long-term debt  (4,290)  (13,349)  (8,000) — 
Repayment of capital lease obligations  (3,612)  (3,166)  (1,344)  (1,173)
Issuance of common shares 3,369 56,089  12,352 2,239 
Purchase of treasury shares  (7,418)  (2,240)  (1,914)  (710)
Tax benefit from the exercise of stock options 84 385  3,549 — 
Dividends paid  (17,409)  (16,341)  (5,455)  (5,800)
Net cash used in financing activities  (30,205)  (28,022)  (5,919)  (3,366)
Effect of exchange rate changes on cash  (211) 673  440 845 
Effect of change in fiscal year-end for certain 
international subsidiaries 1,252 — 
Increase in cash and cash equivalents 52,781 21,247  6,497 15,842 
Cash and cash equivalents:  
Beginning of year 11,176 6,945  11,269 11,176 
End of quarter $63,957 $28,192  $17,766 $27,018 
See accompanying notes.

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Nordson Corporation
Notes to Condensed Consolidated Financial Statements
JulyJanuary 31, 20052006
1. Basis of Presentationpresentation. 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 quarter ended JulyJanuary 31, 20052006 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 October 31, 2004.30, 2005. Certain prior period amounts have been reclassified to conform to current period presentation.
2. Basis of Consolidation. The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Prior to 2006, the majority of the Company’s international operations reported their results on a one-month lag, in order to facilitate reporting of consolidated accounts. Effective in 2006, the reporting lag was eliminated. As a result, the October 2005 results of operations for these subsidiaries, which amounted to a net loss of $788,000, were recorded directly to retained earnings at the beginning of fiscal 2006. Beginning in 2006, each accounting period ends on the calendar month-end. Previously, each month ended on a Sunday.
3.Revenue Recognitionrecognition. Most of the Company’s revenues are recognized upon shipment, provided that persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collectibility is reasonably assured, and title and risk of loss have passed to the customer. Revenues from contracts with multiple element arrangements, such as those including installation or other services, are recognized as each element is earned based on objective evidence of the relative fair value of each element. If the installation or other services are inconsequential to the functionality of the delivered product, the entire amount of revenue is recognized upon transfer of ownership. Inconsequential installation of other services are those which can generally be completed in a short period of time, at insignificant cost, and the skills required to complete these installations are not unique to the Company. If installation or other services are essential to the functionality of the delivered product, revenues attributable to these obligations are deferred until completed. Amounts received in excess of revenue recognized are included as deferred revenue in the accompanying balance sheets. A limited number of the Company’s large engineered systems sales contracts are accounted for using the percentage-of-completion method. The amount of revenue recognized in any accounting period is based on the ratio of actual costs incurred through the end of the period to total estimated costs at completion. Cost estimates are updated on a quarterly basis. The remaining revenues are recognized upon delivery.
3.4. Use of Estimatesestimates. 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.
4.Marketable Securities. During fiscal 2004 and 2005, the Company began investing in auction rate and variable rate demand obligation securities, which are associated with municipal bond offerings, and have final maturity dates ranging from 2016 to 2046. These securities were previously classified as cash and cash equivalents. Based on the terms of the security agreements, the Company began to classify the auction rate securities and a portion of the variable rate demand obligation securities as marketable securities in fiscal 2005. The accompanying October 31, 2004 Balance Sheet has been adjusted to reflect the reclassification of $49,075,000 in auction rate securities from cash and cash equivalents to marketable securities. They are classified as available for sale and are recorded at quoted market prices that approximate cost. This reclassification had no impact on the Company’s debt covenants or interest expense.
5. Accounting Changes.Changes In May 2004, the FASB issued Staff Position No. FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” in response to a new law that provides prescription drug benefits under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Currently, Statement of Financial Accounting Standard No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“No. 106”) requires that changes in relevant law be considered in current measurement of postretirement benefit costs. In the third quarter of 2005, the Company’s actuary determined that the prescription drug benefit provided by the Company’s postretirement plan is considered to be actuarially equivalent to the benefit provided under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. (See Note 13).

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Nordson Corporation
In November 2004, the FASB issued Statement of Financial Accounting Standard No. 151, “Inventory Costs.” No. 151 amends Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as current-period charges and requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption ofCompany adopted No. 151 is effective forin fiscal years beginning after June 15, 2005. The Company has2006, and the adoption did not yet determinedhave a material effect on the impact of adoption on itsCompany’s consolidated financial position or results of operations.

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Nordson Corporation
  In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-BasedShare-Based Payment.” This Statement replaces FASB Statement No. 123 and supercedes APB Opinion No. 25. No. 123(R) eliminates the ability to account for share-based compensation transactions using the intrinsic method currently used by the Company. No. 123(R) requires such transactions be accounted for using a fair-value-based method that would result in expense being recognized in the Company’s financial statements. TheAs discussed in Note 9, the Company will be required to adoptadopted No. 123(R) in the first quarter of fiscal 2006 as a result of an extension granted by the Securities and Exchange Commission on April 14, 2005 and has not yet determined the impact of adoption on its consolidated financial position or results of operations.2006.
 
  In March 2005, the FASB issued Interpretation No. 47, (FIN 47), “Accounting for Conditional Asset Retirement Obligations.” This interpretation states that the term “conditional asset retirement obligation” as used in paragraph A23 of SFAS No. 143 refers to a legal obligation to perform an asset retirement in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement obligation is unconditional even though uncertainty exists about the timing and (or) method of settlement. The effective date for adopting this interpretation is no later than the end of fiscal years ending after December 15, 2005. The Company has not yet determined the impact of adoption on its consolidated financial position or results of operations.
 
  In May 2005, the Financial Accounting Standards Board (FASB)FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections.” No. 154 replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the accounting for and reporting of a change in accounting principle. The Statement applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement when specific transition provisions are not provided. The Statement requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine the period specific or cumulative effect of the change. The Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
 
6. In June 2005, the FASB issued FSP FAS No. 143-1, “Accounting for Electronic Equipment Waste Obligations,” which addresses the accounting for obligations associated with Directive 2002/96/EC, Waste Electrical and Electronic Equipment (the “Directive”), which was adopted by the European Union. FSP FAS No. 143-1 provides guidance on how to account for the effectsInventories. Inventories consisted of the Directive with respect to historical waste, which is defined as waste associated with products placed on the market on or before August 13, 2005. FSP FAS No. 143-1 is required to be applied to the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable European Union member country. The adoption of FSP FAS No. 143-1 will not have a material effect on the Company’s consolidated results of operations or financial condition.following:
         
  January 31, 2006  October 30, 2005 
(In thousands)        
Finished goods $46,307  $44,788 
Work-in-process  18,458   12,258 
Raw materials and finished parts  44,385   40,537 
 
   109,150   97,583 
Obsolescence and other reserves  (7,481)  (7,231)
LIFO reserve  (8,733)  (8,484)
 
  $92,936  $81,868 
 

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Nordson Corporation
 6.Inventories. Inventories consisted of the following:
         
  July 31, 2005  October 31, 2004 
  
(In thousands)        
Finished goods $49,212  $45,889 
Work-in-process  14,633   12,310 
Raw materials and finished parts  42,445   43,254 
 
   106,290   101,453 
Obsolescence and valuation reserves  (7,135)  (7,361)
LIFO reserve  (8,625)  (8,762)
 
  $90,530  $85,330 
 
7.Guarantees. The Company has issued guarantees to two banks to support the short-term borrowing facilities of a 49 percent-owned South Korean joint venture/distributor of the Company’s products. One guarantee is for Korean Won Three Billion (approximately $2,960,000) secured by land and building and expires on January 31, 2006. The other guarantee is for $2,300,000 and expires on October 31, 2005.
In 2004, the Company issued a guarantee to a U.S. bank related to a five-year trade financing agreement for a sale to a customer in Turkey. The loan is secured by collateral with a current value well in excess of the amount due. The guarantee would be triggered upon a payment default by the customer to the bank. The amount of the guarantee at July 31, 2005 was Euro 2 million (approximately $2,425,000) and will decline ratably as semi-annual principal payments are made by the customer beginning later in 2005. The Company has recorded $1,161,000 in other current liabilities related to this guarantee. The recorded amount will be adjusted as the customer makes payments.
8. Goodwill and Other Intangible Assets. Changes in the carrying amount of goodwill for the three quartersquarter ended JulyJanuary 31, 20052006 by operating segment are as follows:
                
 Adhesive     
 Dispensing & Advanced             
 Nonwoven Fiber Finishing & Technology    Adhesive Dispensing Advanced    
 Systems Coating Systems Systems Total  & Nonwoven Fiber Technology Finishing &  
  Systems Systems Coating Systems Total
(In thousands)  
Balance at October 31, 2004 $30,715 $3,438 $297,506 $331,659 
Balance at October 30, 2005 $30,546 $297,414   $3,396 $331,356 
Currency effect  (129)  (43) 26  (146) 65 33   14 112 
Balance at July 31, 2005 $30,586 $3,395 $297,532 $331,513 
Balance at January 31, 2006 $30,611 $297,447   $3,410 $331,468 
Information regarding the Company’s intangible assets subject to amortization is as follows:
             
  January 31, 2006 
      Accumulated    
  Carrying Amount  Amortization  Net Book Value 
(In thousands)            
Core/Developed Technology $10,400  $3,762  $6,638 
Non-Compete Agreements  4,072   1,704   2,368 
Patent Costs  2,958   2,032   926 
Other  5,924   5,463   461 
 
Total $23,354  $12,961  $10,393 
 
             
  October 30, 2005 
      Accumulated    
  Carrying Amount  Amortization  Net Book Value 
(In thousands)            
Core/Developed Technology $10,400  $3,543  $6,857 
Non-Compete Agreements  4,070   1,649   2,421 
Patent Costs  2,955   1,956   999 
Other  6,422   5,827   595 
 
Total $23,847  $12,975  $10,872 
 
At January 31, 2006 and October 30, 2005, $4,585,000 of intangible assets related to a minimum pension liability for the Company’s pension plans were not subject to amortization.
Amortization expense for the quarters ended January 31, 2006 and January 30, 2005 was $416,000 and $437,000, respectively.

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Nordson Corporation
Information regarding the Company’s intangible assets subject to amortization is as follows:
             
  July 31, 2005 
     Accumulated    
  Carrying Amount  Amortization  Net Book Value 
    
(In thousands)            
Core/Developed Technology $10,400  $3,324  $7,076 
Non-Compete Agreements  4,072   1,594   2,478 
Patent Costs  2,957   1,877   1,080 
Other  6,313   5,750   563 
 
Total $23,742  $12,545  $11,197 
 
             
  October 31, 2004 
     Accumulated    
  Carrying Amount  Amortization  Net Book Value 
    
(In thousands)            
Core/Developed Technology $10,400  $2,667  $7,733 
Non-Compete Agreements  4,079   1,430   2,649 
Patent Costs  2,966   1,628   1,338 
Other  6,332   5,612   720 
 
Total $23,777  $11,337  $12,440 
 
At July 31, 2005 and October 31, 2004, $4,891,000 of intangible assets related to a minimum pension liability for the Company’s pension plans were not subject to amortization.
Amortization expense for the thirteen and thirty-nine weeks ended July 31, 2005 was $434,000 and $1,309,000, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows:
     
Fiscal Year Amounts 
(In thousands) 
2005 $1,740 
2006 $1,620 
2007 $1,482 
2008 $1,472 
2009 $1,202 

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Nordson Corporation
 9.8. Comprehensive Incomeincome. Comprehensive income for the thirteenquarters ended January 31, 2006 and thirty-nine weeks ended July 31,January 30, 2005 and August 1, 2004 is as follows:
                
 Thirteen Weeks Ended Thirty-Nine Weeks Ended 
 July 31, 2005 August 1, 2004 July 31, 2005 August 1, 2004     
  January 31, 2006 January 30,2005 
(In thousands)  
Net income $18,591 $17,274 $50,435 $43,611  $16,067 $14,366 
Foreign currency translation adjustments  (7,792) 409  (1,275) 4,670  1,095 11,846 
Comprehensive income $10,799 $17,683 $49,160 $48,281  $17,162 $26,212 
   Accumulated other comprehensive loss at JulyJanuary 31, 20052006 consisted of net foreign currency translation adjustment credits of $7,708,000$7,176,000 offset by $25,454,000$31,964,000 of minimum pension liability adjustments. At August 1, 2004January 30, 2005 it consisted of net foreign currency translation adjustment credits of $7,178,000$20,829,000 offset by $22,804,000$25,454,000 of minimum pension liability adjustments. Accumulated other comprehensive loss at July 31 1, 2005 and August 1, 2004First quarter activity is as follows:
        
 July 31, 2005 August 1, 2004     
  January 31, 2006 January 30,2005 
(In thousands)  
Beginning balance $(16,471) $(20,296) $(25,883) $(16,471)
Current-period change  (1,275) 4,670  1,095 11,846 
Ending balance  ($17,746)  ($15,626) $(24,788) $(4,625)
 10.9. Stock-Based Compensation. The Company’s long-term performance plan, approved by the Company’s shareholders in 2004, provides for the granting of stock options, stock appreciation rights, restricted stock, stock purchase rights, stock equivalent units, cash awards and other stock or performance-based incentives. The number of Common Shares available for grant of awards is 3.0 percent of the number of Common Shares outstanding as of the first day of each fiscal year, plus up to an additional 0.5 percent, consisting of shares available, but not granted, in prior years.
Stock Options
Nonqualified or incentive stock options may be granted to employees and directors of the Company. Generally, options granted to employees may be exercised beginning one year from the date of grant at a rate not exceeding 25 percent per year and expire 10 years from the date of grant. Options granted to non-employee directors vest in 6 months. Vesting accelerates upon the occurrence of events that involve or may result in a change of control of the Company. Option exercises are satisfied through the issuance of treasury shares on a first-in first-out basis.
Prior to 2006, the Company Stock Plans. The Company accountsaccounted for its stock option plansoptions under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” No stock option expense iswas reflected in net income, as all options granted under these plans had an exercise price equal to the fair market value of the underlying common stockCommon Shares on the date of grant. The following table shows pro forma information regarding net income and earnings per share as ifEffective at the beginning of fiscal 2006, the Company had accounted for stock options granted since 1996 underadopted the fair value recognition provisions of FAS 123 (R) using the modified prospective transition method. The proforma informationUnder this method compensation cost in 2006 includes cost for 2004 hasoptions granted prior to but not vested as of October 31, 2005 and options granted in fiscal 2006. Compensation expense is being recognized on a straight-line basis over the total requisite service period of each option grant. Results for prior periods have not been modified to be more consistent with the methodology used to calculate the 2005 amounts.restated.

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  Thirteen Weeks Ended  Thirty-Nine Weeks Ended 
  July 31, 2005  August 1, 2004  July 31, 2005  August 1, 2004 
  
(In thousands, except for per share data)                
Net income, as reported $18,591  $17,274  $50,435  $43,611 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax  (800)  (729)  (2,394)  (2,186)
 
Pro forma net income $17,791  $16,545  $48,041  $41,425 
 
                 
Earnings per share:                
Basic — as reported $0.51  $0.48  $1.39  $1.24 
Basic — pro forma $0.49  $0.46  $1.33  $1.17 
                 
Diluted — as reported $0.50  $0.47  $1.36  $1.20 
Diluted — pro forma $0.48  $0.45  $1.30  $1.14 
Nordson Corporation
The following table shows pro forma information regarding net income and earnings per share for the first quarter of 2005 as if the Company had accounted for stock options granted since 1996 under the fair value method.
     
  Quarter Ended 
(In thousands, except for per share data) January 30, 2005 
 
Net income, as reported $14,366 
     
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax  (548)
 
Pro forma net income $13,818 
 
     
Earnings per share:    
Basic — as reported $0.40 
Basic — pro forma $0.38 
     
Diluted — as reported $0.39 
Diluted — pro forma $0.37 
As a result of adopting FAS 123 (R), the Company recognized compensation expense of $982,000 ($639,000 on an after-tax basis, or $.02 per both basic and diluted share) during the first quarter of 2006.
Prior to the adoption of FAS 123 (R), the Company presented the tax benefit of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. FAS 123 (R) requires these benefits to be classified as financing cash flows. The excess tax benefit of $3,549,000 in the first quarter of 2006 was classified as a financing cash inflow and would have been classified as an operating cash flow prior to adoption of FAS 123 (R).
Following is a summary of the Company’s stock options for the quarter ending January 31, 2006:
                 
              Weighted
      Weighted-Average     Average
  Number of Exercise Price Per Aggregate Remaining
(In thousands, except for per share data) Options Share Intrinsic Value Term
 
Outstanding at October 30, 2005  3,489  $26.48         
Granted  331  $38.81         
Exercised  (714) $24.56         
Forfeited or expired  (24) $29.61         
 
Outstanding at January 31, 2006  3,082  $28.22  $53,000  6.1 years
 
Vested or expected to vest at January 31, 2006  2,998  $28.05  $52,073  6.0 years
 
Exercisable at January 31, 2006  2,141  $25.87  $41,868  5.1 years
 

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Nordson Corporation
As of January 31, 2006, there was $8,245,000 of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be amortized over a weighted average period of approximately 1.6 years.
The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
 11. 
Quarter endedJanuary 31, 2006January 30, 2005
Expected volatility.276-.282.300
Expected dividend yield1.88-2.00%1.71%
Risk-free interest rate4.44-4.59%3.87-3.88%
Expected life of the option (in years)5.6-8.87.00
The weighted-average expected volatility and weighted-average expected dividend yield used to value the 2006 options were .278 and 1.92%, respectively.
Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.
The weighted average grant date fair value of stock options granted during the first three months of 2006 and 2005 was $11.81 and $12.08, respectively. The total intrinsic value of options exercised during the first three months of 2006 and 2005 was $12,501,000 and $3,087,000, respectively.
Cash received from the exercise of stock options was $12,352,000 for the first quarter of 2006 and $2,239,000 for the first quarter of 2005. The tax benefit realized from tax deductions from exercises was $3,549,000 for the first quarter of 2006 and $55,000 for the first quarter of 2005. The tax benefit increased because of a higher amount of compensation expense related to stock option exercises. In addition, the benefit increased because a higher tax rate was applied to the expense. In the first quarter of 2005, the amount of the benefit could not be determined, so a minimum tax rate was used. This year, it is expected that the Company will be able to utilize more of the benefit to reduce income taxes, so a statutory tax rate was used.
Restricted Stock
The Company may grant restricted stock to employees and directors of the Company. These shares may not be disposed of for a designated period of time (currently six months to five years) defined at the date of grant and are to be returned to the Company if the recipient’s employment terminates during the restriction period. As shares are issued, deferred stock-based compensation equivalent to the fair market value on the date of grant is charged to shareholders’ equity and subsequently amortized over the restriction period. Tax benefits arising from the lapse of restrictions on the stock are recognized when realized and credited to capital in excess of stated value. Upon adoption of FAS 123(R) at the beginning of 2006, the unamortized balance of the deferred stock-based compensation was reclassified to capital in excess of stated value.
The following table summarizes activity related to restricted stock during the first quarter of 2006:
         
      Weighted-Average
  Number of Grant Date Fair
(In thousands, except for per share data) Shares Value
 
Nonvested shares at October 30, 2005  161  $30.17 
Granted  5  $38.92 
Vested  —   — 
Forfeited  —   — 
 
Nonvested at January 31, 2006  166  $30.44 
 

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Nordson Corporation
As of January 31, 2006, there was approximately $2,577,000 of unrecognized compensation cost related to restricted stock. The cost is expected to be amortized over a weighted average period of 1.8 years. The amount charged to expense related to restricted stock was $458,000 in the first quarter of 2006 and $427,000 in the first quarter of 2005.
Directors Deferred Compensation
Non-employee directors may defer all or part of their fees until retirement. The fees may be deferred as cash or as stock equivalent units. Deferred cash amounts are recorded as liabilities. Upon adoption of FAS 123 (R) at the beginning of 2006, deferred amounts of $3,435,000 in stock equivalent units were reclassified from liabilities to capital in excess of stated value. Additional stock equivalent units are earned when common stock dividends are declared.
The following is a summary of the activity during the first quarter of 2006:
         
      Weighted-Average
  Number of Grant Date Fair
(In thousands, except for per share data) Shares Value
 
Outstanding at October 30, 2005  151  $22.74 
Granted  2  $40.43 
Dividend equivalents  1  $42.32 
Distributions  (4) $19.82 
 
Outstanding at January 31, 2006  150  $23.17 
 
The amount charged to expense related to this plan was $80,000 in the first quarter of 2006.
Long-Term Incentive Compensation Plan (LTIP)
Under the long-term incentive compensation plan, executive officers and selected other employees receive cash or stock awards based solely on corporate performance measures over three-year performance periods. Awards vary based on the degree to which corporate performance exceeds predetermined threshold, target and maximum performance levels at the end of a performance period. No payout will occur unless the Company exceeds certain threshold performance objectives.
Under the performance periods originating in 2004 and 2005, awards will be paid in cash based upon the share price of the Company’s Common Shares at a predetermined date subsequent to the end of each three-year performance period. Over each three-year performance period, costs are accrued based upon current performance projections for the three-year period and the percentage of the requisite service that has been rendered, along with changes in value of the Company’s Common Shares. The method of estimating accrual amounts was revised upon adoption of FAS 123 (R), however the cumulative effect of the change was not material. The accruals for these performance periods continue to be classified as liabilities.
Under the performance period originating in 2006, awards will be settled in Common Shares. The amount of compensation expense is based upon current performance projections for the three-year period and the percentage of the requisite service that has been rendered. The calculation is also based upon the weighted-average value of the Company’s Common Stock at the dates of grant ($36.97 per share). These awards are recorded in shareholders’ equity, and the amount recorded at January 31, 2006 was $315,000.

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Nordson Corporation
10.Warranty Accrual. The Company offers warranty to its customers depending on the specific product and terms of the customer purchase agreement. Most of the Company’s product warranties are customer specific. A typical warranty program requires that the Company repair or replace defective products within a specified time period from the date of delivery or first use. The Company records an estimate for future warranty-related costs based on actual historical return rates. Based on analysis of return rates and other factors, the adequacy of the Company’s warranty provisions are adjusted as necessary. The liability for warranty costs is included in other current liabilities in the Consolidated Balance Sheet.
 
  Following is a reconciliation of the product warranty liability for the first three quartersquarter of 2006 and 2005:
         
Quarter ended January 31, 2006  January 30, 2005 
(In thousands)        
Beginning balance $4,405  $4,121 
Accruals for warranties  1,445   800 
Warranty payments  (1,238)  (658)
Currency effect  29   140 
 
Ending balance $4,641  $4,403 
 
11.Non-recurring charges. During the fourth quarter of 2005, the Company announced a number of restructuring actions to improve performance and reduce costs in its finishing and coating segment. These actions, which include operational consolidations and approximately 60 personnel reductions, will be substantially completed by the end of the second quarter of fiscal 2006. As a result of these actions, resources will be more effectively aligned with shifting patterns of global demands, enabling the segment to operate both with lower costs and better capability to serve customers in the faster growing emerging markets. The Company expects that total restructuring costs will be approximately $3,200,000, of which $875,000 was recorded in the fourth quarter of 2005 and 2004:$1,233,000 was recorded in the first quarter of 2006. Substantially all of the $3,200,000 of expense is associated with cash expenditures for severance payments to terminated employees. The following table summarizes activity in the severance and restructuring accrual during 2006:
         
Thirty-nine weeks ended July 31, 2005  August 1, 2004 
  
(In thousands)        
Beginning balance $4,121  $3,030 
Accruals for warranties  2,329   1,367 
Warranty payments  (2,679)  (1,494)
Currency effect  (93)  52 
 
Ending balance $3,678  $2,955 
 
     
Quarter ended January 31, 2006 
(In thousands)    
Accrual balance at October 30, 2005 $871 
Additions to accrual  1,233 
Payments  (725)
 
Accrual balance at January 31, 2006 $1,379 
 
 12.Operating Segmentssegments. The Company conducts business across three primary business segments: adhesive dispensing and nonwoven fiber systems, advanced technology systems and finishing and coating systems and advanced technology systems. The composition of segments and measure of segment profitability is consistent with that used by the Company’s chief operating decision maker. The primary 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). 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 chief operating decision maker. The accounting policies of the segments are generally the same as those described in Note 1, Significant Accounting Policies, of the Company’s annual report on Form 10-K for the year ended October 31, 2004.
Nordson products are used in a diverse range of industries, including appliance, automotive, bookbinding, container, converting, electronics, food and beverage, furniture, medical, metal finishing, nonwovens, packaging, semiconductor and other diverse industries. Nordson sells its products primarily through a direct, geographically dispersed sales force.30, 2005.

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Nordson Corporation
The following table presents information about the Company’s reportable segments:
The Company’s products are used around the world in the appliance, automotive, bookbinding, container, converting, electronics, food and beverage, furniture, medical, metal finishing, nonwovens, packaging, semiconductor, life sciences and other diverse industries. The Company sells its products primarily through a direct, geographically dispersed sales force.
                     
  Adhesive             
  Dispensing and  Finishing and  Advanced       
  Nonwoven Fiber  Coating  Technology  Corporate  Total 
  
(In thousands)                    
Thirteen weeks ended July 31, 2005                    
Net external sales $119,093  $32,514  $49,963      $201,570 
Operating profit  22,439   (530)  11,067   (4,948)  28,028 
                     
Thirteen weeks ended August 1, 2004                    
Net external sales $123,665  $32,227  $42,057      $197,949 
Operating profit  24,924   (143)  8,556   (4,484)  28,853 
                     
Thirty-nine weeks ended July 31, 2005                    
Net external sales $359,988  $101,058  $138,313      $599,359 
Operating profit  64,956   432   27,411   (12,843)  79,956 
                     
Thirty-nine weeks ended August 1, 2004                    
Net external sales $351,563  $90,567  $123,061      $565,191 
Operating profit  64,593   (440)  24,448   (13,481)  75,120 

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Nordson CorporationThe following table presents information about the Company’s reportable segments:
                     
  Adhesive             
  Dispensing and  Advanced  Finishing and       
  Nonwoven Fiber  Technology  Coating  Corporate  Total 
(In thousands)                    
Quarter ended                    
January 31, 2006                    
Net external sales $113,548  $51,754  $32,150  $—  $197,452 
Operating profit  21,554   11,154   (886)  (3,625)  28,197 
                     
Quarter ended                    
January 30, 2005                    
Net external sales $114,962  $42,074  $33,130  $—  $190,166 
Operating profit  18,343   6,938   619   (2,150)  23,750 
A reconciliation of total segment operating income to total consolidated income before income taxes is as follows:
           
Thirteen weeks ended July 31, 2005 August 1, 2004
Quarter ended January 31, 2006 January 30, 2005 
(In thousands)  
Total profit for reportable segments $28,028 $28,853  $28,197 $23,750 
Interest expense  (3,409)  (3,677)  (3,491)  (3,296)
Interest and investment income 622 243  212 346 
Other-net  (130) 363   (707) 483 
Consolidated income before income taxes $25,111 $25,782  $24,211 $21,283 
         
Thirty-nine weeks ended July 31, 2005 August 1, 2004
(In thousands)        
Total profit for reportable segments $79,956  $75,120 
Interest expense  (10,184)  (11,524)
Interest and investment income  1,415   867 
Other-net  1,100   628 
 
Consolidated income before income taxes $72,287  $65,091 
The Company has significant sales in the following geographic regions:
         
Thirteen weeks ended July 31, 2005 August 1, 2004
(In thousands)        
United States $66,236  $66,205 
Americas  14,156   15,107 
Europe  72,086   74,953 
Japan  20,369   18,601 
Asia Pacific  28,723   23,083 
 
Total net external sales $201,570  $197,949 
 
         
Thirty-nine weeks ended July 31, 2005 August 1, 2004
Quarter ended January 31, 2006 January 30, 2005 
(In thousands)  
United States $198,172 $188,551  $66,218 $60,285 
Americas 42,340 37,439  15,713 14,554 
Europe 219,488 214,753  70,220 70,828 
Japan 62,133 58,237  18,819 21,469 
Asia Pacific 77,226 66,211  26,482 23,030 
Total net external sales $599,359 $565,191  $197,452 $190,166 

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Nordson Corporation
 13. Pension and Other Postretirement Plans.other postretirement plans. The components of net periodic pension cost and the cost of other postretirement benefits for 2006 as compared with 2005 and 2004 were:
                 
  Pension Benefits Other Postretirement Benefits
Thirteen weeks ended July 31, 2005 August 1, 2004 July 31, 2005 August 1, 2004
(In thousands)                
Service cost $1,397  $1,547  $80  $273 
Interest cost  2,525   2,901   351   504 
Expected return on plan assets  (2,453)  (3,055)  —   — 
Amortization of prior service cost  156   74   (238)  (156)
Amortization of transition obligation  —   31   —   — 
Recognized net actuarial loss (gain)  611   420   320   504 
   
Total benefit cost $2,236  $1,918  $513  $1,125 
   
                                    
 Pension Benefits Other Postretirement Benefits Pension Benefits  Other Postretirement Benefits 
Thirty-nine weeks ended July 31, 2005 August 1, 2004 July 31, 2005 August 1, 2004
Quarter ended January 31, 2006 January 30, 2005  January 31, 2006 January 30, 2005 
(In thousands)  
Service cost $4,199 $4,222 $743 $875  $1,732 $1,323 $312 $331 
Interest cost 7,577 7,571 1,441 1,526  2,649 2,412 558 545 
Expected return on plan assets  (7,356)  (7,261) — —   (2,461)  (2,355) — 
Amortization of prior service cost 467 200  (532)  (433) 130 152  (181)  (147)
Amortization of transition obligation — 92 — — 
Recognized net actuarial loss (gain) 1,833 1,290 760 782  976 588  411 272 
  
Total benefit cost $6,720 $6,114 $2,412 $2,750  $3,026 $2,120 $1,100 $1,001 
     
  InThe Company’s contributions to pension and postretirement plans in fiscal 2006 is now estimated to be approximately $21.5 million, compared to the third quarterprevious estimate of 2005,$14 million disclosed in the Company’s actuary determined that the prescription drug benefit provided by the Company’s postretirement plan is considered to be actuarially equivalent to the benefit provided under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. As such, the benefit was reflected as an actuarial gain during the third quarter. As a result, the Company’s Accumulated Postretirement Benefit Obligation was reduced by $10.5 million, with an expense reduction of approximately $1,651,000 in 2005 $1,238,000 of which was recognized in the third quarter. This gain was partially offset by actuarial losses from demographic and from claim and underwriting sources.

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Nordson Corporation
14.Income Taxes. A reconciliation of the United States statutory federal tax rate to the worldwide consolidated effective tax rate follows:
                 
  Thirteen Weeks Ended Thirty-Nine Weeks Ended
  July 31, 2005 August 1, 2004 July 31, 2005 August 1, 2004
 
Statutory federal income tax rate  35.00%  35.00%  35.00%  35.00%
Extraterritorial income exclusion  (1.95)  (3.73)  (2.70)  (3.73)
Foreign tax rate variances, net of foreign tax credits and reduction of valuation allowance  (13.82)  (0.52)  (5.91)  (0.52)
State and local taxes, net of federal income tax benefit  4.46   2.20   2.99   2.20 
Ohio deferred tax write-off, net of federal tax benefit  2.11   —   0.73   — 
Other – net  0.16   0.05   0.12   0.05 
 
Effective tax rate  25.96%  33.00%  30.23%  33.00%
 
The American Jobs Creation Act of 2004 (Jobs Act) repealed the extraterritorial income exclusion rules of the Internal Revenue Code that allowed a portion of income from export activities to be excluded from U.S. taxable income. This legislation also repealed certain restrictions relative to the computation of foreign trade income used in the determination of foreign tax credits that can be utilized in a given year.10-K.
 
 As a result of this legislation, the Company has determined that it will be able to utilize additional foreign tax credit carryovers in 2005, resulting in a $3.9 million reduction of a deferred tax valuation allowance in the third quarter. The Company has also determined that an increase in the provision for foreign and U.S. state income taxes is necessary, which resulted in additional income tax expense of $1.5 million. As a result of a recent change in the Ohio Tax Law, the Company also wrote down a deferred state income tax benefit of $.5 million in the third quarter. These adjustments resulted in an effective tax rate of 25.96% in the third quarter. The effective tax rate for the year is estimated to be 30.0%.
15.14. Contingencies.The Company is involved in pending or potential litigation regarding environmental, product liability, patent, contract, employee and other matters arising from the normal course of business. Including the environmental matter discussed below, it is the Company’s opinion, after consultation with legal counsel, that resolutions of these matters are not expected to result in a material effect on its financial condition, operating results, or cash flows.
  Environmental – The Company has been identified as a potentially responsible party (PRP) at a Wisconsin municipal landfill and has voluntarily agreed with the City of New Richmond, Wisconsin and other PRP’sPotentially Responsible Parties to share costs associated with (1) a feasibility study and remedial investigation (“FS/RI”) for the siteCity of New Richmond municipal landfill and (2) providing clean drinking water to the affected down gradient residential properties through completion of the FS/RI phase of the project. The FS/RI is expected to be completed in 2005.fiscal 2006. The Company has committed $909,000$1,079,000 towards completing the FS/RI phase of the project and providing clean drinking water. This amount has been recorded in the Company’s financial statements.statements in selling and administrative expenses. Against this commitment, the Company has made payments of $829,000$922,000 through the thirdfirst quarter of 2005.2006. The remaining amount of $80,000$157,000 is recorded in accruedother current liabilities in the JulyJanuary 31, 20052006 Consolidated Balance Sheet. The total cost of the Company’s share for remediation efforts will not be ascertainable until the FS/RI is completed and a remediation plan is approved by the Wisconsin Department of Natural Resources, which is anticipated to occur later in fiscal 2006. However, based upon current information, the Company does not expect that the costs associated with remediation will have a material adverse effect on its financial condition or results of operations.

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Nordson Corporation
   The European Union (“EU”) has adopted two Directives to facilitate the recycling of electrical and electronic equipment sold in the EU. The first of these is the Waste Electrical and Electronic Equipment (“WEEE”) Directive which directs EU Member States to enact laws, regulations, and administrative provisions to ensure that producers of electrical and electronic equipment provide for the financing of the collection, treatment, recovery and environmentally sound disposal of WEEE from products placed on the market after August 13, 2005 and from products in use prior to that date that are being replaced. In accordance with the WEEE directive, the Company has identified and labeled its products that are affected by the regulations.regulations adopted by Member States. The Company also has developed a strategy to support recycling of the electrical and electronic equipment and has created a section on its Website to provide customers with information on how to return WEEE-labeled products for proper recycling.

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Nordson Corporation
  The second of these Directives is the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) Directive. The RoHS Directive addresses the restriction on use of certain hazardous substances such as mercury, lead, cadmium, and hexavalent cadmium in electrical and electronic equipment placed on the market after July 1, 2006. The Company has made the decisioncommitted to design all of its future products to meet the standards established by the RoHS standards.Directive.
 
  As of JulyJanuary 31, 2005,2006, EU Member States continue to develop legislation to implement these Directives. TheCosts incurred in the first quarter of 2006 were not material, but the future cost to the Company to comply with the Directives and Member States’ legislation will not be quantifiable until Member States have fully implemented the Directives.
 
16.15. Acquisition.Guarantees. On March 15, 2005The Company has issued guarantees to two banks to support the Company acquired full ownershipshort-term borrowing facilities of H.P. Solutions Inc., d/b/a H.F. Johnson Manufacturing Co., a California machining company that performed services for49 percent-owned South Korean joint venture/distributor of the Company’s Asymtek business.products. One guarantee is for Korean Won Three Billion (approximately $3,125,000) secured by land and building and expires on January 31, 2007. The cost of the acquisition was $567,000, which was allocated to net tangible assets. The purchase price allocationother is based on preliminary estimates, which may be revised at a later date. Operating results of H.P. Solutions are included in the Consolidated Statement of Income effective March 15, 2005. Assuming this allocation had taken place at the beginning of 2004, proforma results would not have been materially different.continuing guarantee for $3,300,000.
 
  On February 11, 2005,In 2004, the Company announced it had reached anissued a guarantee to a U.S. bank related to a five-year trade financing agreement for a sale to purchase hhs Leimauftrags-Systeme GmbH (“hhs”), a manufacturercustomer in Turkey. The loan is secured by collateral with a current value well in excess of cold gluethe amount due. The guarantee would be triggered upon a payment default by the customer to the bank. The amount of the guarantee at January 31, 2006 was Euro 1,800,000 (approximately $2,187,000) and hot melt adhesive dispensing technologies and quality control monitoring systems foris declining ratably as semi-annual principal payments are made by the print finishing, paper and paperboard converting, and wood assembly industries. On July 25, 2005, the Company announced the agreement had been terminated.
17.Subsequent Event. On August 26, 2005, Nordson Corporation agreed to repurchase 3,657,667 shares of its common stock from Russell L. Bauknight, trustee of numerous trusts established by Evan W. Nord.customer. The Company agreedhas recorded $1,045,000 in other current liabilities related to repurchasethis guarantee. The recorded amount is being reduced as the shares at an August 26, 2005 market price, which has been reduced for the fiscal year 2005 fourth-quarter cash dividend payment on those shares. The transaction will settle on September 7, 2005 for a cash purchase price of $34.09 per share. These shares represent approximately 10.1 percent of the Company’s outstanding shares. They will be held in treasury by the corporation to be used for corporate purposes. Funds for the purchase will come from cash, marketable securities and previously existing bank credit facilities.customer makes payments.

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Nordson Corporation
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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
Worldwide sales for the first quarter of 2006 were $197.5 million, a 3.8% increase from sales of $190.2 million for the comparable period of 2005. A sales volume increase of 7.2% was partially offset by a decrease of 3.4% due to the effect of the stronger U.S. dollar in 2006.
Sales of the Company’s adhesive dispensing segment decreased 1.2% in 2006 from 2005. Volume gains of 3.1% were more than offset by currency effects that reduced sales by 4.3%. Increased sales volume in the packaging, coating and product assembly businesses was partially offset by lower fiber system sales. Advanced technology segment sales were up 23.0% from 2005. The increase can be traced to a volume increase of 24.3%, offset by 1.3% from currency effects. Sales volume for each of the businesses in this segment was up more than 13%. Sales of the finishing and coating segment were down 3.0% from the prior year, mainly due to the effect of the stronger U.S. dollar. Sales volume for this segment was even with 2005, with higher liquid and container sales reduced by lower powder sales.
On a geographic basis, first quarter sales volume was up 9.8% in the United States, 5.3% in the Americas, 6.3% in Europe and 14.2% in the Asia Pacific region. These increases were partially offset by a sales volume decrease of 3.7% in Japan resulting from lower powder system sales.

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Nordson Corporation
SalesOperating Profit
WorldwideThe first quarter gross margin percentage was 57.6% in 2006 compared to 56.0% in 2005. The increase was driven by favorable product mix and productivity improvements, particularly in the Adhesive segment. Unfavorable currency effects reduced the gross margin rate by .4%.
Selling and administrative expenses in 2006 were up $1,577,000, or 1.9%, from 2005. Effective in fiscal 2006, the Company adopted the fair value recognition provisions of FAS 123 (R) using the modified prospective transition method, resulting in $982,000 of stock option expense. Under the modified prospective transition method, compensation cost in 2006 includes cost for options granted prior to but not vested as of October 31, 2005 and options granted in fiscal 2006. Compensation expense is being recognized on a straight-line basis over the total requisite service period of each option grant. Prior to 2006, the Company accounted for its stock options under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” No stock option expense was reflected in net income, as all options granted under these plans had an exercise price equal to the fair market value of the underlying Common Shares on the date of grant. Results for prior periods have not been restated. The adoption of FAS 123(R) is expected to reduce quarterly earnings per share by approximately $.02 per share in 2006.
Compensation increases and higher employee benefit costs also contributed to the increase in selling and administrative expenses. Currency translation effects reduced selling and administrative costs by 2.6%. Expenses as a percent of sales decreased to 42.7% in 2006 from 43.5% for the first quarter of 2005.
Operating profit, as a percentage of sales, was 14.3% in the first quarter of 2006, up from 12.5% in 2005. Operating profit, as a percent of sales, for the third quarter of 2005 were $201.6 million, a 1.8% increase from sales of $197.9 million for the comparable period of 2004. The increase was attributable to favorable currency effects traced to the weaker U.S dollar.
Sales volume for the Company’s Advanced TechnologyAdhesive segment increased 19% from 2004,16.0% in 2005 to 19.0% in 2006, primarily due to higher sales of the Asymtekgross margins driven by favorable product mix and March Plasma business units. Volume of the Company’s Adhesive Dispensing and Nonwoven Fiber segment decreased 6% from the third quarter of 2004, largely due to lower sales of the nonwovens and coating businesses. The decrease was partially offset by an increase of 4% in shipments to packaging customers. Finishing and Coating segment sales were down 1% from 2004.
On a geographic basis, second quarter sales volume was up 22% in Asia and 8% in the Japan. These increases were offset by sales volume decreases of 7% in Europe and 10% in the Americas region. Volume was flat in the U.S. region.
On a year-to-date basis, 2005 worldwide sales were $599.4 million, up 6.0% from 2004. Sales volume increased 3.3%, while favorable currency effects increased sales by 2.7%. Volume was up 12% inproductivity improvements. For the Advanced Technology segment. Within this segment, the March Plasma and Asymtek businesses were particularly strong. Volume was up 9%operating profit as a percent of sales increased from 16.5% in 2005 to 21.6% in 2006, primarily due to operating costs increasing at a slower rate than revenue. The operating loss in the Finishing and Coating segment driven by higher powder systemwas due to severance and container sales. Volume for the Adhesive Dispensing and Nonwoven Fiber segment decreased 1%. Lower nonwoven and coating sales were partially offset by higher sales within the packaging and product assembly businesses.
Sales volume for the thirty-nine weeks ended July 31, 2005 was up 5%restructuring costs of $1,233,000 recorded in the United States, 4% in Japan, 10% infirst quarter.
During the Americas region and 15% in Asia. European sales volume was down 3%, where there was a large fiber system sale in 2004.
Operating Profit
The gross margin percentage for the thirdfourth quarter of 2005, the Company announced a number of restructuring actions to improve performance and reduce costs in its finishing and coating segment. These actions, which include operational consolidations and approximately 60 personnel reductions, will be substantially completed by the end of the second quarter of fiscal 2006. As a result of these actions, resources will be more effectively aligned with shifting patterns of global demands, enabling the segment to operate both with lower costs and better capability to serve customers in the faster growing emerging markets. The Company expects that total restructuring costs will be approximately $3,200,000 of which $875,000 was 56.5%, down slightlyrecorded in the fourth quarter of 2005 and $1,233,000 was recorded in the first quarter of 2006.
Net Income
Foreign exchange losses were largely responsible for other expense of $707,000 in 2006. This compares to other income of $483,000 in 2005, when foreign exchange gains were generated.
The Company’s effective tax rate was 33.6% in the first quarter of 2006, up from 56.6%32.5% in the first quarter of 2005. The change was primarily due to a reduction to the extraterritorial income exclusion in 2006.
Net income for the thirdfirst quarter of 2004.2006 was $16.1 million, or $.47 per share on a diluted basis, compared to $14.4 million or $.39 per share on a diluted basis in 2005. This represents a 12% increase in net income and a 21% increase in earnings per share. The year-to-date gross margin percentage also decreased slightly to 56.0% from 56.2% last year. Favorable currency effects added approximately 0.4%higher per share increase is due to the margin rate for bothrepurchase of approximately 10% of the third quarter and year-to-date. Margins were negatively impacted by both product and geographic sales mix, as well as pricing pressuresCompany’s outstanding common shares in the Finishing and Coating segment.
Selling and administrative expenses increased 3.0% and 5.6% for the thirteen and thirty-nine weeks ended July 31, 2005 compared to the comparable periodsfourth quarter of 2004. Currency translation effects accounted for 1.9% of the thirteen-week increase and 2.4% of the year-to date increase, with the balance traced primarily to compensation increases and higher employee benefit costs. An acquisition in the second half of 2004 and the consolidation of a previously unconsolidated subsidiary also contributed to the year-to-date increase. As a percent of sales, these expenses increased to 42.6% from 42.1% for the third quarter but decreased to 42.7% from 42.9% on a year-to-date basis.2005.

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Nordson Corporation
Operating profit, as a percentage of sales, was 13.9% in the third quarter of 2005, compared to 14.6% in the third quarter of 2004. For the first nine months of 2005, operating profit as a percent of sales was 13.3%, even with last year. For the third quarter of 2005 operating profit of the Adhesive Dispensing and Nonwoven Fiber segment as a percent of sales was 19%, compared to 20% in 2004. For the same period, the Finishing and Coating segment generated a slightly larger operating loss in 2005 than it did in 2004. These decreases can be traced to the sales volume declines. Operating profit as a percent of sales for the Advanced Technology segment increased to 22% for the third quarter of 2005 from 20% last year, largely due to the 19% increase in sales volume. Operating profit as a percent of sales on a year-to-date basis was even with the prior year for all three segments. The percentage for the Adhesive Dispensing and Nonwoven Fiber segment was 18%, and the percentage for the Advanced Technology segment was 20%. The Finishing and Coating segment operated at almost a breakeven level both years.
Net Income
Compared to 2004, interest expense decreased $.3 million for the third quarter and $1.3 million for the first nine months as a result of lower borrowing levels. Interest and investment income increased for both periods, due to higher marketable security levels. Other income (expense) decreased $.5 million for the third quarter but increased $.5 million for the year-to-date period. The changes were largely driven by foreign exchange gains and losses. The Company’s effective tax rate was 26.0% in third quarter of 2005 and 30.2% on a year-to-date basis, down from 33.0% last year. The decrease was primarily due to the utilization of $3.9 million of foreign tax credit carryovers, partially offset by $1.5 million in higher foreign and U.S. state income tax provisions and a $.5 million write down of a deferred tax asset (see Note 14). The benefit of the foreign tax credit was reflected through the reduction of a previously established valuation allowance.
Net income for the third quarter of 2005 was $18.6 million or $.50 per share on a diluted basis compared with $17.3 million or $.47 per share on a diluted basis in 2004. Year-to-date net income in 2005 was $50.4 million or $1.36 per share, compared to $43.6 million or $1.20 per share last year.
Foreign Currency Effects
In the aggregate, average exchange rates for the thirdfirst quarter and first nine months of 20052006 used to translate international sales and operating results into U.S. dollars compared favorablyunfavorably with average exchange rates existing during the comparable 2004 periods.2005 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 structure in each country in which the Company operates. However, if transactions for the thirdfirst quarter 20052006 were translated at exchange rates in effect during the thirdfirst quarter of 2004,2005, sales would have been approximately $4.0$6.4 million lowerhigher while third-party costs and expenses would have been approximately $2.6$4.1 million lower. If the 2005 year-to-date transactions were translated at exchange rates in effect during 2004, sales would have been approximately $15.4 million lower and third party costs would have been approximately $10.0 million lower.

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Nordson Corporationhigher.
Financial Condition
During the first three quarters of 2005, net assets increased $28.9 million. This increase is primarily the result of net income partially offset by dividend payments and purchases of treasury shares.
Cash and cash equivalents increased $52.8$6.5 million fromin the 2004 year-end.first quarter of 2006. Cash provided by operations was $80.8 million, net proceeds from the sale of marketable securities were $13.7$15.3 million, and cash generated by the exercise of stock options amounted to $3.4was $12.4 million. Cash was used for dividend payments of $17.4 million; capital expenditures of $10.7 million;$5.5 million, repayment of short-term borrowings and long-term debt of $13.1 million, and for capital lease obligationsexpenditures of $8.8 million; purchase$4.5 million. Available lines of treasury stock of $7.4 million; funding of a deferred compensation obligation of $4.1 million; and $.6 million forcredit continue to be adequate to meet additional cash requirements over the acquisition of a company (see Note 15). Capital expenditures included $2.8 million to purchase a building in Dawsonville, Georgia used for manufacturing and office space. This building was previously leased.next year.
Receivables and accounts payable decreased and inventories increased as a result of the traditionally lower level of business activity in the Company’s thirdfirst fiscal quarter compared to its fourth fiscal quarter. In 2005,The increase in prepaid expenses relates largely to annual insurance premiums paid in the first quarter of the year. Other current liabilities decreased as a result of bonus and profit sharing payments during the first quarter. The decrease was offset by a reclassification of a portion of the pension liability from other long-term liabilities reflected higher deferred tax liabilities and anto other current liabilities.
Cash provided by operations in the first quarter of 2006 was up $7.6 million from the first quarter of 2005. The increase in deferred compensation, as compared to 2004 year-end. Other current liabilities increasedwas primarily due to higher income taxes payablethe impact of changes in working capital. The overall increase in cash and customer advanced payments.
On August 26,cash equivalents in 2006 was less than 2005, Nordson Corporation agreeddue to repurchase 3,657,667 sharesthe sale of its common stock from Russell L. Bauknight, trustee of numerous trusts established by Evan W. Nord. The Company agreed to repurchase the shares at an August 26, 2005 market price, which has been reduced for the fiscal year 2005 fourth-quarter cash dividend payment on those shares. The transaction will settle on September 7, 2005 for a cash purchase price of $34.09 per share. These shares represent approximately 10.1 percent of the Company’s outstanding shares. They will be held in treasury by the corporation to be used for corporate purposes. Funds for the purchase will come from cash, marketable securities and previously existing bank credit facilities. Available linesin the first quarter of credit continue to be adequate to meet additional cash requirements over the next year.2005.
Critical Accounting Policies
The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company’s management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates the accounting policies and estimates it uses to prepare financial statements. The Company bases its estimates on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management.
Certain accounting policies that require significant management estimates and are deemed critical to the Company’s results of operations or financial position were discussed in Item 7 of the 10-K for the year ended October 31, 2004.30, 2005. During the first halfquarter of 20052006 there were no material changes in these policies.

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Nordson Corporation
Outlook
Sales volume for the fourthsecond quarter of 20052006 is expected to increase about 1% from11% to 13% compared to the fourthsecond quarter of 2004,2005. The effect of the stronger U.S. dollar should reduce reported sales by about 4%, resulting in sales of approximately $230 million. This would resulta 7% to 9% increase in earnings per sharesales. The increase reflects continued strength in the advanced technology segment. Gross margins for the fourthsecond quarter are estimated to be 55% to 56%, approximately equal to 2005. Operating expenses should increase approximately 5%, including the effect of $.62stock option expense and restructuring charges related to $.68, compared to $.53 last year. Full year earningsthe Finishing segment. Earnings per share are expected to be in the $1.98range of $.55 to $2.04 range, up from $1.73 in 2004.$.60 for the quarter.
Safe Harbor Statements Under The Private Securities Litigation Reform Act Of 1995
StatementsThe 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 the Form 10-K filed by the Company on January 14, 2005.13, 2006. The information disclosed has not changed materially during fiscalin the interim period since October 30, 2005.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision andThe Company’s management with the participation of the Company’s management, including its principal executive officer (Chairman and Chief Executive Officer, or CEO,Officer) and principal financial officer (President, Chief Financial Officer, or CFO, of the effectiveness ofand Administrative Officer), has reviewed and evaluated the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act Rule 13a-15e) as of JulyJanuary 31, 2005.2006. Based on that evaluation, the Company’s management, including its CEOprincipal executive and CFO, havefinancial officers, has concluded that the Company’s disclosure controls and procedures arewere effective to ensureas of January 31, 2006 in ensuring that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. forms and is accumulated and communicated to the Company’s management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There have beenwere no changes in the Company’s internal controls over financial reporting or in other factors identified in connection with this evaluation that occurred during the quarter ended JulyJanuary 31, 20052006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Nordson Corporation
Part II – Other Information
ITEM 1. LEGAL PROCEEDINGS
The Company has been identified as a potentially responsible party (PRP) at a Wisconsin municipal landfill and has voluntarily agreed with the City of New Richmond, Wisconsin and other PRP’sPotentially Responsible Parties to share costs associated with (1) a feasibility study and remedial investigation (“FS/RI”) for the siteCity of New Richmond municipal landfill and (2) providing clean drinking water to the affected down gradient residential properties through completion of the FS/RI phase of the project. The FS/RI is expected to be completed in 2005.fiscal 2006. The Company has committed $909,000$1,079,000 towards completing the FS/RI phase of the project and providing clean drinking water. This amount has been recorded in the Company’s financial statements.statements in selling and administrative expenses. Against this commitment, the Company has made payments of $829,000$922,000 through the thirdfirst quarter of 2005.2006. The remaining amount of $80,000$157,000 is recorded in accruedother current liabilities in the JulyJanuary 31, 20052006 Consolidated Balance Sheet. The total cost of the Company’s share for remediation efforts will not be ascertainable until the FS/RI is completed and a remediation plan is approved by the Wisconsin Department of Natural Resources, which is anticipated to occur later in fiscal 2006. However, based upon current information, the Company does not expect that the costs associated with remediation will have a material adverse effect on its financial condition or results of operations.
The European Union (“EU”) has adopted two Directives to facilitate the recycling of electrical and electronic equipment sold in the EU. The first of these is the Waste Electrical and Electronic Equipment (“WEEE”) Directive which directs EU Member States to enact laws, regulations, and administrative provisions to ensure that producers of electrical and electronic equipment provide for the financing of the collection, treatment, recovery and environmentally sound disposal of WEEE from products placed on the market after August 13, 2005 and from products in use prior to that date that are being replaced. In accordance with the WEEE directive, the Company has identified and labeled its products that are affected by the regulations.regulations adopted by Member States. The Company also has developed a strategy to support recycling of the electrical and electronic equipment and has created a section on its Website to provide customers with information on how to return WEEE-labeled products for proper recycling.
The second of these Directives is the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) Directive. The RoHS Directive addresses the restriction on use of certain hazardous substances such as mercury, lead, cadmium, and hexavalent cadmium in electrical and electronic equipment placed on the market after July 1, 2006. The Company has made the decisioncommitted to design all of its future products to meet the standards established by the RoHS standards.Directive.
As of JulyJanuary 31, 2005,2006, EU Member States continue to develop legislation to implement these Directives. TheCosts incurred in the first quarter of 2006 were not material, but the future cost to the Company to comply with the Directives and Member States’ legislation will not be quantifiable until Member States have fully implemented the Directives.
In addition, the Company is involved in various other legal proceedings arising in the normal course of business. Based on current information, the Company does not expect that the ultimate resolution of pending and threatened legal proceedings, including the environmental matter described above, will have a material adverse effect on its financial condition, results of operations or cash flows.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes common stock repurchased by the Company during the third quarter of 2005:
                 
          Total Number of Maximum Number
          Shares Purchased of Shares that
  Total Number Average as Part of Publicly May Yet Be Purchased
  of Shares Price Paid Announced Plans Under the Plans
  Purchased per Share or Programs * or Programs
 
May 2, 2005 to May 29, 2005  52,000  $31.72   52,000   1,874,000 
May 30, 2005 to June 26, 2005  102,000  $30.76   102,000   1,772,000 
June 27, 2005 to July 31, 2005  —       —   1,772,000 
                 
Total  154,000       154,000     
                 
* In October 2003, the Board of Directors authorized the Company to repurchase up to two million shares of the Company’s common stock on the open market through October 2006.market. Expected uses for repurchased shares include the funding of benefit programs including stock options, restricted stock and 401(k) matching. Shares purchased will be treated as treasury shares until used for such purposes. The repurchase program iswill be funded using the Company’s working capital.

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Nordson Corporation During the first quarter of 2006, no shares were purchased under this program or otherwise. There are 1,772,000 shares that may yet be purchased under this program.
ITEM 6. EXHIBITS
     Exhibit Number:
 31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 by the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 by the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 32.1 Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 32.2 Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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.
   
Date: September 6, 2005March 13, 2006 Nordson Corporation
   
  By: /s/ PETER S. HELLMAN
   
  Peter S. Hellman
  President, Chief Financial and
  Administrative Officer

(Principal Financial Officer)
/s/ NICHOLAS D. PELLECCHIA
Nicholas D. Pellecchia
Vice President, Finance and Controller
(Principal Accounting Officer)

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