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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission file number 0-7977
NORDSON CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0590250 (State or other jurisdiction of
incorporation or organization)(I.R.S. Employer Identification No.) 28601 Clemens Road, Westlake, Ohio 44145 (Address of principal executive offices) (Zip Code) Registrants 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 issuers classes of common stock, as of the latest practicable date: COMMON SHARES WITHOUT PAR VALUE AS OF JANUARY 30, 2000: 16,307,165
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NORDSON CORPORATION
INDEX
Page Number Part I -Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statement of Income -
Thirteen Weeks ended January 30, 2000 and January 31, 19993 Condensed Consolidated Balance Sheet - January 30, 2000
and October 31, 19994 Condensed Consolidated Statement of Cash Flows Thirteen Weeks
ended January 30, 2000 and January 31, 19995 Notes to Condensed Consolidated Financial Statements 6 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 13 Signature 14 Exhibit Index 15
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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)
Thirteen Weeks Ended January 30, 2000 January 31, 1999 Sales $ 152,888 $ 157,053 Cost of sales 66,721 72,631 Selling & administrative expenses 74,569 72,200 Severance and restructuring costs 2,840 Operating profit 8,758 12,222 Other income (expense): Interest expense (2,645 ) (2,292 ) Interest and investment income 232 206 Other net 934 445 Income before income taxes 7,279 10,581 Income taxes 2,511 3,597 Net income $ 4,768 $ 6,984 Common Shares 16,330 16,666 Incremental common shares attributable to outstanding stock options, nonvested stock and deferred stock-based compensation 107 156 Common shares and common share equivalents 16,437 16,822 Earnings per share: Basic $ .29 $ .42 Diluted $ .29 $ .42 Dividends per common share $ .26 $ .24 See accompanying notes.
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NORDSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
January 30, 2000 October 31, 1999 ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 28,231 $ 16,030 Marketable securities 30 30 Receivables 157,617 170,519 Inventories 125,049 119,504 Deferred income taxes 28,089 28,563 Prepaid expenses 6,825 6,670 Total current assets 345,841 341,316 Property, plant and equipment net 130,664 128,639 Intangible assets net 99,885 101,388 Other assets 20,828 20,447 $ 597,218 $ 591,790 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Notes payable $ 142,447 $ 137,311 Accounts payable 38,626 35,849 Current portion of long-term debt 7,822 7,822 Other current liabilities 69,440 70,958 Total current liabilities 258,335 251,940 Long-term debt 65,751 65,975 Other liabilities 53,183 52,477 Shareholders equity: Common shares 12,253 12,253 Capital in excess of stated value 97,578 97,167 Retained earnings 456,022 455,494 Accumulated other comprehensive (loss) (6,225 ) (7,521 ) Common shares in treasury, at cost (339,184 ) (335,656 ) Deferred stock-based compensation (495 ) (339 ) Total shareholders equity 219,949 221,398 $ 597,218 $ 591,790 See accompanying notes.
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NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Thirteen Weeks Ended January 30, 2000 January 31, 1999 Cash flows from operating activities: Net income $ 4,768 $ 6,984 Severance and restructuring costs 2,840 Depreciation and amortization 7,525 7,282 Changes in operating assets and liabilities 4,193 (929 ) Other net 1,887 (595 ) 21,213 12,742 Cash flows from investing activities: Additions to property, plant and equipment (7,520 ) (10,145 ) Proceeds from sale of property, plant and equipment 100 Acquisition of new business (14,253 ) (7,520 ) (24,298 ) Cash flows from financing activities: Net proceeds from notes payable 7,994 24,478 Net proceeds (repayment) of long-term debt (1,064 ) 470 Issuance of common shares 376 2,844 Purchase of treasury shares (3,715 ) (7,917 ) Dividends paid (4,240 ) (4,008 ) (649 ) 15,867 Effect of exchange rate changes on cash (843 ) 47 Increase in cash 12,201 4,358 Cash and cash equivalents Beginning of fiscal year 16,030 6,820 End of period $ 28,231 $ 11,178 See accompanying notes.
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NORDSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 30, 2000
1. | Basis of presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended January 30, 2000 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 Companys annual report on Form 10-K for the year ended October 31, 1999. | |
2. | Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual amounts could differ from these estimates. | |
3. | Inventories. Inventories consisted of the following (in thousands of dollars): |
January 30, 2000 | October 31, 1999 | ||||||||
Finished goods | $ | 41,846 | $ | 38,731 | |||||
Work-in-process | 30,259 | 29,232 | |||||||
Raw materials and finished parts | 52,944 | 51,541 | |||||||
$ | 125,049 | $ | 119,504 | ||||||
4. | Accounting changes. The Financial Accounting Standards Board has issued the following statement which the Company has not yet adopted: Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. The Company must adopt FAS 133 no later than fiscal year 2001. This statement is not expected to have a material effect on the financial statements. |
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5. | Comprehensive income. Comprehensive income for the thirteen weeks ended January 30, 2000 and January 31, 1999 is as follows: |
Thirteen Weeks Ended | ||||||||
January 30, 2000 | January 31, 1999 | |||||||
(in thousands) | ||||||||
Net income | $ | 4,768 | $ | 6,984 | ||||
Foreign currency translation adjustments | 1,296 | 3,229 | ||||||
Comprehensive income | $ | 6,064 | $ | 10,213 | ||||
Accumulated other comprehensive (loss), consisting entirely of accumulated foreign currency translation adjustments as of January 30, 2000 and January 31, 1999 is as follows: |
January 30, 2000 | January 31, 1999 | |||||||
(in thousands) | ||||||||
Beginning balance | $ | (7,521 | ) | $ | (4,792 | ) | ||
Current-period change | 1,296 | 3,229 | ||||||
Ending balance | $ | (6,225 | ) | $ | (1,563 | ) | ||
6. | Operating segments. During fiscal year 1999, the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131). This statement requires the presentation of descriptive information about reportable segments that is consistent with the way management operates the Company. Previously reported information has been restated to conform to FAS No. 131 requirements. | |
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 Companys 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 Companys 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. |
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The following table presents information about the Companys reportable segments:
North | Pacific | All | |||||||||||||||||||||||
(in thousands) | America | Europe | Japan | South | Other(a) | Total | |||||||||||||||||||
Thirteen weeks ended | |||||||||||||||||||||||||
January 30, 2000 | |||||||||||||||||||||||||
Net external sales | $ | 68,342 | (b) | $ | 49,640 | $ | 19,268 | $ | 15,638 | $ | | $ | 152,888 | ||||||||||||
Intersegment sales | 28,485 | 4,318 | 675 | 30 | (33,508 | )(c) | 0 | ||||||||||||||||||
Operating profit | 7,392 | 4,946 | 4,794 | 1,721 | (10,095 | ) | 8,758 | ||||||||||||||||||
Thirteen weeks ended | |||||||||||||||||||||||||
January 31, 1999 | |||||||||||||||||||||||||
Net external sales | $ | 72,852 | (b) | $ | 55,424 | $ | 16,722 | $ | 12,055 | $ | | $ | 157,053 | ||||||||||||
Intersegment sales | 26,729 | 5,270 | 41 | 133 | (32,173 | ) | 0 | ||||||||||||||||||
Operating profit | 9,411 | 5,225 | 4,320 | (667 | ) | (6,067 | ) | 12,222 |
(a) | Represents items necessary to reconcile to the consolidated financial statements which generally include unallocated expenses and corporate eliminations. | |
(b) | Net external sales in the United States for the thirteen weeks ended January 30, 2000 and January 31, 1999 were $64.1 million and $68.7 million, respectively. | |
(c) | Includes $2.8 million of severance costs. |
A reconciliation of total segment operating income to total consolidated income before income taxes is as follows:
Thirteen weeks ended | |||||||||
(dollars in thousands) | January 30, 2000 | January 31, 1999 | |||||||
Total operating income for reported segments | $ | 8,758 | $ | 12,222 | |||||
Interest expense | (2,645 | ) | (2,292 | ) | |||||
Interest and investment income | 232 | 206 | |||||||
Other net | 934 | 445 | |||||||
Income before income taxes | $ | 7,279 | $ | 10,581 | |||||
The Companys revenues are generated via the sale of products sold in the following categories:
Thirteen weeks ended | |||||||||
(dollars in thousands) | January 30, 2000 | January 31, 1999 | |||||||
Adhesive dispensing and nonwoven fibers | $ | 98,034 | $ | 101,948 | |||||
Coating and finishing | 29,440 | 36,091 | |||||||
Advanced technology | 25,414 | 19,014 | |||||||
Total | $ | 152,888 | $ | 157,053 | |||||
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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is Managements discussion and analysis of certain significant factors affecting the Companys 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 2000 were $152.9 million, a 3.0% decrease over sales of $157.1 million for the comparable period of 1999. Volume was down 1%, with unfavorable currency effects accounting for the remainder of the difference.
Sales to international customers for the first quarter of 2000 comprised approximately 58.1% of total sales, compared with 56.3% for the comparable period of 1999. Compared with the first quarter of 1999, sales volume in North America was down 6%, primarily due to the effect of an unusually large engineered system shipment made in the first quarter of 1999. Activity in the Companys Pacific South region was particularly strong, as local sales volume was up over 28%, driven by significant growth in the Companys electronics business. Although local sales volume declined 1% in Europe, the pace of business improved, with orders up over 20% compared to the first quarter of 1999. In Japan, local sales volume was up less than 1%, as the Companys business continued to be impacted by the ongoing challenges in the Japanese economy. The above noted statistics include price increases that averaged less than 2% on standardized small systems and parts.
Worldwide volume decreased 1% over the comparable period of 1999. Although the electronics and automotive businesses experienced a combined 36% increase in volume over the prior year, declines in the Companys powder and nonwoven fibers businesses offset these gains. The decrease in sales of nonwoven fiber equipment over the prior period is mainly a result of a large engineered system shipment made in the first quarter of 1999. Sales of liquid and container equipment remained relatively constant compared to the prior year.
OPERATING PROFIT
Operating profit, as a percentage of sales, including the effect of severance costs associated with the Companys Action 2000 Initiative, decreased to 5.7% for the first quarter of 2000 from 7.8% for the first quarter of 1999. Excluding these costs, operating profit for the first quarter of 2000 was 7.6% of sales.
The gross margin rate increased for the first quarter from 53.8% in 1999 to 56.4% in 2000. Improved margins are mainly attributable to a sales mix skewed to the Companys standard products.
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During the fourth quarter of fiscal 1999, the initial step of the Companys Action 2000 Initiative resulted in the recognition of $3.0 million of non-recurring charges consisting of severance payments and supplemental pension obligations. During the first quarter of fiscal 2000, severance payments in the amount of $2.8 million were recognized as part of the Company's Action 2000 Initiative. Additional costs related to Action 2000 are estimated to be approximately $3.5 million and will be incurred over the last three quarters of fiscal year 2000.
Selling and administrative expenses, excluding currency effects and severance costs associated with the Companys Action 2000 Initiative, remained relatively constant compared to the prior year. Including the effects of severance costs, spending increased approximately 3% compared to the first quarter of 1999, primarily due to 1999 acquisitions.
NET INCOME
For the first quarter of 2000, net income, as a percentage of sales, decreased to 3.1% from 4.4% for the same period of 1999. Foreign currency gains increased 51.4% from the prior year while net interest expense increased 15.7% due to higher levels of borrowing.
Net income for the first quarter of 2000 was $4.8 million or $.29 per share on a diluted basis compared with $7.0 million or $.42 per share on a diluted basis in 1999. Excluding the effect of severance costs associated with the Companys Action 2000 Initiative, net income for the first quarter of 2000 was $6.6 million or $.40 per share on a diluted basis.
FOREIGN CURRENCY EFFECTS
In the aggregate, average exchange rates for the first quarter 2000 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates existing during the comparable 1999 periods. It is not possible to precisely measure the impact on operating results arising from foreign currency exchange rate changes, because of changes in selling prices, sales volume, product mix and cost structure in each country in which the Company operates. However, if transactions for the first quarter 2000 were translated at exchange rates in effect during 1999, sales would have been approximately $2,318,000 higher while third-party costs and expenses would have been approximately $2,129,000 higher.
FINANCIAL CONDITION
During the first quarter of 2000, net assets decreased $1,449,000. This marginal decrease is primarily due to earnings of $4,768,000 and an increase of $1,296,000 from translating foreign net assets at the end of the first quarter when the U.S. dollar was weaker against other currencies than at the prior year end, offset by net repurchases of Nordson stock totaling $3,715,000 and the payment of $4,240,000 in dividends.
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Working capital, as of the end of the quarter, decreased $1,870,000 over the prior year-end. This change consisted primarily of increases in inventories and notes payable, offset by a decrease in accounts receivable. All changes include slight increases from the effects of translating into U.S. dollars current amounts denominated in generally stronger foreign currencies. Inventories increased in response to improved customer order activity and notes payable increased to fund a variety of cash needs. Receivables decreased from the collection of year-end receivables arising from strong sales in the fourth quarter of 1999.
Cash and cash equivalents increased $12,201,000 during the first quarter of 2000. This increase was mainly attributable to above average cash levels intentionally maintained by the Companys international subsidiaries near the end of December, 1999. Cash provided by activities was $21,213,000 and cash provided by net proceeds from notes payable was $7,994,000. Uses for cash included purchases of treasury shares, outlays for capital expenditures and payments of dividends. Available lines of credit continue to be more than adequate to meet additional cash requirements over the next year.
YEAR 2000 READINESS DISCLOSURE
IMPACT OF TRANSITION TO YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. During 1999, Nordson completed the remediation, testing and implementation phase of its Year 2000 readiness program for all information technology systems, telecommunications equipment and operating equipment, mainly the internal, local-area computer networks and computer workstations. The total cost of the Companys Year 2000 readiness program was approximately $5.1 million and was funded through operating cash flows.
Nordson believes that the steps referred to above minimized its business risk related to the Year 2000, as the Company experienced no significant operational difficulties associated with the Year 2000 issue through the first ten weeks of the new year. Additionally, the Company is not aware of any significant Year 2000 issues affecting its products or suppliers. Nordson will continue to monitor its mission critical information systems as well as those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters are addressed in a timely manner. For a listing of risks associated with the Year 2000, refer to the Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995 disclosure which follows.
OUTLOOK
Nordson is optimistic about the Companys current rate of business activity. Although shipments were down for the first quarter of fiscal 2000, order activity has begun to show signs of improvement across all businesses. Current backlog is at a record level, up more than $50 million since the beginning of fiscal 2000. With this start, Nordson looks forward to better sales comparisons and improved profitability as the year progresses.
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Nordson implemented an enterprise management system at the end of February, 2000. Management expects this system to improve the Companys competitiveness in the business environment by providing common streamlined processes which produce more timely information on Nordson products, customers and market segments, reduce manufacturing times, lower purchasing costs and improve inventory turnover. During the first two weeks after implementation, the Company has not experienced any significant operational difficulties related to the conversion to the enterprise management system.
SAFE HARBOR STATEMENTS
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The statements in the paragraphs titled Outlook and Year 2000 Readiness Disclosure 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 Companys actual results could differ materially from the expectations expressed in the forward-looking statements. Factors that could cause the Companys 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, significant changes in local business conditions in geographic regions in which the Company conducts business, and unanticipated delays or higher than expected costs associated with the implementation of the Companys new enterprise management system.
In the case of Year 2000 readiness issues, factors that could cause the Companys actual results to differ materially from the expected results include, but are not limited to: delayed, unsuccessful or incompatible Year 2000 readiness programs of third parties on which the Company relies.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding the Companys 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.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) | Exhibits Exhibit 27 Financial Data Schedule | |||||
(b) | There were no reports on Form 8-K filed for the quarter ended January 30, 2000. |
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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.
Date: | March 14, 2000 | Nordson Corporation | ||
/s/ Nicholas D. Pellecchia | ||||
Vice President, Finance and Controller (Principal Financial Officer and Chief Accounting Officer) |
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NORDSON CORPORATION
EXHIBIT INDEX
Page Number | ||||||
Exhibit 27 | Financial Data Schedule | 16 |
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