NORDSON CORPORATION
Exhibit 13-a
MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL YEARS 2001 AND 2000
Worldwide sales for 2001 were $731.4 million, down 1 percent from 2000 sales of
$740.6 million. Local sales volume increased 2 percent, which was offset by
negative currency effects of 3 percent due to the stronger dollar. Excluding
sales from EFD, Inc., which was acquired on October 30, 2000, volume was down 5
percent.
Sales volume in the Company's adhesive dispensing systems segment decreased
3 percent. Advanced technology segment volume was up 32 percent as a result of
the EFD acquisition. Excluding EFD, sales volume for this segment was off 11
percent, primarily due to the global slowdown in the semiconductor and
electronics industries. Coating and finishing systems sales volume was down 7
percent influenced by weak demand for powder engineered systems in the United
States. It is estimated that the effect of pricing on total revenues was neutral
relative to the prior year.
Nordson's sales outside the United States accounted for 54 percent of total
2001 sales, compared with 55 percent for 2000. The addition of EFD resulted in
volume gains in all of Nordson's four geographic regions. Excluding EFD, volume
decreased 7 percent in North America, 5 percent in Europe and 6 percent in the
Pacific South region. The slowdown in advanced technology was felt across all of
these regions. Sales volume rose 1 percent in Japan, aided by gains in the
advanced technology segment.
Gross margins, before restructuring charges, expressed as a percentage of
sales were 54.0 percent in 2001, compared with 55.1 percent in 2000. Unfavorable
currency effects, a change in the mix of products sold, pricing pressures and
higher indirect costs were partially offset by the higher margins reported by
EFD.
Selling and administrative expenses, excluding goodwill amortization and
non-recurring charges, were 41.7 percent of sales in 2001 and 40.8 percent in
2000. Spending for 2001 increased 1.2 percent. Excluding EFD, spending was down
5 percent with favorable currency translation effects accounting for more than
one-half of the decline. Goodwill amortization increased as a result of the EFD
acquisition.
During 2001, continuing activity related to the Company's Action 2000
initiative resulted in the recognition of $14.0 million of non-recurring
charges, consisting of severance and other costs associated with the combination
of certain businesses. The amount related to inventory write-offs, $.7 million,
is included in cost of sales. It is anticipated that the programs will be
completed by the end of fiscal year 2002 and additional costs of approximately
$3.0 million, primarily related to severance payments, will be incurred.
Annualized savings from these programs are projected to be $40 million.
Worldwide operating profits, expressed as a percentage of sales before the
effects of non-recurring charges, were 10.1 percent in 2001, compared with 13.6
percent for 2000. Segment operating profit percentages in 2001 and 2000,
excluding corporate expenses which are not allocated to segments, were as
follows:
SEGMENT 2001 2000
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Adhesive Dispensing Systems 20% 25%
Coating and Finishing Systems 3% 6%
Advanced Technology Systems 18% 16%
All segments were impacted by the global economic downturn. The addition of EFD
had a positive effect on the profitability of the advanced technology segment.
Interest expense of $29.5 million increased $17.8 million over 2000, due to
increased borrowing levels as a result of the EFD acquisition. Other income
included a gain of $5.1 million on the sale of real estate. Nordson's effective
tax rate was 34.75 percent in 2001 compared with a rate of 34.50 percent in
2000.
Net income in 2001 was $24.6 million, or $.74 per share on a diluted basis
compared with $54.6 million, or $1.67 per share on a diluted basis, in 2000.
Excluding the effects of non-recurring charges, net income in 2001 was $33.8
million, or $1.02 per share, compared with $60.5 million, or $1.85 per share for
2000. Non-recurring charges on an after-tax basis totaled $9.2 million, or $.28
per share for 2001, and $5.9 million, or $.18 per share on a diluted basis for
2000.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets" effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests. The Company will adopt Statements No. 141 and No.
142 in fiscal 2002. The effect of not amortizing goodwill is expected to result
in an increase to net income in fiscal 2002 of approximately $11 million, or
$.34 per share. During fiscal 2002 the Company will perform the required
impairment tests of goodwill, and has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for
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Asset Retirement Obligations." No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When a liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The Company is
required to adopt No. 143 in fiscal 2003 and has not yet determined the impact
of adoption on its consolidated financial position or results of operations.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." No. 144, which supersedes No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," provides a single accounting model for long-lived assets to be disposed of.
Although retaining many of the fundamentalrecognition and measurement provisions
of No. 121, this Statement significantly changes the criteria that would have to
be met to classify an asset as held-for-sale. This distinction is important
because assets held-for-sale are stated at the lower of their fair values or
carrying amounts, and depreciation is no longer recognized. The Company is
required to adopt No. 144 in fiscal 2003 and has not yet determined the impact
of adoption on its consolidated financial position or results of operations.
FISCAL YEARS 2000 AND 1999
Worldwide sales for 2000 reached a record level of $740.6 million, up 6 percent
over 1999 sales of $700.5 million. Local sales volume gains exceeded 8 percent,
with the effect of the stronger dollar on translated international revenue
accounting for the difference.
Sales volume in the Company's adhesive dispensing systems segment grew 7
percent, reflecting strong demand for systems serving the nonwovens and product
assembly markets. Revenue in the advanced technology segment was up 28 percent
driven by sales of dispensing and plasma treatment systems to the semiconductor
and telecommunications industries. Coating and finishing systems sales volume
was down 3 percent influenced by weak demand in Europe. It is estimated that the
effect of price increases on total revenues was less than 1 percent.
Nordson's sales outside the United States accounted for 55 percent of total
2000 sales, compared with 56 percent for 1999. Volume gains were achieved in all
of Nordson's four geographic regions. Compared to 1999, sales volume in North
America grew 10 percent for the year, driven by strong performance within the
Company's adhesive dispensing systems and advanced technology segments. In
Europe, sales volume increased 6 percent as a result of strong sales in the
adhesive dispensing markets. Sales volume also increased 6 percent in Japan.
Lastly, sales volume rose 13 percent in the Pacific South region influenced by
strong activity in the advanced technology segment.
Gross margins, expressed as a percentage of sales, were 55.1 percent in
2000, compared with 54.6 percent in 1999. Improved manufacturing efficiencies
were mitigated somewhat by the effect of the strong dollar.
Selling and administrative expenses, excluding goodwill amortization and
non-recurring charges, were 40.8 percent in 2000 and 42.3 percent in 1999.
Spending for 2000 increased 1.8 percent with incremental expenses associated
with the implementation of the Company's enterprise management system offset by
the favorable currency translation effects of European-based costs.
During 2000, the Company's Action 2000 initiative resulted in the
recognition of $9.0 million of non-recurring charges. Of this amount, $7.5
million of severance and related benefit payments were made to approximately 250
salaried employees. The remainder represents severance obligations due to
approximately 125 hourly manufacturing employees. This amount was paid in 2001.
Worldwide operating profits, expressed as a percentage of sales before the
effects of non-recurring charges, were 13.6 percent in 2000, compared with 11.4
percent for 1999. Segment operating profit percentages in 2000 and 1999,
excluding expenses which are not allocated to segments, were as follows:
SEGMENT 2000 1999
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Adhesive Dispensing Systems 25% 21%
Coating and Finishing Systems 6% 4%
Advanced Technology Systems 16% 9%
All segments reflect improvement as a result of Action 2000 initiatives.
Interest expense increased $1.4 million over the comparable period of 1999,
mainly as a result of increased borrowing levels during most of the year and an
increase in effective short-term borrowing rates. Interest of $.3 million
related to the implementation of an enterprise management system was
capitalized.
Nordson's effective tax rate was 34.5 percent in 2000 compared with a rate
of 33.5 percent in 1999. In 1999, the rate was influenced by benefits from
research and development credits from prior years.
Net income in 2000 was $54.6 million, or $1.67 per share on a diluted basis
compared with $47.5 million, or $1.42 per share on a diluted basis, in 1999.
Excluding the effects of non-recurring charges, net income in 2000 was $60.5
million, or $1.85 per share, compared with $49.5 million, or $1.48 per share for
1999. Non-recurring charges on an after-tax basis totaled $5.9 million, or $.18
per share for 2000, and $2.0 million, or $.06 per share on a diluted basis for
1999.
LIQUIDITY, CAPITAL EXPENDITURES AND SOURCES OF CAPITAL
During 2001, cash generated by operations was $73.4 million. Looking at working
capital, accounts receivable and inventories decreased in the aggregate by $27
million, while accounts payable and other liabilities decreased by more than $26
million. Finally, approximately $6 million of cash was used to fund certain
long-term obligations.
Significant uses of cash included the acquisition of EFD, Inc. on October
30, 2000, capital expenditures, dividends, and scheduled repayments of long-term
debt. The EFD acquisition was financed with short-term credit facilities.
Internally generated cash flow of the Company will be used to pay down this
debt.
Nordson concentrated the majority of its 2001 capital expenditures on
information systems and manufacturing facilities.
Dividend payments to shareholders on a per-share basis increased 8 percent
over 2000.
On May 17, 2001, the Company replaced its short- and long-term revolving
credit agreements with a syndicated $350 million revolving credit line. This
facility consists of two parts: a $100 million, 364-day facility that can be
extended for one year and a $250 million, five-year facility. Also on May 17,
2001, the Company placed $100 million of unsecured debt with a number of
insurance companies. The weighted-average interest rate is 7.02% and the
original weighted-average life was 6.5 years.
Nordson has various lines of credit with both domestic and foreign banks.
At October 28, 2001, these lines totaled $432.6 million, of which $237.6 million
was unused. The Company believes that the combination of present capital
resources, internally generated funds, and unused financing sources are more
than adequate to meet cash requirements for 2002. There are no significant
restrictions limiting the transfer of funds from international subsidiaries to
the parent Company.
EFFECTS OF FOREIGN CURRENCY
The impact of changes in foreign currency exchange rates on sales and operating
results cannot be precisely measured because of fluctuating selling prices,
sales volume, product mix and cost structures in each country where Nordson
operates. As a rule, a weakening of the U.S. dollar relative to foreign
currencies has a favorable effect on sales and net income, while a strengthening
of the U.S. dollar has a detrimental effect.
In 2001 compared with 2000, the U.S. dollar was generally stronger against
foreign currencies. If 2000 exchange rates had been in effect during 2001, sales
would have been approximately $25.4 million higher and third-party costs would
have been approximately $15.5 million higher. In 2000 compared with 1999, the
U.S. dollar was generally stronger against foreign currencies. If 1999 exchange
rates had been in effect during 2000, sales would have been approximately $18.6
million higher and third-party costs would have been approximately $13.8
million higher. These effects on reported sales do not include the impact of
local price adjustments made in response to changes in currency exchange rates.
MARKET RISK
The Company operates internationally and enters into transactions denominated in
foreign currencies. Consequently, the Company is subject to market risk arising
from exchange rate movements between the dates foreign currencies are recorded
and the dates they are settled. Nordson regularly uses foreign exchange
contracts to reduce its risks related to most of these transactions. These
contracts usually have maturities of 90 days or less, and generally require the
Company to exchange foreign currencies for U.S. dollars at maturity, at rates
stated in the contracts. Gains and losses from changes in the market value of
these contracts offset foreign exchange losses and gains, respectively, on the
underlying transactions. The balance of transactions denominated in foreign
currencies are designated as hedges of the Company's net investments in foreign
subsidiaries or are intercompany transactions of a long-term investment nature.
As a result of the Company's use of foreign exchange contracts on a routine
basis to reduce the risks related to nearly all of the Company's transactions
denominated in foreign currencies as of October 28, 2001, the Company did not
have a material foreign currency risk related to its derivatives or other
financial instruments.
The Company finances a portion of its operations with short-term and
long-term borrowings and is subject to market risk arising from changes in
interest rates for most of its long-term debt.
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The tables below present principal cash flows and related weighted-average
interest rates by expected maturity dates of fixed-rate, long-term debt.
EXPECTED MATURITY DATE OCTOBER 28, 2001
THERE- TOTAL FAIR
2002 2003 2004 2005 2006 AFTER VALUE VALUE
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(In thousands)
Long-term debt, including
current portion
Fixed-rate debt $8,000 $8,000 $8,000 $12,290 $52,290 $101,420 $190,000 $198,486
Average interest rate 7.17% 7.13% 7.09% 7.05% 7.00% 6.90% 7.17%
EXPECTED MATURITY DATE OCTOBER 29, 2000
THERE- TOTAL FAIR
2001 2002 2003 2004 2005 AFTER VALUE VALUE
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(In thousands)
Long-term debt, including
current portion
Fixed-rate debt $-- $-- $-- $-- $-- $50,000 $50,000 $47,175
Average interest rate 6.78% 6.78% 6.78% 6.78% 6.78% 6.78% 6.78%
INFLATION
Inflation affects profit margins because the ability to pass cost increases on
to customers is restricted by the need for competitive pricing. Although
inflation has been modest in recent years and has had no material effect on the
years covered by these financial statements, Nordson continues to seek ways to
minimize the impact of inflation. It does so through focused efforts to raise
its productivity.
TRENDS
The Eleven-Year Summary on pages 34 and 35 documents Nordson's historical
financial trends. Over this period, the world's economic conditions fluctuated
significantly. Nordson's solid performance is attributed to the Company's
participation in diverse geographic and industrial markets and its long-term
commitment to develop and provide quality products and worldwide service to meet
customers' changing needs.
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Statements in this report pertaining to future periods 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.