1
Exhibit 13-f
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
FISCAL YEAR -- The fiscal year for the Company's domestic operations ends on
the Sunday closest to October 31, and in 1993, 1992 and 1991, contained 52, 52
and 53 weeks, respectively. For international operations, the Company's fiscal
year ends on September 30.
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. Investments in non-controlled affiliates are accounted for by
the equity method.
CASH AND CASH EQUIVALENTS -- The Company considers highly liquid instruments
with a maturity of 90 days or less at date of purchase to be cash equivalents.
Cash and cash equivalents are carried at cost, which approximates market.
MARKETABLE SECURITIES -- Marketable securities, consisting primarily of
municipal and other short-term notes with maturities greater than 90 days at
date of purchase, are carried at cost, which approximates market.
INVENTORIES -- Inventories are valued at the lower of cost or market. Cost has
been determined using the last-in, first-out (LIFO) method for approximately 56
percent of consolidated inventories at October 31, 1993 (55 percent at November
1, 1992). The first-in, first-out (FIFO) method is used for all other
inventories. Consolidated inventories would have been $10,752,000 and
$10,867,000 higher than reported at October 31, 1993 and November 1, 1992,
respectively, had the Company used the FIFO method, which approximates current
cost, for valuation of all inventories.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION -- Property, plant and equipment
is carried at cost. The Company capitalizes interest costs as part of the cost
of constructing major facilities and equipment. No interest costs were
capitalized in 1993, 1992 or 1991. Plant and equipment is depreciated for
financial reporting purposes using the straight-line method over the estimated
useful lives of the assets or, in the case of property under capital leases,
over the terms of the leases.
INTANGIBLE ASSETS -- Intangibles, consisting primarily of costs in excess of
net assets of acquired businesses, are amortized using the straight-line method
over periods not exceeding 15 years.
RESEARCH AND DEVELOPMENT -- Research and development costs are charged to
expense as incurred and amounted to $19,655,000 in 1993 ($18,431,000 in 1992
and $17,999,000 in 1991).
EARNINGS PER SHARE -- Earnings per common share are computed based on the
weighted average number of common shares and common share equivalents
outstanding during each year. Common share equivalents consist primarily of
shares issuable upon exercise of the Company's stock options and stock purchase
rights, computed using the treasury stock method.
PRESENTATION -- Certain 1992 and 1991 amounts have been reclassified to conform
with the 1993 presentation.
24
2
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACCOUNTING CHANGES
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In the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective as of the beginning of the year. This
statement requires accrual over the employee service period of the expected
cost of providing postretirement medical and life insurance benefits. Prior to
1993, the Company expensed these benefits when they were paid. The cumulative
effect at November 2, 1992 of adopting FAS 106 reduced net income by
$4,344,000, net of $2,692,000 of income tax benefits.
In the fourth quarter of 1993, the Company adopted FAS 109, "Accounting for
Income Taxes," effective as of the beginning of the year. This statement
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between tax bases and
financial reporting bases of other liabilities and assets. Previously, the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The cumulative effect at November 2, 1992 of
adopting FAS 109 reduced net income by $138,000.
Also, in the fourth quarter of 1993, the Company adopted FAS 112, "Employers'
Accounting for Postemployment Benefits," effective as of the beginning of the
year. This statement requires that certain benefits available to former
employees be accrued when it becomes probable that such benefits will be paid.
Prior to 1993, the Company expensed these benefits when they were paid. The
cumulative effect at November 2, 1992 of adopting FAS 112 reduced net income by
$302,000, net of $187,000 of income tax benefits.
No prior year financial statements have been restated. Previously reported
first quarter 1993 results have been restated to reflect the combined aftertax
charge of $4,784,000, or $.25 per share. Aside from the one-time charge,
adoption of these statements was not material to quarterly or annual results in
the current year.
NOTE 3 -- PENSION, RETIREMENT AND OTHER POSTRETIREMENT PLANS
- -------------------------------------------------------------------------------
PENSION PLANS -- The Company has various pension plans which cover
substantially all employees. Pension plan benefits are generally based on
years of employment and, for salaried employees, the level of compensation.
The Company contributes actuarially determined amounts to domestic plans to
provide sufficient assets to meet future benefit payment requirements. The
Company's international subsidiaries fund their pension plans according to
local requirements. The Company also sponsors an unfunded supplemental pension
plan for certain employees.
Net pension cost for the Company's significant plans consists of the following
components:
1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
(In thousands)
Service cost - benefits earned during period $2,893 $2,531 $2,145
Interest cost on projected benefit obligations 3,625 2,917 2,305
Actual return on assets (5,654) (2,742) (7,230)
Net amortization and deferral 2,572 (51) 4,735
------ ------ ------
Net periodic pension cost $3,436 $2,655 $1,955
====== ====== ======
25
3
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- PENSION, RETIREMENT AND OTHER POSTRETIREMENT PLANS (CONTINUED)
- ------------------------------------------------------------------------------
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheet for its significant pension plans:
1993 1992
- ---------------------------------------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
Actuarial present value of obligations:
Vested benefit obligations $ 28,637 $ 6,413 $ 25,088 $ 5,137
======== ======== ======== ========
Accumulated benefit obligations $ 30,559 $ 9,935 $ 26,722 $ 8,320
======== ======== ======== =========
Projected benefit obligations $ 39,577 $ 15,381 $ 34,515 $ 13,341
Plan assets at fair value 40,851 2,513 35,933 2,173
-------- -------- -------- --------
Excess (deficiency) of assets over
projected benefit obligations 1,274 (12,868) 1,418 (11,168)
Unrecognized prior service costs 1,205 2,168 1,307 2,028
Unrecognized net (gain) loss (3,292) 4,254 (2,071) 4,319
Unrecognized net transition
(asset) obligation (3,021) 178 (3,653) 240
-------- -------- -------- --------
Accrued pension costs $ (3,834) $ (6,268) $ (2,999) $ (4,581)
======== ======== ======== ========
The actuarial present value of projected benefit obligations at the end of 1993
and 1992 was determined using a weighted average discount rate of 7.5 percent
and 8.0 percent, respectively, and a rate of increase in future compensation
levels of 4.6 percent and 5.0 percent, respectively. Plan assets consist
primarily of stocks and bonds. The expected long-term rate of return on plan
assets was 8.0 percent for 1993, 1992 and 1991.
Plans for which accumulated benefit obligations exceeded plan assets consist of
the unfunded supplemental plan and certain international plans, which are
partially unfunded by local practice.
RETIREMENT PLANS -- The parent company and certain subsidiaries have funded
contributory retirement plans covering certain employees. The Company's
contributions are primarily determined by the terms of the plans subject to the
limitation that they shall not exceed the amounts deductible for income tax
purposes. The Company also sponsors an unfunded contributory supplemental
retirement plan for certain employees. Generally, benefits under these plans
vest gradually over a period of approximately five years from date of
employment, and are based on the employee's contribution. The expense
applicable to retirement plans for 1993, 1992 and 1991 was approximately
$1,988,000, $1,756,000 and $1,555,000, respectively.
POSTRETIREMENT BENEFIT PLAN -- The parent company has an unfunded
postretirement defined benefit plan covering certain employees. The plan
provides medical and life insurance benefits. The plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance.
26
4
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- PENSION, RETIREMENT AND OTHER POSTRETIREMENT PLANS (CONTINUED)
- --------------------------------------------------------------------------------
Effective as of the beginning of 1993, the Company adopted FAS 106, which
requires these benefits to be expensed during the employees' working careers.
Postretirement benefit expense for years prior to 1993, which was recorded when
the benefits were paid, has not been restated. The Company elected to
immediately expense the accumulated benefit obligation at the beginning of the
year of $4,344,000, net of $2,692,000 of income tax benefits. Aside from the
one-time charge, adoption of this accounting method was not material to current
year results.
Net postretirement benefit cost includes the following components:
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Service cost - benefits earned during period $388 -- --
Interest cost on accumulated benefit obligations 551 -- --
---- ---- ----
Net periodic postretirement benefit cost $939 $153 $142
==== ==== ====
The following table sets forth the amount recognized in the Company's balance
sheet for its postretirement benefit plan:
1993
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Accumulated postretirement benefit obligation:
Retirees $2,339
Fully eligible active plan participants 1,687
Other active plan participants 3,762
------
7,788
Unrecognized net loss (38)
------
Accrued postretirement benefit costs $7,750
======
The discount rate used in determining the accumulated postretirement benefit
obligation at October 31, 1993 was 7.5 percent. The annual rate of increase in
the per capita cost of covered benefits (the health care cost trend rate) was
assumed to be 10.0 percent for 1994, decreasing gradually to 5 percent for 2001
and thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health
care cost trend rates by one percentage point in each year would increase the
net postretirement benefit cost for 1993 by $185,000 and the accumulated
postretirement benefit obligation as of October 31, 1993 by $1,347,000.
NOTE 4 -- INCENTIVE COMPENSATION PLAN
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The Company has an incentive compensation plan for executive officers.
Participants in the plan and payments under the plan are approved by a
committee appointed by the Board of Directors. Members of the committee are
directors and are not active officers of the Company. Amounts paid under the
plan are based on a percentage of the base salary of each participant.
Compensation expense attributable to the plan was $1,557,000 in 1993
($1,843,000 in 1992 and $1,719,000 in 1991).
27
5
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- INCOME TAXES
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Effective as of the beginning of 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability method
required by FAS 109. As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of adopting FAS 109 as
of the beginning of 1993 decreased net income by $138,000. Application of the
new income tax rules was not material to current year results.
Income tax expense includes the following:
U.S. STATE
FEDERAL AND LOCAL FOREIGN TOTAL
- ---------------------------------------------------------------------------------------
(In thousands)
1993 - LIABILITY METHOD
Current $ 12,825 $ 2,684 $ 7,689 $ 23,198
Deferred (1,547) (140) (38) (1,725)
-------- ------ -------- --------
Total $ 11,278 $ 2,544 $ 7,651 $ 21,473
======== ======= ======= ========
1992 - DEFERRED METHOD
Current $ 9,705 $ 1,849 $11,284 $ 22,838
Deferred (138) (270) (1,200) (1,608)
-------- ------- ------- --------
Total $ 9,567 $ 1,579 $10,084 $ 21,230
======== ======= ======= ========
1991 - DEFERRED METHOD
Current $ 9,169 $ 1,452 $10,845 $ 21,466
Deferred (2,537) (744) (12) (3,293)
-------- ------- ------- --------
Total $ 6,632 $ 708 $10,833 $ 18,173
======== ======= ======= ========
Earnings before income taxes of international operations were $16,884,000,
$20,431,000 and $24,472,000 in 1993, 1992 and 1991, respectively. Deferred
income taxes are not provided on undistributed earnings (which aggregated
approximately $17,977,000 at October 31, 1993) of international subsidiaries
which are intended to be permanently invested in those operations. Should
those earnings be distributed, applicable foreign tax credits would
substantially offset U.S. taxes due upon the distribution.
The reconciliation of the United States statutory federal income tax rate to
the worldwide consolidated effective tax rate follows:
LIABILITY DEFERRED
METHOD METHOD
1993 1992 1991
- -------------------------------------------------------------------------------------------
Statutory federal income tax rate 34.8% 34.0% 34.0%
Foreign Sales Corporation exemption (3.8) (3.9) (4.5)
Foreign earnings (excluding unrealized net exchange
gains and losses) subject to an aggregate tax
rate different than the statutory federal tax rate
(including the effect of U.S. tax credits) 1.7 2.6 3.7
State and local taxes, net of federal income tax benefit 2.7 1.7 .9
Enacted rate changes (1.0) -- --
Other - net .1 .5 .9
----- ------ ------
Effective tax rate 34.5% 34.9% 35.0%
====== ====== ======
28
6
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- INCOME TAXES (CONTINUED)
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Significant components of the Company's deferred tax assets and liabilities as
of October 31, 1993 are as follows:
1993
- ---------------------------------------------------------------------------------------
(In thousands)
Deferred tax assets:
Sales to international subsidiaries and related consolidation adjustments $15,174
Accruals not currently deductible for taxes 4,844
Employee benefits 4,663
Inventory adjustments 1,586
Translation of foreign currency accounts 1,494
Depreciation 276
Other - net 360
-------
Total deferred tax assets 28,397
Deferred tax liabilities:
Depreciation 3,734
Inventory adjustments 435
Other - net 136
-------
Total deferred tax liabilities 4,305
-------
Net deferred tax assets $24,092
=======
The components of the provision for deferred income taxes for
1992 and 1991 are as follows:
1992 1991
- --------------------------------------------------------------------------------------
(In thousands)
Sales to international subsidiaries
and related consolidation adjustments $ (721) $(1,854)
Declared repatriation of foreign earnings
net of foreign tax credit 913 (193)
Employee benefits (657) (425)
Depreciation (180) 235
Inventory adjustments (253) (387)
Translation of foreign currency accounts 218 (372)
Changes in accruals not currently
deductible for taxes (901) (275)
Other - net (27) (22)
------- -------
Total $(1,608) $(3,293)
======= =======
29
7
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- ACQUISITIONS
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During 1993, the Company acquired a distributor in Latin America. During 1992,
the Company acquired a U.S. manufacturer of adhesive application equipment.
The cost of acquisitions amounted to $455,000 in 1993 and $8,302,000 in 1992.
Business acquisitions are accounted for as purchases, with the acquired assets
and liabilities recorded at their estimated fair value at the dates of
acquisition, and the related operating results included in the consolidated
financial statements from the dates of acquisition. The excess of the total
acquisition costs over the fair value of net assets acquired is included in
intangible assets and amortized over 15 years using the straight-line method.
Assuming the acquisitions had taken place at the beginning of each year, net
sales on a pro forma unaudited basis would have been $438,017,000 in 1992,
while the effects on net sales in 1993 and net income and earnings per share
for both years would have been immaterial.
NOTE 7 -- LINES OF CREDIT AND NOTES PAYABLE
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At October 31, 1993, the Company had lines of credit with various domestic and
foreign banks aggregating $128,758,000. The unused portion of these credit
lines was $109,708,000. The Company has no agreement, formal or informal, to
maintain compensating balances or to pay significant commitment fees relating
to these lines, which can generally be withdrawn at the option of the banks.
The carrying amount of the Company's notes payable approximates their fair
value.
NOTE 8 -- LONG-TERM DEBT
- -------------------------------------------------------------------------------
The long-term debt of the Company follows:
1993 1992
- ----------------------------------------------------------------------------------------
(In thousands)
Industrial Revenue Bonds -- City of Westlake, Ohio $ 7,650 $ 8,500
Industrial Revenue Bonds -- Gwinnett County, Georgia 6,000 6,000
Variable Rate Term Loan 387 774
State of Ohio Loan 585 685
Guarantee of ESOP obligation 3,081 4,052
5.33% Mortgage Note, payable in semi-annual installments of
$153,000 through June 1996 971 1,418
5.50% Mortgage Note, payable in semi-annual installments of
$49,000 through June 1998 491 681
5.50% Mortgage Note, payable in semi-annual installments of
$52,000 through June 1998 518 718
4.70% Note, payable in semi-annual installments of
$94,000 through June 1997 755 --
5.75% Note, payable in semi-annual installments of
$52,000 through December 1996 364 541
7.30% Note, payable upon maturity in August 1998 -- 1,667
Other (primarily foreign currency borrowings) 39 405
------- -------
20,841 25,441
Less current maturities 3,174 3,366
------- -------
Total $17,667 $22,075
======= =======
30
8
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- LONG-TERM DEBT (CONTINUED)
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INDUSTRIAL REVENUE BONDS -- CITY OF WESTLAKE, OHIO -- These bonds were issued
in connection with the construction of the Company's World Headquarters in
Westlake, Ohio. The bonds are due in annual installments of $850,000 extending
through 2002 with interest payable quarterly. The tax-free interest rate
varies weekly and was 2.55 percent at October 31, 1993. The bonds are secured
by a $7,977,000 standby letter of credit.
INDUSTRIAL REVENUE BONDS -- GWINNETT COUNT, GEORGIA -- These bonds were issued
in connection with the acquisition and renovation of the Norcross Manufacturing
Facility in Gwinnett County, Georgia. These bonds are due in annual
installments of $600,000 beginning in 2000 and extending through 2009 with
interest payable quarterly. The tax-free interest rate varies weekly and was
2.70 percent at October 31, 1993. The bonds are secured by a $6,300,000
standby letter of credit.
VARIABLE RATE TERM LOAN -- The loan proceeds were used to purchase shares of
the Company's common stock which were subsequently contributed to the Company's
Employee Stock Ownership Plan. The final annual installment of $387,000 is due
in 1994 with interest payable quarterly. Interest resets periodically at a
rate below generally available taxable rates (3.41 percent at October 31,
1993).
STATE OF OHIO LOAN -- This loan was issued for the construction of a sales and
demonstration facility in Amherst, Ohio. The loan is payable in annual
installments of $100,000 through 1998, with the final installment of $85,000
due in 1999. Interest is payable quarterly at a fixed rate of 5.00 percent.
The loan is secured by a $1,025,000 standby letter of credit.
GUARANTEE OF ESOP OBLIGATION -- The Company's Employee Stock Ownership Plan
(ESOP) has borrowed under a $10,000,000 revolving credit agreement. Since the
Company has unconditionally guaranteed the repayment of the ESOP's borrowings,
the loans are reported as long-term debt on the consolidated balance sheet. A
corresponding amount has also been recorded as a reduction of shareholders'
equity. The obligation is payable in annual installments of $570,000 to
$971,000 through 1997 with interest payable quarterly. Interest resets
periodically at a rate approximately 20 percent below generally available
taxable rates (3.20 percent at October 31, 1993). The ESOP will repay the
loans plus interest using Company contributions and dividends received on the
shares of common stock that have not been allocated to plan participants.
Dividends on unallocated shares were $49,000, $46,000 and $22,000 in 1993, 1992
and 1991, respectively.
MORTGAGE AND OTHER NOTES PAYABLE -- The mortgage and other notes are payable
primarily in deutsche marks. Assets with a net book value of $5,218,000 have
been pledged as security for certain notes.
FAIR VALUE -- The fair value of the Company's long-term debt, including current
maturities, at October 31, 1993, is approximately $19,957,000, estimated by
discounting future cash flows at currently available taxable rates for
borrowing arrangements with similar terms and conditions.
ANNUAL MATURITIES -- The annual maturities of long-term debt for the five years
subsequent to October 31, 1993 are as follows: 1994 - $3,174,000, 1995 -
$2,536,000, 1996 - $2,533,000, 1997 - $1,962,000 and 1998 - $1,152,000.
NOTE 9 -- CAPITAL SHARES
- --------------------------------------------------------------------------------
PREFERRED -- The Company has authorized 10,000,000 Series A convertible
preferred shares without par value. No preferred shares were outstanding in
1993 or 1992.
COMMON -- The Company has 80,000,000 authorized common shares without par
value. In March 1992, the shareholders adopted an amendment to the Company's
articles of incorporation which, when filed with the state of Ohio, would
increase the number of authorized common shares to 160,000,000. At October 31,
1993 and November 1, 1992, there were 24,506,000 common shares issued, which
included 5,780,000 and 5,754,000 treasury shares, respectively.
31
9
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- COMPANY STOCK PLANS
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LONG-TERM PERFORMANCE PLAN -- The Company's long-term performance plan, adopted
in 1993, 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 percent of the number of common shares
outstanding as of the first day of each fiscal year, plus up to an additional
.5 percent, consisting of shares available, but not granted, in prior years.
At November 1, 1993, there were 655,000 shares available for grant in 1994.
STOCK OPTIONS -- The Company may grant non-qualified or incentive stock options
to employees and directors of the Company. The exercise price of outstanding
stock options is the fair market value of the common shares at the date of
grant. Generally, the options may be exercised after 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. Vesting accelerates upon the occurrence of events which involve
or may result in a change of control of the Company.
No charges have been made against income in accounting for stock options. Tax
benefits arising from the exercise of non-qualified stock options are
recognized when realized and credited to capital in excess of stated value.
Summarized transactions are as follows:
Number of Exercise Price
Options Range Per Share
- -------------------------------------------------------------------------------
Outstanding at November 1, 1992 1,213,491 $ 9.75 - $52.00
Granted 302,020 $43.50 - $47.00
Exercised (133,266) $12.75 - $42.50
Forfeited (7,544) $19.75 - $47.00
---------
Outstanding at October 31, 1993 1,374,701 $ 9.75 - $52.00
=========
Exercisable at October 31, 1993 800,000 $ 9.75 - $52.00
=========
STOCK APRECIATION RIGHTS -- The Company may grant stock appreciation rights to
employees. A stock appreciation right provides for a payment equal to the
excess of the fair market value of a common share when the right is exercised,
over its value when the right was granted. The Company accrues for these
payments over the periods in which the stock appreciation rights vest and are
exercisable. There were no stock appreciation rights outstanding during 1993,
1992 and 1991.
Limited stock appreciation rights that become exercisable upon the occurrence
of events which involve or may result in a change of control of the Company
have been granted with respect to 1,305,901 shares.
RESTRICTED STOCK -- The Company may grant restricted stock to employees.
Generally, these shares may not be disposed of for a designated period of time
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 compensation equivalent to the market value on the date of
grant is charged to shareholders' equity and subsequently amortized over the
restriction period. Net amortization was $876,000 in 1993 ($1,443,000 in 1992
and $955,000 in 1991). Tax benefits arising from restricted stock are
recognized when realized and credited to capital in excess of stated value. In
1993, there were 8,850 restricted shares granted and 200 restricted shares
forfeited.
32
10
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- COMPANY STOCK PLANS (CONTINUED)
- -------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE RIGHTS -- Under the Company's stock purchase programs,
eligible employees may purchase common shares at specified times each year in
an amount up to 15 percent of their annual compensation. For domestic
employees, the purchase price is equal to 95 percent of the fair market value
of the common shares at the date of purchase. Foreign employees may purchase
shares at a price equal to the lesser of: (a) 85 percent of the fair market
value of the common shares at the date of the employee's entry into the
program, or (b) 85 percent of the fair market value at the date of purchase.
In 1993, there were 106,550 common shares issued under these programs at an
average price of $35.25 per share. As of October 31, 1993, common shares
totaling 525,354 could be purchased in 1994 under the programs.
EMPLOYEE STOCK OWNERSHIP PLAN -- The Employee Stock Ownership Plan covers all
domestic employees. Company contributions are discretionary and funded
annually by a combination of cash and shares of the Company's common stock.
Allocations to the participants' accounts are made on December 31 on the basis
of their compensation for the year. Each participant vests in his account at a
rate of 20 percent per year. Distribution of a participant's account occurs at
retirement, death, or termination of employment.
During 1993, $1,809,000 was charged to expense ($2,031,000 in 1992 and
$2,850,000 in 1991) using the shares-allocated method. These amounts include
$128,000, $131,000 and $69,000 in 1993, 1992 and 1991, respectively, charged
to interest expense related to the Company's guarantee of the plan's debt
obligation. Contributions to the plan were $2,068,000, $1,929,000 and
$1,812,000 in 1993, 1992 and 1991, respectively.
SHAREHOLDER RIGHTS PLAN -- In August 1988, the Board of Directors declared a
dividend of one common share purchase right for each common share outstanding
on September 9, 1988. Rights are also distributed with common shares issued by
Nordson after that date. The rights may only be exercised if a party acquires
20 percent or more of the Company's common shares, makes a tender offer for at
least 20 percent of the Company's common shares, or is declared to be an
"adverse person." The exercise price of each right is $100 per share. The
rights trade with the shares until the rights become exercisable.
If a party acquires at least 25 percent of the Company's common shares, is
declared to be an "adverse person," or attempts a "control share acquisition"
without complying with Ohio law, or if an acquiring party engages in certain
self-dealing actions ("flip-in" events), each right then becomes the right to
purchase two common shares of Nordson for $.50 per share. In the event the
Company is acquired in a merger or other business combination ("flip-over"
events), each right entitles its holder to purchase, for $1, shares of the
surviving company having a market value equal to two common shares of Nordson.
The rights may be redeemed by the Company at a price of $.01 per right at any
time prior to the earlier of the "flip-in" or "flip-over" events, or expiration
of the rights on September 9, 1998.
SHARES RESERVED FOR FUTURE ISSUANCE -- At October 31, 1993, there were
41,964,000 shares reserved for future issuance through the exercise of
outstanding options or rights, including 40,064,000 shares under the
shareholder rights plan.
33
11
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
- -------------------------------------------------------------------------------
The Company uses foreign exchange contracts as one method to hedge receivables
and payables denominated in foreign currencies. 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 agreed to at the
inception of the contracts. Gains and losses from changes in the market value
of these contracts offset foreign exchange losses and gains on the related
asset or liability. At October 31, 1993, the Company had $42,422,000 of
contracts outstanding, of which $29,500,000 were in European currencies and
$10,731,000 were in Japanese yen. The carrying amount of the Company's foreign
exchange contracts approximates their market value.
As a financing tool, certain subsidiaries of the Company discount a portion of
their receivables to financial institutions with recourse to those
subsidiaries. Reserves for potential credit losses have been recorded and are
evaluated regularly. At October 31, 1993, the related credit risk amounted to
$1,913,000.
At October 31, 1993, the Company had issued $2,247,000 of guarantees to support
the term borrowing facilities of an unconsolidated affiliate. The fair value
of these guarantees is not material.
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Company invests its excess cash in deposits with major banks
throughout the world and in securities with strong credit ratings. The
Company's customers represent a wide variety of industries and geographic
regions. As of October 31, 1993, there were no significant concentrations of
credit risk.
NOTE 12 -- INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA
- --------------------------------------------------------------------------------
INDUSTRY SEGMENT DATA -- The Company operates in one industry segment which
engages in developing, manufacturing and marketing industrial application
equipment. This equipment is used to apply adhesives, sealants, and liquid and
powder coatings to a broad range of consumer and industrial products during
manufacturing operations.
GEOGRAPHIC AREA DATA -- Financial data by geographic area is before elimination
of intercompany transactions. Geographic transfers are generally accounted for
at prices which approximate arm's-length wholesale market prices.
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following has been added or deducted: general
corporate expenses, other income and expense, and provision for income taxes.
Identifiable assets are those assets used in the operations of each geographic
area. Corporate assets are principally cash and cash equivalents, marketable
securities, and property, plant and equipment maintained for general corporate
purposes.
No single customer accounted for more than 5 percent of sales in 1993, 1992 or
1991.
34
12
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA (CONTINUED)
- -------------------------------------------------------------------------------
The following table summarizes the Company's operations within geographic
areas:
1993 1992 1991
- -------------------------------------------------------------------------------
(In thousands)
Sales to unaffiliated customers:
North America $ 197,708 $ 154,502 $ 140,666
Europe 166,927 180,718 162,458
Japan 64,871 63,125 61,066
Pacific and Latin America 32,051 27,273 23,772
--------- --------- ---------
461,557 425,618 387,962
Transfers between geographic areas:
North America 101,496 102,497 95,030
Europe 7,694 10,194 8,831
Japan 262 112 56
Pacific and Latin America 354 60 25
Eliminations (109,806) (112,863) (103,942)
--------- --------- ---------
Total sales $ 461,557 $ 425,618 $ 387,962
========= ========= =========
Operating profit:
North America $ 68,169 $ 61,831 $ 53,128
Europe 14,610 21,417 22,112
Japan 6,497 7,184 9,499
Pacific and Latin America 2,067 2,867 2,482
Eliminations 1,337 (902) (4,597)
--------- --------- ---------
Geographic operating profit 92,680 92,397 82,624
General corporate expenses (25,306) (25,103) (24,361)
Other expense - net (5,126) (6,527) (6,303)
--------- --------- ---------
Income before income taxes and
cumulative effect of accounting changes $ 62,248 $ 60,767 $ 51,960
========= ========= =========
Assets:
North America $ 164,029 $ 147,737 $ 126,180
Europe 112,892 133,655 114,771
Japan 47,176 40,376 36,338
Pacific and Latin America 17,310 15,368 12,754
Corporate 32,140 25,900 20,086
Eliminations (15,577) (16,739) (13,199)
--------- --------- ---------
Total assets $ 357,970 $ 346,297 $ 296,930
========= ========= =========
35
13
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- LEASES
- --------------------------------------------------------------------------------
The Company has lease commitments expiring at various dates, principally for
warehouse and office space, automobiles and office equipment. Most leases
contain renewal options and some contain purchase options.
The Company has an operating lease for office space owned by a partnership in
which the Company is a partner. The lease ends in 2010 and contains a renewal
option and an option to purchase the property at fair market value in 2000.
Monthly rentals range from $35,000 to $89,000 and approximate market rates.
Rent expense for all operating leases was approximately $8,740,000 in 1993
($6,784,000 in 1992 and $5,349,000 in 1991).
Assets held under capitalized leases are included in property, plant and
equipment as follows:
1993 1992
- ------------------------------------------------------------------------------
(In thousands)
Transportation equipment $ 9,438 $ 10,241
Other 3,374 2,619
-------- --------
Total capitalized leases 12,812 12,860
Less accumulated amortization 5,203 4,887
-------- --------
Net capitalized leases $ 7,609 $ 7,973
======== ========
At October 31, 1993, future minimum lease payments under noncancellable
capitalized and operating leases are as follows:
CAPITALIZED OPERATING
LEASES LEASES
- ------------------------------------------------------------------------------
(In thousands)
Fiscal Year Ending:
1994 $ 4,163 $ 7,556
1995 3,231 5,964
1996 1,813 4,678
1997 454 3,686
1998 218 1,846
Later years 51 13,763
------- --------
Total minimum lease payments 9,930 $ 37,493
========
Less amount representing executory costs 621
-------
Net minimum lease payments 9,309
Less amount representing interest 1,706
-------
Present value of net minimum lease payments 7,603
Less current portion 3,181
-------
Long-term obligations at October 31, 1993 $ 4,422
=======
36
14
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- DETAILS OF BALANCE SHEET
- --------------------------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Receivables:
Accounts $ 92,298 $ 90,075
Notes 14,397 16,103
Other 3,347 3,026
--------- ---------
110,042 109,204
Less allowance for doubtful accounts (2,647) (2,715)
--------- ---------
$ 107,395 $ 106,489
========= =========
Inventories:
Finished goods $ 30,747 $ 35,121
Work in process 8,466 14,217
Raw materials and finished parts 45,448 38,336
--------- ---------
$ 84,661 $ 87,674
========= =========
Property, plant and equipment:
Land $ 3,655 $ 3,748
Land improvements 2,342 2,363
Buildings 49,964 50,538
Machinery and equipment 68,560 65,266
Construction in progress 9,606 4,327
Leased property under capitalized leases 12,812 12,860
--------- ---------
146,939 139,102
Less accumulated depreciation and amortization (68,250) (61,730)
--------- ---------
$ 78,689 $ 77,372
========= =========
Intangibles:
Costs in excess of net assets of acquired businesses $ 34,064 $ 36,614
Other 1,580 1,465
--------- ---------
35,644 38,079
Less accumulated amortization (8,393) (6,501)
--------- ---------
$ 27,251 $ 31,578
========= =========
Accrued liabilities:
Salaries and other compensation $ 18,341 $ 18,041
Pension and retirement 7,900 6,397
Taxes other than income taxes 2,802 2,446
Other 15,377 15,895
--------- ---------
$ 44,420 $ 42,779
========= =========
37
15
Nordson Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 -- SUPPLEMENTAL INFORMATION FOR THE STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Cash operating activities:
Interest paid $ 6,351 $ 6,831 $ 7,095
Income taxes paid 19,355 20,038 20,058
======== ======== ========
Noncash investing and financing activities:
Capitalized lease obligations incurred $ 4,670 $ 6,061 $ 3,666
Capitalized lease obligations terminated 1,250 945 824
Shares acquired and issued through
exercise of stock options 3,613 2,965 --
======== ======== ========
Noncash assets and liabilities of businesses
acquired:
Working capital $ (406) $ 883 $ 1,613
Property, plant and equipment -- 411 696
Intangibles and other 861 7,103 8,253
Long-term debt and other liabilities -- (95) (5,000)
-------- -------- --------
$ 455 $ 8,302 $ 5,562
======== ======== ========
NOTE 16 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
The following table sets forth selected financial data for each quarter of 1993 and 1992. The first quarter
of 1993 has been restated due to accounting changes, as described in Note 2.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------
(In thousands except for per share amounts)
1993
Sales $100,300 $109,250 $123,341 $128,666
Cost of sales 40,318 44,564 52,748 53,945
Income before cumulative effect
of accounting changes 6,683 8,787 12,075 13,230
Cumulative effect of accounting
changes (4,784) -- -- --
Net income 1,899 8,787 12,075 13,230
Earnings per share:
Income before cumulative effect
of accounting changes $.35 $.46 $.63 $.69
Cumulative effect of
accounting changes (.25) -- -- --
Net income .10 .46 .63 .69
1992
Sales $ 93,392 $106,166 $105,559 $120,501
Cost of sales 36,496 41,060 41,523 49,358
Net income 7,376 10,238 10,307 11,616
Earnings per share $.38 $.52 $.53 $.60
38