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Exhibit 13-a
MANAGEMENT'S DISCUSSION AND ANALYSIS
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FISCAL YEARS 1994 AND 1993
Sales in 1994 reached a record level of $506.7 million, a
10 percent increase over 1993. Favorable currency effects in Japan
substantially offset unfavorable currency effects in Europe. Sales volume gains
were achieved in each of our four geographic regions. Strong growth was
achieved in powder coating equipment and other special engineered systems
sales. Steady gains continued in sales of adhesive application equipment to the
packaging industry.
Gross margins, expressed as a percentage of sales, were 58.0 percent in 1994
compared with 58.5 percent in 1993. Margins were primarily influenced by
changes in the product sales mix.
Selling and administrative costs, expressed as a percentage of sales,
decreased to 43.3 percent in 1994 from 43.9 percent in 1993. Efficiencies
achieved across all operations allowed spending to grow at a
slower rate than sales.
Interest expense, net of interest income, decreased $1.8 million due to lower
average borrowing levels and lower average rates. Other expense increased $.2
million due to higher net currency exchange losses.
The effective tax rate decreased to 34.2 percent in 1994 from 34.5 percent in
1993. This change can be traced to lower effective foreign, state and local tax
rates, partially offset by a higher statutory federal income tax rate and a
benefit recognized in 1993 related to enacted rate changes.
Effective as of the beginning of 1993, Nordson adopted Financial Accounting
Standards Board Statements "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (FAS 106), "Accounting for Income Taxes" (FAS 109), and
"Employers' Accounting for Postemployment Benefits" (FAS 112). The combined
cumulative effect of these changes in accounting principles was an aftertax
charge to first quarter 1993 earnings of $4.8 million or $.25 per share. Aside
from the one-time charge, adoption of these statements was not material to 1993
results.
Net income was $46.7 million, or $2.45 per share, in 1994. In 1993, income
before cumulative effect of accounting changes was $40.8 million, or $2.13 per
share. After the cumulative effect of accounting changes, net income in 1993
was $36.0 million, or $1.88 per share.
FISCAL YEARS 1993 AND 1992
Sales in 1993 were $461.6 million, an 8 percent increase over 1992. This
increase was attributable to an 11 percent improvement in sales volume, reduced
by unfavorable currency effects. Strong volume gains were achieved by North
American and Pacific South operations. European operations reported moderate
volume increases, while our Japanese organization experienced a decline in
local activity. Overall growth was driven by increased sales of adhesive
dispensing systems for nonwovens applications and specially engineered powder
coating systems. Sales of adhesive application equipment to the packaging
industry also showed steady gains.
Gross margins, expressed as a percentage of sales, were 58.5 percent in 1993
compared with 60.4 percent in 1992. The decline in the margin rate reflects
product sales mix and unfavorable currency exchange rates.
Selling and administrative costs, expressed as a percentage of sales, decreased
to 43.9 percent in 1993 from 44.6 percent in 1992. Although Nordson continued
to expand its geographic operations, spending grew at a slower rate than sales.
Interest expense, net of interest income, decreased $.4 million. This
improvement was due to lower average borrowing levels and lower average rates.
Other income increased $1.0 million, primarily because of non-recurring
occupancy charges recognized in the prior year.
The effective tax rate decreased to 34.5 percent in 1993 from 34.9 percent in
1992. Lower aggregate effective foreign tax rates and a lower federal tax rate
on previously taxed income offset the impact of a higher statutory federal tax
rate and higher effective state and local taxes.
Income before cumulative effect of accounting changes was $40.8 million, or
$2.13 per share, in 1993 compared with $39.5 million, or $2.03 per share, in
1992. After the cumulative effect of accounting changes, net income in 1993 was
$36.0 million, or $1.88 per share.
LIQUIDITY AND SOURCES OF CAPITAL
In 1994, working capital increased $1.6 million to $127.0 million. Current year
operations increased working capital by $1.7 million, which was attributable to
increases in receivables and inventories to support a higher level
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of business activity, offset by decreases in cash and increases in notes
payable. In addition, currency translations increased working capital by $3.9
million, and business acquisitions reduced it by $4.0 million.
Cash and cash equivalents decreased $13.6 million. Cash generated by operations
was $47.0 million. Significant uses of cash included net repurchases of Nordson
stock, outlays for capital expenditures, dividends, acquisitions of new
businesses, and net payments on long-term borrowings.
Repurchased shares are used to provide shares for various employee stock
programs. At October 30, 1994, management had authorization through June 1997
to repurchase up to 1,368,000 shares on the open market or in privately
negotiated transactions at the prevailing market price. Capital expenditures
in 1994 will expand the company's manufacturing and sales capacity. Investments
included machinery to produce circuit boards and a separate facility to support
the product development and sales of systems for the nonwovens industry. Also,
site preparation was completed for a new building in Amherst, Ohio. Dividend
payments increased 16 percent over 1993. Acquisitions of two U.S. manufacturers
of coating application equipment extended existing product lines. Scheduled
repayments on long-term debt decreased the outstanding balance, including the
current portion, by $3.2 million.
Nordson has various lines of credit with both domestic and foreign banks. At
October 30, 1994, these lines aggregated $119.8 million, of which $93.4 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 1995.
FOREIGN CURRENCY AND INFLATION
The impact of changes in foreign currency exchange rates on sales and operating
results cannot be precisely measured because of changes in selling prices,
sales volume, product mix and cost structures in each country where Nordson
operates. As a general 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 1994 relative to 1993 and in 1993 relative to 1992, the U.S. dollar was
stronger against European currencies and weaker against the Japanese yen. If
exchange rates for 1993 had been in effect during 1994, sales would have been
approximately $.8 million higher, and third-party costs would have been
approximately $.5 million higher. If exchange rates for 1992 had been in
effect during 1993, sales would have been approximately $11.7 million higher,
and third-party costs would have been approximately $5.7 million higher.
The Company uses foreign exchange contracts 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.
Inflation puts pressure on profit margins because the ability to pass cost
increases onto customers is restricted by competitive pricing. Although
inflation has been modest in recent years, and its effect is not material for
the years covered by the financial statements, Nordson continues to seek ways
to minimize the impact of inflation through efforts to achieve greater
productivity.
TRENDS
The Eleven-Year Summary on pages 32 and 33 documents Nordson's historical
financial trends. Over this period, world economic conditions fluctuated
significantly. Nordson's solid performance is traced to the company's long-term
commitment to develop and provide quality products and worldwide service to
meet customers' changing needs.
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