1
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 May 2, 1999
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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
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NORDSON CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0590250
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
28601 Clemens Road, Westlake, Ohio 44145
- ---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's 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 issuer's classes of
common stock, as of the latest practicable date: COMMON SHARES WITHOUT PAR VALUE
AS OF APRIL 30, 1999: 16,543,906
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NORDSON CORPORATION
INDEX
Part I - Financial Information Page Number
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Condensed Consolidated Statement of Income -
Thirteen and Twenty-Six Weeks ended May 2, 1999
and May 3, 1998 3
Condensed Consolidated Balance Sheet -
May 2, 1999 and November 1, 1998 4
Condensed Consolidated Statement of Cash
Flows - Twenty-Six Weeks ended
May 2, 1999 and May 3, 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
Item 4, Submission of Matters to a Vote
of Security Holders 14
Item 6, Exhibits and Reports on Form 8-K 14
Signature 15
Exhibit Index 16
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Part I - Financial Information
NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
(Dollars and shares in thousands except for per share amounts)
Thirteen Weeks Ended Twenty-Six Weeks Ended
May 2, 1999 May 3, 1998 May 2, 1999 May 3, 1998
----------- ----------- ----------- -----------
Sales $ 174,766 $ 167,814 $ 331,819 $ 307,040
Cost of sales 77,884 81,930 150,515 142,539
Selling &
administrative
expenses 75,954 73,860 148,154 143,591
Asset impairment,
retirement and
severance costs -- 9,718 -- 9,718
--------- --------- --------- ---------
Operating profit 20,928 2,306 33,150 11,192
Other income (expense):
Interest expense (2,554) (2,274) (4,846) (4,565)
Interest and
investment income 463 106 669 221
Other - net 897 689 1,342 1,584
--------- --------- --------- ---------
Income before income
taxes 19,734 827 30,315 8,432
Income taxes 6,710 281 10,307 2,867
--------- --------- --------- ---------
Net income $ 13,024 $ 546 $ 20,008 $ 5,565
========= ========= ========= =========
Common shares 16,591 16,525 16,618 16,637
Common share
equivalents 298 124 227 132
--------- --------- --------- ---------
Common shares and
common share
equivalents 16,889 16,649 16,845 16,769
========= ========= ========= =========
Earnings per share:
Basic $ .79 $ .03 $ 1.20 $ .33
========= ========= ========= =========
Diluted $ .77 $ .03 $ 1.19 $ .33
========= ========= ========= =========
Dividends per
common share $ .24 $ .22 $ .48 $ .44
========= ========= ========= =========
See accompanying notes.
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NORDSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(Dollars in thousands)
May 2, 1999 November 1, 1998
----------- ----------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 17,123 $ 6,820
Marketable securities 30 30
Receivables 155,728 165,286
Inventories 129,070 124,352
Deferred income taxes 28,113 24,336
Prepaid expenses 6,345 7,652
--------- ---------
Total current assets 336,409 328,476
Property, plant and equipment - net 111,632 101,183
Intangible assets - net 98,655 84,345
Other assets 21,081 24,940
--------- ---------
$ 567,777 $ 538,944
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ 119,203 $ 93,851
Accounts payable 33,799 33,753
Current portion of long-term debt 862 862
Other current liabilities 81,479 78,616
--------- ---------
Total current liabilities 235,343 207,082
Long-term debt 68,173 70,444
Other liabilities 52,568 46,643
Shareholders' equity:
Common shares 12,253 12,253
Capital in excess of stated value 95,701 92,030
Accumulated other comprehensive
income (loss) (6,853) (4,792)
Retained earnings 435,900 423,887
Common shares in treasury, at cost (325,067) (308,368)
Deferred stock-based compensation (241) (235)
--------- ---------
Total shareholders' equity 211,693 214,775
--------- ---------
$ 567,777 $ 538,944
========= =========
See accompanying notes.
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NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(Dollars in thousands)
Twenty-Six Weeks Ended
May 2, 1999 May 3, 1998
----------- -----------
Cash flows from operating activities:
Net income $ 20,008 $ 5,565
Non-recurring charges -- 15,670
Changes in operating assets and
liabilities 9,874 (8,965)
Other - net 17,482 13,218
-------- --------
47,364 25,488
Cash flows from investing activities:
Additions to property, plant
and equipment (19,312) (7,326)
Acquisition of new businesses (20,124) (504)
Proceeds from sale of marketable
securities -- 170
-------- --------
(39,436) (7,660)
Cash flows from financing activities:
Net proceeds from notes payable 26,025 19,080
Net payment of long-term debt (569) (3,417)
Issuance of common shares 4,918 308
Purchase of treasury shares (18,068) (22,840)
Dividends paid (7,995) (7,339)
-------- --------
4,311 (14,208)
Effect of exchange rate changes on cash (1,936) (664)
-------- --------
Increase in cash 10,303 2,956
Cash and cash equivalents
Beginning of fiscal year 6,820 1,517
-------- --------
End of period $ 17,123 $ 4,473
======== ========
See accompanying notes.
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NORDSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1999
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 twenty-six weeks ended May 2, 1999 are not necessarily
indicative of the results that may be expected for the full fiscal
year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended November 1, 1998.
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):
May 2, 1999 November 1, 1998
----------- ----------------
Finished goods $ 32,435 $ 40,411
Work-in-process 32,908 24,914
Raw materials and
finished parts 63,727 59,027
-------- --------
$ 129,070 $ 124,352
========= =========
4. ACCOUNTING CHANGES. In the first quarter of 1999, the Company adopted
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income" (FAS 130). Comprehensive income includes net
earnings and other revenues, expenses, gains and losses that are
excluded from net earnings but included as a component of shareholders'
equity. For the Company, the primary difference between net income and
comprehensive income is foreign currency translation adjustments
recorded in shareholders' equity.
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The Company also adopted during the first quarter of 1999, Financial
Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131) and
Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (FAS 132). The Company will include the
required business segment and revised pension and other postretirement
benefit disclosures in its October 31, 1999 Annual Report.
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 is not
required to implement this statement in the current fiscal year and
upon its implementation, it is not expected to have a material effect
on the financial statements.
5. COMPREHENSIVE INCOME. Comprehensive income for the thirteen and
twenty-six weeks ended May 2, 1999 and May 3, 1998 is as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
May 2, 1999 May 3, 1998 May 2, 1999 May 3, 1998
----------- ----------- ----------- -----------
(in thousands)
Net income $ 13,024 $ 546 $ 20,008 $ 5,565
Foreign currency
translation
adjustments (5,290) (617) (2,061) (3,130)
-------- -------- -------- --------
Comprehensive
income (loss) $ 7,734 $ (71) $ 17,947 $ 2,435
======== ======== ======== ========
Accumulated other comprehensive income (loss), consisting entirely of
accumulated foreign currency translation adjustments as of May 2, 1999
and May 3, 1998 is as follows:
Twenty-Six Weeks Ended
May 2, 1999 May 3, 1998
----------- -----------
Beginning balance $ (4,792) $ (977)
Current-period change (2,061) (3,130)
-------- --------
Ending balance $ (6,853) $ (4,107)
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6. ACQUISITIONS. Business acquisitions are accounted for as purchases,
with the acquired assets and liabilities recorded at their fair value
at the date of acquisition. The cost in excess of the net assets of the
business acquired is included in intangible assets. In March, 1999,
Nordson acquired a manufacturer of gas-plasma technology systems
located in Concord, California. Assuming the acquisition had taken
place at the beginning of fiscal 1998, pro forma results would not be
materially different.
7. COMMON STOCK EQUIVALENTS. Common stock equivalents consist of
incremental common shares attributable to outstanding stock options,
nonvested stock and deferred stock-based compensation.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is Management's discussion and analysis of certain significant
factors affecting the Company's financial condition and results of operations
for the periods included in the accompanying condensed consolidated financial
statements.
RESULTS OF OPERATIONS
SALES
Sales for the second quarter and the first half of 1999 increased 4% and 8%,
respectively, over the comparable periods of 1998. Local volume gains and price
increases accounted for increased sales of 3% for the quarter and 7% for the
year-to-date, while the effects of favorable currency translations increased
reported sales by 1% in both periods. Price increases averaging 2% were
implemented on orders taken after the beginning of the year on standardized
small systems and parts.
Performance in the second quarter of 1999 was driven by continued strong sales
volume growth in North America, led by the Company's electronics systems
business and contributions from recent acquisitions. Sales volume in North
America increased 11% for the quarter and 18% for the year-to-date over the
comparable periods of 1998.
The Company's Pacific South region, which covers the Pacific Rim, South Asia and
Latin America, also contributed to sales growth for the second quarter. Volume
in that region increased 22% and 24% for the second quarter and year-to-date,
respectively, supported by particularly strong sales activity in Mexico and
improved sales activity in China and Malaysia. However, an unfavorable currency
environment in the region negatively impacted reported sales.
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Offsetting growth in the North America and Pacific South regions were sales
volume declines in Europe and Japan. In Europe, local sales volume was down 5%
for the second quarter and 6% for the first six months of 1999, due to slow
economic activity across the entire region. In Japan, sales volume declined 17%
for the second quarter and 7% for the first half of 1999 as a result of the
lingering effects of the sluggish Japanese economy. Favorable currency exchange
rates in both Europe and Japan partially offset volume declines.
Worldwide volume gains were driven by strong sales of electronics and
ultra-violet curing equipment, with a combined sales volume that increased 15%
for the second quarter and 14% for the first half over last year. Sales of
non-woven equipment increased 39% for the second quarter and 53% for the first
half, primarily due to the addition of J&M Laboratories, Inc. to this line of
business. On a year-to-date basis shipments of adhesive dispensing systems for
packaging and product assembly remained relatively constant when compared to the
prior year.
Sales to international customers for the first half of 1999 comprised
approximately 56% of total sales, compared to 59% from the comparable period of
1998. Translating international sales at generally lower average exchange rates,
as compared to the same periods of 1998, increased reported sales by $2,200,000
for the second quarter and $3,500,000 for the year-to-date.
OPERATING PROFIT
In the second quarter of 1998 the Company recorded a non-recurring pre-tax
charge of $15.7 million, $6.0 million of which was included in cost of sales and
the remainder recorded below selling and administrative expenses. Comparisons of
1999 to 1998 results noted below exclude the effect of this non-recurring
charge.
Operating profit, as a percentage of sales, increased to 12.0% for the second
quarter of 1999 from 10.7% for the comparable period of 1998. Year-to-date
operating profit increased to 10.0% of sales for 1999 from 8.7% for the same
period of 1998.
The gross margin rate increased for the second quarter from 54.7% in 1998 to
55.4% in 1999 and decreased for the first half of the year from 55.5% in 1998 to
54.6% in 1999. Influencing factors behind the higher gross margin in the second
quarter of 1999 were favorable currency effects combined with the mix of
products sold in both Europe and Japan.
Selling and administrative expenses for the second quarter and the first six
months of 1999 increased 2.8% and 3.2%, respectively, over the comparable
periods in 1998. The increases were the result of recent acquisitions, combined
with the currency effect of a weaker dollar over the comparable period of 1998.
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NET INCOME
Net income, as a percentage of sales, increased in the second quarter from 6.5%
in 1998 to 7.5% in 1999 and increased in the first half of the year from 5.2% in
1998 to 6.0% in 1999, due to the factors discussed above.
For 1999 and 1998, diluted earnings per share were $.77 and $.65, respectively,
for the second quarter and $1.19 and $.95, respectively, for the year-to-date.
FOREIGN CURRENCY EFFECTS
In the aggregate, average exchange rates for the second quarter and the first
half of 1999 used to translate international sales and operating results into
U.S. dollars compared favorably with average exchange rates during the
comparable 1998 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 structures in
each country in which the Company operates. However, if transactions for the
second quarter of 1999 were translated at exchange rates in effect during 1998,
sales would have been approximately $2,200,000 lower while third-party costs and
expenses would have been $800,000 lower. If transactions for year-to-date 1999
were translated at exchange rates in effect during 1998, sales would have been
approximately $3,500,000 lower and third-party costs and expenses would have
been $1,500,000 lower.
FINANCIAL CONDITION
During the first half of 1999, net assets decreased $3,082,000. This decrease
is primarily attributable to net repurchases of Nordson stock amounting to
$13,150,000, the payment of $7,995,000 in dividends, and a reduction of
$2,061,000 from translating foreign net assets at the end of the second quarter
when the U.S. dollar was generally stronger against other currencies than at the
prior year end, offset by earnings of $20,008,000.
Working capital, as of the end of the second quarter of 1999, decreased
$20,328,000 over the prior year-end. This change consisted primarily of
increases in inventories and notes payable and decreases in accounts receivable.
Receivables decreased from the collection of year-end receivables arising from
strong sales in the fourth quarter of 1998, inventories increased in
anticipation of demand for Nordson products and notes payable increased from net
borrowings to fund acquisitions and the implementation of an enterprise
management system. All balances reflect the effects of translating amounts
denominated in generally stronger foreign currencies into U.S. dollars.
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Cash and cash equivalents increased $10,303,000 during the first half of 1999.
Sources of cash included $47,364,000 from operations and $26,025,000 of net
proceeds from notes payable. Uses for cash included repurchases of treasury
shares, outlays for capital expenditures, the acquisition of two businesses and
the payment of dividends. Available lines of credit continue to be more than
adequate to meet cash requirements for operations over the next year.
Intangible assets increased $14,310,000 over the prior year end, mainly as a
result of the cost of business acquisitions being in excess of the net assets
acquired. Net property, plant and equipment increased $10,449,000 primarily due
to the capitalization of costs associated with the implementation of an
enterprise management system.
OUTLOOK
Nordson's continued emphasis on improving business processes is clearly
evidenced by a 23 percent growth in first-half operating profits over the prior
year. Although significant progress has been made to date, Nordson remains
focused on further sharpening operating efficiencies in the face of a
challenging international business environment, particularly in Europe and
Japan.
Nordson is currently in the process of implementing an enterprise management
system. Management expects that this system will improve the Company's
competitiveness in the future business environment by providing common
streamlined processes which will produce more timely information on Nordson
products, customers and market segments, reduce manufacturing times, lower
purchasing costs and improve inventory turnover. The estimated date of
completion for the implementation of this enterprise management system is
anticipated for the second quarter of fiscal year 2000.
THE EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the euro. The Company has recognized the need to ensure that its operations
will not be adversely impacted by the introduction of this new currency. Nordson
has determined that its information systems are capable of processing
transactions denominated in the euro. Nordson does not expect the euro
conversion to have a material effect on the Company's financial condition and
results of operations.
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YEAR 2000 READINESS DISCLOSURE
Many computerized systems use only two digits, rather than four, to record the
year in a date field. These systems may recognize the year 2000 as the year 1900
or some other date, causing systems to process incorrect data or simply shut
down. Nordson is addressing this issue for its information systems, equipment
(with embedded microprocessors), facilities, products, suppliers and vendors.
Nordson's plan to resolve the Year 2000 issue involves the following four
phases: assessment, remediation, testing and implementation.
The assessment phase was completed as of the end of fiscal year 1998. The
results of assessment indicated that most of the Company's significant
information systems could be affected, including order-entry, manufacturing,
distribution, invoicing and collection systems.
The assessment phase also revealed that equipment and facilities used in
operations are at risk. Based on a review of its product lines, Nordson has
determined that only a few of the products it has sold and will continue to sell
will require remediation to be Year 2000 ready. Efforts and costs associated
with the remediation of these products are immaterial and will be addressed on
an individual basis prior to the end of 1999. The Company has also gathered
information regarding the Year 2000 readiness status of its major suppliers and
customers and continues to monitor their readiness.
Nordson has completed the remediation, testing and implementation phases of its
Year 2000 readiness program for internal, mission-critical, information
technology systems. Remediation of externally-purchased, payroll software was
completed in April 1999. The completion date for testing and implementation of
this software is anticipated for June 1999.
Remediation of Nordson's operating equipment has been completed for its
telecommunications equipment and is 70 percent complete for other operating
equipment, mainly the internal, local-area computer networks and computer
workstations. The Company expects that remaining operating equipment will be
remediated by June 1999. The anticipated completion date for testing and
implementation of remaining operating equipment is October 1999.
Nordson has made inquiries of 95 percent of its major suppliers as to the status
of their Year 2000 readiness and has begun to conduct site visits of the
largest ones. To date, 33 percent of these suppliers indicated that they have no
issues regarding Year 2000 readiness, 45 percent responded that they are in the
process of completing their Year 2000 readiness program and 22 percent have not
responded to the Company's inquiry. Nordson is not aware of any third parties
with a Year 2000 issue that would materially impact the Company's results of
operations, liquidity or capital. However, the Company has no means of ensuring
that third parties doing business with Nordson will be Year 2000 ready.
Nordson will utilize both internal and external resources to reprogram or
replace, test and implement the software and operating equipment for Year 2000
readiness. The total cost of the Company's Year 2000 readiness program is
estimated at $6.0 million and is being funded through operating cash flows.
Remaining readiness program costs are approximately $2.0 million of which $.6
million will be expensed, mainly for contracted labor costs, and the balance of
$1.4 million capitalized for the purchases of Year 2000-ready personal computers
and workstations.
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Nordson believes that the steps referred to above will minimize its business
risk related to the Year 2000. In the event that the Company makes no further
progress on its Year 2000 readiness program, the Company would experience a
minor lapse in customer service. The Company continues to maintain contingency
plans for critical applications that include manual workarounds and staffing
adjustments although Year 2000 readiness has been completed for all internal,
mission-critical applications. 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.
SAFE HARBOR STATEMENTS
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The statements in the paragraphs titled "Outlook", "The Euro Conversion" 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 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 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 Company's new enterprise management system.
In the case of Year 2000 readiness issues, factors that could cause the
Company's actual results to differ materially from the expected results are: the
availability and retention of internal and external resources dedicated to the
Company's Year 2000 readiness program, delayed or unsuccessful completion of
planned activities of the Company, and delayed, unsuccessful or incompatible
Year 2000 conversions by third parties of their products or systems on which the
Company relies.
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Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Annual Meeting of Shareholders of Nordson Corporation was held on March 11,
1999 for the purpose of electing four directors.
All of management's nominees for directors, as listed in the proxy statement,
were elected by the following votes:
Dr. Glenn R. Brown: For 15,177,133
Withheld 152,615
Dr. Anne O. Krueger: For 15,176,882
Withheld 152,866
Eric T. Nord: For 15,279,103
Withheld 50,645
Benedict P. Rosen: For 15,167,497
Withheld 162,251
In addition to the above directors, the following directors' terms of office
continued after the meeting: Edward P. Campbell, William W. Colville, William D.
Ginn, Stephen R. Hardis, William P. Madar, Evan W. Nord and William L. Robinson.
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 May
2, 1999.
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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: June 11, 1999 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
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Exhibit 27 Financial Data Schedule 17
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