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 August 3, 1997
----------------------
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
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(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: (216) 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 August 3, 1997: 17,118,834
Page 1
<PAGE>
NORDSON CORPORATION
INDEX
Part I - Financial Information Page Number
Condensed Consolidated Statement of Income -
Third Quarter and Three Quarters Ended
August 3, 1997 and August 4, 1996 3
Condensed Consolidated Balance Sheet -
August 3, 1997 and November 3, 1996 4
Condensed Consolidated Statement of Cash
Flows - Three Quarters Ended August 3,
1997 and August 4, 1996 5
Notes to Condensed Consolidated Financial
Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II - Other Information
Item 6, Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit Index 13
2
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<TABLE>
<CAPTION>
Part I - Financial Information
NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars and shares in thousands except for per share amounts)
Third Quarter Ended Three Quarters Ended
August 3, August 4, August 3, August 4,
1997 1996 1997 1996
--------- --------- --------- ---------
<C> <C> <C> <C>
Sale $158,888 $146,699 $452,293 $429,905
Cost of sales 70,087 61,290 193,884 176,676
Selling &
administrative
expenses 70,228 66,708 209,808 198,102
------- ------- ------- -------
Operating profit 18,573 18,701 48,601 55,127
Other income (expense):
Interest expense (1,879) (1,259) (5,891) (3,954)
Interest and
investment income 138 236 509 582
Other - net 1,262 335 2,581 1,658
------- ------- ------- -------
Income before income
taxes 18,094 18,013 45,800 53,413
Income taxes 5,899 6,144 15,458 18,534
-------- ------- ------- -------
Net income $ 12,195 $ 11,869 $ 30,342 $ 34,879
======== ======== ======== ========
Weighted average common
shares and common
share equivalents 17,491 18,227 17,675 18,275
======== ======== ======== ========
Primary earnings
per share $ .70 $ .65 $ 1.72 $ 1.91
======== ======== ======== ========
Dividends per
common share $ .20 $ .18 $ .60 $ .54
======== ======== ======== ========
<FN>
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NORDSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
August 3, 1997 November 3, 1996
--------------- ----------------
<C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,786 $ 9,221
Marketable securities 200 310
Receivables 148,424 159,573
Inventories 129,601 118,388
Deferred income taxes 23,689 23,368
Prepaid expenses 5,538 6,842
-------- --------
Total current assets 316,238 317,702
Property, plant and equipment 209,436 207,080
Less accumulated depreciation and
amortization of property, plant
and equipment (105,191) (100,062)
Intangible assets - net 60,837 65,282
Other assets 20,366 20,491
-------- --------
$501,686 $510,493
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $113,101 $ 97,688
Accounts payable 28,925 35,022
Current portion of long-term debt 5,538 5,152
Other current liabilities 72,924 69,354
-------- --------
Total current liabilities 220,488 207,216
Long-term debt 18,237 20,562
Other liabilities 40,615 37,418
Shareholders' equity:
Common shares 12,253 12,253
Capital in excess of stated value 71,519 63,996
Cumulative translation adjustments 1,437 7,392
Retained earnings 401,355 381,436
Common shares in treasury, at cost (263,762) (219,398)
Deferred stock-based compensation (456) (382)
-------- --------
Total shareholders' equity 222,346 245,297
-------- --------
$501,686 $510,493
======== ========
<FN>
See accompanying notes.
</TABLE>
4
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<TABLE>
<CAPTION>
NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three Quarters Ended
August 3, 1997 August 4,1996
--------------- --------------
<C> <C>
Cash flows from operating activities:
Net income $30,342 $34,879
Changes in operating assets and
liabilities ( 6,805) ( 9,872)
Other - net 22,806 14,798
-------- -------
46,343 39,805
Cash flows from investing activities:
Additions to property, plant
and equipment (11,568) (15,113)
Proceeds from sale of property,
plant and equipment 74 21
Acquisition of new businesses -- (11,693)
Proceeds from sale of marketable
securities 110 915
-------- --------
(11,384) (25,870)
Cash flows from financing activities:
Net proceeds from notes payable 17,550 18,335
Proceeds from long-term debt -- 2,620
Payment of long-term debt (4,637) (4,721)
Issuance of common shares 3,150 2,050
Purchase of treasury shares (40,311) (14,271)
Dividends paid (10,423) (9,675)
------- -------
(34,671) (5,662)
Effect of exchange rate changes on cash (723) (725)
------- -------
(Decrease)/increase in cash (435) 7,548
Cash and cash equivalents
Beginning of fiscal year 9,221 359
------- -------
End of period $ 8,786 $ 7,907
======= =======
<FN>
See accompanying notes.
</TABLE>
5
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NORDSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 3, 1997
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 three quarters ended August 3, 1997 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 3, 1996.
The fiscal year for the Company's domestic operations ends on the
Sunday closest to October 31 and in 1997, 1996 and 1995 contains 52,
53, and 52 weeks, respectively. Each quarter contains 13 weeks,
except the third quarter of 1996 which contains 14 weeks. For
international operations, the Company's fiscal year ends on September
30. Each quarter contains 3 calendar months.
2. USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the amounts
reported in the consolidated financial statements. Actual amounts
could differ from these estimates.
Estimates are reevaluated frequently, and changes in estimates are
recorded throughout the year. During the first quarter of fiscal
1997, an accrual representing the Company's estimated annual
obligation to its Employee Stock Ownership Plan was reduced by $1.4
million to reflect the actual amount contributed.
3. INVENTORIES. Inventories consisted of the following (in thousands of
dollars):
August 3, 1997 November 3, 1996
-------------- ----------------
Finished goods $ 53,267 $ 43,818
Work-in-process 16,811 14,083
Raw materials and
finished parts 59,523 60,487
-------- --------
$129,601 $118,388
======== ========
6
<PAGE>
4. ACCOUNTING CHANGES. In 1997, the Financial Accounting Standards Board
(FASB) issued Statement No. 128, "Earnings Per Share" (FAS 128), which
is effective for financial statements issued for periods ending after
December 15, 1997. FAS 128 establishes new computation and
presentation requirements for earnings per share. The Company must
adopt FAS 128 for fiscal year 1998 and believes the impact on earnings
per share will not be material.
In addition, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" (FAS 130), and Statement No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (FAS 131).
FAS 130 establishes standards for reporting comprehensive income and
FAS 131 requires reporting certain information about operating
segments. These statements, which must be adopted by the Company no
later than fiscal year 1999, are not expected to have a material
effect on the financial statements.
5. SUBSEQUENT EVENT. On August 29, 1997, the Company received
$50,000,000 million under a new long-term debt agreement. This debt
is due in 10 years. Interest, payable at a fixed rate, was converted
to a variable rate through an interest rate swap. Proceeds from this
debt were used to reduce short-term debt.
6. ACCOUNTING POLICIES FOR DERIVATIVE INSTRUMENTS. The Company operates
internationally and enters into transactions denominated in foreign
currencies. As a result, the Company is subject to the transaction
exposures that arise from exchange rate movements between the dates
foreign currency transactions are recorded and the dates they are
consummated. The Company enters into foreign currency forward
contracts to reduce these exposures, and not for trading purposes.
The maturities of these contracts are generally less than one year and
usually less than 90 days. The carrying amounts of these forward
contracts are included in receivables at the differential between the
contract rates and the spot rate. Gains and losses from foreign
currency forward contracts are included in other income/expense.
The Company also enters into interest rate swap agreements to manage
interest rate exposure. There is no carrying value assigned to these
swaps. Net amounts to be paid or received under these agreements are
recognized as an adjustment to interest expense.
7
<PAGE>
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 third quarter and year-to-date 1997 increased 8% and 5%,
respectively, over the comparable period of 1996. Price/volume gains of
13% for the quarter and 9% year-to-date were partially offset by
unfavorable currency effects. In both the third quarter and year-to-date
periods, the Company experienced volume gains in all four of its geographic
regions.
In the third quarter, shipments in North America increased 16% primarily
due to strong sales of automated fluid dispensing equipment. In the
Pacific Rim countries and Latin America, sales volume for the third quarter
increased 22% due to continued growth in Australia and Brazil. Local sales
volume in Japan increased 9% over the third quarter of 1996. Results in
Japan were concentrated in nonwovens sales and packaging and product
assembly system sales. Third quarter European activity was up 9%, driven
by powder sales and packaging and product assembly sales.
For the year-to-date period, sales volume in North America increased 15%
reflecting continuing demand for automated fluid dispensing equipment.
Local volume in the Pacific Rim countries and Latin America was up 14% due
primarily to rising sales in Brazil, Australia, and China. Activity in
Japan increased 3%, driven by electronics, liquid, and packaging and
product assembly sales. Sales in Europe rose 5% due to continued strong
sales of ultraviolet curing equipment, powder systems, and packaging and
product assembly systems.
Sales to international customers for year-to-date 1997 comprised approxi-
mately 60.9% of total sales. Translating international sales at exchange
rates reflecting a generally stronger U.S. dollar as compared to the prior
year had the effect of decreasing sales by 5% for the third quarter and 4%
for the year-to-date period.
OPERATING PROFIT
- ----------------
For the third quarter of 1997, operating profit, as a percentage of sales,
decreased to 11.7% from 12.7% in 1996. Year-to-date operating profit
decreased to 10.7% of sales for 1997 from 12.8% in the same period in 1996.
As a percentage of sales, gross margins decreased for both the third
quarter and year-to-date periods of 1997 as compared to 1996. These
decreases can be attributed to the mix of products sold, as well as
unfavorable currency effects. Selling and administrative expenses for the
third quarter of 1997 and year-to-date increased 5.3% and 5.9%,
respectively, over the comparable periods in the prior year due to higher
sales volumes and continuing programs for product and market expansion.
8
<PAGE>
NET INCOME
- ----------
For the third quarter of 1997, net income, as a percentage of sales,
decreased to 7.7% from 8.1% for the same period of 1996. Year-to-date
income was 6.7% of sales in 1997, compared to 8.1% in 1996. In addition to
the factors impacting operating profit discussed above, year-to-date
interest expense increased $1,937,000 due to higher levels of short-term
borrowing, driven primarily by the funding of two 1996 business
acquisitions and continuing repurchases of Nordson stock. Also, the income
tax rate was lowered in the third quarter of 1997 and 1996 to reflect a
year-to-date effective rate of 33.75% and 34.7%, respectively.
FOREIGN CURRENCY EFFECTS
- ------------------------
In the aggregate, average exchange rates for the third quarter and year-to-
date 1997 used to translate international sales and operating results into
U.S. dollars compared unfavorably with average exchange rates existing
during the comparable 1996 periods. It is not possible to precisely
measure the impact on operating results arising from foreign currency
exchange rate changes, because of changes in selling prices, sales volume,
product mix and cost structure in each country in which the Company
operates. However, if transactions for the third quarter 1997 were
translated at exchange rates in effect during 1996, sales would have been
approximately $7,100,000 higher while third-party costs and expenses would
have been $4,800,000 higher. If transactions for year-to-date 1997 were
translated at exchange rates in effect during 1996, sales would have been
approximately $17,800,000 higher and third-party costs and expenses would
have been $11,900,000 higher.
FINANCIAL CONDITION
During the first three quarters of 1997, net assets decreased $22,951,000.
This decrease is primarily due to net repurchases of Nordson stock
totalling $37,161,000, the payment of $10,423,000 in dividends and a
decrease of $5,955,000 from translating foreign net assets at the end of
the third quarter when the U.S. dollar was stronger against other
currencies than at the prior year end, offset by earnings of $30,342,000.
Working capital, as of the end of the quarter, decreased $14,736,000 over
the prior year-end. This change consisted primarily of decreases in
accounts receivable and increases in notes payable, offset by increases in
inventories and a decrease in accounts payable. All changes include
decreases from the effects of translating into U.S. dollars current amounts
denominated in generally weaker foreign currencies. In addition,
receivables decreased due to lower sales in the third quarter of 1997 as
compared to the fourth quarter of 1996, notes payable increased from net
borrowings, inventories grew in anticipation of increased demand for
Nordson products, and accounts payable decreased from the repayment of
additional purchases at year-end.
Cash and cash equivalents decreased $435,000 during the first three
quarters of 1997. Cash provided from operating activities was $46,343,000
and cash provided by net proceeds from notes payable was $17,550,000. Uses
for cash included purchases of treasury shares, outlays for capital
expenditures, and dividends. Available lines of credit continue to be more
than adequate to meet additional cash requirements over the next year.
9
<PAGE>
OUTLOOK
The pace of Nordson's business activity continued to accelerate during the
third quarter as evidenced by strong local volume growth in all regions.
Our order backlog remains strong, increasing in the third quarter to a new
record level. For the fourth quarter of 1997, worldwide volume growth is
expected to be approximately 11% over a very strong fourth quarter in 1996.
Gross margins, expressed as a percentage of sales, are expected to remain
at recent levels. Fourth quarter selling and administrative expenses
should grow at a lower rate than sales. Currency effects could continue to
have a negative impact on reported sales and overall results. Currency
effects are expected to reduce fourth quarter sales by approximately $12
million.
SAFE HARBOR STATEMENTS
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The statements in the preceding paragraph 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, and significant changes in local business conditions in
geographic regions in which we conduct business.
10
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - Exhibit 11 Calculation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) There were no reports on Form 8-K filed for the
quarter ended August 3, 1997.
11
<PAGE>
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: September 16, 1997 Nordson Corporation
/s/ Nicholas D. Pellecchia
Vice President-Finance
and Controller
(Principal Financial Officer
and Chief Accounting Officer)
12
<PAGE>
NORDSON CORPORATION
EXHIBIT INDEX
Page Number
Exhibit 11 Calculation of Earnings Per Share 14
Exhibit 27 Financial Data Schedule 15
13
<TABLE>
<CAPTION>
Exhibit11
NORDSON CORPORATION
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in thousands except for per share amounts)
Third Quarter Ended Three Quarters Ended
Aug. 3, 1997 Aug. 4, 1996 Aug. 3, 1997 Aug. 4,1996
-------------- ------------- -------------- ------------
<C> <C> <C> <C>
PRIMARY:
Weighted average number
of common shares
outstanding during
the period 17,227 17,903 17,379 17,931
Effect of Company
stock plans based on
the treasury stock
method 264 324 296 344
------- ------- ------- -------
Total weighted average
common shares and
common share
equivalents 17,491 18,227 17,675 18,275
======= ======= ======= =======
Net income $12,195 $11,869 $30,342 $34,879
======= ======= ======= =======
Earnings per share $ .70 $ .65 $ 1.72 $ 1.91
======= ======= ======= =======
FULLY DILUTED:
Weighted average number
of common shares
outstanding during
the period 17,227 17,903 17,379 17,931
Effect of Company
stock plans based on
the treasury stock
method 340 324 345 360
------- ------- ------- -------
Total weighted average
common shares and
common share
equivalents 17,567 18,227 17,724 18,291
======= ======= ======= =======
Net income $12,195 $11,869 $30,342 $34,879
======= ======= ======= =======
Earnings per share $ .69 $ .65 $ 1.71 $ 1.91
======= ======= ======= =======
14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-END> AUG-31-1997
<CASH> 8786
<SECURITIES> 200
<RECEIVABLES> 151885
<ALLOWANCES> 3461
<INVENTORY> 129601
<CURRENT-ASSETS> 316238
<PP&E> 209436
<DEPRECIATION> 105191
<TOTAL-ASSETS> 501686
<CURRENT-LIABILITIES> 220488
<BONDS> 0
0
0
<COMMON> 12253
<OTHER-SE> 210093
<TOTAL-LIABILITY-AND-EQUITY> 501686
<SALES> 452293
<TOTAL-REVENUES> 452293
<CGS> 193884
<TOTAL-COSTS> 193884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 712
<INTEREST-EXPENSE> 5891
<INCOME-PRETAX> 45800
<INCOME-TAX> 15458
<INCOME-CONTINUING> 30342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30342
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.71
</TABLE>
