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 February 1, 1998
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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
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Commission file no. 0-7977
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NORDSON CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-0590250
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(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
28601 Clemens Road, Westlake, Ohio 44145
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (440) 892-1580
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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 February 1, 1998: 16,703,440
1
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NORDSON CORPORATION
INDEX
Part I - Financial Information Page Number
-----------
Condensed Consolidated Statement of Income -
Thirteen Weeks Ended February 1, 1998 and
February 2, 1997 3
Condensed Consolidated Balance Sheet -
February 1, 1998 and November 2, 1997 4
Condensed Consolidated Statement of Cash
Flows - Thirteen Weeks Ended February 1, 1998
and February 2, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 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)
Thirteen Weeks Ended
February 1, 1998 February 2, 1997
---------------- ----------------
<S> <C> <C>
Sales $139,226 $137,261
Cost of sales 60,609 55,461
Selling & administrative expenses 69,731 66,230
------- -------
Operating profit 8,886 15,570
Other income (expense):
Interest expense (2,291) (1,918)
Interest and investment income 115 215
Other - net 895 236
------- -------
Income before income taxes 7,605 14,103
Income taxes 2,586 4,866
------- -------
Net income $ 5,019 $ 9,237
======= =======
Shares used in computing
per share amounts:
Basic 16,749 17,518
======= =======
Diluted 16,890 17,870
======= =======
Earnings per share:
Basic $ .30 $ .53
======= =======
Diluted $ .30 $ .52
======= =======
Dividends per share $ .22 $ .20
======= =======
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
<CAPTION>
NORDSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
February 1, 1998 November 2, 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,109 $ 1,517
Marketable securities 30 200
Receivables 146,880 163,692
Inventories 130,652 122,084
Deferred income taxes 24,382 23,263
Prepaid expenses 6,641 8,059
-------- --------
Total current assets 312,694 318,815
Property, plant and equipment 212,128 210,129
Less accumulated depreciation and
amortization of property, plant
and equipment (111,520) (108,462)
Intangible assets - net 59,922 60,378
Other assets 21,367 22,136
-------- --------
$494,591 $502,996
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 91,118 $ 74,500
Accounts payable 27,454 37,699
Current portion of long-term debt 6,116 6,175
Other current liabilities 56,622 61,289
-------- --------
Total current liabilities 181,310 179,663
Long-term debt 66,036 66,502
Other liabilities 35,656 36,286
Shareholders' equity:
Common shares 12,253 12,253
Capital in excess of stated value 76,606 75,899
Cumulative translation adjustments (3,490) (977)
Retained earnings 418,921 417,589
Common shares in treasury, at cost (292,249) (283,816)
Deferred stock-based compensation (452) (403)
-------- --------
Total shareholders' equity 211,589 220,545
-------- --------
$494,591 $502,996
======== ========
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
<CAPTION>
NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Thirteen Weeks Ended
February 1, 1998 February 2, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,019 $ 9,237
Changes in operating assets
and liabilities (9,148) (15,230)
Other - net 6,906 4,722
------- -------
2,777 (1,271)
Cash flows from investing activities:
Additions to property, plant
and equipment (4,127) (3,509)
Acquisition of new business (504) -
Proceeds from sale of marketable
securities 170 100
------- -------
(4,461) (3,409)
Cash flows from financing activities:
Net proceeds from notes payable 17,713 17,695
Payment of long-term debt (1,020) (1,123)
Issuance of common shares 62 1,529
Purchase of treasury shares (7,917) (14,066)
Dividends paid (3,687) (3,500)
------- -------
5,151 535
Effect of exchange rate changes (875) (328)
------- -------
Increase (decrease) in cash 2,592 (4,473)
Cash and cash equivalents
Beginning of fiscal year 1,517 9,221
------- -------
End of period $ 4,109 $ 4,748
======= =======
<FN>
See accompanying notes.
</TABLE>
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NORDSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 1, 1998
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 thirteen week period ended February 1, 1998 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 2, 1997.
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.
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 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):
February 1, 1998 November 2, 1997
---------------- ----------------
Finished goods $ 52,564 $ 51,639
Work-in-process 16,320 12,056
Raw materials and
finished parts 61,768 58,389
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$130,652 $122,084
======== ========
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4. ACCOUNTING CHANGES. In the first quarter of 1998, the Company adopted
Financial Accounting Standards Board Statement No. 128, "Earnings per
Share." Statement 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where necessary,
restated to conform to the Statement 128 requirements.
5. EARNINGS PER SHARE. The following table sets forth the computation of
basic and diluted earnings per share:
Thirteen Weeks Ended
February 1, 1998 February 2, 1997
---------------- ----------------
Numerator - net income $ 5,019 $ 9,237
======= =======
Denominator for basic EPS -
weighted-average common shares
outstanding 16,749 17,518
Incremental common shares
attributable to outstanding
stock options, nonvested
stock, and deferred stock-
based compensation 141 352
------- -------
Denominator for diluted EPS 16,890 17,870
======= =======
Basic earnings per share $ .30 $ .53
====== ======
Diluted earnings per share $ .30 $ .52
====== ======
6. ACQUISITIONS. In October, 1997, Nordson acquired a provider of
ultraviolet curing equipment to the container industry. The acquisition
of its U.S. operations was recorded in the fourth quarter of 1997; the
acquisition of its U.K. operations was recorded in the first quarter of
1998.
7. SUBSEQUENT EVENT. On February 25, 1998, Nordson announced a company-
wide program to reduce operating expense growth. The program includes
offers of early retirement with enhanced benefits to employees at some
U.S. locations. As a result of this program, there will be a one-time
charge in the second quarter of 1998.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is Management's discussion and analysis of certain significant
factors affecting the Company's results of operations and financial condition
for the periods included in the accompanying condensed consolidated financial
statements.
RESULTS OF OPERATIONS
SALES
- -----
Worldwide sales for the first quarter of 1998 were $139.2 million, a 1%
increase over sales of $137.3 million for the first quarter of 1997. Local
volume gains and price increases accounted for a 7% increase in sales, while
the effects of unfavorable currency translations reduced reported sales by
6%.
Compared with the first quarter of 1997, the pace of business activity in
Europe accelerated substantially, with sales volume up 23% across all markets
served. Sales volume in North America increased 8%, led by strong sales of
powder coating and ultraviolet curing systems as well as automated fluid
dispensing equipment to the electronics industry. Offsetting this growth in
Europe and North America was a significant sales volume drop in Japan and the
Asian markets, with unfavorable currency effects further reducing reported
revenues. In Japan, sales volume was down 16% due to decreased demand from
both local customers as well as customers who export goods to other Asian
markets. In our Pacific South division, which spans the Pacific Rim, South
Asia and Latin America, sales volume was down 19%. The sales activity in
this division reflects a wide performance range, with weakness in Asia offset
by strong performance in Latin America. Price increases averaging 2% were
implemented on orders taken after the beginning of the year on standardized
small systems and parts.
Sales to international customers for the first quarter of 1998 comprised 62%
of total sales. Translating international sales at generally higher average
exchange rates as compared to the same period in the prior year decreased
reported sales by $8.1 million for the quarter.
OPERATING PROFIT
- ----------------
Operating profit, as a percentage of sales, decreased to 6.4% for the first
quarter of 1998 from 11.3% for the first quarter of 1997. Gross margins,
expressed as a percentage of sales, were 56.5%, compared with 59.6% a year
ago. The decrease in margins is traced to the unfavorable currency effects,
combined with the mix of products sold in both North America and Europe.
Selling and administrative expenses increased 5.3% over the first quarter of
1997. The increase in expenses was influenced by a $1.4 million credit
recognized in the first quarter of 1997 from a reduction in the Company's
estimated obligation to its Employee Stock Ownership Plan. Excluding this
item, spending increased 3.2%.
8
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NET INCOME
- ----------
Net income, as a percentage of sales, decreased from 6.7% in the first
quarter of 1997 to 3.6% in the first quarter of 1998, due to the factors
discussed above.
In the first quarter of 1998, the Company adopted Financial Accounting
Standards Board Statement No. 128, "Earnings per Share." Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic and diluted earnings per
share were $.30 and $.30, respectively, for the first quarter of 1998 and
$.53 and $.52, respectively, for the first quarter of 1997.
FOREIGN CURRENCY EFFECTS
- ------------------------
In the aggregate, average exchange rates for first quarter 1998 used to
translate international sales and operating results into U.S. dollars
compared unfavorably with average exchange rates which existed during the
comparable 1997 period. 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, the
Company estimates that first quarter sales would have been approximately
$8,100,000 higher and third-party costs would have been $5,200,000 higher if
exchange rates for 1997 had been in effect during 1998.
FINANCIAL CONDITION
During the first quarter of 1998, net assets decreased $8,956,000. This
decrease is primarily attributable to net repurchases of Nordson stock
amounting to $7,855,000, the payment of $3,687,000 in dividends, and a
reduction of $2,513,000 from translating foreign net assets at the end of the
first quarter when the U.S. dollar was generally stronger against other
currencies than at the prior year end, offset by earnings of $5,019,000.
Working capital decreased $7,768,000 during the quarter. This change
consisted primarily of decreases in receivables and increases in notes
payable, offset by increases in inventories and decreases in accounts payable
and other current liabilities. All balances reflect decreases from the
effects of translating amounts denominated in generally weaker foreign
currencies into U.S. dollars. In addition, receivables decreased from the
collection of year-end receivables arising from strong sales in the fourth
quarter of 1997, notes payable increased from net borrowings, inventories
increased in anticipation of demand for Nordson products, accounts payable
decreased from the repayment of additional purchases at year-end, and other
current liabilities decreased due to the payment of fiscal 1997 bonuses and
other employee benefits.
Cash and cash equivalents increased $2,592,000 during the quarter. Cash
provided by the net proceeds from notes payable was $17,713,000. 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
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OUTLOOK
Based on information available through the third week of February, order
trends in our North American and European divisions are similar to those in
the first quarter. In the Pacific South and Japan, there is slight
improvement, but it is still too early to characterize this as a collective
trend. In the second quarter, worldwide volume growth over the previous year
is expected to be in the range of 10% to 12%. Gross margins, expressed as a
percentage of sales, should be close to first quarter levels with the mix of
products sold and currency effects continuing to be the major factors
influencing the actual margin rate. The growth rate of selling and
administrative expenses in the second quarter over the comparable period in
the prior year should be lower than the sales growth rate.
On February 25, 1998, Nordson announced a company-wide program to reduce
operating expense growth. Discretionary spending that is not critical to
improvement, innovation and growth plans will be eliminated. An early
retirement program is being offered to employees at some U.S. locations.
Further staff reductions will be made across Nordson's worldwide operations
by the end of the fiscal year, with the level of participation in the early
retirement program influencing the scope of further reductions. This program
will result in a one-time charge in the second quarter. We are also re-
evaluating the valuation of inventories and certain long-lived assets. The
outlook for gross margins and spending excludes the effect of any one-time
charges.
Based on currency exchange rates through the third week of February, currency
effects should continue to have negative effect on reported sales. Currency
rates are expected to reduce the second quarter's reported sales by
approximately $6 million.
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The statements under the heading "Outlook" 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, 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
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Part II - Other Information
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
February 1, 1998.
11
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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: March 17, 1998 Nordson Corporation
/s/ Nicholas D. Pellecchia
--------------------------
Nicholas D. Pellecchia
Vice President, Finance
and Controller
(Principal Financial Officer
and Chief Accounting
Officer)
12
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NORDSON CORPORATION
EXHIBIT INDEX
Page Number
Exhibit 27 Financial Data Schedule 14
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-END> FEB-01-1998
<CASH> 4,109
<SECURITIES> 30
<RECEIVABLES> 143,769
<ALLOWANCES> 2,897
<INVENTORY> 130,652
<CURRENT-ASSETS> 312,694
<PP&E> 212,128
<DEPRECIATION> 111,520
<TOTAL-ASSETS> 494,591
<CURRENT-LIABILITIES> 181,310
<BONDS> 0
0
0
<COMMON> 12,253
<OTHER-SE> 199,336
<TOTAL-LIABILITY-AND-EQUITY> 494,591
<SALES> 139,226
<TOTAL-REVENUES> 139,226
<CGS> 60,609
<TOTAL-COSTS> 60,609
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 233
<INTEREST-EXPENSE> 2,291
<INCOME-PRETAX> 7,605
<INCOME-TAX> 2,586
<INCOME-CONTINUING> 5,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,019
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
