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 3, 1998
------------------------
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
-------------
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 MAY 3, 1998: 16,423,879
Page 1
<PAGE>
NORDSON CORPORATION
INDEX
Part I - Financial Information Page Number
Condensed Consolidated Statement of Income -
Thirteen and Twenty-Six Weeks ended May 3, 1998
and May 4, 1997 3
Condensed Consolidated Balance Sheet -
May 3, 1998 and November 2, 1997 4
Condensed Consolidated Statement of Cash
Flows - Twenty-Six Weeks ended May 3, 1998
and May 4, 1997 5
Notes to Condensed Consolidated Financial
Statements 6-7
Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-11
Part II - Other Information
Item 4, Submission of Matters to a Vote
of Security Holders 12-13
Item 6, Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
2
<PAGE>
<TABLE>
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 3, 1998 May 4, 1997 May 3, 1998 May 4, 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Sales $167,814 $156,144 $307,040 $293,405
Cost of sales 81,930 68,336 142,539 123,797
Selling &
administrative
expenses 73,860 73,350 143,591 139,580
Asset impairment,
retirement and
severance costs 9,718 -- 9,718 --
-------- -------- -------- --------
Operating profit 2,306 14,458 11,192 30,028
Other income (expense):
Interest expense (2,274) (2,094) (4,565) (4,012)
Interest and
investment income 106 156 221 371
Other - net 689 1,083 1,584 1,319
-------- -------- -------- --------
Income before income
taxes 827 13,603 8,432 27,706
Income taxes 281 4,693 2,867 9,559
-------- -------- -------- --------
Net income $ 546 $ 8,910 $ 5,565 $ 18,147
======== ======== ======== ========
Shares used in computing
per share amounts:
Basic 16,525 17,388 16,637 17,453
======== ======== ======== ========
Diluted 16,649 17,660 16,769 17,765
======== ======== ======== ========
Earnings per share:
Basic $ .03 $ .51 $ .33 $ 1.04
======== ======== ======== ========
Diluted $ .03 $ .50 $ .33 $ 1.02
======== ======== ======== ========
Dividends per
common share $ .22 $ .20 $ .44 $ .40
======== ======== ======== ========
<FN>
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
NORDSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
May 3, 1998 November 2, 1997
------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,473 $ 1,517
Marketable securities 30 200
Receivables 149,496 163,692
Inventories 126,261 122,084
Deferred income taxes 29,157 23,263
Prepaid expenses 4,900 8,059
-------- --------
Total current assets 314,317 318,815
Property, plant and equipment 213,975 210,129
Less accumulated depreciation and
amortization of property, plant
and equipment (115,658) (108,462)
Intangible assets - net 59,126 60,378
Other assets 21,801 22,136
-------- --------
$493,561 $502,996
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 91,545 $ 74,500
Accounts payable 29,866 37,699
Current portion of long-term debt 5,617 6,175
Other current liabilities 64,677 61,289
-------- --------
Total current liabilities 191,705 179,663
Long-term debt 65,380 66,502
Other liabilities 43,210 36,286
Shareholders' equity:
Common shares 12,253 12,253
Capital in excess of stated value 77,007 75,899
Cumulative translation adjustments (4,107) (977)
Retained earnings 415,815 417,589
Common shares in treasury, at cost (307,332) (283,816)
Deferred stock-based compensation (370) (403)
-------- --------
Total shareholders' equity 193,266 220,545
-------- --------
$493,561 $502,996
======== ========
<FN>
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Twenty-Six Weeks Ended
May 3, 1998 May 4, 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,565 $18,147
Non-recurring charge 15,670 --
Changes in operating assets
and liabilities (8,965) (8,317)
Other - net 13,218 14,987
------- -------
25,488 24,817
Cash flows from investing activities:
Additions to property, plant
and equipment (7,326) (7,676)
Proceeds from sale of property,
plant and equipment -- 57
Acquisition of new businesses (504) --
Proceeds from sale of marketable
securities 170 100
------- -------
(7,660) (7,519)
Cash flows from financing activities:
Net proceeds from notes payable 19,080 17,378
Payment of long-term debt (3,417) (3,571)
Issuance of common shares 308 2,569
Purchase of treasury shares (22,840) (28,097)
Dividends paid (7,339) (6,979)
------- -------
(14,208) (18,700)
Effect of exchange rate changes (664) (846)
------- -------
Increase (decrease) in cash 2,956 (2,248)
Cash and cash equivalents
Beginning of fiscal year 1,517 9,221
------- -------
End of period $ 4,473 $ 6,973
======= =======
<FN>
See accompanying notes.
</TABLE>
5
<PAGE>
NORDSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 3, 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 twenty-six week period ended May 3, 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 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):
May 3, 1998 November 2, 1997
-------------- ----------------
Finished goods $ 50,553 $51,639
Work-in-process 17,199 12,056
Raw materials and
finished parts 58,509 58,389
-------- -------
$126,261 $122,084
======== ========
6
<PAGE>
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 (dollars and shares in thousands except
for per share amounts):
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
May 3, 1998 May 4, 1997 May 3, 1998 May 4, 1997
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Numerator -
net income $ 546 $ 8,910 $ 5,565 $18,147
======= ======= ======= =======
Denominator for basic
EPS - weighted-
average common shares
outstanding 16,525 17,388 16,637 17,453
Incremental common
shares attributable
to outstanding stock
options, nonvested
stock, and deferred
stock-based
compensation 124 272 132 312
------- ------ ------- -------
Denominator for
diluted EPS 16,649 17,660 16,769 17,765
======= ======= ======= =======
Basic earnings per
share $ .03 $ .51 $ .33 $ 1.04
======= ======== ======= =======
Diluted earnings per
share $ .03 $ .50 $ .33 $ 1.02
======= ======== ======= =======
</TABLE>
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. ONE-TIME CHARGE. In the second quarter of fiscal 1998, Nordson recognized
a one-time pre-tax charge of $15,670,000. This charge includes $5,952,000
related to inventory valuations and charged to cost of sales. The balance
relates to an early retirement program, involuntary severances and fixed asset
write-downs, and is reported below selling and administrative expenses. The
one-time charge on an after-tax basis was $10,342,000 or $.62 per share.
7
<PAGE>
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
Sales for the second quarter and year-to-date 1998 increased 7% and 5%,
respectively, over the comparable 1997 periods. Local volume gains and price
increases accounted for increased sales of 11% for the quarter and 10% for the
year-to-date, while the effects of unfavorable currency translations reduced
reported sales by 4% and 5%, respectively. 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 was driven by continued strong sales volume
growth in Europe and solid performance in several North American businesses.
Compared with 1997, activity in Europe remained strong, with sales volume up
23% for the quarter and 22% for the first half across all business and
geographic markets. Sales volume in North America increased 11% for the
quarter and 10% for the year-to-date, led by strong sales of powder coating
and ultraviolet curing systems as well as automated fluid dispensing equipment
to the electronics industry.
Offsetting growth in Europe and North America was a sales volume decline in
Japan and the Asian markets, with unfavorable currency effects further
reducing reported revenues. However, the decline in the second quarter was
not as steep as that of the first quarter. Compared with 1997, sales volume
in Japan was down 6% for the second quarter and 11% for the first half, due to
the lingering effects of Japan's sluggish economy. In the Pacific South
division, which spans the Pacific Rim, South Asia and Latin America, sales
volume was down 3% for the second quarter and 10% year-to-date. Weaknesses in
Asia were partially offset by strong performance in Latin America and
Australia.
Sales to international customers for the first half of 1998 comprised
approximately 59% of total sales. Translating international sales at
generally higher average exchange rates, as compared to the same periods in
the prior year, decreased reported sales by $6,600,000 for the second quarter
and $14,700,000 for the year-to-date.
8
<PAGE>
OPERATING PROFIT
For the second quarter of fiscal 1998, Nordson recognized a one-time pre-tax
charge of $15.7 million. The charge includes $8.3 million for costs
associated with an early retirement program and other staff reductions
implemented during the quarter. The balance of this charge relates to asset
write-downs, primarily inventory and fixed assets. The amount related to
inventories has been charged to cost of sales.
Excluding the one-time charge, operating profit, as a percentage of sales,
increased to 10.7% for the second quarter of 1998 from 9.3% for the second
quarter of 1997. Year-to-date operating profit declined to 8.7% of sales for
1998 from 10.2% for the same period of 1997.
The gross margin rate, before the one-time charge, decreased for the second
quarter from 56.2% in 1997 to 54.7% in 1998 and for the first half from 57.8%
in 1997 to 55.5% in 1998. The influencing factors behind the lower margin
were the unfavorable currency effects, combined with the mix of products sold
in both North America and Europe.
Selling and administrative expenses for the second quarter and first half of
1998 increased .7% and 2.9%, respectively, over the comparable periods in
1997. The increase in first half 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, first half spending increased 1.9%.
NET INCOME
Excluding the one-time charge, net income, as a percentage of sales, increased
in the second quarter from 5.7% in 1997 to 6.5% in 1998 and decreased in the
first half from 6.2% in 1997 to 5.2% in 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. For 1998 and 1997, diluted
earnings per share were $.03 and $.50, respectively, for the second quarter
and $.33 and $1.02, respectively, for the first half. The one-time charge on
an after-tax basis was $10.3 million or $.62 per share on a diluted basis.
Diluted earnings per share, before the one-time charge, were $.65 for the
quarter and $.95 for the year-to-date period.
9
<PAGE>
FOREIGN CURRENCY EFFECTS
In the aggregate, average exchange rates for second quarter and year-to-date
1998 used to translate international sales and operating results into U.S.
dollars compared unfavorably with average exchange rates during the comparable
1997 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 1998 were translated at exchange rates in effect during 1997,
sales would have been approximately $6,600,000 higher while third-party costs
and expenses would have been $3,700,000 higher. If transactions for
year-to-date 1998 were translated at exchange rates in effect during 1997,
sales would have been approximately $14,700,000 higher and third-party costs
and expenses $8,900,000 higher.
FINANCIAL CONDITION
During the first half of 1998, net assets decreased $27,279,000. This
decrease is primarily attributable to net repurchases of Nordson stock
amounting to $22,532,000, the payment of $7,339,000 in dividends, and a
reduction of $3,130,000 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 $5,565,000.
Working capital, as of the end of the quarter, decreased $16,540,000 over the
prior year-end. This change consisted primarily of decreases in accounts
receivable and increases in notes payable. 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, and notes payable increased from net borrowings.
Cash and cash equivalents increased $2,956,000 during the first half of 1998.
Sources of cash included $25,488,000 from operations and $19,080,000 in net
proceeds from notes payable. 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 cash requirements for
operations over the next year.
Other liabilities increased $6,924,000 from the prior year-end, primarily from
pension and other postretirement plan accruals, related to the early
retirement program, which will be paid over an extended number of years and
will not materially effect any individual year.
OUTLOOK
Although we are encouraged by our second quarter sales performance, we are
still facing a challenging international business environment and will
continue to look for ways to improve the efficiency and effectiveness of our
operations. The steps we have taken have positioned us to weather these
difficult conditions while enabling us to invest in those critical areas that
will provide for Nordson's growth.
10
<PAGE>
SAFE HARBOR STATEMENT
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.
11
<PAGE>
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
12, 1998 for the purpose of electing three directors, and approving amendments
to the Nordson Corporation Regulations.
All of management's nominees for directors, as listed in the proxy statement,
were elected by the following votes:
William D. Ginn: For 14,324,315
Withheld 429,292
Stephen R. Hardis: For 14,534,614
Withheld 218,993
William L. Robinson: For 14,531,963
Withheld 221,644
In addition to the above directors, the following directors' terms of office
continued after the meeting: Dr. Glenn R. Brown, Edward P. Campbell, William
W. Colville, Dr. Anne O. Krueger, William P. Madar, Eric T. Nord and Evan W.
Nord.
The Amendment to Nordson Corporation's Regulations to increase shareholder
vote required to call a special meeting of shareholders was approved:
For: 11,171,703
Against: 2,578,679
Abstain: 393,480
Non Vote: 609,745
The Amendment to Nordson Corporation's Regulations to increase shareholder
vote required to change the number of directors, and to give the Board of
Directors unlimited discretion in changing the number of directors was
approved:
For: 11,099,224
Against: 2,626,898
Abstain: 417,740
Non Vote: 609,745
The Amendment to Nordson Corporation's Regulations to establish procedures for
the proposal of business at a shareholders meeting and to increase the notice
period for the nomination of directors was approved:
For: 11,551,457
Against: 2,188,229
Abstain: 421,587
Non Vote: 592,334
12
<PAGE>
The Amendment to Nordson Corporation's Regulations to obligate the Company to
advance legal fees to directors and officers in connection with an action for
which indemnification is required was approved:
For: 13,882,485
Against: 555,916
Abstain: 315,206
The Amendment to Nordson Corporation's Regulations to increase the shareholder
vote required to amend certain provisions of the Company's Regulations was
approved:
For: 11,214,075
Against: 2,556,999
Abstain: 372,788
Non Vote: 609,745
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - Exhibit 27 Financial Data Schedules
(b) There were no reports on Form 8-K filed for the quarter ended May 3,
1998.
13
<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: June 15, 1998 Nordson Corporation
/s/ Nicholas D. Pellecchia
---------------------------
Nicholas D. Pellecchia
Vice President, Finance
and Controller
(Principal Financial Officer
and Chief Accounting Officer)
14
<PAGE>
NORDSON CORPORATION
EXHIBIT INDEX
Exhibit 27 Financial Data Schedules
Exhibit 27-a Period Ending May 3, 1998
Exhibit 27-b Period Ending May 4, 1997
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-END> MAY-03-1998
<CASH> 4,473
<SECURITIES> 30
<RECEIVABLES> 146,525
<ALLOWANCES> 2,971
<INVENTORY> 126,261
<CURRENT-ASSETS> 314,317
<PP&E> 213,975
<DEPRECIATION> 115,658
<TOTAL-ASSETS> 493,561
<CURRENT-LIABILITIES> 191,705
<BONDS> 0
0
0
<COMMON> 12,253
<OTHER-SE> 181,013
<TOTAL-LIABILITY-AND-EQUITY> 493,561
<SALES> 307,040
<TOTAL-REVENUES> 307,040
<CGS> 142,539
<TOTAL-COSTS> 142,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 360
<INTEREST-EXPENSE> 4,565
<INCOME-PRETAX> 8,432
<INCOME-TAX> 2,867
<INCOME-CONTINUING> 5,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,565
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-END> MAY-04-1997
<CASH> 6,973
<SECURITIES> 210
<RECEIVABLES> 143,790
<ALLOWANCES> 3,245
<INVENTORY> 125,747
<CURRENT-ASSETS> 304,305
<PP&E> 208,154
<DEPRECIATION> 103,264
<TOTAL-ASSETS> 491,768
<CURRENT-LIABILITIES> 209,049
<BONDS> 0
0
0
<COMMON> 12,253
<OTHER-SE> 213,006
<TOTAL-LIABILITY-AND-EQUITY> 491,768
<SALES> 293,405
<TOTAL-REVENUES> 293,405
<CGS> 123,797
<TOTAL-COSTS> 123,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 365
<INTEREST-EXPENSE> 4,012
<INCOME-PRETAX> 27,706
<INCOME-TAX> 9,559
<INCOME-CONTINUING> 18,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,147
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.02
</TABLE>
