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 January 31, 1999
--------------------------
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 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: (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 JANUARY 31, 1999: 16,652,035
Page 1
<PAGE>
NORDSON CORPORATION
INDEX
Part I - Financial Information Page Number
Condensed Consolidated Statement of Income -
Thirteen Weeks ended January 31, 1999 and
February 1, 1998 3
Condensed Consolidated Balance Sheet -
January 31, 1999 and November 1, 1998 4
Condensed Consolidated Statement of Cash
Flows - Thirteen Weeks ended
January 31, 1999 and February 1, 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 6, Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
Page 2
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<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
January 31, 1999 February 1, 1998
------------------ ------------------
<S> <C> <C>
Sales $157,053 $139,226
Cost of sales 72,631 60,609
Selling & administrative expenses 72,200 69,731
-------- --------
Operating profit 12,222 8,886
Other income (expense):
Interest expense (2,292) (2,291)
Interest and investment income 206 115
Other - net 445 895
-------- --------
Income before income taxes 10,581 7,605
Income taxes 3,597 2,586
-------- --------
Net income $ 6,984 $ 5,019
======== ========
Common Shares 16,666 16,749
Incremental common shares
attributable to outstanding
stock options, nonvested
stock and deferred stock-based
compensation 156 141
-------- --------
Common shares and
common share equivalents 16,822 16,890
======== ========
Earnings per share:
Basic $ .42 $ .30
Diluted $ .42 $ .30
Dividends per
common share $ .24 $ .22
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
NORDSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
January 31, 1999 November 1, 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,178 $ 6,820
Marketable securities 30 30
Receivables 149,837 165,286
Inventories 128,452 124,352
Deferred income taxes 25,100 24,336
Prepaid expenses 6,441 7,652
-------- --------
Total current assets 321,038 328,476
Property, plant and equipment - net 107,370 101,183
Intangible assets - net 96,253 84,345
Other assets 24,770 24,940
-------- --------
$549,431 $538,944
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $118,656 $ 93,851
Accounts payable 29,579 33,753
Current portion of long-term debt 862 862
Other current liabilities 64,628 78,616
-------- --------
Total current liabilities 213,725 207,082
Long-term debt 71,814 70,444
Other liabilities 47,925 46,643
Shareholders' equity:
Common shares 12,253 12,253
Capital in excess of stated value 94,053 92,030
Accumulated other comprehensive
income (loss) (1,563) (4,792)
Retained earnings 426,862 423,887
Common shares in treasury, at cost (315,341) (308,368)
Deferred stock-based compensation (297) (235)
-------- --------
Total shareholders' equity 215,967 214,775
-------- --------
$549,431 $538,944
======== ========
<FN>
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
NORDSON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Thirteen Weeks Ended
January 31, 1999 February 1, 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,984 $ 5,019
Changes in operating assets and
liabilities (2,456) (9,148)
Other - net 6,960 6,906
------- -------
11,488 2,777
Cash flows from investing activities:
Additions to property, plant
and equipment (8,891) (4,127)
Proceeds from sale of property,
plant and equipment 100 --
Acquisition of new business (14,253) (504)
Proceeds from sale of marketable
securities -- 170
------- -------
(23,044) (4,461)
Cash flows from financing activities:
Net proceeds from notes payable 24,478 17,713
Net proceeds (payment) of
long-term debt 470 (1,020)
Issuance of common shares 2,844 62
Purchase of treasury shares (7,917) (7,917)
Dividends paid (4,008) (3,687)
------- -------
15,867 5,151
Effect of exchange rate changes on cash 47 (875)
------- -------
Increase in cash 4,358 2,592
Cash and cash equivalents
Beginning of fiscal year 6,820 1,517
------- --------
End of period $11,178 $ 4,109
======= =======
<FN>
See accompanying notes.
</TABLE>
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NORDSON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 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 quarter ended January 31, 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):
<TABLE>
January 31, 1999 November 1, 1998
---------------- ----------------
<S> <C> <C>
Finished goods $ 48,123 $ 40,411
Work-in-process 19,955 24,914
Raw materials and
finished parts 60,374 59,027
-------- --------
$128,452 $124,352
======== ========
</TABLE>
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 must adopt FAS 133 for fiscal year 2000. This
statement is not expected to have a material effect on the financial
statements.
5. COMPREHENSIVE INCOME. Comprehensive income for the thirteen weeks ended
January 31, 1999 and February 1, 1998 is as follows:
<TABLE>
Thirteen Weeks Ended
January 31, 1999 February 1, 1998
---------------- ----------------
(in thousands)
<S> <C> <C>
Net income $ 6,984 $ 5,019
Foreign currency translation
adjustments 3,229 (2,513)
------- -------
Comprehensive income $10,213 $ 2,506
======= =======
</TABLE>
Accumulated other comprehensive income (loss), consisting entirely of
accumulated foreign currency translation adjustments as of January 31,
1999 and February 1, 1998 is as follows:
<TABLE>
January 31, 1999 February 1, 1998
---------------- ----------------
<S> <C> <C>
Beginning balance $(4,792) $ (977)
Current-period change 3,229 (2,513)
------- -------
Ending balance $(1,563) $(3,490)
======= =======
</TABLE>
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 January, 1999,
Nordson acquired a manufacturer of gas-plasma technology equipment
located in St. Petersburg, Florida. Assuming the acquisition had taken
place at the beginning of fiscal 1998, pro forma results would not be
materially different.
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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
Worldwide sales for the first quarter of 1999 were $157.1 million, a 12.8%
increase over sales of $139.2 million for the comparable period of 1998.
Price/volume gains increased 11.8% for the first quarter, while the effect
of the weaker dollar on currency translations slightly increased reported
sales by 1.0%.
Sales to international customers for the first quarter of 1999 comprised
approximately 55.9% of total sales, compared with 61.2% for the comparable
period of 1998. Compared with the first quarter of 1998, sales volume in
North America grew 27.6%, primarily due to strong sales in the Company's
electronics and powder-coating businesses, along with a positive contribution
from the fourth-quarter acquisition of J&M Laboratories, Inc. In Europe,
local sales volume declined 5.9 percent, attributable to a softening of
economic activity in this region that was evidenced across all of the
Company's European businesses. Sales volume in Japan increased 6.6 percent,
largely due to shipments deferred by customers from the fourth quarter of
1998. The Pacific South division displayed a sharp increase in sales, with
volume for this division increasing 27.1 percent, resulting from strong
activity in Australia, China and Mexico. Price increases averaging 2% were
implemented on orders taken after the beginning of the year for standardized
small systems and parts.
Worldwide volume gains were driven by strong sales of electronics and
powder-coating equipment, with a combined sales volume that increased 16.6%
over the comparable period of 1998. Sales of non-woven equipment increased
68.2% over the prior year mainly as a result of the addition of J&M
Laboratories, Inc. to this line of business. Liquid and converting equipment
experienced increases over the prior year however shipments of adhesive
dispensing systems for packaging and product assembly remained relatively
constant when compared with the prior year as did shipments of container
and ultra-violet curing equipment.
OPERATING PROFIT
Operating profit, as a percentage of sales, increased to 7.8% for the first
quarter of 1999 from 6.4% for the first quarter of 1998. This rate of
increase reflects the results of efforts to improve the efficiency and
effectiveness of operations undertaken during the second and fourth quarters
of fiscal 1998.
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The gross margin rate decreased for the first quarter from 56.5% in 1998 to
53.8% in 1999. The influencing factors behind the lower margin for the
first quarter were the mix of products sold, along with non-recurring costs
associated with certain new products. Currency effects had a slightly
favorable effect on gross margin.
Selling and administrative expenses, excluding currency effects increased
2.6% over the comparable period in 1998. This rate of increase was well
below the rate of increase in sales volume for the quarter.
NET INCOME
For the first quarter of 1999, net income, as a percentage of sales,
increased to 4.4% from 3.6% for the same period of 1998. Foreign currency
gains decreased 56.9% from the prior year while interest expense remained
relatively constant.
For the first quarter of 1999 and 1998, diluted earnings per share were
$.42 and $.30, respectively.
FOREIGN CURRENCY EFFECTS
In the aggregate, average exchange rates for the first quarter 1999 used
to translate international sales and operating results into U.S. dollars
compared favorably with average exchange rates existing 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
structure in each country in which the Company operates. However, if
transactions for the first quarter 1999 were translated at exchange rates
in effect during 1998, sales would have been approximately $1,331,000 lower
while third-party costs and expenses would have been approximately $1,170,000
lower.
FINANCIAL CONDITION
During the first quarter of 1999, net assets increased $1,192,000. This
marginal increase is primarily due to earnings of $6,984,000 and an increase
of $3,229,000 from translating foreign net assets at the end of the first
quarter when the U.S. dollar was weaker against other currencies than at
the prior year end, offset by net repurchases of Nordson stock totaling
$5,073,000 and the payment of $4,008,000 in dividends.
Working capital, as of the end of the quarter, decreased $14,081,000 over
the prior year-end. This change consisted primarily of increases in
inventories and notes payable, offset by decreases in accounts receivable,
accounts payable and other current liabilities. All changes include slight
increases from the effects of translating into U.S. dollars current amounts
denominated in generally stronger foreign currencies. Receivables decreased
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from the collection of year-end receivables arising from strong sales in
the fourth quarter of 1998 and notes payable increased to fund a variety
of cash needs. Other current liabilities decreased as a result of orders
invoiced during the first quarter of 1999 for customer advance payments
acquired during the fourth quarter of 1998 in addition to the payment of
fiscal 1998 bonuses and other employee benefits. Inventories increased in
anticipation of demand for Nordson products and accounts payable decreased
due to the payment of additional purchases at year-end.
Cash and cash equivalents increased $4,358,000 during the first quarter of
1999. Cash used by operating activities was $23,044,000 and cash provided
by net proceeds from notes payable was $24,478,000. Uses for cash included
purchases of treasury shares, outlays for capital expenditures, dividends
and business acquisitions. Available lines of credit continue to be more
than adequate to meet additional cash requirements over the next year.
Intangible assets increased $11,908,000 mainly as a result of the cost of
business acquisitions being in excess of the net assets acquired. Net
property, plant and equipment increased $6,187,000 primarily due to the
capitalization of costs associated with the implementation of an enterprise
management system.
OUTLOOK
Nordson faces a challenging environment in Europe and although it appears
that the Asian situation has bottomed-out, it is difficult to predict the
rate of recovery in this region. Therefore, operating efficiency improvements
are critical, given this unsettled international economic picture. As
evidenced by a 38 percent growth in first-quarter operating profits over the
prior year, Nordson continues to progress toward the overall goal of improving
its operating efficiency.
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
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
is expected to be completed by 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 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 September 1999.
Nordson has made inquiries 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, 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 $2.4 million of which
$.8 million will be expensed, mainly for contracted labor costs, and the
balance of $1.6 million capitalized for the purchases of Year 2000-ready
personal computers and workstations.
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<PAGE>
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" and "Year 2000" 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, and significant changes
in local business conditions in geographic regions in which the Company
conducts business.
In the case of Year 2000 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 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
January 31, 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: March 16, 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
Exhibit 27 Financial Data Schedule 16
Page 15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 11,178
<SECURITIES> 30
<RECEIVABLES> 152,873
<ALLOWANCES> 3,036
<INVENTORY> 128,452
<CURRENT-ASSETS> 321,038
<PP&E> 234,566
<DEPRECIATION> 127,196
<TOTAL-ASSETS> 549,431
<CURRENT-LIABILITIES> 213,725
<BONDS> 0
0
0
<COMMON> 12,253
<OTHER-SE> 203,714
<TOTAL-LIABILITY-AND-EQUITY> 549,431
<SALES> 157,053
<TOTAL-REVENUES> 157,053
<CGS> 72,631
<TOTAL-COSTS> 72,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 329
<INTEREST-EXPENSE> 2,292
<INCOME-PRETAX> 10,581
<INCOME-TAX> 3,597
<INCOME-CONTINUING> 6,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,984
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
