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| NDSN > SEC Filings for NDSN > Form 10-Q on 8-Sep-2009 | All Recent SEC Filings |
8-Sep-2009
Quarterly Report
The following is Management's discussion and analysis of certain significant
factors affecting our 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 three months ended July 31, 2009 were $206.3 million, a
28.5% decrease from sales of $288.4 million for the comparable period of 2008.
Of the decrease, 24.0% related to volume, and 4.5% resulted from the unfavorable
effects of currency translations. Sales for the current year, particularly
large, engineered systems, were negatively impacted by the global economic
slowdown.
Sales of the Adhesive Dispensing Systems segment for the three months ended
July 31, 2009 were $112.5 million, a decrease of $40.3 million, or 26.4% from
the comparable period of fiscal 2008. Sales volume decreased 21.0%, and
unfavorable currency translation effects reduced sales by 5.4%. The sales
decrease was largely attributable to large-dollar system product lines, with
sales to consumer non-durable end markets, such as packaging and nonwovens,
remaining more stable. Within the segment, volume decreases occurred in all
geographic regions.
Advanced Technology Systems segment sales for the three months ended July 31,
2009 were $69.1 million compared to $94.6 million in the comparable period of
fiscal 2008, a 27.0% decrease. Volume decreased 23.3%, and currency translation
effects reduced sales by 3.7%. Within the segment, volume decreases occurred in
all geographic regions and were due to reduced demand in semiconductor and
consumer electronics end markets.
Sales of the Industrial Coating and Automotive Systems segment for the three
months ended July 31, 2009 were $24.7 million, a decrease of $16.3 million, or
39.7% from the three months ended July 31, 2008. Volume declined 36.5% and
currency translation effects reduced sales by 3.2%. The lack of capital spending
in consumer durable end markets impacted sales within this segment. Volume
decreases occurred in all geographic regions.
On a geographic basis, sales volume for the three months ended July 31, 2009 was
down in all geographic regions in which we operate. Volume decreased 29.2% in
Europe, 24.8% in Japan, 23.7% in the United States 22.3% in the Americas and
11.5% in the Asia Pacific region. Sales in all international regions, except
Japan, were negatively impacted by the stronger U.S. dollar.
Nordson Corporation
Worldwide sales for the nine months ended July 31, 2009 were $581.7 million, a
29.7% decrease from sales of $827.2 million for the comparable period of 2008.
Of the decrease, 24.2% related to volume, and 5.5% resulted from the unfavorable
effects of currency translations. Sales for the current year, particularly
large, engineered systems, were negatively impacted by the global economic
slowdown.
Sales of the Adhesive Dispensing Systems segment for the nine months ended
July 31, 2009 were $328.2 million, a decrease of $101.0 million, or 23.5% from
the comparable period of fiscal 2008. Sales volume decreased 17.1%, and
unfavorable currency translation effects reduced sales by 6.4%. The sales
decrease was largely attributable to large-dollar system product lines, with
sales to consumer non-durable end markets, such as packaging and nonwovens,
remaining more stable. Within the segment, volume decreases occurred in all
geographic regions.
Advanced Technology Systems segment sales for the nine months ended July 31,
2009 were $175.6 million compared to $272.2 million in the comparable period of
fiscal 2008, a 35.5% decrease. Volume decreased 30.4%, and currency translation
effects reduced sales by 5.1%. Within the segment, volume decreases occurred in
all geographic regions and were due to reduced demand in semiconductor and
consumer electronics end markets.
Sales of the Industrial Coating and Automotive Systems segment for the nine
months ended July 31, 2009 were $78.0 million, a decrease of $47.8 million, or
38.0% from the nine months ended July 31, 2008. Volume declined 34.6% and
currency translation effects reduced sales by 3.4%. The lack of capital spending
in consumer durable end markets impacted sales within this segment. Within the
segment, volume decreases occurred in all geographic regions.
On a geographic basis, sales volume for the nine months ended July 31, 2009 was
down in all geographic regions in which we operate. Volume decreased 27.4% in
the United States, 25.4% in Asia Pacific, 25.1% in Japan, 22.1% in Europe and
18.2% in the Americas. Sales in all international regions, except Japan, were
negatively impacted by the stronger U.S. dollar.
Operating Profit
Cost of sales for the three months ended July 31, 2009 was $84.5 million, down
from $125.9 million in 2008. Cost of sales for the nine months ended July 31,
2009 was $249.9 million, down from $359.0 million in 2008. The decreases were
primarily due to the decline in sales. The gross margin percentage was 59.0% for
the three months ended July 31, 2009, as compared to 56.3% for the comparable
period of fiscal year 2008. The gross margin percentage was 57.0% for the nine
months ended July 31, 2009, as compared to 56.6% for the comparable period of
fiscal year 2008. The increases were primarily due to a higher mix of
consumables and aftermarket part sales compared to engineered systems sales. The
gross margin for the three months ended July 31, 2009 was also impacted by a
reduction of overhead costs related to initiatives to reduce spending in
response to the economic slowdown. Unfavorable currency effects decreased the
fiscal year 2009 gross margin rates by 0.9% for both the three and nine-month
periods ended July 31, 2009 from the comparable periods of fiscal 2008.
Selling and administrative expenses, excluding severance and restructuring
costs, for the three months ended July 31, 2009 were $83.6 million, compared to
$110.9 million for the comparable period of fiscal year 2008. This represented a
decrease of $27.3 million, or 24.6%. Selling and administrative expenses,
excluding severance and restructuring costs, for the nine months ended July 31
30, 2009 were $248.9 million, compared to $326.0 million for the comparable
period of fiscal year 2008. This represented a decrease of $77.0 million, or
23.6%. The decreases were largely due to reduced compensation expenses
associated with lower employment levels, furloughs, and lower incentive
compensation, and tightened control over discretionary spending. In addition,
currency translation effects decreased selling and administrative costs by 4.7%
for the three-month period and 5.7% for the nine-month period.
Nordson Corporation
Selling and administrative expenses for the three months ended July 31, 2009 as
a percent of sales increased to 40.5% from 38.5% for the comparable period of
fiscal year 2008. For the nine months ended July 31, 2009, these expenses as a
percent of sales increased to 42.8% from 39.4% for the comparable period of
fiscal year 2008. The increases were primarily the result of lower sales in the
current year.
In September 2008, we initiated a cost reduction program that involved a
combination of non-workforce related efficiencies and workforce reductions
primarily in North America and Europe. In response to the continued economic
slowdown, additional cost reduction actions were taken in fiscal year 2009. It
is anticipated that the total severance and related costs of these actions will
be approximately $23 million of which $5.6 million occurred in fiscal year 2008,
$8.1 million occurred in the three months ended January 31, 2009, $5.1 million
occurred in the three months ended April 30, 2009 and $1.0 million occurred in
the three months ended July 31, 2009. The remainder will occur in the last
quarter of fiscal year 2009 and in fiscal year 2010. The severance costs are
being recorded in the Corporate segment.
Operating profit as a percentage of sales was 18.0% for the three months ended
July 31, 2009, up from 17.8% for the comparable period in fiscal year 2008. The
increase was primarily due to a higher gross margin percentage in the current
year. Operating profit as a percentage of sales was 11.8% for the nine months
ended July 31, 2009, down from 17.2% for the comparable period in fiscal year
2008. The decrease was primarily due to higher severance and restructuring
expenses and to operating costs decreasing at a slower rate than sales declined.
Operating profit as a percent of sales for the Adhesive Dispensing Systems
segment increased to 28.7% for the three months ended July 31, 2009 from 25.4%
in 2008 and to 27.1% for the nine months ended July 31, 2009 from 25.0% for the
comparable period of 2008. The increases were primarily due to an increase in
the gross margin percentage resulting from a higher mix of consumables and
aftermarket part sales compared to engineered systems sales.
For the Advanced Technology Systems segment, operating profit as a percent of
sales for the three months ended July 31, 2009 was 18.0% compared to 17.2% in
the comparable period of the prior year. The increase can be traced to a higher
gross margin percentage that was the result of higher mix of consumables and
aftermarket parts sales as compared to system sales and a reduction of overhead
costs. For the nine months ended July 31, 2009 operating profit as a percent of
sales was 7.5%, down from 16.7% last year. The decrease was primarily due to
sales volume decreasing at a higher rate than operating costs.
The Industrial Coating and Automotive Systems segment reported an operating loss
of 5.6% of sales in the three months ended July 31, 2009, compared to an
operating profit of 1.3% in the same period of fiscal year 2008. For the nine
months ended July 31, 2009, the operating loss was 7.0% of sales, compared to an
operating profit of 4.7% in the same period of fiscal year 2008. The changes
were primarily due to sales volume decreasing at a higher rate than operating
costs.
Interest and Other Income (Expense)
Interest expense for the three months ended July 31, 2009 was $1.7 million, down
50.5% from $3.5 million for the three months ended July 31, 2008. Interest
expense for the nine months ended July 31, 2009 was $6.2 million, down 53.7%
from $13.3 million for the nine months ended July 31, 2008. The decreases were
due to lower borrowings and reduced interest rates.
Other income was $0.1 million for the three months ended July 31, 2009, and
$2.6 million in the comparable period of the prior year. Included in those
amounts were foreign exchange gains of $0.2 million in 2009 and $1.2 million in
2008. Also, included were net losses of $0.3 million related to changes in the
values of a rabbi trust asset and deferred compensation liabilities in the three
months ended July 31, 2009 compared to net gains of $0.5 million in the three
months ended July 31, 2008. Other income for the nine months ended July 31, 2009
was $7.3 million, compared to $4.8 million for the nine months ended July 31,
2008. The current year amount included a $5.0 million gain on the sale of real
estate. Also included in other income were foreign exchange gains of
$1.5 million in fiscal year 2009 and $2.2 million in fiscal year 2008.
Nordson Corporation
Income Taxes
Our effective tax rate was 32.7% for the three months ending July 31, 2009,
compared to 36.1% for the same period of fiscal year 2008. The effective tax
rate for the nine months ending July 31, 2009 was 30.3%, compared to 35.4% for
the nine months ended July 31, 2008.
The rate for the three months ended July 31, 2009 was impacted by a favorable
adjustment related to a prior year. The rate for the three months ended July 31,
2008 was impacted by the expiration of a research credit and an adjustment
related to the prior year.
The tax rate for the nine months ended July 31, 2009 was impacted by adjustments
to unrecognized tax benefits related to remeasurment of positions related to a
prior year that reduced income taxes by $2.8 million and a favorable adjustment
related to a prior year of $0.5 million. The rate for the nine months ended
July 31, 2008 was impacted by the expiration of a research credit and an
adjustment related to the prior year, which was partially offset by discrete
items related to adjustments of a tax accrual related to a prior year that
reduced income taxes by $0.1 million.
Net Income
Net income for the three months ended July 31, 2009 was $24.0 million, or $0.71
per share on a diluted basis, compared to $32.4 million, or $0.93 per share on a
diluted basis in the same period of 2008. This represents a 25.9% decrease in
net income and a 23.9% decrease in earnings per share. For the nine months ended
July 31, 2009, net income was $49.0 million, or $1.46 per share on a diluted
basis, compared to $86.8 million, or $2.53 per share for the nine months ended
July 31, 2008. This represents a 43.5% decrease in net income and a 42.3%
decrease in earnings per share.
Foreign Currency Effects
In the aggregate, average exchange rates for fiscal year 2009 used to translate
international sales and operating results into U.S. dollars compared unfavorably
with average exchange rates existing during fiscal year 2008. 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 we operate.
However, if transactions for the three months ended July 31, 2009 were
translated at exchange rates in effect during the same period of 2008, sales
would have been approximately $13.1 million higher while third-party costs and
expenses would have been approximately $8.8 million higher. If transactions for
the nine months ended July 31, 2009 were translated at exchange rates in effect
during the same period of 2008, sales would have been approximately
$45.6 million higher and third party costs would have been approximately
$32.4 million higher.
Nordson Corporation
Financial Condition
During the nine months ended July 31, 2009, cash and cash equivalents increased
$8.8 million. Cash provided by operations during this period was $119.3 million,
up from $86.6 million for the nine months ended July 31, 2008. Cash of
$70.5 million was generated from net income adjusted for non-cash income and
expenses, and changes in operating assets and liabilities generated
$48.8 million of cash.
Cash used in investing activities was $1.2 million for the nine months ended
July 31, 2009, compared to $19.2 million in the comparable period of the prior
year. The change was primarily the result of a lower level of capital
expenditures and higher cash proceeds from the sale of real estate in the
current year. In addition, the prior year amount included $3.0 million related
to the purchase of a minority interest in a South Korea joint venture.
Cash used in financing activities was $111.0 million for the nine months ended
July 31, 2009. Cash was used for net repayments of $81.6 million of short and
long-term borrowings, to repurchase $7.0 million of common stock and for
dividend payments of $18.4 million.
The following is a summary of other significant changes in balance sheet
captions from the end of fiscal year 2008 to July 31, 2009:
Receivables decreased $50.3 million due to lower sales in the third quarter of
fiscal year 2009 compared to the fourth quarter of fiscal year 2008. Inventories
decreased $11.3 million and accounts payable decreased $13.9 million as a result
of a lower level of business activity in the third quarter of fiscal year 2009
compared to the fourth quarter of fiscal year 2008. Regarding the increase in
income taxes payable, the balance at the end of fiscal year 2008 was reduced to
record an expected refund that was received during fiscal year 2009. Accrued
liabilities decreased $33.2 million primarily due to bonus and profit sharing
payments during fiscal year 2009.
Critical Accounting Policies
Our consolidated financial statements and accompanying notes have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires management to
make estimates, judgments and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate the
accounting policies and estimates used to prepare financial statements.
Estimates are based on historical experience and assumptions believed to be
reasonable under current facts and circumstances. Actual amounts and results
could differ from these estimates used by management.
Certain accounting policies that require significant management estimates and
are deemed critical to the results of operations or financial position were
discussed in Item 7 of the 10-K for the year ended October 31, 2008. There were
no material changes in these policies during the three months ended July 31,
2009.
Nordson Corporation
Outlook
Demand for capital goods is expected to remain weak for the remainder of 2009,
although there are positive indicators that the global economy is improving.
With a strong balance sheet, solid margins, positive free cash flow and ample
sources of credit, we are confident that Nordson remains well positioned to
manage through these conditions.
Our liquidity needs arise from working capital requirements, capital
expenditures and principal and interest payments on indebtedness. Primary
sources of liquidity to meet these needs are cash provided by operations and
borrowings under our loan agreements. We have various lines of credit with both
domestic and foreign banks, including a $400 million unsecured, multicurrency
credit facility with a group of banks that expires in fiscal year 2012. This
facility may be increased to $500 million under certain conditions. At July 31,
2009, $133.0 million was outstanding under this facility. There are two primary
financial covenants that must be met under this facility. The first covenant
limits the amount of total indebtedness that can be incurred to 3.5 times
consolidated trailing EBITDA (both indebtedness and EBITDA as defined in the
credit agreement). The second covenant requires trailing consolidated EBITDA to
be at least three times consolidated trailing interest expense (both as defined
in the credit agreement). We were in compliance with all debt covenants at
July 31, 2009.
For the fourth quarter of fiscal year 2009, sales are expected to be in the
range of $224 million to $235 million, down 21% to 25% compared to the same
period a year ago. Diluted earnings per share are expected in the range of $0.75
to $0.87, inclusive of a $0.04 per share charge associated with restructuring
activities.
Safe Harbor Statements Under The Private Securities Litigation Reform Act Of
1995
This Form 10-Q, particularly "Management's Discussion and Analysis," contains
forward-looking statements within the meaning of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. Such statements relate to, among other
things, income, earnings, cash flows, changes in operations, operating
improvements, businesses in which we operate and the U.S. and global economies.
Statements in this 10-K that are not historical are hereby identified as
"forward-looking statements" and may be indicated by words or phrases such as
"anticipates," "supports," "plans," "projects," "expects," "believes," "should,"
"would," "could," "hope," "forecast," "management is of the opinion," use of the
future tense and similar words or phrases.
In light of these risks and uncertainties, actual events and results may vary
significantly from those included in or contemplated or implied by such
statements. Readers are cautioned not to place undue reliance on such
forward-looking statements. These forward-looking statements speak only as of
the date made. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.
Factors that could cause actual results to differ materially from the expected
results are discussed in Item 1A, Risk Factors in our 10-K for the year ended
October 31, 2008.
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