Add
NDSN to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| NDSN > SEC Filings for NDSN > Form 10-Q on 5-Sep-2012 | All Recent SEC Filings |
5-Sep-2012
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, 2012 were $379,872, an increase $67,617, or 21.7%, from sales of $312,255 for the comparable period of 2011. Sales volume increased 26.1%, and unfavorable effects of currency translations decreased sales by 4.4%. The sales volume increase consisted of organic growth of 15.9% and 10.2% from acquisitions. Sales volume increased in all three business segments and all five geographic regions in which we operate.
Sales of the Adhesive Dispensing Systems segment for the three months ended July 31, 2012 were $175,175, an increase of $22,104, or 14.4%, from the comparable period of 2011. Sales volume increased 20.9%, and unfavorable currency translation effects decreased sales by 6.5%. The sales volume increase consisted of 16.5% from acquisitions and in 4.4% organic volume growth. Sales volume increased in all regions, primarily due to acquisitions and growth in consumer non-durable end markets.
Advanced Technology Systems segment sales for the three months ended July 31, 2012 were $153,073 compared to $111,609 in the comparable period of 2011, an increase of $41,464, or 37.2%. Sales volume increased 39.3%, and currency translation effects decreased sales by 2.1%. The sales volume increase consisted of organic growth of 33.6% and 5.7% from an acquisition. Within the segment, volume increases were strongest in Asia Pacific, the United States and Japan. Volume increases were driven by strong broad-based demand for dispensing, and test and inspection equipment in electronics end markets, especially for mobile device applications.
Effective November 1, 2011, the Industrial Coating Systems segment includes our fuel cell product line that had previously been reported in the Advanced Technology Systems segment. This reclassification more closely reflects the change in management of this product line and its related growth opportunities. Prior year results have been reclassified to reflect the segment change.
Sales of the Industrial Coating Systems segment for the three months ended July 31, 2012 were $51,624, an increase of $4,049, or 8.5%, from sales of $47,575 for the three months ended July 31, 2011. Volume increased 11.8%, and currency translation effects decreased sales by 3.3%. The sales volume increase was driven by durable goods manufacturers' demand for our coating and cold material system solutions primarily in the United States and Japan.
On a geographic basis, sales in the United States increased 29.6% for the three months ended July 31, 2012 from the three months ended July 31, 2011. The increase consisted of 18.9% from acquisitions and 10.7% organic volume. Sales in the Americas region were up 5.8%, with volume increasing 13.6% and unfavorable currency effect reducing sales by 7.8%. The change in sales volume consisted of 8.7% from acquisitions and 4.9% organic volume. The European sales decrease of 2.4% consisted of an 8.8% volume increase offset by unfavorable currency effects of 11.2%. The increase in sales volume consisted of 0.4% from organic volume and 8.4% from acquisitions. Sales in Japan for the three months ended July 31, 2012 increased 14.8% from the comparable period of the prior year. The increase consisted of a 14.1% in sales volume and favorable currency effects of 0.7%. The change in sales volume consisted of 6.3% from acquisitions and organic volume of 7.8%. Asia Pacific sales increased 49.5%. Sales volume increased 50.8%, partially offset by unfavorable currency effects of 1.3%. The change in sales volume consisted of 5.6% from acquisitions and 45.2% organic volume.
Nordson Corporation
Worldwide sales for the nine months ended July 31, 2012 were $970,901, an increase of $68,760, or 7.6%, from sales of $902,141 for the comparable period of 2011. Sales volume increased 9.7%, offset by unfavorable currency effects of 2.1%. The sales volume increase consisted of 5.6% from acquisitions and a 4.1% increase in organic volume. Sales volume increased in all three business segments and all five geographic regions in which we operate.
Sales of the Adhesive Dispensing Systems segment for the nine months ended July 31, 2012 were $469,045, an increase of $19,566, or 4.4% from the comparable period of 2011. Sales volume increased 7.4%, and unfavorable currency translation effects decreased sales by 3.0%. The sales volume increase was the result of 6.9% from acquisitions and 0.5% from organic volume. Sales volume increased in all geographic regions.
Advanced Technology Systems segment sales for the nine months ended July 31, 2012 were $368,178 compared to $320,844 in the comparable period of 2011, an increase of $47,334, or 14.8%. Sales volume increased 15.8%, and currency translation effects decreased sales by 1.0%. The sales volume increase consisted of 6.2% from an acquisition and organic volume of 9.6%. Within the segment, volume increased in all geographic regions, except for Europe due to general economic conditions in that region. Volume increases were driven by strong broad-based demand for dispensing, test and inspection in electronics end markets, especially for mobile device applications.
Sales of the Industrial Coating Systems segment for the nine months ended July 31, 2012 were $133,678, an increase of $1,860, or 1.4%, from the nine months ended July 31, 2011. Sales volume increases of 3.0% were partially offset by currency translation effects that decreased sales by 1.6%. The sales volume increase was driven by durable goods manufacturers' demand for our coating and cold material system solutions primarily in the United States.
On a geographic basis, sales in the United States increased 15.1% for the nine months ended July 31, 2012 from the nine months ended July 31, 2011. The increase consisted of 10.8% from acquisitions and 4.3% organic volume. Sales in the Americas region were up 2.3%, with volume increasing 7.3% offset by unfavorable currency effects of 5.0%. The change in sales volume consisted of 4.8% from acquisitions and 2.5% organic volume. The European sales decrease of 4.4% consisted of a volume increase of 1.6% offset by a decrease of 6.0% from unfavorable currency effects. The increase in sales volume consisted of 5.4% from acquisitions partially offset by a decline in organic volume of 3.8%. Sales in Japan for the nine months ended July 31, 2012 increased 10.7% from the comparable period of the prior year. The increase consisted of volume of 7.8% and favorable currency effects of 2.9%. The increase in sales volume consisted of 2.4% from acquisitions and 5.4% organic volume. Asia Pacific sales increased 15.6%, with volume increasing 15.7% partially offset by unfavorable currency effects of 0.1%. The change in sales volume consisted of 2.2% from acquisitions and 13.5% organic volume.
Operating Profit
Cost of sales for the three months ended July 31, 2012 were $156,658, up from $124,205 in 2011. Cost of sales, including those costs classified as restructuring, for the nine months ended July 31, 2012 were $388,685, up from $350,168 in 2011. The gross margin percentage was 58.8% for the three months ended July 31, 2012, as compared to 60.2% for the comparable period of 2011 and was 60.0% for the nine months ended July 31, 2012, as compared to 61.2% for the comparable period of 2011. The 2012 gross margin percentages were negatively impacted by higher charges for short-term inventory purchase accounting valuation adjustments related to acquisitions. "Cost of goods sold - restructuring" of $2,040 in the nine months ended July 31, 2012 were costs associated with the transfer of production and start-up activities related to our United States Adhesive Dispensing Systems plant consolidation initiative that resulted in decreases in the gross margin percentage of 0.2% for the nine months ended July 31, 2012. Other decreases in gross margin percentages in 2012 were due to product line mix changes and currency effects.
Nordson Corporation
Selling and administrative expenses, excluding severance and restructuring costs, for the three months ended July 31, 2012 were $124,555, compared to $109,330 for the comparable period of 2011. This represented an increase of $15,225 or 13.9%. Selling and administrative expenses for the nine months ended July 31, 2012 were $347,666, compared to $315,301 for the comparable period of 2011. This represented an increase of $32,365, or 10.3%. The increases were largely due to the addition of acquired businesses, acquisition transaction costs and higher compensation expenses related to increased employment levels, partially offset by currency effects that reduced expenses. Selling and administrative expenses for the three and nine months ended July 31, 2011 included $3,136 related to a fee paid to withdraw from a multiemployer employee pension fund in Japan, and for the nine months ended July 31, 2011 included impairment charges of $1,322 related to the write-down of two of our facilities in Georgia related to a decision to consolidate operations and reduce the number of facilities there.
Selling and administrative expenses, excluding severance and restructuring costs, for the three months ended July 31, 2012 as a percent of sales decreased to 32.8% from 35.0% for the comparable period of 2011. For the nine months ended July 31, 2012, these expenses as a percent of sales increased to 35.8% from 35.0% for the comparable period of 2011. The improvement in the expense-to-sales ratios in the three month period versus the nine month period can be traced to a much higher rate of growth in sales in the last three month period relative to the first six month period. Relative to the same periods of 2011, sales for the last three months ended July 31, 2012, increased 21.7% with a 13.9% increase in selling and administrative expenses; and, sales for the first six months of 2012 increased less than 1% with an 8.3% increase in selling and administrative expenses.
In connection with the Adhesive Dispensing System initiative described above, a 2011 Adhesive Dispensing System initiative in Germany, and a 2012 Industrial Coating Systems initiative, severance and restructuring costs of $121 and $2,668 were recorded in the three and nine months, respectively, ended July 31, 2012, compared to costs of $64 for the three and nine months ended July 31, 2011.
Operating profit as a percentage of sales was 25.9% for the three months ended July 31, 2012, up from 25.2% for the comparable period of 2011. The increase was primarily due to sales increasing at a higher rate than selling and administrative expenses. Operating profit as a percentage of sales was 23.9% for the nine months ended July 31, 2012, down from 26.2% for the comparable period of 2011. The decrease was primarily due to selling and administrative expenses increasing at a higher rate than sales in the first half of 2012 and severance and restructuring costs in the current year.
Operating profit as a percent of sales for the Adhesive Dispensing Systems segment decreased to 29.8% for the three months ended July 31, 2012 from 33.6% in 2011 and to 32.2% for the nine months ended July 31, 2012 from 35.0% for the comparable period of 2011. Operating profit for the three and nine months ended July 31, 2012 included charges related to short-term inventory purchase accounting adjustments. Operating profit for the nine months ended July 31, 2012 included $4,018 of severance and restructuring costs. Operating profit for the nine months ended July 31, 2011 included impairment losses of $1,322 on two facilities that were written down to fair value.
For the Advanced Technology Systems segment, operating profit as a percent of sales for the three months ended July 31, 2012 was 32.6%, up from 27.8% for the three months ended July 31, 2011. For the nine months ended July 31, 2012 operating profit as a percent of sales was 25.7%, down from 27.4% last year. Operating margin for the nine months ended July 31, 2012 was negatively impacted by higher charges related to short-term purchase accounting valuation adjustments and expenses associated with the termination of a pension plan.
Operating profit for the Industrial Coating Systems segment was 13.7% of sales for the three months ended July 31, 2012, compared to 17.5% for the three months ended July 31, 2011. For the nine months ended July 31, 2012 operating profit was 10.2% of sales, compared 14.4% in the same period of 2011. The decreases were due to selling and administrative expenses increasing at a higher rate than sales.
Nordson Corporation
Interest and Other Income (Expense)
Interest expense for the three months ended July 31, 2012 was $2,796, up $1,969 from $827 for the three months ended July 31, 2011. Interest expense for the nine months ended July 31, 2012 was $6,925, up $3,365 from $3,560 for the nine months ended July 31, 2011. The increases were due to higher borrowing levels resulting primarily from acquisitions in the third quarter of 2012 and the fourth quarter of 2011 and share repurchases.
Other expense was $716 for the three months ended July 31, 2012, compared to other income of $169 in the comparable period of the prior year. Included in those amounts were foreign exchange losses of $668 in 2012 and foreign exchange gains of $108 in 2011. Other income for the nine months ended July 31, 2012 was $413, compared to $2,896 for the nine months ended July 31, 2011. Included in those amounts were foreign exchange losses of $795 in 2012 and foreign exchange gains of $1,897 in 2011.
Income Taxes
The effective tax rates for the three and nine-month periods ending July 31, 2012 were 29.9% and 30.4%, compared to 27.7% and 29.1% for the comparable periods ending July 31, 2011.
The tax rate for the three months ended July 31, 2012, was impacted by a favorable adjustment related to our 2011 tax provision that reduced income taxes by $400, and a favorable adjustment to deferred taxes related to a tax rate reduction in the United Kingdom that reduced income taxes by $175. During the three months ending January 31, 2012, we recorded tax expense of $325 related to an adjustment of deferred taxes resulting from a tax rate reduction in Japan.
The tax rate for the three months ended July 31, 2011, was impacted by a favorable adjustment to unrecognized tax benefits primarily related to settlements with tax authorities that reduced income taxes by $2,027. Additionally, during the three months ending July 31, 2011, we recorded a tax benefit of $368 related to an adjustment of deferred taxes resulting from a tax rate reduction in the United Kingdom.
In December 2010, Congress passed and the President signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which provided retroactive reinstatement of a research credit. As a result, we recorded an additional tax benefit related to 2010 of $1,580 in the nine months ended July 31, 2011. Additionally, in the nine month period ending July 31, 2011 we recorded a $549 tax benefit related to prior years for deductions associated with the Company's Employee Stock Ownership Plan.
Net Income
Net income for the three months ended July 31, 2012 was $66,694, or $1.03 per share on a diluted basis, compared to $56,550, or $0.82 per share on a diluted basis in the same period of 2011. This represents a 17.9% increase in net income and a 25.6% increase in earnings per share. For the nine months ended July 31, 2012, net income was $157,143, or $2.41 per share on a diluted basis, compared to $167,689, or $2.44 per share for the nine months ended July 31, 2011. This represents a 6.3% decrease in net income and a 1.2% decrease in earnings per share. The percentage change in earnings per share is different than the percentage change in net income due to a lower number of shares outstanding in the current year as a result of treasury share purchases.
Foreign Currency Effects
In the aggregate, average exchange rates for 2012 used to translate international sales and operating results into U.S. dollars compared unfavorably with average exchange rates existing during 2011. 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, 2012 were translated at exchange rates in effect during the same period of 2011, sales would have been approximately $13,800 higher while third-party costs and expenses would have been approximately $8,300 higher. If transactions for the nine months ended July 31, 2012 were translated at exchange rates in effect during the same period of 2011, sales would have been approximately $18,700 higher and third party costs would have been approximately $11,000 higher.
Nordson Corporation
Financial Condition
During the nine months ended July 31, 2012, cash and cash equivalents increased $16,231. Cash provided by operations during this period was $177,575, compared to $180,292 for the nine months ended July 31, 2011. Cash of $195,445 was generated from net income adjusted for non-cash income and expenses as compared to $198,278 last year. The decrease was primarily due to lower net income. Changes in operating assets and liabilities used $17,870 of cash in the current year, compared to $17,986 in 2011.
Cash used in investing activities was $423,310 for the nine months ended July 31, 2012, compared to $41,251 in the comparable period of the prior year. Current year capital expenditures were $21,550, up from $14,306 from 2011. Significant expenditures in the current year include the previously announced expansion of our Duluth, Georgia facility and production equipment for our new facility in Swainsboro, Georgia. Cash of $2,213 was received in the six months ended April 30, 2012 related to the sale of UV Curing graphic arts and lamps product lines that occurred in June 2010. In the nine months ended July 31, 2012, cash of $405,202 was used for the acquisition of EDI and Xaloy. In the nine months ended July 31, 2011, cash of $34,627 was used for the acquisition of Micromedics, Inc., and Verbruggen. In 2011, cash proceeds of $7,552 were received from the maturity of bank certificates of deposit that had been classified as short-term marketable securities.
Cash provided by finance activities was $264,122 during the nine months ended July 31, 2012, compared to cash used in financing activities of $114,673 for the nine months ended July 31, 2011. In the current year, cash proceeds of $374,488 were generated from net short-term and long-term borrowings related to acquisitions. Cash of $3,191 was also provided by the issuance of common stock related to stock option exercises. These amounts were offset by $86,982 used for the repurchase of common shares and $24,189 for dividend payments.
The following is a summary of significant changes in balance sheet captions from the end of 2011 to July 31, 2012. Receivables increased $47,059 due to the EDI and Xaloy acquisitions and to higher sales in the third quarter of 2012 compared to the fourth quarter of 2011. Inventories increased $37,227 due to the acquisitions and a higher level of business activity expected in the fourth quarter of 2012. Prepaid expenses increased primarily as a result of acquisitions. Property, plant and equipment - net increased $43,226 primarily due to acquisitions, our previously announced expansion of our Duluth, Georgia facility and production equipment and a capital lease asset related to a new leased facility in Swainsboro, Georgia. The increases in goodwill and intangible assets were due to acquisitions.
The increase in notes payable is due to short-term borrowings, accounts payable and accrued liabilities were primarily due to acquisitions. The increase of $10,910 in income taxes payable was primarily due to the timing of required tax payments. The increase of $20,614 in customer advanced payments can be traced to acquisitions and a higher level of engineered system orders that require partial payment in advance. Current maturities of long-term debt increased and long-term debt decreased as a result of the reclassification from long-term to current of our $50,000 Prudential Senior note due in February 2013. The long-term debt increase of $274,518 reflects borrowings under a senior note purchase agreement in July 2012 and additional borrowings under our revolving credit agreement, partially offset by the reclassification mentioned above. The increase of $9,631 in long-term deferred income taxes was primarily due to amortization of goodwill for tax purposes, purchase accounting adjustments and acquisitions. The $9,696 increase in other long-term liabilities was largely due to acquisitions and a capital lease obligation related to our new Swainsboro, Georgia facility.
In September 2011, the board of directors approved a program that allowed for the repurchase of up to $100,000 of common shares. This program was completed in April 2012, and the board of directors approved an additional repurchase program of up to $100,000. Uses for repurchased shares include the funding of benefit programs including stock options, nonvested stock and 401(k) matching. During 2012, we repurchased 1,831 shares within these programs for a total amount of $86,022, using working capital and proceeds from borrowings under our credit facilities.
Nordson Corporation
On July 26, 2012, we entered into a Note Purchase Agreement with a group of insurance companies under which we sold $200,000 of Senior Notes. The notes mature between July 2017 and July 2025 and bear interest at fixed rates between 2.27% and 3.13%. We were in compliance with all covenants at July 31, 2012.
On June 4, 2012, we entered into a $250,000 Credit Agreement with PNC Bank. The agreement provides for a delayed draw term loan facility that matures 364 days after the date of the agreement. We borrowed $250,000 under this agreement for the EDI and Xaloy acquisitions and repaid $200,000 using proceeds of the Senior Notes described above, leaving a balance of $50,000 outstanding at July 31, 2012. After the repayment the amount available to be borrowed under the agreement was reduced to $50,000. We were in compliance with all covenants at July 31, 2012.
On December 9, 2011 we entered into a $500,000 unsecured multicurrency credit facility with a group of banks. This facility has a five-year term and includes a $40,000 subfacility for swing-line loans. It may be increased from $500,000 to $750,000 under certain conditions. This facility contains customary events of default and covenants related to limitations on indebtedness and the maintenance of certain financial ratios. It replaced our existing revolving loan agreement that was scheduled to expire in 2012. Balances outstanding under the prior facility were transferred to the new facility. At July 31, 2012, $316,800 was outstanding under this facility, compared to $192,200 outstanding at October 31, 2011 under the prior facility. We were in compliance with all debt covenants at July 31, 2012, and the amount we could borrow under the facility would not have been limited by any debt covenants.
In 2008, we entered into a $50,000 Senior Note Purchase Agreement with Prudential Investment Management, Inc. The Note bears interest at a rate of 4.98 percent, matures on February 22, 2013 and is unsecured. The Agreement contains customary events of default and covenants related to limitations on indebtedness and the maintenance of certain financial ratios. We were in compliance with all covenants at July 31, 2012.
On June 30, 2011, we entered into a $150,000 three-year Private Shelf Note agreement with New York Life Investment Management LLC. Borrowings under the agreement may be up to 12 years, with an average life of up to 10 years and are unsecured. The interest rate on each borrowing can be fixed or floating and is based upon the market rate at the borrowing date. This agreement contains customary events of default and covenants related to limitations on indebtedness and the maintenance of certain financial ratios. At July 31, 2012 and October 31, 2011, $75,000 was outstanding under this facility at a fixed rate of 2.21 percent per annum. We were in compliance with all covenants at July 31, 2012, and the amount we could borrow would not have been limited by any debt covenants.
Critical Accounting Policies
Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. 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, 2011. There were no material changes in these policies during the three months ended July 31, 2012.
Nordson Corporation
Outlook
For the fourth quarter of 2012, sales are expected to increase 23% to 27% compared to the same period a year ago, including an estimated 4% unfavorable effect associated with currency translation. Diluted earnings per share are expected in the range of $0.96 to $1.04.
This outlook is supported by encouraging order rates that exceed a year ago; however, uncertainties in the macroeconomic environment add caution to our view of growth for the near-term quarters.
We continue to look for strategic acquisition opportunities and continue to develop new applications and markets for our technologies and to move forward with additional lean and other operational initiatives to enhance our financial performance.
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-Q 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," . . .
|
|