Operator: Good day, ladies and gentlemen, and welcome to the Nordson Corporation Webcast for Second Quarter Fiscal Year 2013 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference call is being recorded.
I would now like to turn the conference over to your host, Mr. Jim Jaye, Director of Investor Relations. Please, go ahead.
James R. Jaye - Director, Communications and IR: Thank you, Ally and good morning. This is Jim Jaye Nordson's Director of Investor Relations. I'm here with Mike Hilton our President and Chief Executive Officer; and Greg Thaxton, our Senior Vice President and Chief Financial Officer.
We'd like to welcome you to our conference call today Friday, May 24, 2013 on Nordson's second quarter results. Our conference call is being broadcast live on our webpage at www.nordson.com/investors and will be available there for 14 days. There will be a telephone replay of our conference call available until May 31, 2013, by calling 855-859-2056. You will need to reference ID number 64354851.
During this conference call, forward-looking statements may be made regarding our future performance based on Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors as discussed in the Company's filings with the Securities and Exchange Commission that could cause actual results to differ. After our remarks, we will have a question-and-answer session.
I'd now like to turn the call over to Mike Hilton for an overview of our 2013 second quarter results and a bit about our outlook.
Please go ahead, Mike.
Michael F. Hilton - President and CEO: Thank you, Jim and good morning, everyone and thank you for attending Nordson's second quarter 2013 conference call. I am pleased to report that we delivered an excellent second quarter. These results reflect the efforts of our global team which continues to execute at a very high level. Our customers continue to respond to the value we provide and we remain focused on meeting their needs better than our competitors.
In a continuation of the trend we saw in our first quarter our second quarter was highlighted by strong top line organic growth and once again this growth was broad based in terms of product lines, applications and geographies. The 7% organic sales growth we delivered outpaced the levels recently reported by many industrial companies and is reflective of the diversity of our end markets and our value proposition. The first year effective acquisitions added to the top line to bring total sales volume growth in the quarter to 23% compared to the same period a year ago. We also delivered on the bottom line with GAAP diluted earnings per share increasing over the prior year's second quarter to $0.84.
Looking forward to our third quarter, we see a moderation in growth from some of our end markets, related to the low growth macroeconomic environment. That said, at the midpoint of our guidance, we're still expecting year-over-year organic sales growth against the prior year's for Nordson was very strong. With this outlook, we should see improving operating margins as compared to the second quarter.
In a few moments, I'll share additional comments about the current business trends and our outlook, but I'll first turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our second quarter financial results, as well as some comments on our guidance for the third quarter of 2013. Greg?
Gregory A. Thaxton - SVP and CFO: Thank you and good morning to everyone. As Mike described, we delivered very positive second quarter results, with sales in the quarter of $382 million, an increase of 21% over the prior year's second quarter. This growth included a 7% increase in organic volume, a 16% increase related to the first year effective acquisitions and a negative 2% impact related to unfavorable effects of currency translation compared to the same period a year ago.
On a sequential basis, performance in the quarter represents a 10% increase over first quarter sales. Looking at performance within the segments, Adhesive Dispensing sales volume increased 30% as compared to the prior year second quarter. Our first year effective acquisitions drove most of this growth, while organic volume improved by 1% driven primarily by systems serving polymer processing and nonwovens end markets offset by some softness in our packaging product line during the quarter.
Sales volume growth in the Advanced Technology segment which is all organic growth was 14% over the prior year's second quarter. Organic volume expanded in every geography as demand for our Precision Dispensing and Fluid Management Solutions serving mobile electronic device, medical and other niche markets remained strong. Within the Industrial Coatings segment sales volume increased 24% compared to the prior year's second quarter, inclusive of a 13% increase in organic volume and 11% growth from the first year effective acquisitions. The organic growth included most product lines in geographies with the exception of Europe and this growth continued to be driven by the investments of durable goods manufacturers.
Moving down the income statement gross margin in the quarter was 57%. This performance is equal to our first quarter performance even with a larger mix of systems revenue in our second quarter. Operating profit increased 7% compared to the prior year's second quarter and operating margin for the quarter was 22%. This year's second quarter operating margin is an improvement of 4 percentage points over what we delivered in the first quarter this year with 59% incremental operating margin on the increased sales volume reflecting our ability to leverage increased top line growth.
Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 26%, up 2 percentage points from the first quarter as operating margin for legacy product lines and recent acquisitions improved sequentially.
Within the Advanced Technology segment operating margin for the quarter was 25% equal to the prior year's second quarter and up 6 percentage points from the first quarter of fiscal 2013, where strong sequential sales volume growth generated incremental margin of 58% in the quarter. Excluding the incremental spend associated with the two initiatives we called out in previous quarters, operating margin in the quarter was 27%. Overall performance in the second quarter for this segment was very strong.
Industrial Coatings segment generated operating margin of 15% in the quarter, where increased sales volume and operational efficiencies drove an improvement in operating margin of 3 percentage points over the same period a year ago and a sequential operating margin improvement of 2 percentage points. We are very pleased with this high level of performance given this segment's high mix of engineered system sales.
Continuing down the income statement, reported net income for the quarter was $55 million and GAAP diluted earnings per share were $0.84. Negative currency effects reduced earnings per share by $0.03 as compared to the same period a year ago. The current quarter's EBITDA was $95 million, a 12% increase over the prior year's second quarter and second quarter free cash flow before dividends was $47 million. During the second quarter we executed on our strategy of returning value to shareholders through share repurchases and dividends where we invested approximately $22 million under our share repurchase authorization and we paid dividends in the quarter of approximately $10 million.
We have approximately $62 million available under the $100 million share repurchase authorization approved by our Board during fiscal 2012. To-date, against this authorization, we have invested approximately $38 million, at a 15% discount to the closing share price on April 30, the end of our second fiscal quarter.
From a balance sheet perspective, we remain very liquid with net debt to trailing 12 month EBITDA of approximately 1.4 times, at the end of the second quarter and $214 million available under our revolving credit facility.
Before moving onto the outlook for the third quarter of fiscal 2013, I'll provide comments on recent order trends. As we typically do, we provided our most recent order update both on a segment and geographic basis with our press release. These orders are for the latest 12 weeks as compared to the same 12 weeks of the prior-year on a currency neutral basis and with all fiscal year 2012 acquisitions included in both years.
Looking at orders for the 12 weeks ending May 19, 2013, they're down 2% as compared to the same 12 weeks in the prior year. As the second half of fiscal 2012 was particularly strong for Nordson, most notably in the Advanced Technology and Industrial Coatings segments, we're up against very challenging comparisons.
Within the Adhesive Dispensing segment, orders over the last 12 weeks decreased 1% compared to the same period in the prior year. Strength in our legacy packaging product line was offset by softness in other product lines. Orders were strongest in the U.S. and Japan.
Advanced Technology is the segment with the most challenging comparison to the prior year and here, orders over the latest 12 weeks are flat compared to the same period in the prior year. Positive order growth in several product lines, notably medical components, was offset by modest softness in dispensing and test product lines. Segment order rates were positive in all geographies with the exception of Asia-Pacific.
Within the Industrial Coatings segment, the latest 12 week orders are down 11% as compared to the prior year period. Solid order growth over the prior year for Powder Coating Systems was offset by softness in other product lines, most notably larger dollar systems for automotive OEMs. Order growth was positive in Japan, Europe and the Americas.
Let me now turn to the outlook for the third quarter of fiscal 2013. We are forecasting sales to be in the range of $404 million to $419 million, an increase of 6% to 10% as compared to the third quarter a year ago. This range is inclusive of organic volume growth of zero percent to 4%, with the first year effective acquisitions adding growth of 7%. Based on current exchange rates, we expect currency translation effects to reduce sales by 1% as compared to the prior year.
At the midpoint of our revenue forecast, we expect gross margin of approximately 58% in the quarter and operating margin of approximately 24%. We are estimating third quarter interest expense of about $3.4 million and an effective tax rate of approximately 30%, resulting in third quarter forecasted diluted earnings per share in the range of $1 per share to $1.09 per share, inclusive of a $0.01 gain related to the sale of an asset. The midpoint of our sales forecast represents sequential growth of about 8%. and we are forecasting sequential incremental operating margin of approximately 56%.
In addition, and as we described a quarter ago, our selling and administrative expenses in the third quarter, as well as the fourth quarter, will include planned incremental investments of about $2 million within the Advanced Technology segment. These investments are expected to generate organic revenue growth in fiscal 2014 and beyond. This level of investment is consistent with the amount of spend incurred in the second quarter for these initiatives.
With regards to capital spending, we are still estimating about $45 million to $50 million for the full year, which is higher than normal due to specific investment programs in the year, and I expect future years’ capital spending to moderate back to around 2.5% of revenue.
In summary, we delivered strong second quarter performance, where our global team continued to deliver at a very high level, and we anticipate continued solid performance in the third quarter when considering the weak macroeconomic environment.
Michael F. Hilton - President and CEO: Thank you, Greg. Before taking your questions I'd like to provide some additional comments on our year-to-date performance and third quarter outlook. With regards to the first half of our fiscal year, we delivered excellent performance in sales, operating profit, net income and diluted earnings per share. Given the difficult macroeconomic backdrop during our first fiscal half of the year, the recent performance is very good relative to many other industrial companies and I was especially pleased with 8% organic sales growth over this period of time.
As we begin our third quarter, our current order rates reflect a moderation we are seeing in some end markets, as well as more difficult comparisons against a period of very strong growth a year ago. Against this backdrop, the midpoint of our guidance represents 2% organic sales growth on a year-over-year basis, and 8% sales growth on a sequential basis. These are solid levels in the current environment and reflect the value we continue to provide to our customers. As Greg said, we would expect to leverage the sequential volume growth to generate higher operating margins in the third quarter.
Let me make a few comments regarding our fiscal 2012 acquisitions. We are on track with the overall integration efforts and encouraged with the synergy opportunities we have identified allowing Nordson to bring value to these acquisitions. Regarding performance, sales and operating margin improved on a sequential basis, helping Nordson drive overall second quarter operating margins over the first quarter.
We remain excited about the longer term prospects of these properties, given emerging market opportunities, our development of new applications and overall market and economic recovery. For Nordson overall, the short cycle nature of our business, limits our visibility, making it difficult to forecast beyond the third quarter. Nordson has proven its ability to perform in a variety of economic scenarios, though we're not immune from the overall macroeconomic trends.
Shifting to a more long-term view, Nordson is well positioned to continue delivering strong financial results, where we're able to leverage our diverse end market exposure and geographic positioning, our team's ability to execute and our commitment to continuous improvement. We will continue to drive value for our customers through our applications expertise, differentiated best-in-class technology and direct sales and service and support.
At this time, let's turn to your questions.
Operator: Kevin Maczka, BB&T Capital Markets.
Kevin Maczka - BB&T Capital Markets: Mike, I guess, first question – and I appreciate the color you just gave on the 2012 acquisitions, but if you go back to the two big ones, EDI and Xaloy, I thought originally, we were thinking in terms of fiscal '13 that we'd see maybe $0.25 or even $0.30 of accretion from those deals and it looks like earnings are pretty flat, as you look at the first three quarters of the year. So, can you just comment a little bit more about, relative to your own internal expectations, how they're doing or is it just some softness elsewhere against very difficult comps that's in the core business, that's kind of driving these flatter earnings?
Michael F. Hilton - President and CEO: Yeah, I'd say in the short-term, most of what we're seeing is really some softness in the core business, combined with conscious decisions to step up spending in certain areas. So, I'd say most of what you're seeing here in the short-term is a little bit of softness in the core business. I'd say, as it relates to the acquisitions, we made some comments, the last quarter we were a bit behind in terms of a couple of specific end markets and I'd say we're still a little bit behind where we'd like to be, probably a couple of quarters behind where we'd like to be in particular, specific end markets. We are encouraged by new applications, particularly in the dies business that we're getting some traction on, but we're probably a couple of quarters behind. In the long run, consumption is still strong even in this little softer short-term environment we're looking at 6%, 7% plastics growth. So, in the long run when supply and demand are balanced out, we feel pretty good about where those businesses are going and we're working on new product development opportunities to continue to drive growth beyond that. So, we're encouraged. I'd say in the short-term though it's more of the softer macro affecting our core business.
Kevin Maczka - BB&T Capital Markets: Then maybe one for Greg, you mentioned the strong sequential incremental margins in the quarter and again what you're expecting next quarter. When we get out into Q4 and beyond and we've anniversaried these big deals and you've got some planned higher spending in Tech. I'm just wondering if you can kind of frame what we ought to be thinking about in terms of incrementals on a year-over-year basis, once things normalize here, and we've anniversaried the deals.
Gregory A. Thaxton - SVP and CFO: Yes. I think to a large extent Kevin some of that depends on what kind of growth we expect to see in those out periods. If you exclude the acquisitions as we have shown historically, if we are driving that top line growth more at a higher rate than what you might expect the inflationary impact on your spending to be, those incremental margins are very strong. The same will be true in these acquired properties as well, if we are looking at sequential growth over what they are delivering, although the leverage is not as strong, there is still – on a full year basis pretty strong performing businesses. So, same concept there for generating incremental revenue, that is going to translate into pretty strong incremental margins. Again some of that – the response is a bit of – it depends what – to a certain extent what that macroeconomic view or outlook is going to be in that out quarter.
Kevin Maczka - BB&T Capital Markets: I understand that, Greg, and I know it's hard to call this, because you have had some variables like mix and macro and other things that are maybe beyond your control. But again we just saw 59 and you are calling 56 next quarter. This is sequential. But with the current mix of business including these lower margin acquisitions, we ought to not be thinking about that as a sustainable year-over-year basis, right?
Gregory A. Thaxton - SVP and CFO: On a sequential basis, yes. Foreseeing this kind of – foreseeing growth sequentially, I think that's the kind of mx we could see. On a year-over-year…
Michael F. Hilton - President and CEO: The incremental growth was about 8%, and you delivered those kinds of margins. I think what Greg is trying to say, if you see something in that range, it's not unusual to expect that kind of margin. If it's more like 2%, you're not likely necessarily to see that, because we have some – in the short-term, some conscious step up in strategic spending.
Kevin Maczka - BB&T Capital Markets: Again, the tech strategic spending continues throughout the back half at an incremental $2 million rate?
Gregory A. Thaxton - SVP and CFO: Yes.
Kevin Maczka - BB&T Capital Markets: Got it. Thank you.
Gregory A. Thaxton - SVP and CFO: Yeah, just to be clear, when you say incremental, it's about $2 million per quarter.
Operator: Liam Burke, Janney Capital Markets.
Liam Burke - Janney Capital Markets: Mike, on the traditional electronics piece of the Advanced Technology business, you mentioned that there was some potential life in that part of the business last quarter. Has there been any follow through there? Are you seeing any additional activity?
Michael F. Hilton - President and CEO: I'd say, minor additional activity there; not a step up in recovery that the industry guys are projecting. So, I'd say we've seen continued activity, but not the kind of level of step up that you would anticipate with a sort of more robust growth in the more traditional packaging, and test and inspection. The industry analysts are still forecasting that to start to pick up in the second half of the year and be pretty solid into next year. But I'd say, we had some orders then, we have some orders now, but not a trend that we're ready to call yet.
Liam Burke - Janney Capital Markets: So, even with that piece of the business sort of mulling along, the rest of the segments, mobile, the special electronics and medical are all humming along okay?
Michael F. Hilton - President and CEO: Yeah, mobile is still continuing to be strong, MEMS still strong, the medical stuff is going very nicely. It's more the traditional back-end kind of stuff is really not doing much yet.
Operator: Matt Summerville, KeyBanc Capital Markets.
Matt Summerville - KeyBanc Capital Markets: A couple of questions. If you look on a year-over-year basis, your revenue's up round number $70 million, your operating profit is up about $1.5 million. I know FX is a drag. You mentioned growth spend. Can you talk about what the other buckets are, if you will, that impacted the year-over-year leverage and how we should be thinking about that as we model the rest of the year?
Michael F. Hilton - President and CEO: Yeah, so you want to go ahead, Greg?
Gregory A. Thaxton - SVP and CFO: Well, I'm just going to make a comment, Matt. Some of what we're seeing second quarter versus prior year second quarter is mix and if you recall, prior year second quarter, particularly in Adhesives, was just kind of a knock out quarter for us, high watermark in terms of operating margin, and what we're seeing this year is not a strong performance in that portion of the business, part of it revenue issue and part of it a change in mix from what we saw last year.
Matt Summerville - KeyBanc Capital Markets: Greg, is there any way you can sort of quantify or isolate what you think the mix dilution was on margins for the whole Company year-over-year?
Michael F. Hilton - President and CEO: I want to make a high level comment, and Greg can correct me if I'm wrong here. The acquisitions that had – if you look at it, year-over-year margins are down about 3% or 4%, about half of that's sort of the new acquisition mix and half of that is largely in the sort of core Adhesives business with some volume decline and then mix between the sort of three segments we have there. If you look at sort of packaging versus, say, a nonwovens or product assembly, they have some different margins based on cost-to-serve kind of activities. So it sort of happened half in those two areas, roughly speaking.
Michael F. Hilton - President and CEO: Yes. So a portion of it is the dilutive effect of the acquisitions as we talk about year-over-year margin trend, and then the other half both within this call it the core segment margin dilution and then the step out in this Advanced Tech area of this $2 million.
Matt Summerville - KeyBanc Capital Markets: Mike, can you maybe spend a moment just talking about the linearity or lack thereof you saw in incoming order rates. Are things volatile week-to-week, month-to-month? Are you seeing any discernible change in trend?
Michael F. Hilton - President and CEO: Yes. The answer is that, they can volatile week-to-week depending on whether big systems orders come in or not and depending on whether they are in the quarter last year, a year ago. So you can have some volatility there. I would say certain segments or product lines have improved in the short-term like packaging, for example. We have seen a definite uptick in others in the short term but maybe gotten a little softer. Greg called out some commentary around the auto side and that's really year-over-year comparisons of some big platform orders last year that we didn’t see come in, into the same period this year. So there is some volatility there. Maybe just a comment or two at a high level around the macro piece maybe warranted here. If we go back a quarter, we are suggesting that for the year to get a 2% plus sort of macro GDP of the year we needed to see sort of 3% plus in the second half of the year. I'd say most of the (economists) that we follow and particularly one in particular that we use IHS still sees that happening but probably more of a slope, so more in Q4 than in Q3 and not as much delivered in Q2 as would've been expected sort of a quarter ago. So, they're still optimistic about that piece of it. I would also, in many of our end markets our customers are still what I'd call cautiously optimistic about systems orders coming through, talking to us about placing those orders, we just haven't seen those come through yet, and so we're a little cautious around that and that's factoring into the guidance we're providing for the next quarter.
Matt Summerville - KeyBanc Capital Markets: Then just maybe one more Mike. In terms of the Advanced Technology business, what are income order rates and the discussions you're having with your customers tell you about their new product pipelines and their CapEx spend, particularly as we head into fiscal Q4, just bearing in mind the comps actually even get tougher.
Michael F. Hilton - President and CEO: Yeah, so, I would say, in general, on the mobile side, folks are pretty optimistic. Now, whether those orders get placed in Q3 or Q4 or slip to Q1 – not as clear. They're indicating they're going to come in this year, but they could easily move a few weeks or a month and they'd be in the next quarter, but I'd say they're still pretty optimistic about new products coming out, the timing I think is maybe a little bit questionable at this point. So, again I'd say generally optimistic, generally suggesting they're going to come in this year, but we're probably hedging about a little bit there, that maybe some of that slips into the early part of next year.
Operator: John Franzreb, Sidoti & Company.
John Franzreb - Sidoti & Company: In the expected margin improvements from the acquired businesses, how much of that is got to be volume driven versus how much can you do from internal cost savings?
Michael F. Hilton - President and CEO: Yes. If I look at it John, we still have the same kind of leverage that, as Greg said earlier, in our business. So we expect significant incremental margin. In the short-term we are seeing a little bit of the reverse side of that as the volume in certain areas is a little softer. But we do see significant synergies and our expectations for these businesses were sort of high teen businesses that we ultimately could get to the mid-20s and that sort of move from the high teens to the mid-20s was largely on the sort of cost side synergy type of improvement. There is some margin improvement from things like strategic pricing and things like that, but largely on the cost side. But we do see some volume leverage potential and right now it's a little bit negative as opposed to positive.
John Franzreb - Sidoti & Company: Looking at the geographic mix, the orders down 9% in Asia-Pacific. Can you kind of talk a little bit about what's going on there, what's the biggest drop-off?
Michael F. Hilton - President and CEO: It really is across all the businesses in terms of orders at this point. I'd make the general comment that we made about the business, in that customers are still I'd say cautiously optimistic, but we are not seeing that translate into the order flow yet. I'd say China is a significant part of that. A part of that in the comment, the earlier question on the backend packaging and the technology side. A part of that affecting our other businesses, if you look at sort of the latest macro data on China, it's a little soft. We are still pretty confident that the government is going to continue to kind of impact that, deliver their sort of 7.5% to 8% sort of GDP growth for the year. But right now it's a little softer and that's translating into people I'd say holding up on the order side. If you look at sort of the project activity it is still very robust but it's not translating into orders at this point and I'd say that's a fairly substantial China effect there.
John Franzreb - Sidoti & Company: Industrial Coatings, if I heard correctly, the orders are down 11% and you say the powder coatings side of the business was up but the automotive OEM side was down?
Michael F. Hilton - President and CEO: Yes.
John Franzreb - Sidoti & Company: Can you just talk a little bit about what's going on, the dynamics there?
Michael F. Hilton - President and CEO: Yes. I'd say this is largely probably a timing kind of issue. If you look at, in our sort of 12 weeks last year versus our 12 weeks this year we had some large platform type orders come through last year within this quarter that really kind of distort that a bit. So our view is over the longer term that kind of corrects itself but in the short term that's kind of distorting the numbers. So from our perspective that's not a fundamental, auto is falling off. It's really a timing issue.
Gregory A. Thaxton - SVP and CFO: John, those are going to be large dollar system sales, so the timing of one of those hitting the quarter can really skew the numbers.
John Franzreb - Sidoti & Company: One last question. On the share repurchase, in the last quarter, the one just completed what was the average purchase price you were buying back at?
Michael F. Hilton - President and CEO: Hang on a second we need to – we need to look that up. If you recall when we talked about that we have we've got an authorization. We said, we'd like to optimistic or opportunistic, but we also have to offset dilution, which, I think we said was sort of in the mid-30 million range. So, we're trying to do two things, be opportunistic, but mainly offset the dilutions at start.
Gregory A. Thaxton - SVP and CFO: We bought back a little over 340,000 shares at $65.69 per share.
Operator: Jason Ursaner, CJS Securities.
Jason Ursaner - CJS Securities: Just in Adhesive, you mentioned strength in systems during the quarter, offset weakness in packaging, but then in the most recent orders, it was strength in packaging offsetting other lines. So, was there a clear selection point you saw during the quarter from an order perspective and did it coincide with the launch of the joint product with Henkel?
Michael F. Hilton - President and CEO: So, you've got that correct. In the quarter, the packaging business was softer, than we've really seen form an order standpoint in the last number of weeks and that picked back up, which is encouraging. I'd say the impact of the launch has not really been felt there. I mean, we have over 100 quarters for new systems there, but we're just starting to deliver the first few, so that's not a big impact in the quarter or a big impact in the order rates. We're very encouraged with the customer reaction to that complete new product line and we think it's going to be very successful for us, but that's really not impacted the near term, but we are certainly encouraged to see the packaging piece come up. Particularly in a backdrop, where food and beverage consumption is actually pretty modest and that actually was down in the quarter, overall food and beverage consumption. So to see packaging start to pick back up is very encouraging.
Michael F. Hilton - President and CEO: Jason, I have characterized the product lines within that segment as packaging is the largest product line in that segment. That tends to be the steady performer. So we are – so when we say it may be down we are generally not talking about big movements. The other product lines that are more call it larger dollar systems oriented you'll get the timing impact of when those systems may or may not hit. So you'll see larger swings in those product lines.
Jason Ursaner - CJS Securities: In plastics, I guess can you give more detail on the difference in order rates between the system OEMs that are building new machines (to hike) the capacity versus more replacement demand from end users at utilization and are you seeing growth in the latter or are both down right now?
Michael F. Hilton - President and CEO: No. I would say on the end users side, we are seeing sort of the replacement business being pretty steady. I'd say on the new systems side for some of the new applications, we are starting to see that pick up. So the one film application or by actual film application that's the one where there is sort of a mismatch, short-term mismatch in supply and demand with some lower capacity that went in last year not to the one we are working through. We are focused on really offsetting that with the new applications and we are getting some traction there. But the end users are continuing to buy at a pretty steady pace. Not too different from what we see in our other businesses in terms of products revenue being up as operating rates remain solid.
Jason Ursaner - CJS Securities: Just following up on the questions on the tech orders. What was the month to month linearity like there during the 12 week period? I guess, I am just trying to understand that the softness in orders for Tech, Dispense was more correlated to the overall semi cap industry or actually they are improving month-to-month or if it's more Company specific to the under fill Dispense market given the capacity they have got put in last year ahead of deliveries or would have been towards the later part of the period?
Michael F. Hilton - President and CEO: Yes. We are taking a look at it. I mean right now for overall Advanced Tech we are looking at sort of the latest orders being essentially flat. Greg is kind of taking a quick look here to see if we can answer.
Gregory A. Thaxton - SVP and CFO: I don’t think in terms of volumes – we typically don’t look into the particular 12 week period but specific to your question I don’t think we see any discernible pattern within those 12 weeks.
Michael F. Hilton - President and CEO: As we have talked about before and the earlier question was around sort of launch cycle on new products that we could have Q2, Q3 or early part of Q4 look different year-over-year based on sort of launch timing and patterns. As you recall we had a pretty solid Q2 last year and a step up in Q3 and then solid Q4 but little softer on the Tech side. So right now we are seeing kind of flat on an order basis that could change depending on where these sort of new orders fall and as I said earlier our customers are saying they are going to fall within the year. The can move back between Q3 and Q4. We have hedged that back a little bit just based on timing. We have got pretty good view to the new platforms. We are encouraged by that, but the timing is not as certain.
Operator: Christopher Glynn, Oppenheimer.
Christopher Glynn - Oppenheimer: Just wondering if you can make a comment on what Japan operating margin is historically relative to the overall and what the FX impact might be on that currently.
Michael F. Hilton - President and CEO: So, the margins in general in Japan are good. We've got a good position and unique products that we fine-tune for that market. So, they're good. So, they're as good as sort of the overall business and in some areas, maybe a little bit better depending on the particular product line. On the currency side…
Gregory A. Thaxton - SVP and CFO: So, clearly the yen had the biggest impact on a regional basis with the currency impact, which of course, we said was about $0.03 impact in the quarter. So, it's largely the translation effect of bringing back those revenues and spending back into dollar. So, a weaker yen obviously has hurt.
Christopher Glynn - Oppenheimer: Then on ATS, wondering if, looking at the long-term growth, you had really tough comps here, but it is pretty seasonal. I'm just wondering to what extent you think comparisons on an annualized basis have potentially reached a plateau of sorts in some areas?
Michael F. Hilton - President and CEO: So, I'm not 100% sure I understand the question, but let me just comment on the long-term growth, and if I'm not addressing it, I'll come back. We still view the Tech segment, on a long-term basis, over the cycle to be something that we can grow organically at sort of double-digit, around 10%, and that's in part the mix of what we see on the medical side, and that's in part a function of some of these niche applications on the Electronics side, as well as broadening in our sort of food management EFD type businesses, broadening the general assembly applications from where we are today. So, long-term we still see that as something that approaches double-digit sort of top-line over the cycle. In the short-term, you can have the timing issues associated with the systems orders and so forth, but I'm not quite sure that's answering your question.
Christopher Glynn - Oppenheimer: Well, I guess as you're framing it, through the cycle we've had several years of very strong double-digit. So, I'm just wondering if that double-digits through the cycle needs to be mark-to-market for (tier view) from here over the next few years, given that you've been significantly above that for a few years.
Michael F. Hilton - President and CEO: Yeah. So, let me just kind of break that down a little bit. I would say on the medical piece, we're encouraged. I would say on the broadening of the EFD business to more general applications, we're encouraged. Obviously, we don't operate outside the macro environment. So, when we make those kind of comments, we're thinking more of global growth in the 3.5%, and not 2% range. So, your guess is as good as ours as what happens in the short-term. What I'd say on the Electronics side is two things. We still envision we have the drivers of underfill; we have the mobile piece; we have the niche market applications. What I'd say as the wild card is what do you think is going to happen with the traditional backend packaging piece. So, if you think smartphones aren't going to grow at 50% rates now, they're more like 20% in the future, maybe they're more in the teens, that's sort of a negative impact. On the other hand, if you do think some of the more traditional applications are going to come back from something that's been zero to negative over the last probably 18 months, that's the potential upside in the near-term. So what's the balance of those two, it's hard to call at the moment. As I said earlier, the industry sort of analysts that follow that backend piece expect to see some improvement this year and a pretty solid next two years. But we have to see that play out.
Gregory A. Thaxton - SVP and CFO: Yes. The other dynamic I’d add is, and where we may not see – or where we may see a moderation in growth rates for devices like smartphones, the other dynamic of new features being embedded into these phones or new models or new product introductions. That, of course, is another driver of revenue for Nordson.
Operator: Walt Liptak, Global Hunter Securities.
Walter Liptak - Global Hunter Securities: Wanted to – I don’t want to beat a dead horse on this timing of the Tech orders, but could you just help me check some logic here? My understanding was early in the year the electronics firms design new products, and then your equipment gets customized to what they are doing, and then the orders go out in the second quarter, and then the equipment gets put in place in the summer so that they can – new products can hit the Christmas selling season. Is that right, and if things pushed out a little bit, why did they push out?
Michael F. Hilton - President and CEO: Yes. So what I would say is that's generally true for the more traditional kinds of applications. I'd say the mobile device in particular moves around a bit based on when particular customers decide to drive their launches, so some have come out right now with new products, some are rumored to come out in the next month or two, some are rumored to come out in the sort of late summer, early fall. So, I'd say, the one thing that's a little different from that is sort of the smartphone piece, which tends to have a different sort of launch strategy and some competitive dynamics going on there that don't fit the sort of traditional back end. So, they can move around a little bit more. So, that's really the commentary we're making is specific customers are talking about different timing, and it can move around several months at a time, maybe even a quarter at a time, and so that doesn't fit necessarily with the Christmas scenario, whereas historically most of the traditional back end packaging pieces that were linked into the PC side in general did fit pretty well to that sort of commentary.
Walter Liptak - Global Hunter Securities: In your commentary, you talked a little bit about the acquisitions and in one of the questions, but I wanted to see if I can get a little bit more clarity on Xaloy and EDI and just some more color around that sales trend that you're seeing. I think you said it was up sequentially, but what's going on there with the different customers and my understanding here too is that the tooling is based on new product development, what geographic regions for those acquisitions are positive or negative?
Michael F. Hilton - President and CEO: Yeah, I'd say, just a general comment that we're trying to make is, on the film side of business, there's a little imbalance on capacity at the moment, particularly on biaxial film, so that affects the EDI business more than the Xaloy business which goes into both film and to injection molding applications. The overall end demand for plastic from a consumption standpoint even now is running in that 6%, 7% range. So that's a good positive trend in the short term in that one area we've got bit of an imbalance. I'd say Europe in general for both businesses like we see in our core businesses is pretty soft given there's a recession going on there and even in Germany where a lot of the OEM's are concentrated for these kinds of businesses things are soft. I'd say we're encouraged a bit more in some of the – U.S. is okay in the emerging markets we're encouraged, but I'd say Europe is the one that's particularly soft there and more on the OEM side versus the end customer side.
Walter Liptak - Global Hunter Securities: You mentioned a couple of times the integration efforts and that regarding the mid-teen or mid-20s margins, I wonder if we can get a timing on when you think you might get there and what the macro needs to look like and what are some of the efforts? Are there plant consolidations going on or is there procurement synergies? Just some detail on the kind of cost take out that you can do.
Michael F. Hilton - President and CEO: Yeah. So, on a high level, we started with one sort of modest facility consolidation, but we do see leverage from a procurement standpoint, you have to go through the sort of the qualification process that takes a little bit while, but we do see significant leverage on this for low cost sourcing initiatives that we have underway. We do see some benefits around segmentation and some strategic pricing, but in particular I'd say the businesses are a bit behind where we are in our Lean Six Sigma effort and we have tons of projects that are lined up that were executing there around the Lean Six Sigma activity and that they were going to play out over the next couple of years. So we are really encouraged by what we see there. Then the real upside quite frankly is going to be on the top line and we are getting some encouragement – we have had some – we do on the typical sort of cross-selling activity in the short-term where you have, one's a customer of one business but not the other. But the real leverage is going to come around the long run on the integrated sale of say the sort of total film applications as an example and we are getting some interest there at high customer and that's kind of going to play out not this year but in the next couple of years. We have to do some structuring to make sure that we have got all of the sales and support people trained, cross-trained and the engineering organization supporting and then that takes a little bit of time. By the end of the day there is upside on the top line as well. But we are pretty encouraged by what we see in the traditional areas I mentioned and then in the extensive list of project opportunities from a Lean Six Sigma standpoint.
Walter Liptak - Global Hunter Securities: I have got a few more questions though, I will take them offline. Just kind of a last one, the acquisitions that you have done in plastics, are we – where are we at now? Are we done now or are there other acquisitions that can you add to this portfolio?
Michael F. Hilton - President and CEO: What I would say is one of the things that we commented on when we made these acquisitions was we wanted to get scaled to be a leader from a technology and a market standpoint and we have got that, but we also mentioned that these were fragmented around individual products that make up sort of the chain that mirrors what we do in our Adhesives business. So, there are still additional opportunities to upgrade and again, consolidate in a fairly fragmented market. So, there're additional opportunities we're looking at.
Operator: Charlie Brady, BMO Capital Markets.
Charles Brady - BMO Capital Markets: Can you tell – maybe I missed this, the mix of parts for total Company and for Adhesive Dispensing in the quarter?
Gregory A. Thaxton - SVP and CFO: Yeah, Charlie, total mix was of – if we think about the legacy business, because that's a benchmark that you are familiar with, was about 45%, that was down about 1 percentage point from where it was last year, and in terms of segment again. Adhesive tends to run a bit higher than that total company average, but not too far away from that point.
Charles Brady - BMO Capital Markets: Can you give us what the cash from operations was in the quarter?
Gregory A. Thaxton - SVP and CFO: Yeah, cash from operations was about $63 million in the quarter.
Charles Brady - BMO Capital Markets: On the packaging, the commentary on packaging softness, I guess, kind of continue to be soft because of over capacity. Can you just expand on that a little bit? I mean, is it getting – is it stable where it is or is it getting better or worse and…
Michael F. Hilton - President and CEO: Are you talking about on the plastics side or are you talking about on the cardboard paper type side Charlie?
Charles Brady - BMO Capital Markets: The plastic side.
Michael F. Hilton - President and CEO: Yes. On the plastics side, so what I'll say is the operating rates are going up. So the sort of trigger for new investment is getting closer. Based on operating – as rate is going up, so we are still seeing overall demand which then translates into operating rates demand being up 6%, 7%. So it's really just an absorption timeframe. So yes, it's improving but there were some large orders in late '11 and '12 that created a little bit of short term lower capacity particularly with the softening macro environment.
Operator: Gregory Halter, Great Lakes Review.
Gregory Halter - Great Lakes Review: I wondered, if you could comment on the competitive environment in each of the three segments?
Michael F. Hilton - President and CEO: So just overall, we've got generally speaking good competitors in each of the three segments. We haven't really seen any significant changes that I would say, in the quarter we continued to focus on the model – the business model and they are so successful which is starting with Technology. So we've invested in each of our areas in new technology like the Freedom System that's come out this past quarter in the Adhesives areas. We've got similar innovations in our Technology and in our Coatings business. So our view here is to continue to stay ahead of the crowd by being that technology leader and then providing the best support and service. But at the end of day we haven't seen any significant changes within the quarter in the competitive landscape.
Gregory Halter - Great Lakes Review: I just wanted to be clear on the swing and the other expense and other income $565,000 versus $137,000 is that primarily due to the foreign currency translation?
Gregory A. Thaxton - SVP and CFO: That's correct.
Operator: Christopher Glynn, Oppenheimer.
Christopher Glynn - Oppenheimer: Just wanted to sort of get the context around some comments earlier in the year for expectation for flat full year margins if a certain growth rate realized the macro has come into play and there is some negatives relative to the full year growth rate to get to flat margins. But just wondering if overall we could kind of reframe that comment?
Michael F. Hilton - President and CEO: If we look at the comments that we made last quarter what we have suggested is if the overall global sort of economic environment for '13 was about what it was in '12 so we would read that as 2.2%, 2.3% kind of GDP and we are able to generate the same kind of revenue growth that was sort of 7% or 8% and we would expect that our margins would come in at that sort of, I think it was 24% range. Our view is still, the volume leverage is there, if we can deliver that kind of top line. Our view in the current macro scenario is mostly kind of we still think the second half is going to be considerably stronger so that the year comes in at that 2.3% kind of range. I'd say they have shifted it a bit more to stronger Q4 and slightly weaker Q3 calendar is what we have seen and Q2 is probably a little lighter than they would have forecast a quarter ago. So the read out has more backend loaded. So I think there is a potential impact if they are right and who knows whether they are going to be right. That some of that slips over into the next year as it relates to our fiscal year. But we had still – if they deliver that we think we are going to grow above that and the margins based on incremental performance we'd be there. I'd say what we're saying right now at a high level, they're still encouraged macro-wise. Our customers are still cautious. We've shaved back our near term Q3 projections based on really just not seeing that translate into orders, even though our customers are telling us they're going to place them.
Operator: I'm showing no further questions at this time.
Michael F. Hilton - President and CEO: Let me just make a couple of comments here at the end. Number one, strong quarter, and our team did a great job in a fairly soft macro environment. Number two, we're very focused on delivering value to our customers, so, if there's opportunity to secure volume out there, we're going to get it. We do need a little help from the macro environment, but if that materializes, we'll be able to deliver, and we'll be able to deliver the incremental margin. So, it really just comes down to whether or not we see that translate in the next quarter or so, but I would say that our customers are more optimistic than pessimistic and it may be just an issue of timing. So, thank you for participating in today's call and continuing to support Nordson.
James R. Jaye - Director, Communications and IR: If you have any calls, this is Jim, I'll be around today, and be happy to take any follow ups that you might have. So, thanks again everybody and enjoy your long weekend. Bye-bye.
Operator: Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.