Nordson Corp (NDSN) 2007 Q3 法說會逐字稿

Good morning. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone to the Nordson Corporation third-quarter fiscal year 2007 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Ms. Price, you may begin your conference.

Thank you, Carmen. Good morning, everyone. This is Barb Price, Manager Shareholder Relations along with Ed Campbell, Chairman and Chief Executive Officer; Peter Hellman, President, Chief Financial and Administrative Officer; Greg Thaxton, Vice President and Controller and Andy Dunn, our Senior Vice President will be joining us shortly. We would like to welcome you to our conference call today Friday, August 24, 2007 on Nordson's third-quarter fiscal 2007 results.

Our conference call is being broadcast live on our webpage at www.Nordson.com and will be available for 14 days. There will be a telephone replay of our conference call available until midnight, Tuesday, September 4 by calling 1-800-642-1687 and you will need to reference ID number 13447578.

Our attorneys have requested we open this call with a cautionary statement under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 would now like to turn the call over to Ed for an overview of our third-quarter fiscal 2007 results and Nordson's future outlook. Ed?

Thanks, Barb and thank you all for attending Nordson's conference call discussing our third-quarter 2007 results. We have very positive results for the third quarter of 2007 to report, as well as an exciting acquisition that will build on the success and capability of Nordson's EFD business.

I would like to first discuss the quarter, we will then take your questions about the quarter, after which I will describe our acquisition of TAH Industries in some detail and then again take questions on that acquisition.

Okay, starting with the quarter. We generated record sales of $257.7 million, up 14.3% from the prior year and a record for any third quarter. Acquisitions added 8.9% to sales, while core volume increased 2.9%. In addition, currency had a positive impact in the quarter on a year-to-year basis of 2.5%.

On a business segment basis, Advanced Technology reported a sales volume gain of 25.8%, reflecting the impact of acquisitions. The Industrial Coating and Automotive segment achieved a third-quarter sales volume increase of 13.9%. This newly named segment combines the segment formerly known as Finishing and Coating in the automotive unit of Adhesive Dispensing segment and is reflective of the management and operation of the units within the segment. All prior year results have been adjusted to reflect the new segments. The Adhesive Dispensing Systems segment, now excluding automotive, showed a volume increase of 3.5%.

Third-quarter sales volume was up in all geographic markets with the America's rising 32.1%, Japan volume was up 15.2%, the United States increased 10.8%, Asia Pacific was up 9.9% and Europe increased volume by 8.6%. We ended the quarter with $115 million in backlog. That is up more than $22 million from last year's third quarter measured in constant currency.

Demand as measured by orders has continued to strengthen from a rather slow start in the first half of our fiscal first quarter. We have updated the investor presentation within the Investor Relations portion of the Nordson website to include the detail on the order growth and other items that I will be describing.

Orders for the last 12 weeks ending August 19 measured in constant currency and including acquisitions were up 12% from the same period in the prior year. Without acquisitions, worldwide orders are up 2% in constant currency terms.

Moving to orders by segment, during the past 12 weeks, orders in Advanced Technology are up 43% from the same period last year, including the effect of this year's acquisitions. Without acquisitions, Advanced Tech orders are up 1% and significantly improved from the decline that we had reported during our conference call in May.

Each of Nordson's Advanced Tech businesses has experienced improved order rates over what we reported in May and the newly acquired Dage and YESTech businesses have orders that are up over 20% from last year's levels. Adhesive order rates are up 3% during the most recent 12 weeks and are impacted by difficult comparisons to nonrecurring orders last year in the US from large adhesive coating systems. While softness in US product assembly system orders is reflective of weakness generally in housing-related markets, orders for product assembly systems globally continue to be quite strong.

Industrial Coating and Automotive orders for the past 12 weeks are up 1% from last year. Strength in demand for powder and container systems is partially offset by considerable weakness in demand within the US automotive business.

On a geographic basis, orders over the past 12 weeks and excluding acquisitions were up 22% in the Americas, Japan orders were up 18%, Europe showed an order increase of 6% and Asia Pacific was down 13% and US order volume was down 3%.

Turning to the income statement. The overall gross margin rate in the quarter was 56.2% compared to last year's 56.9%. Purchase accounting effects, which are relatively short-term in nature and relate to acquired inventory, reduced gross margins by 1% and favorable exchange rates added 0.3% to gross margins.

Spending was up 13.2% resulting from core spending increases of 2.0%, acquisition effects of 8.9% in currency, which added 2.3% to spending. Our interest expense was up $3.8 million, reflecting the use of debt to finance the three acquisitions completed during the first half of the year.

Our tax rate for the quarter was 31.8% versus 24.3% last year. The prior rate included a $3.1 million or $0.09 per share tax refund booked in the third quarter. Nordson's net income for the quarter was $24.5 million versus $26.6 million from continuing operations last year and $24.8 million overall.

Turning to earnings per share, last year's third-quarter EPS from continuing operations was $0.77 and included the benefit of $0.09 per share related to the income tax refund that I referenced in previous comments. Normalized EPS last year, without the effect of the tax refund, was $0.68. This year's fully diluted EPS was $0.72 and is net of a charge of $0.08 per share related to acquisition accounting. This charge is comprised of $0.05 per share associated with short-term purchase accounting inventory effects and $0.03 per share from non-cash amortization of acquired intangibles. Excluding these purchase accounting charges, this year's normalized EPS was $0.80 per share, up 18% over last year's $0.68 of normalized earnings per share from continuing operations.

Cash-related measures reflected good performance in the quarter. Our operating cash flow for the quarter continued to be relatively strong, specific cash flow items in addition to net income or non-cash charges of $9.9 million and working capital, which generated $4.6 million in the quarter. Dividends were $5.9 million. Capital expenditures were $6.5 million and other items contributed $1.5 million in the quarter. Net cash before changes in debt and acquisitions with cash generation of $28.1 million. Our debt and leverage measured as debt to total capital ended the quarter at 39.9%. The quarter's EBITDA was $49.1 million or $1.44 per share compared to $42.6 million or $1.24 per share last year, a 16% increase.

In summary, we are pleased with the reported sales volume increase in each of our segments. Our acquisitions, net of interest, but excluding the impact of purchase accounting charges, are accretive to results in the quarter and we believe we have additional synergies to leverage.

In addition, we are pleased with the continuing and significant improvement in the financial performance of our Industrial Coating and Automotive segment where operating profit margins have improved to 13% from last year's 9%. The results to date have demonstrated the turnaround that we had planned.

Let me turn to some brief comments about our outlook for the fourth quarter. We are encouraged by the growth we have seen in our orders, as well as the revenue opportunity that the TAH acquisition completed yesterday brings to our portfolio. We currently have an outlook for fourth-quarter revenue growth of 16% to 20%. At the midpoint of this range, growth is made up of 3% from core volume, 12% from acquisitions and favorable currency effects should contribute an additional 3% increase to year-to-year sales.

Given the mix of standard products versus engineered systems in our forecast, better absorption and the short-term purchasing accounting effects related to the TAH acquisition, we should see gross margins around 56%. We are estimating a tax rate of 35.4% for the fourth quarter. This is up from last year's fourth quarter of 24.0% due to lower tax benefits available on export sales under current regulations and a higher expected foreign tax rate.

This outlook results in earnings per share for the third quarter in the $0.73 to $0.83 range, including an estimated charge of $0.06 per share for purchase accounting effects. Including a $0.03 per share charge for acquired inventory accounting that is short-term in nature. Excluding purchase accounting, we expect acquisitions to be accretive beyond the cost of acquisition interest expense by $0.02 per share during the fourth quarter. Prior year fourth-quarter earnings were $0.87 per share from continuing operations and $0.82 including discontinued operations. The difference in the tax rates from last year to this year impacts the earnings per share comparison by $0.13 per share.

In summary, we expect to finish the year with a strong quarter and second half. In addition, we expect that the momentum we are seeing to carry into next year as well.

Let us now turn to your questions on the quarter before we discuss the TAH acquisition.

(OPERATOR INSTRUCTIONS). Charlie Brady, BMO Capital Markets.

Hi, thanks. Good morning. When you guys look at the US sales growth number of 10.8%, what's sort of driving the number? The previous three quarters, you have seen declines in US and it is a pretty good uptick. Anything in particular driving the US growth?

We had very good results in the quarter in our finishing businesses, a chunk of which was in the US. Our adhesive businesses also had some good performance on the strength of the order backlog that they brought into the third quarter. We have seen significant turnaround in the pace of activities within adhesives from where we were at the beginning of the fiscal year. Let me just turn to Greg and see if there is anything else that I am omitting here, Greg.

Yes, I think you have characterized most of it and we also had some good volume improvement in our UV business as well.

Charlie, this is Peter. We said throughout the year that the second half was going to be stronger because we were going to be shipping engineered systems orders that had entered backlog earlier in the year, especially the first half, and the US increase in sales I think is reflective of that shipping of engineered systems, particularly in the finishing business.

Okay. That's helpful. Thanks. And as we look to the Industrial Coating and Automotive systems now that you've sort of pulled Auto from one section to another and looking at the margins in this business, if you back out -- can you give us a sense of the -- what if any margin degradation in that system came from Automotive? I am assuming the Automotive system given that that is a weak segment negatively impacted the Coatings segment excluding the Automotive.

Actually that is not the case in this particular quarter, Charlie. The 13% operating margin was pulled up very slightly by the Automotive business's good shipments and good operations in the third quarter. The difference -- order of magnitude I think was a percentage point.

Okay, thanks. I'll jump back in the queue.

John Franzreb, Sidoti & Co.

Good morning, everybody.

Good morning, John.

Could you expand a little bit the rationale behind switching the automotive business to the finishing side?

Sure. It really speaks to the way we need to report it, given the way we operate it. The automotive business is based in Amherst, Ohio, which is where the coating and finishing businesses are also located. So we have four primary businesses based in Ohio. They are all managed by the same executive, Doug Bloomfield.

And recently as a part of our efforts to improve performance and efficiencies and the like, we have begun to make changes that have caused certain elements of those four business units to have shared activities and the like. And looking at reporting guidelines under SEC and GAAP rules, they now constitute a single segment.

Okay. So it is not an indication of maybe greater market penetration or growth in the automotive business; it is really more of a reporting issue?

Precisely. In other words -- well, it starts with how we are running the business to improve performance. And I think you can see at the bottom-line performance in coating and finishing, which is the bulk of the segment, we have been making a lot of changes. And Doug has been the long-standing leader of the automotive segment as well, or the automotive unit rather, and we have taken steps to consolidate various operational aspects. And this is the reporting consequence of those operational changes.

Excellent. Switching to your comments on Dage and YESTech, that their order rate was up, I think you said 20% year-over-year.

Over 20.

Yes, over 20. Greg, could you talk a little bit about what is driving that, now that you have had your hands around the business for a while?

Sure. The common business across those two were x-ray inspection systems. Dage operates with extremely precise, high-performing systems and has recently introduced systems that can do the level of detail inspection not unlike what a CAT scan can do in terms of the health markets, where there is a sliced virtual image that can be examined in enormous detail. In this new technology of Dage, in addition to their increasingly precise x-ray systems that they have introduced over the last year, have gotten tremendous market response.

Correspondingly, Dage has introduced a high-speed bond tester. It was only recently introduced prior to the time that we bought the company. This speed relates to the parameters around which the testing occurs in that it can emulate the dropping of a processor or cell phone, those types of things and an evaluation of the types of fractures that occur in those various bonds and that high-speed bond tester has now become a standard in some critical global customers in terms of their evaluation of the quality of the products that either they themselves assemble or some of their contract manufacturers do and so this product has also gotten great uptake.

Okay, thank you, Ed. And not to step on your TAH discussions coming, but could you just discuss your thirst for additional acquisitions in light of the buying binge you have been on in the past year?

I have said for a long time and this dates back to when we bought EFD in 2001, we did take a pause after completing that acquisition to pay down some debt, but we are highly selective in the companies that we decide to pursue and more often than not, we have found that we are opportunity-constrained as compared to constrained by appetite or capital.

We are looking for companies that have superior market positions, fast growth rates. They are going to average Nordson up. With high levels of profitability, they are going to average us up as well. And frankly the ability to find companies like that that are for sale for reasonable prices is not always steady and available. We have found some good ones this year and we will continue to do that and pursue acquisitions to the extent that we can find them that meet those characteristics.

I will say that there is a governor of course and that is our capital and we believe that over time a balance sheet -- our balance sheet should average somewhere in the vicinity of 40% debt to debt plus equity. That is the level that we have been operating at here of late and I think we finished the quarter at just under 40%. Even with the addition of the TAH acquisition, we expect by the end of this year with the cash flow that we anticipate generating, we will continue to be below that 40% level and so it is an opportunity that we will continue to pursue governed again by prudent capital structures.

Great. Thank you very much, Ed.

Walt Liptak, Barrington.

Good morning, everyone. My first question is on the guidance -- the 3% core growth rate. How should we think of that in relation to the orders up 2% acquisition and in constant currency? Is it still systems -- larger systems orders that are going to be shipping in the next quarter? Is that where the difference comes out?

Well, first of all, the acquisitions are completely outside of that 3% number that is included in the core volume growth. What we are talking about is -- that would be the growth in shipments from those businesses that we owned in 2006.

In terms of the mix, there is an increased portion of the shipments that we anticipate in the third quarter that would be systems businesses as compared to what we might have in terms of mix terms across a 12 month period. We entered the second half with a large backlog. We shipped a portion of that down in to quarter three and if you look at the typical level of backlog that we finish a year with, we would expect to ship it down further in the fourth quarter. That shipment forecast of 3% core volume compared to orders of 2% is frankly not a very big difference and it is not uncommon in the fourth quarter that we would have an even larger ratio of shipments versus orders relative to the numbers that we have right now.

Okay, fair enough. And in the Advanced Tech segment, I think you said that orders were up 43% with acquisitions, 1% without. Is that correct.

As compared to a quarter ago. Back in the May conference call, that positive 1% was a negative 9%.

Right. So you are -- right, you have got some positive trajectory getting you to better core growth next year and that leads into my next question. Last quarter, you talked about -- you called out Gartner Group and growth of I think 20% in some electronics capital goods next year. Can you talk about how you are tracking towards that, what you are seeing from your end customers, new products that would help the volume growth in the Advanced Tech segment?

Sure. There is a couple of things. First of all, let me correct that negative 9%. It was negative 8% in the May conference call. Relative to the Gartner Group numbers, you recall correctly.

They have since updated their forecast and while they had talked about 2007 in the global semiconductor packaging and assembly business being down 13% or down 8% rather, pardon me, they have now revised that to be down 6%. So they see a slightly better 2007 and their forecast for 2008 they have revised slightly higher in dollar terms because of the different comparative point to jump off from '07 to '08. The percentage growth is down from I think what was 20% to now it is up 13%, but still a very strong 2008 in both relative and absolute terms.

Now in terms of what we see and how our business tracks that, I will first of all comment to say that the softness that we have had in our semiconductor assembly markets has been relatively concentrated in a very few customers as compared to a general slowdown across the board. And our anticipation is, that from 2007, both the absolute level of demand across our segment, as well as the specific demand of key customers, is going to be improved.

Andy Dunn I know has joined us on the line. Andy, if you would like to add anything to that. Andy is the Senior Vice President in charge of our Advanced Technology markets.

Thanks, Ed. No, I think you said it well. We have one or two very large customers that have had a fairly large impact on our revenue growth this year, but excluding those, we have had consistent revenue with last year across all the rest of our Advanced Technology businesses and customers.

So at the same time, I would add that Dage with their new products that I heard you talk about just a minute ago, they are having significant growth in the x-ray side of their business and building growth based on that best-known message that was sent out by Intel, one of their large customers to the marketplace based on the high-speed testing technology that is available in the bond tester productline. So we are very enthusiastic about those two businesses or those two productlines and also very enthusiastic that our market has really been starting to show some signs of life across everywhere but our one or two major customers that we spoke about.

Okay, great. Thanks for that answer. The final thing is the segment data, are we going to get restated quarterly data or is this something that we will have to wait for quarter by quarter?

I'm sorry, this is Greg. We will restate with our Q and then our K filings and then where appropriate in the K, it will be historical data.

Okay. Thanks, guys.

Matt Summerville, KeyBanc.

Hey, Greg, just on your last comment first, is there any way we can get that before your K comes out for 2006? Can you put it up on your website or something?

This is the segment data for the revised segments you are speaking about?

Yes. That would be very helpful in modeling going forward to have that now as opposed to in four months.

Yes, I think we can get it up and we will put it in our normal Investor Relations pack.

Perfect. That would be extremely helpful. Thank you.

I think what you are going to see as Ed alluded to it, it won't have a big impact on the segment. In the quarter, as Ed mentioned, it was about a 1% difference. But when you're looking at comparisons from year to year than with the restated numbers, it won't have a big impact, but we will put it out there.

Okay. It would just be helpful for our modeling purposes to have it sooner as opposed to later. More on Advanced Tech. Ed, you mentioned that packaging assembly equipment sales forecasted to be up 13% next year. What are you hearing on the test side?

You know, Matt, I don't actually have that Gartner press release in front of me. It is on their website. It was, if I recall, a July press release. My general recollection is that it is directly in line with the assembly and packaging. The numbers in the second-quarter press release of Gartner were almost identical if you compared packaging on the one hand and test on the other. I just don't have those exact numbers with me.

And then 20% order growth, Dage and YES, when do those things ship? Do they tend to be short lead times? Is that stuff going to go out in your fourth quarter or is this kind of on tap for 2008 at this point?

Andy?

I'm sorry. I didn't hear.

Sorry. The orders you booked at Dage and YES, up about 20% year over year, do those tend to be short cycle in nature? Are those going to ship in fiscal Q4 or shipment of those products on tap for fiscal '08 at this point?

I think in the case of the bond tester, that is certainly going to continue through -- the order book that Ed spoke about will show up in FY '07.

Okay. I guess, Ed, looking across just the three segments, how would you characterize the overall pulse of order activity as you progress throughout the quarter and then maybe you can speak to the various geographies if you will?

Sure. First of all, I would say that we have -- I would characterize the order book right now as generally strong and improving with a few spots of notable weakness. For example, in adhesives, we see packaging, product assembly on a global basis, our paper and paperboard converting business, all performing very well.

And then we have a real weak spot in the large industrial coaters as it pertains to orders. We actually had quite a large backlog of those coaters from some strength that we had in that business in terms of orders earlier in year and we are anticipating that these large backlogged coaters will ship in the fourth quarter for the most part. So it is reasonably good performance that we are seeing in those other businesses within Adhesives.

The same theme is true with respect to the Industrial Coating and Automotive businesses. Automotive is very weak. After a good quarter, pardon me, the third quarter, the fourth quarter -- or the orders rather leading into the fourth quarter are down considerably from what we had seen a year ago. That is very typical of that business where there are largely three OEMs that are the majority of our sales and their orders tend to come in relatively large waves from time to time.

Powder is continuing to book orders at double digit growth rates and our container business is also quite strong.

At Advanced Tech, we have seen all of the traditional businesses -- the Asymtek business, the UV business, our March plasma business, the EFD business -- those businesses are all improved in terms of order rates from what we've reported in the May quarter. So that momentum is clearly improving.

Geographically, Japan continues to be quite strong. Europe is also quite good. The Americas is a relatively small base and it can from quarter to quarter bounce up and down with the 22% growth in orders we have had in the Americas is very encouraging. The US order book is primarily concentrated in terms of weakness. That minus 3% that I mentioned is primarily focused in the Automotive and Coating businesses that I talked about. And to a much more minor degree, some weakness in housing-related end markets.

And then finishing up with Asia, the softness that we see in Asia is all centered on that portion of our Advanced Tech business that has the weakness. The large customers and some of those contract manufacturers have not produced growth sufficient to offset the softness we have in a few customers.

Okay. Final question then I will get back in queue. Earlier on in the calendar year, Ed, you spoke about the beginnings I guess of some encouraging conversations you were starting to have with some of the major semi guys and I guess could you update us -- do you feel better as we sit here today versus three to six months ago about the outlook for your semi-related business in '08 versus '07?

Well, I think as a general notion and I will start this, Andy, and then if you have anything you want to add, please do. The large customers that we have in semiconductor assembly are customers that we tend to work very closely with. These are companies that share with us their technology roadmaps and they map their investment plans around their needs to fund new technology and assembly methods and new facilities and the like within their spending plans. And so we get some visibility into the future as to what their demand will be. It is always subject to change. It is subject to change both regard to their business pace, as well as their capital spending plans more generally for the organizations.

But that information leads us to believe that 2008 will be better than 2007 and correspondingly, we may have a better 2009 than 2008. So the opportunity for continued growth from some of these large customers on a forward-looking basis is there. Andy, anything you want to say?

No, I think you've stated it pretty well. I think we are excited by the impact of some of our new products. As I said with Dage and also Asymtek has a lot of new products rolling out and we think that plus the improving market conditions are going to add to our revenue for '08.

Great. Thanks a lot, guys.

Thank you, Matt.

Steve McNeil, Jennison.

Good morning. I just wanted to revisit the cash flow numbers you threw out. Can you give us the year-to-date free cash flow, please?

The year-to-date numbers. I am going to turn to Greg for that.

Yes, the year-to-date free cash flow numbers.

And Greg, if you want to take a minute, we can go on to other questions and come back to address that.

Okay, that's fair. So Ed, the one thing I wanted to revisit with you is I think you had previously articulated during the second-quarter call that organic growth would accelerate to 2% in Q3 and you guys delivered 3%, right?

That's correct.

And I think you also had articulated a 7% number for Q4, right?

That is also correct.

So I am just wondering if you can walk us through that 7% view previously versus the current view of a 3% number and kind of what that delta is.

Yes. That 4% change between the 7% and 3% is not unlike the change in the order book that we are reporting for the most recent 12 weeks where we had reported in the last quarter, the May call, 6% organic volume growth in the order book and this time we are talking about 2%. That difference between the 6% and the 2% is largely concentrated in Adhesives and Industrial Coating and Automotive.

I think the outlook that we are sharing is an outlook that simply says if orders have slowed a bit driven by those particular points of weakness from the momentum we had before and there is also some assumptions in there about how much of our backlog that we are going to ship down in the fourth quarter. It is not to say that we would not work hard to well exceed those numbers, but I think we have tried to put out there a most likely forecast of what we think that we are going to hit.

So just to drill down a little bit more there, that 4% delta, that's -- I think it was the Automotive business within the US that you cited and some coatings business.

Yes, I will give you some numbers just to put some scale on it. Our Automotive orders in the last 12 weeks are down 35% from a year ago. Our Adhesive Coating orders during the last 12 weeks from the same period a year ago are down 30%. And those are significant points of weakness. Obviously each of those businesses is comparatively small for Nordson, but nevertheless the size and the weakness there is something that filters its way through our outlook for the fourth quarter.

The end market for Adhesive Coating is what?

These are laminating systems. They sometimes will carry price tags in the range of $1 million and they would be used to laminate anything -- multiple ply materials that would go into --.

Furniture.

Packaging or it could be that, could be fabrics for a variety of end markets. It could be tapes and labels, but these are large reel-to-reel systems with wide web precision hotmelt coating heads attached.

And when looking at those percentage changes, these are lumpy businesses, engineered systems businesses where the orders as a percentage or relative to the total business can be large and they do come in waves and last year, because we are comparing 12 weeks to the same period prior year, those were relatively good order periods. So we don't see it as a major long-term downturn, but more the factor of the business and the waves are just hitting us so that it looks pretty negative in this short-term 12 week time period.

So I guess then if we look at the full year at organic growth, we going to probably be a little negative, maybe by a point or roughly flat. So with the order book where it is and the backlog and so forth, I mean is it safe to say that organic growth will be higher in '08 than it was in '07 where you stand today?

We do expect that to be the case would be the first point. Also of course the way in which we break out these numbers, we are masking the organic growth that occurs in the acquired companies and as we mentioned, the two x-ray inspection companies have orders that are up 20% from their same comparables a year ago. And then as we move into 2008 of course, we have these fast-growing acquired companies in both years in what we report as organic growth will be enhanced by the performance that they deliver.

I guess I was kind of more focused on the -- I mean it is a good point, but I guess I was more focused on the core business.

If we talk about the Adhesives for example, the Adhesive business started in 2008 quite slow.

2007.

7.

I'm sorry. 2007 -- started quite slow. And that has had an impact on the full-year numbers and the expectations we have for that business exceed the level of organic growth that they will produce in 2007.

Likewise, the Industrial Coating and Automotive business has been -- had its ups and downs in orders, but I think generally it has good momentum. We have made investments not just in products, but in organizational capability particularly in fast-growing markets in Asia that I fully expect are going to be performing at a higher rate in 2008 than they have in 2007.

And lastly, I think the entire Advanced Technology segment is going to have an uplift that we are beginning to see some signs of, but I think 2008 is going to be clearly a more robust time period for us.

Steve, this is Greg. Let me come back to respond to your question on free cash flow through nine months. It was $43.4 million.

That is a year-to-date number -- free cash?

Yes.

Okay. And what is the CapEx number there? You said 6.5 -- CapEx.

The CapEx number through nine months?

Correct.

It is about $18 million and you have to remember that's got some building purchases in it and does not include proceeds from the sale of a building.

I understand. And what is the full-year expectation of free cash?

I don't think we have guided to that, but we have given you enough information that you can probably get there.

Fair enough and then lastly, just back on Advanced Tech, can you break out that 25%, 26% number between revenue growth number on the volume side between M&A and organic, please?

Okay, Greg, why don't you take a look at that as we move on to other questions and we will come back and give you that answer.

Okay. Thank you.

Thank you.

Charlie Brady, BMO Capital Markets.

Hi. If you look at the order for 12 weeks on both Coating and the Adhesive, the Advanced Tech business, and ex-acquisitions on Advanced Tech up 1%, but you have clearly, as you stated, got a couple of customers in there that are major contributors to that order growth or lack of order growth depending on the quarter and if you back out those couple major customers and you looked at what the order growth was excluding those, can you give us a sense of how much -- what the order growth would have been if you kind of back that out because it sounds as though, what you said, excluding those customers, the rest of the business is doing pretty good?

I think the way to look at it, Charlie, is that Asymtek is the business segment where we have had the key customers and absent key customers, the rest of the Asymtek business is about equal to last year. So it is not growing upward at the rate that we generally expect and I think the softness that we have talked about generally in those markets has caused the capital investment by customers -- semiconductors, [telephones] and the like both at the processor level and the board level -- has simply been a soft market.

Okay. And I guess a similar question on the Industrial and Automotive systems business. With Automotive being down I think you said 35%, if you didn't have the Automotive, can you give us a sense of what the order growth would have been -- I guess what it would have been before you sort of moved Automotive into that segment?

I can do kind of an eyeball weighted average, but if you -- probably the easiest way for you to do that would be you can look at last year's third quarter as reported without Automotive and now reported with Automotive and do a weighted average there and probably get to a better answer than I can do off the top of my head looking at mental arithmetic.

But it would be around double-digit growth.

Thanks. That's helpful. I appreciate it.

Matt Summerville, KeyBanc.

I was wondering with the new reporting structure with Industrial Coating and Automotive what the margin target for that business is. I know on what used to be Finishing and Coating, you went from 8% to 10%. You are obviously well above that. Is it time to reset the bar again here?

Well, what we have talked about, Matt, is for the Coating and Finishing segment previously was that we expected that business to earn its capital -- cost to capital across a full business cycle. So the fact that we have the kind of margins that we have produced here at times the business is quite good is not if you will a demonstration of complete achievement of the goals that we have set. So I don't know that we are prepared to raise the bar so much as to say that I think it is not clear that we are done. We have more work to do and we would expect to see that margins are strong across the entire business cycle.

Can you lastly give us an update on where you are at with your low-cost sourcing initiatives and to date in '07, how much benefit you have seen and how you are thinking about 2008 in that regard?

Sure. I think to articulate the goals again that we set three years ago, we want to have 30% of our acquired material be sourced from low-cost countries in a five-year period. So we're ending the third year of a five-year plan. And I think we have made substantial progress in identifying suppliers, qualifying suppliers and those suppliers are beginning to generate production runs.

I believe that we should achieve significant savings on the acquired material net of customs and duty and transportation costs and that has begun, but it has not been a significant portion of our material consumed, but is becoming an increasing portion. At a run rate, it is in the -- still in the single-digit percentages, but our goal is 30%. So by that I mean that it is operating in the let's call it 7% to 9% sort of range.

Thanks a lot.

This is Greg. I will come back to Steve's question on Advanced Tech third quarter excluding acquisitions and with those results, we are down about 6% in quarter three.

Okay, great. Thanks for that. And operator, I think I'd like to stop the questions at this point because I know we are getting late and the market opens shortly, so I want to move to my comments on TAH and then we will take questions on any topic at the end of those remarks for those that still want to stay on the line.

Yesterday, Nordson completed an attractive acquisition of TAH Industries headquartered in Robbinsville, New Jersey. TAH employs 180 full-time employees. They also have a subsidiary operation in the UK with 12 employees. TAH specializes in the design and production of disposable plastic mixers and cartridge dispense systems, meter mix dispense valves and accessories. Precision dispensing is core to Nordson and TAH Industries adds another precision dispensing technology to the already impressive portfolio.

TAH sells systems predominately through material formulators to the construction, automotive, dental, DIY, life science and aerospace markets. Sales are through a combination of direct sales personnel and sales reps. TAH has been a technology leader in the motionless mixer and two component cartridge market.

Their latest innovation is the proprietary u-TAH, a Universal cartridge that enables customers to apply two component materials using conventional caulking guns rather than a custom two component gun, which is heavier and more costly.

Another version of this innovation is [nano u-TAH] sized to supply dentists with the exact amount of material for crowns, impression and bridges. Existing two component material dispensing systems require custom guns and a thorough sterilization after every use due to the large volume of material in each dispenser. The nano u-TAH provides a convenient disposable single-dose application system.

TAH Industries operates out of a 90,000 square-foot custom facility designed to accommodate their state-of-the-art injection molding machines. Both EFD and TAH growth is driven by the need for convenient packaging of materials in easy to use and apply dispensers. Traditionally, two component materials have been sold in separate containers, which then require mixing of materials in precise ratios and filling in single cartridge systems for dispensing. The two component materials have limited shelf life once mixed resulting in significant waste. The trend to prepackage ready to dispense two component materials is driving the growth of two component cartridges in motionless mixers.

Due to the similarity of customers and operations, TAH Industries will report to and be a division of EFD. TAH Industries predominantly sells in the North American market. EFD's global footprint will allow TAH to grow significantly in the European and Asian markets.

Now I would like to make a few comments about the financial aspects of this purchase. Total sales for TAH for the last 12 months ending July 2007 were $24.5 million. Revenue growth from 2003 to 2006 averaged 16% per year. The Company generated operating margins of 17% in the last 12 months. The purchase price is $45 million or 8.2 times last 12 months EBITDA of $5.5 million. The operating margins and EBITDA have been adjusted for nonrecurring private company expenses.

After adjusting for both increased interest costs in our preliminary estimates of purchase accounting effects, this business is expected to be slightly dilutive in fiscal year '07. From an economic or cash flow point of view, we expect this business to return its cost of capital and add to EBA in 2008.

This is an interesting acquisition for Nordson. It extends Nordson's presence in the large, two component meter mixed dispensing markets. Two component materials are widely used in aerospace, construction, assembly, electronics, life science and automotive markets. Norton has unparalleled expertise in precision dispensing.

However, with this acquisition, we have a pathway to build upon Nordson's expertise in this important new market for us aided by TAH's market strength, two component proprietary technology and important customer relationships. Many aspects of TAH's technologies, customer base, business dynamics and manufacturing skills and processes are all very similar to those of EFD.

Each company manufactures precision injection molded plastic dispensing components and largely sold to material suppliers and end-users. EFD has extraordinary strengths in its franchise, global distribution and customer base, customer service model and core competencies. Like EFD, TAH is a market leader in its key segments. We believe each of these two organizations can make the other a faster grower and higher performing company.

While some opportunities for growth remain proprietary and won't be discussed here, the benefits of global distribution, shared critical technologies, design competencies and system architectures all give us excitement for what each of these two companies can contribute to the other.

And let me add an additional comment regarding this fourth acquisition this year in the Advanced Technology segment. This segment is viewed by some analysts who follow Nordson as being closely tied to semiconductor markets. While we have significant sales to this industry through companies such as Asymtek, which have extraordinary technology and market leading positions, much of Advanced Technology sales are associated with single use disposable components or systems sales to industries outside of traditional technology markets.

For example, Nordson UV, EFD, TAH and PICODOSTEC are all Advanced Technology segment businesses that while fast-growing operate to a significant degree outside of markets associated with semiconductor equipment cycles. Like EFD, TAH increases the portion of Nordson's total sales that are either spare parts or single use disposable components. These businesses add to our growth rate while reducing our revenue volatility.

At this point, I am happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS). Charlie Brady BMO Capital Markets.

Can you give us a sense as to sort of what their market position is in this and who they might compete with? And also sort of how this transaction came about? Is it something you have been looking at for quite a long time or what the process was in acquiring this company?

Sure. First of all, the latter part of your question, we have been very pleased with what EFD has brought to us and the capability that it has and we recognize that there are additional companies out there that make components not unlike from a manufacturing point of view those that are manufactured by EFD, but that are more centered in the two component market where use once and dispose is a much higher practice or more prevalent practice because of some of the chemistries of two component mixed materials. Their competitors are companies -- these are private companies or international companies that you might not have heard of. Names like [Soltzer], [Glass Pack] and [Ritter] for example are companies that would compete in the plastic disposable component businesses.

In that search for opportunities to invest, we investigated this industry relatively broadly and had discussions with a number of companies and landed on this as an opportunity that we were most excited about and one that we pursued and have recently completed.

Thanks very much.

(OPERATOR INSTRUCTIONS). John Franzreb, Sidoti & Co.

Ed, you went out of your way to point out that Advanced Technology isn't as tied to semiconductor as maybe some people think. Could you give us a breakdown of the end markets of Advanced Technology post the TAH acquisition, how it looks right now?

Yes, well, I am going to refer first of all to the pie chart that we routinely have in the investor presentation that includes the effect of the first three of our four acquisitions. It doesn't include the most recent $25 million TAH acquisition, but the arithmetic is not too hard to do.

TAH basically did not sell into the semiconductor equipment market. They do, to a small degree, sell systems that are associated with [potting], but back to the original question itself. The semiconductor business represents about 10% of Nordson's total sales. That is based on 2006 adjusted for these other acquisitions.

With the TAH acquisition, Nordson's total sales for the full year if you do the guidance and arithmetic, it is order of magnitude $990 million and that could be slightly off. You have got to look at the midpoints of our guidance. But if you take 10% of that kind of a number, you get a sense that the semiconductor equipment sales for Nordson on a full-year basis adjusted for the Dage and the other acquisitions in 2007 would be a little less than -- a little less than $100 million. And electronic components and printed circuit boards add an additional 14% of Nordson's total sales. Again, we are not talking about much activity in the acquired company in those areas.

But within that 10% semiconductors and the like are included EFD sales, which are a variety of use once and dispose components. They tend to be relatively stable. They don't vary with the semiconductor equipment cycle, but more typically vary with the run rates of the manufacturing processes. So it is a much more stable element and to an extent that 10% of our total sales of semiconductor equipment overstates the volatility exposure that we actually have.

Okay. Great. Thank you very much, Ed.

Matt Summerville, KeyBanc.

I was just curious with TAH what the relative marketshare is and I guess how big is the addressable market here? And I'm sorry, Ed, if you gave a geographic breakdown, I missed it. Could you give that again?

I did not give it, but their sales are largely in the US. Part of the opportunity that we see is with the global distribution network of EFD, there is some interesting things that we can do and that would be in the early part of the work that the two organizations have put together. In terms of marketshare, Andy -- I don't know if Andy is still on the line.

Yes, I am.

Okay. He has got a plane to catch is the reason I ask, but Andy, can you provide any color in general terms about how TAH may rank in the elements where they are strong?

Yes. The addressable market I think we would say is about $140 million and TAH -- we'd refer to that as the growing convenience packaging market and it kind of falls into the industrial side, which would be aerospace, construction, automotive and the other markets that I think Ed talked about earlier and a large piece of it would be dental.

In the US market, TAH would be the leading supplier of equipment. In the European market, they would be a much smaller player and in Asia, they would be virtually nonexistent. Does that give you -- does that answer your question?

Perfect. Thank you.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions.

Well, great. I thank all the participants for their attention on this call and your continued support of Nordson. Have a great day.

This concludes today's Nordson conference call. You may now disconnect.