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FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 2, 2003

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission file number 0-7977

NORDSON CORPORATION

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

   Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

   Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

   Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x  No o

   The aggregate market value of Common Stock, no par value per share, held by nonaffiliates (based on the closing sale price on the Nasdaq) as of May 2, 2003 was approximately $617,614,000.

   There were 34,602,416 shares of Common Shares outstanding as of December 12, 2003.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the 2004 Annual Meeting — Part III

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PART I

Item 1. Business

General Description of Business

Nordson products are used in a diverse range of industries, including appliance, automotive, bookbinding, container, converting, electronics, food and beverage, furniture, medical, metal finishing, nonwovens, packaging, semiconductor and other diverse industries.

The Company’s formula for long-term growth is based on a customer-driven strategy that is global in scope. Headquartered in Westlake, Ohio, Nordson markets its products through a network of direct operations in 30 countries throughout North America, Europe, Japan, Asia, Latin America and Australia. Consistent with this strategy, more than 50 percent of the Company’s revenues are generated outside the United States.

Nordson has nearly 3,500 employees worldwide and has principal manufacturing facilities in Ohio, Georgia, Alabama, California, Rhode Island, China, Germany, The Netherlands, and the United Kingdom.

Corporate Purpose and Goals

Nordson operates for the purpose of creating balanced, long-term benefits for all of our constituencies: customers, employees, shareholders and communities.

Our corporate goal for growth is to double the value of the Company over a moving five-year period, with the primary measure of value set by the market for Company shares.

While external factors may impact value, the achievement of this goal will rest with earnings growth, capital and human resource efficiency, and positioning for the future.

Nordson does not expect every quarter to produce increased sales, earnings and earnings per share, or to exceed the comparative prior year’s quarter. We do expect to produce long-term gains. When short-term swings occur, we do not intend to alter our basic objectives in efforts to mitigate the impact of these natural occurrences.

Growth is achieved by seizing opportunities within existing markets, investing in new products and pursuing new markets. This strategy is augmented by the acquisition of companies that can serve multinational industrial markets.

We create benefits for our customers through a Package of Values^TM, which includes carefully engineered, durable products; strong service support; the backing of a well-established worldwide company with financial and technical strengths; and a corporate commitment to deliver what was promised.

We strive to provide genuine customer satisfaction; it is the foundation upon which we continue to build our business.

Complementing our business strategy is the objective to provide opportunities for employee self-fulfillment, growth, security, recognition and equitable compensation.

This goal is met through employee training and the creation of on-the-job growth opportunities. The result is a highly qualified and professional management team capable of meeting corporate objectives.

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We recognize the value of employee participation in the planning process. Strategic and operating plans are developed by all business units and divisions, resulting in a sense of ownership and commitment on the part of employees in accomplishing company objectives.

Nordson Corporation is an equal opportunity employer.

Nordson is committed to contributing an average of five percent of domestic pretax earnings to human services, health, education and other charitable activities, particularly in communities where the Company has major facilities.

Financial Information About Operating Segment, Foreign and Domestic Operations, and Export Sales

Principal Products and Uses

A summary of the Company’s various products and examples of their uses are as follows:

1. Adhesive Dispensing and Nonwoven Fiber Systems

•	Packaging — Automated adhesive dispensing systems that seal corrugated cases and paperboard cartons, apply product labels and stabilize pallets.

•	Product Assembly — Adhesive and sealant dispensing systems for bonding or sealing plastic, metal and wood products.
•	Web Coating — Laminating and coating systems used to manufacture continuous-roll goods in the nonwovens, textile, paper and flexible-packaging industries.
•	Nonwovens — Systems for producing nonwoven fiber fabrics; equipment for applying adhesives, lotions, liquids and fibers to disposable nonwoven products.
•	Automotive — Adhesive and sealant dispensing systems for bonding and sealing window glass, body panels and structural components used on automobiles and trucks.

2. Coating and Finishing Systems

•	Powder Coating — Automated and manual spray systems used to apply powder paints and coatings to decorate and protect plastic, metal and wood products.

•	Liquid Finishing — Automated and manual spray systems that apply liquid paints and coatings to consumer and industrial products.
•	Container — Systems used to dispense and cure coatings used in the manufacture of metal and plastic containers.

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3. Advanced Technology Systems

•	Asymtek — Automated dispensing systems for high-speed, accurate application of a broad range of attachment, protection and coating fluids to semiconductor packages, printed circuit boards and electronic assemblies.

•	UV Curing — Drying and curing systems for graphic arts, finishing and product assembly operations.
•	March Plasma Systems — Systems for cleaning and modifying surfaces during the assembly of semiconductor devices, printed circuit boards, medical instruments and electronic products.
•	EFD, Inc. — Manual and automated dispensing units for the low-pressure application of fluid materials for the electronics, medical and automotive industries.

Nordson markets its products in the United States and fifty-six other countries, primarily through a direct sales force and also through qualified distributors. Nordson has built a worldwide reputation for its creativity and expertise in the design and engineering of high-technology application equipment that meets the specific needs of its customers.

Manufacturing and Raw Materials

Principal materials used to make Nordson products are metals and plastics, typically in sheets, bar stock, castings, forgings, and tubing. Nordson also purchases many electrical and electronic components, fabricated metal parts, high-pressure fluid hoses, packings, seals and other items integral to its products. Suppliers are competitively selected based on cost and quality. All significant raw materials that Nordson uses are available through multiple sources.

Nordson’s senior operating executives supervise an extensive quality control program for Nordson equipment, machinery and systems.

Natural gas and other fuels are primary energy sources for Nordson. However, standby capacity for alternative sources is available if needed.

Patents and Trademarks

Seasonal Variation in Business

Working Capital Practices

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Customers

Backlog

Government Contracts

Competitive Conditions

Many factors influence the Company’s competitive position, including pricing, product quality and service. Nordson enjoys a leadership position in the competitive industrial application systems business by delivering high-quality, innovative products and technologies, as well as after-the-sale service and technical support. Working with customers to understand their processes and developing the application solutions that help them meet their production requirements also contributes to Nordson’s leadership position. Nordson’s worldwide network of direct sales and technical resources also is a competitive advantage.

Risk factors associated with Nordson’s competitive position include the development and commercial acceptance of alternative processes or materials and the growth of local competitors serving specific markets.

Research and Development

Environmental Compliance

Employees

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Item 2. Properties

The following table summarizes the principal properties of the Company.

Business Segment — Property Identification Legend

(1)	Adhesive Dispensing and Nonwoven Fiber Systems
(2)	Coating and Finishing Systems
(3)	Advanced Technology Systems

The facilities listed above have adequate, suitable and sufficient capacity (production and non-production) to meet present and foreseeable demand for the Company’s products.

Several of these properties are pledged as security for industrial revenue bonds and mortgage notes payable.

Other properties at international subsidiary locations and at branch locations within the United States are leased. Lease terms do not exceed 25 years and generally contain a provision for cancellation with some penalty at an earlier date.

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In addition, the Company leases equipment under various operating and capitalized leases. Information about leases is reported in Note 7 of Notes to Consolidated Financial Statements that can be found in Part II, Item 8 of this document.

Item 3. Legal Proceedings

The Company has been identified as a potentially responsible party (PRP) at a Wisconsin municipal landfill and has voluntarily agreed with other PRP’s to share costs associated with (1) a feasibility study and remedial investigation (“FS/RI”) for the site and (2) providing clean drinking water to the affected residential properties through completion of the FS/RI phase of the project. The FS/RI is expected to be completed in 2005. The Company is committing $700,000 towards completing the FS/RI phase of the project and providing clean drinking water. This amount has been recorded in the Company’s financial statements. Against this commitment, the Company has made payments of $325,000 through the end of 2003. The remaining amount of $375,000 is recorded in accrued liabilities in the November 2, 2003 Consolidated Balance Sheet. The total cost of the Company’s share for site remediation cannot be determined at this time, because the FS/RI is not expected to be completed until 2005. However, based upon current information, the Company does not expect that the costs associated with remediation will have a material effect on its financial condition or results of operations.

In addition, the Company is involved in various other legal proceedings arising in the normal course of business. Based on current information, the Company does not expect that the ultimate resolution of pending and threatened legal proceedings will have a material adverse effect on its financial condition or results of operations. The Company is not involved in any other legal proceedings that would be required to be disclosed pursuant to Item 103 of Regulation S-K.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Company

The executive officers of the Company as of December 31, 2003 were as follows:

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PART II

Market Information and Dividends

Additional Information

Equity Compensation Table

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Item 6. Selected Financial Data

Five-Year Summary

(a)	See accompanying Notes to Consolidated Financial Statements.

(b)	In 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” and as a result no longer amortizes goodwill. Amounts represent net income without goodwill amortization.

(c)	Net income plus interest on long-term obligations net of income taxes as a percentage of total assets less current liabilities.

(d)	Net income as a percentage of shareholders’ equity.

(e)	Amounts adjusted for 2-for-1 stock split effective September 12, 2000.

(f)	2002 includes an inventory write-down of $11.4 million, which is included in cost of sales.

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Critical Accounting Policies and Estimates

Certain accounting policies that require significant management estimates and are deemed critical to the Company’s results of operations or financial position are discussed below. On a regular basis, the Company reviews critical accounting policies with the Audit Committee of the Board of Directors.

Revenue Recognition — Most of the Company’s revenues are recognized upon shipment, provided that persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collectibility is reasonably assured, and title and risk of loss have passed to the customer. Revenues from contracts with multiple element arrangements, such as those including both installation and services, are recognized as each element is earned based on objective evidence of the relative fair value of each element. Amounts received in excess of revenue recognized are included as deferred revenue in the accompanying balance sheets. Revenues deferred in 2003 were not material. A limited number of the Company’s large engineered systems sales contracts are accounted for using the percentage-of-completion method. The amount of revenue recognized in any accounting period is based on the ratio of actual costs incurred through the end of the period to total estimated costs at completion. Cost estimates are updated on a quarterly basis. During 2003 and 2002, the Company recognized approximately $5 million and $20 million, respectively, of revenue under the percentage-of-completion method. The remaining revenues are recognized upon delivery.

Goodwill — Goodwill represents the excess of purchase price over the fair value of tangible and identifiable intangible net assets acquired. At November 2, 2003, goodwill represented approximately 43 percent of the Company’s total assets. The majority of the goodwill resulted from the acquisition of EFD, Inc. in 2001. In 2002, the Company adopted FASB Statement No. 142, “Goodwill and Other Intangible Assets,” which provides that goodwill should not be amortized but instead be tested for impairment annually at the reporting unit level. In accordance with No. 142, the Company completed a transitional goodwill impairment test that resulted in no impairment loss being recognized. Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The estimated fair value of a reporting unit is determined by applying appropriate discount rates to estimated future cash flows and terminal value amounts for the reporting units. The results of the Company’s analyses indicated that no reduction of goodwill is required. In 2001, goodwill amortization was $15,446,000 ($11,243,000 on an after-tax basis, or $.34 per share).

Inventories — Inventories are valued at the lower of cost or market. Cost has been determined using the last-in, first-out method for 39 percent of the Company’s consolidated inventories at November 2, 2003, with the first-in, first-out method used for the remaining inventory. On an ongoing basis, the Company tests its inventory for technical obsolescence, as well as for future demand and changes in market conditions. The Company has historically maintained inventory reserves to reflect those conditions when the cost of inventory is not expected to be recovered. In the face of difficult economic conditions that accelerated the technical obsolescence of certain inventory and impacted the demand outlook for other inventory, the Company recognized an inventory write-down of $11.4 million in the fourth quarter of 2002 ($7.6 million on an after-tax basis, or $.23 per share). The addition of $11.4 million to the inventory obsolescence reserve brought the reserve balance to $23.1 million. During 2003, approximately $21.3 million of inventory was disposed of and charged against the reserve, and $2.2 million was added to the reserve. After a currency effect of $.5 million, the balance in the inventory obsolescence reserve was $4.5 million at November 2, 2003.

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Pension Plans and Other Postretirement Medical Plan — The measurement of liabilities related to the Company’s pension plans and postretirement medical plan is based on management’s assumptions related to future factors including interest rates, return on pension plan assets, compensation increases and health care cost trend rates.

The weighted-average discount rate (based on AA quality fixed income investments) used to determine the present value of the Company’s aggregate pension plan obligation was 5.9 percent at November 2, 2003, compared to 6.5 percent at November 3, 2002. The average expected rate of return (long-term investment rate) on pension assets was decreased to 8.1 percent in 2003 from 8.6 percent in 2002. The assumed rate of compensation increases was reduced from 3.7 percent in 2002 to 3.3 percent in 2003 to reflect an inflationary outlook consistent with the discount and long-term investment yield assumptions.

Annual expense amounts are determined based on the discount rate used at the end of the prior year. Differences between actual and assumed investment returns on pension plan assets result in actuarial gains or losses which are amortized into expense over a period of years.

With respect to the postretirement medical plan, the discount rate used to value the benefit obligation was 6.25 percent at November 2, 2003, a decrease from 6.75 at November 3, 2002. The annual rate of increase in the per capita cost of covered benefits (the health care trend rate) is assumed to be 7.8 percent in 2004, decreasing gradually to 5.0 percent in 2008. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a one-percentage point change in the assumed health care cost trend rate would have the following effects:

Employees hired after January 1, 2002 are not eligible to participate in the postretirement medical plan.

The overall effect of the assumption changes above will be to increase pension and postretirement expenses in fiscal 2004 by approximately $2 million.

Financial Instruments — Assets, liabilities and commitments that are to be settled in cash and are denominated in foreign currencies are sensitive to changes in currency exchange rates. The Company enters into foreign currency forward contracts, which are derivative financial instruments, to reduce the risk of foreign currency exposures resulting from the collection of receivables, payables and loans denominated in foreign currencies. The maturities of these contracts are usually less than 90 days. Forward contracts are marked to market each accounting period, and the resulting gains or losses are included in other income (expense) on the Consolidated Statement of Income.

Warranties — The Company provides customers with a product warranty that requires the Company to repair or replace defective products within a specified period of time (generally one year) for the date of sale. An accrual is recorded for expected warranty costs for products shipped through the end of each accounting period. In determining the amount of the accrual, the Company relies primarily on historical warranty claims by product sold. At November 2, 2003, the warranty accrual was $3.0 million, while warranty costs for 2003 were $2.9 million.

Long-Term Incentive Compensation Plans (LTIP) — Under these plans, officers are awarded LTIP units if predetermined performance targets are met over a three-year period. The value of these units is based upon the share price of the Company’s stock at the end of the third year of each plan. Over the period of each plan, costs are accrued based on progress against performance targets along with changes in value of the Company’s stock. At November 2, 2003, the accrued liability for the 2002 and 2003 plans amounted to $4.1 million. The portion of these costs recognized in the income statement was $2.7 million for 2003 and $1.4 million for 2002. At this time, it is estimated that costs to be recognized in the 2004 income statement for the 2002 and 2003 plans as well as the plan commencing in 2004 will be $6.1 million.

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Fiscal Years 2003 and 2002

Sales within the adhesive segment increased 3 percent, with a 7 percent increase from currency effects offset by a 4 percent decline in volume. A drop-off in shipments of large engineered systems used in the production of nonwoven fabrics and in the assembly of durable goods accounted for virtually the entire volume decline. Advanced technology segment sales increased 7 percent, with volume up 4 percent and favorable currency effects contributing an additional 3 percent. Improved activity related to sales of plasma treatment systems and manual fluid dispensing systems to the electronics and medical industries as well as sales of U.V. curing systems to the graphic arts industry accounted for the higher volume within this segment. Coating and finishing segment revenue was down 1 percent in 2003. Sales volume was down 6 percent, offset by a 5 percent increase from favorable currency effects. The volume decline was influenced by lower engineered system sales in North America. It is estimated that the effect of pricing on total revenue was neutral relative to the prior year.

Nordson’s sales outside the United States accounted for 63 percent of total 2003 sales, compared with 57 percent for 2002. Sales volume decreased 11 percent in North America and 4 percent in Europe. Offsetting these decreases were increases of 17 percent in both Japan and the Pacific South regions. Volume was up in all segments in Japan, while Advanced Technology was primarily responsible for the increase in the Pacific South region.

Gross margins, expressed as a percentage of sales, were 54.8 percent in 2003 compared to 52.1 percent in 2002. In 2002, the Company recognized a pre-tax inventory write-down of $11.4 million. Excluding the effect of this write-down, the 2003 gross margin rate improved by 1.0 percent over 2002. Favorable currency effects accounted for approximately a 1.1 percent increase in the gross margin rate with the effect of product mix offsetting a portion of this improvement.

Selling and administrative expenses increased by 4.8 percent over 2002. Currency translation effects accounted for a 4.4 percent increase, with the balance of the increase traced to compensation adjustments and higher employee benefit costs. Selling and administrative expenses, excluding severance and restructuring costs, amounted to 44.2 percent of sales in 2003 compared to 43.5 percent of sales in 2002.

In light of the difficult economic environment over the last three years, the Company embarked on a number of cost reduction initiatives. Consistent with these initiatives, the Company recognized $2.0 million ($1.4 million on an after-tax basis, or $.04 per share) of severance and restructuring costs in 2003. No additional restructuring costs are expected in 2004.

Operating profit margins, expressed as a percentage of sales, were 10.3 percent in 2003 compared to 8.2 percent in 2002. Segment operating profit margins in 2003 and 2002, excluding corporate costs not allocated to segments were as follows:

The lower adhesive segment operating margin in 2003 compared to 2002 is traced primarily to absorption of fixed operating expenses related to a direct distribution organization in an environment where sales volume declined. In addition, higher initial manufacturing costs were incurred associated with the introduction of a new family of products. Operating margin increases in both the coating and finishing and the advanced technology segments are due to improved manufacturing cost absorption. The restructuring initiatives conducted over the last three years impacted all segments favorably.

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In 2003, the Company recorded a charge of $375,000 in other expense. We have been identified as a potentially responsible party (PRP) at a Wisconsin municipal landfill and has voluntarily agreed with other PRP’s to share costs associated with (1) a feasibility study and remedial investigation (“FS/RI”) for the site and (2) providing clean drinking water to the affected residential properties through completion of the FS/RI phase of the project. The FS/ RI is expected to be completed in 2005. The Company is committing $700,000 towards completing the FS/ RI phase of the project and providing clean drinking water. This amount has been recorded in the Company’s financial statements. Against this commitment, the Company has made payments of $325,000 through the end of 2003. The remaining amount of $375,000 is recorded in accrued liabilities in the November 2, 2003 Consolidated Balance Sheet.

Interest expense of $18.1 million decreased $3.6 million from 2002, due to lower borrowing levels and lower interest rates. Other income increased $714,000 in 2002 to $1,055,000 in 2003, mainly due to currency gains of $558,000 in 2003. The Company’s effective tax rate was 33.00 percent for both 2003 and 2002. Net income in 2003 was $35.2 million, or $1.04 per share on a diluted basis compared with $22.1 million, or $.66 per share on a diluted basis, in 2002. As noted above, 2002 included a pre-tax inventory write-down of $11.4 million, or $.23 per share.

In 2002, the Company adopted Financial Accounting Standard Board (FASB) Statements No. 141, “Business Combinations,” and No. 142, “Goodwill and Other Intangible Assets.” No. 141 requires that all business combinations be accounted for by the purchase method and that certain acquired intangible assets be recognized as assets apart from goodwill. No. 142 provides that goodwill should not be amortized but instead be tested for impairment annually at the reporting unit level. In accordance with No. 142, the Company completed a transitional goodwill impairment test that resulted in no impairment loss being recognized. The annual impairment test completed in 2003 indicated that no write-down was required. In 2001, goodwill amortization was $15,446,000 ($11,243,000 on an after-tax basis, or $.34 per share).

In 2002, the Company adopted FASB Statement of Financial Standards No. 143, “Accounting for Asset Retirement Obligations.” No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When a liability is initially recorded, the entity capitalizes a cost by increasing the carrying value of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. There was no impact on the Company’s consolidated financial position or results of operations as a result of the adoption of No. 143.

In 2002, the Company adopted FASB Statement of Financial Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” No. 144, which supersedes No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” provides a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of No. 121, this Statement significantly changes the criteria that would have to be met to classify an asset as held-for-sale. This distinction is important because assets held-for-sale are stated at the lower of their fair values or carrying amounts, and depreciation is no longer recognized. There was no impact on the Company’s consolidated financial position or results of operations as a result of the adoption of No. 144.

In 2003, the Company adopted FASB Statement No. 145, “Rescission of Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This Statement eliminates the requirement that gains and losses on the early extinguishment of debt be classified as extraordinary items. It also provides guidance with respect to the accounting for gains and losses on capital leases that were modified to become operating leases. There was no impact on the Company’s consolidated financial position or results of operations as a result of the adoption of No. 145.

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In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. During 2003, the Company recognized expense of $2.0 million related to severance payments to approximately 70 people in the Coating and Finishing and Advanced Technology segments in North America.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others.” This interpretation addresses the disclosures to be made by a guarantor in its interim and annual financial statements regarding its obligations under guarantees and clarifies the requirements related to the recognition of liabilities by a guarantor for obligations undertaken in issuing guarantees. The initial recognition and measurement provisions of the interpretation are applicable to guarantees issued or modified after December 31, 2002 and did not have a material effect on the Company’s financial statements. The disclosure requirements are effective for financial statements for periods ending after December 31, 2002 and are applicable for all outstanding guarantees subject to the interpretation. The Company has issued guarantees to two banks to support the short-term borrowing facilities of an unconsolidated Korean affiliate. One guarantee is for Korean Won Three Billion (approximately $2,535,000) secured by land and building and expires on July 31, 2004. The other guarantee is for $2,300,000 and expires on October 31, 2004. Under these arrangements, the Company could be required to fulfill obligations of the affiliate if the affiliate does not make required payments. No amount is recorded in the Company’s financial statements related to these guarantees.

In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure an Amendment of FASB Statement No. 123.” No. 148 amends No. 123 to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, No. 148 amends the disclosure requirements of No. 123 to require more prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition of No. 148 are effective for fiscal years ending after December 15, 2002. The disclosure provision of No. 148 is effective for interim periods beginning after December 15, 2002.

The Company accounts for its stock option plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” No stock option expense is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation addresses consolidation by business enterprises of variable interest entities, which possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and results of operations of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. For variable interest entities created prior to January 31, 2003, this interpretation is effective for the first year or interim period beginning after March 15, 2004. The Company has not yet determined the impact of adoption on its consolidated financial position or results of operations.

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In April 2003, the FASB issued Statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” No. 149 amends No. 133 by requiring that contracts with comparable characteristics be accounted for similarly and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003 and must be applied prospectively. The adoption of No. 149 had no effect on the Company’s financial condition or results of operations.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It must be applied prospectively by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of No. 150 and still existing at the beginning of the interim period of adoption. The adoption of No. 150 had no effect on the Company’s financial condition or results of operations.

Fiscal Years 2002 and 2001

Sales volume in the Company’s adhesive dispensing systems segment decreased 4 percent. Increases in packaging sales volume were more than offset by lower sales of nonwoven systems in North America. Advanced technology segment volume was down 29 percent, primarily due to the continuing global slowdown in the semiconductor and electronics industries. Coating and finishing systems segment sales volume was down 13 percent, influenced significantly by lower engineered systems sales in North America. It is estimated that the effect of pricing on total revenues was neutral relative to the prior year.

Nordson’s sales outside the United States accounted for 57 percent of total 2002 sales, compared with 54 percent for 2001. Sales volume decreased in all four of Nordson’s geographic regions. Volume decreased 17 percent in North America, 3 percent in Europe, 15 percent in Japan and 9 percent in the Pacific South region. The slowdown in advanced technology and capital goods sectors was felt across all of these regions.

Gross margins, before restructuring charges and inventory write-downs, expressed as a percentage of sales were 53.8 percent in 2002, compared with 54.0 percent in 2001. A change in the mix of products sold, pricing pressures and higher indirect costs caused the lower margins. The Company recognized a fourth quarter inventory write-down of $11.4 million ($7.6 million on an after-tax basis, or $.23 per share). Gross margins, including restructuring charges and inventory write-downs, were 52.1 percent in 2002, down from 53.9 percent in 2001.

Selling and administrative expenses, excluding goodwill amortization and severance and restructuring costs, were 43.5 percent of sales in 2002 and 41.8 percent in 2001. Spending for 2002 decreased 7.9 percent as a result of the Company’s organizational restructuring and facility consolidations. As a result of adopting FASB Statement No. 142 at the beginning of 2002, the Company no longer amortizes goodwill. Goodwill amortization was $15,446,000 in 2001.

As a result of the continuing economic slowdown during 2002, the Company recognized $2.7 million ($1.8 million on an after-tax basis, or $.05 per share) of restructuring charges, consisting of severance and other costs associated with the combination of certain businesses. Of the total amount, $.2 million is included in cost of sales.

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Worldwide operating profits, expressed as a percentage of sales before the effects of non-recurring charges, were 10.4 percent in 2002, compared with 10.1 percent for 2001. Segment operating profit percentages in 2002 and 2001, excluding corporate expenses that are not allocated to segments, were as follows:

All segments were impacted by the global economic downturn.

Interest expense of $21.7 million decreased $7.8 million from 2001, primarily due to lower borrowing levels. Other income decreased $5.5 million from 2001, which included a gain of $5.1 million on the sale of real estate. Nordson’s effective tax rate was 33.00 percent in 2002 compared with a rate of 34.75 percent in 2001.

The Company has been identified as a potentially responsible party (PRP) at a Wisconsin municipal landfill and has voluntarily agreed with other PRP’s to share costs associated with a feasibility study and remedial investigation (“FS/ RI”) for the site, with the Company committing up to $325,000 toward the FS/ RI. This amount has been recorded in the Company’s financial statements.

Net income in 2002 was $22.1 million, or $.66 per share on a diluted basis compared with $24.6 million, or $.74 per share on a diluted basis, in 2001. Excluding goodwill amortization, net income for 2001 was $35.9 million, or $1.08 per share. Included in 2002 were inventory write-downs of $11.4 million, or $.23 per share.

Liquidity, Capital Expenditures and Sources of Capital

Cash used by investing activities was $6.8 million in 2003. Capital expenditures, which were concentrated on information systems and production equipment, were $7.6 million.

Cash used in financing activities in 2003 was $80.6 million. The Company repaid $64.8 million of notes payable and long-term debt in 2003, bringing the debt to equity ratio down from 1.1 at November 3, 2002 to .80 at November 2, 2003. Dividend payments to shareholders totaled $20.4 million in 2003, increasing 6 percent on a per-share basis from 2002. Issuance of common stock, primarily related to the exercise of stock options, generated $8.9 million of cash.

In March 2003, the Company acquired full ownership interest in land and a building owned by a partnership that leased office and manufacturing space to the Company. The real estate is located in Duluth, Georgia and serves as the worldwide headquarters for the Company’s adhesives businesses. As a result, the Company assumed $10.7 million of debt owed by the partnership, real estate with a net book value of $10.3 million, cash and other current liabilities. Prior to March, the Company leased the property under an operating lease with a partnership in which the Company was a partner.

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The following table summarizes the Company’s obligations as of November 2, 2003:

Nordson has various lines of credit with both domestic and foreign banks. At November 2, 2003, these lines totaled $317 million, of which $258 million was unused. Included in the total amount of $317 million is a $250 million facility with a group of banks that expires in 2006. There are three covenants that the Company must meet under this facility. The first covenant limits the amount of additional debt the Company can incur. At the end of 2003, the Company could have incurred approximately $95 million of debt under this covenant. The second covenant requires EBIT (as defined in the credit agreement) to be at least three times interest expense. The actual interest coverage was 4.35 for 2003. The final covenant requires the Company’s shareholders’ equity to be at least $237 million at the end of 2003. Actual shareholders’ equity was $300 million. The Company was in compliance with all debt covenants at November 2, 2003.

The Company has issued guarantees to two banks to support the short-term borrowing facilities of an unconsolidated Korean affiliate. One guarantee is for Korean Won Three Billion (approximately $2,535,000) secured by land and building and expires on July 31, 2004. The other guarantee is for $2,300,000 and expires on October 31, 2004. Under these arrangements, the Company could be required to fulfill obligations of the affiliate if the affiliate does not make required payments. No amount is recorded in the Company’s financial statements related to these guarantees.

The Company believes that the combination of present capital resources, internally generated funds, and unused financing sources are more than adequate to meet cash requirements for 2004. There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent Company.

In October 2003, the Board of Directors authorized the Company to repurchase up to two million shares of the Company’s common stock on the open market. Expected uses for repurchased shares include the funding of benefit programs including stock options, restricted stock and 401(k) matching. Shares purchased will be treated as treasury shares until used for such purposes. The repurchase program will be funded using the Company’s working capital. No shares were purchased under this program in 2003.

Outlook

Effects of Foreign Currency

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In 2003 compared with 2002, the U.S. dollar was generally weaker against foreign currencies. If 2002 exchange rates had been in effect during 2003, sales would have been approximately $37.7 million lower and third-party costs would have been approximately $22.4 million lower. In 2002 compared with 2001, the U.S. dollar was also generally weaker against foreign currencies. If 2001 exchange rates had been in effect during 2002, sales would have been approximately $2.2 million lower and third-party costs would have been approximately $1.5 million lower. These effects on reported sales do not include the impact of local price adjustments made in response to changes in currency exchange rates.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The Company operates internationally and enters into transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates foreign currencies are recorded and the dates they are settled. Nordson regularly uses foreign exchange contracts to reduce its risks related to most of these transactions. These contracts, primarily Euro and Yen, usually have maturities of 90 days or less, and generally require the Company to exchange foreign currencies for U.S. dollars at maturity, at rates stated in the contracts. Gains and losses from changes in the market value of these contracts offset foreign exchange losses and gains, respectively, on the underlying transactions. The balance of transactions denominated in foreign currencies are designated as hedges of the Company’s net investments in foreign subsidiaries or are intercompany transactions of a long-term investment nature. As a result of the Company’s use of foreign exchange contracts on a routine basis to reduce the risks related to nearly all of the Company’s transactions denominated in foreign currencies as of November 2, 2003, the Company did not have a material foreign currency risk related to its derivatives or other financial instruments.

Note 10 to the financial statements contains additional information about the Company’s foreign currency transactions and the methods and assumptions used by the Company to record these transactions.

The Company finances a portion of its operations with short-term and long-term borrowings and is subject to market risk arising from changes in interest rates for most of its long-term debt.

The tables that follow present principal cash flows and related weighted-average interest rates by expected maturity dates of fixed-rate, long-term debt.

Expected maturity date November 2, 2003

Expected maturity date November 3, 2002

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The tables that follow present principal cash flows and related weighted-average interest rates by expected maturity dates of variable-rate, long-term debt.

Expected maturity date November 2, 2003

Expected maturity date November 3, 2002

Included in the table above is long-term debt in the amount of Japanese Yen 200 million. This debt was converted from fixed rate to variable rate through an interest rate swap agreement, as disclosed in Note 10 to the Company’s financial statements. The weighted-average interest rate of the Company’s variable-rate debt was .97% at the end of fiscal 2003, compared to 1.3% at the end of 2002. A 1% increase in interest rates would have resulted in approximately $157,000 of additional interest expense in fiscal 2003.

The company also has variable-rate notes payable. The weighted average interest rate of this debt was 2.5% at the end of 2003, compared to 3.0% at the end of 2002. A 1% increase in interest rates would have resulted in additional interest expense of approximately $834,000 on the notes payable in fiscal 2003.

Inflation

Trends

Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995

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Item 8. Financial Statements and Supplementary Data

Consolidated Statements of Income

Years ended November 2, 2003, November 3, 2002 and October 28, 2001

The accompanying notes are an integral part of the consolidated financial statements.

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Consolidated Balance Sheets

November 2, 2003 and November 3, 2002