SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarter Ended June 27, 1998 Commission File Number 0-5971
WOODHEAD INDUSTRIES, INC.
- -------------------------------------------------------------------------------
DELAWARE 36-1982580
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
THREE PARKWAY NORTH, SUITE 550, DEERFIELD, IL. . 60015
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (847) 236-9300
- -------------------------------------------------------------------------------
(Former name, former address or former fiscal year, if changes since last
reports)
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 Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
On July 25, 1998 there were 10,618,181 shares of the Registrant's common
stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 27, 1998 and September 27, 1997
ASSETS (Amounts in thousands)
Unaudited
CURRENT ASSETS 6/27/98 9/27/97
---------- -------
<S> <C> <C>
Cash and short-term securities $ 5,141 $ 8,284
Accounts receivable 24,807 20,051
Inventories (Note 3) 20,391 18,067
Prepaid expenses 5,954 5,054
--------- ---------
Total current assets $ 56,293 $ 51,456
--------- ---------
OTHER ASSETS $ 203 $ 271
PROPERTY, PLANT & EQUIPMENT, at cost $ 84,786 $ 74,514
Less: Accumulated depreciation (46,884) (44,016)
--------- ---------
Net property, plant and equipment $ 37,902 $ 30,498
--------- ---------
GOODWILL $ 28,490 $ 6,774
--------- ---------
TOTAL ASSETS $ 122,888 $ 88,999
--------- =========
<CAPTION>
LIABILITIES & STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 7,835 $ 6,465
Accrued expenses 13,780 13,041
Income taxes (85) 223
Portion of long-term
debt payable within one year -- --
--------- ---------
Total current liabilities $ 21,530 $ 19,729
--------- ---------
DEFERRED INCOME TAXES $ 2,169 $ 2,015
--------- ---------
LONG-TERM DEBT $ 26,000 $ --
--------- ---------
STOCKHOLDERS' INVESTMENT: (Note 6)
Preferred stock $ -- $ --
Common stock 10,618 10,541
Additional paid-in capital 3,498 2,765
Cumulative translation adjustment (2,455) (1,487)
Retained earnings 61,528 55,436
--------- ---------
Total stockholders' investment $ 73,189 $ 67,255
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' INVESTMENT $ 122,888 $ 88,999
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data, unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
6/27/98 6/28/97 6/27/98 6/28/97
------- ------- ------ ------
<S> <C> <C> <C> <C>
NET SALES $37,568 $35,495 $107,960 $103,161
COST OF SALES 21,528 19,581 60,880 56,882
------- ------- ------- -------
GROSS PROFIT $16,040 $15,914 $ 47,080 $ 46,279
% of Net Sales 42.7% 44.8% 43.6% 44.9%
OPERATING EXPENSES 10,257 10,384 30,229 30,734
------- ------- ------- -------
INCOME FROM OPERATIONS $ 5,783 $ 5,530 $ 16,851 $ 15,545
OTHER (INCOME)/EXPENSES, NET (Note 4) 1,041 273 1,953 825
------- ------- ------- -------
INCOME BEFORE INCOME
TAXES $ 4,742 $ 5,257 $ 14,898 $ 14,720
PROVISION FOR INCOME TAXES 1,922 2,076 5,950 5,848
------- ------- ------- -------
NET INCOME $ 2,820 $ 3,181 $ 8,948 $ 8,872
======= ======= ======= =======
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE (Note 5)
BASIC $ 0.27 $ 0.30 $ 0.85 $ 0.85
======= ======= ======= =======
DILUTED $ 0.25 $ 0.29 $ 0.80 $ 0.80
======= ======= ======= =======
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
BASIC 10,608 10,474 10,583 10,450
======= ======= ======= =======
DILUTED 11,169 11,117 11,182 11,093
======= ======= ======= =======
DIVIDENDS PER SHARE $ 0.090 $ 0.080 $ 0.270 $ 0.230
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands - unaudited)
NINE MONTHS ENDED
----------------------
6/27/98 6/28/97
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income for the period $ 8,948 $ 8,872
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 4,442 3,795
Change in Assets and Liabilities:
Decreases/(Increases) in:
Accounts receivable (480) (937)
Inventories (918) (3,464)
Prepaid expenses (787) 689
Other assets (642) (62)
Increases/(Decreases) in:
Accounts payable 534 (959)
Accrued expenses (1,749) 1,272
Income taxes (808) (1,079)
Deferred income taxes 154 117
-------- --------
Net cash flows provided by operating activities $ 8,694 $ 8,244
-------- --------
Cash Flows from Investing Activities:
Purchases of property, plant & equipment $ (8,766) $ (8,275)
Acquisition of the mPm Group (26,768) --
Retirements or sales of property, plant and equipment 33 43
-------- --------
Net cash flows used for investing activities $(35,501) $ (8,232)
-------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 26,000 $ --
Sales of stock 810 645
Dividend payments (2,856) (2,402)
-------- --------
Net cash flows used for financing activities $ 23,954 $ (1,757)
-------- --------
Effect of exchange rates $ (290) $ 26
-------- --------
Net Decrease in Cash & Short-Term Securities $ (3,143) $ (1,719)
======== ========
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for:
Interest $ 339 $ 30
Income taxes $ 5,980 $ 6,374
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
WOODHEAD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 27, 1998
(Unaudited)
(1) The condensed consolidated balance sheets at June 27, 1998, and September
27, 1997, and the condensed consolidated statements of income and cash flow
for the periods ended June 27, 1998, and June 28, 1997, reflect, in the
opinion of Woodhead Industries, Inc. (the "Company" or "Registrant"), all
adjustments necessary to present fairly the financial position for such
periods. All such adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to S.E.C. rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
(2) The results of operations for the three-month periods ended June 27, 1998
and June 28, 1997, are not necessarily indicative of the results to be
expected for the full year.
(3) The estimated breakdown of raw materials and work-in-process and finished
goods inventories at June 27, 1998, and September 27, 1997, is as follows:
(in thousands)
6/27/98 9/27/97
------- -------
Raw materials $13,749 $12,391
Work-in-process and finished goods 11,250 10,138
------- -------
Inventories before LIFO reserve 24,999 22,529
Less: Reserve to reduce to LIFO (4,608) (4,462)
------- -------
Inventories, net $20,391 $18,067
======== =======
(4) Interest expense was $405,000 for the quarter ended June 27, 1998, and
$22,000 for the quarter ended June 28, 1997.
(5) Income per share is based upon the weighted average number of shares
outstanding for the basic calculation (10,608,000 and 10,583,000 for the
quarter and nine months ended June 27, 1998 respectively, and 10,474,000
and 10,450,000 for the quarter and nine months ended June 28, 1997,
respectively) and the weighted average number of shares outstanding plus
the effect of common share equivalents during the period for the diluted
calculation (11,169,000 and 11,182,000 for the quarter and nine months
ended June 27, 1998, respectively, and 11,117,000 and 11,093,000 for the
quarter and nine months ended June 28, 1997, respectively).
(6) Authorized stock is 40,000,000 shares consisting of 10,000,000 shares of
preferred stock, par value $.01 per share, and 30,000,000 shares of common
stock, par value $l.00 per share. No shares of preferred stock have been
issued. Common shares outstanding at June 27, 1998 and September 27, 1997
were 10,618,000 and 10,541,000, respectively.
-5-
<PAGE>
(7) The Company uses financial instruments to hedge, and therefore attempts to
reduce, its overall exposure to the effects of currency fluctuations on
cash flows. The Company does not use derivative financial instruments for
speculative purposes. Furthermore, it does not hedge its foreign currency
denominated transactions in a manner that entirely offsets the effects of
changes in foreign currency exchange rates. The Company uses foreign
currency forward contracts to hedge a portion of the currency risks of
transactions denominated in foreign currencies . Gains and losses on these
foreign currency hedges are generally offset by corresponding losses and
gains on the underlying transaction. The foreign exchange financial
instruments which hedge various investments in foreign subsidiaries are
marked to market monthly and the results are recorded in the equity
section. In addition, the Company's international operations, in many
instances, acts as a natural hedge because both sales and operating
expenses are denominated in local currency. Therefore, although an
unfavorable change in the exchange rate of a foreign currency against the
U.S. dollar will result in lower sales when translated to U.S. dollars,
operating expenses will also be lower in these circumstances.
(8) The Company has a Revolving Credit Agreement (The "Agreement") with a bank
which was increased from $15,000,000 to $40,000,000 in the second quarter
of 1998. The Agreement bears interest at the bank's prime or offered rate.
The Agreement expires on February 28, 2001. During the third quarter of
1998, the Company borrowed $26,000,000 under the Agreement at an average
interest rate of 6%. Interest expenses for the nine months ending June 27,
1998 was $526,895. The proceeds from the borrowing were used to finance the
acquisition of all of the issued and outstanding capital stock of mPm
S.p.A. and mPm group S.p.A. and certain assets of their subsidiaries
(collectively, "the mPm Group").
(9) On February 27, 1998, pursuant to a share Purchase Agreement dated February
6, 1998, Woodhead Italia, S.r.l., a wholly owned subsidiary of the Company,
incorporated in Italy, acquired the mPm Group in exchange for an aggregate
cash payment to Sellers of 52,637,000,000 Italian Lire (approximately $29.2
million). The mPm Group manufactures, distributes and sells industrial
connectors and related products. The mPm Group has operations in Italy,
Germany and the United Kingdom.
Results of operations subsequent to the acquisition date are included in
the Company's condensed consolidated statement of income for the nine
months ended June 27, 1998. The following unaudited pro forma condensed
information has been prepared as if the acquisition had occurred at the
beginning of fiscal year 1997, with pro forma adjustments to give effect to
amortization of goodwill valued in the acquisition and interest expense on
the related borrowings from the Company's Revolving Credit Agreement.
Nine Months Ended
(Amounts in thousands except
per share data)
6/27/98 6/28/97
--------- ---------
Net Sales $115,855 $117,926
Income Before Income Taxes 13,635 14,616
Net Income $ 7,862 $ 8,378
Net income per common and fully diluted
common equivalent share $ 0.70 $ 0.76
-6-
<PAGE>
(10) Subsequent to the quarter ended June 27, 1998, the Company acquired the
business and certain assets of the SST division of S-S Technologies,
located in Ontario, Canada. Total consideration was approximately $34.9
million which included 400,000 restricted shares of the Company's common
stock. The funds used to finance the transaction were obtained under a new
bank credit facility obtained by Woodhead Canada Limited, a wholly owned
subsidiary of the Company. SST manufactures, distributes and sells
interface cards, gateways and related software for connecting devices and
controllers to industrial networks.
-7-
<PAGE>
WOODHEAD INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Working capital increased by $3.0 million for the first nine months of
fiscal 1998. The current ratio of 2.6/1 for the period, was the same at the end
of the prior fiscal year. Long-term debt rose to $26.0 million from the prior
year-end due to the Company's acquisition of mPm S.r.l resulting in a total
capitalization to equity (debt plus equity) ratio of 26.2%. Return on assets
decreased to 11.9% from 14.9% and return on equity declined to 17.9% from 19.7%
for the comparable 12-month periods ending June 27, 1998 and June 28, 1997,
respectively. The Company's financial position remains strong and significant
borrowing capacity is available should the need arise.
The Company is a party to an environmental matter which obligates it to
investigate, remediate or mitigate the effects on the environment of the release
of certain substances at one of the Company's facilities. For additional
information concerning the environmental matter, see "Item 1. Legal
Proceedings".
OPERATING RESULTS
Third quarter net sales rose 5.8% to $37.6 million from $35.5
million reported for the same period last year. Domestic sales decreased 10.8%
during the quarter, primarily due to the weakness in demand for the Company's
Brad Harrison products. International sales increased 49.2% over the third
quarter of fiscal 1997 and constituted 39.1% of the total sales for the quarter
just ended. This increase was due to the addition of sales by mPm S.r.l. which
was acquired in February of this year, and continued strength in our other
European markets, which offset the decline in our sales in Asia. In local
currencies, international sales increased 52.0% over the same period last year.
The backlog of unfilled orders was $12.3 million compared with $8.8 million at
fiscal year-end 1997 and $10.1 million reported one year ago. Selling prices
increased less than 1% when compared to the same period one year ago.
Gross profit of $16.0 million was $.1 million or 0.8% greater than
the same quarter last year. Gross profit margins decreased to 42.7% from 44.8%,
primarily due to the dilutive effect of the lower
gross profit percentage at mPm S.r.l.
Operating expenses decreased 1.2% to $10.3 million from $10.4 million
in the third quarter of fiscal 1998. As a percent of net sales, operating
expenses decreased to 27.3% from 29.3%, due to the lower rate of operating
expenses at mPm S.r.l. Other expenses of $1.0 million were $.7 million more than
the same period a year ago. This increase was primarily due to the increased
interest and amortization expenses related to the acquisition of mPm S.r.l.
Net income decreased from last year's third quarter by 11.3%. The
Company's decrease in net income was in large part due to the increase in other
expenses arising from the acquisition of mPm S.r.l. Basic earnings per share
were $0.27 compared with $0.30 in the third quarter of last year, a 10.0%
decrease. Earnings per share on a diluted basis were $0.25 compared with $0.29
in the third quarter of last year, a 13.8% decrease.
-8-
<PAGE>
OTHER
The Company is currently assessing and addressing the impact of the
Year 2000 issue on its business. The Year 2000 issue refers to the inability of
many computer programs and systems to process accurately dates later than
December 31, 1999. The Year 2000 issue creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals with. Failures of the Company's and /or third parties'
computer systems could have a material impact on the Company's ability to do
business. The Company is in the process of determining the timetable and cost
related to achieving Year 2000 compliance.
Certain statements in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform act
of 1995. Such forward-looking statements involve numerous assumptions, known and
unknown risks, uncertainties and other factors which may cause actual and future
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to:
achieving sales levels to fulfill revenue expectations; the absence of presently
unexpected costs or charges, certain of which may be outside the control of the
Company; general economic and business conditions; the ability to integrate
acquisitions; shifts in market demand for the Company's products and
competition.
-9-
<PAGE>
PART II. OTHER INFORMATION
WOODHEAD INDUSTRIES, INC.
Item 1. Legal Proceedings
The Company is subject to federal and state hazardous substance cleanup laws
that impose liability for the costs of cleaning up contamination resulting from
past spills, disposal or other releases of hazardous substances. In this regard,
the Company has incurred, and expects to incur, assessment, remediation and
related costs at one of the Company's facilities. In 1991, the Company reported
to state regulators a release at that site from an underground storage tank
("UST"). The UST and certain contaminated soil subsequently were removed and
disposed of at an off-site disposal facility. The Company's independent
environmental consultant has been conducting an investigation of soil and
groundwater at the site with oversight by the state Department of Environmental
Quality ("DEQ"). The investigation indicates that additional soil and
groundwater at the site have been impaired by chlorinated solvents, including
tetrachloroethane and trichloroethylene, and other compounds. Also, the Company
learned that a portion of the site had been used as a disposal area by the
previous owners of the site. The Company's consultant has remediated the soils
in this area and believes that it is an additional source of contamination of
groundwater, both on-site and off-site. In addition, the investigation of the
site indicates that the groundwater contaminants have migrated off-site. The
Company has implemented a groundwater remediation system for the on-site
contamination, and continues to monitor and analyze conditions to determine the
continued efficacy of this system. The company has selected a remediation
alternative for the off-site groundwater contamination and is currently
reviewing this alternative with the DEQ. The Company also is conducting
additional investigations to determine the extent of other sources of
contamination in addition to the removed UST and the above-referenced disposal
area, including possible evidence of past or current releases by others in the
vicinity around the Company's facilities.
The Company's consultant estimates that a minimum of approximately $645,000 of
investigation and remediation expenses remain to be incurred, both on-site and
off-site. The Company has a reserve for such purposes and has notified the
previous owners of the site and various insurers of possible claims by the
Company relating to the remediation of the site. The consultant's cost estimate
was based on a review of currently available data, which is limited, and
assumptions concerning the extent of contamination, geological conditions, and
the costs and effectiveness of certain treatment technologies. The cost estimate
is subject to substantial uncertainty until the extent of contamination and
geological conditions are fully understood, feasible remedial alternatives are
assessed, and the DEQ approves a remediation plan. The Company is continuing to
investigate the environmental conditions at the site and will adjust its reserve
if necessary. The Company may incur significant additional assessment,
remediation and related costs at the site, and such costs could materially and
adversely affect the Company's consolidated net income for the period in which
such costs are incurred. At this time, the Company, however, cannot estimate the
time or potential magnitude of such costs, if any.
-10-
<PAGE>
PART II. OTHER INFORMATION
WOODHEAD INDUSTRIES, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of earnings per common
and common equivalent share
(27) Financial data schedule (Electronic filings only)
(b) Reports on Form 8-K filed during the quarter ended June 27, 1998
1. Form 8-K/A on May 13, 1998
Item 7. Financial statements, pro forma financial information
and exhibits
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOODHEAD INDUSTRIES, INC
/s/ Robert G. Jennings 8-11-98
------------------------- ---------
Robert G. Jennings Date
Vice President - Finance
(Chief Financial Officer)
/s/ Joseph P. Nogal 8-11-98
------------------------- ---------
Joseph P. Nogal Date
Treasurer/Controller
(Chief Accounting Officer)
-12-
<TABLE>
<CAPTION>
EXHIBIT 11
WOODHEAD INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE (Amounts in
thousands, except per share data - unaudited)
Three Months Ended Three Months Ended
6/27/98 6/28/97
------------------ -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 2,820 $ 2,820 $ 3,181 $ 3,181
======= ======= ======= =======
Weighted average
common shares 10,608 10,608 10,474 10,474
Incremental shares issuable
for stock options outstanding
(Treasury stock method) -- 561 -- 643
------- ------- ------- -------
Common and Common
Equivalent Shares 10,608 11,169 10,474 11,117
======= ======= ======= =======
Earnings per common and common
equivalent shares $ 0.27 $ 0.25 $ 0.30 $ 0.29
======= ======= ======= =======
<CAPTION>
Nine Months Ended Nine Months Ended
6/27/98 6/28/97
----------------- -----------------
Basic Diluted Basic Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 8,948 $ 8,948 $ 8,872 $ 8,872
======= ======= ======= =======
Weighted average
common shares 10,583 10,583 10,450 10,450
Incremental shares issuable
for stock options outstanding
(Treasury stock method) -- 599 -- 643
------- ------- ------- -------
Common and Common
Equivalent Shares 10,853 11,182 10,450 11,093
======= ======= ======= =======
Earnings per common and common
equivalent shares $ 0.85 $ 0.80 $ 0.85 $ 0.80
======= ======= ======= =======
</TABLE>
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME
FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10Q FOR THE YEAR TO DATE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> JUN-27-1998
<EXCHANGE-RATE> 1
<CASH> 5,141
<SECURITIES> 0
<RECEIVABLES> 24,807
<ALLOWANCES> 0
<INVENTORY> 20,391
<CURRENT-ASSETS> 56,293
<PP&E> 84,786
<DEPRECIATION> 46,884
<TOTAL-ASSETS> 122,888
<CURRENT-LIABILITIES> 21,530
<BONDS> 0
0
0
<COMMON> 10,618
<OTHER-SE> 62,571
<TOTAL-LIABILITY-AND-EQUITY> 122,888
<SALES> 107,960
<TOTAL-REVENUES> 107,960
<CGS> 60,880
<TOTAL-COSTS> 60,880
<OTHER-EXPENSES> 1,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,898
<INCOME-TAX> 5,950
<INCOME-CONTINUING> 8,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,948
<EPS-PRIMARY> .85
<EPS-DILUTED> .80
</TABLE>
