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 March 28, 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 April 25, 1998 there were 10,597,831 shares of the Registrant's common stock
outstanding.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 28, 1998 and September 27, 1997
ASSETS (Amounts in thousands)
Unaudited
CURRENT ASSETS 3/28/98 9/27/97
---------- ---------
<S> <C> <C>
Cash and short-term securities $ 4,829 $ 8,284
Accounts receivable 24,716 20,051
Inventories (Note 3) 19,890 18,067
Prepaid expenses 5,473 5,054
---------- ---------
Total current assets $ 54,908 $51,456
---------- ---------
OTHER ASSETS $ 188 $ 271
PROPERTY, PLANT & EQUIPMENT, at cost $ 82,283 $74,514
Less: Accumulated depreciation (45,755) (44,016)
---------- ---------
Net property, plant and equipment $ 36,528 $ 30,498
---------- ---------
GOODWILL $ 28,393 $ 6,774
---------- ---------
TOTAL ASSETS $ 120,017 $88,999
========== =========
LIABILITIES & STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 5,669 $ 6,465
Accrued expenses 13,303 13,041
Income taxes 1,973 223
Portion of long-term debt payable within one year - -
---------- ---------
Total current liabilities $ 20,945 $ 19,729
---------- ---------
DEFERRED INCOME TAXES $ 2,173 $ 2,015
---------- ---------
LONG-TERM DEBT $ 25,500 $ -
---------- ---------
STOCKHOLDERS' INVESTMENT: (Note 5)
Preferred stock $ - $ -
Common stock 10,598 10,541
Additional paid-in capital 3,383 2,765
Cumulative translation adjustment (2,244) (1,487)
Retained earnings 59,662 55,436
---------- ---------
Total stockholders' investment $ 71,399 $ 67,255
---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' INVESTMENT $ 120,017 $ 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 SIX MONTHS ENDED
---------------------- --------------------
3/28/98 3/29/97 3/28/98 3/29/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $36,042 $35,503 $70,392 $67,666
COST OF SALES 19,972 19,494 39,352 37,301
------- ------- ------ ------
GROSS PROFIT $16,070 $16,009 $31,040 $30,365
% of Net Sales 44.6% 45.1% 44.1% 44.9%
OPERATING EXPENSES 10,038 10,614 19,972 20,350
------- ------- ------ ------
INCOME FROM OPERATIONS $ 6,032 $ 5,395 $11,068 $10,015
OTHER (INCOME)/EXPENSES, NET 552 291 912 552
------- ------- ------- ------
INCOME BEFORE INCOME
TAXES $ 5,480 $ 5,104 $10,156 $ 9,463
PROVISION FOR INCOME TAXES 2,160 2,017 4,028 3,772
------- ------- ------- -------
NET INCOME $ 3,320 $ 3,087 $ 6,128 $ 5,691
======= ======= ======= =======
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE (Note 4)
BASIC $ 0.31 $ 0.30 $ 0.58 $ 0.55
======= ======= ======= =======
DILUTED $ 0.30 $ 0.28 $ 0.55 $ 0.52
======= ======= ======= =======
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
BASIC 10,581 10,445 10,571 10,437
======= ======= ======= =======
DILUTED 11,199 11,019 11,204 11,011
======= ======= ======= =======
DIVIDENDS PER SHARE $ 0.090 $ 0.080 $ 0.180 $ 0.150
======= ======= ======= =======
</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)
SIX MONTHS ENDED
--------------------
3/28/98 3/29/97
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income for the period $ 6,128 $ 5,691
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 2,762 2,533
Change in Assets and Liabilities:
Decreases/(Increases) in:
Accounts receivable (389) (1,490)
Inventories (417) (1,871)
Prepaid expenses (306) 276
Other assets (392) (63)
Increases/(Decreases) in:
Accounts payable (1,632) (625)
Accrued expenses (2,226) 83
Income taxes 1,250 (335)
Deferred income taxes 158 118
-------- ---------
Net cash flows provided by operating activities $ 4,936 $ 4,317
-------- ---------
Cash Flows from Investing Activities:
Purchases of property, plant & equipment $ (5,737) $ (5,699)
Acquisition of mPm Group (26,768) -
Retirements or sales of property, plant and equipment 32 40
-------- ---------
Net cash flows used for investing activities $(32,473) $ (5,659)
-------- ---------
Cash Flows from Financing Activities:
Proceeds from long-term debt $ 25,500 $ -
Sales of stock 675 404
Dividend payments (1,902) (1,566)
-------- ---------
Net cash flows used for financing activities $ 24,273 $ (1,162)
-------- ---------
Effect of exchange rates $ (191) $ (134)
-------- ---------
Net Decrease in Cash & short-term securities $ (3,455) $ (2,638)
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 38 $ 19
Income taxes $ 3,058 $ 3,504
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
WOODHEAD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 28, 1998
(Unaudited)
(1) The condensed consolidated balance sheets at March 28, 1998, and
September 27, 1997, and the condensed consolidated statements of income
and cash flow for the periods ended March 28, 1998, and March 29, 1997,
reflect, in the opinion of the Company, 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 March 28,
1998, and March 29, 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 March 28, 1998, and September 27,
1997, is as follows:
(in thousands)
3/28/98 9/27/97
-------- --------
Raw materials $13,450 $12,391
Work-in-process and finished goods 11,005 10,138
------- -------
Inventories before LIFO reserve 24,455 22,529
Less: Reserve to reduce to LIFO (4,565) (4,462)
------- -------
Inventories, net $19,890 18,067
======= =======
(4) Income per share is based upon the weighted average number of shares
outstanding for the basic calculation (10,581,000 and 10,571,000 for
the quarter and six months ended March 28, 1998, respectively, and
10,445,000 and 10,437,000 for the quarter and six months ended March
29, 1997, respectively) and the weighted average number of shares
outstanding plus the effect of common share equivalents during the
period for the diluted calculation (11,199,000 and 11,204,000 for the
quarter and six months ended March 28, 1998, respectively, and
11,019,000 and 11,011,000 for the quarter and six months ended March
29, 1997, respectively).
(5) 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 March 28, 1998 and
September 27, 1997 were 10,598,000 and 10,541,000, respectively.
(6) 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
-5-
<PAGE>
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, act 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.
(7) 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
second quarter of 1998, the Company borrowed $25,500,000 under the
Agreement at an average interest rate of 6%. Interest expenses for the
three and six months ending March 28, 1998 was $139,590. The proceeds
from the borrowing were used to finance the acquisition of all 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").
(8) 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
six months ended March 28, 1998. The following unaudited pro forma
condensed information has been prepared as if the acquisition had
occurred at the beginning of the 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.
<TABLE>
<CAPTION>
Six Months Ended
(Amounts in thousands except
per share data)
3/28/98 3/29/97
---------- ----------
<S> <C> <C>
Net Sales $78,287 $77,509
Income Before Income Taxes 8,893 9,394
Net Income $ 5,402 $ 5,362
Net Income per common and fully
diluted equivalent share $ 0.45 $ 0.49
</TABLE>
-6-
<PAGE>
WOODHEAD INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Working capital increased by $2.2 million for the first six 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 $25.5 million from the prior
year-end due to the Company's most recent acquisition of the mPm Group resulting
in a debt to equity (debt plus equity) ratio of 26.3%. Return on assets
decreased to 12.6% from 14.9% and return on equity declined to 19.1% from 20.0%
for the comparable 12-month periods ending March 28, 1998 and March 29, 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
Second quarter net sales rose 1.5% to $36.0 million from $35.5
million reported for the same period last year. Domestic sales decreased 3.5%
during the quarter, primarily due to the weakness in demand for the Company's
Brad Harrison products as related to the delay in major product business and
lower sales of fiber optic and copper cable assemblies. International sales
increased 15.1% over the second quarter of fiscal 1997 and constituted 30.7% of
the total sales for the quarter just ended. This increase reflected sales by the
mPm Group, which was acquired on February 27, 1998, and strength in our other
European markets. In local currencies, international sales increased 18.5% over
the same period last year. The backlog of unfilled orders was $13.0 million
(including $3.6 million from the mPm Group) compared with $8.8 million at fiscal
year-end 1997 and $10.6 million reported one year ago.
Gross profit of $16.1 million was $.1 million or 0.4% greater than
the same quarter last year. Gross profit margins decreased to 44.6% from 45.1%,
reflecting the ability to obtain only limited selling price increases and
continued price concessions at one subsidiary, AI/FOCS.
Operating expenses decreased 5.4% to $10.0 million from $10.6 million
in the second quarter of fiscal 1998. As a percent of net sales, operating
expenses decreased to 27.9% from 29.9%, despite continued investment in
engineering, which increased 14.6%. Other expenses were $.6 million for the
current quarter. The increase was due to interest and amortization expense
related to the acquisition of the mPm Group.
Net income exceeded last year's second quarter by 7.5%. Basic
earnings per share were $0.31 compared with $0.30 in the second quarter of last
year, a 3.3% increase. Earnings per share on a diluted basis were $0.30 compared
with $0.28 in the second quarter of last year, a 7.1% increase. The Company's
increase in net income was primarily due to the impact of sales increase and
reductions in operating expenses.
-7-
<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.
-8-
<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 $890,000 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.
-9-
<PAGE>
PART II. OTHER INFORMATION
WOODHEAD INDUSTRIES, INC.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on January 23, 1998. During
the meeting, the following matters were voted upon with the total number of
shares voted as follows:
VOTES CAST FOR VOTES WITHHELD
--------------- ---------------
Election of nominees to Board of Directors:
Ann F. Hackett 9,845,117 169,985
Linda Y. C. Lim 9,845,567 169,535
Dale A. Miller 9,989,617 25,485
Eugene P. Nesbeda 9,842,907 172,195
Alan L. Shaffer 9,990,617 24,485
<TABLE>
<CAPTION>
VOTES CAST FOR VOTES AGAINST VOTES ABSTAINED
--------------- -------------- ---------------
<S> <C> <C> <C>
Ratification of appointment of
Arthur Andersen LLP as the Company's
independent public accountants 9,955,837 32,613 26,652
</TABLE>
The number of broker non-votes for each matter voted above was 0.
-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 March 28, 1998
1. March 13, 1998
Item 1. Acquisition of assets of the mPm Group.
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 5/11/98
------------------------- ---------
Robert G. Jennings Date
Vice President - Finance
(Chief Financial Officer)
/s/ Joseph P. Nogal 5/11/98
------------------------- ---------
Joseph P. Nogal Date
Treasurer/Controller
(Chief Accounting Officer)
-12-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
WOODHEAD INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
(Amounts in thousands, except per share amount - unaudited)
Three Months Ended Three Months Ended
3/28/98 3/29/97
------------------ ------------------
BASIC DILUTED BASIC DILUTED
------ --------- ------ --------
<S> <C> <C> <C> <C>
Net Income $ 3,320 $ 3,320 $ 3,087 $ 3,087
======= ======= ======= =======
Weighted average
common shares 10,581 10,581 10,445 10,445
Incremental shares issuable
for stock options outstanding
(Treasury stock method) - 618 - 574
------- ------- ------- -------
Common and Common
Equivalent Shares 10,581 11,199 10,445 11,019
======= ======= ======= =======
Earnings per common and common
equivalent shares $0.31 $0.30 $0.30 $0.28
======= ======= ======= =======
Six Months Ended Six Months Ended
3/28/98 3/29/97
------------------- ------------------
BASIC DILUTED BASIC DILUTED
------ -------- ------ --------
Net Income $ 6,128 $ 6,128 $ 5,691 $ 5,691
======= ======= ======= =======
Weighted average
common shares 10,571 10,571 10,437 10,437
Incremental shares issuable
for stock options outstanding
(Treasury stock method) - 633 - 574
------- ------- ------- -------
Common and Common
Equivalent Shares 10,571 11,204 10,437 11,011
======= ======= ======= =======
Earnings per common and common
equivalent shares $0.58 $0.55 $0.55 $0.52
======= ======= ======= =======
</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 COMPNY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS Q UALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000108215
<NAME> WOODHEAD INDUSTRIES, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> MAR-28-1998
<EXCHANGE-RATE> 1
<CASH> 4,829
<SECURITIES> 0
<RECEIVABLES> 24,716
<ALLOWANCES> 0
<INVENTORY> 19,890
<CURRENT-ASSETS> 54,908
<PP&E> 82,283
<DEPRECIATION> 45,755
<TOTAL-ASSETS> 120,017
<CURRENT-LIABILITIES> 20,945
<BONDS> 0
0
0
<COMMON> 10,598
<OTHER-SE> 60,801
<TOTAL-LIABILITY-AND-EQUITY> 71,399
<SALES> 70,392
<TOTAL-REVENUES> 70,392
<CGS> 39,352
<TOTAL-COSTS> 39,352
<OTHER-EXPENSES> 912
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,156
<INCOME-TAX> 4,028
<INCOME-CONTINUING> 6,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,128
<EPS-PRIMARY> .58
<EPS-DILUTED> .55
</TABLE>
