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 January 2, 1999 Commission File Number 0-5971
WOODHEAD INDUSTRIES, INC.
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DELAWARE 36-1982580
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
THREE PARKWAY NORTH, SUITE 550, DEERFIELD, IL. 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (847) 236-9300
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(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 January 30, 1999 there were 11,090,901 shares of the Registrant's common
stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 2, 1999 and October 3, 1998
ASSETS (Amounts in thousands)
Unaudited
CURRENT ASSETS 1/2/99 10/3/98
--------- ---------
<S> <C> <C>
Cash and short-term securities $ 4,763 $ 2,923
Accounts receivable 26,916 26,792
Refundable income taxes 767 795
Inventories (Note 3) 19,873 19,431
Prepaid taxes and other expenses 7,920 7,695
--------- ---------
Total current assets $ 60,239 $ 57,636
--------- ---------
DEFERRED INCOME TAXES AND OTHER ASSETS $ 2,268 $ 2,324
--------- ---------
PROPERTY, PLANT & EQUIPMENT, at cost $ 115,948 $ 114,076
Less: Accumulated depreciation (50,901) (48,792)
--------- ---------
Net property, plant and equipment $ 65,047 $ 65,284
--------- ---------
GOODWILL $ 29,929 $ 30,697
--------- ---------
TOTAL ASSETS $ 157,483 $ 155,941
========= =========
<CAPTION>
LIABILITIES & STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 8,930 $ 7,828
Accrued expenses 15,973 17,656
Income taxes 1,932 837
Portion of long-term debt payable within one year -- --
--------- ---------
Total current liabilities $ 26,835 $ 26,321
--------- ---------
OTHER LIABILITIES $ 2,040 $ 2,070
--------- ---------
LONG-TERM DEBT $ 52,500 $ 53,000
--------- ---------
STOCKHOLDERS' INVESTMENT: (Note 5)
Preferred stock $ -- $ --
Common stock 11,089 11,032
Additional paid-in capital 9,735 9,276
Cumulative translation adjustment (1,594) (1,276)
Retained earnings 56,878 55,518
--------- ---------
Total stockholders' investment $ 76,108 $ 74,550
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' INVESTMENT $ 157,483 $ 155,941
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data, unaudited)
Three Months Ended
--------------------------
1/2/99 12/27/97
-------- ---------
<S> <C> <C>
NET SALES $ 38,836 $ 34,350
COST OF SALES 22,356 19,380
-------- --------
GROSS PROFIT $ 16,480 $ 14,970
% of Net Sales 42.4% 43.6%
OPERATING EXPENSES 12,125 10,063
-------- --------
INCOME FROM OPERATIONS $ 4,355 $ 4,907
OTHER EXPENSES ( INCOME)
INTEREST EXPENSE (INCOME) $ 874 $ (56)
OTHER (INCOME) EXPENSES, NET (397) 287
-------- --------
NET OTHER EXPENSES $ 477 $ 231
INCOME BEFORE INCOME
TAXES $ 3,878 $ 4,676
PROVISION FOR INCOME TAXES $ 1,525 $ 1,868
-------- --------
NET INCOME $ 2,353 $ 2,808
======== ========
NET INCOME PER SHARE(Note 4)
BASIC $ 0.21 $ 0.27
======== ========
DILUTED $ 0.21 $ 0.25
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
BASIC 11,048 10,561
======== ========
DILUTED 11,399 11,223
======== ========
DIVIDENDS PER SHARE $ 0.090 $ 0.090
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
WOODHEAD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in thousands - unaudited)
Three Months Ended
--------------------
1/2/99 12/27/97
------ --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income for the period $ 2,353 $ 2,808
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 2,616 1,292
Change in Assets and Liabilities:
(Increases) Decreases in:
Accounts receivable (124) 469
Inventories (442) 176
Prepaid expenses (225) (339)
Deferred income taxes and other assets 78 2
Increases (Decreases) in:
Accounts payable 1,102 (1,144)
Accrued expenses (1,713) (3,145)
Income taxes 1,123 2,110
Deferred income taxes -- 168
------- -------
Net cash flows provided by operating activities $ 4,768 $ 2,397
------- -------
Cash Flows from Investing Activities:
Purchases of property, plant & equipment $(1,934) $(3,474)
Retirements or sales of property, plant and equipment (4) 28
------- -------
Net cash flows used for investing activities $(1,938) $(3,446)
------- -------
Cash Flows from Financing Activities:
Payments on long-term debt $ (500) $ --
Sales of stock 516 221
Dividend payments (993) (950)
------- -------
Net cash flows used for financing activities $ (977) $ (729)
------- -------
Effect of exchange rates $ (13) $ 90
------- -------
Net Increase (Decrease) in Cash & short-term securities $ 1,840 $(1,688)
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 73 $ 10
Income taxes $ 127 $ 360
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
WOODHEAD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 2, 1999
(Unaudited)
(1) The condensed consolidated balance sheets at January 2, 1999, and
October 3, 1998, and the condensed consolidated statements of income
and cash flow for the three-month periods ended January 2, 1999, and
December 27, 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 January 2,
1999, and December 27, 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 January 2, 1999, and October 3, 1998, is
as follows:
(in thousands)
1/2/99 10/3/98
------ -------
Raw materials $13,721 $12,881
Work-in-process and finished goods 11,227 11,600
------ -------
Inventories before LIFO reserve 24,948 24,481
Less: Reserve to reduce to LIFO (5,075) (5,050)
------ -------
Inventories, net $19,873 $19,431
======= =======
(4) Income per share is based upon the weighted average number of common
shares outstanding for the basic calculation (11,048,000 for the
quarter ended January 2, 1999 and 10,561,000 for the quarter ended
December 27, 1997) and the weighted average number of common shares
outstanding plus dilutive common stock options for the diluted
calculation (11,399,000 for the quarter ended January 2, 1999 and
11,223,000 for the quarter ended December 27, 1997).
(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 January 2, 1999 and
October 3, 1998 were 11,089,000 and 11,032,000, respectively.
(6) Certain amounts in the prior period financial statements have been
reclassified to conform with the current period presentation.
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<PAGE>
(7) The Company, as a result of its global operating activities, is exposed
to changes in foreign currency exchange rates which may adversely affect
its results of operations and financial condition. In seeking to minimize
the risks and/or costs associated with such activities, the Company
manages exposure to changes in foreign currency exchange rates through
its regular operating activities and, when deemed appropriate, through
the use of derivative financial instruments.
The Company uses financial instruments to selectively hedge and thereby
attempts to reduce its overall exposure to the effects of foreign
currency fluctuations. The company does not use derivative financial
instruments for speculative purposes. The Company uses foreign currency
forward and swap 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 transactions.
In 1998 the Company entered into a foreign currency swap agreement with a
AA- rated counterparty to hedge a portion of its investment in its
Italian subsidiary. Under the terms of the agreement, the Company will
swap 35.52 billion Lire for $20.0 million amortized over the next 8
years. In addition, the contract provides for the Company to make annual
interest payments of 6.50% on the outstanding Lire balance, while
receiving 7.43% on the outstanding Dollar balance. Due to the fact that
this contract is an effective hedge of an investment in a foreign entity,
any gain or loss on the contract is recorded directly to cumulative
translation adjustment in shareholders' equity.
(8) Effective October 4, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130 - Comprehensive Income. Comprehensive
income includes all changes in equity during a period except those
resulting from investments by, and distributions to, Share Owners.
Comprehensive income, shown net of tax if applicable, for the three month
periods ending January 2, 1999 and December 27, 1997, is as follows: (in
thousands)
Three Months Ended
--------------------------
1/2/99 12/27/97
-------- --------
Net Income $ 2,353 $ 2,808
Foreign Currency Translation Adjustment (207) 71
------ -------
Comprehensive Income $ 2,146 $ 2,879
======= =======
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<PAGE>
WOODHEAD INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Working capital increased by $2.1 million during the quarter ended
January 2, 1999. The current ratio of 2.2 to 1 for the quarter was the same as
at the end of the prior fiscal year. Long-term debt decreased to $52.5 million
from the prior year end, resulting in a debt to total capitalization (debt plus
equity) ratio of 40.8%. Return on assets declined to 2.8% from 14.7% and return
on equity declined to 4.8% from 19.2% for the comparable 12-month periods ending
January 2, 1999 and December 27, 1997, respectively. The decline in Return on
Assets and Return on Equity was primarily due to certain charges in the fourth
quarter of the 1998 fiscal year. The Company's financial position remains strong
and significant borrowing capacity is available should the need arise.
The Company is 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
First quarter Net Sales rose 13.1% to $38.8 million from $34.4 million
reported for the same period last year, primarily due to the recent acquisitions
of SST and mPm S.r.l. Domestic sales decreased by 5.3% compared with the same
period last year, primarily due to the weakness in demand for the Company's Brad
Harrison products as related to the continued delay of major project business.
International sales rose by 62.4% during the first quarter of fiscal 1998 and
constituted 39.0% of total sales of the quarter just ended. This increase
reflects sales by mPm, which was acquired on February 27, 1998 as well as
continued market strength in Europe, which supported substantial sales increases
at our European subsidiaries. The backlog of unfilled orders was $13.2 million
compared with $11.5 million at fiscal year-end 1998 and $9.5 million reported a
year ago.
Gross profit of $16.5 million was $1.5 million or 10.1% greater than in
the same quarter last year. Gross profit margins declined to 42.4% from 43.6%
due to the impact of SST and mPm.
Operating expenses increased 20.5% to $12.1 million from $10.0 million
in the first quarter of fiscal 1999. As a percent of net sales, operating
expenses increased to 31.2% from 29.3%. Interest expense increased due to the
debt related to the 1998 acquisitions of SST and mPm. Other expenses decreased
due to gains in foreign exchange and absence of expenses incurred last year for
the startup of the Company's new plant in Juarez, Mexico, and unrelated employee
severance costs.
Net income decreased by 16.2% to $2.4 million from $2.8 million. Basic
earnings per share were $0.21 compared with $0.27 in the first quarter of last
year. Earnings per share on a diluted basis were $0.21 compared with $0.25 in
the first quarter of last year.
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<PAGE>
OTHER
The Company has been assessing and addressing the impact of the Year
2000 issue on its business over the past two years. As a result of the ongoing
assessment, the Company has been modifying or replacing various hardware and
software platforms throughout the Company. Since the Company is operated in a
decentralized manner, each of its operating locations is addressing whether its
systems, vendors, equipment and products are or will be Year 2000 compliant. The
compliance status at each subsidiary is being monitored by Corporate personnel
on a quarterly basis to ensure that required courses of action are being
executed in a timely fashion. Management believes the modification of its
computer information systems will be completed in adequate time to enable proper
processing of transactions relating to the Year 2000 and beyond. However, if
such systems are not timely modified, such a delay could have a material adverse
effect on the Company.
Expenses associated with the Year 2000 issue are currently reflected in
the Company's financial statements. Consultants' fees incurred at its various
subsidiaries are being expensed when incurred while new systems are being
capitalized. Although the Company has not accumulated the normal costs of
updating business systems which occur on an ongoing basis that also address the
Year 2000 issue, it is believed that these costs do not have a material
financial effect on the Company as a whole. At present, the Company is
evaluating contingency plan alternatives.
The Company believes the key risk factors associated with Year 2000 are
those it cannot directly control, primarily the readiness of its key suppliers,
distributors, customers, public infrastructure suppliers and other vendors. The
Company's subsidiaries have each initiated discussions with those third parties
to determine their Year 2000 compliance status, and is keeping the communication
channels open with respect to their readiness. While the Company is working
diligently to ensure its mission critical third parties will be compliant, there
can be no assurance that the systems of any third party on which the Company's
systems and operations rely will be timely converted and will not have a
material adverse effect on the Company.
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.
-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 but believes that it is the primary 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. During the past year, the Company was required to modify this
system in order to address treatment problems created by changed conditions, and
these modifications increased the estimated long term cost of the on-site
remediation. The Company continues to monitor and analyze conditions to
determine the continued efficacy of this system. The Company has also modified
the design of its proposed remediation alternative for the off-site groundwater
contamination because of changed off-site conditions, and is currently reviewing
this alternative with the DEQ. The Company continues to investigate 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 has estimated that a minimum of approximately
$2,045,000 of investigation and remediation expenses remain to be incurred, both
on-site and off-site. The Company has initiated discussions with the previous
owners of the site and various insurers concerning possible claims by the
Company for contribution to the cost of the investigation and remediation of
the site. The consultant's cost estimate was based on a review of currently
available data and assumptions concerning the extent of contamination,
geological conditions, and the costs and effectiveness of certain treatment
technologies. The cost estimate continues to be subject to substantial
uncertainty because of the extent of the contamination area, the variety and
nature of geological conditions throughout the contamination area, changes in
remediation technology, and ongoing DEQ feedback. The Company is continuing to
monitor the 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.
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<PAGE>
PART II. OTHER INFORMATION
WOODHEAD INDUSTRIES, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of earnings per share
(27) Financial data schedule (Electronic filings only)
(b) Reports on Form 8-K filed during the quarter ended January 2, 1999
1. Form 8-K/A on October 14, 1998
Item 7. Financial statements, pro forma financial information and
exhibits.
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<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 2/9/99
------------------------ ----------
Robert G. Jennings Date
Vice President - Finance
(Chief Financial Officer)
/s/ Joseph P. Nogal 2/9/99
----------------------- ----------
Joseph P. Nogal Date
Vice President, Treasurer/Controller
(Chief Accounting Officer)
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<TABLE>
<CAPTION>
EXHIBIT 11
WOODHEAD INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER
SHARE (Amounts in thousands, except
per share data - unaudited)
Three Months Ended Three Months Ended
1 /2/99 12/27/97
------------------ ------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 2,353 $ 2,353 $ 2,808 $ 2,808
======= ======= ======= =======
Weighted average
common shares 11,048 11,048 10,561 10,561
Dilutive common
stock options - 351 - 662
------- ------- ------- -------
Weighted average
common shares plus
dilutive common stock
options 11,048 11,399 10,561 11,223
======= ======= ======= =======
Earnings per share $0.21 $0.21 $0.27 $0.25
======= ======= ======= =======
</TABLE>
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<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> 3-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> JAN-02-1999
<EXCHANGE-RATE> 1
<CASH> 4,763
<SECURITIES> 0
<RECEIVABLES> 26,916
<ALLOWANCES> 0
<INVENTORY> 19,873
<CURRENT-ASSETS> 60,239
<PP&E> 115,948
<DEPRECIATION> 50,901
<TOTAL-ASSETS> 157,483
<CURRENT-LIABILITIES> 26,835
<BONDS> 0
0
0
<COMMON> 11,089
<OTHER-SE> 65,019
<TOTAL-LIABILITY-AND-EQUITY> 157,483
<SALES> 38,836
<TOTAL-REVENUES> 38,836
<CGS> 22,356
<TOTAL-COSTS> 22,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 874
<INCOME-PRETAX> 3,878
<INCOME-TAX> 1,525
<INCOME-CONTINUING> 2,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,353
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
