-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LvP7L1djhG2AH7Un268sq5xhFEFFYyUWMp1R5YNPOi9Q1yjNwkFHhnkPPyDgw2Qq YVOkRfx6ZmprGRgjZ/LTcQ== 0000897101-01-500829.txt : 20020413 0000897101-01-500829.hdr.sgml : 20020413 ACCESSION NUMBER: 0000897101-01-500829 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WOODHEAD INDUSTRIES INC CENTRAL INDEX KEY: 0000108215 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 361982580 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05971 FILM NUMBER: 1820548 BUSINESS ADDRESS: STREET 1: THREE PKWY NORTH STREET 2: STE 550 CITY: DEERFIELD STATE: IL ZIP: 60015 BUSINESS PHONE: 8472369300 MAIL ADDRESS: STREET 1: THREE PWKY NORTH STREET 2: STE 550 CITY: DEERFIELD STATE: IL ZIP: 60015 FORMER COMPANY: FORMER CONFORMED NAME: WOODHEAD DANIEL CO DATE OF NAME CHANGE: 19710624 10-K 1 woodhead015232_10k.txt WOODHEAD INDUSTRIES, INC. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2001 Commission file number 0-5971 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 WOODHEAD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 36-1982580 -------------------------------- --------------------------------------- (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) Three Parkway North, Suite 550, Deerfield, IL. 60015 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (847) 236-9300 -------------------------------------------------------------------------- Registrants Telephone Number, including area code SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT Common Stock, Par Value $1.00 NASDAQ Preferred Stock Purchase Rights NASDAQ ------------------------------- ------------------------------ (Title of Class) (Exchange on which registered) 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___. 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of December 5, 2001 was $191,650,589. The number of common shares outstanding as of December 5, 2001 was 11,580,096 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of Stockholders and portions of the 2001 Annual Report to Stockholders are incorporated by reference in Parts I, II, III, and IV. TABLE OF CONTENTS PART I.........................................................................2 ITEM 1. BUSINESS...............................................................2 GENERAL.....................................................................2 BUSINESS SEGMENTS...........................................................2 PRODUCTS....................................................................2 DISTRIBUTION................................................................2 RAW MATERIALS...............................................................3 PATENTS AND INTELLECTUAL PROPERTY RIGHTS....................................3 CUSTOMERS...................................................................3 BACKLOG.....................................................................3 COMPETITION.................................................................3 INTERNATIONAL OPERATIONS....................................................3 RESEARCH & DEVELOPMENT......................................................3 ENVIRONMENTAL MATTERS.......................................................3 EMPLOYEES...................................................................4 FORWARD LOOKING STATEMENTS..................................................4 ITEM 2. PROPERTIES.............................................................5 ITEM 3. LEGAL PROCEEDINGS......................................................6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................6 PART II........................................................................6 ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................................................6 ITEM 6. SELECTED FINANCIAL DATA................................................6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................................6 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............6 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................7 ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................................................7 PART III.......................................................................7 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................7 ITEM 11. EXECUTIVE COMPENSATION................................................8 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........8 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................9 PART IV........................................................................9 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......9 14 (A) (1) FINANCIAL STATEMENTS.............................................9 14 (A) (2) FINANCIAL STATEMENT SCHEDULES....................................9 14 (A) (3) EXHIBITS.........................................................9 14 (B) REPORTS ON FORM 8-K.................................................11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS.....................................12 SIGNATURES....................................................................13 EXHIBIT 10(i): MATERIAL CONTRACTS EXHIBIT 13: 2001 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT 1 PART I ITEM 1. BUSINESS GENERAL Woodhead Industries, Inc. (the Company, which may be referred to as "we", "us", or "our") is an integrated group of companies in two business segments serving a diverse group of customers and industries worldwide. We develop, manufacture, and market electronic and industrial communications products, primarily serving the global automation and control market with connectivity solutions and specialty electrical products. Note that throughout this 2001 10-K report, we "incorporate by reference" certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information. BUSINESS SEGMENTS See Note 12: SEGMENT INFORMATION AND GEOGRAPHIC DATA on pages 33 and 34 of our 2001 Annual Report. This discussion is incorporated by reference. PRODUCTS We develop, manufacture and market electronic and industrial communications products, primarily serving the global automation and control markets with connectivity solutions and specialty electrical products. Through our Industrial Communications and Connectivity Segment (Connectivity Segment, or Connectivity) we provide the industrial automation industry with a single, worldwide source for industrial communications and connectivity solutions. Our product lines, comprising six industry-leading brands, SST(TM), Brad Harrison(R), mPm(TM), RJ-Lnxx(R), applicom(R), and NetAlert(TM) make us the premier supplier of application-specific connectivity solutions. Our Electrical Safety & Specialty Segment (Electrical Segment, or Electrical) manufactures highly customized products to support enhanced safety and productivity on the factory floor. Our homepage on the Internet is at www.Woodhead.com. You can learn more about us by visiting that site. DISTRIBUTION We sell our products to stocking distributors, original equipment manufacturers (OEM) and system integrators. Our direct sales force, as well as manufacturers' agencies, service our customers and promote our products to end-customers. 2 RAW MATERIALS Most parts and materials for our products are readily available from a variety of suppliers. It is our practice to develop more than one source of supply for critical items. PATENTS AND INTELLECTUAL PROPERTY RIGHTS We hold patents, trademarks and licensing agreements on certain of our products. We believe these trademarks and patents are valuable but not essential to the maintenance or future growth of our businesses. CUSTOMERS We sell our products to a broad customer base. No single customer or industry accounted for a significant portion of our business. BACKLOG The backlog of unfilled orders stood at $13.8 million, $19.2 million, and $12.4 million at the end of 2001, 2000, and 1999, respectively. The decline in telecom/datacom markets in the second half of 2001 and the generally slow worldwide economic conditions were the causes for the lower backlog. Connectivity products accounted for the decrease as well as the majority of the absolute level of backlog. Applicom's backlog was not material. COMPETITION Similar products of the type sold by us are also available from competitors. We believe delivery time, as well as quality and customer service are important to our success. Our ability to manufacture high-quality products, that serve specialized needs, as well as our multiple channels of distribution differentiate us from the competition. INTERNATIONAL OPERATIONS A significant portion of our business is from outside the United States. The international operations are conducted through our subsidiaries who sell and manufacture products from both of our business segments. Fluctuations in foreign currency exchange rates can impact our results of operations and financial condition. Since much of our international manufacturing costs and operating expenses are also incurred in local currencies, the impact of exchange rates on reported net income is partially mitigated. See Note 12: SEGMENT INFORMATION AND GEOGRAPHIC DATA on pages 33 and 34 of our 2001 Annual Report. This discussion is incorporated by reference. RESEARCH & DEVELOPMENT See Note 11: RESEARCH AND DEVELOPMENT on page 33 of our 2001 Annual Report. This discussion is incorporated by reference. ENVIRONMENTAL MATTERS Our operations are subject to international, federal, state and local environmental laws and regulations. We are party to an environmental matter, which obligates us to investigate, remediate, or mitigate the effects on the environment of the release of certain substances at one of our manufacturing facilities. It is possible that this matter could affect cash flows and results of operations. For additional details on the environmental exposure, see Note 15: CONTINGENT LIABILITIES on pages 37 and 38 of our 2001 Annual Report. This discussion is incorporated by reference. 3 EMPLOYEES At the end of fiscal year 2001, we had 1,534 full-time employees. FORWARD LOOKING STATEMENTS The Securities and Exchange Commission encourages companies to disclose forward-looking information, so that investors can better understand a company's future prospects, and make informed investment decisions. This annual report, and other written and oral statements that we make from time to time, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements set out anticipated results based on management's plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as "anticipate", "estimate", "expect", "plan", "believe", and words and terms of similar substance, in connection with any discussion of future operating or financial performance. We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and inaccurate assumptions. In particular, such risks include statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, general economic and business conditions, and competition. International-based revenues and substantial international assets result in our exposure to currency exchange rate fluctuations. A new European currency, the Euro, was introduced in January 1999 to replace the separate currencies of eleven individual countries. We continue to evaluate the economic and operational impact of the Euro, including its impact on competition, pricing, and foreign currency exchange risks. There is no guarantee, however, that all problems have been foreseen and corrected, or that no material disruption will occur in our businesses. Growth in costs and expenses, changes in product mix, and the impact of acquisitions, restructuring, divestitures and other unusual items, that could result from evolving business strategies, could affect future results. Changes in the U.S. tax code and the tax laws in other countries can affect our net earnings. Claims have been brought against us and our subsidiaries for various legal, environmental, and tax matters, and additional claims arise from time to time. It is possible that our cash flows and results of operations could be affected by the resolution of these matters. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. 4 This discussion of potential risks and uncertainties is by no means complete but is designed to highlight important factors that may impact our outlook. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. ITEM 2. PROPERTIES We own facilities in the following locations:
- ------------------------------------------------------------------------------------------- Location Land owned Floor Area Business Segment - ------------------------------------------------------------------------------------------- Northbrook, Illinois 4.7 acres 125,000 sq. ft. Connectivity and Electrical Kalamazoo, Michigan 39.1 acres 116,000 sq. ft. Electrical Juarez, Mexico 16.5 acres 109,000 sq. ft. Connectivity and Electrical Franklin, Massachusetts 6.6 acres 60,000 sq. ft. Connectivity El Paso, Texas 5.0 acres 50,000 sq. ft. Connectivity and Electrical Ebbw Vale, UK 4.5 acres 42,000 sq. ft. Connectivity Belvidere, Illinois 3.5 acres 36,000 sq. ft. Electrical Barneveld, Holland 1.3 acres 30,000 sq. ft. Electrical Bretten, Germany 1.4 acres 27,000 sq. ft. Connectivity Cusano Milano, Italy 0.1 acres 18,000 sq. ft. Connectivity Caudebec-les-Elbeuf, France 0.2 acres 6,000 sq. ft. Connectivity
We own all of the above properties in fee, except the land in Ebbw Vale, UK, which is held under a lease expiring in 2105, and the land in Bretten, Germany, which is held under a lease expiring in 2046. We lease the following properties for use in our operations. In addition to rent, the leases require us to pay directly for taxes, insurance, maintenance and other operating expenses or to pay higher rent when operating expenses increase.
- ------------------------------------------------------------------------------------------- Location Floor Area Business Segment - ------------------------------------------------------------------------------------------- Waterloo, Canada 60,000 sq. ft. Connectivity Mississauga, Canada 20,000 sq. ft. Connectivity Paderno, Italy 18,300 sq. ft. Connectivity Deerfield, Illinois 11,600 sq. ft. Corporate Headquarters Grand Rapids, Michigan 10,500 sq. ft. Electrical Lagny-Sur-Marne, France 6,500 sq. ft. Connectivity Jurong Town, Singapore 5,900 sq. ft. Electrical Caudebec-les-Elbeuf, France 2,000 sq. ft. Connectivity Genova, Italy 3,300 sq. ft. Connectivity Leinfelden, Germany 1,000 sq. ft. Connectivity Yokohama, Japan 900 sq. ft. Connectivity
All plants are well equipped and maintained. They are of masonry or steel construction. On October 10, 2000, we announced a plan to build a second manufacturing plant in Juarez, Mexico (120,000 sq. ft.) to migrate U.S. production to a lower cost labor market. The current and new Juarez plants are manufacturing resources for all of our North American subsidiaries. With the addition of this new facility, we believe there is sufficient capacity available to cover our needs through at least fiscal year 2002. 5 ITEM 3. LEGAL PROCEEDINGS See Note 15: CONTINGENT LIABILITIES on pages 37 and 38 of our 2001 Annual Report. This discussion is incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal year 2001, which ended on September 29, 2001, there were no matters submitted to a vote of security holders either through solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS See Note 17: SUMMARY OF QUARTERLY DATA on page 39 of our 2001 Annual Report. This discussion is incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA Historical financial information is incorporated by reference to the "FINANCIAL PROFILE" on page 18 of our 2001 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 through 22 of our 2001 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Note 2: FINANCIAL INSTRUMENTS on pages 29 and 30 of our 2001 Annual Report. This discussion is incorporated by reference. 6 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item is incorporated by reference to the "Report of Independent Public Accountants" on page 17, and to the consolidated financial statements and notes to financial statements on pages 23 through 39 of our 2001 Annual Report. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We had no disagreements with our public accountants and did not change our public accountants. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information about our Directors is incorporated by reference to the discussion under Item 1, "Nominees and Continuing Directors" in our Proxy Statement for the 2002 Annual Meeting of Stockholders. Our Executive Officers are:
Name Age Position Position held since - --------------------------------------------------------------------------------------------------------- Philippe Lemaitre 52 President and Chief Executive Officer January 2001 Charles P. Andersen 48 Vice President, President Woodhead Connectivity, North January 1999 America Robert H. Fisher 53 Vice President of Finance, Chief Financial Officer December 2000 Robert A. Moulton 52 Vice President, Human Resources May 1987 Joseph P. Nogal 46 Vice President, Treasurer/Controller and Assistant January 1999 Secretary W. Arewl Rees 45 Vice President, President Woodhead Connectivity, Europe January 1999 Robert J. Tortorello 52 Vice President, General Counsel and Secretary January 1991
All officers are elected each year at the Annual Meeting of the Board of Directors, which is held immediately following the Annual Meeting of Stockholders. The next annual Meeting of Stockholders will be held on January 25, 2002. Information concerning Mr. Lemaitre is incorporated by reference to the discussion under Item 1, "Nominees and Continuing Directors" in our Proxy Statement for the 2002 Annual Meeting of Stockholders. 7 Mr. Charles P. Andersen became President of our Aero-Motive Company subsidiary in June 1994. He was appointed President of Woodhead Connectivity, North America in October 1998, and elected Corporate Vice President in January 1999. He previously served as Vice President, General Manager of Blue M Electric, a unit of General Signal Corp., from 1992 to 1994. Mr. Robert H. Fisher joined Woodhead in December 2000 as Vice President, Finance and Chief Financial Officer. He previously served as Executive Vice President of Finance for Rockwell International's Electronic Commerce group from 1998 to 2000. Before that he was Vice President of Finance for US Robotics/3 Com's Personal Communication business, and Vice President/Controller for Zenith Electronics Corporation. Mr. Robert A. Moulton joined Woodhead in October 1986 as Manager, Human Resources and was elected Vice President in May 1987. He previously served as Director, Personnel at G.D. Searle and Company from 1981 to 1986. Mr. Joseph P. Nogal became Woodhead's Treasurer/Controller in January 1991. He was elected Assistant Secretary in July 1993, and was elected Vice President, Treasurer/Controller in January 1999. He previously served as Controller at Woodhead Canada Limited. Mr. W. Arwel Rees became Managing Director of our Aero-Motive U.K. Ltd. subsidiary in June 1990. He was appointed President of Woodhead Connectivity, Europe in October 1998, and was elected Corporate Vice President in January 1999. Mr. Robert J. Tortorello became our General Counsel and Secretary in June 1987. He was elected Corporate Vice President in January 1991. He previously served as Assistant Vice President and Assistant to the Chairman at Beatrice Companies, Inc. from 1986 to 1987. ITEM 11. EXECUTIVE COMPENSATION Information about executive compensation is incorporated by reference to the discussion under the heading "Executive Compensation" on pages 9 and 10 of our Proxy Statement for the 2002 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information about security ownership of certain beneficial owners and management is incorporated by reference to the discussion under the heading "Stock Ownership of Management and Certain Beneficial Owners" on pages 6 through 8 of our Proxy Statement for the 2002 Annual Meeting of Stockholders. 8 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information about certain relationships and related transactions is incorporated by reference to the discussion under the heading "Certain Relationships and Related Transactions" on page 8 of our Proxy Statement for the 2002 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 14 (A) (1) FINANCIAL STATEMENTS The following consolidated financial statements, related notes, and Report of Independent Public Accountants from the 2001 Annual Report to Stockholders are incorporated by reference into this report: Page(s) in our 2001 Annual Report Report of Independent Public Accountants...................................17 Segment Information........................................................33-34 Geographic Data............................................................34 Consolidated Balance Sheets................................................23 Consolidated Statements of Income..........................................24 Consolidated Statements of Cash Flows......................................25 Consolidated Statements of Comprehensive Income............................26 Consolidated Statements of Stockholders' Investment........................26 Notes to Financial Statements..............................................27-39 14 (A) (2) FINANCIAL STATEMENT SCHEDULES Schedules are omitted because they are not required or the information is given elsewhere in the financial statements or related notes. 14 (A) (3) EXHIBITS These exhibits are available upon request. Requests should be directed to Mr. Robert J. Tortorello, Secretary, Woodhead Industries, Inc., Three Parkway North, Suite 550, Deerfield, Illinois, 60015. 9 3 (i) Articles of Incorporation Our Certificate of Incorporation including amendments through January 22, 1993 is incorporated by reference to EXHIBIT (4) A of our Form S-8 report filed on April 22, 1994, as Registration #33-77968. 3 (ii) By-laws Our By-laws, as amended, are incorporated by reference to EXHIBIT (3) B of our Form 10-K report for the year ended September 27, 1997. 4 Instruments defining the rights of security holders, including indentures a Our Preferred Stock Purchase Rights Plan adopted April 24, 1996, is incorporated by reference to EXHIBIT 4 of our Form 10-Q report for the period ended March 30, 1996. b A Credit Agreement between the Registrant and Harris Trust and Savings Bank dated October 29, 1993, and amended on October 3, 1998, and amended on January 26, 2001 providing for a revolving credit line not to exceed $25,000,000. c The 6.81% Note Purchase Agreement between the Registrant and private investors dated September 28, 1998 in the amount of $15,000,000, maturing in 2013. d The 6.64% Note Purchase Agreement between the Registrant's consolidated subsidiary, Woodhead Finance Company, and private investors dated September 28, 1998 in the amount of $30,000,000 maturing in 2008. 10 Material Contracts a The 1990 Stock Awards Plan, as amended, is incorporated by reference to EXHIBIT (10) (C) of our Form 10-K report for the year ended October 2, 1999. b The 1993 Stock Awards Plan, as amended, is incorporated by reference to EXHIBIT (10) (D) of our Form 10-K report for the year ended October 2, 1999. c The 1996 Stock Awards Plan, as amended, is incorporated by reference to EXHIBIT (10) (E) of our Form 10-K report for the year ended October 2, 1999. d The 1999 Stock Awards Plan is incorporated by reference to EXHIBIT A of our Proxy Statement for the 2000 Annual Meeting of Stockholders. e The 2001 Stock Awards Plan is incorporated by reference to EXHIBIT A of our Proxy Statement for the 2002 Annual Meeting of Stockholders. f The Management Incentive Plan effective for fiscal 2001, is incorporated by reference to page 18 of our Proxy Statement for the 2002 Annual Meeting of Stockholders. 10 g The Plan of Compensation for Outside Directors, is incorporated by reference to EXHIBIT (10) of our Form 10-K report for the year ended September 28, 1985. h The 1990 Supplemental Executive Retirement Plan is incorporated by reference to page 15 of our Proxy Statement for the 1996 Annual Meeting of Stockholders. i The Severance Agreement between Mr. Philippe Lemaitre and Woodhead is attached to this Form 10-K report for the year ended September 29, 2001. All other executive officers have substantially identical contracts. 11 The statement regarding per share earnings is incorporated by reference to Note 10: EARNINGS PER SHARE on page 33 of our 2001 Annual Report to Stockholders. 13 The following information is included in our 2001 Annual Report to Stockholders: a) Report of Independent Public Accountants on page 17 b) Segment Information on page 33-34 c) Geographic Data on page 34 d) Consolidated Financial Statements on pages 23 through 26 e) Notes to Financial Statements on pages 27 through 39 f) Financial Profile on page 18 g) Management's Discussion of Financial Condition and Results of Operations on pages 19 through 22 21 Subsidiaries of the Company are on page 14 of this report. 23 Consent of Arthur Andersen LLP is on page 12 of this report. 14 (B) REPORTS ON FORM 8-K On December 19, 2001 we filed a report on Form 8-K. We reported a write-off of our investment in Symphony Systems in the amount of $1.9 million. 11 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated December 18, 2001 incorporated by reference in this Form 10-K, into Woodhead Industries, Inc.'s previously filed Registration Statement File No. 333-26379. Arthur Andersen LLP Chicago, Illinois December 21, 2001 12 SIGNATURES Under the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized persons below. WOODHEAD INDUSTRIES, INC. Date: December 21, 2001 BY: /s/ Robert H. Fisher BY: /s/ Joseph P. Nogal - --------------------------- --------------------------- Robert H. Fisher Joseph P. Nogal Vice President, Finance and C.F.O. Vice President, (Principal Financial Officer) Treasurer/Controller (Principal Accounting Officer) Under the requirements of the Securities and Exchange Act of 1934, this report was signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date - --------- ----- ---- /s/ Charles W. Denny Chairman of the Board 12-19-01 - ----------------------- Charles W. Denny /s/ Philippe Lemaitre President and C.E.O. 12-19-01 - ----------------------- Philippe Lemaitre /s/ Ann F. Hackett Director 12-19-01 - ----------------------- Ann F. Hackett /s/ Linda Y. C. Lim Director 12-19-01 - ----------------------- Linda Y. C. Lim, Ph.D. /s/ Eugene P. Nesbeda Director 12-19-01 - ----------------------- Eugene P. Nesbeda /s/ Sarilee K. Norton Director 12-19-01 - ----------------------- Sarilee K. Norton 13 EX-10.(I) 3 woodhead015232_ex-10i.txt SEVERANCE AGREEMENT EXHIBIT 10(i) October 1, 1999 Mr. Philippe Lemaitre Dear Philippe: Woodhead Industries, Inc. (the "Company") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is now contemplated. In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in Subsection 2(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through September 30, 2002; provided, however, that commencing on October 1, 2000 and each October 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than the June 30 preceding each such October 1, the Company shall have given notice that it does not wish to extend Mr. Philippe Lemaitre October 1, 1999 Page 2 this Agreement; provided further, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for the later of (i) the original or extended term or (ii) a period of twenty-four (24) months beyond the month in which such change in control occurred. Notwithstanding the foregoing, in no event shall the term of this Agreement extend beyond the date that you attain sixty-five years of age. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this Subsection) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a change in control of the Company; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, Mr. Philippe Lemaitre October 1, 1999 Page 3 who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such potential change in control of the Company, (ii) the termination by you of your employment by reason of Disability or Retirement as defined in Subsection 3(i), or (iii) the occurrence of a change in control of the Company. 3. Termination Following Change in Control. If any of the events described in Subsection 2(i) hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 3(iv) and 3(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the Mr. Philippe Lemaitre October 1, 1999 Page 4 entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Company of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 3(v) and 3(iv), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your present status as President and Chief Operating Officer of the Company (or such other title or titles as you may be holding immediately prior to the change in control of the Company) or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and each of its affiliated companies and all senior executives of any person in control of the Company and each of its affiliated companies; (C) the relocation of the Company's principal executive offices to a location outside the Chicago Metropolitan Area (or, if different, the metropolitan area in which such offices are located immediately prior to the change in control of the Company) or the Company's requiring you to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) the failure by the Company to continue in effect any compensation plan in which you participate immediately prior to the change in control of the Company which is material to your total compensation, including but not limited to the Company's Management Incentive Plan and 1987 Stock Compensation Plan or any similar or Mr. Philippe Lemaitre October 1, 1999 Page 5 substitute plans adopted prior to the change in control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (F) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under the Company's Retirement Plan for Woodhead Industries, Inc. & Affiliated Companies (the "Pension Plan"), Woodhead Industries, Inc. & Affiliated Companies Employees Profit Sharing Plan (the "Profit Sharing Plan"), or under any or the Company's life insurance, medical, health and accident, or disability plans in which you were participating at the time of the change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and, if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to Mr. Philippe Lemaitre October 1, 1999 Page 6 the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement except to the extent otherwise provided in paragraph (E) of Subsection 4(iii). 4. Compensation Upon Termination or During Disability. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all compensation payable to you under the Management Incentive Plan or other plan during such period, until this Agreement is terminated pursuant to Section 3(i) hereof reduced by any payments made to you during such period pursuant to the Company's long-term disability plans or programs. Thereafter, or in the event your employment shall be terminated by the Company or by you for Retirement, or by reason of your death, your benefits shall be determined under the Company's retirement, insurance and other compensation plans and programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Disability, death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus Mr. Philippe Lemaitre October 1, 1999 Page 7 all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, except as otherwise provided below; (B) in lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs C and D, below, the "Severance Payments") equal to three (3) or, if less, the number of years, including fractions, from the Date of Termination until you reach your normal retirement age, times the sum of (x) your annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (y) your target bonus amount (computed by multiplying your target bonus percentage as set forth in the Management Incentive Plan or, any substitute plan adopted prior to the change of control, times your base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof). (C) in lieu of shares of common stock of the Company ("Company Shares") issuable upon exercise of outstanding options ("Options") or any related stock appreciation rights ("Rights"), if any, granted to you under any of the Company's stock compensation plans (which Options and Rights shall be canceled upon the making of the payment referred to below), you shall receive an amount in cash equal to the product of (i) the excess of the higher of such closing price or the highest per share price for Company Shares actually paid in connection with any change in control of the Company, over the per share exercise price of each option or Right held by you (whether or not then fully exercisable), times (ii) the number of Company Shares covered by each such Option or Right; and (D) an amount in cash equal to the sum of (i) the present value of your accrued benefit (determined by using the ongoing actuarial assumptions in effect immediately prior to your Date of Termination under the Company's defined benefit plan in which you are a participant) under any defined benefit plan sponsored by the Company and (ii) your account balance under any defined contribution plan sponsored by the Company, in either case to the extent that such accrued benefit or account balance, as the case may be, shall not be fully vested at the time of your Date of Termination. Mr. Philippe Lemaitre October 1, 1999 Page 8 (E) In the event that you become entitled to the payments (the "Severance Payments") provided under paragraphs (B), (C) and (D), above, and Subsection (iv), below, if any of the Severance Payments or any other portion of the Total Payments (as defined below) will be subject to the tax (the "Excise Tax") imposed by section 4999 of the Code, the Company shall pay to you at the time specified in paragraph (F), below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Severance Payments and such other Total Payments and any federal and state and local income tax and Excise Tax solely upon the payment provided for by this paragraph, shall be equal to the present value of the Severance Payments and such other Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Company or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a change in control or any person affiliated with (or which, as a result of the completion of the transactions causing a change in control, will become affiliated) the Company or such person within the meaning of section 1504 of the Code (together with the Severance Payments, the "Total Payments")) shall be treated as "parachute payments" within the meaning of section 28OG(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 28OG(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of section 28OG(b)(4) of the Code in excess of the base amount within the meaning of section 28OG(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of section 28OG(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Mr. Philippe Lemaitre October 1, 1999 Page 9 Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C), (D) and (E), above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (G) the Company also shall pay to you all legal and accounting fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made at the later of the times specified in paragraph (F) above, or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall arrange to provide you at the Company's expense with life, disability, accident and health insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you during Mr. Philippe Lemaitre October 1, 1999 Page 10 the thirty-six (36) month period following your termination, and any such benefits actually received by you shall be reported to the Company. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you, at the respective time or times such payments are due, under the Pension Plan, the Profit Sharing Plan, the 401(k) Plan and any other plan or agreement relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in Mr. Philippe Lemaitre October 1, 1999 Page 11 accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability or any provision or this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled, at the Company's expense, exclusively by American Arbitration Association arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Mr. Philippe Lemaitre October 1, 1999 Page 12 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, WOODHEAD INDUSTRIES, INC. By /s/ C. Mark Dewinter --------------------------- Chairman and Chief Executive Officer Agreed to this 1st day of October, 1999. By /s/ Philippe Lemaitre --------------------------- Philippe Lemaitre AMENDMENT NO. 1 TO LETTER AGREEMENT DATED OCTOBER 1, 1999 BETWEEN WOODHEAD INDUSTRIES, INC. AND PHILIPPE LEMAITRE ("AGREEMENT") This Amendment is made and entered into effective as of April 25, 2001, between Woodhead Industries, Inc. and Philippe Lemaitre. All provisions of the Agreement, except as modified by this Amendment shall remain in full force and effect. 1. Section 4.(iii)(B) of the Agreement is hereby deleted in its entirety and replaced with the following: "(B) in lieu of any further salary payment to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraphs C and D, below, the "Severance Payments") equal to three (3) or, if less, the number of years, including fractions, from the Date of Termination until you reach your normal retirement age, times the sum of (x) your annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (y) two (2) times your annual target bonus amount (computed by multiplying your target bonus percentage as set forth in the Management Incentive Plan or, any substitute plan adopted prior to the change in control, times your base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof)." IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date set forth above. WOODHEAD INDUSTRIES, INC. PHILIPPE LEMAITRE /s/ Robert Tortorello /s/ Philippe Lemaitre - ------------------------------------- ------------------------------------- Robert Tortorello Philippe Lemaitre Vice President, General Counsel and Secretary EX-13 4 woodhead015232_ex-13.txt 2001 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13 Woodhead/2001/AR REPORT OF MANAGEMENT Woodhead Industries, Inc. management is responsible for the integrity of the information presented in this Annual Report, including the Company's financial statements. These statements have been prepared in conformity with accounting principles generally accepted in the United States and include, where necessary, estimates and judgments by management. We maintain systems of accounting and internal controls designed to provide assurance that assets are properly accounted for as well as to insure that the financial records are reliable for preparing financial statements. The systems are augmented by qualified personnel and are reviewed on a periodic basis. Our independent public accountants, Arthur Andersen LLP, conduct annual audits of our financial statements in accordance with auditing standards generally accepted in the United States, which include the review of internal controls for the purpose of establishing audit scope, and issue an opinion on the fairness of such financial statements. The Audit Committee, which is composed solely of outside directors, meets periodically with management and the independent public accountants to review the manner in which they are performing their responsibilities and to discuss auditing, internal accounting controls, and financial reporting matters. The independent public accountants periodically meet alone with the Audit Committee and have free access to the Audit Committee at any time. /s/ Philippe Lemaitre /s/ Robert H. Fisher PHILIPPE LEMAITRE ROBERT H. FISHER President and Vice President, Finance Chief Executive Officer and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors and Shareholders of Woodhead Industries, Inc.: We have audited the accompanying consolidated balance sheets of WOODHEAD INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARIES as of September 29, 2001, and September 30, 2000, and the related consolidated statements of income, stockholders' investment, comprehensive income and cash flows for each of the three years in the period ended September 29, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WOODHEAD INDUSTRIES, INC. AND SUBSIDIARIES as of September 29, 2001, and September 30, 2000, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Chicago, Illinois December 18, 2001 17 Woodhead/2001/AR FINANCIAL PROFILE (Amounts in thousands; except per share data, employees, and shareholders)
2001(1) 2000 1999 1998(2) 1997 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net sales(3) $ 190,186 $ 196,932 $ 171,783 $ 150,417 $ 139,933 Cost of sales(3) 114,493 115,195 98,702 86,859 77,961 Gross profit 75,693 81,737 73,081 63,558 61,972 % of net sales 39.8% 41.5% 42.5% 42.3% 44.3% Operating expenses 56,978 57,322 52,693 52,187 40,513 % of net sales 30.0% 29.1% 30.7% 34.7% 29.0% Interest and other expenses 5,159 3,567 3,236 4,808 1,134 Income before income taxes 13,556 20,848 17,152 6,563 20,325 % of net sales 7.1% 10.6% 10.0% 4.4% 14.5% Provision for income taxes 5,722 7,716 6,258 2,633 8,045 Net income 7,834 13,132 10,894 3,930 12,280 % of net sales 4.1% 6.7% 6.3% 2.6% 8.8% Return on average assets 4.8% 8.2% 6.9% 3.2% 14.7% Return on stockholders' average investment 8.7% 15.4% 13.9% 5.5% 19.6% - ----------------------------------------------------------------------------------------------------------------------------------- Earnings per share, diluted $ 0.66 $ 1.12 $ 0.96 $ 0.35 $ 1.10 Dividends per share 0.36 0.36 0.36 0.36 0.32 Weighted average number of shares outstanding, diluted 11,810 11,680 11,372 11,201 11,167 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER DATA: EBIT(4) $ 16,681 $ 23,780 $ 20,581 $ 7,750 $ 20,035 EBITDA(4) 27,902 34,065 30,858 14,348 24,844 Net cash flows provided by operating activities 23,435 21,917 13,128 11,691 12,091 Net cash used for investing activities (24,601) (9,313) (7,778) (64,763) (11,552) Net cash (used for) provided by financing activities (3,519) (6,035) (8,260) 49,784 (2,031) Interest expense (income), net 3,125 2,932 3,429 1,187 (290) Depreciation and amortization 11,221 10,285 10,277 6,598 4,809 Engineering and product development 7,822 7,000 6,169 9,695 3,025 - ----------------------------------------------------------------------------------------------------------------------------------- YEAR-END POSITIONS Total assets $ 166,868 $ 162,459 $ 157,641 $ 155,941 $ 88,999 Total liabilities 74,149 74,499 75,187 81,391 21,744 Working capital (Current assets less current liabilities) 41,438 46,310 38,287 31,315 31,727 Current ratio 2.7 to 1 2.8 to 1 2.5 to 1 2.2 to 1 2.6 to 1 Stockholders' investment 92,719 87,960 82,454 74,550 67,255 Long-term debt 45,400 45,000 47,120 53,000 -- Book value per share $ 8.02 $ 7.70 $ 7.34 $ 6.76 $ 6.38 Number of employees 1,534 1,679 1,616 1,268 1,259 Number of registered stockholders 407 434 511 552 548 - -----------------------------------------------------------------------------------------------------------------------------------
(1) 2001 Net income includes a $1.9 million ($0.17 per share) write-off of an equity investment. (See Note 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations") (2) 1998 Net income includes $7 million ($0.62 per share) of unusual charges, primarily related to a $3.6 million charge for a write-off of in-process research and development, and a $2.0 million charge for the impairment of long-lived assets. (3) Net sales and Cost of sales were restated for EITF 00-10 and increased by $3.7, $3.7, $3.0, $2.9 and $3.0 million in 2001, 2000, 1999, 1998 and 1997, respectively. (See Note 1) (4) EBIT herein means Earnings Before Interest and Taxes. EBITDA herein means Earnings Before Interest, Taxes, Depreciation, and Amortization. Our calculations of EBIT and EBITDA may not be comparable to similarly titled measures reported by other companies. 18 Woodhead/2001/AR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR 2001, 2000 AND 1999 We develop, manufacture and market electronic and industrial communications products, primarily serving the global automation and control markets with connectivity solutions and specialty electrical products. Through our Industrial Communications and Connectivity Segment (Connectivity Segment, or Connectivity) we provide the industrial automation industry with a single, worldwide source for industrial communications and connectivity solutions. Our product lines, comprising six industry-leading brands, SST(TM), Brad Harrison(R), mPm(TM), RJ Lnxx(R), applicom(R), and NetAlert(TM) make us the premier supplier of application-specific connectivity solutions. Our Electrical Safety & Specialty Segment (Electrical Segment, or Electrical) manufactures highly customized products to support enhanced safety and productivity on the factory floor. We sell our products to stocking distributors, original equipment manufacturers (OEM) and system integrators. Our direct sales force, as well as manufacturers' agencies, service our customers and promote our products to end-customers. We have operations in nine countries outside the United Sates, and fluctuations in foreign currency exchange rates can significantly impact our results of operations and financial condition. SALES Our sales declined 3.4% in fiscal year 2001, grew 14.6% in fiscal year 2000 and 14.2% in fiscal year 1999. 2001 COMPARED WITH 2000 In 2001 sales were adversely affected by economic conditions in domestic and international markets. In the first two quarters of the year we benefited from a robust telecom/datacom sector with sales increasing despite weak economic conditions in the overall U.S. manufacturing market. As the year progressed we witnessed a sharp decline in virtually every measure of industrial activity. The telecom/ datacom and automotive manufacturing sectors, two important markets for our products, experienced significant slowdowns and the demand for our products declined. During the year we were able to limit the sales decline by focusing on new products and new markets in support of our strategic emphasis on the growth of our Connectivity Segment. Sales from new Connectivity products introduced during the last three years were $41.5 million in 2001, and $33.0 million in 2000. In addition, the acquisition of Applicom International in the second quarter of 2001 added $5.7 million in sales. Connectivity sales accounted for 66% of our total revenue in 2001. Electrical's new product sales were $9.2 million in 2001, and $8.9 million in 2000. Overall new products sales accounted for 27% in 2001, and 21% in 2000. In 2001 overall unit volumes declined by less than 1%, and selling prices declined by less than 1%, principally due to competitive pressure. 2000 COMPARED WITH 1999 In 2000 revenue growth was driven primarily by strong sales in our Connectivity Segment, which grew by 22.3%, and accounted for 65% of total sales. This increase was principally attributable to new products introduced during the last three years, which represented $33.0 million of sales in 2000 and compares favorably to the $10.0 million recorded in 1999. Additionally, the ongoing strength in major capital investments in the automotive, machine tool and material-handling industries served by our OEM customers contributed to our Connectivity growth as well. Sales in our Electrical Segment grew by 2.9% in 2000. This rate of growth was attributable to a less favorable economic climate for infrastructure development, particularly in Europe. Overall unit volumes grew by 18%, while selling prices declined by 1%, primarily due to competitive pressure. SALES BY REGION Sales to customers in the United States were $122.4 million in 2001, $130.1 million in 2000, and $105.1 million in 1999. Sales to customers outside the U.S. were $67.8 million in 2001, $66.9 million in 2000 and $66.7 million in 1999. In 2001 European sales declined in our traditional Connectivity products due to the slowing economy but this was more than offset by revenues at our Applicom subsidiary, which we acquired in February 2001. Sales to customers in Canada declined by 16%, and rose slightly to customers in the Far East. We collected 34%, 33%, and 37% of our revenue in foreign currencies during 2001, 2000, and 1999, respectively. Since much of our international manufacturing costs and operating expenses are also incurred in local currencies, the impact of exchange rates on reported net income is partially mitigated. In 2001 and 2000 our operating results were negatively affected by the translation impact of a weak Euro. Measured in constant 2000 Dollars, sales growth in markets outside the United States was 9% in 2001, as compared to the 1% growth reported. 19 Woodhead/2001/AR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) BACKLOG The backlog of unfilled orders stood at $13.8 million, $19.2 million, and $12.4 million at the end of 2001, 2000, and 1999, respectively. The decline in telecom/datacom markets in the second half of 2001 and the general slow worldwide economic conditions were the causes for the lower backlog. Connectivity products accounted for the decrease as well as the majority of the absolute level of backlog. Applicom's backlog was not material. GROSS PROFIT Gross profit as percent of sales was 39.8% in 2001. The decline in the gross profit rate from prior years was caused principally by lower plant utilization resulting from reduced volume in our Electrical Segment. LIFO expense reduced gross profit by $0.2 million. Gross profit as a percent of sales was 41.5% in 2000. A shift in the sales mix in the Electrical Segment to industrial workstations, which carry lower profit margins than our other product lines, accounted for the majority of the decline in overall gross profit margins in 2000. Additionally, LIFO expense impacted gross profits unfavorably by $0.1 million in 2000. In 1999 we had a reduction of the LIFO reserve requirement, which favorably impacted our gross profit in the amount of $0.7 million. In 1999 net cost savings, arising from higher capacity utilization, among other factors, increased gross profits by $1.5 million. These operational improvements were offset partially by selling price reductions of $0.6 million. OPERATING EXPENSES Operating expenses as percent of sales were 30.0% in 2001, 29.1% in 2000, and 30.7% in 1999. We started to reduce spending in all our operations early in 2001 when we saw the slowdown in our primary markets. The resulting savings, however, were offset partially by additional operating expenses at Applicom. In 2000 we centralized our management of sales to distributors, which integrated the sales responsibility for our various Connectivity and Electrical brands in established market channels in North and South America. We also added a new president for our Asia/Pacific operations to manage our overall Far East operations. Both of these actions drove sales growth faster than operating expenses in 2000. In 1999 the full year impact of operations at SST and mPm increased operating expenses by $6.2 million. SEGMENT OPERATING INCOME Income from operations in our Connectivity Segment declined 18.2% in 2001, and grew 55.6% in 2000, and 7.1% in 1999. The decline in 2001 was primarily due to additional operating expenses at Applicom and lower sales in the existing businesses. The primary factors for the growth in 2000 were our sales growth of 22.4%, the improved performance of SST, and control of operating expenses in relation to our sales growth. Income from operations in our Electrical Segment declined 38.2%, 4.7%, and 1.2% in 2001, 2000, and 1999 respectively. The decline in 2001 was a result of reduced sales volumes and lower plant utilization. OTHER EXPENSE Interest expense was $3.4 million in 2001, $3.1 million in 2000, and $3.5 million in 1999, which primarily represented interest paid on our long-term debt incurred in connection with the mPm and SST acquisitions in 1998. Additionally, during 2001 we incurred interest expense on loans under our bank revolving credit agreements to temporarily finance the Applicom acquisition. Interest income was earned on short-term deposits of operating cash. In 2001 we wrote off our investment in Symphony Systems, and charged $1.9 million to Other expense. We believe that the fair value of this equity investment is zero. We are negotiating with other investors to recover a portion of this investment. However, there can be no guarantee that we will be able to recover any sum. Other expense primarily reflected foreign exchange losses in 2000 and foreign exchange gains in 1999. NET INCOME Net income was $7.8 million or 4.1% of sales in 2001, $13.1 million or 6.7% of sales in 2000, and $10.9 million or 6.3% of sales in 1999. Applicom was slightly dilutive to net income in 2001. In 2001 we could not tax-effect the $1.9 million write-off of our investment in Symphony Systems, which increased our effective tax rate to 42.2%. There is no tax benefit for the investment impairment loss because corporations may only use capital losses to offset capital gains. We cannot be assured that we can generate sufficient capital gains during the five-year carry-over period to recognize the tax benefit of this capital loss. Effective tax rates for 2000 and 1999 were 37.0% and 36.5%, respectively. The 2001 and 2000 tax rates reflect research and development tax credits in the United States as well as abroad. A state tax refund in Michigan for prior years, as well as foreign tax credits, lowered the 1999 effective tax rate. 20 Woodhead/2001/AR FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ASSETS At fiscal year-end 2001 we had $4.2 million in cash and short-term investments. The decline in our cash balance was due principally to the $14.7 million we paid for Applicom as well as the payments for our new plant in Mexico, partially offset by strong operating cash flow of $23.4 million during the year. On November 22, 1999 we completed an equity investment in Symphony Systems, accounted for under the cost method. The $1.9 million investment was funded through cash on-hand. Symphony Systems is developing a comprehensive, open architecture solution for web-based equipment application software. Subsequent to the balance sheet date we became aware of information that makes us believe that this investment has a fair value of zero. Consequently, we have written off the full amount of this equity investment. Included in OTHER ASSETS is the fair market value of our Italian Lira swap of $2.8 million. Working capital decreased to $41.4 million from $46.3 mainly due to the decrease in cash and short-term investments. Inventories increased mainly due to the Applicom acquisition. We continue to invest in property and equipment, including new machinery, computer systems and facilities. On October 10, 2000, we announced plans to build a second manufacturing facility in Juarez, Mexico to migrate U.S. production to a lower cost labor market. The current and new Juarez plants are manufacturing resources for all of our North American subsidiaries. This investment project required $4.4 million of cash in 2001 and, we estimate, will require an additional $2.5 million in 2002 to complete. We are financing this project through cash on-hand. Our cash and short-term investments are available for strategic investments, acquisitions, and other potential cash needs that may arise. We believe that existing cash and short-term investments, together with funds generated from operations, will be sufficient to meet our operating requirements in 2002. LIABILITIES At fiscal year-end 2001 we had $45.4 million of long-term debt outstanding, and we had unused credit facilities that provide for additional borrowings of up to $25.0 million. For additional information on debt covenants, see Note 2 A, LONG-TERM DEBT. CASH FLOWS Net cash flows provided by operating activities was $23.4 million in 2001, which increased from $21.9 million in 2000, and $13.1 million in 1999. In 2001, better management of accounts receivable increased our operating cash flows, while the reduction of accrued expenses, mainly compensation related, and lower net income reduced cash flows from operations. The increase for amortization and depreciation is attributable mainly to our Applicom acquisition. The write-off of Symphony Systems was a $1.9 million non-cash charge in 2001. Operating cash flows in 2000 increased as a result of higher income from operations, reduced inventory levels, and higher accrued expenses, mainly compensation related. This increase was offset partially by an increase in accounts receivable due to higher sales levels. In 1999 net cash provided by operating activities increased as a result of higher operating income, partially offset by increased accounts receivable and inventory levels due to higher sales levels. Additionally, lower accrued expenses, principally due to the Italian Lira swap, increased our cash flows from operating activities in 1999. In 2001 we invested $10.0 million on capital additions and $14.7 million for our Applicom acquisition. Net cash used for investing activities increased in 2000 due to the investment in Symphony Systems. We made no acquisitions in 1999. Net cash used for financing activities in 2001, 2000 and 1999 represent the repayment of long-term debt in the amounts of $0.5 million, $2.1 million and $5.9 million, respectively, and dividend payments to our shareholders of $4.1 million, $4.1 million and $4.0 million, respectively. FINANCIAL INSTRUMENTS In our global operating activities, and in the normal course of our business, we are exposed to changes in foreign currency exchange rates that may adversely affect our results of operations and financial condition. We seek to minimize those risks through our regular operating activities and, when deemed appropriate, through the use of financial instruments. We use financial instruments to selectively hedge our foreign currency risk and do not use financial instruments for speculative purposes. For additional details on our foreign exchange exposures, see Note 2 C, DERIVATIVE FINANCIAL INSTRUMENTS. 21 Woodhead/2001/AR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) CONTINGENT LIABILITIES AND ENVIRONMENTAL MATTERS Our operations are subject to international, federal, state and local environmental laws and regulations. We are party to an environmental matter, which obligates us to investigate, remediate or mitigate the effects on the environment of the release of certain substances at one of our manufacturing facilities. It is possible that this matter could affect cash flows and results of operations. For additional details on the environmental exposure, see Note 15, CONTINGENT LIABILITIES. FORWARD-LOOKING STATEMENTS The Securities and Exchange Commission encourages companies to disclose forward-looking information, so that investors can better understand a company's future prospects, and make informed investment decisions. This annual report, and other written and oral statements that we make from time to time, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements set out anticipated results based on management's plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as "anticipate", "estimate", "expect", "plan", "believe", and words and terms of similar substance, in connection with any discussion of future operating or financial performance. We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and inaccurate assumptions. In particular, such risks include statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, general economic and business conditions, and competition. International-based revenues and substantial international assets result in our exposure to currency exchange rate fluctuations. A new European currency, the Euro, was introduced in January 1999 to replace the separate currencies of eleven individual countries. We continue to evaluate the economic and operational impact of the Euro, including its impact on competition, pricing, and foreign currency exchange risks. There is no guarantee, however, that all problems have been foreseen and corrected, or that no material disruption will occur in our businesses. Growth in costs and expenses, changes in product mix, and the impact of acquisitions, restructuring, divestitures and other unusual items, that could result from evolving business strategies, could affect future results. Changes in the U.S. tax code and the tax laws in other countries can affect our net earnings. Claims have been brought against us and our subsidiaries for various legal, environmental, and tax matters, and additional claims arise from time to time. It is possible that our cash flows and results of operations could be affected by the resolution of these matters. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. This discussion of potential risks and uncertainties is by no means complete but is designed to highlight important factors that may impact our outlook. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. 22 Woodhead/2001/AR CONSOLIDATED BALANCE SHEETS As of September 29, 2001 and September 30, 2000 (Amounts in thousands)
2001 2000 - ---------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and short-term investments $ 4,156 $ 8,702 Accounts receivable 31,150 32,947 Inventories 23,743 22,843 Prepaid expenses 2,726 3,081 Refundable income taxes 781 570 Deferred income taxes 3,892 3,623 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 66,448 71,766 Property, plant and equipment, net 65,599 60,438 Other intangible assets, net 1,314 -- Goodwill, net 27,002 21,368 Deferred income taxes 3,283 3,179 Other assets 3,222 5,708 - ---------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 166,868 $ 162,459 - ---------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities Accounts payable $ 9,544 $ 8,896 Accrued expenses 13,719 16,417 Income taxes payable 1,468 143 Current portion of long-term debt 279 -- - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 25,010 25,456 Long-term debt 45,400 45,000 Deferred income taxes 1,292 1,418 Other liabilities 2,447 2,625 - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 74,149 74,499 STOCKHOLDERS' INVESTMENT Common stock at par (shares issued: 11,568 in 2001 and 11,418 in 2000) 11,568 11,418 Additional paid-in capital 13,979 12,360 Deferred stock compensation (352) (241) Accumulated other comprehensive loss (7,645) (7,047) Retained earnings 75,169 71,470 - ---------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' INVESTMENT 92,719 87,960 - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 166,868 $ 162,459 - ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 23 Woodhead/2001/AR CONSOLIDATED STATEMENTS OF INCOME For the years ended September 29, 2001, September 30, 2000 and October 2, 1999 (Amounts in thousands, except per share data)
2001 2000 1999 - ------------------------------------------------------------------------------------------ Net sales $ 190,186 $ 196,932 $ 171,783 Cost of sales 114,493 115,195 98,702 - ------------------------------------------------------------------------------------------ Gross profit 75,693 81,737 73,081 Operating expenses: Engineering and product development 7,822 7,000 6,169 Marketing and sales 26,791 27,607 26,392 General and administrative 22,365 22,715 20,132 - ------------------------------------------------------------------------------------------ Income from operations 18,715 24,415 20,388 Interest expense 3,407 3,137 3,534 Interest income (282) (205) (105) Other expense (income), net 2,034 635 (193) ----------------------------------------------------------------------------------------- Income before income taxes 13,556 20,848 17,152 Provision for income taxes 5,722 7,716 6,258 - ------------------------------------------------------------------------------------------ NET INCOME $ 7,834 $ 13,132 $ 10,894 - ------------------------------------------------------------------------------------------ Earnings per share Basic $ 0.68 $ 1.16 $ 0.98 Diluted $ 0.66 $ 1.12 $ 0.96 Weighted average number of shares outstanding Basic 11,488 11,338 11,101 Diluted 11,810 11,680 11,372 - ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 24 Woodhead/2001/AR CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended September 29, 2001, September 30, 2000 and October 2, 1999 (Amounts in thousands)
2001 2000 1999 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the year $ 7,834 $ 13,132 $ 10,894 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 11,221 10,285 10,277 Write-off of investment in Symphony Systems 1,925 -- -- (Increase) Decrease in: Accounts receivable 3,952 (5,784) (2,484) Inventories 14 (117) (4,668) Prepaid expenses 790 (238) 524 Deferred income taxes and other assets (237) 301 (1,008) (Decrease) Increase in: Accounts payable 94 917 736 Accrued expenses (3,562) 2,508 (3,132) Income taxes payable 1,221 (1,379) 429 Deferred income taxes (126) 1,418 -- Tax benefit from employee stock options 593 1,009 356 Other liabilities (284) (135) 1,204 - ------------------------------------------------------------------------------------------------------- Net cash flows provided by operating activities 23,435 21,917 13,128 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant & equipment (10,019) (8,224) (7,780) Acquisition of Applicom (less cash acquired) (14,722) -- -- Investment in Symphony Systems -- (1,925) -- Dispositions of property, plant & equipment 140 836 2 - ------------------------------------------------------------------------------------------------------- Net cash used for investing activities (24,601) (9,313) (7,778) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Decrease) Increase in short-term debt -- (125) 125 Decrease in long-term debt (449) (2,120) (5,880) Sales of stock 1,065 291 1,488 Dividend payments (4,135) (4,081) (3,993) - ------------------------------------------------------------------------------------------------------- Net cash used for financing activities (3,519) (6,035) (8,260) - ------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATES 139 708 1,412 - ------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS (4,546) 7,277 (1,498) Cash and short-term investments at beginning of year 8,702 1,425 2,923 - ------------------------------------------------------------------------------------------------------- Cash and short-term investments at end of year $ 4,156 $ 8,702 $ 1,425 - ------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW DATA Cash paid during the year for: Interest $ 3,384 $ 3,154 $ 3,555 Income taxes 4,789 7,814 6,344 - -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 25 Woodhead/2001/AR CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended September 29, 2001, September 30, 2000 and October 2, 1999 (Amounts in thousands)
2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Net income $ 7,834 $ 13,132 $ 10,894 Other comprehensive income (loss), before tax Accumulated foreign currency translation adjustment before tax (1,052) (4,930) (841) Unrealized gain on cash flow hedging instrument 544 -- -- Minimum pension liability adjustment (90) -- -- Income tax (expense) benefit related to other comprehensive income -- -- -- - ------------------------------------------------------------------------------------------------------------------ Comprehensive income, net of tax $ 7,236 $ 8,202 $ 10,053 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT For the years ended September 29, 2001, September 30, 2000 and October 2, 1999 (Amounts in thousands, except share data)
Accumulated Additional Deferred Other Total Common Paid-in Stock Comprehensive Retained Stockholders' Stock Capital Compensation Income (Loss) Earnings Investment - ------------------------------------------------------------------------------------------------------------------------------------ Balance October 3, 1998 $ 11,032 $ 9,276 -- $ (1,276) $ 55,518 $ 74,550 Net income for the year -- -- -- -- 10,894 10,894 Translation adjustment -- -- -- (841) -- (841) Cash dividends, $.36 per share -- -- -- -- (3,993) (3,993) Stock option plans 205 1,954 (315) -- -- 1,844 - ------------------------------------------------------------------------------------------------------------------------------------ Balance October 2, 1999 11,237 11,230 (315) (2,117) 62,419 82,454 Net income for the year -- -- -- -- 13,132 13,132 Translation adjustment -- -- -- (4,930) -- (4,930) Cash dividends, $.36 per share -- -- -- -- (4,081) (4,081) Stock option plans 181 1,130 74 -- -- 1,385 - ------------------------------------------------------------------------------------------------------------------------------------ Balance September 30, 2000 11,418 12,360 (241) (7,047) 71,470 87,960 Net income for the year -- -- -- -- 7,834 7,834 Translation adjustment -- -- -- (1,052) -- (1,052) Unrealized gain on cash flow hedging instrument -- -- -- 544 -- 544 Minimum pension liability adjustment -- -- -- (90) -- (90) Cash dividends, $.36 per share -- -- -- -- (4,135) (4,135) Stock option plans 150 1,619 (111) -- -- 1,658 - ------------------------------------------------------------------------------------------------------------------------------------ Balance September 29, 2001 $ 11,568 $ 13,979 $ (352) $ (7,645) $ 75,169 $ 92,719 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 26 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in tables are in thousands, except per share data) 1. SUMMARY OF ACCOUNTING POLICIES A. CONSOLIDATION AND BASIS OF PRESENTATION Our consolidated financial statements include the accounts of all subsidiaries, including those operating outside the United States, each of which is wholly owned. All material intercompany transactions have been eliminated in consolidation. We prepare our financial statements in conformity with United States Generally Accepted Accounting Principles. In preparing the financial statements, we must use some estimates and assumptions that may affect reported amounts and disclosures. Among others, we use estimates when accounting for depreciation, amortization, employee benefits, asset valuation allowances, and loss contingencies. We are also subject to risks and uncertainties that may cause actual results to differ from those estimates. We continue to follow the practice of ending our fiscal year on the Saturday closest to September 30, which resulted in 52-week periods in 2001, 2000, and 1999. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. B. CASH AND SHORT-TERM INVESTMENTS Cash and short-term investments include cash and items almost as liquid as cash, such as certificates of deposit and time deposits, with maturity periods of three months or less when purchased. C. INVENTORIES We value our inventories at the lower of cost or market value, and adjust their values for reserves. Cost is determined using the first-in first-out (FIFO) method, or last-in first-out (LIFO) method. D. LONG-LIVED ASSETS Long-lived assets include: * Property, plant and equipment - These assets are recorded at original cost and increased by the cost of significant improvements after purchase. We depreciate the cost evenly over the assets' estimated useful lives, using the straight-line method. Maintenance and repairs are charged to expense as incurred. We remove the cost of property retired or otherwise disposed of from the property accounts, accumulated depreciation from the related reserves, and reflect the net gain or loss in income. * Other intangible assets - When accounting for acquisitions under the purchase method of accounting, we allocate the purchase price to the fair values of tangible and intangible assets. Intangible assets include trade names, assembled work force and non-compete agreements. We amortize those intangible assets over periods ranging from 3 to 15 years. * Goodwill - Goodwill represents the difference between the purchase price of acquired businesses and the fair value of their net assets, when accounted for under the purchase method of accounting. We amortize goodwill over periods not exceeding 40 years. * Other assets - Other assets include an unrealized gain on a foreign exchange swap contract. Subsequent to September 29, 2001 we became aware of information that makes us believe that the decline in fair value of our investment in Symphony Systems is other than temporary. We believe that the fair value of this investment, which was accounted for under the cost method, is zero. Consequently, we have written off the entire carrying amount of $1.9 million in 2001. We review long-lived assets to assess recoverability from future operations using undiscounted cash flows. When necessary, we record charges for impairments of long-lived assets for the amount by which the carrying value of these assets exceeds the present value of future cash flows. We continually evaluate the periods of amortization and depreciation assigned to our assets to determine whether events or circumstances warrant revised estimates of useful lives. E. FOREIGN CURRENCY TRANSLATION Most of our international operations maintain their records in their local currencies, which are also their functional currencies. We translate assets and liabilities to their U.S. Dollar equivalents at rates in effect at the balance sheet date, and record translation adjustments in ACCUMULATED OTHER COMPREHENSIVE LOSS included in STOCKHOLDERS' INVESTMENT. We translate Statement of Income accounts at average rates for the period. We translate the financial statements of our Mexican operation, whose functional currency is the U.S. Dollar, using both current and historic exchange rates and record translation adjustments in OTHER EXPENSE. F. STOCK-BASED COMPENSATION We grant options to our directors, officers, and key employees. The exercise price of stock options granted equals the market price on the date of grant. In accordance with Statement of Financial Accounting Standards (SFAS) No. 123: ACCOUNTING FOR STOCK-BASED COMPENSATION, we elected to account for our stock-based compensation under Accounting Principles Board Opinion (APB) No. 25: ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. In general, we do not record expense related to stock option grants. During fiscal year 2000, we adopted FASB Interpretation (FIN) No. 44: ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, which clarifies the application of APB 25 for certain issues. Our previous policies were essentially in compliance with the provisions of this interpretation, therefore adoption of FIN 44 did not have a material effect on our results of operations. G. REVENUE RECOGNITION We recognize revenue upon transfer of title at the time of shipment (FOB shipping point), when all significant contractual obligations have been satisfied, the price is fixed or determinable, and collectibility is reasonably assured. We sell our products to stocking distributors, system integrators, as well as directly to OEM customers. 27 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES (continued) We provide for warranty costs, sales returns, sales incentives, price adjustments, and other allowances at the time of shipment, based on prior claims experience and other quantitative and qualitative factors. During fiscal year 2000 we adopted Emerging Issues Task Force (EITF) Issue No. 00-14: ACCOUNTING FOR CERTAIN SALES INCENTIVES, which addresses the recognition, measurement, and income statement classification for sales incentives that a company offers to its customers for use in a single exchange transaction. Our previous policies were essentially in compliance with the provisions of this opinion, therefore adoption of EITF No. 00-14 did not have a material impact on our results of operations. H. SHIPPING AND HANDLING COSTS All shipping and handling costs charged to costumers are recorded as NET SALES and all related expenses are included in COST OF SALES. In September 2000, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue 00-10: ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. This consensus states that amounts billed to customers for shipping and handling costs should be classified as revenues. We have adopted this consensus in the fourth quarter of fiscal year 2001 and reclassified billings to customers for freight and handling into NET SALES, and reclassified charges into COST OF SALES. Previously, we netted those charges against NET SALES. The impact of this change was to increase previously reported NET SALES and COST OF SALES. Reported GROSS PROFIT, INCOME FROM OPERATIONS and NET INCOME did not change. I. ADVERTISING We expense advertising and promotional costs in the period incurred. J. RESEARCH AND DEVELOPMENT We expense research and development costs in the period incurred. K. RECENTLY ISSUED ACCOUNTING STANDARDS In December 1999 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulleting (SAB) No. 101: REVENUE RECOGNITION IN FINANCIAL STATEMENTS. This SAB summarizes certain of the SEC staff's views in applying Generally Accepted Accounting Principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB 101B, which delayed the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. We have adopted this standard in the fourth quarter of fiscal year 2001. Our previous policies were essentially in compliance with the provisions of this SAB, therefore adoption of SAB No. 101 did not have a material impact on our results of operations. On October 2, 2000, we adopted SFAS No. 133: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137 and SFAS No. 138. Upon adoption, in accordance with the provisions of SFAS No. 133, we recorded a transition adjustment to recognize our derivative instruments at fair value, to recognize the ineffective portion of cash flow hedges, and to recognize the difference (attributable to the hedged risks) between the carrying values and fair values of related hedged assets and liabilities. Adoption of SFAS 133 and related pronouncements did not have a material effect on our cash flows, results of operations or financial condition. In July 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 141: BUSINESS COMBINATIONS, and SFAS No. 142: GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under the non-amortization approach, goodwill and certain intangibles will not be amortized into operating expenses, but instead will be reviewed for impairment and written down and charged to operating expenses only in the periods in which the recorded value of goodwill and certain intangibles exceeds its fair value. We will adopt the provisions of those statements at the beginning of our fiscal year 2002. As a result we will no longer amortize goodwill, which will reduce our operating expenses by approximately $1.6 million per year. Impairment reviews may result in future periodic write-downs. In August 2001, the FASB issued SFAS No. 144: ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which will become effective for us in fiscal year 2003. We are currently evaluating the impact this new rule will have on our cash flows, results of operations or financial condition. 28 Woodhead/2001/AR 2. FINANCIAL INSTRUMENTS A. LONG-TERM DEBT In September 1998, we issued $45.0 million of Senior Guaranteed Notes to refinance bank borrowings related to the acquisitions of SST and mPm. The remainder of long-term debt is carried by our Applicom subsidiary and is payable in Euros. Long-term debt at the balance sheet dates consisted of the following: 2001 2000 - -------------------------------------------------------------------------------- 4.1%-6.6% Notes, due 2003 - 2007 $ 400 $ -- 6.64% Notes, Due September 30th, annually, 2002-2008 30,000 30,000 6.81% Notes, Due September 30th, annually, 2004-2013 15,000 15,000 - -------------------------------------------------------------------------------- Total long-term debt $ 45,400 $ 45,000 - -------------------------------------------------------------------------------- Current portion not included above $ 279 $ -- - -------------------------------------------------------------------------------- Long-term debt outstanding at September 29, 2001 matures as follows: Fiscal Year Amounts maturing - -------------------------------------------------------------------------------- 2002 $ 279 2003 4,393 2004 5,821 2005 5,766 2006 5,720 after 2006 $ 23,700 - -------------------------------------------------------------------------------- Under the various funding arrangements, we are required, among other restrictions, to maintain a consolidated net worth, as defined, of not less than $67.4 million and a debt to EBITDA ratio, as defined, of not more than 2.5 to 1. In addition, there are certain restrictions on the creation or assumption of any lien or security interest upon any of our assets. We are in compliance with all provisions of our funding arrangements. B. SHORT-TERM BORROWINGS At September 29, 2001 we had unused revolving credit agreements with a bank that provide for borrowings of up to $25.0 million at the bank's prime or offered rate. These agreements expire on February 28, 2004. At September 29, 2001 and at September 30, 2000 we had no short-term borrowings. C. DERIVATIVE FINANCIAL INSTRUMENTS In our global operating activities, and in the normal course of our business, we are exposed to changes in foreign currency exchange rates, which may adversely affect our results of operations and financial condition. We seek to minimize those risks through our regular operating activities and, when deemed appropriate, through the use of derivative financial instruments. We use financial instruments to selectively hedge our foreign currency risk, and do not use financial instruments for speculative purposes. In 1998 we entered into a foreign currency swap agreement with an AA- rated counterparty to hedge a portion of our cash flows from our Italian subsidiary. Under the terms of the agreement, we will swap 35.52 billion Lire for 20.0 million U.S. Dollars over a period of 8 years. In addition, the contract provides for us to make annual interest payments of 6.50% on the outstanding Lira balance, and to receive 7.43% annual interest on the outstanding U.S. Dollar balance. While the hedge is denominated in Italian Lire today, it will be re-denominated in Euros when the European Monetary Union takes effect, resulting in the exact economic equivalent of the original ITL/USD swap. The following table describes the values to be exchanged over the next five years relating to the Lira swap: US. Dollars ----------------------------------- Amortizing Outstanding Maturity Amount Notional Amount - -------------------------------------------------------------------------------- 9/30/02 $ 3,000 $ 11,000 9/30/03 3,000 8,000 9/30/04 3,000 5,000 9/30/05 3,000 2,000 9/30/06 $ 2,000 $ -- - -------------------------------------------------------------------------------- Italian Lire ----------------------------------- Amortizing Outstanding Maturity Amount Notional Amount - -------------------------------------------------------------------------------- 9/30/02 ITL 5,328,000 ITL 19,536,000 9/30/03 5,328,000 14,208,000 9/30/04 5,328,000 8,880,000 9/30/05 5,328,000 3,552,000 9/30/06 ITL 3,552,000 ITL -- - -------------------------------------------------------------------------------- We recorded the difference between the carrying values and fair values of related hedged assets and liabilities of $0.5 million in ACCUMULATED OTHER COMPREHENSIVE LOSS to recognize deferred net gains on derivatives designated as cash flow hedges, and a net increase in OTHER ASSETS of approximately $0.5 million during the year just ended. We base the fair value for our cross-currency swap on the cost estimate to terminate the agreement. 29 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FINANCIAL INSTRUMENTS (continued) D. FAIR VALUE $45.0 million of our long-term debt is denominated in U.S. Dollars, the remainder is denominated in Euros, and carries fixed interest. We base the fair value of our long-term debt on market, or dealer quotes. The difference between fair and carrying values of our financial instruments, other than the swap, were not material at the balance sheet dates. 3. ACCOUNTS RECEIVABLE We reduce our accounts receivable balance to account for reserves for doubtful accounts, sales returns, warranties, and allowances. The table below shows the activity in our accounts receivable reserves during the fiscal years: 2001 2000 1999 - -------------------------------------------------------------------------------- Beginning balance $ 1,611 $ 1,439 $ 1,089 Charged to costs and expenses 228 71 113 Write-offs (65) (88) (121) Price adjustments charged to net sales 70 189 358 - -------------------------------------------------------------------------------- Ending balance $ 1,844 $ 1,611 $ 1,439 - -------------------------------------------------------------------------------- 4. INVENTORIES Inventories at the balance sheet dates were comprised of the following: 2001 2000 - -------------------------------------------------------------------------------- Inventories valued using FIFO $ 16,223 $ 13,956 - -------------------------------------------------------------------------------- Inventories valued using LIFO: At FIFO cost 12,200 13,373 Less: Reserve to reduce to LIFO (4,680) (4,486) - ------------------------------------------------------------------------------ LIFO Inventories 7,520 8,887 - -------------------------------------------------------------------------------- Total Inventories $ 23,743 $ 22,843 - -------------------------------------------------------------------------------- Inventory composition using FIFO Raw materials $ 17,143 $ 17,393 Work-in-process and finished goods 11,280 9,936 - ------------------------------------------------------------------------------ Total Inventories at FIFO $ 28,423 $ 27,329 - -------------------------------------------------------------------------------- Had we used the FIFO method for all inventories, NET INCOME would have been $0.1 million higher in 2001, $0.1 million higher in 2000, and $0.4 million lower in 1999. 5. PROPERTY, PLANT AND EQUIPMENT During fiscal year 2000 we adopted Statement of Position (SOP) 98-1: ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Our previous policies were essentially in compliance with the provisions of this statement, therefore adoption of SOP 98-1 did not have a material effect on our results of operations. Net property, plant and equipment (PP&E) at the balance sheets dates was as follows: Asset Description 2001 2000 - -------------------------------------------------------------------------------- Land $ 4,173 $ 3,966 Buildings and improvements 27,128 22,245 Machinery and equipment 29,814 26,993 Dies and molds 25,976 24,074 Software technology 29,732 26,309 Furniture and office equipment 20,333 20,248 - -------------------------------------------------------------------------------- Total PP&E, at cost 137,156 123,835 Less: Accumulated depreciation and amortization (71,557) (63,397) - -------------------------------------------------------------------------------- PP&E, net $ 65,599 $ 60,438 - -------------------------------------------------------------------------------- The carrying values of fixed assets are impacted by fluctuations in foreign exchange rates. We depreciate fixed assets using the straight-line method over the following periods: Asset Description Asset Life - -------------------------------------------------------------------------------- Buildings and improvements 20 to 40 years Machinery and equipment 3 to 12 years Dies and molds 4 to 5 years Software technology 9 years Furniture and office equipment 3 to 10 years - -------------------------------------------------------------------------------- In the second quarter of fiscal year 2001 we acquired the business and certain assets of Applicom International, including software technology with a fair value of approximately $4.8 million. We amortize the capitalized software over a period of nine years, which we believe is appropriate for these types of industrial software. The remainder of capitalized software technology relates to our SST subsidiary. 2001 2000 - -------------------------------------------------------------------------------- Software technology $ 29,732 $ 26,309 Accumulated amortization (9,140) (6,325) - -------------------------------------------------------------------------------- Software technology, net $ 20,592 $ 19,984 - -------------------------------------------------------------------------------- 30 Woodhead/2001/AR 6. GOODWILL AND OTHER INTANGIBLE ASSETS In the second quarter of fiscal year 2001 we purchased the businesses and certain assets of Applicom International, and as a result of applying the purchase method of accounting, we recorded goodwill in the amount of $6.4 million, which we are amortizing over 20 years. We also recorded other intangible assets in the amount of $1.5 million, which we are amortizing over periods of 3 to 15 years. With the adoption of SFAS 142 in fiscal year 2002, we will reclassify approximately $0.4 million of OTHER INTANGIBLE ASSETS into GOODWILL and stop amortizing this portion. Essentially all goodwill relates to our Connectivity Segment. 2001 2000 - -------------------------------------------------------------------------------- Goodwill $ 32,279 $ 25,033 Accumulated amortization (5,277) (3,665) - -------------------------------------------------------------------------------- Goodwill, net $ 27,002 $ 21,368 - -------------------------------------------------------------------------------- The carrying values of goodwill are impacted by fluctuations in foreign exchange rates. Other intangible assets at the balance sheet dates were: 2001 2000 - -------------------------------------------------------------------------------- Other intangible assets $ 1,460 -- Accumulated amortization (146) -- - -------------------------------------------------------------------------------- Other intangible assets, net $ 1,314 -- - -------------------------------------------------------------------------------- 7. ACCRUED EXPENSES Accrued expenses at the balance sheet dates were as follows: 2001 2000 - -------------------------------------------------------------------------------- Pension and profit-sharing $ 3,833 $ 4,140 Payroll 3,379 4,262 Taxes 1,187 1,270 Commissions 888 1,476 Environmental 452 234 All other 3,980 5,035 - -------------------------------------------------------------------------------- Total Accrued Expenses $ 13,719 $ 16,417 - -------------------------------------------------------------------------------- 8. LEASE COMMITMENTS We lease properties for use in our operations. In addition to rent, the leases require us to directly pay for taxes, insurance, maintenance, and other operating expenses, or to pay higher rent when operating expenses increase. Total lease expenses were $1.0 million, $0.9 million, and $0.9 million, for fiscal years 2001, 2000, and 1999, respectively. The following table shows future minimum lease commitments under non-cancelable lease-terms in excess of one year at September 29, 2001: Fiscal Year Lease Commitments - -------------------------------------------------------------------------------- 2002 $ 749 2003 663 2004 584 2005 373 2006 377 after 2006 $ 876 - -------------------------------------------------------------------------------- 9. CAPITAL STOCK A. COMMON AND PREFERRED STOCK Our total authorized stock is 40.0 million shares, consisting of 10.0 million shares of preferred stock, par value $0.01 per share, and 30.0 million shares of common stock, par value $1.00 per share. No shares of preferred stock have been issued to date. Common stock issued was 11.6 million and 11.4 million on September 29, 2001 and September 30, 2000, respectively. In May, 1996, we adopted a new shareholder rights plan, effective upon termination of the previous rights plan, and declared a dividend distribution of one preferred stock purchase right ("Right") for each share of common stock outstanding. Each Right represents the right to purchase, if and when the Rights are exercisable, a unit consisting of one one-thousandth of a share ("Unit") of Series A Junior Participating Preferred Stock at a purchase price of $65 per unit, subject to adjustment. The exercise price and the number of shares issuable upon the exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights are evidenced by the common stock certificates and are not exercisable, or transferable apart from the common stock, until ten days after a person (i) acquires 15% or more of the common stock, or (ii) commences a tender offer, which would result in the ownership of 15% or more of the common stock, or the Board of Directors determines that any person has become an Adverse Person, as that term is defined in the plan. In the event any person becomes the beneficial owner of 15% or more of common stock or the Board of Directors declares a person an Adverse Person, each of the Rights (other than Rights held by the party triggering the Rights and certain transferees which are voided) becomes a discount right, entitling the holder to acquire common stock having a value equal to twice the Right's exercise price. In the event the Company is acquired in a merger or other business combination transaction (including one in which the Company is the surviving corporation), each Right will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock 31 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. CAPITAL STOCK (continued) of the surviving company which at the time of such transaction would have a market value of two times the exercise price of the Right. The Rights do not have any voting rights and are redeemable, at the option of the Company, at a price of $0.01 per Right at any time until ten days after a person acquires beneficial ownership of at least 15% of the common stock. The Rights expire on May 29, 2006. So long as the Rights are not separately transferable, the Company will issue one Right with each new share of common stock issued. B. STOCK OPTION PLANS We may grant stock options to directors, officers, and key employees under our stock option plans, at a price not less than the market value at the date of grant. Options issued to directors are exercisable 6 months after the grant date, and expire 5 years after the grant date. Of the options issued to employees in 2001, portions are exercisable one, two and three years after the grant date, and expire 10 years after the grant date. Options issued to employees before 2001 are exercisable one year after the grant date, and expire 10 years after the grant date. All granted options are subject to continuous employment and certain other conditions. Amounts in the stock option plan tables are in Dollars and units. Options outstanding - -------------------------------------------------------------------------------- Weighted Average Weighted Number Remaining Average Range of Outstanding Contractual Exercise Exercise Prices at 9/29/2001 Life, in years Price - -------------------------------------------------------------------------------- $5 - $10 232,650 8.4 $ 7.96 10 - 15 492,975 7.9 12.01 15 - 20 183,100 7.9 15.85 over $20 359,750 7.4 20.49 - -------------------------------------------------------------------------------- 1,268,475 7.8 $ 14.23 - -------------------------------------------------------------------------------- Options exercisable - -------------------------------------------------------------------------------- Weighted Average Weighted Number Remaining Average Range of Exercisable Contractual Exercise Exercise Prices at 9/29/2001 Life, in years Price - -------------------------------------------------------------------------------- $5 - $10 232,650 8.4 $ 7.96 10 - 15 492,975 7.9 12.01 15 - 20 163,100 7.9 15.46 over $20 157,250 7.2 20.39 - -------------------------------------------------------------------------------- 1,045,975 7.9 $ 12.91 - -------------------------------------------------------------------------------- The following table summarizes the activity for the plans: Under Option --------------------------- Weighted Shares Average Available for Number of Exercise Grant Shares Price - -------------------------------------------------------------------------------- Balance Oct. 3, 1998 358,000 1,244,250 $ 9.99 Granted (237,900) 237,900 14.11 Exercised -- (174,270) 6.93 Expired -- (6,750) 10.33 Forfeited 19,100 (19,100) 15.33 Restricted Stock Grant (30,000) -- 10.31 - -------------------------------------------------------------------------------- Balance Oct. 2, 1999 109,200 1,282,030 11.08 Authorized 550,000 -- -- Granted (158,550) 158,550 10.90 Exercised -- (245,005) 5.91 Expired -- (2,250) 9.33 Forfeited 10,750 (10,750) 13.94 - -------------------------------------------------------------------------------- Balance Sept. 30, 2000 511,400 1,182,575 12.11 Granted (255,500) 255,500 20.37 Exercised -- (152,050) 7.79 Expired -- -- -- Forfeited 17,550 (17,550) 19.73 Restricted Stock Grants (14,000) -- 18.64 - -------------------------------------------------------------------------------- BALANCE SEPT. 29, 2001 259,450 1,268,475 $ 14.23 - -------------------------------------------------------------------------------- We estimated the fair values using the Black-Scholes option-pricing model, modified for dividends, and used the following assumptions: 2001 2000 1999 - -------------------------------------------------------------------------------- Expected dividend yield 1.76% 3.34% 2.63% Risk-free interest rate 5.67% 6.59% 5.15% Expected stock price volatility 38.52% 34.01% 30.76% Expected term until exercise, in years 7.31 7.35 7.56 - -------------------------------------------------------------------------------- Weighted fair market value per share $ 8.62 $ 3.66 $ 4.52 Total value of options granted, in thousands $ 2,089 $ 573 $ 1,029 - -------------------------------------------------------------------------------- 32 Woodhead/2001/AR 9. CAPITAL STOCK (continued) We apply APB No. 25: ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, including FIN 44: ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION in accounting for the plans. Accordingly, we did not recognize compensation expense related to option grants. We adopted the disclosure-only provisions of SFAS No. 123: ACCOUNTING FOR STOCK-BASED COMPENSATION. The following table summarizes results as if we had recorded compensation expense for the 2001, 2000, and 1999 option grants: 2001 2000 1999 - -------------------------------------------------------------------------------- Net Income: As reported $ 7,834 $ 13,132 $ 10,894 Pro forma 7,247 12,659 10,279 Basic earnings per share: As reported $ 0.68 $ 1.16 $ 0.98 Pro forma 0.63 1.12 0.93 Diluted earnings per share: As reported $ 0.66 $ 1.12 $ 0.96 Pro forma 0.61 1.08 0.90 - -------------------------------------------------------------------------------- The pro forma effect of stock option grants on results of operations may not be representative of the pro forma effect on results of operations for future years. 10. EARNINGS PER SHARE The reconciliation between basic and diluted earnings per share is as follows: 2001 2000 1999 - -------------------------------------------------------------------------------- Net Income $ 7,834 $ 13,132 $ 10,894 Earnings per share Basic $ 0.68 $ 1.16 $ 0.98 Diluted $ 0.66 $ 1.12 $ 0.96 - -------------------------------------------------------------------------------- Weighted-average number of shares outstanding 11,488 11,338 11,101 Dilutive common stock options 322 342 271 - -------------------------------------------------------------------------------- Weighted-average number of shares outstanding plus dilutive common stock options 11,810 11,680 11,372 - -------------------------------------------------------------------------------- Outstanding common stock options having no dilutive effect 377 147 560 - -------------------------------------------------------------------------------- 11. RESEARCH AND DEVELOPMENT Innovation by our research and development operations is very important to the growth of our businesses. Our goal is to discover, develop and bring to market innovative products that address unmet needs. In addition to Research and Development, our Statement of Income caption ENGINEERING AND PRODUCT DEVELOPMENT includes expenses for engineers, designers and drafters to enhance existing products. Research and development expenses were $3.5 million in 2001, $2.8 million in 2000, and $2.4 million in 1999. 12. SEGMENT INFORMATION AND GEOGRAPHIC DATA During fiscal year 1999 we adopted SFAS No. 131: DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This statement requires us to report certain financial information in a similar manner as we report it to the chief operating decision maker for the purpose of evaluating performance and allocating resources to the various business segments. We identified the Chief Executive Officer as the chief operating decision maker. Our operating segments are based on the organization of business groups comprised of similar products and services. Revenues in our Industrial Communications and Connectivity Products Segment (Connectivity Segment) are primarily derived from sales of system components used with devices in open networks for automated manufacturing and distribution applications. Revenues in our Electrical Safety & Specialty Products Segment (Electrical Segment) are primarily derived from sales of specialized products to support enhanced safety and productivity on the factory floor. Sales between segments were not significant. Sales in geographic areas were determined by customer location. No single customer accounted for 10 percent or more of our total revenue. Sales in foreign countries did not meet minimum disclosure requirements. We did not allocate certain corporate expenses, primarily those related to the overall management of the corporation, to the segments or geographic areas. Both segments share certain production facilities and equipment (PP&E). These assets, and related additions and depreciation, were allocated based on unit production. Geographic data on assets is based on the physical location of those assets. Corporate assets were primarily investments in subsidiaries and cash. 33 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. SEGMENT INFORMATION AND GEOGRAPHIC DATA (continued) A. SEGMENT INFORMATION Net Sales ----------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- Connectivity $126,189 $126,700 $103,537 Electrical 63,997 70,232 68,246 - -------------------------------------------------------------------------------- Consolidated $190,186 $196,932 $171,783 - -------------------------------------------------------------------------------- Income from Operations ----------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- Connectivity $ 13,155 $ 16,089 $ 10,341 Electrical 6,913 11,191 11,746 Corporate & other (1,353) (2,865) (1,699) - -------------------------------------------------------------------------------- Consolidated $ 18,715 $ 24,415 $ 20,388 - -------------------------------------------------------------------------------- Reconciliation of Income from Operations to Net Income - -------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- Income from operations $ 18,715 $ 24,415 $ 20,388 Interest expense, net (3,125) (2,932) (3,429) Other income (expense), net (2,034) (635) 193 Income taxes (5,722) (7,716) (6,258) - -------------------------------------------------------------------------------- Consolidated net income $ 7,834 $ 13,132 $ 10,894 - -------------------------------------------------------------------------------- Depreciation and Amortization ----------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- Connectivity $ 8,370 $ 7,452 $ 7,711 Electrical 2,564 2,626 2,417 Corporate & other 287 207 149 - -------------------------------------------------------------------------------- Consolidated $ 11,221 $ 10,285 $ 10,277 - -------------------------------------------------------------------------------- Total Assets ----------------------- 2001 2000 - -------------------------------------------------------------------------------- Connectivity $125,275 $112,608 Electrical 31,613 33,477 Corporate & other 9,980 16,374 - -------------------------------------------------------------------------------- Consolidated $166,868 $162,459 - -------------------------------------------------------------------------------- Additions to Long-lived Assets ---------------------------------- 2001 2000 - -------------------------------------------------------------------------------- Connectivity $ 14,136 $ 4,934 Electrical 3,766 2,946 Corporate & other 32 5,516 - -------------------------------------------------------------------------------- Consolidated $ 17,934 $ 13,396 - -------------------------------------------------------------------------------- B. GEOGRAPHIC DATA Net Sales ----------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------- United States $122,369 $130,078 $105,111 All other countries 67,817 66,854 66,672 - -------------------------------------------------------------------------------- Consolidated $190,186 $196,932 $171,783 - -------------------------------------------------------------------------------- Total Assets ----------------------- 2001 2000 - -------------------------------------------------------------------------------- United States $ 48,913 $ 62,170 Canada 28,534 34,576 Italy 28,051 29,138 Mexico 19,968 13,677 France 19,826 2,489 All other countries 21,576 20,409 - -------------------------------------------------------------------------------- Consolidated $166,868 $162,459 - -------------------------------------------------------------------------------- 13. TAXES Income before income taxes consisted of the following: 2001 2000 1999 - -------------------------------------------------------------------------------- United States $ 8,778 $ 17,066 $ 15,234 International 4,778 3,782 1,918 - -------------------------------------------------------------------------------- Total income before taxes $ 13,556 $ 20,848 $ 17,152 - -------------------------------------------------------------------------------- The provision for income taxes consisted of the following: 2001 2000 1999 - -------------------------------------------------------------------------------- U.S. federal income tax $ 3,347 $ 5,341 $ 4,968 State income taxes 506 893 514 International income taxes 1,869 1,482 776 - -------------------------------------------------------------------------------- Total provision for taxes on income 5,722 7,716 6,258 - -------------------------------------------------------------------------------- Current provision 5,798 7,034 6,750 Deferred provision (76) 682 (492) - -------------------------------------------------------------------------------- Total provision for taxes on income $ 5,722 $ 7,716 $ 6,258 - -------------------------------------------------------------------------------- 34 Woodhead/2001/AR 13. TAXES (continued) Deferred taxes arise because of different treatment within financial statement accounting and tax accounting, known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods), and deferred tax liabilities (generally items that we received a tax deduction for, but have not yet recorded in the Statement of Income). The tax effects of the major items recorded as deferred tax assets and liabilities are: 2001 2000 - -------------------------------------------------------------------------------- Deferred tax assets: Accounts receivable reserves $ 531 $ 495 Inventory reserves 948 656 Employee benefit reserves 1,673 1,752 Environmental reserves 552 542 Litigation reserves 37 52 Other reserves 702 668 Write-off of purchased research and development 2,745 2,745 Software amortization 492 492 Write-off of impaired long-lived assets 788 921 Investment impairment loss 713 -- Other, net 47 97 Less: Valuation allowance (713) -- - -------------------------------------------------------------------------------- Total deferred tax assets 8,515 8,420 - -------------------------------------------------------------------------------- Less: Deferred tax liabilities Accelerated depreciation & amortization 2,632 2,693 Other, net -- 343 - -------------------------------------------------------------------------------- Total deferred tax liabilities 2,632 3,036 - -------------------------------------------------------------------------------- Net deferred tax assets $5,883 $5,384 - -------------------------------------------------------------------------------- A reconciliation of the federal statutory rate to the effective tax rate is as follows: 2001 2000 1999 - -------------------------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.4% 2.8% 2.0% Difference between U.S. and international rates 1.5% 0.9% 0.7% Tax effect of capital loss benefit not recorded 5.0% -- -- Other, net (1.7%) (1.7%) (1.2%) - -------------------------------------------------------------------------------- Effective tax rate 42.2% 37.0% 36.5% - -------------------------------------------------------------------------------- We have not recorded income taxes for approximately $13.6 million of undistributed earnings of our international subsidiaries, either because any taxes on dividends would be offset substantially by foreign tax credits, or because we intend to reinvest those earnings indefinitely. 14. BENEFIT PLANS In fiscal year 1999 we adopted SFAS No. 132: EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS. We have defined benefit, defined contribution, and government mandated plans covering eligible, non-bargaining unit employees. Pension benefits are fully vested after five years and are based upon years of service and highest five-year average compensation. It is our policy to fund our pension costs by making annual contributions based upon minimum funding provisions of the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974. Our total pension expense for company-sponsored qualified plans was $0.3 million, $0.4 million, and $0.4 million, in 2001, 2000, and 1999, respectively. The components of net periodic pension cost for the non-union plans were: 2001 2000 1999 - -------------------------------------------------------------------------------- Service cost-benefits earned during the year $ 432 $ 559 $ 431 Interest cost on projected benefit obligation 582 611 570 Expected return on plan assets (508) (510) (492) Amortization of prior service cost 29 51 16 Amortization of transitional asset (obligation) 3 2 (7) Recognized actuarial loss -- 2 95 Additional loss recognized due to settlement 277 -- -- - -------------------------------------------------------------------------------- Periodic pension cost, net $ 815 $ 715 $ 613 - -------------------------------------------------------------------------------- We used the following assumptions in accounting for the pension plans: 2001 2000 1999 - -------------------------------------------------------------------------------- Discount rate 7.3% 7.5% 7.3% Rate of increase in compensation levels 5.6% 5.6% 5.6% Expected long-term rate of return on plan assets 7.5% 7.5% 7.5% - -------------------------------------------------------------------------------- 35 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. BENEFIT PLANS (continued) The following table reconciles the plans' funded status and the amount recorded on our consolidated balance sheets for our non-union plans: 2001 2000 - -------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 8,384 $ 8,374 Service cost 432 559 Interest cost 582 611 Plan amendments 98 291 Benefits paid (816) (980) Settlement payments (981) -- Actuarial (gain) or loss 626 (471) - -------------------------------------------------------------------------------- Benefit obligation at end of year 8,325 8,384 - -------------------------------------------------------------------------------- Change in plan assets Fair value of plan assets at beginning of year 7,336 7,145 Actual return on plan assets (369) 809 Employer contributions 1,331 362 Benefits paid (1,734) (980) Settlement payments (63) -- - -------------------------------------------------------------------------------- Fair value of plan assets at end of year 6,501 7,336 - -------------------------------------------------------------------------------- Reconciliation of funded status Underfunded status 1,824 1,048 Unrecognized actuarial gain or (loss) (1,161) 272 Unrecognized transition obligation (7) (18) Unrecognized prior service cost (177) (305) - -------------------------------------------------------------------------------- Accrued pension cost included in the consolidated balance sheets $ 479 $ 997 - -------------------------------------------------------------------------------- Amounts recorded on the consolidated balance sheets were: 2001 2000 - -------------------------------------------------------------------------------- Prepaid benefit cost $ (252) $ (252) Accrued benefit liability 731 1,249 - -------------------------------------------------------------------------------- Accrued pension cost included in the consolidated balance sheets $ 479 $ 997 - -------------------------------------------------------------------------------- In 1990 we adopted a supplemental retirement benefit plan for certain key executive officers, which will provide supplemental payments upon retirement, disability or death. The obligations are not funded apart from our general assets. The accumulated benefit obligation and fair value of plan assets for the plan with accumulated benefit obligations in excess of plan assts were $0.8 million and $0, respectively, in 2001; $1.6 million and $0, respectively, in 2000; and $0.6 million and $0, respectively, in 1999. We charged $0.5 million, $0.4 million and $0.2 million in 2001, 2000 and 1999, respectively, to expense under the plan. Most of our union employees are covered by union-sponsored, collectively-bargained, multi-employer pension plans. For such plans, we contributed and charged to expense $0.2 million, $0.2 million and $0.2 million, in 2001, 2000 and 1999, respectively. These contributions are determined in accordance with the provisions of negotiated labor contracts, and generally are based on the number of man-hours worked. Information from the plans' administrators is not available to permit us to determine our share of unfunded vested benefits. The annual profit-sharing contributions, which are the lesser of (i) a percentage of income defined in the plans, or (ii) 15% of the aggregate compensation paid to participants during the year, were $1.1 million, $1.3 million and $1.0 million, in 2001, 2000 and 1999, respectively. We make matching contributions of 50% of employees' contributions, up to 4% of compensation, to a 401(k) plan. Matching contributions were $0.3 million, $0.3 million and $0.2 million, in 2001, 2000 and 1999, respectively. Plan assets of company-sponsored plans are invested primarily in common stocks, corporate bonds and government securities. Although we have the right to improve, change or terminate the plans, they are intended to be permanent. We provide an optional retiree medical program to a majority of our U.S. salaried and non-union retirees. All retirees are required to contribute to the cost of their coverage. These postretirement benefits are unfunded. Cost components of these postretirement benefits, principally health care, were: 2001 2000 1999 - -------------------------------------------------------------------------------- Service cost $125 $124 $ 85 Interest cost 225 208 140 Amortization of transition obligation 55 55 55 Recognized actuarial loss 45 62 17 - -------------------------------------------------------------------------------- Total Cost $450 $449 $297 - -------------------------------------------------------------------------------- 36 Woodhead/2001/AR 14. BENEFIT PLANS (continued) The funded status of these benefits on the balance sheet dates was as follows: 2001 2000 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Retirees $ 588 $ 765 Eligible active employees 527 956 Other active employees 1,072 1,315 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 2,187 3,036 - -------------------------------------------------------------------------------- Fair value of plan assets at end of year -- -- - -------------------------------------------------------------------------------- Underfunded status 2,187 3,036 Unrecognized transition obligation (659) (714) Unrecognized prior service cost 201 -- Unrecognized actuarial loss 124 (841) - -------------------------------------------------------------------------------- Accrued postretirement benefit cost included in the consolidated balance sheets $ 1,853 $ 1,481 - -------------------------------------------------------------------------------- We used the following assumptions in accounting for these plans: Participants aged under 65: 2001 2000 1999 - -------------------------------------------------------------------------------- Discount rate 7.3% 7.5% 7.3% Health care trend rate in first year 10.0% 6.0% 7.0% Gradually declining to a trend rate of 5.5% 6.0% 6.0% in the year 2008 2000 2000 - -------------------------------------------------------------------------------- Participants aged 65 and over: 2001 2000 1999 - -------------------------------------------------------------------------------- Discount rate 7.3% 7.5% 7.3% Health care trend rate in first year 12.0% 6.0% 7.0% Gradually declining to a trend rate of 6.0% 6.0% 6.0% in the year 2008 2000 2000 - -------------------------------------------------------------------------------- A one-percentage point increase in the assumed health care trend would have the following effects on: 2001 2000 1999 - -------------------------------------------------------------------------------- Aggregate of service and interest cost $44 $71 $46 Accumulated postretirement benefit obligation $387 $566 $381 - -------------------------------------------------------------------------------- We provide certain post-employment benefits to former or inactive employees before retirement. The costs associated with those benefits are immaterial. 15. CONTINGENT LIABILITIES We are 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, we have incurred, and expect to incur, assessment, remediation and related costs at one of our facilities. In 1991, we 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. Our 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, we have learned that a portion of the site had been used as a disposal area by the previous owners of the site. Our consultant has remediated the soils in this area but believes that it is a source of contamination of groundwater, both on-site and off-site. Recent investigation by our consultant indicates that there were releases by the previous owners in areas over which they subsequently built additions. In addition, the earlier investigations of the site indicate that the groundwater contaminants have migrated off-site. We have implemented a groundwater remediation system for the on-site contamination. We continue to monitor and analyze conditions to determine the continued efficacy of the system. We also have implemented a groundwater remediation system for the off-site contamination. We continue to analyze other alternatives for the off-site groundwater contamination and are reviewing these alternatives with the DEQ. We continue 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 our facilities. Our consultant estimates, that a minimum of approximately $1.5 million of investigation and remediation expenses remain to be incurred, both on-site and off-site. We have a reserve for such purposes. We have filed a complaint in federal district court seeking contribution from the previous owners of the site for the cost of the investigation and remediation of the site. Also, we have evaluated similar claims against various insurers and have begun discussing those claims with them. 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. We are continuing to monitor the conditions at the site and will adjust our reserve if necessary. We may incur significant 37 Woodhead/2001/AR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. CONTINGENT LIABILITIES (continued) additional assessment, remediation and related costs at the site, and such costs could materially and adversely affect our consolidated net income for the period in which such costs are incurred. At this time, however, we cannot estimate the time or potential magnitude of such costs, if any. 16. APPLICOM INTERNATIONAL ACQUISITION On February 2, 2001 we acquired Applicom International S.A. for $14.7 million in cash and in accordance with APB No. 16: BUSINESS COMBINATIONS, applied the purchase method of accounting. Located in Normandy, France, Applicom produces software, interface cards and related products that provide communication connections in industrial automation systems. Additional Applicom operations are in Italy and Germany. We financed the transaction with cash on hand and borrowings through our bank revolving credit agreements. As a result of applying the purchase method of accounting we recorded $6.4 million of goodwill, which we are amortizing over a period of 20 years. Also, we capitalized software technology in the amount of $4.8 million, which we are amortizing over a period of 9 years. We believe the 9-year life is appropriate because industrial software of this type experiences extended years of revenue growth, and future benefits of this software will last for 9 years or more. The following table shows the fair value of assets and liabilities and purchase accounting adjustments and, where applicable, their useful lives recorded in connection with the Applicom acquisition: Purchase price allocation Fair value Asset life - -------------------------------------------------------------------------------- Current assets $ 3,745 Software technology 4,794 9 years PP&E 1,035 3-40 years Other intangible assets: Trade name 635 15 years Assembled workforce 423 11 years Non-compete agreements 423 3 years Goodwill 6,434 20 years - -------------------------------------------------------------------------------- Total assets acquired 17,489 - -------------------------------------------------------------------------------- Current liabilities 1,381 Long-term liabilities 1,128 Other long-term liabilities 258 - -------------------------------------------------------------------------------- Total liabilities assumed $ 2,767 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total assets less liabilities $ 14,722 Cash consideration paid (net of cash acquired) $ 14,722 - -------------------------------------------------------------------------------- We included the financial results of this business in our consolidated financial statements from the date of acquisition. Our fiscal year 2001 includes eight months of Applicom operations. The table below shows unaudited pro forma information of combined results of Woodhead and Applicom as if the acquisition had occurred as of the first day of fiscal year 2001, 2000 and 1999, including the effects of purchase accounting adjustments. These results do not necessarily reflect actual results which would have occurred if the acquisition had taken place at the beginning of the earliest period presented or as of the date indicated, nor are they necessarily indicative of the results of future combined operations: 2001 2000 1999 - -------------------------------------------------------------------------------- Net Sales: As reported $ 190,186 $ 196,932 $ 171,783 Pro forma 192,512 203,356 175,803 Net Income: As reported $ 7,834 $ 13,132 $ 10,894 Pro forma 7,508 13,151 10,527 Basic earnings per share: As reported $ 0.68 $ 1.16 $ 0.98 Pro forma 0.65 1.16 0.95 Diluted earnings per share: As reported $ 0.66 $ 1.12 $ 0.96 Pro forma 0.64 1.13 0.93 - -------------------------------------------------------------------------------- 38 Woodhead/2001/AR 17. SUMMARY OF QUARTERLY DATA (unaudited) Our common stock trades on the NASDAQ Stock Market under the symbol WDHD. The daily quotations as reported by the NASDAQ are published in the Wall Street Journal and other leading financial publications. At September 29, 2001, we had 407 shareholders.
Quarter ---------------------------------------------------- 2001 First Second Third Fourth Full year - ---------------------------------------------------------------------------------------------------------------------- NET SALES $ 48,652 $ 52,004 $ 47,455 $ 42,075 $ 190,186 GROSS PROFIT 19,626 20,947 18,478 16,642 75,693 INCOME FROM OPERATIONS 5,805 6,361 3,696 2,853 18,715 NET INCOME 3,076 3,416 1,537 (195) 7,834 - ---------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC 0.27 0.30 0.13 (0.02) 0.68 EARNINGS PER SHARE - DILUTED 0.26 0.29 0.13 (0.02) 0.66 - ---------------------------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.36 - ---------------------------------------------------------------------------------------------------------------------- STOCK PRICES: HIGH $ 22.63 $ 19.50 $ 19.88 $ 17.80 $ 22.63 LOW $ 18.00 $ 15.56 $ 15.96 $ 14.96 $ 14.96 - ---------------------------------------------------------------------------------------------------------------------- 2000 - ---------------------------------------------------------------------------------------------------------------------- Net sales $ 44,164 $ 52,286 $ 50,860 $ 49,622 $ 196,932 Gross profit 18,445 22,398 20,864 20,030 81,737 Income from operations 5,022 6,745 6,603 6,045 24,415 Net income 2,659 3,537 3,520 3,416 13,132 - ---------------------------------------------------------------------------------------------------------------------- Earnings per share - basic 0.24 0.31 0.31 0.30 1.16 Earnings per share - diluted 0.23 0.30 0.30 0.29 1.12 - ---------------------------------------------------------------------------------------------------------------------- Dividends per common share $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.36 - ---------------------------------------------------------------------------------------------------------------------- Stock Prices: High $ 13.50 $ 19.92 $ 23.56 $ 23.25 $ 23.56 Low $ 8.63 $ 11.31 $ 15.50 $ 10.13 $ 8.63 - ---------------------------------------------------------------------------------------------------------------------- 1999 - ---------------------------------------------------------------------------------------------------------------------- Net sales $ 39,547 $ 45,282 $ 43,980 $ 42,974 $ 171,783 Gross profit 16,480 19,483 18,554 18,564 73,081 Income from operations 4,355 5,914 5,214 4,905 20,388 Net income 2,353 2,914 2,231 3,396 10,894 - ---------------------------------------------------------------------------------------------------------------------- Earnings per share - basic 0.21 0.26 0.20 0.30 0.98 Earnings per share - diluted 0.21 0.26 0.20 0.30 0.96 - ---------------------------------------------------------------------------------------------------------------------- Dividends per common share $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.36 - ---------------------------------------------------------------------------------------------------------------------- Stock Prices: High $ 15.50 $ 13.00 $ 15.38 $ 12.44 $ 15.50 Low $ 9.88 $ 9.25 $ 9.69 $ 9.72 $ 9.25 - ----------------------------------------------------------------------------------------------------------------------
39 EX-21 5 woodhead015232_ex-21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
- ------------------------------------------------------------------------------------------------------------ State or other Juristiction Name of Subsidiary in which organized Ownership - ------------------------------------------------------------------------------------------------------------ Aero-Motive Company State of Michigan 100% Advanced Interconnect, Inc. (f/k/a AI/FOCS, Inc.) State of Delaware 100% Akapp Electro Industrie B.V. The Netherlands 100% Applicom International, S.A.S. France 100% Applicom International, GmbH Germany 100% Central Rubber Company State of Illinois 100% DW Holding, L.L.C. State of Delaware 100% Daniel Woodhead Company State of Delaware 100% Deerfield Partners C.V. The Netherlands 100% I.M.A. S.r.l. Italy 100% mPm S.r.l. Italy 100% WH One, LLC State of Delaware 100% WH Two, LLC State of Delaware 100% W.I.S. Corp. U.S. Virgin Islands 100% Woodhead Asia Pte. Ltd. Singapore 100% Woodhead Canada Limited Province of Nova Scotia 100% Woodhead Connectivity Limited (f/k/a Aero-Motive (U.K.) Limited) United Kingdom 100% Woodhead Connectivity GmbH (f/k/a/ H. F. Vogel GmbH) Germany 100% Woodhead Connectivity, S.A.S. France 100% Woodhead de Mexico S.A. de C.V. Mexico 100% Woodhead Finance Company Province of Nova Scotia 100% Woodhead France S.A.R.L. France 100% Woodhead Industries (The Netherlands) B.V. The Netherlands 100% Woodhead International B.V. The Netherlands 100% Woodhead Japan Corporation Japan 100% Woodhead L.P. State of Texas 100% Micromedia S.A. France 33% Euroview Services S.A. France 37%
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