-----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, EoJPY6zX7Mkb2ULaXMdAeEVbDy3hntfW+pSw+STO3pOZv3foaBjHWkHJrNbKNg5Q R1Iuwog98uDIJ3mKuHrZew== 0000897101-03-000114.txt : 20030211 0000897101-03-000114.hdr.sgml : 20030211 20030211144657 ACCESSION NUMBER: 0000897101-03-000114 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20021228 FILED AS OF DATE: 20030211 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05971 FILM NUMBER: 03549916 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-Q 1 woodhead030688_10q.txt WOODHEAD INDUSTRIES FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended 12/28/2002 ---------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------------ Commission File Number 0-5971 ----------------- WOODHEAD INDUSTRIES, INC. ------------------------ (Exact name of registrant as specified in its charter) DELAWARE 36-1982580 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) THREE PARKWAY NORTH #550, Deerfield, IL 60015 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (847)-236-9300 ------------------------- - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes ___X___ No_____. The number of common shares outstanding as of February 6, 2003 was 11,890,138 ================================================================================ 1 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION 3 ITEM 1 - FINANCIAL STATEMENTS 3 Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Comprehensive Income 6 Notes to Financial Statements 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15 ITEM 4 - CONTROLS AND PROCEDURES 16 PART II - OTHER INFORMATION 17 ITEM 1 - LEGAL PROCEEDINGS 17 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURES 18 Certificate Pursuant to Section 302 - Philippe Lemaitre 19 Certificate Pursuant to Section 302 - Robert H. Fisher 20 2 Part I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS WOODHEAD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS As of December 28, 2002 and September 28, 2002 (Amounts in Thousands)
-------------- unaudited ------------------------------ ASSETS 12/28/2002 9/28/2002 ------------------------------ CURRENT ASSETS Cash and short-term investments $ 22,634 $ 13,152 Accounts receivable 28,105 30,770 Inventories 15,093 14,825 Prepaid expenses 2,632 2,870 Refundable income taxes 1,927 1,971 Deferred income taxes 3,119 3,119 - ------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 73,510 66,707 Property, plant and equipment, net 62,264 64,053 Other Intangible assets, net 818 798 Goodwill, net 29,505 28,757 Deferred income taxes 3,263 3,339 Other Assets 1,598 2,997 - ------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 170,958 $ 166,651 - ------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities Accounts payable $ 9,066 $ 9,119 Accrued expenses 13,733 12,785 Income taxes payable 1,681 1,640 Current portion of long-term debt 4,200 4,200 - ------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 28,680 27,744 Long-term debt 36,600 36,600 Deferred income taxes 1,915 1,771 Other liabilities 3,216 3,191 - ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 70,411 69,306 STOCKHOLDERS' INVESTMENT: Common stock at par (shares issued: 11,890 at 12/28/2002 and 11,817 at 9/28/02) 11,890 11,817 Additional paid-in capital 17,294 16,526 Deferred stock compensation (1,013) (218) Accumulated other comprehensive loss (2,228) (4,292) Retained earnings 74,604 73,512 - ------------------------------------------------------------------------------------------------- Total stockholders' investment 100,547 97,345 - ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 170,958 $ 166,651 - -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 3 WOODHEAD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME For the Three Months ended December 28, 2002 and December 29, 2001 (Amounts in Thousands, except per share data, unaudited)
THREE MONTHS ENDED ------------------------- 12/28/2002 12/29/2001 ------------------------- NET SALES $ 42,232 $ 38,621 Cost of Sales 26,504 24,136 ------------------------- GROSS PROFIT 15,728 14,485 OPERATING EXPENSES 13,768 13,149 INCOME FROM OPERATIONS 1,960 1,336 OTHER EXPENSES Interest Expense 700 778 Interest Income (39) (12) Other (Income)/Expenses, Net (508) 248 ------------------------- INCOME BEFORE TAXES 1,807 322 PROVISION FOR INCOME TAXES 381 186 ------------------------- INCOME FROM CONTINUING OPERATIONS $ 1,426 $ 136 DISCONTINUED OPERATIONS: Income From Discontinued AKAPP Operations (Including Gain on Disposal of $725) 733 -- Income Tax Expense 3 -- ------------------------- Income From Discontinued Operations 730 -- ------------------------- NET INCOME $ 2,156 $ 136 EARNINGS PER SHARE, BASIC From Continuing Operations $ 0.12 $ 0.01 From Discontinued Operations $ 0.06 -- As Reported $ 0.18 $ 0.01 EARNINGS PER SHARE, DILUTED From Continuing Operations $ 0.12 $ 0.01 From Discontinued Operations $ 0.06 -- As Reported $ 0.18 $ 0.01 WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING Basic 11,835 11,580 Diluted 11,881 11,838 DIVIDENDS PER SHARE $ 0.09 $ 0.09
The accompanying notes are an integral part of these statements. 4 WOODHEAD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months ended December 28, 2002 and December 29, 2001 (Amounts in Thousands, unaudited)
------------------------------------- Three Months ended ------------------------------------- 12/28/2002 12/29/2001 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the period $ 2,156 $ 136 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,630 2,394 Income from discontinued operations (730) -- Deferred tax expense 220 101 (Increase) Decrease in: Accounts receivable 2,060 2,850 Inventories (512) 46 Prepaid expenses 126 1,187 Other assets 175 (275) (Decrease) Increase in: Accounts payable 87 (2,138) Accrued expenses 1,076 (1,131) Income taxes payable (30) (231) Other liabilities 35 (22) - ------------------------------------------------------------------------------------------------------------ Net cash flows provided by operating activities 7,293 2,917 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant & equipment (930) (2,859) Dispositions of property, plant & equipment 5 71 Proceeds from sales of AKAPP, net of cash given of $485 4,187 -- - ------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) investing activities 3,262 (2,788) - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase in long-term debt -- 606 Sales of stock -- 267 Dividend payments (1,064) (1,042) - ------------------------------------------------------------------------------------------------------------ Net cash used for financing activities (1,064) (169) - ------------------------------------------------------------------------------------------------------------ EFFECT OF EXCHANGE RATES (9) 470 - ------------------------------------------------------------------------------------------------------------ NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 9,482 430 Cash and short-term investments at beginning of period 13,152 4,156 Cash and short-term investments at end of period $ 22,634 $ 4,586 - ------------------------------------------------------------------------------------------------------------ SUPPLEMENTAL CASH FLOW DATA Cash paid during the period for: Interest $ -- $ 19 Income taxes $ 129 $ 612
The accompanying notes are an integral part of these statements. 5 WOODHEAD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months ended December 28, 2002 and December 29, 2001 (Amounts in Thousands, unaudited) ------------------------- THREE MONTHS ENDED ------------------------- 12/28/2002 12/29/2001 ------------------------------------------------------------------------------ Net Income $ 2,156 $ 136 Other comprehensive income (loss): Accumulated foreign currency translation adjustment, before tax 3,220 (1,310) Unrealized gain/(loss) on cash flow hedging instrument (1,156) (119) ------------------------------------------------------------------------------ Comprehensive income (loss), net of tax $ 4,220 $ (1,293) ------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements. 6 WOODHEAD INDUSTRIES, INC. NOTES TO FINANCIAL STATEMENTS (Amounts in Thousands, except per share data, unaudited) 1. 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. Interim results are not necessarily indicative of results for a full year. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The accompanying unaudited, consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. In the opinion of management, all normal and necessary adjustments have been made to ensure a fair statement of the results for the interim period. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, and Financial Statements and Notes thereto included in the Woodhead Industries, Inc. 2002 Annual Report on Form 10-K and Form 10-K/A. 2. LONG TERM DEBT Effective March 30, 2002 we amended our revolving credit agreement with a bank to increase the maximum ratio of debt to EBITDA, as defined, from 2.5 to 2.9, and reduce the minimum interest coverage ratio, as defined, from 3.0 to 2.0. This amendment will expire on March 29, 2003, when the maximum debt to EBITDA ratio will revert back to 2.5, and the minimum interest coverage ratio will revert back to 3.0. We are in compliance with all provisions of our funding arrangements. At December 28, 2002 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. 3. INVENTORIES Inventories at the balance sheet dates were comprised of the following: 12/28/02 9/28/02 - -------------------------------------------------------------------------------- Inventories valued using FIFO $ 9,305 $ 9,576 - -------------------------------------------------------------------------------- Inventories valued using LIFO: At FIFO cost 9,331 8,965 Less: Reserve to reduce to LIFO (3,543) (3,716) - -------------------------------------------------------------------------------- LIFO Inventories 5,788 5,249 - -------------------------------------------------------------------------------- Total Inventories 15,093 14,825 - -------------------------------------------------------------------------------- Inventory composition using FIFO Raw materials 10,436 10,340 Work-in-process and finished goods 8,200 8,201 - -------------------------------------------------------------------------------- Total Inventories at FIFO $ 18,636 $ 18,541 - -------------------------------------------------------------------------------- 7 Had we used the FIFO method for all inventories, Net Income would have been $0.1 million less for the three months ended December 28,2002. The LIFO impact for the three months ended December 29, 2001 increased Net Income by $0.2 million. 4. PROPERTY, PLANT AND EQUIPMENT 12/28/02 9/28/02 - -------------------------------------------------------------------------------- Property, plant and equipment, at cost $ 137,912 $ 138,373 Less: Accumulated depreciation and amortization (75,648) (74,320) - -------------------------------------------------------------------------------- Property, plant and equipment, net $ 62,264 $ 64,053 - -------------------------------------------------------------------------------- 5. EARNINGS PER SHARE Basic earnings per share exclude dilution, and diluted earnings per share reflect the potential dilution that could occur if stock options were exercised. The reconciliation between basic and diluted earnings per share is as follows: Three Months Ended ------------------------------ 12/28/02 12/29/01 - --------------------------------------------------------------------------- Income from Continuing Operations $ 1,426 $ 136 Income from Discontinued Operations $ 730 $ -- --------------------- Net Income $ 2,156 $ 136 ===================== Earnings per share, basic From continuing operations $ 0.12 $ 0.01 From discontinued operations $ 0.06 -- As reported $ 0.18 $ 0.01 Earnings per share, diluted From continued operations $ 0.12 $ 0.01 From discontinued operations $ 0.06 -- As reported $ 0.18 $ 0.01 --------------------- Weighted-average number of shares outstanding 11,835 11,580 Dilutive common stock options 46 258 --------------------- Weighted-average number of shares outstanding plus dilutive common stock options 11,881 11,838 - --------------------------------------------------------------------------- 6. COMMON STOCK Our total authorized stock is 40,000,000 shares, consisting of 10,000,000 shares of preferred stock, par value $0.01 per share, and 30,000,000 shares of common stock, par value $1.00 per share. No shares of preferred stock have been issued to date. Common stock issued was 11,890,000 and 11,817,000 on December 28, 2002 and September 28, 2002, respectively. 8 7. SEGMENT AND GEOGRAPHIC DATA Segment information is presented in accordance with Statement of Financial Accounting Standards (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, or Connectivity) 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, or Electrical) are primarily derived from sales of specialized products to support enhanced safety and productivity on the factory floor. In fiscal 2002 we changed our segment reporting to include our Asian operations in the Connectivity Segment to recognize the change in that operations business mix. Asian operations had been part of our Electrical Segment. The amounts for fiscal 2002 have been reclassified to reflect this change. 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. 9 THREE MONTHS (Amounts in Thousands, unaudited) A. Segment data
Net Sales Income from Operations ---------------------------------------- ---------------------------------------- Three Months Ended Three Months Ended ---------------------------------------- ---------------------------------------- 12/28/02 12/29/01 12/28/02 12/29/01 ---------------------------------------- ---------------------------------------- Connectivity $28,399 $24,727 $ 399 $ 195 Electrical 13,833 13,894 1,853 1,079 Corporate and other -- -- (292) 62 - ------------------------------------------------------------------ ---------------------------------------- Total $42,232 $38,621 $1,960 $1,336 - ------------------------------------------------------------------ ---------------------------------------- Additions to long-lived assets Depreciation and Amortization ---------------------------------------- ---------------------------------------- Three Months Ended Three Months Ended ---------------------------------------- ---------------------------------------- 12/28/02 12/29/01 12/28/02 12/29/01 ---------------------------------------- ---------------------------------------- Connectivity $635 $ 1,564 $1,980 $1,725 Electrical 270 1,282 599 607 Corporate and other 25 13 51 62 - ------------------------------------------------------------------ ---------------------------------------- Total $930 $2,859 $2,630 $2,394 - ------------------------------------------------------------------ ---------------------------------------- Total Assets --------------------------------------- 12/28/02 9/28/02 --------------------------------------- Connectivity $121,307 $119,915 Electrical 26,516 31,652 Corporate and other 23,135 15,084 - ------------------------------------------------------------------------------- Total $170,958 $166,651 - ------------------------------------------------------------------------------- Three Months Ended ------------------------------------- Reconciliation of Income from Operations to Net Income 12/28/02 12/29/01 - ---------------------------------------------------------------------------------------------------------------------- Income from operations $1,960 $1,336 Less: Interest income (expense), net (661) (766) Other income (expense), net 508 (248) Income taxes (381) (186) - ---------------------------------------------------------------------------------------------------------------------- Income from continuing operations 1,426 136 - ---------------------------------------------------------------------------------------------------------------------- Discontinued Operations Income from discontinued AKAPP operations (Including gain on disposal of $725) 733 -- Income tax expense (3) -- - ---------------------------------------------------------------------------------------------------------------------- Income from discontinued operations 730 -- - ---------------------------------------------------------------------------------------------------------------------- Net Income $2,156 $136 - ----------------------------------------------------------------------------------------------------------------------
Geographic Data
Net Sales Total Assets --------------------------------------- -------------------------------- Three Months Ended 12/28/02 09/28/02 --------------------------------------- --------------------------------------------------- 12/28/02 12/29/01 United States 57,058 $51,553 - ------------------------------------------------------------------------------- Canada 23,783 24,848 United States $26,521 $24,076 Italy 30,165 29,303 All other countries 15,711 14,545 Mexico 20,306 20,035 - ------------------------------------------------------------------------------- France 21,576 19,752 Total $42,232 $38,621 All other countries 18,070 21,160 - ------------------------------------------------------------------------------- -------------------------------------------------- Total $170,958 $166,651 --------------------------------------------------
10 8. SALE OF AKAPP OPERATIONS On September 29, 2002 the company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 states that the results of operations of a component of an entity that has either been disposed of or is classified as held for sale shall be reported in discontinued operations if both the following conditions are met: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. In November 2002 we sold our Dutch subsidiary, AKAPP to a third party. We sold the AKAPP operation for $4.9 million in cash, which included the payment of a $2.6 million inter-company loan and the receipt of $2.3 million in cash. As a result of this transaction we recorded a $0.7 million gain on disposal, which in accordance with SFAS No. 144 has been reported as Income from Discontinued Operations. The results of operations related to AKAPP for fiscal 2003 have also been recorded as Income from Discontinued Operations. The results of operations for AKAPP in the first quarter of fiscal 2002 have not been reclassified to discontinued operations, as the amounts (as shown below) are not material. ----------------------- Three Months Ended ----------------------- 12/29/01 - --------------------------------------------------- Sales 1,194 Income Before Taxes 1 Net Income 3 - --------------------------------------------------- 9. INCOME TAX EXPENSE Our effective tax rate was 21% and 58% for the first quarters of 2003 and 2002, respectively. The decrease in our effective tax rate for the first quarter of 2003 was due mainly to the effects of utilizing $0.3 million of excess foreign tax credits. The increase in the effective tax rate for the first quarter of 2002 was due mainly to the effects of not utilizing tax benefits related to net operating losses of certain foreign entities. 10. 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, unrelated to the UST release, additional soil and groundwater at the site have been impaired by chlorinated solvents, including tetrachloroethane and trichloroethylene, and other compounds. Also, our investigation revealed that the previous owners of the site had used a portion of the site as a disposal area. 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. Our consultant's investigation indicates that there were releases by the previous owners in areas over which additions were subsequently built. These releases have impacted groundwater that has 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 remedial alternatives for the off-site groundwater contamination and are reviewing these alternatives with the DEQ. We previously 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. We settled that litigation through a consent judgment against 11 the former owners. Also, we have asserted claims against insurers of the former owners for the amounts specified in the consent judgment. The insurers have denied coverage and three of them filed a declaratory judgment action to that effect against us in federal district court. Our consultant estimated that a minimum of approximately $1.4 million of investigation and remediation expenses, both on-site and off-site, remain to be incurred over the next 15 years. We have a reserve for such purposes. 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 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. 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW 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 Connectivity Segment 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 Segment 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 States, and fluctuations in foreign currency exchange rates can impact our results of operations and financial condition. FIRST QUARTER FISCAL 2003 RESULTS COMPARED WITH FIRST QUARTER FISCAL 2002 RESULTS SALES Sales in the first quarter of 2003 increased by 9.3% year over year, due mainly to the increase in our Connectivity Segment. Sales from Continuing Operations increased 13.1% in the first quarter of 2003. The change in foreign exchange rates during the quarter, primarily the Euro, increased sales by $1.3 million or 3% compared to the prior year. This was about equal to the elimination of AKAPP sales, which were $1.2 million in the first quarter of 2002. Overall unit volumes increased, while selling prices declined by approximately one percent, primarily due to competitive pressure. New products introduced during the last three years accounted for $5.5 million of revenue in the first quarter of fiscal year 2003 and compare to $7.7 million recorded last year. Sales in our Connectivity Segment increased 14.9% while Electrical Segment sales declined by 0.4%. Sales from Continuing Operations in our Electrical Segment increased 9.7% when compared to the same period last year. Measured in constant 2001 Dollars, overall sales increased 10.0%. SALES BY REGION In the United States, sales were $26.5 million in the first quarter of fiscal 2003 and $24.1 million last year, a 10.0% increase. The positive movement in economic indicators that directly affect our business point to improved economic conditions. We recorded 37% and 38% of our revenues in foreign currencies during the first quarters of fiscal 2003 and 2002, respectively. Our international revenue was up 8.0% in the first quarter of 2003 compared to last year. BACKLOG The backlog of unfilled orders stood at $12.9 million at the end of the first quarter of fiscal 2003 as compared to $14.6 million a year ago, which translates to 18 and 23 average days of sales for the first quarters of 2003 and 2002, respectively. This decrease in backlog was due mainly to the reduction in the Connectivity Segment caused by lower orders and shorter lead times, primarily in the datacom/telecom business. GROSS PROFIT Gross profit as a percent of sales was 37.2% in the first quarter of fiscal 2003 and 37.5% last year. The lower gross margin was due mainly to lower pricing, adverse product mix and the non-recurrence of a favorable LIFO adjustment last year because of the significant reduction in inventory offset partially by improved productivity. Decreases in our LIFO reserve requirement increased our gross profit by $0.2 million in the first quarter of fiscal year 2003, compared to an increase in gross profit of $0.4 million in the first quarter of 2002. 13 OPERATING EXPENSES Operating expenses, including expenses for Research and Development, were 32.6% of sales in the first quarter of 2003 compared to last year's 34.0%. This decrease as a percentage of sales was due mainly to the increased sales volume. SEGMENT OPERATING INCOME Income from operations in the first quarter of 2003 was $0.4 million for the Connectivity Segment, a 104.6% increase compared to last year, and $1.9 million for the Electrical Segment, a 71.7% increase compared to last year. The increase in profitability in the Connectivity Segment was due mainly to the increase in sales volumes, which was partially offset by unfavorable pricing, product mix and added cost to strengthen the management team for future growth. The increase in the Electrical Segment is attributable mainly to increased productivity and the savings associated with the migration of product from our Northbrook, Illinois plant to our new facility in Juarez, Mexico. MISCELLANEOUS INCOME Other Income and Expenses were favorably affected by the change in foreign exchange rates during the quarter, primarily the Euro. During the first quarter 2003 foreign exchange gains were $0.5 million as compared to an expense of $0.2 million for the first quarter 2002. DISCONTINUED OPERATIONS In the first quarter of 2003 we sold our AKAPP operations for $4.9 million in cash. This sale resulted in a gain on disposal of $0.7 million and was recorded as Income From Discontinued Operations. The results of operations related to AKAPP for fiscal 2003 have also been recorded as Income from Discontinued Operations. NET INCOME Net income in the first quarter of 2003 was $2.2 million and compares to $0.1 million last year. The effective tax rates were 21.1% and 57.8% in the first quarters of 2003 and 2002, respectively. The decrease in our effective tax rate for the first quarter 2003 was due mainly to the impact of utilizing excess foreign tax credits. Since most of the product costs and operating expenses in our foreign subsidiaries are recorded in local currencies, the impact of exchange rates on reported net income was partially mitigated. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES We continue to invest in property and equipment, including new machinery, computer systems and facilities. In 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 project is now complete and there was no spending in the first quarter of 2003 compared to $1.2 million spent in the first quarter of 2002. 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 2003. At December 28, 2002 we had $40.8 million of long-term debt outstanding and we had unused credit facilities that provide for additional borrowings of up to $25.0 million. Effective March 30, 2002 we amended our revolving credit agreement with a bank to increase the maximum ratio of debt to EBITDA, as defined, from 2.5 to 2.9, and reduce the minimum interest coverage ratio, as defined, from 3.0 to 2.0. This amendment will expire on March 29, 2003, when the maximum debt to EBITDA ratio will revert back to 2.5, and the minimum interest coverage ratio will revert back to 3.0. We are in compliance with all provisions of our funding arrangements. We believe that we will be in compliance with all provisions of our funding arrangements for the next fiscal year. We do not have any exposure to off-balance sheet arrangements, including special purpose entities, or activities that include non-exchange-traded contracts accounted for at fair value. 14 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 PART II - - OTHER INFORMATION: ITEM 1 - LEGAL PROCEEDINGS. 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 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. 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. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. We recorded the difference between the carrying values and fair values of related hedged assets and liabilities of $1.2 million for the first quarter 2003 in accumulated other comprehensive loss to recognize deferred net loss on derivatives designated as cash flow hedges, and a net decrease in other assets of $1.2 million for the first quarter. 15 We base the fair value for our cross-currency swap on the cost estimate to terminate the agreement. Our long-term debt is denominated in U.S. Dollars 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. ITEM 4 - CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. This information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, including our principal executive officer and our principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures within 90 days of the filing date of this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be disclosed in our periodic filings. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the foregoing paragraph. 16 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS 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, unrelated to the UST release, additional soil and groundwater at the site have been impaired by chlorinated solvents, including tetrachloroethane and trichloroethylene, and other compounds. Also, our investigation revealed that the previous owners of the site had used a portion of the site as a disposal area. 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. Our consultant's investigation indicates that there were releases by the previous owners in areas over which additions were subsequently built. These releases have impacted groundwater that has 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 remedial alternatives for the off-site groundwater contamination and are reviewing these alternatives with the DEQ. We previously 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. We settled that litigation through a consent judgment against the former owners. Also, we have asserted claims against insurers of the former owners for the amounts specified in the consent judgment. The insurers have denied coverage and three of them filed a declaratory judgment action to that effect against us in federal district court. Our consultant estimated that a minimum of approximately $1.4 million of investigation and remediation expenses, both on-site and off-site, remain to be incurred over the next 15 years. We have a reserve for such purposes. 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 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. 17 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. B. Reports on Form 8-K During the quarter just ended we did not file any report on Form 8-K. 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: February 10, 2003 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) 18 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Philippe Lemaitre, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the period ending December 28, 2002; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. /s/ Philippe Lemaitre President and C.E.O. 02-10-03 - --------------------------- Philippe Lemaitre 19 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert H. Fisher, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the period ending December 28, 2002; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness. /s/ Robert H. Fisher Vice President, Finance and 02-10-03 - --------------------------- Robert H. Fisher Chief Financial Officer 20 EX-99.1 3 woodhead030688_99-1.txt CERTIFICATION EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Woodhead Industries, Inc. (the "Company") on Form 10-Q for the period ending December 28, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philippe Lemaitre, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. BY: /s/ Philippe Lemaitre - ----------------------------- Philippe Lemaitre Chief Executive Officer February 10, 2003 This certification accompanies this Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 4 woodhead030688_99-2.txt CERTIFICATION EXHIBIT 99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Woodhead Industries, Inc. (the "Company") on Form 10-Q for the period ending December 28, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert H. Fisher, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. BY: /s/ Robert H. Fisher - ---------------------------- Robert H. Fisher Chief Financial Officer February 10, 2003 This certification accompanies this Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----