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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 3/29/2003
---------
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
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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 April 25, 2003 was 11,901,088.
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1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
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 15
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 19
Item 4 - Internal Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 4 - Submission of matters to a vote of security holders 21
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Certificate Pursuant to Section 302 - Philippe Lemaitre 23
Certificate Pursuant to Section 302 - Robert H. Fisher 24
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WOODHEAD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
As of March 29, 2003 and September 28, 2002
(Amounts in Thousands)
Unaudited
ASSETS 3/29/2003 9/28/2002
-------------------------
CURRENT ASSETS
Cash and short-term investments $ 23,022 $ 13,152
Accounts receivable, net 31,257 30,770
Inventories 14,523 14,825
Prepaid expenses 2,402 2,870
Refundable income taxes 2,066 1,971
Deferred income taxes 3,119 3,119
- -----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 76,389 66,707
Property, plant and equipment, net 62,013 64,053
Other Intangible assets, net 802 798
Goodwill, net 30,415 28,757
Deferred income taxes 3,454 3,339
Other Assets 1,184 2,997
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 174,257 $ 166,651
- -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Accounts payable $ 9,768 $ 9,119
Accrued expenses 13,469 12,785
Income taxes payable 1,873 1,640
Current portion of long-term debt 4,200 4,200
- -----------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 29,310 27,744
Long-term debt 36,600 36,600
Deferred income taxes 2,080 1,771
Other liabilities 3,182 3,191
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 71,172 69,306
STOCKHOLDERS' INVESTMENT:
Common stock at par (shares issued: 11,901 at 3/29/2003
and 11,817 at 9/28/02) 11,901 11,817
Additional paid-in capital 17,395 16,526
Deferred stock compensation (930) (218)
Accumulated other comprehensive loss (347) (4,292)
Retained earnings 75,066 73,512
- -----------------------------------------------------------------------------------------
Total stockholders' investment 103,085 97,345
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 174,257 $ 166,651
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
3
WOODHEAD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months ended March 29, 2003 and March 30, 2002
(Amounts in Thousands, except per share data, unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
3/29/2003 3/30/2002 3/29/2003 3/30/2002
------------------------- -------------------------
NET SALES $ 45,810 $ 42,579 $ 88,042 $ 81,200
Cost of Sales 28,900 26,986 55,404 51,122
-------- -------- -------- --------
GROSS PROFIT 16,910 15,593 32,638 30,078
OPERATING EXPENSES 14,334 13,285 28,102 26,434
RESTRUCTURING CHARGE -- 1,015 -- 1,015
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 14,334 14,300 28,102 27,449
INCOME FROM OPERATIONS 2,576 1,293 4,536 2,629
OTHER EXPENSES
Interest Expense 701 801 1,401 1,579
Interest Income (51) (21) (90) (33)
Other (Income) / Expenses, Net (579) 89 (1,087) 337
-------- -------- -------- --------
INCOME BEFORE TAXES 2,505 424 4,312 746
-------- -------- -------- --------
PROVISION FOR INCOME TAXES 974 260 1,355 446
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS $ 1,531 $ 164 $ 2,957 $ 300
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 $ 1,531 $ 164 $ 3,687 $ 300
EARNINGS PER SHARE, BASIC
From Continuing Operations $ 0.13 $ 0.01 $ 0.25 $ 0.03
From Discontinued Operations $ -- $ -- .06 $ --
As Reported $ 0.13 $ 0.01 $ 0.31 $ 0.03
EARNINGS PER SHARE, DILUTED
From Continuing Operations $ 0.13 $ 0.01 $ 0.25 $ 0.03
From Discontinued Operations $ -- $ -- .06 $ --
As Reported $ 0.13 $ 0.01 $ 0.31 $ 0.03
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic 11,897 11,620 11,862 11,597
Diluted 12,020 11,830 11,947 11,812
DIVIDENDS PER SHARE $ 0.09 $ 0.09 $ 0.18 $ 0.18
The accompanying notes are an integral part of these statements.
4
WOODHEAD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months ended March 29, 2003 and March 30, 2002
(Amounts in Thousands, unaudited)
-------------------------
Six Months ended
-------------------------
03/29/2003 03/30/2002
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $ 3,687 $ 300
Adjustments to reconcile net income to net
cash flows from operating activities:
Income from discontinued operations (730) --
Depreciation and amortization 5,299 4,999
Deferred tax expense 194 147
(Increase) Decrease in:
Accounts receivable (688) 1,418
Inventories 294 3,408
Prepaid expenses 372 (27)
Deferred income taxes and other assets 283 (1,133)
(Decrease) Increase in:
Accounts payable 653 (1,530)
Accrued expenses 680 109
Income taxes payable 188 (459)
Deferred income taxes and other liabilities (73) 257
- --------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 10,159 7,489
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant & equipment (2,238) (4,295)
Dispositions of property, plant & equipment
8 77
Proceeds from sale of AKAPP, net of cash given $485 4,187 --
- --------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 1,957 (4,218)
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt -- 824
Sales of stock 242 648
Dividend payments (2,134) (2,087)
- --------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (1,892) (615)
- --------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES (354) 1,631
- --------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 9,870 4,287
Cash and short-term investments at beginning of period 13,152 4,156
Cash and short-term investments at end of period $ 23,022 $ 8,443
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the period for:
Interest $ 1,367 $ 1,559
Income taxes $ 871 $ 172
The accompanying notes are an integral part of these statements.
5
WOODHEAD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months ended March 29, 2003 and March 30, 2002
(Amounts in Thousands, unaudited)
------------------------- -------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
3/29/2003 3/30/2002 3/29/2003 3/30/2002
- ----------------------------------------------------------------------------------- -------------------------
Net income $ 1,531 $ 164 $ 3,687 $ 300
Other comprehensive income (loss):
Accumulated foreign currency translation
adjustment, before tax 2,295 (1,006) 5,515 (2,316)
Unrealized gain / (loss) on cash flow hedging
Instrument (414) 367 (1,570) 248
- ------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss), net of tax $ 3,412 $ (475) $ 7,632 $(1.768)
- ------------------------------------------------------------------------------------------------------------------
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 Form 10-K and Forms 10-K/A.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002 the FASB issued FASB Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS (FIN 45). FIN 45 provides guidance on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued and
also clarifies that the guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. We have adopted the requirements of FIN 45 and made the
appropriate disclosures in the Financial Statements and Notes included in this
Form 10-Q. We believe that the amount of our warranty settlements and reserve
are not material and are therefore not included as a disclosure to these interim
financial statements.
In December 2002 the FASB issued SFAS No. 148 ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE (SFAS 148), which amends SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 148 provides alternative
methods of transition for companies that voluntarily change to the fair
value-based method of accounting for stock-based employee compensation, and also
requires expanded disclosures in both interim and annual financial statements.
We are required to adopt the expanded disclosure requirements of SFAS No. 148
for the quarter ending March 29, 2003. Our expanded disclosure regarding pro
forma amounts for the effects of not recording FAS 123 expense is included in
Footnote No. 7.
7
3. INVENTORIES
Inventories at the balance sheet dates were comprised of the following:
3/29/03 9/28/02
- --------------------------------------------------------------------------------
Inventories valued using FIFO $ 9,029 $ 9,576
- --------------------------------------------------------------------------------
Inventories valued using LIFO:
At FIFO cost 9,022 8,965
Less: Reserve to reduce to LIFO (3,528) (3,716)
- --------------------------------------------------------------------------------
LIFO Inventories 5,494 5,249
- --------------------------------------------------------------------------------
Total Inventories $ 14,523 $ 14,825
- --------------------------------------------------------------------------------
Inventory composition using FIFO
Raw materials 10,067 10,340
Work-in-process and finished goods 7,984 8,201
- --------------------------------------------------------------------------------
Total Inventories at FIFO $ 18,051 $ 18,541
- --------------------------------------------------------------------------------
Had we used the FIFO method for all inventories, net income would have been $0.1
million lower for the six months ended 3/29/2003. In the second quarter 2003
LIFO had no effect on net income. Net income would have been $0.2 million and
$0.5 million lower in the three and six months ended 3/30/2002.
4. PROPERTY, PLANT AND EQUIPMENT
3/29/03 9/28/02
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost $141,186 $138,373
Less: Accumulated depreciation and amortization (79,173) (74,320)
- --------------------------------------------------------------------------------
Property, plant and equipment, net $ 62,013 $ 64,053
- --------------------------------------------------------------------------------
During the six-month period just ended we disposed of approximately $0.5 million
of unused, fully depreciated fixed assets, and the accompanying accumulated
depreciation. We did not record any material gain or loss on these disposals. In
addition we disposed of $1.0 million of net property plant and equipment in the
sale of AKAPP (see Footnote No.9)
5. 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 expired on March 29, 2003, when the maximum debt to EBITDA ratio
reverted back to 2.5 and the minimum interest coverage ratio reverted back to
3.0. We are in compliance with all provisions of our funding arrangements. At
March 29, 2003 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.
Included in our financial statements is a 6.64% senior guaranteed note, which is
held by a subsidiary and has a parental guarantee. In addition, there is a 6.81%
senior guaranteed note held by the parent company, which is guaranteed by our
U.S. subsidiaries.
8
6. 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 Six Months Ended
-------------------- -----------------------
03/29/03 03/30/02 03/29/03 03/30/02
- ----------------------------------------------------------------------------------------------------
Income from Continuing Operations $ 1,531 $ 164 $ 2,957 $ 300
Income from Discontinued Operations $ -- $ -- 730 $ --
-------------------- -----------------------
Net Income $ 1,531 $ 164 $ 3,687 $ 300
==================== =======================
Earnings per share, basic
From continuing operations $ 0.13 $ 0.01 $ 0.25 $ 0.03
From discontinued operations $ -- $ -- $ 0.06 $ --
-------------------- -----------------------
As reported $ 0.13 $ 0.01 $ 0.31 $ 0.03
-------------------- -----------------------
Earnings per share, diluted
From continuing operations $ 0.13 $ 0.01 $ 0.25 $ 0.03
From discontinued operations $ -- $ -- $ 0.06 $ --
-------------------- -----------------------
As reported $ 0.13 $ 0.01 $ 0.31 $ 0.03
-------------------- -----------------------
Weighted-average number of shares outstanding 11,897 11,620 11,862 11,597
Dilutive common stock options 123 210 85 215
-------------------- -----------------------
Weighted-average number of shares outstanding
Plus dilutive common stock options 12,020 11,830 11,947 11,812
- ----------------------------------------------------------------------------------------------------
7. CAPITAL 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 11,901,000 and 11,817,000 on March 29, 2003 and
September 28, 2002, respectively.
We apply Accounting Principles Board Opinion No. 25: Accounting for Stock Issued
to Employees, and related interpretations, including FASB Interpretation (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 SFAS No. 148: Accounting for Stock Based
Compensation, which amended SFAS No. 123 Accounting for Stock Based
Compensation. The following table, per SFAS 148, summarizes results as if we had
recorded compensation expense for option grants during the six months ended
March 29, 2003 and March 30, 2002:
03/29/2003 03/30/2002
- ---------------------------------------------------------------------
Net Income
As reported $ 3,687 $ 300
Stock based employee compensation cost (492) (301)
-----------------------
Pro forma $ 3,195 $ (1)
Basic earnings per share
As reported $ 0.31 $ 0.03
Stock based employee compensation cost (0.04) (0.03)
-----------------------
Pro forma $ 0.27 --
Diluted earnings per share
As reported $ 0.31 $ 0.03
Stock based employee compensation cost (0.04) (0.03)
-----------------------
Pro forma $ 0.27 --
- ---------------------------------------------------------------------
9
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.
8. 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 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.
10
THREE MONTHS
(Amounts in Thousands, unaudited)
Segment data
Net Sales Income from Operations
---------------------- ----------------------
Three Months Ended Three Months Ended
---------------------- ----------------------
03/29/03 03/30/02 03/29/03 03/30/02
---------------------- ----------------------
Connectivity $ 31,989 $ 27,353 $ 1,130 $ 171
Electrical 13,821 15,226 1,627 1,357
Corporate and other (181) (235)
- ---------------------------------------------------- ----------------------
Total $ 45,810 $ 42,579 $ 2,576 $ 1,293
- ---------------------------------------------------- ----------------------
Additions to Depreciation
long-lived assets and Amortization
---------------------- ----------------------
Three Months Ended Three Months Ended
---------------------- ----------------------
03/29/03 03/30/02 03/29/03 03/30/02
---------------------- ----------------------
Connectivity $ 850 $ 789 $ 2,024 $ 1,920
Electrical 442 640 595 618
Corporate and other 16 7 50 67
- -------------------------------------------------------------------------------
Total $ 1,308 $ 1,436 $ 2,669 $ 2,605
- --------------------------------------------------------------------------------
Total Assets
----------------------
03/29/03 03/30/02
----------------------
Connectivity $125,569 $119,915
Electrical 26,368 31,652
Corporate and other 22,320 15,084
- ----------------------------------------------------
Total $174,257 $166,651
- ----------------------------------------------------
Three Months Ended
- -------------------------------------------------------------------------------
Reconciliation of Income from Operations to Net Income 03/29/03 03/30/02
- -------------------------------------------------------------------------------
Income from operations $ 2,576 $ 1,293
Less: Interest income (expense), net (650) (780)
Other income (expense), net 579 (89)
Income taxes (974) (260)
- -------------------------------------------------------------------------------
Net Income $ 1,531 $ 164
- -------------------------------------------------------------------------------
Geographic Data
Net Sales Total Assets
---------------------- ------------------
Three Months Ended 03/29/03 09/28/02
---------------------- ---------------------------------
03/29/03 03/30/02 United States $ 57,840 $ 51,553
- -------------------------------------------- Canada 25,293 24,848
United States $ 28,168 $ 27,988 Italy 31,330 29,303
Mexico 20,274 20,035
All other countries 17,642 14,591 France 20,575 19,752
- -------------------------------------------- All other
Total $ 45,810 $ 42,579 countries 18,945 21,160
- -------------------------------------------- ---------------------------------
Total $174,257 $166,651
---------------------------------
11
SIX MONTHS
(Amounts in Thousands, unaudited)
Segment data
Net Sales Income from Operations
---------------------- ----------------------
Six Months Ended Six Months Ended
---------------------- ----------------------
03/29/03 03/30/02 03/29/03 03/30/02
---------------------- ----------------------
Connectivity $ 60,388 $ 52,080 $ 1,529 $ 366
Electrical 27,654 29,120 3,480 2,436
Corporate and other (473) (173)
- ---------------------------------------------------- ----------------------
Total $ 88,042 $ 81,200 $ 4,536 $ 2,629
- ---------------------------------------------------- ----------------------
Additions to Depreciation
long-lived assets and Amortization
---------------------- ----------------------
Six Months Ended Six Months Ended
---------------------- ----------------------
03/29/03 03/30/02 03/29/03 03/30/02
---------------------- ----------------------
Connectivity $ 1,485 $ 2,363 $ 4,004 $ 3,653
Electrical 712 1,912 1,194 1,217
Corporate and other 41 20 101 129
- ---------------------------------------------------- ----------------------
Total $ 2,238 $ 4,295 $ 5,299 $ 4,999
- ---------------------------------------------------- ----------------------
Total Assets
----------------------
03/29/03 03/30/02
----------------------
Connectivity $125,569 $119,915
Electrical 26,368 31,652
Corporate and other 22,320 15,084
- ----------------------------------------------------
Total $174,257 $166,651
- ----------------------------------------------------
Six Months Ended
- -------------------------------------------------------------------------------
Reconciliation of Income from Operations to Net Income 03/29/03 03/30/02
- -------------------------------------------------------------------------------
Income from operations $ 4,536 $ 2,629
Less: Interest income (expense), net (1,311) (1,546)
Other income (expense), net 1,087 (337)
Income taxes (1,355) (446)
----------------------
Income from continuing operations 2,957 300
----------------------
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 $ 3,687 $ 300
- -------------------------------------------------------------------------------
Geographic Data
Net Sales Total Assets
---------------------- ------------------
Six Months Ended 03/29/03 09/28/02
---------------------- ---------------------------------
03/29/03 03/30/02 United States $ 57,840 $ 51,553
- -------------------------------------------- Canada 25,293 24,848
United States $ 54,689 $ 52,064 Italy 31,330 29,303
Mexico 20,274 20,035
All other countries 33,353 29,136 France 20,575 19,752
- -------------------------------------------- All other
Total $ 88,042 $ 81,200 countries 18,945 21,160
- -------------------------------------------- ---------------------------------
Total $174,257 $166,651
---------------------------------
12
9. 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 fiscal 2002 have not been reclassified to discontinued operations
because (as shown below) they are not material.
------------------ ------------------
Three Months Ended Six Months Ended
- ------------------------ ------------------ ------------------
03/30/02 03/30/02
- ------------------------ ------------------ ------------------
Sales 1,302 2,496
Income Before Taxes 47 48
Net Income 29 32
- ------------------------ ------------------ ------------------
10. RESTRUCTURING CHARGES
During the second quarter of 2002 we recorded a restructuring charge in the
amount of $1.0 million to primarily account for severance and related costs of
eliminating about 10% of our salaried positions worldwide. Additionally we
identified 31 positions in our manufacturing plant in Northbrook, Illinois,
which were eliminated with the continued migration of product to our new
manufacturing plant in Juarez, Mexico. This workforce reduction represented an
acceleration of initiatives that we started over the previous six months to
improve our efficiencies and reduce expenses. We anticipated that the salaried
personnel reduction would produce annual savings of about $3 million. The
restructuring resulted in the layoffs of 93 people, of which 70 people were
severed as of March 30, 2002. The restructuring was completed during fiscal 2002
and there is currently no reserve left for any of these restructuring charges.
The following table details the activity in the Restructuring Accrual Accounts
at March 30, 2002:
Restructuring
Reserve
-------------
Balance at 9/29/2001 $ --
Charged to expense in Q2 2002 1,015
Cash paid in Q2 2002 456
-------------
Remaining balance at 3/30/2002 $ 559
=============
13
11. INCOME TAX EXPENSE
Our effective tax rate was 31.4% and 59.8% for the first six months of 2003 and
2002, respectively. The decrease in our effective tax rate for the first six
months of 2003 was due mainly to the effects of utilizing $0.3 million of
foreign tax credits in the first quarter of 2003. The increase in the effective
tax rate for the first six months of 2002 was due mainly to the effects of not
benefiting net operating losses of certain foreign entities for which
realizability is considered uncertain.
12. 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.
We have 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. We have remediated the soils in this area but we
believe that it is a source of contamination of groundwater, both on-site and
off-site. Our 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.
We have a reserve for the $1.4 million of investigation and remediation expenses
we have estimated to be incurred over the next 15 years to address the
environmental issue at our site in Michigan. We based our estimate on the future
costs expected to be incurred to investigate, monitor and remediate the site.
Our 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 the state's Department of Environmental Quality feedback. Funding this
activity will come from operating cash flows and only changes to the reserve
estimate will affect the results of operations.
We indemnify certain customers with regard to product liability. We have
insurance policies to cover this exposure, which includes a minimal deductible
to be paid by us.
13. SUBSEQUENT EVENT
On April 9, 2003 we announced our decision on the future of the Aero-Motive
Company, a wholly owned subsidiary. In addition to selling the smaller product
lines that do not align strategically with our long-term goals, we will
integrate the remaining manufacturing operations primarily into our Juarez,
Mexico facility. The sale and integration process will take several months and
it is estimated that the Aero-Motive facility in Kalamazoo, Michigan will remain
open until early in calendar year 2004.
14
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 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 five industry-leading brands, SST(TM), Brad Harrison(R), mPm(TM), RJ
Lnxx(R) and applicom(R) 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 States, and fluctuations
in foreign currency exchange rates can impact our results of operations and
financial condition.
RESULTS OF OPERATIONS
- ---------------------
Second quarter fiscal 2003 results compared with second quarter fiscal 2002
- ---------------------------------------------------------------------------
results
- -------
SALES
Sales in the second quarter of fiscal 2003 were $45.8 million, an increase of
7.6% compared to second quarter 2002 sales revenue of $42.6 million. The
increase was mainly due to favorable results in our Connectivity Segment and the
strengthening of foreign exchange rates, which accounted for $2.6 million of the
increase compared to last year. Fiscal 2002 included $1.3 million of AKAPP
sales, a subsidiary that was sold in the first quarter of 2003. Overall unit
volume increased, while competitive pressures lowered selling prices by less
than one percent when compared to last year. New products introduced during the
last three years accounted for $6.1 million of revenue in the second quarter of
fiscal year 2003 compared to $9.6 million in revenue in the second quarter last
year. Sales in our Connectivity Segment increased 16.9% while sales in our
Electrical Segment declined by 9.2%. The decline in Electrical sales was
primarily due to the elimination of revenue from AKAPP operations.
SALES BY REGION
In the United States, sales were $28.2 million in the second quarter of fiscal
2003 and $28.0 million last year, a 0.7% increase. The United States
manufacturing sector continues to be a difficult environment to operate in as
various economic indicators showed a contraction in this sector during the
quarter. We recorded 39% and 34% of our revenues in foreign currencies during
the second quarters of fiscal 2003 and 2002, respectively. Our international
revenue was up 20.9% in the second quarter of fiscal 2003 when compared to last
year. This increase was mainly due to the strong results in Europe and the
favorable impact of foreign exchange rate changes.
BACKLOG
The backlog of unfilled orders stood at $17.0 million at the end of this quarter
as compared to $14.9 million a year ago, which translates to 24 and 20 average
days of sales for the second quarters of 2003 and 2002, respectively. This
increase in backlog was primarily due to increase in orders for the Connectivity
Segment.
GROSS PROFIT
Gross profit as a percent of sales was 36.9% in the second quarter of fiscal
2003 and 36.6% last year. This increase is mainly due to the improved
efficiencies related to increased volume levels and productivity improvements,
particularly from the migration of production to our Juarez, Mexico facility in
2002. Partially offsetting these improvements was the benefit from a $0.4
million LIFO credit in 2002, which did not occur in the second quarter of 2003.
15
OPERATING EXPENSES
Operating expenses were $14.3 million for both fiscal years. Including expenses
for Research and Development these expenses were 31.3% of sales in 2003 compared
to last year's 33.6%. This decrease as a percentage to sales was due to the
increased sales revenue in the second quarter of 2003. Expenses in the second
quarter of 2003 increased due to the upgrading in the sales, marketing and
engineering areas and $0.7 million from the effect of foreign exchange rate
changes. Offsetting these increases were the non-recurrence of a restructuring
charge for $1.0 million to account for severance and related costs to eliminate
approximately 10% of our salaried positions worldwide in 2002 and AKAPP
operating expenses of $0.4 million.
SEGMENT OPERATING INCOME
Income from operations in the second quarter of 2003 was $1.1 million in the
Connectivity Segment compared to $0.2 million in 2002, and $1.6 million in the
Electrical Segment compared to $1.4 million in 2002. The improvement in our
Connectivity Segment was due mainly to improved performance at our Canadian
operations, the absence of the restructuring charge taken in 2002 and increased
volume primarily in Europe. The increase in our Electrical Segment was due
mainly to lower costs from the migration of product to Juarez, Mexico and the
absence of the 2002 restructuring charge.
MISCELLANEOUS INCOME
Other income in the second quarter of 2003 was $0.6 million and consisted mainly
of a $0.4 million gain realized from exchange rate changes on a U.S. dollar loan
that a Canadian subsidiary used to acquire SST in early 1998. The favorable
changes in exchange rates in other foreign currencies, primarily the Euro and
British pound also contributed to the year-over-year improvement.
NET INCOME
Net income in the second quarter of 2003 was $1.5 million compared to $0.2
million in 2002. The effective tax rates were 38.9% and 61.3% in the second
quarters of 2003 and 2002. The high effective rate in 2002 was primarily the
result of not benefiting certain net operating losses of foreign operations for
which realizability is considered uncertain. Since most of the product costs and
operating expenses in our foreign subsidiaries are incurred in local currencies,
the impact of exchange rates on reported net income was partially mitigated.
Six months fiscal 2003 results compared with six months fiscal 2002 results
- ---------------------------------------------------------------------------
SALES
Sales for the first six months of fiscal 2003 were $88.0 million compared to
$81.2 million for 2002, an 8.4% increase. This increase is due mainly to the
increased sales levels at our Connectivity Segment. Favorable foreign exchange
rates accounted for $3.9 million or 57.4% of the increase when compared to last
year. The increase from exchange rate changes was partially offset by the
elimination of AKAPP sales, which were $2.5 million for the first six months of
2002. Year-over-year volume was also negatively impacted by slightly lower
selling prices, which resulted from competitive pressure. New products
introduced during the last three years accounted for $11.6 million of revenue
for the first six months of fiscal 2003 compared to $17.3 million for the first
six months of 2002. Sales in our Connectivity Segment increased 16.0% due mainly
to favorable exchange rate changes and improved performance in our European
operations. Sales in the Electrical Segment declined 5.0%, primarily due to the
sale of AKAPP.
SALES BY REGION
In the United States, sales were $54.7 million for the first six months of
fiscal 2003 and $52.1 million last year, a 5.0% increase. The strong performance
in the first quarter of 2003 contributed to this improvement over 2002. We
recorded 38% and 36% of our revenues in foreign currencies for the first six
months of 2003 and 2002, respectively. For the six months of 2003 our
international revenue increased 14.5% due mainly to the strong performance in
Europe and the effect of foreign currency rate changes.
GROSS PROFIT
Gross profit as a percent of sales was 37.1% for the first six months of 2003
and 37.0% last year. This slight increase was due mainly to efficiencies related
to higher volume and continued productivity improvements including the impact of
migrating product to Juarez, Mexico. Partially offsetting these improvements
were changes
16
in our LIFO reserve requirement, which increased our gross profit by $0.2
million for the first six months of 2003 compared to an increase in gross profit
of $0.8 million in the first six months of 2002.
OPERATING EXPENSE
Operating expenses, including expenses for Research and Development, were 31.9%
of sales for the first six months of 2003 compared to last year's 33.8%. This
decrease as a percentage of sales is due to increased sales revenue in the first
six months of 2003. Operating expense for the first six months of 2003 were
$28.1 million, compared to $27.4 million in 2002 and were negatively impacted by
both exchange rates and the upgrading of staff in the sales, marketing and
engineering areas. Operating expenses for the first six months of 2002 included
restructuring charges of $1.0 million and AKAPP operating expenses of $0.9
million both of which did not occur in the first six months of 2003.
SEGMENT INCOME
Income from operations for the first six months of 2003 was $1.5 million for the
Connectivity Segment compared to $0.4 million in 2002 and $3.5 million for the
Electrical Segment compared to $2.4 million in 2002. The increase in our
Connectivity Segment was due mainly to higher volumes, the absence of the
restructuring charge in 2003 and improved performance in Canada. The increase in
our Electrical Segment was due mainly to lower costs from the migration of
product to Juarez, Mexico and the absence of the 2002 restructuring charge.
MISCELLANEOUS (INCOME) / EXPENSE
Other income for the first six months of 2003 was $1.1 million. During the first
six months of 2003 foreign exchange gains were $1.0 million compared to a $0.3
million loss due to foreign exchange for the first six months of 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 for the first six months of 2003 was $3.7 million compared to $0.3
million in 2002. The effective tax rates were 31.4% and 59.8% for the first six
months of 2003 and 2002. The low effective rate in 2003 was partially due to the
impact of utilizing foreign tax credits in the first quarter of 2003. The high
effective rate in 2002 was primarily the result of not benefiting certain net
operating losses of foreign operations for which realizability is considered
uncertain. Since most of the product costs and operating expenses in our foreign
subsidiaries are incurred 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. Both Juarez plants are manufacturing resources for all our
North America subsidiaries. This project was completed in the second half of
fiscal 2002 and there was no spending in the first six months of 2003 compared
to $1.3 million spent in the first six months 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 through the
second quarter of fiscal 2004.
At March 29, 2003 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 expired on March 29, 2003, when the maximum debt to EBITDA
ratio reverted back to 2.5, and the minimum interest coverage ratio has reverted
back to 3.0. We are in compliance with all provisions of our funding
arrangements. We believe, that we
17
will be in compliance with all provisions of our funding arrangements for the
next fiscal year.
We do not have any exposures to off-balance sheet arrangements, including
special purpose entities, or activities that include non-exchange-traded
contracts accounted for at fair value.
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. 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.
18
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 $0.4 million in accumulated other
comprehensive loss to recognize deferred net income on derivatives designated as
cash flow hedges, and a net decrease in other assets of approximately $0.4
million during the quarter just ended. We base the fair value for our
cross-currency swap on the cost estimate to terminate the agreement.
$46.0 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.
ITEM 4 - INTERNAL 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.
19
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.
We have 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. We have remediated the soils in this area but we
believe that it is a source of contamination of groundwater, both on-site and
off-site. Our 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.
We have a reserve for the $1.4 million of investigation and remediation expenses
we have estimated to be incurred over the next 15 years to address the
environmental issue at our site in Michigan. We based our estimate on the future
costs expected to be incurred to investigate, monitor and remediate the site.
Our 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 the state's Department of Environmental Quality feedback. Funding this
activity will come from operating cash flows and only changes to the reserve
estimate will affect the results of operations.
20
PART II OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting of Stockholders on January 24, 2003. The following
proposals were adopted by the margins indicated:
1. To vote for the election of the following nominees to the Board of Directors:
For Authority Withheld Against Abstain
--- ------------------ ------- -------
Charles W. Denny 10,700,675 160,950 0 0
Ann F. Hackett 10,569,981 291,644 0 0
Eugene P. Nesbeda 10,525,413 336,212 0 0
William K. Hall 10,593,872 267,753 0 0
G. Thomas McKane 10,592,249 269,376 0 0
Daniel T. Carroll, Philippe Lemaitre, Linda Y.C. Lim and Sarilee Norton
continued their terms as directors after the Annual Meeting of Stockholders.
2. Ratification of the appointment of Ernst & Young LLP as Woodhead Industries,
Inc.'s independent public accountants:
For Authority Withheld Against Abstain
--- ------------------ ------- -------
10,555,612 0 294,744 11,269
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 reports on Form 8-K.
21
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: May 12, 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)
22
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
March 29, 2003;
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. 05-12-03
- ----------------------
Philippe Lemaitre
23
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
March 29, 2003;
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 05-12-03
- --------------------- Chief Financial Officer
Robert H. Fisher
24