-----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, C4BaozBKMqyW6jqBeP5hArDs94acxV/0yXpbJjFvGiPfabT/wfuNMV3WqSAOfALm lEDCZk/s45g7fS2c7rZfdw== 0000891804-98-002720.txt : 19990101 0000891804-98-002720.hdr.sgml : 19990101 ACCESSION NUMBER: 0000891804-98-002720 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981231 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WOODHEAD INDUSTRIES INC CENTRAL INDEX KEY: 0000108215 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 361982580 STATE OF INCORPORATION: DE FISCAL YEAR END: 0927 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05971 FILM NUMBER: 98778930 BUSINESS ADDRESS: STREET 1: THREE PKWY NORTH STREET 2: STE 550 CITY: DEERFIELD STATE: IL ZIP: 60015 BUSINESS PHONE: 8472369300 MAIL ADDRESS: STREET 1: THREE PWKY NORTH STREET 2: STE 550 CITY: DEERFIELD STATE: IL ZIP: 60015 FORMER COMPANY: FORMER CONFORMED NAME: WOODHEAD DANIEL CO DATE OF NAME CHANGE: 19710624 10-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 3, 1998 Commission file number 0-5971 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 WOODHEAD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-1982580 -------------------------------- ------------------------------- (State or other juristriction of (I.R.S. Employer Identification incorporation or organization) Number) THREE PARKWAY NORTH, SUITE 550, DEERFIELD, IL 60015 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (847) 236-9300 Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $1.00 NASDAQ - National Preferred Stock Purchase Rights Market System ------------------------------- ----------------------------- (Title of class) (Exchange on which registered) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days, Yes X No --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant's knowledge, in the Proxy Statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of November 28, 1998 was $146,553,693. Shares outstanding as of November 28, 1998 were 11,034,631. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement dated December 18, 1998, for the annual meeting of stockholders to be held January 22, 1999, and portions of the Annual Report to Stockholders for the year ended October 3, 1998 are incorporated by reference in Parts I, II, III, and IV. ANNUAL REPORT FORM 10-K For the Year Ended October 3, 1998 as filed with the Securities and Exchange Commission Table of Contents Item No. Page 1. Business............................................................ 2-4 2. Description of Property............................................. 4 3. Legal Proceedings................................................... 5 4. Submission of Matters to a Vote of Securities Holders............... 5 5. Market for Registrant's Common Equity and Related Stock Matters......................................................... 6-7 6. Selected Financial Data............................................. 7 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 7 7A. Quantitative and Qualitative Disclosures about Market Risk......... 7-8 8. Financial Statements and Supplementary Data......................... 8 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................ 8 10. Directors and Executive Officers of the Registrant.................. 8-9 11. Executive Compensation.............................................. 9-10 12. Security Ownership of Certain Beneficial Owners and Management...... 10 13. Certain Relationships and Related Transactions...................... 10 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Index of Exhibits is on Pages 16-18)...............10-14 The term "Company" is used herein to refer to Woodhead Industries, Inc. (the Registrant) and its subsidiaries unless the context indicates otherwise. 1 PART I ITEM 1. BUSINESS GENERAL Woodhead Industries, Inc. was incorporated in Illinois in 1922 and reincorporated in Delaware in 1978. The corporation and its subsidiaries are primarily engaged in the manufacture and sale of devices for the control and distribution of electrical power for industry. During fiscal year 1998, the Company expanded its product lines by acquiring two businesses: mPm S.r.l., a manufacturer of specialty valve connectors in Italy; and certain assets of S-S Technologies, Inc., a producer of industrial control electronics in Canada. These two businesses are consonant with the company's existing products used in the control industry both in application and served markets and, therefore, result in no material change in the manner in which the Company conducts business. INDUSTRY SEGMENTS The Company consists of one business segment which can best be described as specialty power and signaling devices. That segment accounted for 98% of the sales and 99% of the earnings in 1998 and during the past five years has averaged 99% of sales and 97% of earnings. Molded rubber products, an immaterial business segment and therefore not reported separately, accounted for the remainder of the sales and earnings. PRODUCTS The Company's products are designed for and used primarily in industrial applications for the distribution of power, for signaling, and for motion control. They can be classified into four groups: electrical specialties, reels and power systems, industrial connectivity, and molded rubber products. The electrical specialty product classification includes, among other items, portable handlamps, low-voltage safety lights, wiring devices, weatherproof receptacles, circuit testers, portable power distribution equipment, pendant push-button enclosures, general-purpose power and control connectors, and custom copper and fiber optic cable assemblies. Reels and power systems include such products as electric cord and cable reels, electric cable festooning systems, collector rings, static discharge reels, tool balancers, ergonomic workstations, hose reels, and multiple-cable carrier systems. Industrial connectivity includes such products as specialty control connectors, related custom assemblies, and industrial communication electronics. There is widespread applicability for the Company's products throughout a broad range of industries such as petro-chemical, automotive, steel, airline, chemical, food processing, utility, communications, mining, heavy construction, health care, and recreation. A majority of the products are used in plant maintenance and production with the balance becoming a component part of another product. 2 PART I - CONT'D. The percent of sales and income for the three product classifications over the past five years is as follows:
Sales Income ---------------------------------------- --------------------------------------- 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994 Electrical specialties 72 70 67 66 68 79 80 77 81 78 Reels and power systems 26 29 31 33 31 20 18 18 16 18 Molded rubber products 2 1 2 1 1 1 2 5 3 4
DISTRIBUTION All of the Company's products are heavy-duty, industrial grade. These products are sold directly to users, to original equipment manufacturers, and through selected distributors, mainly in the United States, Canada, Europe, and Asia with some sales going to other parts of the world. These distributors are serviced by manufacturers' agencies whose sales personnel solicit sales for the Company's products and promote them to the ultimate users. These agencies also represent other manufacturers whose lines, in general, are complementary to the Company's products. AVAILABILITY OF MATERIALS Parts and materials for the Company's products are readily available from a variety of suppliers. It has been a practice to develop and use more than one source of supply for any item considered critical. PATENTS/TRADEMARKS/LICENSING On certain of its products, the Company holds patents, trademarks, and licensing arrangements which, while valuable, are not considered essential to the maintenance or future growth of the business. SEASONALITY The business is not considered to be seasonal. INVENTORIES Products of the type manufactured and sold by the Company are also available through other manufacturers. As a result, delivery time as well as quality and customer service are important to the success of the business and therefore require that sufficient inventories be maintained to insure fast turnaround time on orders. CUSTOMER PROFILE The Company's sales are broad-based with no single customer accounting for a significant portion of total sales and no single industry accounting for a majority of its business. BACKLOG On November 28, 1998, there were unshipped orders totaling approximately $12.2 million. Last year's backlog at approximately the same date was $9.2 million. The acquisition of mPm S.r.l. and SST account for this increase in backlog. 3 PART I - CONT'D. COMPETITION Products similar to those sold by the Company are manufactured and sold by other companies as well, resulting in a very competitive environment. However, the Company believes its ability to manufacture high quality products that serve specialized needs of industry through its highly efficient distribution channels differentiates the Company from its competitors. RESEARCH AND DEVELOPMENT For the years ended October 3, 1998, September 27, 1997, and September 28, 1996, the Company expended approximately $9,695,000 , $3,025,000, and $2,513,000, respectively, on the development of new products and the improvement of existing products. Included in the amount for the year ended October 3, 1998 are $5,971,000 related to in process research and development acquired with the acquisition of the assets of SST. These expenditures included the compensation of engineers, designers, and drafters who were engaged in product development. EMPLOYEES The Company has approximately 1,268 full-time employees. FOREIGN AND EXPORT BUSINESS See footnote 8, page 29 of the Annual Report to Stockholders for the year ended October 3, 1998, which is incorporated herein by reference and filed as an exhibit to this report. ITEM 2. DESCRIPTION OF PROPERTY
The Company owns facilities in the following locations: Land Owned Plant Floor Area Northbrook, Illinois 4.7 acres 125,000 sq. ft. Kalamazoo, Michigan 39.1 acres 116,000 sq. ft. Franklin, Massachusetts 6.6 acres 60,000 sq. ft. El Paso, Texas 5.0 acres 50,000 sq. ft. Belvidere, Illinois 3.5 acres 36,000 sq. ft. Juarez, Mexico 11.5 acres 131,000 sq. ft. Netherlands 1.3 acres 30,000 sq. ft. Wales, U.K. 4.5 acres 42,000 sq. ft. Bretten, Germany 1.2 acres 28,000 sq. ft. Cusano Milanino, Italy .2 acres 32,000 sq. ft.
All of the above properties are owned in fee except the land in Wales, U.K. which is held under a lease expiring in 2105 and the land in Bretten, Germany which is held under a lease expiring in 2002. The Company also leases approximately 60,000 square feet in Waterloo, Ontario, Canada; 20,000 square feet in Mississauga, Ontario, Canada; 11,600 square feet in Deerfield, Illinois; 10,500 square feet in Grand Rapids, Michigan; 6,500 square feet in Lagny-Sur-Marne, France; 5,900 square feet in Singapore; and 200 square feet in Japan. All plants are considered to be well-equipped and well-maintained. They are of masonry or steel construction. In the judgment of management, sufficient capacity is available at the above locations to cover the Company's needs at least through fiscal 1999. 4 PART I - CONT'D. ITEM 3. LEGAL PROCEEDINGS The Company is subject to federal and state hazardous substance cleanup laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal or other releases of hazardous substances. In this regard, the Company has incurred, and expects to incur, assessment, remediation and related costs at one of the Company's facilities. In 1991, the Company reported to state regulators a release at that site from an underground storage tank ("UST"). The UST and certain contaminated soil subsequently were removed and disposed of at an off-site disposal facility. The Company's independent environmental consultant has been conducting an investigation of soil and groundwater at the site with oversight by the state Department of Environmental Quality ("DEQ"). The investigation indicates that additional soil and groundwater at the site have been impaired by chlorinated solvents, including tetrachloroethane and trichloroethylene, and other compounds. Also, the Company learned that a portion of the site had been used as a disposal area by the previous owners of the site. The Company's consultant has remediated the soils in this area but believes that it is the primary source of contamination of groundwater, both on-site and off-site. In addition, the investigation of the site indicates that the groundwater contaminants have migrated off-site. The Company has implemented a groundwater remediation system for the on-site contamination. During the past year, the Company was required to modify this system in order to address treatment problems created by changed conditions, and these modifications increased the estimated long term cost of the on-site remediation. The Company continues to monitor and analyze conditions to determine the continued efficacy of this system. The Company has also modified the design of its proposed remediation alternative for the off-site groundwater contamination because of changed off-site conditions, and is currently reviewing this alternative with the DEQ. The Company continues to investigate the extent of other sources of contamination in addition to the removed UST and the above-referenced disposal area, including possible evidence of past or current releases by others in the vicinity around the Company's facilities. The Company's consultant currently estimates that a minimum of approximately $2,045,000 of investigation and remediation expenses remain to be incurred, both on-site and off-site. During fiscal 1998, the Company recorded charges of $1,700,000 to increase its existing reserve for such expenses. The Company has initiated discussions with the previous owners of the site and various insurers concerning possible claims by the Company for contribution to the cost of the investigation and remediation of the site. The consultant's cost estimate was based on a review of currently available data and assumptions concerning the extent of contamination, geological conditions, and the costs and effectiveness of certain treatment technologies. The cost estimate continues to be subject to substantial uncertainty because of the extent of the contamination area, the variety and nature of geological conditions throughout the contamination area, changes in remediation technology, and ongoing DEQ feedback. The Company is continuing to monitor the conditions at the site and will adjust its reserve if necessary. The Company may incur significant additional assessment, remediation and related costs at the site, and such costs could materially and adversely affect the Company's consolidated net income for the period in which such costs are incurred. At this time, the Company, however, cannot estimate the time or potential magnitude of such costs, if any. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the security holders either through solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended October 3, 1998. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK MATTERS (a) The Company's common stock trades on the NASDAQ stock market under the symbol WDHD. The daily quotations as reported by NASDAQ are published in the Wall Street Journal and other leading financial publications. On April 26, 1995, the board of directors declared a three-for-two stock split effected in the form of a 50% common stock dividend, payable May 22, 1995, to holders of record on May 8, 1995. On January 22, 1993, the board of directors declared a two-for-one stock split effected in the form of a 100% stock dividend, payable March 1, 1993, to holders of record on February 12, 1993. All share and per share amounts in this filing have been adjusted to give retroactive effect to these stock splits. Preferred Stock Purchase Rights have been distributed to stockholders and deemed to be attached to the shares of Common Stock of the Registrant. If and when the rights become exercisable, the holders initially would be entitled to purchase one unit consisting of one one-thousandths of a share ("unit") of Series A Junior Participating Preferred Stock at a purchase price of $65 per unit, subject to adjustment. See footnote 5, page 27 of the Annual Report to Stockholders for the year ended October 3, 1998, for further explanation. That footnote is incorporated herein by reference and filed as an exhibit to this report. The range in the market price per share of the common stock during the past two years was as follows:
1998 1997 --------------------------------------------- ---------------------------------------------- Fiscal Fiscal Quarter High Low Quarter High Low 1st 21 1/2 17 1/8 1st 14 1/4 12 1/4 2nd 19 3/4 17 3/8 2nd 16 3/4 13 1/4 3rd 20 13 7/8 3rd 19 1/4 14 3/4 4th 16 8 1/8 4th 21 1/8 17 3/4
(b) The number of holders of record of the Company's securities as of December 28, 1998, was as follows: Title of Class Number of Stockholders ------------------------------------ ---------------------- Common Stock 573 Preferred Stock Purchase Rights 573 6 PART II - CONT'D. (c) The cash dividends declared for the past two years were as follows:
1998 1997 Fiscal Quarter Rate Fiscal Quarter Rate --------------------------------- ------------------------------- 1st $0.090 1st $0.080 2nd $0.090 2nd $0.080 3rd $0.090 3rd $0.090 4th $0.090 4th $0.090 ------ ------ Total $0.360 Total $0.340 ====== ======
ITEM 6. SELECTED FINANCIAL DATA The "Financial Profile" appearing on pages 14 and 15 of the Annual Report to Stockholders for the year ended October 3, 1998, is incorporated herein by reference and filed as an exhibit to this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion of Operations and Financial Position" appearing on pages 12 and 13 of the Annual Report to Stockholders for the year ended October 3, 1998, is incorporated herein by reference and filed as an exhibit to this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company, as a result of its global operating activities, is exposed to changes in foreign currency exchange rates which may adversely affect its results of operations and financial condition. In seeking to minimize the risks and/or costs associated with such activities, the Company manages exposure to changes in foreign currency exchange rates through its regular operating activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses financial instruments to selectively hedge and thereby attempts to reduce its overall exposure to the effects of foreign currency fluctuations. The Company does not use derivative financial instruments for speculative purposes. The Company uses foreign currency forward and swap contracts to hedge a portion of the currency risks of transactions denominated in foreign currencies. Gains and losses on these foreign currency hedges are generally offset by corresponding losses and gains on the underlying transactions. In 1998 the Company entered into a foreign currency swap agreement with a AA-rated counterparty to hedge a portion of its investment in its Italian subsidiary. Under the terms of the agreement, the Company will swap 35.52 billion Lire for 20.0 USD million amortized over the next 8 years. In addition, the contract provides for the Company to make annual interest payments of 6.50% on the outstanding Lire balance, while receiving 7.43% on the outstanding Dollar balance. Due to the fact that this contract is an effective hedge of an investment in a foreign entity, any gain or loss on the contract is recorded directly to cumulative translation adjustment in shareholders' equity. 7 PART II - CONTINUED
The following table indicates the values to be exchanged over the next 5 years relating to its Lire swap. Amortizing Outstanding Amortizing Outstanding Date Amount USD Notional USD Amount ITL Notional ITL 10-1-98 - 20,000 - 35,520,000 9-30-99 1,000 19,000 1,776,000 33,744,000 9-30-00 2,000 17,000 3,552,000 30,192,000 9-30-01 3,000 14,000 5,328,000 24,864,000 9-30-02 3,000 11,000 5,328,000 19,536,000 9-30-03 3,000 8,000 5,328,000 14,208,000 Thereafter 8,000 - 14,208,000 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Report of Independent Public Accountants" included on page 11 and the consolidated financial statements with accompanying footnotes appearing on pages 16 through 30 of the Annual Report to Stockholders for the year ended October 3, 1998, are incorporated herein by reference and filed as an exhibit to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANt Information appearing under the heading "Nominees and Continuing Directors" on pages 1 through 4 of the Registrant's definitive proxy statement dated December 18, 1998, for the annual meeting of stockholders to be held on January 22, 1999, is hereby incorporated herein by reference and made a part hereof. The following information is provided with respect to the executive officers of the Company:
Position Held Name of Officer Age Position Since ------------------- ---- --------- ---------------- C. Mark DeWinter 56 Chairman, President and July, 1993 Chief Executive Officer Robert G. Jennings 60 Vice President, Finance and July, 1987 Chief Financial Officeer Robert J. Tortorello 49 Vice President, General January, 1991 Counsel and Secretary Robert A. Moulton 49 Vice President, Human May, 1987 Resources 8 PART III - CONT'D. Position Held Name of Officer Age Position Since ------------------- ---- --------- ----------------- Gregory E. Baker 35 Vice President, Corporate October, 1997 Development and Strategic Planning Joseph P. Nogal 43 Treasurer/Controller and July, 1993 Assistant Secretary
All officers are elected each year at the Annual Meeting of the Board of Directors which is held immediately following the annual meeting of stockholders. The next Annual Meeting of the Board of Directors will be held on January 22, 1999. The business experience of those executive officers who are not directors or nominees is as follows: Mr. Robert G. Jennings joined the Company in July, 1987. He previously had served as Vice President, Finance and Treasurer for MagneTek, Inc. from 1984 to 1987 and was Vice President, Treasurer and Controller for Louis Allis Division, Litton Industries from 1973 to 1984. Mr. Robert J. Tortorello became the Company's General Counsel and Secretary in June, 1987. He was elected a Vice President of the Company in January, 1991. Before joining the Company, he was Assistant Vice President and Assistant to the Chairman at Beatrice Companies, Inc. from 1986 to 1987. Prior to that he had been a Senior Attorney at Beatrice since 1978. Mr. Robert A. Moulton joined the company in October, 1986 as Manager, Human Resources and was elected Vice President in May, 1987. He was formerly a Director, Personnel at G. D. Searle and Company from 1981 to 1986. Mr. Gregory E. Baker joined the Company in October, 1997 as Vice President, Corporate Development and Strategic Planning. He previously had served as Director, Supply Chain Optimization and also Manager, Corporate Development for Tenneco Packaging from 1995 to 1997. Prior to that he held a variety of positions with both AlliedSignal and Texas Instruments from 1986 to 1995. Mr. Joseph P. Nogal became the Company's Treasurer/Controller in January, 1991. He was elected the Assistant Secretary of the Company in July, 1993. From 1986 to 1990, he had served as Controller of the Company's Canadian Operations. Prior to 1986, he had held various positions within the Company since he joined it in 1978. Information appearing under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 and 7 of the Registrant's definitive proxy statement dated December 18, 1998, for the annual meeting of stockholders to be held on January 22, 1999, is hereby incorporated herein by reference and made a part hereof. ITEM 11. EXECUTIVE COMPENSATION The information contained under the headings "Directors' Compensation" on pages 5 and 6 and "Executive Compensation" on pages 9 through 13 of the Registrant's definitive proxy statement dated 9 PART III - CONT'D. December 18, 1998, for the annual meeting of stockholders to be held January 22, 1999, is incorporated herein by reference and made a part hereof. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table and footnotes appearing under the heading "Stock Ownership of Management and Certain Beneficial Owners" appearing on pages 7 and 8 of the Registrant's definitive proxy statement dated December 18, 1998, for the annual meeting of stockholders to be held January 22, 1999, are hereby incorporated by reference and made a part hereof. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the heading "Nominees and Continuing Directors" appearing on pages 1 through 4 of the Registrant's definitive proxy statement dated December 18, 1998, for the annual meeting of stockholders to be held January 22, 1999, is incorporated by reference and made a part hereof. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. Financial Statements (filed herewith as part of Exhibit 13): Consolidated Balance Sheets - at October 3, 1998, September 27, 1997, and September 28, 1996. Consolidated Statements of Income - for the years ended October 3, 1998, September 27, 1997, and September 28, 1996. Consolidated Statements of Stockholders' Investment - for the years ended October 3, 1998, September 27, 1997, and September 28, 1996. Consolidated Statements of Cash Flow - for the years ended October 3, 1998, September 27, 1997, and September 28, 1996. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules
The following consolidated financial information for the years ended October 3, 1998, September 27, 1997, and September 28, 1996, is submitted herewith: Page Report of Independent Public Accountants on Schedule and Supplementary Notes 14 Schedule II Valuation and Qualifying Accounts 12 Supplementary Notes to Consolidated Financial Statements 13
10 All other schedules have been omitted because they are not applicable, not required, or the information is included elsewhere in the financial statements or notes thereto. Separate financial statements of the Registrant have been omitted since the Registrant is primarily a holding company and its subsidiaries, included in the consolidated financial statements, are wholly-owned subsidiaries. 3. The Exhibits are listed in the index of exhibits required by Item 601 of Regulation S-K included at pages 17, 18, and 19, which are incorporated herein by reference and made a part hereof. (b) On November 14, 1998, the registrant filed a form 8-K/A to amend the Form 8-K filed August 14, 1998, which reported the acquisition of SST effective July 31, 1998. The form 8-K/A included an audited balance sheet, statement of income and parent's equity in the division and cash flow of the SST Division of S-S Technologies Inc. as of December 31, 1997, and an unaudited condensed balance sheet, statement of income and parent's equity in division and cash flow for the six months ended June 30, 1998. A pro forma balance sheet and income statement of the registrant for the nine months ended June 27, 1998 and a pro forma income statement of the registrant for the year ended September 27, 1997 were included as well. (c) Reference is made to Item 14(a) 3 above. (d) Reference is made to Item 14(a) 2 above. 11
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the three years ended October 3, 1998 (in thousands) Additions ------------- Balance at Charged to Charged to Balance Beginning Costs and Other at End Description of Period Expenses Accounts Deductions of Period - -------------- ---------------- ------------ ------------ ----------- --------------- Reserve for excess and obsolete inventory: Year ended October 3, 1998 $1,270 $631 - $(541) (1) $1,462 19 (2) 83 (3) Year ended September 27, 1997 $1,192 $499 - $(423) (1) $1,270 2 (2) Year ended September 28, 1996 $1,076 $499 - $(376) (1) $1,192 (7) (2)
(1) Represents write-offs less recoveries. (2) Foreign currency translation adjustment. (3) Business acquired. 12 SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCRUED EXPENSES Accrued expenses at October 3, 1998, September 27, 1997, and September 28, 1996, consisted of the following:
(in thousands) 1998 1997 1996 ---- ---- ---- Payroll $ 2,616 $3,872 $3,014 Pension and profit sharing 2,337 2,305 1,828 Environmental 2,045 890 800 Litigation & related expenses 669 163 159 Commissions 1,138 1,261 995 Insurance 521 277 428 Unrealized loss on swap agreement 1,818 0 0 Other 6,512 4,273 4,030 -------- ----- ----- $17,656 $13,041 $11,254 ======= ======= =======
13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE AND SUPPLEMENTARY NOTES To Woodhead Industries, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Woodhead Industries, Inc. and subsidiaries included in the Woodhead Industries, Inc. Annual Report to Stockholders for the year ended October 3, 1998 incorporated by reference in this Form 10-K, and have issued our report thereon dated November 17, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule and supplementary notes included on pages 12 and 13 of this Form 10-K are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. This schedule and these notes have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois November 17, 1998 14 INDEMNIFICATION UNDERTAKING For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statement on Form S-8 No. 333-26379 (filed May 2, 1997): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WOODHEAD INDUSTRIES, INC. BY /s/ Robert G. Jennings BY /s/Joseph P. Nogal -------------------- ------------------ Robert G. Jennings Joseph P. Nogal Vice President, Finance Treasurer/Controller (Chief Financial Officer) (Principal Accounting Officer) Date December 7, 1998 ----------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by all of the following directors on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date /s/ C. Mark DeWinter Chairman 12-7-98 - ------------------------ President and C.E.O. ---------- C. Mark DeWinter /s/ Charles W. Denny Director 12-16-98 - ------------------------ ---------- Charles W. Denny /s/ Linda Y.C. Lim Director 12-11-98 - ------------------------ ---------- Linda Y. C. Lim, Ph. D. /s/ Sarilee K. Norton Director 12-8-98 - ------------------------ ---------- Sarilee K. Norton /s/ Alan L. Shaffer Director 12-9-98 - ------------------------ ---------- Alan L. Shaffer /s/ Robert D. Tuttle Director 12-21-98 - ------------------------ ---------- Robert D. Tuttle
16 EXHIBIT INDEX
Exhibit Number Description Page (3) Articles of incorporation and bylaws (a) Certificate of Incorporation including amendments through January 22, 1993, are hereby incorporated by reference to Exhibit (4)a of Registrant's Form S-8 filed April 22, 1994, as Registration #33-77968. (b) By-laws of the Company, as amended, for the fiscal year ended October 3, 1998, are hereby incorporated by reference to Exhibit (3)b of Registrant's Form 10-K Annual Report for the year ending September 27, 1997. (4) Instruments defining the rights of security holders, including indentures (a)i. Credit Agreement between Registrant and Harris Trust and Savings Bank dated October 29, 1993, and amended on October 3, 1998, providing for a revolving credit line not exceeding $15 000,000. (a)ii. Credit Agreement between Registrant (Woodhead Canada Limited) and Harris Trust and Savings Bank dated July 30, 1998 providing for a revolving credit line not exceeding $10,000,000. (a)iii. On September 28, 1998, the Registrant issued to private investors $30 million and $15 million of Senior Guaranteed Notes at 6.64% and 6.81 % per annum maturing in 2008 and 2013 respectively. The above documents described in this paragraph (4a) are not filed herewith by Registrant, but Registrant undertakes to furnish copies thereof to the Securities and Exchange Commission upon request. (b) The Preferred Stock Purchase Rights Plan adopted April 24, 1996, as set forth in Exhibit 4 of the Quarterly Report on Form 10-Q filed on May 14, 1996, is incorporated herein by reference and made a part hereof. (10) Material contracts (a) The 1981 Incentive Stock Compensation Plan, as amended, as set forth in Exhibit 4(b) of Registrant's Form S-8 filed September 26, 1988, as Registration #33-24737, is incorporated herein by reference and made a part hereof. (b) The 1987 Stock Compensation Plan as set forth in Exhibit A of Registrant's definitive proxy statement dated December 21, 1987, for the annual meeting of stockholders held January 22, 1988, which is incorporated herein by reference and made a part hereof. 17 EXHIBIT INDEX Exhibit Number Description Page (10) (c) The 1990 Stock Awards Plan as set forth in Exhibit A of Registrant's definitive proxy statement dated December 19, 1990 for the annual meeting of stockholders held January 25, 1991, which is incorporated herein by reference and made a part hereof. (d) Amendments to: The 1981 Incentive Stock Compensation Plan, the 1987 Stock Compensation Plan, and the 1990 Stock Awards Plan, all as set forth in Exhibit C of Registrant's definitive proxy statement dated December 22., 1993, for the annual meeting of stockholders held January 28,1994, which are incorporated herein by reference and made a part hereof. (e) The 1993 Stock Awards Plan as set forth in Exhibit A of Registrant's definitive proxy statement dated December 22, 1993, for the annual meeting of stockholders held January 28, 1994, which is incorporated herein by reference and made a part hereof. (f) The 1996 Stock Awards Plan as set forth in Exhibit A of Registrant's definitive proxy statement dated December 20, 1996, for the annual meeting of stockholders held January 24, 1997, which is incorporated herein by reference and made a part hereof. (g) The 1993 Directors Stock Option Plan for non-employee Directors as set forth as Exhibit B of Registrant's definitive proxy statement dated December 22, 1993 for the annual meeting of stockholders held January 28, 1994, which is incorporated herein by reference and made a part hereof. (h) The Management Incentive Plan effective for fiscal 1998 as described on page 17 of the Registrant's definitive proxy statement dated December 19, 1997, for the annual meeting of stockholders held January 23, 1998, which page is incorporated herein by reference and made a part hereof. (i) The Plan of Compensation for Outside Directors, as set forth in Item (10) of the exhibits to the Form 10-K Annual Report for the year ending September 18, 1985, which is incorporated herein by reference and is made a part hereof. (j) The 1990 Supplemental Executive Retirement Plan ("SERP") as set forth on page 15 of Registrant's definitive proxy statement dated December 21, 1995, for the annual meeting of stockholders held January 26, 1996, which page is incorporated herein by reference and made a part hereof. 18 EXHIBIT INDEX (cont'd) Exhibit Number Description Page (10) (k) Severance Agreement as set forth in Item (10) of the exhibits to Form l0-K Annual Report for the year ending October 1, 1994, which is incorporated herein by reference and is made a part hereof, with C. Mark DeWinter dated September 7, 1989. Robert G. Jennings, Robert A. Moulton, Joseph P. Nogal, Terry L. Spandet, and Robert J. Tortorello have substantially identical contracts. (11) Statement regarding computation of per share earnings 20 (13) The following items incorporated by reference herein from the Annual Report to Stockholders for the year ended October 3, 1998 (the "1998 Annual Report"), are filed as Exhibits to this report: (a) Information under the footnote entitled "Information about the Company's Operations in Different Geographic Areas" set forth on Page 29 of the 1998 Annual Report; (b) Information under the footnote entitled "Capital Stock" set forth on Page 27 of the 1998 Annual Report; (c) Information under the section entitled "Financial Profile" set forth on Pages 14 and 15 of the 1998 Annual Report; (d) Information under the section entitled "Management's Discussion of Operations and Financial Position" set forth on Pages 12 and l3 of the 1998 Annual Report; (e) Report of Independent Public Accountants set forth on Page 11 of the 1998 Annual Report; (f) Consolidated Financial Statements set forth on Pages 16-19 of the 1998 Annual Report; and (g) Notes to Consolidated Financial Statements set forth on Pages 20-30 of the 1998 Annual Report. (21) Subsidiaries of the Registrant 21 (23) Consent of Arthur Andersen LLP 22 (27) Financial Data Schedule for the year ended October 3, 1998, filed as an exhibit to this report.
19 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMPUTATION OF PER SHARE EARNINGS (in thousands except per share information) For the years ended ---------------------------------------------------- 1998 1997 1996 --------------------- ------------------- --------------------- Basic Diluted Basic Diluted Basic Diluted Net Income $3,930 $3,930 $12,280 $12,280 $10,671 $10,671 ====== ======= ======= ======= ======= ======= Weighted - average common shares outstanding 10,653 10,653 10,466 10,466 10,393 10,393 Diluted common stock options - 548 - 701 - 538 -------- -------- --------- ------- ------- ------- Weighted - average common shares plus dilutive common stock options 10,653 11,201 10,466 11,167 10,393 10,931 ======= ====== ======= ====== ====== ======= Earnings per share $ .37 $ .35 $ 1.17 $ 1.10 $ 1.03 $ .98 ======= ===== ====== ====== ====== ===== 20
EX-13 3 EXHIBIT 13 REPORT OF MANAGEMENT. . . The management of Woodhead Industries, Inc. is responsible for the integrity of the information presented in this Annual Report, including the Company's financial statements. These statements have been prepared in conformity with generally accepted accounting principles and include, where necessary, informed estimates and judgments by management. The Company maintains systems of accounting and internal controls designed to provide assurance that assets are properly accounted for as well as to insure that the financial records are reliable for preparing financial statements. The systems are augmented by qualified personnel and are reviewed on a periodic basis. Our independent auditors, Arthur Andersen LLP, conduct annual audits of our financial statements in accordance with generally accepted auditing standards, which include the review of internal controls for the purpose of establishing audit scope, and issue an opinion on the fairness of such financial statements. The Audit Committee of the Board of Directors, which is composed solely of outside Directors, meets periodically with management and the independent auditors to review the manner in which they are performing their responsibilities and to discuss auditing, internal accounting controls, and financial reporting matters. The independent auditors periodically meet alone with the Audit Committee and have free access to the Audit Committee at any time. /S/ C. Mark DeWinter /S/ Robert G. Jennings C. Mark DeWinter Robert G. Jennings Chairman, President and Vice President, Finance and Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS... To Woodhead Industries, Inc.: We have audited the accompanying consolidated balance sheets of WOODHEAD INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARIES as of October 3, 1998 September 27, 1997, September 28, 1996 and the related consolidated statements of income, stockholders' investment, and cash flows for each of the three years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WOODHEAD INDUSTRIES, INC. AND SUBSIDIARIES as of October 3, 1998, September 27, 1997, and September 28, 1996, and the results of their operations and their cash flows for each of the three years then ended in conformity with generally accepted accounting principles. /S/ Authur Anderson LLP Chicago, Illinois November 17, 1998 11 MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL POSITION FISCAL 1998 RESULTS COMPARED WITH 1997 SALES The Company's sales of $147.6 million exceeded fiscal 1997 results of $136.9 million by $10.7 million or 7.8 percent. The revenue increase was primarily attributable to the acquisitions of mPm S.r.l and SST during the year. Strong sales in Europe also contributed to the increase, although offset by a slight decline in domestic sales in the Company's Brad Harrison product line. The currency crisis in Asia continued to negatively impact the industrial markets served by the Company and reduced sales by $1.3 million in 1998. During 1998, the Company experienced price erosion of approximately 1.5 percent, primarily reflecting selling price concessions at its AI/FOCS subsidiary. The backlog of unfilled orders was $11.5 million at year end compared with $8.8 million at fiscal year end 1997. This $2.7 million increase is attributable to the acquisition of mPm S.r.l. GROSS PROFIT Gross profit of $63.6 million was $1.6 million or 2.6 percent greater than in 1997. The decrease in the gross profit rate to 43.1 percent in 1998 from 45.3 percent in 1997 reflected the dilutive effect of lower gross profit percentages at mPm S.r.l. and SST. Also contributing to the lower gross profit rate was a reduction in productivity associated with lower sales volume in North America and the price concessions at AI/FOCS. OPERATING EXPENSES Operating expenses of $48.8 million in 1998 were 20.4 percent higher than the $40.5 million spent in 1997. The Company recorded a write-off of approximately $6 million of in-process research and development in conjunction with the acquisition of SST. This write-off caused operating expenses as a percentage of sales to increase to 33.1 percent as compared with 29.6 percent in 1997. The Company also recorded a $3.4 million write-off of goodwill as an impairment of long-lived assets at its AI/FOCS subsidiary. OTHER EXPENSE/INCOME Other expenses increased to $4.8 million from $1.1 million in 1997. The increase in interest expense of $1.5 million during the year resulted from long-term debt incurred to finance the acquisitions of mPm S.r.l and SST. The Company also recorded $1.7 million for additional expenses for environmental assessment and remediation costs and $.6 million due to the negative impact of foreign exchange related to the acquisition of SST. NET INCOME Net income of $3.9 million was $8.4 million or 68% less than in 1997. The decrease primarily resulted from the amortization, interest expense, and additional charges recorded in conjunction with the new acquisitions in 1998. The impairment of long-lived asset charge and the accrual for environmental cleanup also contributed to the significant decrease in net income. The Company's effective tax rate increased from 39.6 percent to 40.1 percent. FINANCIAL POSITION Working capital decreased to $31.3 million from $31.7 million in 1997. Total assets increased by $66.9 million to $155.9 million from $89.0 million in 1997. This increase in total assets, working capital and the addition of $53.0 million in long-term debt in 1998 were attributable to the new acquisitions. Looking forward, internal cash flow is expected to be more than adequate to fund the operating requirements of the Company in 1999. YEAR 2000 READINESS DISCLOSURE The Company has been assessing and addressing the impact of the Year 2000 issue on its business over the last two years. As a result of the ongoing assessment, the Company has been modifying or replacing various hardware and software platforms throughout the Company. Since the Company is operated in a decentralized manner, each of its operating locations is addressing whether its systems, vendors, equipment and products are or will be Year 2000 compliant. The compliance status at each subsidiary is being monitored by Corporate personnel on a quarterly basis to ensure that required courses of action are being executed in a timely fashion. Management believes the modification of its computer information systems will be completed in adequate time to enable proper processing of transactions relating to the Year 2000 and beyond. However, if such systems are not timely modified, such a delay could have a material adverse effect on the Company. 12 Expenses associated with the Year 2000 issue are currently reflected in the Company's financial statements. Consultants' fees incurred at its various subsidiaries are being expensed when incurred while new systems are being capitalized. Although the Company has not accumulated the normal costs of updating business systems which occur on an ongoing basis that also address the Year 2000 issue, it is believed that these costs do not have a material financial effect on the Company as a whole. At present, the Company is evaluating contingency plan alternatives. The Company believes the key risk factors associated with Year 2000 are those it cannot directly control, primarily the readiness of its key suppliers, distributors, customers, public infrastructure suppliers and other vendors. The Company's subsidiaries have each initiated discussions with these third parties to determine their Year 2000 compliance status, and is keeping the communication channels open with respect to their readiness. While the Company is working diligently to ensure its mission critical third parties will be compliant, there can be no assurance that the systems of any third party on which the Company's systems and operations rely will be timely converted and will not have a material adverse effect on the Company. FISCAL 1997 RESULTS COMPARED WITH 1996 SALES The Company's sales of $136.9 million exceeded fiscal 1996 results by $13.2 million or 10.7 percent. Domestic sales drove the majority of the revenue gain increasing by 14.9 percent and equal to 72.3 percent of total sales. This is in sharp contrast to last year's slight decline in domestic revenue. Sales in Europe and Asia increased marginally reflecting market weakness in Europe and the start of the currency crisis in Asia. While international revenues in native currencies increased 3.4 percent, these were somewhat offset by the strong U.S. dollar. During the year, competitive pressures remained high, resulting in minimal price increases of less that one percent. The backlog of unfilled orders was $8.8 million at year end compared with $8.6 million at the close of fiscal 1996. GROSS PROFIT The substantial gain in gross profit of $6.8 million or 12.4 percent to $62.0 million in 1997 reflects improvement in both sales volume and the gross profit rate. The increase in the gross profit rate to 45.3 percent in 1997 from 44.6 percent in 1996 resulted from improved product mix derived from higher sales of the Company's Brad Harrison product line. Other factors also contributing to the higher gross profit rate were new higher-margin products, $.4 million reduction in LIFO expense, increased production efficiencies and higher plant utilization. OPERATING EXPENSES Operating expenses were $40.5 million in 1997 N an increase of $3.2 million or 8.5 percent over 1996. Investment in engineering and product development was increased by 20.4 percent over 1996 levels reflecting the Company's continued focus on new products. However, operating expenses as a percent of net sales decreased from 30.2 percent to 29.6 percent primarily due to limited increases in marketing and selling expenses. OTHER EXPENSE/INCOME Other expenses increased slightly from $1.0 million in 1996 to $1.1 million in 1997. Lower expenses in both amortization, $.2 million, and provision for environmental cleanup, $.2 million, benefitted the Company. These two items helped offset the absence of $.8 million in other income in 1996 due to the favorable resolution of a 1991 lawsuit. NET INCOME Record sales coupled with a higher gross profit rate increased net income $1.6 million or 15.1 percent to $12.3 million in 1997. During the year, the Company's effective tax rate increased from 36.6 percent to 39.6 percent. Higher state taxes combined with the absence of foreign tax credits utilized in 1996 were the causes for the higher rate. FINANCIAL POSITION There was a $3.4 million increase in working capital during 1997 which brought the total to $31.7 million. Strong cash flow allowed the Company to begin construction at two new manufacturing facilities and expand another location in the U.K. The Company's $15 million revolving credit line was unused during the year. COMMON STOCK PRICE RANGE BY QUARTER (AMOUNTS IN DOLLARS) The Company's common stock trades on the NASDAQ Stock Market under the symbol WDHD. The daily quotations as reported by NASDAQ are published in the Wall Street Journal and other leading financial publications. The range in the market price per share of the stock and dividends paid during the past two years were as follows: Price FY 1998 High Low Dividend 1st 21 1/2 17 1/8 $.09 2nd 19 3/4 17 3/8 $.09 3rd 20 13 7/8 $.09 4th 16 8 1/8 $.09 Price FY 1997 High Low Dividend 1st 14 1/4 12 1/4 $.07 2nd 16 3/4 13 1/4 $.08 3rd 19 1/4 14 3/4 $.08 4th 21 1/8 17 3/4 $.09 Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve numerous assumptions, known and unknown risks, uncertainties and other factors which may cause actual and future performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include: achieving sales levels to fulfill revenue expectations; the absence of presently unexpected costs or charges, certain of which may be outside the control of the Company; general economic and business conditions; competition; and other factors described elsewhere in the Company's SEC filings. 13
FINANCIAL PROFILE OPERATIONS (Amounts in thousands except per share, employees, and shareholders) 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $147,560 $136,886 $123,680 $120,003 $105,689 $89,864 $79,518 $73,499 $72,168 $71,443 $71,178 - ------------------------------------------------------------------------------------------------------------------------------------ Cost of sales 84,002 74,914 68,549 67,541 59,070 50,238 43,756 41,753 41,034 42,070 42,015 - ------------------------------------------------------------------------------------------------------------------------------------ Gross profit 63,558 61,972 55,131 52,462 46,619 39,626 35,762 31,746 31,134 29,373 29,163 % of net sales 43.1% 45.3% 44.6% 43.7% 44.1% 44.1% 45.0% 43.2% 43.1% 41.1% 41.0% - ------------------------------------------------------------------------------------------------------------------------------------ Operating and other expenses 56,995 41,647 38,299 38,110 35,096 30,125 28,007 26,552 22,708 22,195 22,993 % of net sales 38.6% 30.4% 31.0% 31.8% 33.2% 33.5% 35.2% 36.1% 31.5% 31.1% 32.3% Income before income taxes 6,563 20,325 16,832 14,352 11,523 9,501 7,755 5,194 8,426 7,178 6,170 % of net sales 4.4% 14.8% 13.6% 12.0% 10.9% 10.6% 9.8% 7.1% 11.7% 10.0% 8.7% - ------------------------------------------------------------------------------------------------------------------------------------ Provision for income taxes 2,633 8,045 6,161 5,124 4,273 3,698 3,000 2,374 3,406 2,878 2,490 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 3,930 12,280 10,671 9,228 7,250 5,803 4,755 2,820 5,020 4,300 3,680 % of net sales 2.7% 9.0% 8.6% 7.7% 6.9% 6.5% 6.0% 3.8% 7.0% 6.0% 5.2% % of average assets 3.2% 14.7% 14.1% 13.6% 12.2% 11.1% 10.3% 6.6% 12.6% 10.3% 8.2% Return on stockholders' average investment 5.5% 19.6% 19.7% 19.8% 18.2% 16.6% 15.2% 9.7% 18.4% 17.7% 17.1% - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share Diluted $ .35 $ 1.10 $ .98 $ .85 $ .68 $ .55 $ .47 $ .29 $ .52 $ .45 $ .39 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends per share .36 .32 .27 .26 .23 .23 .23 .23 .21 .20 .20 Weighted-average common shares outstanding Diluted 11,201 11,167 10,931 10,883 10,666 10,559 10,145 9,791 9,672 9,492 9,387 - ------------------------------------------------------------------------------------------------------------------------------------ Memo: EBIT 7,750 20,035 16,671 14,449 11,701 9,540 7,617 5,237 8,127 7,721 7,277 % of net sales 5.3% 14.6% 13.5% 12.0% 11.1% 10.6% 9.6% 7.1% 11.3% 10.8% 10.2% EBITDA 14,348 24,844 21,484 18,924 15,900 13,317 10,846 8,299 10,588 10,083 9,612 % of net sales 9.7% 18.1% 17.4% 15.8% 15.0% 14.8% 13.6% 11.3% 14.7% 14.1% 13.5% Interest expense (income) 1,187 (290) (161) 97 178 39 (138) 43 (299) 543 1,107 % of net sales .8% (.2)% (.1)% .1% .2% .0% (.2)% .1% (.4)% .8% 1.6% Depreciation and amortization 6,598 4,809 4,813 4,475 4,199 3,777 3,229 3,062 2,461 2,362 2,335 % of net sales 4.5% 3.5% 3.9% 3.7% 4.0% 4.2% 4.1% 4.2% 3.4% 3.3% 3.3% Engineering and development 9,695 3,025 2,513 2,404 2,148 2,105 2,041 1,749 1,577 1,377 1,574 % of net sales 6.6% 2.2% 2.0% 2.0% 2.0% 2.3% 2.6% 2.4% 2.2% 1.9% 2.2% - ------------------------------------------------------------------------------------------------------------------------------------ YEAR END POSITION Total assets $155,941 $88,999 $78,385 $73,411 $62,263 $56,360 $48,564 $43,709 $41,216 $38,534 $44,720 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 81,391 21,744 20,508 23,007 19,316 19,700 15,460 14,147 12,638 12,530 22,187 - ------------------------------------------------------------------------------------------------------------------------------------ Working capital 31,315 31,727 28,321 19,654 14,572 10,538 14,129 11,443 15,542 13,245 17,029 - ------------------------------------------------------------------------------------------------------------------------------------ Current ratio 2.2 to 1 2.6 to 1 2.5 to 1 1.9 to 1 1.8 to 1 1.7 to 1 2.1 to 1 2.0 to 1 2.5 to 1 2.3 to 1 2.6 to - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' investment 74,550 67,255 57,877 50,404 42,947 36,660 33,104 29,562 28,578 26,004 22,533 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt 53,000 -- -- -- 63 2,047 500 500 -- 153 9,394 - ------------------------------------------------------------------------------------------------------------------------------------ Book value per share $6.76 $6.38 $5.55 $4.86 $4.15 $3.57 $3.31 $3.05 $2.98 $2.68 $2.40 - ------------------------------------------------------------------------------------------------------------------------------------ Number of employees 1,268 1,259 1,125 1,126 1,079 947 764 816 788 732 810 - ------------------------------------------------------------------------------------------------------------------------------------ Number of stockholders 552 548 584 571 598 634 640 710 751 822 920 - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
14-15
CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets As of October 3, 1998, September 27, 1997, and September 28, 1996. (Amounts in thousands) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and short-term securities $ 2,923 $ 8,284 $ 10,050 Accounts receivable, less allowances of $1,089 in 1998, and $911 in 1997 and $695 in 1996 26,792 20,051 18,777 Refundable income taxes (Note 3) 795 -- -- Inventories (Note 1) 19,431 18,067 12,707 Prepaid taxes and other expenses (Note 3) 7,695 5,054 5,516 - --------------------------------------------------------------------------------------------------------------------- Total current assets $ 57,636 $ 51,456 $ 47,050 - --------------------------------------------------------------------------------------------------------------------- Deferred income taxes and other assets (Note 3) $ 2,324 $ 271 $ 557 - --------------------------------------------------------------------------------------------------------------------- Property, plant and equipment (Note 1) $ 114,076 $ 74,514 $ 64,499 Less: Accumulated depreciation 48,792 44,016 40,834 - --------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment $ 65,284 $ 30,498 $ 23,665 - --------------------------------------------------------------------------------------------------------------------- Goodwill (Notes 1 and 10) $ 30,697 $ 6,774 $ 7,113 - --------------------------------------------------------------------------------------------------------------------- Total Assets $ 155,941 $ 88,999 $ 78,385 - ---------------------------------------------------------------------------------------------------------------------
LIABILITIES' AND STOCKHOLDERS' INVESTMENT - --------------------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 7,828 $ 6,465 $ 6,162 Accrued expenses 17,656 13,041 11,254 Income taxes payable 837 223 1,313 Portion of long-term debt payable within one year (Note 2) -- -- -- - --------------------------------------------------------------------------------------------------------------------- Total current liabilities $ 26,321 $ 19,729 $ 18,729 - --------------------------------------------------------------------------------------------------------------------- Other liabilities $ 2,070 $ -- $ -- - --------------------------------------------------------------------------------------------------------------------- Deferred income taxes (Note 3) $ -- $ 2,015 $ 1,779 - --------------------------------------------------------------------------------------------------------------------- Long-term debt, less portion payable within one year shown above (Note 2) $ 53,000 $ -- $ -- - --------------------------------------------------------------------------------------------------------------------- Stockholders' investment (Notes 1,2,5,7 and 10): Preferred stock $ -- $ -- $ -- Common stock at par, (Shares issued-D 11,032) 11,032 10,541 10,419 Additional paid-in capital 9,276 2,765 1,571 Cumulative translation adjustment (1,276) (1,487) (616) Retained earnings 55,518 55,436 46,503 - --------------------------------------------------------------------------------------------------------------------- Total stockholders' investment $ 74,550 $ 67,255 $ 57,877 - --------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Investment $ 155,941 $ 88,999 $ 78,385 - --------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
16
CONSOLIDATED STATEMENTS OF INCOME For the years ended October 3, 1998, September 27, 1997, and September 28, 1996. (Amounts in thousands except per share data) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- Net sales $ 147,560 $ 136,886 $ 123,680 - --------------------------------------------------------------------------------------------------------------------- Cost of sales 84,002 74,914 68,549 - --------------------------------------------------------------------------------------------------------------------- Gross profit $ 63,558 $ 61,972 $ 55,131 Percent of net sales 43.1% 45.3% 44.6% - --------------------------------------------------------------------------------------------------------------------- Operating expenses: Engineering and product development (Notes 1 and 10) $ 9,695 $ 3,025 $ 2,513 Marketing and sales 23,319 22,811 21,384 General and administrative 15,765 14,677 13,434 - --------------------------------------------------------------------------------------------------------------------- Total operating expenses $ 48,779 $ 40,513 $ 37,331 Percent of net sales 33.1% 29.6% 30.2% - --------------------------------------------------------------------------------------------------------------------- Impairment of long-lived assets (Note 1) $ 3,408 $ -- $ -- Income from operations 11,371 21,459 17,800 Percent of net sales 7.7% 15.7% 14.4% - --------------------------------------------------------------------------------------------------------------------- Other expenses (income): Interest expense (income) $ 1,187 $ (290) $ (161) Other, net 3,621 1,424 1,129 - --------------------------------------------------------------------------------------------------------------------- Net other expenses $ 4,808 $ 1,134 $ 968 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 6,563 $ 20,325 $ 16,832 Percent of net sales 4.4% 14.8% 13.6% Provision for income taxes (Note 3) 2,633 8,045 6,161 - --------------------------------------------------------------------------------------------------------------------- Net income $ 3,930 $ 12,280 $ 10,671 Percent of net sales 2.7% 9.0% 8.6% - --------------------------------------------------------------------------------------------------------------------- Earnings per share (Note 1) Basic $ .37 $ 1.17 $ 1.03 - --------------------------------------------------------------------------------------------------------------------- Diluted $ .35 $ 1.10 $ .98 - --------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
17
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 3, 1998, SEPTEMBER 27 1997, AND SEPTEMBER 28, 1998 (AMOUNTS IN THOUSANDS) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT Common Additional Cumulative Retained Total Stock Paid-in Translation Earnings Stockholders' Capital Adjustment Investment - --------------------------------------------------------------------------------------------------------------------- Balance September 30, 1995 $ 10,374 $ 1,248 $ 140 $ 38,642 $ 50,404 Net income for the year -- -- -- 10,671 10,671 Translation adjustment -- -- (756) -- (756) Cash dividends, $.27 per share -- -- -- (2,810) (2,810) Stock option plans 45 323 -- -- 368 - --------------------------------------------------------------------------------------------------------------------- Balance September 28, 1996 $ 10,419 $ 1,571 $ (616) $ 46,503 $ 57,877 Net income for the year -- -- -- 12,280 12,280 Translation adjustment -- -- (871) -- (871) Cash dividends, $.32 per share -- -- -- (3,347) (3,347) Stock option plans 122 1,194 -- -- 1,316 - --------------------------------------------------------------------------------------------------------------------- Balance September 27, 1997 $ 10,541 $ 2,765 $ (1,487) $ 55,436 $ 67,255 Net income for the year -- -- -- 3,930 3,930 Translation adjustment -- -- 211 -- 211 Cash dividends, $.36 per share -- -- -- (3,848) (3,848) Stock option plans 91 911 -- -- 1,002 Common stock issued for acquisition 400 5,600 -- -- 6,000 - --------------------------------------------------------------------------------------------------------------------- Balance October 3, 1998 $ 11,032 $ 9,276 $ (1,276) $ 55,518 $ 74,550 - --------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
18
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended October 3, 1998, September 27, 1997, and September 28, 1996. (Amounts in thousands) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income for the year $ 3,930 $ 12,280 $ 10,671 - --------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net Cash flows from operating activities: Depreciation and amortization $ 6,598 $ 4,809 $ 4,813 Fair value of research & development costs acquired 5,971 -- -- (Increase) decrease in: Accounts receivable (2,465) (1,274) 188 Inventories 42 (5,360) (94) Prepaid expenses (2,437) 462 (384) Deferred income taxes and other assets (2,346) (62) -- Increase (decrease) in: Accounts payable 527 303 (871) Accrued expenses 4,197 1,787 (1,255) Income taxes payable (681) (1,090) (334) Deferred income taxes (2,015) 236 30 - --------------------------------------------------------------------------------------------------------------------- Net cash flows from operating activities $ 11,321 $ 12,091 $ 12,764 - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Purchases of property, plant & equipment $ (10,107) $ (11,610) $ (5,132) Payments for businesses acquired (60,970) -- -- Retirements or sales of property, plant & equipment 314 58 887 - --------------------------------------------------------------------------------------------------------------------- Net cash (used for) provided by investing activities $ (70,763) $ (11,552) $ (4,245) - --------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Increase (decrease) in short-term debt $ -- $ -- $ (69) Increase (decrease) in long-term debt 53,000 -- -- Sales of stock 1,002 1,316 368 Issuance of stock related to acquisition 6,000 -- -- Dividend payments (3,848) (3,347) (2,810) - --------------------------------------------------------------------------------------------------------------------- Net cash (used for) provided by financing activities $ 56,154 $ (2,031) $ (2,511) - --------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rates $ (2,073) $ (274) $ (160) - --------------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash and Short-Term Securities $ (5,361) $ (1,766) $ 5,848 Cash & short-term securities at beginning of year 8,284 10,050 4,202 - --------------------------------------------------------------------------------------------------------------------- Cash & short-term securities at end of year $ 2,923 $ 8,284 $ 10,050 - --------------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Data Cash paid during the year for: Interest $ 1,204 $ 45 $ 43 Income taxes 7,736 7,906 5,877 - -------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
19 NOTES TO FINANCIAL STATEMENTS (Amounts in thousands, except shares and per share, in all tables) 1. SUMMARY OF ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries, each of which is wholly owned. Revenue is recognized when products are shipped. All significant intercompany transactions have been eliminated in consolidation. The Company follows the practice of ending its fiscal year on the Saturday closest to September 30, which resulted in a 53-week period for fiscal 1998. INVENTORIES The Company values its inventory at the lower of cost or market, cost being determined using first-in first-out (FIFO) or last-in first-out (LIFO) method. The total inventories at the balance sheet dates were as follows:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Inventories valued using FIFO $ 9,896 $ 7,588 $ 6,402 - ------------------------------------------------------------------------------------------------------------ Inventories valued using LIFO: At FIFO cost $ 14,585 $ 14,941 $ 11,082 Less: Reserve to reduce to LIFO 5,050 4,462 4,777 - ------------------------------------------------------------------------------------------------------------ LIFO inventories $ 9,535 $ 10,479 $ 6,305 - ------------------------------------------------------------------------------------------------------------ Total Inventories $ 19,431 $ 18,067 $ 12,707 - ------------------------------------------------------------------------------------------------------------ Inventory composition at FIFO: Raw materials $ 12,881 $ 12,391 $ 8,917 Work-in-process and finished goods 11,600 10,138 8,567 - ------------------------------------------------------------------------------------------------------------ Total $ 24,481 $ 22,529 $ 17,484 - ------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method for financial accounting purposes. The estimated useful lives are as follows: ASSET DESCRIPTION ASSET LIFE Buildings and improvements 20 to 40 years Machinery and equipment 3 to 12 years Dies and molds 4 to 5 years Software Technology 9 years Furniture and office equipment 3 to 10 years The cost of property retired or otherwise disposed of is removed from the property accounts, the accumulated depreciation is removed from the related reserves, and the net gain or loss is reflected in income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized. The details of property, plant and equipment at the balance sheet dates were as follows:
1998 1997 1996 - ------------------------------------------------------------------------------------------- Land $ 2,538 $ 3,219 $ 1,297 Buildings and improvements 23,320 17,876 14,368 Machinery and equipment 22,786 20,322 18,390 Dies and molds 22,137 17,951 16,690 Software Technology 25,540 N N Furniture and office equipment 17,755 15,146 13,754 - ------------------------------------------------------------------------------------------- $ 114,076 $ 74,514 $ 64,499 - --------------------------------------------------------------------------------------------
20 FINANCIAL INSTRUMENTS The Company uses financial instruments to selectively hedge and thereby attempts to reduce its overall exposure to the effects of foreign currency fluctuations. The Company does not use derivative financial instruments for speculative purposes. The Company uses foreign currency forward and swap contracts to hedge a portion of the currency risks of transactions denominated in foreign currencies. Gains and losses on these foreign currency hedges are generally offset by corresponding losses and gains on the underlying transaction. In 1998 the Company entered into a foreign currency swap agreement with a AA-rated counterparty to hedge a portion of its investment in its Italian subsidiary. Under the terms of the agreement, the Company will swap 35.52 billion lire for $20.0 million amortized over the next 8 years. In addition, the contract provides for the Company to make annual interest payments at 6.50% on the outstanding lire balance, while receiving 7.43% on the outstanding dollar balance. Due to the fact that this contract is an effective hedge of an investment in a foreign entity, any gain or loss on the contract is recorded directly to cumulative translation adjustment in shareholders' equity. SOFTWARE Costs related to the conceptual formulation and design of programs are normally expensed as research and development. In the fourth quarter of fiscal 1998 the Company acquired the business and certain assets of SST including software technology which is being amortized over nine years. During fiscal 1998 software amortization was $473,000. As of October 3, 1998, $25,076,000 remains as capitalized software technology. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. In 1998 the Company acquired the assets of SST which included $5,971,000 for in-process research and development projects. The $5,971,000 was expensed at the time of purchase and recorded as operating expenses in engineering and product development. GOODWILL Goodwill is the cost of acquired businesses in excess of the fair value of their identifiable net assets and is amortized over a period not exceeding 40 years. The Company regularly reviews the individual components of goodwill and recognizes, on a current basis, any diminution in value. As a consequence of changing market conditions, the Company in 1998 reviewed the operations of its AI/FOCS subsidiary and determined that goodwill associated with the fiber segment of the business was impaired. Since the sum of future cash flows was less than the carrying amount of the assets, a write-off in the amount of $3,408,000 was recorded in the fourth quarter of fiscal 1998. FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign subsidiaries (except for Mexico, whose functional currency is the U.S. dollar) are translated into U.S. dollars at fiscal year-end exchange rates, income statement accounts are translated at the weighted-average exchange rate during the year, and the resulting currency translation adjustments are recorded as a component of stockholders' investment. Financial statements of Mexican operations are translated into U.S. dollars using both current and historical exchange rates, with translation gains and losses included in net income. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128), which was adopted by the Company in the first quarter of fiscal 1998. The earnings-per-share (EPS) information in prior periods has been restated to conform to such presentation. Basic EPS excludes dilution and is computed by dividing net income available for common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The weighted average shares used in the earnings-per-share computation were:
1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Net Income $ 3,930 $ 12,280 $ 10,671 - --------------------------------------------------------------------------------------------------------- Earnings per share Basic $ .37 $ 1.17 $ 1.03 Diluted $ .35 $ 1.10 $ .98 - --------------------------------------------------------------------------------------------------------- Weighted-average number of shares outstanding used for basic earnings per share 10,653 10,466 10,393 - --------------------------------------------------------------------------------------------------------- Dilutive common stock options 548 701 538 - --------------------------------------------------------------------------------------------------------- Weighted-average number of shares outstanding plus dilutive common stock options 11,201 11,167 10,931 - --------------------------------------------------------------------------------------------------------- Outstanding common stock options having no dilutive effect 145 -- 134 - ---------------------------------------------------------------------------------------------------------
21 CASH FLOWS For purposes of reporting cash flows, cash on hand and short-term securities are combined. Short-term securities may include certificates of deposit, Euro-dollars and commercial paper which must be held for three months or less in order to be considered short-term for cash flows. USE OF ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. NEW ACCOUNTING RULES SFAS No. 132 "Employers" Disclosures about Pensions and Other Postretirement "Benefits" was issued in February 1998. This pronouncement revises employers disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company will adopt the provisions of the pronouncement in fiscal year 1999. Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" was issued in March 1998. The statement provides guidance on accounting for the costs of computer software developed or obtained for internal use. Adoption of this standard is scheduled for fiscal year 2000. Adoption of this standard is not expected to have a material impact on the financial statements. Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" was issued in April 1998. This statement provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. Adoption of the new standard is scheduled for fiscal year 2000. Adoption of this standard is not expected to have a material impact on the financial statements. SFAS No. 133 OAccounting for Derivative Instruments and Hedging ActivitiesO was issued in June 1998. This statement addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Company is evaluating this new pronouncement to determine its impact upon current reporting. Adoption of the new standard is scheduled for the first quarter of fiscal year 2000. 2. LONG-TERM DEBT AND SHORT-TERM BORROWING LONG-TERM DEBT CONSISTED OF THE FOLLOWING:
1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Bank revolving credit agreements $ 8,000 $ -- $ -- 6.64% Notes, Due September 30th, annually, 2002-2008 30,000 -- -- 6.81% Notes, Due September 30th, annually, 2004-2013 15,000 -- -- - --------------------------------------------------------------------------------------------------------- Total $ 53,000 $ -- $ -- Less: Portion of long-term debt payable within one year -- -- -- - --------------------------------------------------------------------------------------------------------- Net long-term debt $ 53,000 $ -- $ -- - ---------------------------------------------------------------------------------------------------------
The future maturities of the long-term debt are summarized as follows: 2003.......................$ 4,200,000 2004 and thereafter........$48,800,000 The Company has Revolving Credit Agreements (the "Agreements") with a bank that provides for borrowings of up to $25,000,000 at the bank's prime or offered rate. These Agreements expire on February 28, 2001. The average amount owing to the bank was $19,947,000 in 1998, $0 in 1997, and $0 in 1996, at weighted average interest rates of 6.18%, 0.0%, and 0.0%, respectively. In September 1998, the Company issued $30 million and $15 million of Senior Guaranteed Notes at 6.64% and 6.81% per annum maturing in 2008 and 2013 respectively. The proceeds from these financings were used to refinance bank borrowings related to the acquisitions of mPm S.r.l. and SST. Under the various funding arrangements, the Company is required, among other things, to maintain consolidated tangible net worth, as defined, of not less than $59,000,000, a debt to EBIT ratio of not more than 2.5 to 1.0 and an EBIT to interest coverage ratio of 3 to 1. In addition, there are certain restrictions on the creation or assumption of any lien or security interest upon any of its assets. Short-term borrowing averaged $10,000 in 1998, $19,000 in 1997, and $49,000 in 1996, at weighted average interest rates of 6.5%, 7.7%, and 8.6%, respectively. 22 3. INCOME TAXES The provision for income taxes for 1998, 1997, and 1996 consisted of the following: 1998 1997 1996 - ------------------------------------------------------------------------------- U. S. federal income tax $ 3,064 $ 5,257 $ 4,015 State income taxes 1,010 1,191 781 Foreign income taxes (1,441) 1,597 1,365 - ------------------------------------------------------------------------------- $ 2,633 $ 8,045 $ 6,161 - ------------------------------------------------------------------------------- Current provision $ 7,339 $ 8,505 $ 5,723 Deferred provision (4,706) (460) 438 - ------------------------------------------------------------------------------- $ 2,633 $ 8,045 $ 6,161 - ------------------------------------------------------------------------------- A reconciliation of the federal statutory rate to the effective tax rate is as follows: 1998 1997 1996 - ------------------------------------------------------------------------------- Federal statutory rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit 3.4 3.9 3.1 Difference between U.S. and foreign rates (7.0) 1.4 1.4 Benefit of state loss carry forward that may not be realized 3.9 -- -- Other, net 5.8 .3 (1.9) - ------------------------------------------------------------------------------- 40.1% 39.6% 36.6% - ------------------------------------------------------------------------------- The components of income before income taxes consisted of the following: 1998 1997 1996 - ------------------------------------------------------------------------------- Domestic $ 9,449 $ 16,445 $ 13,508 Foreign (2,886) 3,880 3,324 - ------------------------------------------------------------------------------- $ 6,563 $ 20,325 $ 16,832 - ------------------------------------------------------------------------------- The components of the deferred tax provisions consisted of the following: 1998 1997 1996 - ------------------------------------------------------------------------------- Excess of book over tax depreciation and amortization $ 71 $ (19) $ 6 Excess of book loss on disposal of property (16) (4) 127 Write-off of purchased research and development (2,625) -- -- Write-off of impaired long-lived assets (1,363) -- -- Accounts receivable reserves (21) (83) 6 Inventory reserves 50 (89) (29) Litigation reserves (15) 58 311 Environmental reserves (573) 77 152 Employee benefit reserves (211) (330) (165) Other reserves (3) (70) 30 - ------------------------------------------------------------------------------- $ (4,706) $ (460) $ 438 - ------------------------------------------------------------------------------- 23 The significant deferred tax assets and liabilities at October 3, 1998, September 27, 1997 and September 28, 1996 were as follows: 1998 1997 1996 - ------------------------------------------------------------------------------- Deferred tax liabilities: Accelerated depreciation & amortization $ 1,685 $ 2,015 $ 1,779 Total deferred liabilities $ 1,685 $ 2,015 $ 1,779 Less deferred tax assets: Write-off of purchased research and development $ 2,625 $ -- $ -- Write-off of impaired long-lived assets $ 1,363 $ -- $ -- Accounts receivable reserves $ 316 $ 287 $ 203 Inventory reserves 451 449 348 Litigation reserves 80 65 64 Environmental reserves 982 538 554 Employee benefit reserves 1,516 1,330 1,023 Other reserves 596 -- 677 - ------------------------------------------------------------------------------- Total deferred assets $ 7,929 $ 2,669 $ 2,869 - ------------------------------------------------------------------------------- Net Deferred Tax Assets $ 6,244 $ 654 $ 1,090 - ------------------------------------------------------------------------------- 4. PENSION AND OTHER EMPLOYEE BENEFITS The Company has defined benefit, defined contribution and government mandated plans covering eligible, non-bargaining unit employees. Pension benefits are fully vested after five years and are based upon years of service and highest five-year average compensation. It is the Company's policy to fund its pension costs by making annual contributions based upon the minimum funding provisions of the "Employee Retirement Income Security Act of 1974". The total pension expense of Company sponsored plans was $306,000 in 1998, and was $245,000 and $407,000 in 1997 and 1996 respectively. Net periodic pension cost for the non-union plans for 1998, 1997 and 1996 included the following components: 1998 1997 1996 - ------------------------------------------------------------------------------- Service cost-benefits earned during the year $ 363 $ 372 $ 281 Interest cost on projected benefit obligation 512 433 412 Actual loss (gain) on plan assets 249 (1,129) (808) Net amortization and deferral (705) 668 573 - ------------------------------------------------------------------------------- $ 419 $ 344 $ 458 - ------------------------------------------------------------------------------- Assumptions used in accounting for the pension plans are as follows: 1998 1997 1996 - ------------------------------------------------------------------------------- Discount rate 6.8% 7.5% 8.0% Rate of increase in compensation levels 5.6% 5.6% 6.0% Expected long-term rate of return on assets 7.5% 7.5% 7.5% - ------------------------------------------------------------------------------- 24 PENSION AND OTHER EMPLOYEE BENEFITS (CONT.) The following table reconciles the plans' funded status and the amount recognized in the Company's balance sheets at October 3, 1998, September 27, 1997, and September 28, 1996, for its non-union plans: 1998 1997 1996 - ------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested benefits $ 6,224 $ 4,733 $ 4,308 Non-vested benefits 314 414 385 - ------------------------------------------------------------------------------- Accumulated benefit obligation $ 6,538 $ 5,147 $ 4,693 Effect of projected future compensation levels 1,753 1,255 928 - ------------------------------------------------------------------------------- Projected benefit obligation $ 8,291 $ 6,402 $ 5,621 Plan assets at fair value 6,419 7,478 6,289 - ------------------------------------------------------------------------------- Under (over) funded status $ 1,872 $ (1,076) $ (668) Unrecognized prior service cost (80) (96) (112) Unrecognized net gain (loss) (1,427) 675 270 Unrecognized net asset at date of application (13) (6) 8 - ------------------------------------------------------------------------------- (Prepaid) accrued pension cost included in balance sheet $ 352 $ (503) $ (502) - ------------------------------------------------------------------------------- In fiscal 1990, a supplemental retirement benefit plan was approved for certain key executive officers which will provide supplemental payments upon retirement, disability, or death. The obligations are not funded apart from the Company's general assets. The Company charged to expense $162,000 in 1998, $135,000 in 1997, and $121,000 in 1996 under the plan. Most of the Company's union employees are covered by union-sponsored, collectively-bargained multi-employer pension plans. The Company contributed and charged to expense $199,000 in 1998, $181,000 in 1997, and $160,000 in 1996, for such plans. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of man-hours worked. Information from the plan's administrators is not available to permit the Company to determine its share of unfunded vested benefits. The annual profit sharing contributions which are the lesser of (a) a percentage of income as defined in the plans or (b) 15% of the aggregate compensation paid to participants during the year, were $834,000 in 1998, $1,009,000 in 1997, and $798,000 in 1996. The Company makes matching contributions of 50% of employees' contributions up to 4% of compensation. Matching contributions were $261,000 in 1998, and were $232,000 and $225,000 in 1997 and 1996, respectively. Plan assets of Company-sponsored plans are invested primarily in common stocks, corporate bonds, and government securities. Although the Company has a right to improve, change or terminate the plans, they are intended to be permanent. OTHER POSTRETIREMENT BENEFITS The Company provides an optional retiree medical program to a majority of its U.S. salaried and non-union retirees. All retirees are required to contribute to the cost of their coverage. These postretirement benefits are unfunded. 25 PENSION AND OTHER EMPLOYEE BENEFITS (CONT.) In fiscal years 1998, 1997 and 1996, the components of cost of these postretirement benefits, principally healthcare, were as follows: 1998 1997 1996 - ------------------------------------------------------------------------------- Service cost $ 69 $ 64 $ 52 Interest cost 128 111 104 Amortization of transition obligation 55 55 55 Amortization of loss 1 -- -- - ------------------------------------------------------------------------------- $ 253 $ 230 $ 211 - ------------------------------------------------------------------------------- The funded status of these benefits for the fiscal years ended October 3, 1998, September 27, 1997 and September 28, 1996 were as follows: 1998 1997 1996 - ------------------------------------------------------------------------------- Actuarial present value of benefit obligations Retirees $ 646 $ 595 $ 574 Eligible active employees 608 319 277 Other active employees 849 715 545 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation $ 2,103 $ 1,629 $ 1,396 Plan assets at fair value -- -- -- - ------------------------------------------------------------------------------- Under funded status $ 2,103 $ 1,629 $ 1,396 Unrecognized transition obligation (824) (879) (934) Unrecognized net (loss) gain (412) (85) 24 - ------------------------------------------------------------------------------- Accrued postretirement benefit cost included in balance sheet $ 867 $ 665 $ 486 - ------------------------------------------------------------------------------- Assumptions used in the accounting were: 1998 1997 1996 - ------------------------------------------------------------------------------- Discount rate 6.8% 7.5% 8.0% Health care trend rate in first year 8.0% 10.0% 10.0% Gradually declining to a trend rate of 6.0% 6.0% 6.0% in the year 2000 2000 2000 - ------------------------------------------------------------------------------- The effect of a one percentage point increase in the assumed health care trend rate on: 1998 1997 1996 - ------------------------------------------------------------------------------- Aggregate of service and interest cost $ 40 $ 36 $ 30 Accumulated postretirement benefit obligation 378 297 240 - ------------------------------------------------------------------------------- POSTEMPLOYMENT BENEFITS The Company provides certain postemployment benefits to former or inactive employees after employment but before retirement. The costs associated with the Company's postemployment benefits are believed to be immaterial. 26 5. CAPITAL STOCK The total authorized stock is 40,000,000 shares, consisting of 10,000,000 shares of preferred stock, par value $.01 per share, and 30,000,000 shares of common stock, par value $1.00 per share. No shares of preferred stock have been issued to date. In May, 1996, the Company adopted a new shareholder rights plan effective upon termination of the previous rights plan and declared a dividend distribution of one preferred stock purchase right ("Right") for each share of common stock outstanding. Each Right represents the right to purchase, if and when the Rights are exercisable, a unit consisting of one one-thousandths of a share ("unit") of Series A Junior Participating Preferred Stock at a purchase price of $65 per unit, subject to adjustment. The exercise price and the number of shares issuable upon the exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights are evidenced by the common stock certificates and are not exercisable, or transferable apart from the common stock, until ten days after a person (i) acquires 15% or more of the common stock or (ii) commences a tender offer which would result in the ownership of 15% or more of the common stock or the Board of Directors determines that any person has become an Adverse Person as that term is defined in the plan. In the event any person becomes the beneficial owner of 15% or more of the common stock or the Board of Directors declares a person to be an Adverse Person, each of the rights (other than Rights held by the party triggering the Rights and certain transferees which are voided) becomes a discount right entitling the holder to acquire common stock having a value equal to twice the Right's exercise price. In the event the Company is acquired in a merger or other business combination transaction (including one in which the Company is the surviving corporation), each Right will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock of the surviving company which at the time of such transaction would have a market value of two times the exercise price of the Right. The Rights do not have any voting rights and are redeemable, at the option of the Company, at a price of $0.01 per Right at any time until ten days after a person acquires beneficial ownership of at least 15% of the common stock. The Rights expire on May 29, 2006. So long as the Rights are not separately transferable, the Company will issue one Right with each new share of common stock issued. 6. CONTIGENT LIABILITIES The Company is subject to federal and state hazardous substance cleanup laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal or other releases of hazardous substances. In this regard, the Company has incurred, and expects to incur, assessment, remediation and related costs at one of the Company's facilities. In 1991, the Company reported to state regulators a release at that site from an underground storage tank ("UST"). The UST and certain contaminated soil subsequently were removed and disposed of at an off-site disposal facility. The Company's independent environmental consultant has been conducting an investigation of soil and groundwater at the site with oversight by the state Department of Environmental Quality ("DEQ"). The investigation indicates that additional soil and groundwater at the site have been impaired by chlorinated solvents, including tetrachloroethane and trichloroethylene, and other compounds. Also, the Company learned that a portion of the site had been used as a disposal area by the previous owners of the site. The Company's consultant has remediated the soils in this area but believes that it is the primary source of contamination of groundwater, both on-site and off-site. In addition, the investigation of the site indicates that the groundwater contaminants have migrated off-site. The Company has implemented a groundwater remediation system for the on-site contamination. During the past year, the Company was required to modify this system in order to address treatment problems created by changed conditions, and these modifications increased the estimated long term cost of the on-site remediation. The Company continues to monitor and analyze conditions to determine the continued efficacy of this system. The Company has also modified the design of its proposed remediation alternative for the off-site groundwater contamination because of changed off-site conditions, and is currently reviewing this alternative with the DEQ. The Company continues to investigate the extent of other sources of contamination in addition to the removed UST and the above-referenced disposal area, including possible evidence of past or current releases by others in the vicinity around the Company's facilities. The Company's consultant currently estimates that a minimum of approximately $2,045,000 of investigation and remediation expenses remain to be incurred, both on-site and off-site. During fiscal 1998, the Company recorded charges of $1,700,000 to increase its existing reserve for such expenses. The Company has initiated discussions with the previous owners of the site and various insurers concerning possible claims by the Company for contribution to the cost of the investigation and remediation of the site. The consultant's cost estimate was based on a review of currently available data and assumptions concerning the extent of contamination, geological conditions, and the costs and effectiveness of certain treatment technologies. The cost estimate continues to be subject to substantial uncertainty because of the extent of the contamination area, the variety and nature of geological conditions throughout the contamination area, changes in remediation technology, and ongoing DEQ feedback. The Company is continuing to monitor the conditions at the site and will adjust its reserve if necessary. The Company may incur significant additional assessment, remediation and related costs at the site, and such costs could materially and adversely affect the Company's consolidated net income for the period in which such costs are incurred. At this time, the Company, however, cannot estimate the time or potential magnitude of such costs, if any. 27 7. STOCK OPTION PLANS Under the Company's stock option plans, options to purchase common shares may be granted to directors, officers and key employees at a price not less than the market value at date of grant. The maximum term of options granted is ten years. As of October 3, 1998, 1,602,250 unissued common shares are reserved under all stock option plans which includes 358,000 shares available for future grants. The following grants are outstanding and exercisable: Fiscal Year Number of Option Price Expiration of Grant Shares Per Share Date - ------------------------------------------------------------------------------- 1990 99,100 4.75 2000 1991 134,900 4.25 2001 1992 108,900 5.17 2002 1993 229,650 7.17 2003 1994 138,000 10.33 2004 1995 133,350 9.33 2005 1996 122,050 14.31 2006 1997 133,000 13.19-15.81 2007 1998 145,300 18.94-20.38 2008 - ------------------------------------------------------------------------------- 1,244,250 - ------------------------------------------------------------------------------- The following summarizes the options granted, exercised and expired during the last three fiscal years: Option Price Number of Shares Per Share 1998 1997 1996 - ------------------------------------------------------------------------------- Granted $13.19-20.38 151,150 147,900 135,600 Exercised 3.17-14.31 92,467 122,233 45,500 Expired -- -- -- -- - ------------------------------------------------------------------------------- Subsequent to October 3, 1998, stock options were granted for 197,900 shares at an average price of $14.90 per share. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for the plans. Accordingly, no compensation expense has been recognized for the stock option plans. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." If the Company had elected to recognize compensation costs based on the fair value of the awards at the date of grant, consistent with the provisions of SFAS No. 123, the Company's pro forma net income would have been $3,244,000 ($.30 basic earnings per share; $.29 diluted earnings per share) in fiscal 1998; $11,802,000 ($1.13 basic earnings per share; $1.06 diluted earnings per share) in fiscal 1997; and $10,284,000 ($.99 basic earnings per share; $.94 diluted earnings per share) in fiscal 1996. The pro forma effect on net income may not be representative of the pro forma effect on net income of future years. The Company has ten-year and five-year options. For disclosure purposes, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for the ten-year stock options granted to officers in October of fiscal 1998, 1997 and 1996, respectively: expected volatility of 27.10%, 28.06% and 30.88%; risk-free interest rate of 6.29%, 6.56% and 6.02%; expected average life of 8.6 years; and dividend yield of 1.77%, 2.10% and 1.80%. The weighted-average fair value of the ten-year stock options granted to officers in October of fiscal 1998, 1997 and 1996 was $7.88, $5.05 and $5.76, respectively. The following weighted-average assumptions were used for the ten-year stock options granted to employees in October of fiscal 1998, 1997 and 1996, respectively: expected volatility of 26.50%, 27.62% and 27.35%; risk-free interest rate of 6.12% 6.45% and 5.95%; expected average life of 6.4 years; and dividend yield of 1.77%, 2.10% and 1.80%. The weighted-average fair value of the ten-year stock options granted to employees in October of fiscal 1998, 1997 and 1996 was $6.83, $4.43 and $4.76, respectively. The following weighted-average assumptions were used for the ten-year stock options granted to employees in January of fiscal 1997 and 1996, respectively: expected volatility of 29.42% and 27.89%; risk-free interest rate of 6.06% and 5.08%; expected average life of 6.4 28 STOCK OPTION PLANS (CONT.) years; and dividend yield of 1.80% and 1.90%. The weighted-average fair value of the ten-year stock options granted to employees in January of fiscal 1997 and 1996 was $5.52 and $2.18, respectively. The following weighted-average assumptions were used for the ten-year stock options granted to employees in March of fiscal 1998: expected volatility of 26.76%; risk-free interest rate of 5.78%; expected average life of 6.6 years; and dividend yield of 1.90%. The weighted-average fair value of the ten-year stock options granted to employees in March of fiscal 1998 was $6.12. The following weighted-average assumptions were used for the five-year stock options granted to directors in October of fiscal 1998, 1997 and 1996, respectively: expected volatility of 27.18%, 26.29% and 27.08%; risk-free interest rate of 6.07%, 6.31% and 5.85%; expected average life of 4.6 years; and dividend yield of 1.77%, 2.l0% and 1.80%. The weighted-average fair value of the five-year stock options granted to directors in October of fiscal 1998, 1997 and 1996 was $5.82, $3.63 and $4.02, respectively. Under the above models, the total value of the ten-year stock options granted in October of fiscal 1998, 1997 and 1996 was $892,000, $570,305 and $653,756, respectively. The total value of the ten-year stock options granted in January of fiscal 1997 and 1996 was $60,720 and $4,360, respectively. The total value of the ten-year stock options granted in March of fiscal 1998 was $18,000. The total value of the five-year stock options granted in October of fiscal 1998, 1997 and 1996 was $93,000, $43,560 and $42,210, respectively. 8. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS United States Foreign Consolidated - ------------------------------------------------------------------------------- 1998 Sales to unaffiliated customers $ 97,884 $ 49,676 $ 147,560 Net Income 6,197 (2,267) 3,930 Identifiable assets at October 3, 1998 59,123 98,503 157,626 - ------------------------------------------------------------------------------- 1997 Sales to unaffiliated customers $ 99,658 $ 37,228 $ 136,886 Net Income 10,824 1,456 12,280 Identifiable assets at September 27, 1997 65,464 23,535 88,999 - ------------------------------------------------------------------------------- 1996 Sales to unaffiliated customers $ 87,218 $ 36,462 $ 123,680 Net Income 8,835 1,836 10,671 Identifiable assets at September 28, 1996 56,529 21,856 78,385 - ------------------------------------------------------------------------------- 29
9. SUMMARY OF QUARTERLY DATA (UNAUDITED) THE FOLLOWING IS A SUMMARY OF QUARTERLY DATA FOR 1998, 1997, AND 1996. Basic Diluted Net Gross Net Earnings Earnings Sales Profit Income Per Share Per Share - ------------------------------------------------------------------------------------------------------ 1998 First Quarter $ 34,350 $ 14,970 $ 2,808 $ .27 $ .25 Second Quarter 36,042 16,070 3,320 .31 .30 Third Quarter 37,568 16,040 2,820 .27 .25 Fourth Quarter 39,600 16,478 (5,018) (.46) (.45) - ------------------------------------------------------------------------------------------------------ Total $ 147,560 $ 63,558 $ 3,930 $ .37 .35 - ------------------------------------------------------------------------------------------------------ 1997 First Quarter $ 32,163 $ 14,356 $ 2,604 $ .25 $ .24 Second Quarter 35,503 16,009 3,087 .30 .28 Third Quarter 35,495 15,914 3,181 .30 .29 Fourth Quarter 33,725 15,693 3,408 .32 .30 - ------------------------------------------------------------------------------------------------------ Total $ 136,886 $ 61,972 $ 12,280 $ 1.17 1.10 - ------------------------------------------------------------------------------------------------------ 1996 First Quarter $ 29,968 $ 13,177 $ 2,203 $ .21 $ .20 Second Quarter 31,675 14,045 2,615 .25 .24 Third Quarter 30,557 13,728 2,897 .28 .26 Fourth Quarter 31,480 14,181 2,956 .28 .27 - ------------------------------------------------------------------------------------------------------ Total $ 123,680 $ 55,131 $ 10,671 $ 1.03 $ .98 - ------------------------------------------------------------------------------------------------------
10. ACQUISITIONS During 1998 the Company made the following acquisitions. Both were accounted for using the purchase method of accounting. The Company has classified as intangible assets the costs in excess of the fair value of the net assets of companies acquired. The operating results of these acquired businesses have been included in the Consolidated Statements of Operations from the dates of acquisition. In February 1998, the Company acquired all of the outstanding capital stock of mPm S.p.A. and mPm Group S.p.A. ("mPm") and certain assets of mPm's subsidiaries for approximately $29,900,000 plus acquisition costs. mPm is a leading manufacturer of molded and field-attachable DIN connectors. The purchase of mPm was financed from existing cash on hand combined with proceeds from the Company's existing credit facility. (See Note 2 Long-Term Debt). As a result of the acquisition, $21,726,000 in goodwill was recorded by the Company and will be amortized over a period of 20 years. In July 1998, the Company acquired the business and certain of the assets of the SST division of S-S Technologies, Inc. ("SST") for approximately $34,200,000 plus acquisition costs. SST is a leader in communication technology selling interface cards, gateways and related software for connecting devices and controllers to industrial automation networks. The purchase of SST was financed from the issuance of 400,000 shares of Woodhead Industries, Inc. common stock along with the net proceeds from an additional credit facility from the Company's bank. (See Note 2 Long-Term Debt). As a result of the acquisition, $966,000 of goodwill was recorded by the Company and will be amortized over a period of 15 years. Acquired in-process research and development of $5,971,000 was charged to expense in the fourth quarter. As the Company's fiscal 1998 financial statements include only two months of SST and seven months of mPm operations, the following selected unaudited pro forma information is being provided to present a summary of the combined results of the acquired companies as if the acquisitions had occurred as of the first day of fiscal 1998 and 1997 giving effect to purchase accounting adjustments. FOR THE YEARS ENDED OCTOBER 3, 1998 AND SEPTEMBER 27, 1997. 1998 1997 - ----------------------------------------------------- Sales $ 164,264 $ 166,761 Net earnings $ 1,649 $ 9,478 Basic earnings per share $ .15 $ .86 Diluted earnings per share $ .15 $ .85 The pro forma data is for informational purposes only and may not necessarily reflect the results of operations of Woodhead Industries, Inc. had mPm and SST operated as part of the Company for fiscal years 1998 and 1997. Further, the pro forma results are not intended to be a projection of future results of the combined companies. 30 EX-21 4 EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT The subsidiaries of the Company at October 3, 1998 were: Name of Subsidiary State or Other Jurisdiction Percentage in which Organized of Ownership AI/FOCS, Inc. State of Delaware 100% Aero-Motive Company State of Michigan 100% Aero-Motive (U.K.) Limited United Kingdom 100% Woodhead France S.A.R.L. France 100% Elitec S.A. France 100% Central Rubber Company State of Illinois 100% Daniel Woodhead Company State of Delaware 100% H. F. Vogel GmbH Electrotechnische Fabrik Germany 100% mPm S.r.l. Italy 100% mPm Elettronica S.r.l Italy 100% mPm Handels GmbH Germany 100% E.L. Sind S.r.l. Italy 70% Woodhead Asia Pte. Ltd. Singapore 100% Woodhead Canada Limited Province of Nova Scotia 100% Woodhead de Mexico S.A. de C.V. Mexico 100% Woodhead Finance Company Province of Nova Scotia 100% Woodhead Industries (The Netherlands) B.V. The Netherlands 100% Akapp Electro Industrie B.V. The Netherlands 100% Woodhead Japan Corporation Japan 100% W.I.S. Corp. U.S. Virgin Islands 100%.
21 EX-23 5 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated November 17, 1998 incorporated by reference in this Form 10-K, into the previously filed Woodhead Industries, Inc. Registration Statement on Form S-8 (Registration #333-26379). ARTHUR ANDERSEN LLP Chicago, Illinois December 30, 1998 22 EX-27 6 WOODHEAD INDUSTRIES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME SECTIONS FOUND IN EXHIBIT 13 OF THE COMPANY'S 10K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000108215 WOODHEAD INDUSTRIES 1,000 U.S. Dollars 12-MOS OCT-3-1998 OCT-3-1998 1.00 2,923 0 27,881 1,089 19,431 57,636 114,076 48,792 155,941 26,321 45,000 0 0 11,032 63,518 155,941 147,560 147,560 84,002 84,002 3,621 0 1,187 6,563 2,633 3,930 0 0 0 3,930 .37 .35
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