<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 29, 1996
Commission File Number 1-14182
TB WOOD'S CORPORATION
------------------------------------------------------
(Exact Name of registrant as specified in its charter)
DELAWARE 25-1771145
- - - --------------------------------------------------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation of Organization)
440 North Fifth Avenue, Chambersburg, PA 17201
- - - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(717) 264-7161
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X___ No ____
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at April 29, 1995
----- -----------------------------
Common Stock, $.01 par value 5,750,000
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Condensed Consolidated Balance Sheets -
As of December 29, 1995 and March 29, 1996 3
Condensed Consolidated Statements of Operation -
First Quarter Ended March 31, 1995 and March 29, 1996 4
Condensed Consolidated Statements of Cash Flows -
First Quarter Ended March 31, 1995 and March 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operation 7
Part II. - Other information 10
2
<PAGE>
TB WOOD'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND MARCH 29, 1996
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
ASSETS December 31, March 29,
1995 1996
- - - ------------------------------------------------------------------- ----------
Current Assets:
Cash and cash equivalents $ 417 $ 410
------- -------
Accounts receivable
Trade, net of allowances for doubtful accounts,
discounts, and claims of $510 at December
31, 1995 and $531 at March 29, 1996 14,053 13,577
Affiliates 79 68
------- -------
Total accounts receivable 14,132 13,645
Inventories (note 2) 21,807 23,037
Prepaid Expenses and Other Current Assets 504 747
------- -------
Total current assets 36,860 37,839
Property, Plant and Equipment 36,237 37,230
Less accumulated depreciation 18,424 19,144
------- -------
Net property, plant and equipment 17,813 18,086
------- -------
Other Assets:
Deferred Taxes 5,049 5,236
Goodwill, net of accumulated amortization
of $846 at December 31, 1995 and
$876 at March 29, 1996 3,639 3,631
Loan issue cost, net of accumulated amortization
of $902 at December 31, 1995 and
$927at March 29, 1996 1,184 --
Other 2,086 1,352
------- -------
Total other assets 11,958 10,219
------- -------
TOTAL ASSETS $66,631 $66,144
======= =======
See accompanying notes to condensed consolidated financial statements
<PAGE>
LIABILITIES AND STOCKHOLDERS' December 31, March 29,
EQUITY (DEFICIT) 1995 1996
- - - -------------------------------------------------------------------- ---------
Current Liabilities:
Current maturities of long-term debt and
capital lease obligations $ 1,759 $ 330
Accounts Payable 5,991 5,563
Other accrued liabilities 6,340 5,178
Current deferred income taxes 1,897 1,644
-------- --------
Total current liabilities 15,987 12,715
-------- --------
Long-term debt and capital lease obligations
Notes payable to affiliates 15,293 15,608
Other 24,411 8,664
-------- --------
Total long-term debt 39,704 24,272
Postretretirement Benefit Obligations 18,428 18,478
-------- --------
Stockholders Equity (Deficit)
Preferred stock, $.01 par value; 5,000,000
shares authorized, no shares issued or outstanding -- --
Common stock, $.01 par value; 40,000,000
shares authorized, 3,375,000 issued and
outstanding at December 31, 1995
5,750,000 shares issued and outstanding
March 29, 1996 33 57
Warrants 500 --
Additional paid-in capital 6,104 26,739
Accumulated deficit (14,094) (16,092)
Foreign currency translation adjustment (31) (25)
-------- --------
Total stockholders' equity (deficit) (7,488) 10,679
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 66,631 $ 66,144
======== ========
3
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
TB WOOD'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
FOR THE QUARTERS ENDED MARCH 31, 1995 AND MARCH 29, 1996
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
First Quarter Ended
------------------------------
March 31, March 29,
1995 1996
----------- ------------
Net Sales $ 25,474 $ 23,813
Cost of Goods Sold 16,442 14,921
-------- --------
Gross Profit 9,032 8,892
Operating Expenses:
Selling, general and administrative expenses 5,548 5,851
Other operating expenses 484 222
Operating Profit 3,000 2,819
Other:
Interest Expense (1,096) (800)
Other Expenses (235) (506)
Income before provision for income taxes and $ 1,669 $ 1,513
extraordinary item
Provision for Income Taxes 668 580
Net Income before Extraordinary item $ 1,001 $ 933
Extraordinary item, early extinguishment of debt
(less related income tax benefit of $870) -- (1,305)
-------- --------
Net Income (Loss) $ 1,001 $ (372)
Per share information:
Net Income (Loss) before Extraordinary item 0.27 0.19
Extraordinary item -- (0.27)
Net income (Loss) 0.27 (0.08)
Weighted average common shares outstanding 3,750 4,832
See accompanying notes to Condensed Consolidated financial statements
4
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TB WOOD'S CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1995 AND MARCH 29, 1996
(In Thousands)
<TABLE>
<CAPTION>
First Quarter Ended
-------------------
March 31, 1995 March 29, 1996
-------------- --------------
<S> <C> <C>
Net Cash Provided by (used) Operating Activities 418 (383)
--------- --------
Cash Flows From Investing Activities
Capital Expenditures (920) (447)
Investment in Blaju -- (458)
Other, net (343) (19)
Purchase of minority interest in TBWC -- (1,626)
------- -------
Cash used for Investing Activities (1,263) (2,550)
------- -------
Cash Flows From Financing Activities
Reclass and Payments of Long Term Portion of Other Debt (326) (14,319)
Proceeds from Public Sale of Common Stock 0 20,099
Proceeds of New Revolving Credit Facility 25,957 31,021
Repayments of new revolving credit facility (24,941) (33,882)
------- -------
Cash Provided by Financing Activities 690 2,919
------- -------
Effect of Changes in Foreign Exchange Rate 12 7
------- -------
Net decrease in Cash and Equivalents (143) (7)
Cash and Equivalents at Beginning of Period 329 417
------- -------
Cash and Equivalents at End of Period 186 410
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
TB WOOD'S CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 31, 1995
and March 29, 1996 and the results of operations, and cash flows for the
three month period then ended. Operating results for the interim periods
presented are not necessarily indicative of the results that may be
expected for the fiscal year ending January 3, 1997.
2. Certain reclassifications have been made to the condensed consolidated
financial statements of prior periods to conform to the current period
presentation.
3. In February of 1996, the Company completed an initial public offering of
its common stock that raised approximately $22.5 million in aggregate gross
proceeds for the Company. The net proceeds from the initial public
offering, of approximately $20 million, after deducting issuance costs,
were used to repay outstanding debt. The extraordinary item of
approximately $1.3 million, net of taxes, was a one-time expense related
to the payment of debt.
4. The Company purchased the minority interest in its Canadian subsidiary for
$1.6 million in the first quarter ended March 29, 1996.
5. The Company exercised an option to purchase the outstanding shares of Grupo
Blaju, S.A., de C.V. ("Blaju") for approximately $.5 million, including
legal and professional fees. Pro forma information regarding the Blaju
acquisition has not been included as the pro forma effect of the
acquisition is immaterial.
6. The major classes of inventories at December 31, 1995 and March 29, 1996
consist of the following (in thousands):
March 29,
December 31, 1996
1995 (unaudited)
------------ -----------
Raw material and supplies $ 3,930 $ 4,731
Work in process 5,701 5,599
Finished goods 16,057 16,589
------- -------
Total at FIFO cost 25,688 26,919
Excess of FIFO cost over LIFO cost (3,881) (3,882)
------- -------
Total at LIFO cost $21,807 $23,037
======= =======
6
<PAGE>
TB WOOD'S CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the First Quarter Ended March 29, 1996 and March 31, 1995
Net Sales. Net sales were $25.5 million and $23.8 million for the
quarters ended March 31, 1995 and March 29, 1996 respectively, a decrease of
$1.7 million, or 6.7%. The Company believes operations were unfavorably impacted
by severe winter weather which curtailed Company operations as well as the
operations of many of our customers in January and February of 1996.
Gross Profit. Gross profit was $9.0 million and $8.9 million for the
quarters ended March 31, 1995 and March 29, 1996 respectively, a decrease of
$0.1 million, or 1.1%. Gross profit as a percentage of net sales increased from
35.3% to 37.4%, primarily due to a price increase on mechanical products,
productivity improvements and cost reductions resulting from the Company's
capital expenditures and Total Quality Management ("TQM") program.
Selling, General and Administration ("SG&A") Expense. SG&A expense was
$5.5 million and $5.9 million for the quarters ended March 31, 1995 and March
29, 1996 respectively, an increase of $0.4 million, or 7.2%. SG&A expense as a
percent of net sales increased from 21.6% to 24.8%. The primary sources of this
3.2% increase in SG&A expense as a percent of net sales were the decrease in
sales revenue, a 25% increase in R&D expenses to accelerate new product
development and costs associated with the addition of technical sales personnel
to grow electronic products revenues.
Operating Profit. Operating profit was $3.0 million and $2.8 million
for the quarters ended March 31, 1995 and March 29, 1996, respectively, a
decrease of $0.2 million, or 6.7%. This decrease was caused principally by the
factors discussed above. Operating profit as a percent of net sales remained
constant at 11.8% for both quarters. For the quarter ended March 29, 1996 the
increase in SG&A expense was offset by the improvements in gross profit.
Other Expense. Other expense remained constant at $1.3 million for the
first quarter of 1995 and 1996. Interest expense was $1.1 million and $0.8
million for the first quarters of 1995 and 1996, respectively, a decrease of
$0.3 million, or 27%. This reduction in interest expense was primarily caused by
the repayment of outstanding debt with the proceeds of the Company's initial
public offering (the offering) completed February 8, 1996. Other expenses
include a one-time charge of $0.6 for the write-off of a non-compete agreement
associated with a prior acquisition. The effective tax rate was 40% and 38% for
the first quarter of 1995 and 1996, respectively. These rates differed from the
federal statutory rate of 34% due primarily to state and local taxes.
Without giving effect to the write-off of the non-compete agreement,
total other expense decreased $0.6 or 46%, due to the payoff of debt.
7
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Net Income (loss). Net income (loss) was $1.0 million and $(0.4)
million for the quarters ended March 31, 1995 and March 29, 1996 respectively, a
decrease of $1.4 million. Net income in the first quarter of 1996 included a
$1.3 million extraordinary expense, net of income taxes, associated with the
early payment of debt.
Excluding the write-off of the non-compete agreement of $0.3 million,
net of taxes, and the extraordinary expenses of $1.3 million, net of taxes, net
income increased from $1.0 million to $1.2 million, an increase of $0.2 million,
or 20%.
Liquidity and Capital Resources
The Company's principal sources of funds are cash flows from operations
and borrowings under various credit agreements. The net proceeds, of $20
million, from the offering of the Company's common stock were used primarily for
the repayment of outstanding debt.
Cash Flows From Operating Activities. Cash provided by (used for)
operations was $0.4 million and $(0.4) million for the first quarter ended March
31, 1995 and March 29, 1996 was respectively. Total working capital was $20.9
million and $25.1 million at March 31, 1995 and March 29, 1996 respectively. The
increase in working capital was primarily due to an increase in inventory and a
decrease in the current maturities of long-term debt and other accrued
liabilities.
Cash Flows used for Investing Activities. Net cash used for investing
activities was $1.3 million and $2.6 million for the first quarter ended March
31, 1995 and March 29, 1996, respectively. The Company purchased the minority
interest in its Canadian subsidiary for $1.6 million in the first quarter of
1996. The Company exercised an option to purchase the outstanding shares of
Grupo Blaju, S.A., de C.V. ("Blaju") a manufacturer and distributor of power
transmissions products located in Mexico City, Mexico for approximately $0.5,
including legal and professional fees.
Capital expenditures (excluding acquisitions) were $0.9 million and
$0.4 million for the quarter ended March 31, 1995 and March 29, 1996
respectively. During the first quarter of 1995 capital expenditures were
primarily used to fund the purchase of computer numerically controlled ("CNC")
machine tools for the Company's machining facilities, tooling for mechanical
products and equipment for electronic manufacturing. During the first quarter
1996 capital expenditures were primarily used to fund additional production and
test equipment at the Company's electronic manufacturing facilities, the
completion and enhancement of a new automated molding line in its foundry in
Chambersburg, Pennsylvania and the purchase of additional CNC machine tools for
its machining facilities.
Research and development expenditures were $0.8 million and $1.0 million for
the quarter ended March 31, 1995 and March 29, 1996 respectively. These
research and development expenditures include funding for the development of
new products.
8
<PAGE>
Cash Flows From Financing Activities. Net cash provided by financing
activities was $0.7 million for the first quarter 1995 and $2.9 million for the
first quarter 1996. This increase is attributed to funds generated by the
offering.
The Company and Fleet Capital Corporation are currently engaged in
discussions to amend the credit agreement in connection with the Offering, to
provide, among other things, for borrowings and the issuance of letters of
credit on a revolving basis of up to an aggregate amount of $20.0 million.
Borrowings and letter of credit availability are expected to be limited to an
amount equal to the Company's borrowing base (after deduction for a $4.0 million
reserve), which will be dependent on the Company's then eligible inventory and
accounts receivable. Availability of borrowings will be reduced by the aggregate
face amount of outstanding letters of credit. Borrowings under the amended
credit agreement are expected to bear interest, at the Company's option, at the
prime rate or LIBOR plus 1.5% per annum. The Company expects to pay an unused
facility fee of 0.25% on the unused portion of commitments under the amended
credit agreement. The obligations of the Company under the amended credit
agreement are expected to be secured by a first priority security interest in
the Company's accounts receivable and inventory. The amended credit agreement is
expected to contain financial tests, including, among others, a covenant
measuring the Company's net worth. The Company's ability to pay cash dividends
from the proceeds of borrowings under the amended credit agreement is dependent
upon the satisfaction of the terms and conditions of such agreement, including
the borrowing base provision described above.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the amended credit
Agreement to meet required, scheduled interest payments and to meet its
short-term and long-term working capital and capital expenditure requirements.
9
<PAGE>
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
By written consent prior to the Offering, the stockholder entitled to vote a
majority of the shares of the Company approved the 1996 Stock-Based Incentive
Compensation Plan and the current Bylaws and Certificate of Incorporation of the
Company
Item 6. Exhibits and Reports on Form 8-K
a)
EXHIBIT INDEX
-------------
Exhibit
11 Computation of Per Share Earning
27 Financial Data Schedule
b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three
months ended March 29, 1996.
10
<PAGE>
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, in the City of
Chambersburg and Commonwealth of Pennsylvania, on May 13, 1996.
TB WOOD'S CORPORATION
By: /s/ DAVID H. HALLEEN
-----------------------------------
David H. Halleen
Vice President of Finance, Treasurer and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Exhibit 11
TB WOOD'S CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
($ and shares in thousands, except per share data)
<TABLE>
<CAPTION>
PRIMARY EARNINGS (LOSS) PER COMMON SHARE: Quarter Ended Quarter Ended
March 31, 1995 March 31, 1995
-------------- --------------
<S> <C> <C>
Net income 1,001 (372)
====== ======
Weighted average common shares outstanding 3,375 4,727
Add: Weighted average number of shares which could have
been issued upon exercise of outstanding options/warrants 375 105
------ ------
Weighted average number of shares used to compute
primary earning (loss) per share 3,750 4,832
====== ======
Primary Earning (loss) per share 0.27 (0.08)
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 29, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
RELATED NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-END> MAR-29-1996
<CASH> 410
<SECURITIES> 0
<RECEIVABLES> 14,176
<ALLOWANCES> 531
<INVENTORY> 23,037
<CURRENT-ASSETS> 37,839
<PP&E> 37,230
<DEPRECIATION> 19,144
<TOTAL-ASSETS> 66,144
<CURRENT-LIABILITIES> 12,715
<BONDS> 24,272
0
0
<COMMON> 57
<OTHER-SE> 10,679
<TOTAL-LIABILITY-AND-EQUITY> 66,144
<SALES> 23,813
<TOTAL-REVENUES> 24,442
<CGS> 14,921
<TOTAL-COSTS> 6,073
<OTHER-EXPENSES> 506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 800
<INCOME-PRETAX> 933
<INCOME-TAX> 580
<INCOME-CONTINUING> 933
<DISCONTINUED> 0
<EXTRAORDINARY> (1,305)
<CHANGES> 0
<NET-INCOME> (372)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.07)
</TABLE>
