SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 October 3, 1997
---------------
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 (IRS Employer Identification Number)
Incorporation of Organization)
440 North Fifth Avenue
Chambersburg, PA 17201
(Address of principal executive offices) (Zip Code)
---------------------------------------- ----------
(717) 264-7161
----------------------------------------------------
(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 October 17, 1997
----- -------------------------------
Common Stock, $.01 par value 5,837,580
<PAGE>
Table of Contents
Part I. - Financial Information Page No.
- ------------------------------- --------
- --------------------------------------------------------------------------------
Unaudited Consolidated Balance Sheets -
October 3, 1997 and January 3, 1997 ............................ 3
Unaudited Consolidated Statements of Operations -
For the Third Quarter and Year to Date Periods Ended
October 3, 1997 and September 27, 1996 ............... 4
Unaudited Consolidated Statements of Cash Flows -
For the Year to Date Period Ended October 3, 1997
and September 27, 1996 ................................ 5
Notes to Unaudited Consolidated Financial Statements .................... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 7
Part II. - Other information ............................................ 9
<PAGE>
Part I.-Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
Audited
October 3, January 3,
(in thousands, except per share and share amounts) ....................... 1997 1997
- -------------------------------------------------------------------------- ------------ --------
ASSETS
Current Assets:
<S> ...................................................................... <C> <C>
Cash and cash equivalents ................................................ $ 641 $ 306
Accounts receivable, less allowances for doubtful accounts, discounts, and
claims of $523 at October 3, 1997 and $437 at January 3, 1997 ............ 18,143 15,518
Inventories .............................................................. 22,831 23,985
Other current assets ..................................................... 654 1,053
------------ --------
Total current assets .................................................. 42,269 40,862
------------ --------
Property, plant, and equipment ........................................... 46,190 41,652
Less accumulated depreciation ............................................ 23,095 21,154
------------ --------
Net property, plant and equipment ..................................... 23,095 20,498
------------ --------
Other Assets:
Deferred income taxes .................................................... 5,360 5,249
Goodwill, net of accumulated amortization of $1,095 at
October 3, 1997 and $958 at January 3, 1997 ........................... 8,005 4,603
Other .................................................................... 1,972 2,183
------------ --------
Total other assets .................................................... 15,337 12,035
------------ --------
TOTAL ASSETS ............................................................. $ 80,701 $ 73,395
============ ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Current maturities of long-term debt ..................................... $ 337 $ 520
Accounts payable ......................................................... 6,007 5,210
Checks outstanding ....................................................... 1,811 1,532
Accrued expenses ......................................................... 9,540 8,384
Deferred income taxes .................................................... 537 539
------------ --------
Total current liabilities ............................................. 18,232 16,185
------------ --------
Long-term debt, less current maturities .................................. 21,936 21,707
------------ --------
Postretirement benefit obligation, less current portion .................. 18,017 18,628
------------ --------
Shareholders' Equity:
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,
5,834,147 and 5,827,397 shares issued and 5,832,263 and 5,827,397
shares outstanding at Oct. 3, 1997 and January 3, 1997, respectively ..... 58 58
Treasury Stock ........................................................... (31) --
Additional paid-in capital ............................................... 28,251 28,158
Accumulated deficit ...................................................... (5,742) (11,306)
Foreign currency translation adjustment .................................. (20) (35)
------------ --------
Total shareholders' equity .......................................... 22,516 16,875
------------ --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................... $ 80,701 $ 73,395
============ ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
Third Quarter Ended Year to Date
October 3, September 27, October 3, September 27,
(in thousands, except per share amounts) ................. 1997 27, 1996 1997 1996
- ---------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ................................................ $ 31,257 $ 25,849 $ 93,485 $ 74,769
Cost of sales ............................................ 19,770 16,525 59,540 47,363
-------- -------- -------- --------
Gross profit .......................................... 11,487 9,324 33,945 27,406
Selling, general, and administrative expenses ............ 7,259 6,162 21,190 18,268
-------- -------- -------- --------
Operating income ...................................... 4,228 3,162 12,755 9,138
-------- -------- -------- --------
Other expense:
Interest expense and other finance charges ............ (371) (333) (1,297) (1,641)
Other, net ............................................ (193) (21) (657) (596)
-------- -------- -------- --------
Other expense, net ................................. (564) (354) (1,954) (2,237)
-------- -------- -------- --------
Income before provision for income taxes and extraordinary
expense .................................................. 3,664 2,808 10,801 6,901
Provision for income taxes ............................... 1,465 1,124 4,320 2,769
-------- -------- -------- --------
Income before extraordinary expense ...................... 2,199 1,684 6,481 4,132
Extraordinary expense, early extinguishment of debt
(less related income tax benefit of $870) ............. -- -- -- (1,305)
-------- -------- -------- --------
Net income ............................................... $ 2,199 $ 1,684 $ 6,481 $ 2,827
-------- -------- -------- --------
Per share of common stock:
Income before extraordinary expense ................... $ 0.37 $ 0.29 $ 1.10 $ 0.75
Extraordinary expense ................................. -- -- -- (0.24)
-------- -------- -------- --------
Net income per common share .............................. $ 0.37 $ 0.29 $ 1.10 $ 0.51
======== ======== ======== ========
Weighted average shares of common stock
and equivalents outstanding ........................... 5,926 5,851 5,916 5,501
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
Year to Date
-------------------------
October 3, September 27,
(in thousands) ...................................................... 1997 1996
- --------------------------------------------------------------------- -------- --------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income .......................................................... $ 6,481 $ 2,827
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................... 3,036 2,314
Deferral of interest and management fees payable to affiliates ... 0 288
Change in deferred income taxes, net ............................. (113) (418)
Stock option compensation expense ................................ 76 104
Write off of non-compete agreement ............................... -- 582
Extraordinary loss on early extinguishment of debt, net .......... -- 1,305
Other, net ....................................................... -- (57)
........
Changes in working capital, net of effects of acquisitions:
Accounts receivable, net ...................................... (1,480) (224)
Inventories, net .............................................. 1,808 (283)
Prepaid expenses and other current assets ..................... 85 248
Accounts payable .............................................. 980 210
Accrued and other liabilities ................................. 266 323
-------- --------
Total adjustments .......................................... 4,658 4,392
-------- --------
Net cash provided by operating activities ....................... 11,139 7,219
-------- --------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired .................................. (4,749) (2,058)
Capital expenditures ................................................ (4,375) (2,290)
Other, net .......................................................... (598) (11)
-------- --------
Net cash used in investing activities ............................ (9,722) (4,359)
-------- --------
Cash Flows from Financing Activities:
Change in checks outstanding ........................................ 279 (559)
Repayments of subordinated note ..................................... -- (10,677)
Proceeds (repayments) of long-term debt, net ........................ 2,237 (14,459)
Proceeds from original revolving credit facility .................... -- 83,656
Repayments of original revolving credit facility .................... -- (79,524)
Proceeds from new revolving credit facility ......................... 29,600 --
Repayments of new revolving credit facility ......................... (31,800) --
Proceeds from public sale of common stock ........................... -- 19,803
Payment of dividends ................................................ (1,399) (920)
Proceeds from issuance of stock upon option exercise ................ 17 188
Treasury Stock ...................................................... (31) --
-------- --------
Net cash used in financing activities ............................ (1,097) (2,492)
-------- --------
Effect of changes in foreign exchange rates ......................... 15 (24)
-------- --------
Net increase in cash and cash equivalents ........................... 335 344
Cash and cash equivalents at beginning of year ...................... 306 417
======== ========
Cash and cash equivalents at end of period .......................... $ 641 $ 761
======== ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
5
<PAGE>
TB Wood's Corporation And Subsidiaries
Notes To Consolidated Financial
Statements (in thousands, except per share
amounts and share amounts in Note 7)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of TB Wood's Corporation and Subsidiaries (the
"Company") as of October 3, 1997 and January 3, 1997, and the results of
operations and cash flows for the Third Quarter and Year to Date ended
October 3, 1997 and September 27, 1996. Operating results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the fiscal year ending January 2, 1998.
2. Certain reclassifications may have been made to the consolidated financial
statements of prior periods to conform to the current period presentation.
3. In 1997, the Company changed the remaining amortization period for the Post
Retirement Benefits, unrecognized prior service cost from 14.4 years to 5.4
years. The change in the amortization rate will provide an additional
benefit of approximately $700 before taxes annually through 2001 and $300
in 2002.
4. The major classes of inventories at October 3, 1997 and January 3, 1997
consisted of the following:
Audited
October 3, January 3,
1997 1997
---------- ----------
Raw material and supplies $ 3,427 $ 3,755
Work in process 6,990 7,994
Finished goods 16,571 16,293
------ ------
Total at FIFO cost 26,988 28,042
Excess of FIFO cost over LIFO cost (4,157) (4,057)
------ ------
Total at LIFO cost $22,831 $23,985
======= =======
5. In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share,"
which the Company is required to adopt for periods ending after December
15, 1997. While SFAS 128 prohibits early adoption, pro forma presentation
is permitted. The pro forma Earnings per Share ("EPS") for the third
quarters ended:
October 3, 1997 September 28, 1996
APB 15 SFAS 128 APB 15 SFAS 128
Net Income $2,199 $2,199 $1,684 $1,684
Primary EPS $0.37 $0.29
Primary Shares 5,926 5,851
Basic EPS $0.38 $0.29
Basic Shares 5,832 5,777
Diluted EPS $0.37 $0.29
Diluted Shares 5,926 5,851
6. On October 9, 1997, the Board of Directors declared a quarterly cash
dividend of $0.08 per share payable on October 31, 1997 to shareholders of
record on October 17, 1997.
6
<PAGE>
7. In 1996, the Board of Directors authorized, subject to certain business and
market conditions, the purchase of up to 200,000 of the Company's common
shares. At October 3, 1997 the number of shares purchased under this
authorization was 10,000. At October 3, 1997, the number of treasury shares
issued to employees under employee option, and stock purchase plans was
2,319 and 401K plans was 5,797.
8. On October 23, 1997, the Company signed a definitive agreement to purchase
Berges Electronics GmbH. Berges designs, manufactures, and markets its own
line of AC inverters for the European market and sells TB Wood's inverters
on a private label basis. Berges' annual revenues, at exchange rates in
effect on the date of the agreement, were approximately $10,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (in thousands, except per share amounts)
TB Wood's Corporation and Subsidiaries (the "Company") posted net sales
for the third quarter 1997 of $31,257, compared to $25,849 for the third quarter
1996, an increase of 20.9%. Year to date 1997 sales were $93,485 compared to
year to date 1996 sales of $74,769, an increase of $18,716 or 25.0%. The
increases were primarily due to strong demand for mechanical products, increased
sales of AC Drives and electronic systems, and sales from recent acquisitions.
Cost of sales ("COS") in the third quarter 1997 was $19,770 compared to
$16,525 for the same period last year, an increase of 19.6%. COS as a percent of
sales in the third quarter 1997 was 63.2% compared to 63.9% for the third
quarter 1996. Year to date 1997 COS was $59,540 or 63.7% of sales compared to
year to date 1996 COS of $47,363 or 63.3% of sales The decreased COS as a
percent of sales in the quarter was primarily due to increased sales in the
electronic products business, the electronic systems business, and the
mechanical businesses, as well as higher production levels in the foundry and
machine shop. In addition, the Chambersburg maintenance shutdown in 1997 occured
in the second quarter 1997 rather than the third quarter, as it had in 1996.
Offsetting some of the gains were higher COS associated with the consolidation
of the Deck Gear Couplings into our San Marcos facility.
Selling, general and administrative ("SG&A") expenses for the third
quarter 1997 were $7,259, compared to $6,162 for the third quarter 1996, an
increase of $1,097 or 17.8%. SG&A as a percent of sales decreased to 23.2% in
the third quarter 1997 from 23.8% in the third quarter 1996. Year to date 1997
SG&A was $21,190 or 22.7% of sales compared to year to date 1996 SG&A of $18,268
or 24.4% of sales. The Company was able to leverage additional sales in 1997, by
increasing SG&A only 16.0% while sales increased 25.0%.
Operating profit was $4,228 for the third quarter 1997 compared to
$3,162 for the third quarter 1996, an increase of $1,066 or 33.7%. Operating
profit as a percent of sales increased to 13.5% in the third quarter 1997 from
12.2% in the third quarter 1996. Year to date 1997 operating profit was $12,755
or 13.6% of sales compared to year to date 1996 operating profit of $9,138 or
12.2% of sales, an increase of $3,617 or 39.6%.
Other expense for the third quarter 1997 was $193, compared to $21 for
the same period last year. Year to date 1997 other expense was $657 compared to
year to date 1996 other expense of $596. Year to date 1997 other expense
included charges related to the consolidation of the Indiana and Texas
facilities, consolidation of the New Jersey and North Carolina facilities, one
time charges related to 1996 acquisitions and foreign currency adjustments. Year
to date 1996 other expense included $582 related to the write off of a
non-compete agreement.
7
<PAGE>
Net income for the third quarter 1997 was $2,199 or 7.0% of sales
compared to $1,684 or 6.5% of sales for the same period in the prior year, an
increase of $515 or 30.6%. Year to date 1997 net income was $6,481, or 6.9% of
sales, compared to year to date 1996 net income, before one time charges of
$1,654 associated with the early extinguishment of debt and a write-off of a
non-compete agreement, of $4,481 or 6.0% of net sales, an increase of 44.6%.
Earnings per share ("EPS") for the third quarter 1997 was $0.37 on
5,926 weighted average shares outstanding compared to third quarter 1996 EPS of
$0.29 on 5,851 weighted average shares outstanding, an increase of 28.8%. Year
to date 1997 EPS was $1.10 on 5,916 weighted shares outstanding compared to year
to date 1996 EPS of $0.81, before one time charges, on 5,501 weighted average
shares outstanding. Year to date 1996 EPS on net income was $0.51.
LIQUIDITY AND CAPITAL RESOURCES (in thousands, except per share amounts)
Cash flows from operations provide the principal source of current
liquidity. Net cash flows provided by operating activities were $11,139 and
$7,219 for the year to date periods ended October 3, 1997 and September 27,
1996, respectively. Working capital decreased $640 to $24,037 at October 3, 1997
from $24,677 at January 3, 1997. The decrease was primarily the result of
increased current liabilities of $2,047 which were offset by increased current
assets of $1,407. The increase in current assets is due to additional accounts
receivable from record year to date sales in 1997.
The Company used $9,722 for investment purposes year to date 1997
compared to $4,359 year to date 1996, an increase of $5,363. Capital
expenditures were $4,375 in 1997 compared to $2,290 in 1996, and acquisitions,
net of acquired cash, were $4,749 in 1997 compared to $2,058 in 1996. Year to
date 1997 capital expenditures include approximately $2,000 for the purchase and
renovation of a larger production facility to consolidate the electronics
systems business. Acquisitions include the purchase of Graseby Controls, Inc. in
1997, Grupo Blaju, S.A. de C.V. in 1996 and the minority interest in TB Wood's
Canada, LTD. in 1996.
Cash used by financing activities was $1,097 year to date 1997 compared
to cash used by financing activities of $2,492 year to date 1996. In 1997, the
year to date net repayments of the new revolving credit facility were $2,200.
Cash flows from operations have been used for repayments of the revolving credit
facility and have offset significant borrowings which included approximately
$5,000 to finance the purchase of Graseby Controls, Inc., approximately $4,722
of other investing activities, and $1,399 of dividend payments. The Company
borrowed $2,550 by issuing Variable Rate Demand Revenue Bonds, under the
authority of The Industrial Revenue Board of the City of Chattanooga, to finance
the new production facility for the electronics systems business. In 1996, the
Company completed an initial public offering of common stock. The proceeds from
the offering of $19,803 were primarily used to pay down debt.
On October 9, 1997, the Board of Directors declared a quarterly cash
dividend of $0.08 per share payable on October 31, 1997, to shareholders of
record on October 17, 1997.
8
<PAGE>
SAFE HARBOR STATEMENT
This quarterly report contains various forward-looking statements and
includes assumptions concerning the Company's operations, future results and
prospects. These forward-looking statements are based on current expectations
and are subject to risk and uncertainties. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
provides the following cautionary statement identifying important economic,
political and technology factors which, among others, could cause the actual
results or events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions.
Such factors include the following: (i) changes in the current and
future business environment, including interest rates and capital and consumer
spending; (ii) competitive factors and competitor responses to the Company's
initiatives; (iii) successful development and market introductions of
anticipated new products; (iv) changes in government laws and regulations,
including taxes; and (v) favorable environment to make acquisitions, domestic
and foreign, including regulatory requirements and market value of candidates.
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On October 23, 1997, the Company signed a definitive agreement to purchase
Berges Electronics GmbH. Berges designs, manufactures, and markets its own line
of AC inverters for the European market and sells TB Wood's inverters on a
private label basis. Berges' annual revenues, at exchange rates in effect on the
date of the agreement, were approximately $10,000.
<PAGE>
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
quarter ended October 3, 1997.
9
<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 November 5, 1997.
TB WOOD'S CORPORATION
By: \s\PHILIP A. GARTON
PHILIP A. GARTON
Vice President-Finance/Corporate
Controller (Principal Financial Officer
and Principal Accounting Officer)
EXHIBIT 11
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Computation Of Earnings Per Share
Third Quarter Year to date
--------------------------- ---------------------------
October 3, September 27, October 3, September 27,
(in thousands, except per share amounts) 1997 1996 1997 1996
- -------------------------------------------- ---------- -------------- ---------- -------------
Weighted average number of common shares
<S> <C> <C> <C> <C>
outstanding ................................ 5,832 5,777 5,830 5,408
Shares issued upon assumed exercise of
outstanding stock options .................. 94 74 86 93
------ ------ ------ -------
Weighted average number of common and common
equivalent shares outstanding .............. 5,926 5,851 5,916 5,501
Income before extraordinary expense ........ $2,199 $1,684 $6,481 $ 4,132
------ ------ ------ -------
Extraordinary expense ...................... -- -- -- (1,305)
Net income ................................. 2,199 1,684 6,481 2,827
------ ------ ------ -------
Net Income per common share:
Income before extraordinary expense ........ $ 0.37 $ 0.29 $ 1.10 $ 0.75
Extraordinary expense ...................... -- -- -- (0.24)
------ ------ ------ -------
Net income ................................. $ 0.37 $ 0.29 $ 1.10 $ 0.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR TO DATE PERIOD ENDED October 3, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
Amounts inapplicable or not disclosed as a separate line on the Statement of
Operations are reported as herein.
</LEGEND> <CIK> 0001000227
<NAME> TB WOOD'S CORPORATION AND SUBSIDIARIES
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JAN-04-1997
<PERIOD-END> OCT-03-1997
<EXCHANGE-RATE> 1.000
<CASH> 641
<SECURITIES> 0
<RECEIVABLES> 18,666
<ALLOWANCES> 523
<INVENTORY> 22,831
<CURRENT-ASSETS> 42,269
<PP&E> 46,190
<DEPRECIATION> (23,095)
<TOTAL-ASSETS> 80,701
<CURRENT-LIABILITIES> 18,232
<BONDS> 21,936
0
0
<COMMON> 58
<OTHER-SE> 22,516
<TOTAL-LIABILITY-AND-EQUITY> 80,701
<SALES> 93,485
<TOTAL-REVENUES> 95,444<F1>
<CGS> 59,540
<TOTAL-COSTS> 21,190
<OTHER-EXPENSES> 657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,297
<INCOME-PRETAX> 10,801
<INCOME-TAX> 4,320
<INCOME-CONTINUING> 6,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,481
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
<FN>
<F1>
* Revenues are reported net of credits in the Statement of Operations
</FN>
</TABLE>
