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 July 4, 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 July 18, 1997
----- ---------------------------
Common Stock, $.01 par value 5,832,290
<PAGE>
Table of Contents
Part I. - Financial Information Page No.
Unaudited Consolidated Balance Sheets -
July 4, 1997 and January 3, 1997 .................................... 3
Unaudited Consolidated Statements of Operations -
For the Second Quarter Ended July 4, 1997 and June 28, 1996 ......... 4
Unaudited Consolidated Statements of Cash Flows -
For the Second Quarter Ended July 4, 1997 and June 28, 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
July 4, January 3,
(in thousands, except per share and share amounts) 1997 1997
- ------------------------------------------------------------------------------- -------------- ----------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents ........................................................... $1,661 $306
Accounts receivable, less allowances for doubtful accounts, discounts, and
claims of $538 at July 4, 1997 and $437 at January 3, 1997 .......................... 17,947 15,518
Inventories ......................................................................... 23,049 23,985
Other current assets ................................................................ 1,144 1,053
------- -------
Total current assets ........................................................... 43,801 40,862
------- -------
Property, plant, and equipment ...................................................... 45,338 41,652
Less accumulated depreciation ....................................................... 22,251 21,154
------- -------
Net property, plant and equipment ............................................... 23,087 20,498
------- -------
Other Assets:
Deferred income taxes ............................................................... 5,400 5,249
Goodwill, net of accumulated amortization of $1,050 at
July 4, 1997 and $958 at January 3, 1997 ...................................... 8,060 4,603
Other ............................................................................... 1,911 2,183
------- -------
Total other assets ............................................................. 15,371 12,035
------- -------
$82,259 $73,395
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ................................................ $360 $520
Accounts payable .................................................................... 5,052 5,210
Checks outstanding .................................................................. 1,304 1,532
Accrued expenses .................................................................... 9,442 8,384
Deferred income taxes ............................................................... 537 539
------- -------
Total current liabilities ...................................................... 16,695 16,185
------- -------
Long-term debt, less current maturities ............................................. 26,717 21,707
------- -------
Postretirement benefit obligation, less current portion ............................. 18,194 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 5,826,493 and 5,827,397 shares outstanding at
July 4, 1997 and January 3, 1997, respectively ...................................... 58 58
Treasury Stock ...................................................................... (120) --
Additional paid-in capital .......................................................... 28,226 28,158
Accumulated deficit ................................................................. (7,490) (11,306)
Foreign currency translation adjustment ............................................. (21) (35)
------- -------
Total shareholders' equity .................................................... 20,653 16,875
------- -------
$82,259 $73,395
======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
Second Quarter Ended Year to Date
July 4, June 28, July 4, June 28,
(in thousands, except per share amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------- ------------- -------------- -- ------------ ------------
<S> <C> <C> <C> <C>
Net sales .............................................................. $31,739 $25,107 $62,228 $48,920
Cost of sales .......................................................... 20,232 15,917 39,770 30,838
------- ------- ------- -------
Gross profit ...................................................... 11,507 9,190 22,458 18,082
Selling, general, and administrative expenses .......................... 7,217 6,033 13,931 12,106
------- ------- ------- -------
Operating income .................................................. 4,290 3,157 8,527 5,976
------- ------- ------- -------
Other expense:
Interest expense and other finance charges ........................ (439) (508) (926) (1,308)
Other, net ........................................................ (276) (69) (464) (575)
------- ------- ------- -------
Other expense, net ........................................... (715) (577) (1,390) (1,883)
------- ------- ------- -------
Income before provision for income taxes and
extraordinary item..................................................... 3,575 2,580 7,137 4,093
Provision for income taxes ............................................. 1,430 1,065 2,855 1,645
------- ------- ------- -------
Income before extraordinary item ....................................... 2,145 1,515 4,282 2,448
Extraordinary item, early extinguishment of debt
(less related income tax benefit of $870).......................... - - - - - - (1,305)
------- ------- ------- -------
Net income ............................................................. $2,145 $1,515 $4,282 $1,143
======= ======= ======= =======
Per share of common stock:
Income before extraordinary item .................................. $0.36 $0.26 $0.72 $0.46
Extraordinary item ................................................ - - - - - - (0.24)
------- ------- ------- -------
Net income per common share ............................................ $0.36 $0.26 $0.72 $0.21
======= ======= ======= =======
Weighted average shares of common stock
and equivalents outstanding ....................................... 5,915 5,850 5,912 5,327
======= ======= ======= =======
<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
July 4, June 28,
(in thousands) 1997 1996
- ------------------------------------------------------------------- -------------- --------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income .............................................................. $4,282 $1,143
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................................... 1,976 1,329
Deferral of interest and management fees
payable to affiliates .............................................. 0 576
Change in deferred income taxes, net ............................... (153) (435)
Stock option compensation expense .................................. 51 70
Write off of non-compete agreement ................................. -- 582
Extraordinary loss on early extinguishment of debt, net.. .......... -- 1,305
Other, net ......................................................... -- (32)
Changes in working capital, net of effects of acquisitions:
Accounts receivable, net ...................................... (1,284) 511
Inventories, net .............................................. 1,590 (688)
Prepaid expenses and other current assets ..................... (306) (75)
Accounts payable .............................................. 25 717
Accrued and other liabilities ................................. 345 (593)
------- -------
Total adjustments ........................................ 2,244 3,267
------- -------
Net cash provided by operating activities ................ 6,526 4,410
------- -------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired ...................................... (4,749) (2,058)
Capital expenditures .................................................... (3,532) (1,290)
Other, net .............................................................. (485) 5
------- -------
Net cash used in investing activities .............................. (8,766) (3,343)
------- -------
Cash Flows from Financing Activities:
Change in checks outstanding ............................................ (228) (457)
Repayments of long-term debt, net ....................................... 2,344 (14,369)
Proceeds from original revolving credit facility ........................ -- 49,067
Repayments of original revolving credit facility ........................ -- (54,889)
Proceeds from new revolving credit facility ............................. 22,900 --
Repayments of new revolving credit facility ............................. (20,400) --
Proceeds from public sale of common stock ............................... -- 19,986
Payment of dividends .................................................... (932) (460)
Proceeds from issuance of stock upon option exercise .................... 17 --
Treasury Stock .......................................................... (120) --
------- -------
Net cash provided by (used in) financing activities ................ 3,581 (1,122)
------- -------
Effect of changes in foreign exchange rates ............................. 14 (33)
------- -------
Net (decrease) increase in cash and cash equivalents .................... 1,355 (88)
Cash and cash equivalents at beginning of year .......................... 306 417
======= =======
Cash and cash equivalents at end of period .............................. $1,661 $329
======= =======
<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)
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 July 4, 1997 and January 3, 1997, and the results of
operations and cash flows for the Second Quarter and Year to Date ended
July 4, 1997 and June 28, 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 July 4, 1997 and January 3, 1997
consisted of the following:
Audited
July 4, January 3,
1997 1997
----------- -----------
Raw material and supplies $ 3,636 $ 3,755
Work in process 6,887 7,994
Finished goods 16,683 16,293
------- -------
Total at FIFO cost 27,206 28,042
Excess of FIFO cost over LIFO cost (4,157) (4,057)
------- -------
Total at LIFO cost $23,049 $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") is as follows:
July 4, 1997 June 28, 1996
APB 15 SFAS 128 APB 15 SFAS 128
Net Income $2,145 $2,145 $1,515 $1,515
Primary EPS $0.36 $0.26
Primary Shares 5,915 5,850
Basic EPS $0.37 $0.26
Basic Shares 5,831 5,750
Diluted EPS $0.36 $0.26
Diluted Shares 5,915 5,850
6. On July 8, 1997 the Board of Directors declared a quarterly cash dividend
of $0.08 per share payable on July 31, 1997 to shareholders of record on
July 18, 1997.
6
<PAGE>
7. On April 9, 1997, the Company issued Variable Rate Demand Revenue Bonds,
Series 1997, totaling approximately $2,550 under the authority of The
Industrial Revenue Board of the City of Chattanooga. Interest is due
monthly and the bonds mature on April 1, 2022. The bonds are tax exempt and
bear interest at the prevailing 7 day floating rate.
8. On May 8, 1997, the Company purchased the stock of Graseby Controls,
Inc.("GCI"), a subsidiary of Graseby plc, for cash of approximately $5,000.
GCI manufactures and sells industrial AC Drives, including the Volkmann
(TM) brand of high frequency, AC drives, electronic brakes, and SoftStarts.
9. 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 July 4, 1997 the number of shares purchased under this
authorization was 10,000. At July 4, 1997, the number of treasury shares
issued to employees under option, and purchase plans was 2,346.
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 second quarter 1997 of $31,739, compared to $25,107 for the second quarter
1996, an increase of 26.4%. Year to date 1997 sales were $62,228 compared to
year to date 1996 sales of $48,920, an increase of $13,308 or 27.2%. The
increases were primarily due to increased sales of AC Drives, electronic
systems, sales from recent acquisitions, and strong demand for mechanical
products
Cost of sales ("COS") in the second quarter 1997 was $20,232 compared to
$15,917 for the same period last year, an increase of 27.1%. COS as a percent of
sales in the second quarter 1997 was 63.7% compared to 63.4% for the second
quarter 1996. Year to date 1997 COS was $39,770 or 63.9% of sales compared to
year to date 1996 COS of $30,838 or 63.0% of sales The increase was primarily
due to the maintenance shutdown at the Chambersburg facility occurring in the
second quarter 1997 compared to the third quarter in 1996, higher COS as the
recent coupling acquisition is integrated into the business, and shifts in
product mix.
Selling, general and administrative ("SG&A") expenses for the second
quarter 1997 were $7,217, compared to $6,033 for the second quarter 1996, an
increase of $1,184 or 19.6%. SG&A as a percent of sales decreased to 22.7% in
the second quarter 1997 from 24.0% in the second quarter 1996. Year to date 1997
SG&A was $13,931 or 22.4% of sales compared to year to date 1996 SG&A of $12,106
or 24.7% of sales. The Company was able to leverage additional sales in 1997, by
increasing SG&A only 15.1% while sales increased 27.2%.
Operating profit was $4,290 for the second quarter 1997 compared to $3,157
for the second quarter 1996, an increase of $1,133 or 35.9%. Operating profit as
a percent of sales increased to 13.5% in the second quarter 1997 from 12.6% in
the second quarter 1996. Year to date 1997 operating profit was $8,527 or 13.7%
of sales compared to year to date 1996 operating profit of $5,976 or 12.2% of
sales, an increase of $2,551 or 42.7%.
7
<PAGE>
Other expense for the second quarter 1997 was $276, compared to $69 for the
same period last year. Year to date 1997 other expense was $464 compared to year
to date 1996 other expense of $575. 1997 other expense included charges related
to the consolidation of the New Jersey and North Carolina facilities, one time
charges related to 1996 acquisitions and foreign currency adjustments. The 1996
other expense included expenses related to the write off of a non-compete
agreement.
Net income for the second quarter 1997 was $2,145 or 6.8% of sales compared
to $1,515 or 6.0% of sales for the same period in the prior year, an increase of
$630 or 41.6%. Year to date 1997 net income was $4,282, 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 $2,797 or 5.7% of net sales, an increase of 53.1%.
Earnings per share ("EPS") for the second quarter 1997 were $0.36 on 5,915
weighted average shares outstanding compared to second quarter 1996 EPS of
$0.26, an increase of 38.5%. Year to date 1997 EPS was $0.72 on 5,912 weighted
shares outstanding compared to year to date 1996 EPS of $0.52, before one time
charges, on 5,327 weighted average shares outstanding. Year to date 1996 EPS on
net income was $0.21.
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 $6,526 and
$4,410 for the year to date periods ended July 4, 1997 and June 28, 1996,
respectively. Working capital increased $2,429 to $27,106 at July 4, 1997 from
$24,677 at January 3, 1997. The increase was primarily the result of additional
accounts receivable due to record sales in the first two quarters of 1997.
The Company used $8,766 for investment purposes year to date 1997 compared
to $3,343 for the year to date 1996, an increase of $5,423. Capital expenditures
were $3,532 in 1997 compared to $1,290 in 1996, and acquisitions, net of
acquired cash, were $4,749 in 1997 compared to $2,058 in 1996. 1997 capital
expenditures include 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 provided by financing activities was $3,581 in 1997 compared to cash
used by financing activities of ($1,122) in 1996. In 1997, the year to date net
proceeds from the new revolving credit facility were $2,500 which included
borrowing $5,000 to finance the purchase of Graseby Controls, Inc. The Company
also 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 $19,986 were primarily used to pay down debt.
On July 8, 1997, the Board of Directors declared a quarterly cash dividend
of $0.08 per share payable on July 31, 1997, to shareholders of record on July
18, 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
The 1997 annual meeting of stockholders was held on April 11, 1997. Voting
on the election of one director to the second class of directors and voting on
management's proposal to adopt the TB Wood's Corporation Employee Stock Purchase
Plan was conducted. The stockholders voted 4,928,671 shares in the affirmative
and 3,775 shares in the negative to elect Michael L. Hurt to the second class of
directors of the Board of Directors. Michael L. Hurt was duly elected as
director of the second class at the meeting. In addition to Mr. Hurt, Thomas C.
Foley, Jean-Pierre L. Conte, and Craig R. Stapleton will continue as directors
after the meeting. The stockholders voted 4,503,146 shares in the affirmative
and 427,000 shares in the negative to approve and adopt the TB Wood's
Corporation Employee Stock Purchase Plan. The purpose of the Plan is to assist
the Company in attracting and retaining employees by offering them a greater
stake in the Company's success and a closer identity with it, and to encourage
ownership of the Company's stock by employees.
Item 5. Other Information
On July 29, 1997, Philip A. Garton was appointed Vice President-Finance/
Corporate Controller and Principal Financial Officer of the Company. Previously
he was a Business Controller of the Polymers Business of AlliedSignal Inc. Mr.
Garton holds an MBA in Finance, a BBA in Accounting and a BA in economics; all
from Southern Methodist University. His professional licenses include Certified
Public Accountant and Certified Cash Manager.
On July 31, 1997 the Board of Directors passed a resolution to appoint
Robert J. Dole as a director of the second class for a term to expire on the
date of the annual meeting in the year 2000.
9
<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 July 4, 1997.
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 August 19, 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
Second Quarter Year to date
--------------------------- ---------------------------
July 4, 1997 June 28, July 4, 1997 June 28,
(in thousands, except per share amounts) 1996 1996
- --------------------------------------------------- ------------- ------------- ------------- -------------
Weighted average number of common shares
<S> <C> <C> <C> <C>
outstanding ............................................ 5,831 5,750 5,829 5,226
Shares issued upon assumed exercise of
outstanding stock options .............................. 84 100 83 101
Weighted average number of common and common ------ ------ ------ ------
equivalent shares outstanding .......................... 5,915 5,850 5,912 5,327
Income before extraordinary item ....................... $2,145 $1,515 $4,282 $2,448
------ ------ ------ ------
Extraordinary item ..................................... -- -- -- (1,305)
Net income ............................................ 2,145 1,515 4,282 1,143
------ ------ ------ ------
Net Income per common share:
Before extraordinary item .............................. $0.36 $0.26 $0.72 $0.46
Extraordinary item ..................................... -- -- -- (0.24)
------ ------ ------ ------
Net Income ............................................ $0.36 $0.26 $0.72 $0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR TO DATE PERIOD ENDED JULY 4, 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> 6-MOS
<FISCAL-YEAR-END> Jan-02-1998
<PERIOD-START> Jan-04-1997
<PERIOD-END> Jul-04-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,661
<SECURITIES> 0
<RECEIVABLES> 18,485
<ALLOWANCES> 538
<INVENTORY> 23,049
<CURRENT-ASSETS> 43,801
<PP&E> 45,338
<DEPRECIATION> (22,251)
<TOTAL-ASSETS> 82,259
<CURRENT-LIABILITIES> 16,695
<BONDS> 26,717
0
0
<COMMON> 58
<OTHER-SE> 20,653
<TOTAL-LIABILITY-AND-EQUITY> 82,259
<SALES> 62,228
<TOTAL-REVENUES> 63,556<F1>
<CGS> 39,770
<TOTAL-COSTS> 13,931
<OTHER-EXPENSES> 464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 926
<INCOME-PRETAX> 7,137
<INCOME-TAX> 2,855
<INCOME-CONTINUING> 4,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,282
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
<FN>
<F1>
(1) Revenues are reported net of credits in the Statement of Operations
</FN>
</TABLE>
