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 April 3, 1998
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 May 8, 1998
Common Stock, $.01 par value 5,859,286
1
<PAGE>
Table of Contents
Part I. - Financial Information Page No.
- ------------------------------- --------
Consolidated Balance Sheets
April 3, 1998 and January 2, 1998 ...........................................3
Consolidated Statements of Operations -
For the First Quarter Ended
April 3, 1998 and April 4, 1997 ...........................................4
Consolidated Statements of Cash Flows -
For the First Quarter Ended
April 3, 1998 and April 4, 1997 ...........................................5
Notes to Consolidated Financial Statements ....................................6
Management's Discussion and Analysis of
Financial Condition and Results of Operations ...............................7
Part II. - Other information ..................................................9
- ----------------------------
2
<PAGE>
Part I.-Financial Information
Item 1. Financial Statements
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited
April 3, January 2,
(in thousands, except per share and share amounts) 1998 1998
- ------------------------------------------------------------------------------- -------------- ----------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents .......................................................... $1,481 $2,552
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $489 at April 3, 1998 and $476 at January 2, 1998 .................... 21,587 20,174
Inventories ........................................................................ 27,497 26,138
Other current assets ............................................................... 1,455 967
------ ------
Total current assets ............................................................. 52,020 49,831
------ ------
Property, plant, and equipment ..................................................... 49,949 47,882
Less accumulated depreciation ...................................................... 26,170 23,794
------ ------
Net property, plant and equipment ................................................ 23,779 24,088
------ ------
Other Assets:
Deferred income taxes .............................................................. 4,574 4,602
------ ------
Goodwill, net of accumulated amortization of $1,171 at
April 3, 1998 and $1,123 at January 2, 1998 ...................................... 9,050 9,122
Other............................................................................... 2,365 1,974
------ ------
Total other assets ............................................................... 15,989 15,698
------ ------
TOTAL ASSETS ....................................................................... $91,788 $89,617
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ............................................... $277 $611
Accounts payable ................................................................... 9,348 8,610
Checks outstanding ................................................................. 1,058 1,615
Accrued expenses ................................................................... 10,061 10,987
Deferred income taxes .............................................................. 729 729
------ ------
Total current liabilities ........................................................ 21,473 22,552
------ ------
Long-term debt, less current maturities ............................................ 27,921 25,928
------ ------
Postretirement benefit obligation, less current portion ............................ 17,247 17,531
------ ------
Minority Interest .................................................................. 22 --
------ ------
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,
5,859,286 and 5,859,286 shares issued and 5,848,130 and 5,849,772
shares outstanding at April 3, 1998 and January 2, 1998, respectively .............. 58 58
Treasury Stock ..................................................................... (238) (181)
Additional paid-in capital ......................................................... 28,361 28,340
Accumulated deficit ................................................................ (2,737) (4,408)
Foreign currency translation adjustment ............................................ (319) (203)
------ ------
Total shareholders' equity ....................................................... 25,125 23,606
====== ======
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $91,788 $89,617
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Unaudited
First Quarter Ended
----------------------------
April 3, April 4,
(in thousands, except per share amounts) 1998 1997
- ------------------------------------------------------------ ------------- --------------
<S> <C> <C>
Net sales ..................................................... $36,051 $30,489
Cost of sales ................................................. 22,675 19,538
------ ------
Gross profit ................................................ 13,376 10,951
Selling, general, and administrative expenses ................. 8,714 6,714
------ ------
Operating income ............................................ 4,662 4,237
------ ------
Other expense:
Interest expense and other finance charges .................. (570) (487)
Other, net .................................................. (121) (188)
------ ------
Other expense, net ........................................ (691) (675)
------ ------
Income before provision for income taxes ...................... 3,971 3,562
Provision for income taxes .................................... 1,588 1,425
------ ------
Net income .................................................... $2,383 $2,137
====== ======
Per share of common stock:
Basic net income per common share ............................. $0.41 $0.37
====== ======
Weighted average shares of common stock ....................... 5,859 5,828
====== ======
Diluted net income per common share ........................... $0.40 $0.36
====== ======
Weighted average shares of common stock
and equivalents outstanding ................................. 5,945 5,908
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Unaudited
First Quarter Ended
-----------------------------
April 3, April 4,
(in thousands) 1998 1997
- ------------------------------------------------------------------- -------------- --------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income ........................................................... $2,383 $2,137
------ ------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ...................................... $1,211 $1,017
Change in deferred income taxes, net ............................... 28 (26)
Stock option compensation expense .................................. 21 26
Minority Interest .................................................. 22 --
Net gain on sales of assets ........................................ (17) --
Changes in working capital:
Accounts receivable, net ........................................... (1,413) (2,080)
Inventories, net ................................................... (1,359) 228
Prepaid expenses and other current assets .......................... (575) (249)
Accounts payable ................................................... 738 (230)
Accrued and other liabilities ...................................... (1,210) 857
------ ------
Total adjustments ................................................ (2,554) (457)
------ ------
Net cash (used in) provided by operating
activities ....................................................... (171) 1,680
------ ------
Cash Flows from Investing Activities:
Capital expenditures ................................................. (923) (554)
Proceeds from sales of fixed assets .................................. 246 --
Other, net ........................................................... (443) (500)
------ ------
Net cash used in investing activities .............................. (1,120) (1,054)
------ ------
Cash Flows from Financing Activities:
Change in checks outstanding ......................................... (557) (254)
Repayments of long-term debt, net .................................... (352) (95)
Proceeds from new revolving credit facility .......................... 5,000 10,100
Repayments of new revolving credit facility .......................... (3,000) (9,700)
Payment of dividends ................................................. (469) (466)
Proceeds from issuance of stock upon option exercise -- 17
Treasury Stock ....................................................... (73) --
------ ------
Net cash provided by (used in) financing
activities ....................................................... 549 (398)
------ ------
Effect of changes in foreign exchange rates .......................... (329) (27)
------ ------
Net (decrease) increase in cash and cash equivalents ................. (1,071) 201
Cash and cash equivalents at beginning of year ....................... 2,552 306
------ ------
Cash and cash equivalents at end of period ........................... $1,481 $507
====== ====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
TB Wood's Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(in thousands, except per share amounts in Note 6)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal and recurring adjustments
necessary to present fairly the financial position of TB Wood's
Corporation and Subsidiaries (the "Company") as of April 3, 1998 and
the results of operations and cash flows for the three months ended
April 3, 1998 and April 4, 1997. Operating results for the three
months ended April 3, 1998, are not necessarily indicative of the
results that may be expected for the fiscal year ending January 1,
1999.
2. The major classes of inventories at April 3, 1998 and January 2, 1998
consisted of the following:
Unaudited
April 3, January 2,
1998 1998
Raw material and supplies ............... $5,014 $6,073
Work in process ......................... 8,410 8,467
Finished goods .......................... 17,892 15,417
------- -------
Total at FIFO cost ...................... 31,316 29,957
Excess of FIFO cost over LIFO cost ...... (3,819) (3,819)
------- -------
Total at LIFO cost ...................... $27,497 $26,138
======= =======
3. On April 9, 1998, the Board of Directors declared a quarterly cash
dividend of $0.09 per share payable on April 30, 1998 to shareholders
of record on April 17, 1998.
4. 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 April 3, 1998 the number of shares
purchased under this authorization was 46,969. During the first
quarter the number of treasury shares issued to employees under
employee option, and stock purchase plans was 2,059 and the number of
shares issued for the Retirement Savings and Investment plan was
5,665.
5. Effective January 3, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires companies to disclose components of comprehensive income,
defined as the total of net income and all other nonowner changes in
equity.
Total comprehensive income for the first quarter ended April 3, 1998
and April 4, 1997 was as follows:
Unaudited Unaudited
April 3, 1998 April 4, 1997
---------------------------------- ----------------- -----------------
Net Income ................................ $2,383 $2,137
Other comprehensive income, net of tax:
Foreign currency translation adjustments (116) (92)
------ ------
Total comprehensive income ................ $2,267 $2,045
====== ======
6
<PAGE>
6. Basic net EPS is computed by dividing reported earnings available to
common shareholders by weighted average shares outstanding. No
dilution for any potentially dilutive securities is included in basic
EPS. Diluted EPS is computed by dividing reported earnings available
to common shareholders by weighted average shares and common
equivalent shares outstanding. All prior year EPS amounts have been
restated to conform to the provisions of SFAS 128. The computation of
weighted average shares outstanding and net income per share are as
follows:
<TABLE>
<CAPTION>
Unaudited Unaudited
(in thousands, except per share amounts) April 3, 1998 April 4, 1997
------------------------------------------------- ---------------------- ------------------------
Weighted average number of common shares
<S> <C> <C>
outstanding 5,859 5,828
Shares issued upon assumed exercise of
outstanding stock options 86 80
------ ------
Weighted average number of common and common
equivalent shares outstanding 5,945 5,908
Net income $2,383 $2,137
====== ======
Basic net income per common share $0.41 $0.37
====== ======
Diluted net income per common share $0.40 $0.36
====== ======
</TABLE>
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 first quarter 1998 of $36.1 million, compared to $30.5 million for the
first quarter 1997, an increase of $5.6 million or 18.2%. This increase was
primarily due to the additional sales of Berges Electronics and Volkmann
Controls, both acquired in the past twelve months. The new AC drive products
introduced in 1997 also contributed to the increased sales.
Gross profit increased to $13.4 million from $11.0 million in 1997, an
increase of $2.4 million or 22.1%. Gross profit as a percent of net sales
increased to 37.1% from 35.9%. Contributing to the increase in gross profit is a
combination of the continuing efforts to improve manufacturing productivity and
higher gross profits from recently acquired companies.
Selling, general, and administrative ("SG&A") expense for the first
quarter of 1998 increased to $8.7 million from $6.7 million in 1997, an increase
of $2.0 million or 29.8%. SG&A expense as a percent of net sales increased to
24.2% from 22.0%. This increase was primarily the result of the consolidation of
acquisitions with higher SG&A expenses as a percent of sales than the base
business.
8
<PAGE>
Other expense for the first quarter of 1998 was $0.7 million, the same
as the first quarter of the prior year. Interest expense, a component of total
other expense, increased to $0.6 million from $0.5 million in 1997. This
increase was due primarily to increased borrowings to fund working capital
needs. The effective tax rate for the first quarter of 1998 was 40.0% the same
as the prior year.
Net income for the first quarter of 1998 increased to $2.4 million from
$2.1 million in 1997, an increase of $0.2 million, or 11.5%.
Liquidity and Capital Resources
The Company's principal sources of funds are cash flows from operations
and borrowings under the Company's revolving credit agreement. Cash used in
operations during the first quarter of 1998 was $0.2 million, a decrease of $1.9
million compared to cash provided by operations of $1.7 million in 1997. This
decrease was primarily due to a $1.4 million increase in accounts receivable
resulting from increased sales, a $1.4 million increase in inventory to maintain
customer service levels and a $1.2 million reduction in accrued liabilities
reflecting payments for 1997 expenses made during the first quarter of 1998.
Net cash used in investing activities during the first quarter of 1998
and 1997 was $1.1 million. Capital expenditures for the first quarter of 1998
were $0.9 million compared to $0.6 million for the first quarter of the prior
year. This increase was primarily due to increased capital expenditures that was
approved in the annual budget to meet growth objectives.
Net cash provided by financing activities for the first quarter of 1998
was $0.5 million, an increase of $0.9 million compared to cash used in financing
activities of $0.4 million in the first quarter of 1997. The net proceeds from
the revolving credit facility were $2.0 million, which were used to fund the
operating activities and the capital expenditures in the first quarter. This was
offset by the payment of dividends of $0.5 million, payment of a note payable of
$0.3 million and a decrease in bank overdrafts of $0.6 million.
The Company believes that it will have sufficient cash flow from
operations and available borrowings to meet its future cash needs for interest,
operating expenses, and capital expenditures.
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.
9
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceeding
None
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
quarter ended April 3, 1998.
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 14, 1998.
TB WOOD'S CORPORATION
By: /s/Philip A Garton____________
PHILIP A. GARTON
Vice President-Finance/Corporate
Controller (Principal Financial Officer
and Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED APRIL 3, 1998 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 CORPORATIONS & SUBSIDIARIES
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-01-1999
<PERIOD-START> Jan-02-1998
<PERIOD-END> Apr-03-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,481
<SECURITIES> 0
<RECEIVABLES> 22,076
<ALLOWANCES> 489
<INVENTORY> 27,497
<CURRENT-ASSETS> 52,020
<PP&E> 49,949
<DEPRECIATION> (26,170)
<TOTAL-ASSETS> 91,788
<CURRENT-LIABILITIES> 21,473
<BONDS> 27,921
0
0
<COMMON> 58
<OTHER-SE> 25,125
<TOTAL-LIABILITY-AND-EQUITY> 91,788
<SALES> 36,051
<TOTAL-REVENUES> 36,346<F1>
<CGS> 22,675
<TOTAL-COSTS> 8,714
<OTHER-EXPENSES> 121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 570
<INCOME-PRETAX> 3,971
<INCOME-TAX> 1,588
<INCOME-CONTINUING> 2,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,383
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
<FN>
Revenues are reported net of credits in the Statement of Operations
</FN>
</TABLE>
