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 3, 1998
Commission File Number 1-14182
TB WOOD'S CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
DELAWARE 25-1771145
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(State or other Jurisdiction of (IRS Employer Identification Number)
Incorporation of Organization)
440 North Fifth Avenue, Chambersburg, PA 17201
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(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 July 17, 1998
----- ----------------------------
Common Stock, $.01 par value 5,887,698
<PAGE>
Table of Contents
Part I. - Financial Information Page No.
- ------------------------------- --------
Consolidated Balance Sheets -
July 3, 1998 and January 2, 1998 3
Consolidated Statements of Operations -
For the Second Quarters Ended July 3, 1998 and July 4, 1997 4
Consolidated Statements of Cash Flows -
For the Second Quarters Ended July 3, 1998 and July 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 10
- ----------------------------
<PAGE>
Part I.-Financial Information
Item 1. Financial Statements
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except per share and share amounts)
Unaudited
July 3, January 2,
1998 1998
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents ......................................................... $1,542 $2,552
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $509 at July 3, 1998 and $476 at January 2, 1998 .................. 19,766 20,174
Inventories ....................................................................... 29,290 26,138
Other current assets .............................................................. 1,183 967
------ ------
Total current assets ......................................................... 51,781 49,831
------ ------
Property, plant, and equipment .................................................... 51,565 47,882
Less accumulated depreciation ..................................................... 27,144 23,794
------ ------
Net property, plant and equipment ............................................ 24,421 24,088
------ ------
Other Assets:
Deferred income taxes ............................................................ 4,555 4,602
Goodwill, net of accumulated amortization of $1,335 at
July 3, 1998 and $1,123 at January 2, 1998 ...................................... 9,301 9,122
Other ............................................................................. 2,397 1,974
------ ------
Total other assets ........................................................... 16,253 15,698
------ ------
TOTAL ASSETS ...................................................................... $92,455 $89,617
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt .............................................. $278 $611
Accounts payable .................................................................. 8,292 8,610
Checks outstanding ................................................................ 631 1,615
Accrued expenses .................................................................. 9,481 10,987
Deferred income taxes ............................................................. 729 729
------ ------
Total current liabilities .................................................... 19,411 22,552
------ ------
Long-term debt, less current maturities ........................................... 29,610 25,928
------ ------
Postretirement benefit obligation, less current portion ........................... 16,970 17,531
------ ------
Minority Interest ................................................................. 8 --
------ ------
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,
5,883,480 and 5,859,286 shares issued and 5,867,930 and 5,849,772
shares outstanding at July 3, 1998 and January 2, 1998, respectively ............. 59 58
Treasury Stock, at cost ........................................................... (190) (181)
Additional paid-in capital ........................................................ 27,913 28,340
Accumulated deficit ............................................................... (912) (4,408)
Foreign currency translation adjustment ........................................... (414) (203)
------ ------
Total shareholders' equity ................................................... 26,456 23,606
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................ $92,455 $89,617
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
Unaudited Unaudited
Second Quarter Ended Year to Date
July 3, July 4, July 3, July 4,
(in thousands, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales ....................................................................... $34,161 $31,739 $70,212 $62,228
Cost of sales ................................................................... 21,909 20,232 44,584 39,770
Gross profit ............................................................... 12,252 11,507 25,628 22,458
Selling, general, and administrative expenses ................................... 8,015 7,217 16,729 13,931
------- ------- ------- -------
Operating income ........................................................... 4,237 4,290 8,899 8,527
------- ------- ------- -------
Other expense:
Interest expense and other finance charges ................................. (507) (439) (1,077) (926)
Other, net ................................................................. 35 (276) (86) (464)
------- ------- ------- -------
Other expense, net .................................................... (472) (715) (1,163) (1,390)
------- ------- ------- -------
Income before provision for income taxes ........................................ 3,765 3,575 7,736 7,137
------- ------- ------- -------
Provision for income taxes ...................................................... 1,506 1,430 3,094 2,855
------- ------- ------- -------
Net income ...................................................................... $2,259 $2,145 $4,642 $4,282
======= ======= ======= =======
Per share of common stock:
Basic net income per common share ............................................... $0.38 $0.37 $0.79 $0.73
======= ======= ======= =======
Weighted average shares of common stock ......................................... 5,888 5,831 5,873 5,829
======= ======= ======= =======
Diluted net income per common share ............................................. $0.38 $0.36 $0.78 $0.72
======= ======= ======= =======
Weighted average shares of common stock
and equivalents outstanding ................................................ 5,942 5,915 5,943 5,912
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
Unaudited
Year to Date
(in thousands) July 3, July 4,
1998 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Net income .................................................................................. $4,642 $4,282
------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ............................................................. 2,506 1,976
Change in deferred income taxes, net ...................................................... 47 (153)
Stock option compensation expense ......................................................... 21 51
Profit sharing compensation expense ....................................................... 240 --
Minority interest ......................................................................... 8 --
Net gain on sale of assets ................................................................ (17) --
Changes in working capital, net of effects of acquisitions:
Accounts receivable, net .................................................................. 408 (1,284)
Inventories, net .......................................................................... (3,152) 1,590
Prepaid expenses and other current assets ................................................. (480) (306)
Accounts payable .......................................................................... (318) 25
Accrued and other liabilities ............................................................. (2,070) 345
------- -------
Total adjustments ...................................................................... (2,807) 2,244
------- -------
Net cash provided by operating activities .............................................. 1,835 6,526
------- -------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired .......................................................... -- (4,749)
Capital expenditures ........................................................................ (2,535) (3,532)
Proceeds from sale of fixed assets .......................................................... 246 --
Other, net .................................................................................. (861) (485)
Net cash used in investing activities ..................................................... (3,150) (8,766)
------- -------
Cash Flows from Financing Activities:
Change in checks outstanding ................................................................ (984) (228)
(Repayments)/proceeds of other long-term debt, net .......................................... (349) 2,344
Proceeds from new revolving credit facility ................................................. 22,900 22,900
Repayments of new revolving credit facility ................................................. (19,213) (20,400)
Payment of dividends ........................................................................ (996) (932)
Treasury Stock .............................................................................. (345) (120)
Other ....................................................................................... (497) 17
------- -------
Net cash provided by financing activities ................................................. 516 3,581
------- -------
Effect of changes in foreign exchange rates ................................................. (211) 14
------- -------
Net (decrease) increase in cash and cash equivalents ........................................ (1,010) 1,355
Cash and cash equivalents at beginning of period ............................................ 2,552 306
------- -------
Cash and cash equivalents at end of period .................................................. $1,542 $1,661
======= =======
</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)
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 3, 1998 and January 2, 1998, and the results of
operations and cash flows for the Second Quarter and Year to Date ended
July 3, 1998 and July 4, 1997. Operating results for the interim periods
presented 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 July 3, 1998 and January 2, 1998
consisted of the following:
Unaudited
July 3, January 2,
1998 1998
Raw materials and supplies $5,590 $6,073
Work in process 9,162 8,467
Finished goods 18,357 15,417
------- -------
Total at FIFO cost 33,109 29,957
Excess of FIFO cost over LIFO cost (3,819) (3,819)
------- -------
Total at LIFO cost $29,290 $26,138
======= =======
3. On July 7, 1998, the Board of Directors declared a quarterly cash dividend
of $0.09 per share payable on July 31, 1998 to stockholders of record on
July 17, 1998.
4. In 1996, the Board of Directors authorized, subject to certain business and
market conditions, the Company to purchase of up to 200,000 of the
Company's common shares. Through July 3, 1998 the number of shares
purchased under this authorization was 69,740. At July 3, 1998, the number
of treasury shares issued to employees under employee option and stock
purchase plans was 26,503 and the number of shares issued for the
Retirement Savings and Investment plan was 27,687. As of July 3, 1998,
15,550 share were held in treasury, at cost.
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 second quarters ended July 3, 1998 and
July 4, 1997 was as follows:
Unaudited Unaudited
July 3, 1998 July 4, 1997
Net Income $4,642 $4,282
Other comprehensive income, net of tax:
Foreign currency translation adjustments (211) 14
------ ------
Total comprehensive income $4,431 $4,296
====== ======
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 outstandin and net income
per share are as follows:
<TABLE>
<CAPTION>
Second Quarter Year to date
(in thousands, except per share amounts) July 3, July 4, July 3, July 4,
1998 1997 1998 1997
Weighted average number of common shares
<S> <C> <C> <C> <C>
outstanding 5,888 5,831 5,873 5,829
Shares issued upon assumed exercise of
outstanding stock options 54 84 70 83
----- ----- ----- -----
Weighted average number of common and
common equivalent shares outstanding 5,942 5,915 5,943 5,912
====== ====== ====== ======
Net Income $2,259 $2,145 $4,642 $4,282
====== ====== ====== ======
Basic net income per common share $0.38 $0.37 $0.79 $0.73
====== ====== ====== ======
Diluted net income per common share $0.38 $0.36 $0.78 $0.72
====== ====== ====== ======
</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 second quarter 1998 of $34,161, compared to $31,739 for the second quarter
1997, an increase of 7.6 %. Year to date 1998 sales were $70,212 compared to
year to date 1997 sales of $62,228, an increase of $7,984 or 12.8%. The year to
date increase in net sales was primarily due to revenues from Berges
Electronics, acquired in December 1997, and increased AC drive sales. While net
sales increased in the second quarter, that increase was partially offset by
lower electronic systems sales compared to a record second quarter last year and
minimum sales growth in the mechanical business.
Cost of sales ("COS") in the second quarter 1998 was $21,909 compared to
$20,232 for the same period last year, an increase of 8.3%. COS as a percent of
sales in the second quarter 1998 was 64.1% compared to 63.7% for the second
quarter 1997. Year to date 1998 COS was $44,584 or 63.5% of sales compared to
year to date 1997 COS of $39,770 or 63.9% of sales. The increase as a percent of
sales in the second quarter was primarily due to higher manufacturing costs
associated with the integration of the gear couplings product line into our San
Marcos facility and start-up costs associated with new made to order products at
the Chambersburg facility.
7
<PAGE>
Selling, general and administrative ("SG&A") expenses for the second
quarter 1998 were $8,015, compared to $7,217 for the second quarter 1997, an
increase of $798 or 11.1%. SG&A as a percent of sales increased to 23.5% in the
second quarter 1998 from 22.7% in the second quarter 1997. Year to date 1998
SG&A was $16,729 or 23.8% of sales compared to year to date 1997 SG&A of $13,931
or 22.4% of sales. The increase in SG&A expense and SG&A expense as percent of
sales was primarily due to the December 1997 acquisition of Berges Electronics.
Operating profit was $4,237 for the second quarter 1998 compared to $4,290
for the second quarter 1997, a decrease of $53 or 1.2%. Operating profit as a
percent of sales decreased to 12.4% in the second quarter 1998 from 13.5% in the
second quarter 1997. Year to date 1998 operating profit was $8,899 or 12.7% of
sales compared to year to date 1997 operating profit of $8,527 or 13.7% of
sales, an increase of $372 or 4.4%.
Other income for the second quarter 1998 was $35, compared to other expense
of $276 for the same period last year. Year to date 1998 other expense was $86
compared to year to date 1997 other expense of $464. 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.
Net income for the second quarter 1998 was $2,259 or 6.6% of sales compared
to $2,145 or 6.8% of sales for the same period in the prior year, an increase of
$114 or 5.3%. Year to date 1998 net income was $4,642, or 6.6% of sales,
compared to year to date 1997 net income of $4,282 or 6.9% of net sales, an
increase of 8.4%.
LIQUIDITY AND CAPITAL RESOURCES (in thousands, except per share amounts)
The Company's principal sources of funds are cash flows from operations and
borrowings under the Company's revolving credit agreement. Net cash flows
provided by operating activities were $1,835 and $6,526 for the year to date
periods ended July 3, 1998 and July 4, 1997, respectively. This was primarily
due to increased investments in inventory and payments for accrued expenses.
The Company used $3,150 for investment purposes year to date 1998 compared
to $8,766 for the year to date 1997, a decrease of $5,616. Capital expenditures
were $2,535 in 1998 compared to $3,532 in 1997. In 1997, the Company acquired
Graseby Controls, Inc. for $4,749. There were no such acquisitions for the same
period in 1998.
Net cash provided by financing activities for year to date 1998 was
$0.5 million, a decrease of $3.1 million compared to cash provided by financing
activities of $3.6 million in the year to date 1997. The net proceeds from the
revolving credit facility for the year to date 1998 were $3.7 million, which
were used to fund operating activities and capital expenditures. This was offset
by the payment of dividends of $1.0 million, payment of a note payable of $0.3
million and a decrease in bank overdrafts of $1.0 million. In 1997, the net
proceeds from the revolving credit facility were $2.5 million, which included
borrowing $5.0 million to finance the purchase of Graseby Controls, Inc. The
Company also borrowed $2.6 million in 1997 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.
8
<PAGE>
The Company has recognized the need to ensure that its computer
operations and operating systems will not be adversely affected by the upcoming
calendar year 2000 and is cognizant of the time sensitive nature of the problem.
The company has assessed how it may be impacted by year 2000 and has formulated
and commenced implementation of a comprehensive plan to address known issues as
they relate to its information systems. The plan, as it relates to information
systems, involves a combination of software modifications, upgrades and
replacement. The Company estimates that the cost of year 2000 compliance for its
information systems will not have a material adverse effect on the future
consolidated results of operations of the Company.
The Company is not yet able to estimate the cost for Year 2000
compliance with respect to production and facilities equipment, products,
customers and suppliers; however, based on a preliminary review, management does
not expect that such costs will have a material adverse effect on the future
consolidated results of operations of the Company. The Company expects that the
assessment and development of remediation plans with respect to production and
facilities equipment, products, customers and suppliers will be substantially
complete by the end of the third quarter of 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 requires derivatives to be recorded on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in values of derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. The
Company is completing an analysis of SFAS No. 133 which is not expected to have
a material impact on the Company's results of operations or financial position.
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 Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 annual meeting of stockholders was held on April 28, 1998.
Voting on the election of two directors to the third class of
directors was conducted. The stockholders voted 4,887,777 shares in
the affirmative and 1,191 shares in the negative to elect Jean-Pierre
L. Conte to the third class of directors of the Board of Directors.
The stockholders voted 4,888,868 shares in the affirmative and 100
shares in the negative to elect Craig R. Stapleton to the third class
of directors of the Board of Directors. In addition to Mr. Conte and
Mr. Stapleton, Michael L. Hurt, Thomas C. Foley, and Robert J. Dole
will continue as directors after the meeting.
Item 5. Other Information
On August 1, 1998, Jeffrey A. Petry was appointed Vice
President/General Manager-Electronics Business. Previously he was Vice
President of Technology at a subsidiary of Ingersoll-Rand Company. Mr
Petry holds a B.S.M.E. degree from Worcester Polytechnic Institute and
has studied at the graduate schools of the University of Michigan,
Dartmouth College and Northwestern University's Kellogg School of
Management.
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 July 3, 1998.
<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 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 YEAR TO DATE PERIOD ENDED JULY 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 CORPORATION AND SUBSIDIARIES
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-1-1999
<PERIOD-START> JAN-3-1998
<PERIOD-END> JUL-3-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,542
<SECURITIES> 0
<RECEIVABLES> 19,766
<ALLOWANCES> 509
<INVENTORY> 29,290
<CURRENT-ASSETS> 51,781
<PP&E> 51,565
<DEPRECIATION> (27,144)
<TOTAL-ASSETS> 92,455
<CURRENT-LIABILITIES> 19,411
<BONDS> 29,610
0
0
<COMMON> 59
<OTHER-SE> 26,456
<TOTAL-LIABILITY-AND-EQUITY> 92,455
<SALES> 70,212<F1>
<TOTAL-REVENUES> 70,854
<CGS> 44,584
<TOTAL-COSTS> 16,729
<OTHER-EXPENSES> 86
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,077
<INCOME-PRETAX> 7,736
<INCOME-TAX> 3,094
<INCOME-CONTINUING> 4,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,642
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.78
<FN>
<F1>
Revenues are reported net of credits in the Statement of Operations
</FN>
</TABLE>
