<PAGE>
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 2, 1999
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 April 2, 1999
----- ----------------------------
Common Stock, $.01 par value 5,887,698
<PAGE>
Table of Contents
Part I. - Financial Information Page No.
- ------------------------------- --------
Condensed Consolidated Balance Sheets -
April 2, 1999 and January 1, 1999 3
Condensed Consolidated Statements of Operations -
For the First Quarters Ended
April 2, 1999 and April 3, 1998 4
Condensed Consolidated Statements of Cash Flows -
For the Periods Ended
April 2, 1999 and April 3, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. - Other information 11
- ----------------------------
2
<PAGE>
Part I.-Financial Information
Item 1. Financial Statements
TB Wood's Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited
April 2, January 1,
(in thousands, except per share and share amounts) 1999 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ...................................................... $ 3,019 $ 2,521
Accounts receivable, less allowances for doubtful accounts,
discounts, and claims of $422 at April 2, 1999 and $414 at January 1, 1999 ..... 18,525 17,428
Inventories .................................................................... 28,655 29,855
Other current assets ........................................................... 3,986 2,705
-------- --------
Total current assets ...................................................... 54,185 52,509
-------- --------
Property, plant, and equipment ................................................. 57,133 55,249
Less accumulated depreciation .................................................. 28,265 27,553
-------- --------
Net property, plant and equipment .......................................... 28,868 27,696
-------- --------
Other Assets:
Deferred income taxes .......................................................... 3,670 3,570
Goodwill, net of accumulated amortization of $1,363 at
April 2, 1999 and $1,313 at January 1, 1999 ............................... 10,009 10,059
Other .......................................................................... 1,820 2,191
-------- --------
Total other assets ........................................................ 15,499 15,820
-------- --------
TOTAL ASSETS ................................................................... $98,552 $96,025
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Current maturities of long-term debt ........................................... $276 $378
Accounts payable ............................................................... 6,497 6,332
Checks outstanding ............................................................. 853 1,705
Accrued expenses ............................................................... 9,314 9,012
Deferred income taxes .......................................................... 1,589 1,589
-------- --------
Total current liabilities ................................................. 18,529 19,016
-------- --------
Long-term debt, less current maturities ........................................ 34,797 32,091
-------- --------
Postretirement benefit obligation, less current portion ........................ 16,151 16,403
-------- --------
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, 5,909,286 shares
issued and 5,901,234 and 5,899,168 shares outstanding at April 2, 1999 and
January 1, 1999, respectively .............................................. 59 59
Treasury Stock, at cost ........................................................ (45) (158)
Additional paid-in capital ..................................................... 28,821 28,821
Retained Earnings .............................................................. 1,300 1,136
Other comprehensive income ..................................................... (1,060) (1,343)
-------- --------
Total shareholders' equity ................................................ 29,075 28,515
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................... $98,552 $96,025
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
TB Wood's Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Unaudited
First Quarter Ended
(in thousands, except per share amounts) April 2, 1999 April 3, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales ...................................................................... $30,058 $36,051
Cost of sales .................................................................. 18,978 22,675
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Gross profit .............................................................. 11,080 13,376
Selling, general, and administrative expenses .................................. 7,974 8,714
------- -------
Operating income .......................................................... 3,106 4,662
------- -------
Other expense:
Interest expense and other finance charges ................................ (599) (570)
Other, net ................................................................ (546) (121)
------- -------
Other expense, net ................................................... (1,145) (691)
------- -------
Income before provision for income taxes ....................................... 1,961 3,971
Provision for income taxes ..................................................... 785 1,588
------- -------
Net income ..................................................................... $ 1,176 $ 2,383
======= =======
Per share of common stock:
Basic net income per common share .............................................. $ 0.20 $ 0.41
======= =======
Weighted average shares of common stock ........................................ 5,902 5,859
======= =======
Diluted net income per common share ............................................ $ 0.20 $ 0.40
======= =======
Weighted average shares of common stock
and equivalents outstanding ............................................... 5,918 5,945
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
TB Wood's Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Unaudited
Year to Date
(in thousands) April 2, 1999 April 3, 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,176 $ 2,383
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization.............................................. 1,138 1,211
Change in deferred income taxes, net....................................... (100) 28
Stock option compensation expense.......................................... -- 21
Profit sharing compensation expense........................................ 156 --
Minority interest.......................................................... -- 22
Net gain on sale of assets................................................. -- (17)
Changes in working capital:
Accounts receivable, net ............................................. (1,097) (1,413)
Inventories, net ..................................................... 1,200 (1,359)
Prepaid expenses and other current assets............................. (1,281) (575)
Accounts payable ..................................................... 165 738
Accrued and other liabilities ........................................ (683) (1,210)
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Total adjustments ............................................... (502) (2,554)
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Net cash provided by (used in) operating activities.............. 674 (171)
------- -------
Cash Flows from Investing Activities:
Capital expenditures ........................................................... (2,156) (923)
Proceeds from sale of fixed assets.............................................. 216 246
Other, net ..................................................................... 371 (443)
------- -------
Net cash used in investing activities...................................... (1,569) (1,120)
------- -------
Cash Flows from Financing Activities:
Change in checks outstanding.................................................... (852) (557)
(Repayments)/proceeds of other long-term debt, net.............................. 2,904 (352)
Proceeds from new revolving credit facility..................................... 10,500 5,000
Repayments of new revolving credit facility..................................... (10,800) (3,000)
Payment of dividends ........................................................... (530) (469)
Treasury Stock ................................................................. (113) (73)
Other........................................................................... 1 --
------- -------
Net cash provided by (used in) financing activities........................ 1,110 549
------- -------
Effect of changes in foreign exchange rates..................................... 283 (329)
------- -------
Net (decrease) increase in cash and cash equivalents............................ 498 (1,071)
Cash and cash equivalents at beginning of period................................ 2,521 2,552
------- -------
Cash and cash equivalents at end of period...................................... $ 3,019 $ 1,481
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
TB Wood's Corporation and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(in thousands, except per share amounts)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of TB Wood's Corporation and
Subsidiaries (the "Company") as of April 2, 1999 and January 1, 1999,
and the results of operations and cash flows for the First Quarter ended
April 2, 1999 and April 3, 1998. Operating results for the interim
periods presented are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1999.
2. The major classes of inventories at April 2, 1999 and January 1, 1999
consisted of the following:
Unaudited
----------------------------------
April 2, January 1, 1999
1999
-----------------------------------------------------------------------
Raw materials and supplies $ 5,511 $ 5,982
Work in process 7,128 8,370
Finished goods 21,946 21,433
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Total at FIFO cost 34,585 35,785
Excess of FIFO cost over LIFO cost (5,930) (5,930)
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Total at LIFO cost $28,655 $29,855
======= =======
3. On April 7, 1999, the Board of Directors declared a quarterly cash
dividend of $0.09 per share payable on April 30, 1999 to stockholders of
record on April 19, 1999.
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 April 2, 1999 the number of shares
purchased under this authorization was 108,375. During the first quarter
of 1999, the number of treasury shares issued to employees under
employee option and stock purchase plans was 2,978 and the number of
shares issued for the Retirement Savings and Investment plan was 7,653.
As of April 2, 1999, 8,052 shares 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 non-owner changes in
equity.
Total comprehensive income for the first quarters ended April 2, 1999
and April 3, 1998 was as follows:
<TABLE>
<CAPTION>
Unaudited Unaudited
---------------------------------
April 2, 1999 April 3, 1998
---------------------------------
<S> <C> <C>
Net income ..................................... $1,176 $2,383
Other comprehensive income, net of tax:
Foreign currency translation adjustments... 283 (116)
------ ------
Total comprehensive income ..................... $1,459 $2,267
</TABLE>
6
<PAGE>
6. Basic 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. The
computation of weighted average shares outstanding and net income per
share are as follows:
<TABLE>
<CAPTION>
First Quarter
-----------------------------------
(in thousands, except per share amounts) April 2, 1999 April 3, 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of common shares outstanding 5,902 5,859
Shares issued upon assumed exercise of outstanding stock
options.................................................................. 16 86
------ ------
Weighted average number of common and common equivalent shares
outstanding.............................................................. 5,918 5,945
====== ======
Net Income .............................................................. $1,176 $2,383
====== ======
Basic net income per common share........................................ $ 0.20 $ 0.41
====== ======
Diluted net income per common share...................................... $ 0.20 $ 0.40
====== ======
</TABLE>
7. Segment Reporting
The following table summarizes revenues, operating income, total assets
and expenditures for long-lived assets by business segment as of April
2, 1999.
<TABLE>
<CAPTION>
Mechanical Electronics
Business Business Total
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<S> <C> <C> <C>
Revenues from external customers $17,762 $12,296 $30,058
Operating Profit 2,534 572 3,106
Depreciation 648 275 923
Segment Assets 48,109 34,125 82,234
Expenditures for long-lived assets 1,822 334 2,156
</TABLE>
The following table reconciles segment profit to consolidated income
before income taxes and extraordinary item as of April 2, 1999.
Total operating profit for reportable
segments $3,106
Interest, net (599)
Other unallocated amounts (546)
------
Income before income taxes
and extraordinary items $1,961
7
<PAGE>
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 1999 of $30,058, compared to $36,051 for the first quarter
1998, a decrease of 16.6%. The Mechanical Business net sales of $17,762 were
$3,545 lower than sales of $21,307 in comparable 1998. The lower sales were due
primarily to a slowing in demand in the fourth quarter of 1998, which continued
into the first quarter of 1999. The Electronics Business net sales were $12,296,
a $2,448 decrease from sales of $14,744 in the first quarter of 1998. The
slowing demand discussed above resulted in both divisions reporting a 16.6%
decrease in sales.
Total Company cost of sales ("COS") in the first quarter 1999 were
$18,978 compared to $22,675 for the same period last year, a decrease of 16.3%.
However, COS of 63.1% of sales was virtually unchanged from 1998's first quarter
of 62.9%. The Mechanical Business COS of $11,443 was $2,612 lower than COS of
$14,055 in the first quarter 1998. As a percent of sales, Mechanical Business
reported COS of 64.4%, down 1.6% from prior the year of 66.0%. The Electronics
Business COS was $7,536, a $1,083 decrease from COS of $8,619 in comparable
1998. As a percent of sales, Electronic Business COS increased 2.8% from 58.5%
in comparable 1998 to 61.3% for the first quarter of 1999. Slowing demand lead
to decreased absorption of Electronic Business fixed costs.
Selling, general and administrative ("SG&A") expenses for the first
quarter 1999 were $7,974, compared to $8,714 for the first quarter 1998, a
decrease of $740, or 8.5%. As a result of lower sales in the first quarter of
1999, SG&A, as a percent of sales, increased to 26.5% in the first quarter 1999
from 24.2% in the first quarter 1998.
Income from operations for the Company was $3,106 for the first quarter
1999, or 10.3% as a percent of sales, and $1,556 lower than first quarter 1998
income from operations of $4,662 which was 12.9% of sales.
Other expense for the first quarter 1999 was $1,145, compared to other
expense of $691 for the same period last year. Interest expense, a component of
other expense, for the Company was $599 in the first quarter of 1999, a $29
increase from $570 of interest expense in the first quarter of 1998. The
remaining increase was primarily the result of expenses related to the Lincoln
Electric Acquisition Project.
Net income in the first quarter 1999 was $1,176, or $0.20 per diluted
share, $1,207 lower than the $2,383, or $0.40 per diluted share, a year ago. The
decrease in earnings was due primarily to lower net sales in the first quarter
of 1999 and the one-time expenses noted above.
LIQUIDITY AND CAPITAL RESOURCES (in thousands, except per share amounts)
Working Capital at April 2, 1999 was $35,656, 6.5% above $33,493 at
January 1, 1999. The increase was due primarily to increased other current
assets and accounts receivable. Current ratio increased slightly to 2.9:1 at
April 2, 1999 from 2.8:1 at year-end 1998.
Outstanding long-term debt increased $2,706 in the first quarter to
$34,797 at April 2, 1999. Debt was comprised of $5,600 in tax-exempt revenue
bonds with virtually all of the remaining $29,197 in debt under the Company's
$47,500 unsecured revolving credit facility (the "Facility"). At April 2, 1999,
including $6,691 of outstanding standby letters of credit, the Company had
approximately $11,600 of available borrowing capacity under the Facility. The
Company paid an annual interest rate of approximately 5.8% on its outstanding
debt at April 2, 1999.
The Company's cash flow from operations in the first quarter of 1999
was $674, a $845 increase from comparable 1998. The Company believes that the
combination of cash generated by operations, available borrowing capacity and
the Company's ability to obtain additional long-term indebtedness is adequate to
finance the Company's operations for the foreseeable future.
8
<PAGE>
FINANCING ACTIVITIES
YEAR 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
Year 2000 approaches and thereafter, such systems may be unable to accurately
process certain date-based information. This could result in system failures or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions or engage in a variety of business
activities. The Company is undertaking a five-step process to evaluate the
impact of the Year 2000 compliance issue. These steps involve an inventory of
Company systems, an evaluation and analysis of systems regarding the Year 2000
compliance impact, implementation of modifications to specified systems, unit
testing, and finally systems or integration testing to validate compliance. The
Company relies upon third party vendors which supply goods and services to the
Company and, although the Company has consulted with various vendors in order to
minimize the risk of the Year 2000 compliance issue, such third parties may be
affected by the Year 2000 compliance issue. While the Company believes its
actions shall have the effect of ameliorating year 2000 risk, there can be no
assurance that the Company's internal systems or equipment or those of third
parties on which the Company relies will be Year 2000 compliant in a timely
manner or that the Company's or third parties' contingency plans will mitigate
the effects of noncompliance. The failure of the systems or equipment of the
Company or third parties could result in the reduction or suspension of the
Company's operations and could have a material adverse effect on the Company.
Subject to the final results of the evaluation and analysis of the Year 2000
compliance issue, the Company believes that its Year 2000 compliance costs will
not be material to its operations, liquidity or capital resources. There is
still uncertainty regarding the scope of the Year 2000 compliance issue and, at
this time, the Company is unable to quantify the impact of potential Year 2000
compliance failures. The Company's Year 2000 compliance program and possible
contingency plans are still being developed and assessed in order to attempt to
minimize the effect of failures within the Company's reasonable control.
EURO CURRENCY
The Company has recognized that effective January 1, 1999 eleven of the
fifteen countries of the European Union will begin the transition to the single
monetary unit, the "Euro". The Company has both operating divisions and
customers located in countries that are a part of the European Union. The
Company does not believe that there will be any material cost involved in order
to comply with these requirements of such operating divisions and customers
operating under the Euro.
9
<PAGE>
IMPACT OF ACCOUNTING STANDARDS
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.
10
<PAGE>
Part II - OTHER INFORMATION
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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
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 2, 1999.
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 Borough of
Chambersburg and Commonwealth of Pennsylvania, on May 11, 1999.
TB WOOD'S CORPORATION
By: /s/David H. Halleen
---------------------------------
DAVID H. HALLEEN
Vice President, Finance
(Principal Financial Officer and
Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR TO DATE PERIOD ENDED APRIL 2, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> APR-02-1999
<CASH> 3,019
<SECURITIES> 0
<RECEIVABLES> 18,947
<ALLOWANCES> 422
<INVENTORY> 28,655
<CURRENT-ASSETS> 54,185
<PP&E> 57,133
<DEPRECIATION> (28,265)
<TOTAL-ASSETS> 98,552
<CURRENT-LIABILITIES> 18,529
<BONDS> 34,797
0
0
<COMMON> 59
<OTHER-SE> 29,075
<TOTAL-LIABILITY-AND-EQUITY> 98,552
<SALES> 30,058
<TOTAL-REVENUES> 30,058
<CGS> 18,978
<TOTAL-COSTS> 26,952
<OTHER-EXPENSES> 546
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 599
<INCOME-PRETAX> 1,961
<INCOME-TAX> 785
<INCOME-CONTINUING> 1,176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,176
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
