<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 March 31, 2000
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
Incorporation of Organization) Identification Number)
440 North Fifth Avenue, Chambersburg, PA 17201
---------------------------------------- ------------------
(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 March 31, 2000
- ---------------------------- -----------------------------
Common Stock, $.01 par value 5,470,552
<PAGE>
Table of Contents
Part I. - Financial Information Page No.
- ------------------------------- --------
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
For the First Quarter Ended March 31, 2000
and April 2, 1999 4
Condensed Consolidated Statements of Cash Flows -
For Periods Ended March 31, 2000 and April 2, 1999 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
- ----------------------------
<PAGE>
Part I.-Financial Information
Item 1. Financial Statements
TB Wood's Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
(in thousands, except per share and share amounts) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................... $ 1,649 $ 1,245
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $442 at March 31, 2000 and $402 at December 31, 1999 ......... 20,349 18,593
Inventories ................................................................. 34,156 34,160
Other current assets ........................................................ 1,904 1,834
--------- ---------
Total current assets ................................................... 58,058 55,832
--------- ---------
Property, plant, and equipment ............................................. 65,468 63,933
Less accumulated depreciation ............................................... 33,138 32,326
--------- ---------
Net property, plant and equipment ....................................... 32,330 31,607
--------- ---------
Other Assets:
Deferred income taxes ....................................................... 3,340 3,454
Goodwill, net of accumulated amortization of $1,719 at
March 31, 2000 and $1,672 at December 31, 1999 ......................... 9,742 9,805
Other ....................................................................... 2,262 2,168
--------- ---------
Total other assets .................................................... 15,344 15,427
--------- ---------
TOTAL ASSETS ................................................................ $ 105,732 $ 102,866
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ........................................ $ 273 $ 273
Accounts payable ............................................................ 11,597 12,407
Checks outstanding ......................................................... 1,961 1,003
Accrued expenses ............................................................ 7,386 7,935
Deferred income taxes ....................................................... 1,034 1,034
--------- ---------
Total current liabilities .............................................. 22,251 22,652
--------- ---------
Long-term debt, less current maturities .................................... 38,600 36,651
--------- ---------
Postretirement benefit obligation, less current portion ..................... 14,912 15,134
--------- ---------
Equity in minority shareholders ............................................. 1,226 737
--------- ---------
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, 5,887,698 shares
issued and 5,470,552 and 5,465,814 shares outstanding at March
31, 2000 and December 31, 1999, respectively ............................ 59 59
Treasury Stock, at cost ..................................................... (3,878) (3,811)
Additional paid-in capital ................................................. 29,086 29,086
Retained Earnings ........................................................... 5,009 4,001
Other comprehensive income ................................................. (1,533) (1,643)
--------- ---------
Total shareholders' equity ............................................ 28,743 27,692
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................ $ 105,732 $ 102,866
========= =========
</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
Mar. 31 April 2,
(in thousands, except share and per share amounts) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net sales ....................................... $ 35,217 $ 30,058
Cost of sales ................................... 22,498 18,978
-------- --------
Gross profit .................................. 12,719 11,080
Selling, general and administrative expenses .... 8,905 7,974
-------- --------
Operating income, before minority interest ... 3,814 3,106
-------- --------
Minority Interest ............................... 473 --
-------- --------
Operating income ................................ 3,341 3,106
Other expense:
Interest expense and other finance charges ... (702) (599)
Other, net ................................... (14) (546)
-------- --------
Other expense, net ........................ (716) (1,145)
-------- --------
Income before provision for income taxes ........ 2,625 1,961
-------- --------
Provision for income taxes ...................... 997 785
-------- --------
Net income ...................................... $ 1,628 $ 1,176
======== ========
Per share of common stock:
Basic net income per common share ............... $ 0.30 $ 0.20
======== ========
Weighted average shares of common stock ......... 5,473 5,902
======== ========
Diluted net income per common share ............. $ 0.30 $ 0.20
======== ========
Diluted weighted average shares of common stock
and equivalents outstanding .................. 5,479 5,918
======== ========
</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
Mar. 31, Apr. 2,
(in thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income .......................................................... $ 1,628 $ 1,176
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................. 1,278 1,138
Change in deferred income taxes, net ........................... 114 (100)
Stock option compensation and employee stock benefit expense ... 102 156
Minority interest .............................................. 473 --
Net loss (gain) on sale of assets .............................. 2 --
Changes in working capital:
Accounts receivable, net .................................. (1,756) (1,097)
Inventories, net .......................................... 4 1,200
Prepaid expenses and other current assets ................. (70) (1,281)
Accounts payable .......................................... (810) 165
Accrued and other liabilities ............................. (488) (683)
-------- --------
Total adjustments .................................... (1,151) (502)
-------- --------
Net cash provided by operating activities ............ 477 674
-------- --------
Cash Flows from Investing Activities:
Capital expenditures ................................................ (2,369) (2,156)
Proceeds from sale of fixed assets .................................. 6 216
Other, net .......................................................... (1) 371
-------- --------
Net cash used in investing activities .......................... (2,364) (1,569)
-------- --------
Cash Flows from Financing Activities:
Change in checks outstanding ........................................ 958 (852)
(Repayments)/proceeds of other long-term debt, net .................. (41) 2,904
Proceeds from new revolving credit facility ......................... 11,600 10,500
Repayments of new revolving credit facility ......................... (9,500) (10,800)
Payment of dividends ............................................... (494) (530)
Treasury Stock ...................................................... (365) (113)
Other ............................................................... 23 1
-------- --------
Net cash provided by financing activities ...................... 2,181 1,110
-------- --------
Effect of changes in foreign exchange rates ......................... 110 283
-------- --------
Net increase in cash and cash equivalents ........................... 404 498
Cash and cash equivalents at beginning of period .................... 1,245 2,521
-------- --------
Cash and cash equivalents at end of period .......................... $ 1,649 $ 3,019
======== ========
</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 March 31, 2000 and December 31, 1999
and the results of operations and cash flows for the First Quarter ended
March 31, 2000 and April 2, 1999. Operating results for the interim
periods presented are not necessarily indicative of the results that may
be expected for the fiscal year ending December 29, 2000.
2. The major classes of inventories at March 31, 2000 and December 31, 1999
consisted of the following:
Unaudited
------------------------
March 31, December 31,
2000 1999
-------- ------------
Raw materials and supplies ....... $ 6,885 $ 7,465
Work in process ................. 9,824 9,708
Finished goods .................. 23,430 22,970
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Total at FIFO cost ............... 40,139 40,143
Excess of FIFO cost over LIFO cost (5,983) (5,983)
-------- --------
Total at LIFO cost ............... $ 34,156 $ 34,160
-------- --------
3. On April 5, 2000, the Board of Directors declared a quarterly cash
dividend of $0.09 per share payable on April 28, 2000 to stockholders of
record on April 17, 2000.
4. In 1996, the Board of Directors authorized, subject to certain business
and market conditions, the Company to purchase up to 200,000 of the
Company's common shares. Through March 31, 2000 the number of shares
purchased under this authorization was 176,832. During the first quarter
of 2000, 3,541 treasury shares were issued to employees under employee
option and stock purchase plans, and the number of shares issued for the
Retirement Savings and Investment plan was 12,854. As of March 31, 2000
417,146 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 year-to-date periods ended March 31,
2000 and April 2, 1999 was as follows:
<TABLE>
<CAPTION>
Unaudited Unaudited
------------------ -----------------
March 31, 2000 April 2, 1999
------------------ -----------------
<S> <C> <C>
Net Income......................................... $1,628 $1,176
Other comprehensive income, net of tax:
Foreign currency translation adjustments....... 110 283
------ ------
Total comprehensive income......................... $1,738 $1,459
====== ======
</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:
First Quarter
-------------------------
March 31, April 2,
(in thousands, except per share amounts) 2000 1999
- -------------------------------------------------------------------------------
Weighted average number of common shares
outstanding.................................... 5,473 5,902
Shares issued upon assumed exercise of
outstanding stock options...................... 6 16
------ ------
Weighted average number of common and
common equivalent shares outstanding........... 5,479 5,918
====== ======
Net Income....................................... $1,628 $1,176
====== ======
Basic net income per common share................ $0.30 $0.20
====== ======
Diluted net income per common share.............. $0.30 $0.20
====== ======
7. Segment Reporting
The following table summarizes revenues, operating income, total assets
and expenditures for long-lived assets by business segment as of March
31, 2000.
Mechanical Electronics
Business Business Total
---------------------------------------
Revenues from external customers $21,603 $13,614 $35,217
Year to date operating profit,
after minority interest 2,317 1,024 3,341
Depreciation and amortization 865 413 1,278
Segment assets 57,090 43,741 100,831
Expenditures for long-lived assets 2,048 321 2,369
7
<PAGE>
The following table reconciles segment profit to consolidated income
before income taxes as of March 31, 2000.
Total operating profit for reportable
segments $3,341
Interest, net (702)
Other, net (14)
Income before income taxes
and extraordinary items $2,625
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 2000 of $35,217, compared to $30,058 for the first quarter
1999, an increase of 17.2%. Mechanical Business net sales for the first quarter
of $21,603 were $3,841 higher than net sales of $17,762 in comparable 1999. The
improvement resulted from the incremental sales obtained through the joint
venture with The Electron Corp., the success of the North American target market
programs, and generally more healthy economic climate this year compared to last
year. Electronics Business net sales were $13,614, a $1,318 increase from net
sales of $12,296 in the first quarter of 1999. The improvement resulted from
stronger AC drive shipments in North America and Europe as a result of the
target market programs.
Company cost of sales ("COS") in the first quarter 2000 were $22,498
compared to $18,978 for the same period last year. As a percent of sales, COS of
63.9% for the first quarter 2000 increased 0.8% from 1999's first quarter of
63.1%. Mechanical Business COS of $14,157 in the first quarter 2000 was $2,714
higher than COS of $11,443 in the first quarter 1999. As a percent of sales for
the first quarter 1999, Mechanical Business reported COS of 65.5%, up 1.1% from
64.4% in the prior year. This change was the result of a favorable accounting
adjustment which was recognized during the first quarter last year. Electronics
Business COS for the first quarter 2000 was $8,341, an $806 increase from COS of
$7,535 for the same quarter of 1999. As a percent of sales for the first quarter
2000 versus the first quarter 1999, Electronics Business COS held at 61.3%.
Selling, general and administrative ("SG&A") expenses for the first
quarter 2000 were $8,906, compared to $7,974 for the first quarter 1999, an
increase of $932, or 11.7%. SG&A, as a percent of sales, decreased to 25.3% in
the first quarter 2000 from 26.5% in the first quarter 1999. The major reasons
for the change in absolute dollars were additional variable costs to support
higher levels of revenue, some one-time employee related expenses, investments
in market research for new electronic growth opportunities, and year-over-year
inflation.
Income from operations for the Company was $3,341 for the first quarter
2000, or 9.5% as a percent of sales, and $235 higher than first quarter 1999
income from operations of $3,106, which was 10.3% of sales.
Other expense for the first quarter 2000 was $716, compared to other
expense of $1,145 for the same period last year. Interest expense, a component
of other expense, for the Company was $702 in the first quarter of 2000, a $103
increase from $599 of interest expense in the first quarter of 1999. The first
quarter of 1999 included the write-off of expenses related to the cancelled
Lincoln Electric acquisition, severance payments associated with the closure of
the Company's Greensboro, North Carolina facility, and expenses related to
moving into the San Marcos, Texas coupling facility.
8
<PAGE>
Net income in the first quarter 2000 was $1,628, or $0.30 per diluted
share, $452 higher than the $1,176, or $0.20 per diluted share, a year ago.
LIQUIDITY AND CAPITAL RESOURCES (in thousands, except per share amounts)
Working Capital at March 31, 2000 was $35,807, 7.9% above $33,180 at
December 31, 1999. The increase was due primarily to a decrease in accounts
payable and an increase in accounts receivable. Current ratio increased to 2.6:1
at March 31, 2000 from 2.5:1 at year-end 1999.
Outstanding long-term debt increased $1,949 to $38,600 at March 31,
2000 compared to $36,651 at year-end 1999. Debt was comprised of $5,550 in
tax-exempt revenue bonds, $32,767 in debt under the Company's $52,500 unsecured
revolving credit facility (the "Facility"), and $333 in other instruments. At
March 31, 2000, including $6,384 of outstanding standby letters of credit, the
Company had approximately $13,349 of available borrowing capacity under the
Facility. The Company's annual interest rate as of March 31, 2000 on the
Facility was 7.0%.
The Company's cash flows from operations in the first quarter 2000 were
$477, a $197 decrease from comparable 1999. 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.
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. While
the Company believes its actions have ameliorated the 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 or that
the Company's or third parties' contingency plans will mitigate the effects of
noncompliance. 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. As of the date of this filing, the
Company has not experienced any material Year 2000 problems in any of the
Company's facilities or operations.
EURO CURRENCY
The Company has recognized that effective January 1, 1999 eleven of the
fifteen countries of the European Union made 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.
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. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS
No. 137 delays the Standard effective date to the beginning of the first quarter
of the fiscal year beginning after June 15, 2000. Adoption of this statement is
not expected to have a material effect on the Company's financial statements.
9
<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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risks since the 1999
Annual Report to Shareholders.
10
<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
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 March 31, 2000.
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 9, 2000
TB WOOD'S CORPORATION
By: /s/Thomas F. Tatarczuch
-----------------------------------
THOMAS F. TATARCZUCH
Vice President-Finance
(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 MARCH 31, 2000 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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,649
<SECURITIES> 0
<RECEIVABLES> 20,791
<ALLOWANCES> (442)
<INVENTORY> 34,156
<CURRENT-ASSETS> 58,058
<PP&E> 65,468
<DEPRECIATION> (33,138)
<TOTAL-ASSETS> 105,732
<CURRENT-LIABILITIES> 22,251
<BONDS> 38,600
0
0
<COMMON> 59
<OTHER-SE> 28,743
<TOTAL-LIABILITY-AND-EQUITY> 105,732
<SALES> 35,217
<TOTAL-REVENUES> 35,217<F1>
<CGS> 22,498
<TOTAL-COSTS> 31,403
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (702)
<INCOME-PRETAX> 2,625
<INCOME-TAX> 997
<INCOME-CONTINUING> 1,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,628
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
<FN>
<F1>Revenues are reported net of credits in the Statement of Operations
</FN>
</TABLE>
