TB WOODS CORP - 10-Q Quarterly Report

UNITED STATES
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 2, 2004.

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSISTION PERIOD from _______ to _________.

Commission File Number 1-14182

TB WOOD’S CORPORATION

(Exact Name of Registrant as Specified in its charter)

Delaware			25-1771145
(State of incorporation)			(IRS Employer I.D. No)

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 checkmark 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, and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934.
Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class			Outstanding at July 2, 2004

Common Stock, $.01 par value			5,162,101

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TB WOOD’S CORPORATION
FORM 10-Q – INDEX
July 2, 2004

Part I. – Financial Information		Page No.


Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Statements of Operations – for the Second Quarter and Six months ended July 2, 2004 and June 27, 2003	3

	Condensed Consolidated Balance Sheets – July 2, 2004 and January 2, 2004	4

	Condensed Consolidated Statements of Cash Flows – for the Six months ended July 2, 2004 and June 27, 2003	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16

Item 4.	Controls and Procedures	16

Part II. –	Other Information	17

Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults on Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information – Forward-Looking Statements and Cautionary Factors
Item 6.	Exhibits and Reports on Form 8-K

Signatures		18

Exhibit 31.1	Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002	19
Exhibit 31.2	Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002	20
Exhibit 32	Statement Pursuant to 18 U.S.C. Section 1350 as required by Section 906 of the Sarbanes Oxley Act of 2002	21

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Part I. – Financial Information
Item 1. Financial Statements

TB Wood’s Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

		Second Quarter Ended					Six Months Ended

(in thousands of dollars, except per share amounts)		July 2, 2004		June 27, 2003			July 2, 2004		June 27, 2003


Net Sales	$	25,459	$	25,103		$	51,540	$	47,657
Cost of Sales		17,211		17,081			35,778		32,704


Gross profit		8,248		8,022			15,762		14,953

Selling, general and administrative expense		7,600		7,366			14,390		13,503


Operating income		648		656			1,372		1,450


Other (income) expense:
Interest expense and other finance charges		378		231			747		448
Other (income) expense		—		(158	)		—		(170	)

Other expense, net		378		73			747		278


Income before provision for income taxes		270		583			625		1,172

Provision for income taxes		175		234			396		609


Net income	$	95	$	349		$	229	$	563


Per share amounts – Basic and Diluted:

Basic net income per common share	$	0.02	$	0.07		$	0.04	$	0.11


Diluted net income per common share	$	0.02	$	0.07		$	0.04	$	0.11


Basic weighted average shares of common
stock and equivalent outstanding		5,161		5,176			5,161		5,176


Diluted weighted average shares of common
stock and equivalent outstanding		5,165		5,176			5,165		5,176

The accompanying notes are an integral part of these condensed financial statements.

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TB Wood’s Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands of dollars, except per share amounts)		July 2, 2004			January 2, 2004

ASSETS
Current Assets:
Cash and cash equivalents	$	781		$	781
Accounts receivable less allowances of $918 at July 2, 2004
and $1,124 at January 2, 2004		16,425			14,067
Inventories		23,012			21,634
Other current assets		3,677			3,590

Total current assets		43,895			40,072


Property, plant and equipment		82,157			82,050
Less accumulated depreciation		56,240			54,848

Net property, plant and equipment		25,917			27,202

Other Assets:
Deferred income taxes		2,524			2,364
Goodwill		5,590			5,654
Other		970			1,115

Total other assets		9,084			9,133

TOTAL ASSETS	$	78,896		$	76,407


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	22,241		$	53
Accounts payable		7,766			7,169
Accrued expenses		6,669			6,519
Deferred income taxes		1,600			1,550

Total current liabilities		38,276			15,291


Long-term debt, less current maturities		5,932			25,371


Postretirement benefit obligation, less current portion		9,855			10,327


Shareholders’ Equity:
Preferred stock, $.01 par value, 100 shares authorized at July 2, 2004 and
January 2, 2004, and no shares issued or outstanding		—			—
Common stock, $.01 par value, 10,000,000 shares authorized; 5,639,798 issued; and
5,162,101 and 5,153,553 outstanding at July 2, 2004 and January 2, 2004,
Respectively		57			57
Additional paid-in-capital		26,995			26,910
Retained earnings		3,053			3,764
Accumulated other comprehensive loss		(652	)		(610	)
Treasury stock at cost		(4,620	)		(4,703	)

Total shareholders’ equity		24,833			25,418

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	78,896		$	76,407

The accompanying notes are an integral part of these consolidated financial statements.

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TB Wood’s Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

		Six Months Ended

(in thousands of dollars)		July 2, 2004			June 27, 2003

Cash flows from Operating Activities:
Net Income	$	229		$	563


Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		2,680			2,773
Change in deferred income taxes, net		(110	)		210
Other		136			110
Changes in operating assets and liabilities:
Accounts receivable		(2,358	)		(1,599	)
Inventories		(1,378	)		(182	)
Other current assets		(87	)		(715	)
Accounts payable		597			1,194
Accrued and other liabilities		(322	)		277

Total adjustments		(842	)		2,068

Net cash (used in) provided by operating activities		(613	)		2,631

Cash Flows from Investing Activities:
Capital expenditures		(1,207	)		(1,166	)
Other		15			(522	)

Net cash used in investing activities		(1,192	)		(1,688	)

Cash Flows from Financing Activities:
Proceeds from revolving credit facilities		20,356			21,200
Repayments of revolving credit facilities		(17,600	)		(21,500	)
Proceeds from long-term debt borrowing		—			335
Repayments of other long-term debt, net		(7	)		(59	)
Payments of dividends		(929	)		(943	)
Issuance (purchase) of treasury stock, net		27			(610	)

Net cash provided by (used in) financing activities		1,847			(1,577	)

Effect of changes in foreign exchange rates		(42	)		931

Net increase in cash and cash equivalents		—			297
Cash and cash equivalents at beginning of period		781			335

Cash and cash equivalents at end of period	$	781		$	632


Supplement Disclosure of Cash Flow Information:
Income taxes (refunded) paid	$	(310	)	$	175


Interest paid	$	774		$	466

The accompanying notes are an integral part of these consolidated financial statements.

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TB Wood’s Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands of dollars, except per share amounts)

1.	Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments consisting of normal recurring adjustments necessary to present fairly the consolidated financial position of TB Wood’s Corporation and Subsidiaries (the “Company”) and the results of their operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Certain prior period amounts have been reclassified to conform to the current period presentation.


	These financial statements should be read together with the audited financial statements and notes in the Company’s 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year.


	The Company reports its financial results on a 52/53-week fiscal year, consisting of four quarters of 13 weeks each, ending on the Friday nearest December 31. Fiscal 2004 is a 52-week year ending on December 31, 2004. Fiscal 2003 was a 53-week year which ended on January 2, 2004.


2.	Inventories


	The Company uses the last-in, first-out (“LIFO”) method of inventory valuation for approximately 77% percent of its inventories. Remaining inventories are accounted for using the first-in, first-out (“FIFO”) method. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of the expected year-end inventory levels and costs. Because these are subject to many forces beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation. The major classes of inventory consisted of the following:

		July 2 2004			January 2 2004

Finished goods	$	14,983		$	14,152
Work in process		4,465			4,028
Raw materials		8,934			8,787
LIFO reserve		(5,370	)		(5,333	)

Inventory value at LIFO	$	23,012		$	21,634


3.	Shareholders’ Equity


	Dividends:


	On July 15, 2004, the Board of Directors declared a quarterly cash dividend of $0.09 per share payable on July 30, 2004 to stockholders of record at the close of business on July 26, 2004.

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Treasury Stock:


	During the six months ended July 2, 2004 the Company did not purchase any shares for the treasury. Year to date, the number of treasury shares sold to employees under the stock purchase plan was 3,858 shares and the number of shares issued to participants in the Company’s 401(k) retirement plan was 4,690 shares.


	Stock Options:

On February 5, 2004, the Company granted options for the purchase of 103,800 shares of common stock to employees at exercise prices equal to or in excess of market price on the date of grant. On April 27, 2004 the Company granted options for the purchase of 84,000 shares of common stock to employees at exercise prices equal to or in excess of market price on the date of grant. These options vest over three years following the grant and expire on February 5, 2014, and April 27, 2014 respectively.

The Company adopted Financial Accounting Standards Board (FASB) Statement of Accounting Financial Standard (SFAS) No. 123, as amended by SFAS No. 148, as of December 28, 2002 (beginning of Fiscal 2003) to account for stock based compensation cost using the fair value method. The fair value after tax cost of stock based compensation cost was $29 and $27 for the second quarter of 2004 and 2003 respectively, and $53 and $54 for the 2004 and 2003 year to date periods, respectively.


4.	Other Comprehensive Income


	Total comprehensive income (loss) for the year to date periods ended July 2, 2004 and June 27, 2003 was as follows:

		Six Months Ended

		July 2, 2004			June 27, 2003

Net income	$	229		$	563
Other comprehensive income (loss)
Foreign currency translation adjustments		(42	)		931

Total comprehensive income (loss)	$	187		$	1,494


The components of accumulated other comprehensive income, net of income tax are as follows at the dates indicated:

		July 2, 2004			January 2, 2004

Aggregate currency translation adjustment	$	(652	)	$	(610	)

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Earnings Per Share


	Basic earnings per share is computed by dividing net income (loss) by the weighted average shares outstanding. Diluted earnings per share is computed by dividing net income (loss) by the weighted average shares and common equivalent shares if dilutive. The computation of weighted average shares outstanding is as follows:

	Second Quarter Ended

	July 2, 2004	June 27, 2003

Basic weighted average number of common shares outstanding	5,161	5,176
Shares issueable upon assumed exercise of outstanding stock options	4	—

Diluted weighted average number of common and common equivalent
shares outstanding	5,165	5,176


	Outstanding options to purchase 712,567 and 858,550 shares of common stock as of July 2, 2004 and June 27, 2003, respectively, are not included in the above calculation as their effect would be anti-dilutive.


5.	Postretirement Benefit


	The components of the net periodic post retirement benefit recognized are as follows: