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 October 1, 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 October 1, 2004

Common Stock, $.01 par value			5,166,678

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TB WOOD’S CORPORATION
FORM 10-Q – INDEX
October 1, 2004

Part I. – Financial Information		Page No.


Item 1.	Financial Statements (unaudited):

	Condensed Consolidated Statements of Operations – for the
	three month and nine month periods ended October 1, 2004 and September 26, 2003	3

	Condensed Consolidated Balance Sheets –
	October 1, 2004 and January 2, 2004	4

	Condensed Consolidated Statements of Cash Flows – for the
	nine months ended October 1, 2004 and September 26, 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	17

Part II. – Other Information		17

Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity 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

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)

		Three Months Ended					Nine Months Ended

		October 1,			September 26,		October 1,			September 26,
(in thousands of dollars, except per share amounts)		2004			2003		2004			2003


Net Sales	$	25,279		$	23,101	$	76,819		$	70,758
Cost of Sales		19,050			15,967		54,828			48,671


Gross profit		6,229			7,134		21,991			22,087

Selling, general and administrative expense		7,392			6,823		21,782			20,326


Operating (loss) income		(1,163	)		311		209			1,761


Other (income) expense:
Interest expense and other finance charges		460			232		1,207			680
Other (income) expense		—			1		—			(169	)

Other expense, net		460			233		1,207			511


(Loss) income before provision for income taxes		(1,623	)		78		(998	)		1,250

(Benefit) provision for income taxes		(277	)		22		119			631


Net (loss) income	$	(1,346	)	$	56	$	(1,117	)	$	619


Per share amounts – Basic and Diluted:

Basic net (loss) income per common share	$	(0.26	)	$	0.01	$	(0.22	)	$	0.12


Diluted net (loss) income per common share	$	(0.26	)	$	0.01	$	(0.22	)	$	0.12


Basic weighted average shares of common
stock and equivalent outstanding		5,166			5,156		5,166			5,156


Diluted weighted average shares of common
stock and equivalent outstanding		5,166			5,156		5,166			5,156

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

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

		October 1,			January 2,
(in thousands of dollars, except per share amounts)		2004			2004

ASSETS
Current Assets:
Cash and cash equivalents	$	761		$	781
Accounts receivable less allowances of $928 at October 1, 2004
and $1,124 at January 2, 2004		15,381			14,067
Inventories		22,381			21,634
Other current assets		3,895			3,590

Total current assets		42,418			40,072


Property, plant and equipment		82,848			82,050
Less accumulated depreciation		57,492			54,848

Net property, plant and equipment		25,356			27,202

Other Assets:
Deferred income taxes		2,604			2,364
Goodwill		5,729			5,654
Other		955			1,115

Total other assets		9,288			9,133

TOTAL ASSETS	$	77,062		$	76,407


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	21,652		$	53
Accounts payable		8,093			7,169
Accrued expenses		6,851			6,519
Deferred income taxes		1,625			1,550

Total current liabilities		38,221			15,291


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


Postretirement benefit obligation, less current portion		9,622			10,327


Shareholders’ Equity:
Preferred stock, $.01 par value, 100 shares authorized at October 1, 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
5,166,678 and 5,153,553 outstanding at October 1, 2004 and January 2, 2004,
Respectively		57			57
Additional paid-in-capital		27,046			26,910
Retained earnings		1,232			3,764
Accumulated other comprehensive loss		(472	)		(610	)
Treasury stock at cost		(4,576	)		(4,703	)

Total shareholders’ equity		23,287			25,418

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	77,062		$	76,407

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

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

		Nine Months Ended

		October 1,			September 26,
(in thousands of dollars)		2004			2003

Cash flows from Operating Activities:
Net (loss) income	$	(1,117	)	$	619


Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		4,007			4,135
Change in deferred income taxes, net		(165	)		841
Other		228			149
Changes in operating assets and liabilities:
Accounts receivable		(1,314	)		65
Inventories		(747	)		(2,085	)
Other current assets		(305	)		(264	)
Accounts payable		924			257
Accrued and other liabilities		(373	)		(152	)

Total adjustments		2,255			2,946

Net cash provided by operating activities		1,138			3,565

Cash Flows from Investing Activities:
Capital expenditures		(1,750	)		(1,655	)
Other		(354	)		(439	)

Net cash used in investing activities		(2,104	)		(2,094	)

Cash Flows from Financing Activities:
Proceeds from revolving credit facilities		30,084			34,494
Repayments of revolving credit facilities		(27,900	)		(34,700	)
Repayments of other long-term debt, net		(24	)		(65	)
Payments of dividends		(1,393	)		(1,407	)
Issuance (purchase) of treasury stock, net		41			(619	)

Net cash provided by (used in) financing activities		808			(2,297	)

Effect of changes in foreign exchange rates		138			994

Net (decrease) increase in cash and cash equivalents		(20	)		168
Cash and cash equivalents at beginning of period		781			335

Cash and cash equivalents at end of period	$	761		$	503


Supplement Disclosure of Cash Flow Information:
Income taxes (refunded)	$	(175	)	$	(282	)


Interest paid	$	1,190		$	710

The accompanying notes are an integral part of these condensed 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 condensed 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 73% 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:

		October 1,			January 2,
		2004			2004

Finished goods	$	15,263		$	14,152
Work in process		3,462			4,028
Raw materials		8,817			8,787
LIFO reserve		(5,161	)		(5,333	)

Inventory value at LIFO	$	22,381		$	21,634

3.	Shareholders’ Equity

	Treasury Stock:

	During the nine months ended October 1, 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 5,920 shares and the number of shares issued to the Company’s 401(k) retirement plan was 7,205 shares.

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	Stock Options:

On February 5, 2004, the Company granted options for the purchase of 103,800 shares of common stock to employees and directors 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 $31 and $27 for the third quarter of 2004 and 2003 respectively, and $84 and $81 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 October 1, 2004 and September 26, 2003 was as follows:

		Nine Months Ended

		October 1,			September 26,
		2004			2003

Net (loss) income	$	(1,117	)	$	619
Other comprehensive income
Foreign currency translation adjustments		138			994

Total comprehensive (loss) income	$	(979	)	$	1,613


The components of accumulated other comprehensive loss, net of income tax are as follows at the dates indicated:
		October 1,			September 26,
		2004			2003


Aggregate currency translation adjustment	$	(472	)	$	(1,217	)

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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:

				Third Quarter Ended

				October 1,			September 26,
				2004			2003