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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 North Fifth Avenue, Chambersburg, PA 17201
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 264-7161
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each class Which Registered
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price on February 12, 2001, was $47,496,768. On
February 12, 2001, there were 5,397,360 shares of the registrant's common stock
outstanding.
1
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2001 Annual Meeting of Shareholders are
incorporated by reference into Part III hereof. Only those specific portions so
incorporated are to be deemed filed as part of this Form 10-K.
2
TB WOOD'S CORPORATION
FISCAL YEAR 2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I................................................................................................................... 4
Item 1. Business.................................................................................................4
Item 2. Properties...............................................................................................9
Item 3. Legal Proceedings........................................................................................9
Item 4. Submission of Matters to a Vote of Security Holders.....................................................10
PART II..................................................................................................................11
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters...................................11
Item 6. Selected Financial Data.................................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation....................12
Item 8. Financial Statements and Supplementary Data.............................................................17
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure .............................................................................................37
PART III.................................................................................................................38
Item 10. Directors and Executive Officers of the Registrant.....................................................38
Item 11. Executive Compensation.................................................................................38
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................38
Item 13. Certain Relationships and Related Transactions.........................................................38
PART IV..................................................................................................................39
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................39
SIGNATURES...............................................................................................................42
3
PART I
Item 1. Business.
General
TB Wood's Corporation (the "Company" or "TB Wood's") is an established
designer, manufacturer and marketer of electronic and mechanical industrial
power transmission products. The Company's products are sold to North American
and international manufacturers and users of industrial equipment. Headquartered
in Chambersburg, Pennsylvania, the 144 year-old business operates 11 production
facilities with over 1,100 employees in the United States, Canada, Mexico,
Germany, India and Italy. The Company has a network of more than 1,000 select
independent and multi-branch distributors with over 3,000 locations in North
America.
History
TB Wood's Incorporated ("TBW"), the original Pennsylvania corporation
that was founded in 1857, entered the power transmission industry at the turn of
the century. The Company was incorporated in 1995. In January 1996, a subsidiary
of the Company merged with TBW, with TBW as the surviving corporation in the
merger. The end result of the merger is that TBW is a subsidiary of the Company.
The Company's core electronic product offer totaled 11 product families
in 1996. Since that time, the Company has introduced and launched several new
electronic products and product line extensions that bring the total number of
active electronic product families to 34. Eight of these introductions have
occurred within the last three years. These include a new line of full-featured
drives, a high-performance vector drive, an integrated motor drive, and a
sub-micro drive. In 2001, the Company will introduce a National Sanitation
Foundation certified drive for use in Food Area Splash zone applications. In
addition, the Company has continued its focus on cost-effective drives for
industrial Original Equipment Manufacturer ("OEM") applications. Since 1992, the
Company has introduced nine new mechanical products and product line extensions,
including three mechanical belted drive products and four new coupling products.
The Company uses acquisitions and strategic alliances to enhance
product offerings, gain access to technology and products, leverage fixed costs,
and extend the Company's global reach. Since 1993 the Company has completed
eight acquisitions. In the electronics business the Company acquired Plant
Engineering Consultants, Inc., an established supplier of integrated drive
systems for the fibers industry; Ambi-Tech Industries, Inc., a leading
manufacturer of electronic brakes; and Graseby Controls Inc., a supplier of
high-frequency drives for machine tool applications. In December 1997, the
Company acquired Berges electronic GmbH in Germany, and its subsidiary Berges
electronic S.r.l. in Italy. The Berges companies are well-established drive
developers, manufacturers and marketers, and are located in the two most
important machinery markets in Europe. The Company's mechanical business
acquisitions include several lines of flexible couplings and variable speed
drives from Dana Corporation; Grupo Blaju S.A. de C.V., the leading Mexican
manufacturer and marketer of belted drives; and Deck Manufacturing, a producer
of gear couplings. During July, 1999, the Company entered into a joint venture
with Electron, located in Littleton, Colorado in the belted drive business to
leverage fixed costs, provide additional foundry capacity, and open new customer
opportunities. The Company has strategic alliances with companies in Finland,
France, Switzerland, Australia, New Zealand and Japan.
Industry Overview
The power transmission industry provides electronic and mechanical
products used in manufacturing and material processing activities that transfer
controlled power from a motor or engine to a machine. The power transmission
industry consists of three product categories: mechanical power transmission
components, gear boxes and electronic drives. The Company competes in the
electronic drives and mechanical power transmission component's product
categories.
4
Products
The products manufactured by the Company are classified into two
segments, mechanical business and electronics business. The mechanical business
segment includes belted drives and couplings. The electronics business segment
includes electronic drives and electronic drive systems. Products of these
segments are sold to distributors, original equipment manufacturers, and end
users for manufacturing and commercial applications.
For further product information, refer to the consolidated financial
statements and footnote No. 9 included in this Form 10-K.
2000 1999 1998
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- --- --------- --- --------- ---
Electronic Power $51.4 38.2% $50.0 39.9% $57.4 42.4%
Transmission
Products
Mechanical Power 83.0 61.8% 75.3 60.1% 78.0 57.6%
Transmission
Products
$134.4 100.0% $125.3 100.0% $135.4 100.0%
Electronic Product Offering
The Company designs and manufactures Alternating Current ("AC") and
Direct Current ("DC") electronic drives and integrated electronic drive systems
that are marketed throughout North America and internationally. These products
are used to control the speed, acceleration, and other operating characteristics
of electric motors in manufacturing processes. The Company's standard AC
electronic drive products, which represent most of its net sales of electronic
drive product offering, are programmable to meet the needs of specific
applications with particular strengths in food processing, materials handling,
packaging and general machinery applications. The Company's electronic products
are designed to meet both North American and European standards. The Company's
integrated electronic drive systems consist of uniquely configured AC and/or DC
electronic drives, programmable logic controllers and in-house designed custom
software. These systems are packaged in custom enclosures to meet the
requirements of specific applications.
Mechanical Product Offering
The Company's mechanical product offering includes a full line of stock
and made-to-order products including V-belt drives, synchronous drives, open
belted variable speed drives and a broad line of flexible couplings, as well as
hydrostatic drives, clutches and brakes. These products are used in a variety of
industrial applications to transmit power from motors and engines to machines.
The primary markets for these products are the construction, oilfield and
specialized industrial machinery, food processing, material handling, pumps,
compressors, mining, pulp and paper and agricultural equipment industries.
Marketing and Distribution
The Company's products are sold principally throughout North America
and, to a lesser extent, internationally. In North America, the Company sells to
selected, authorized, industrial distributors who resell the Company's products
to industrial consumers and Original Equipment Manufacturers ("OEMs"). The
5
Company also sells directly to over 300 OEMs. The Company's marketing alliances
include licensing agreements and distribution agreements with distributors and
manufacturers who, in some cases, market the Company's products under private
label agreements. In North America, the Company has its own technical sales
force of more than 40 people and several specialized manufacturers'
representatives.
The Company operates central distribution centers in Chambersburg,
Pennsylvania; Stratford, Ontario and Mexico City, Mexico and regional
distribution centers in Atlanta, Georgia; Dallas, Texas; Montreal, Quebec;
Orlando, Florida; Reno, Nevada; Edmonton, Alberta; Marienheide, Germany;
Bangalore, India; and Naturns, Italy.
The Company's products are manufactured to maintain stock inventories
and to meet forecasts from specific customers. On-time delivery is important.
Order backlogs are generally less than one month's customer shipments and are
not considered to be material in amount.
Customers
The Company's products are consumed principally by industrial users
through industrial distributors. The Company's OEM customers include a number of
Fortune 500 companies. The Company's distributor customers include, among
others, Motion Industries and Kaman Industrial Technologies who are among the
largest distributors in the power transmission industry. In addition, the
Company's distributors also sell to OEMs. Management believes that the Company
is one of the leading suppliers of power transmission products, based on sales
volume, to its distributors. The Company's five largest customers accounted for
approximately 31% of the Company's net sales in 2000.
Competition
The power transmission industry is highly competitive. Competition in
the AC and DC electronic drive product categories is based on product
performance, physical size of the product, tolerance for hostile environments,
application support, availability and price. The Company's competitors in these
electronic product categories include large multi-national companies in North
America, Europe and Asia, as well as many small, domestic niche manufacturers.
The integrated electronic drive system market is driven by increased demand from
end users for greater speed and process control. This market includes sales of
products used in the maintenance and replacement of existing systems, upgrades
to existing systems and new capacity expansion. Competition is based on process
knowledge and engineering, software design, product durability and price. Major
systems competitors include Asea Brown Boveri, Allen Bradley and Siemens Corp.
The Company competes with several divisions of large industrial companies as
well as many small to mid-sized independent companies in the mechanical product
category. Competition in the mechanical product offering is based on
availability, quality, price, size capability, engineering and customer support.
The Company's most significant competitors in the mechanical product category
include Rockwell, Emerson Electric Co. Inc., Martin Sprocket and Gear, Rexnord
Corp. and Lovejoy Industries Inc. Management believes that there are no
significant foreign competitors in the North American mechanical product market
because of a fragmented customer base, prohibitive freight costs as compared to
selling price and difficult access to existing distribution channels.
Research and Development
The Company's research and development efforts include the development
of new products, the testing of products, and the enhancement of manufacturing
techniques and processes. The Company's annual expenditures for research and
development (including royalties and payments to third parties) as a percent of
net sales during the last three fiscal years have been 2.3% for 2000, 2.9% for
1999, and 2.6% for 1998. The Company is completing a new Technology Center at
the Chambersburg facility which is designed to make the research and development
investment more productive by making it easier for engineers to share insights
and collaborate on projects.
6
Raw Materials
The Company uses standard purchased components in all of its
electronics products. The Company also purchases specialized components designed
by its engineers. Purchased components include power transistors, capacitors,
printed circuit boards, aluminum heat sinks, plastic enclosures and sheet metal
stampings. These electronic parts and components are purchased from a number of
suppliers and management has taken steps to qualify multiple sources for key
items. The principal raw materials used in the Company's mechanical
manufacturing operations are various types of steel, including pig iron, metal
stampings, castings, forging and powdered metal components. The Company also
designs, tools and out-sources special components made of aluminum, powdered
metal and polymers. The Company purchases the materials used in its mechanical
manufacturing operations from a number of suppliers and management believes that
the availability of its materials is adequate.
Patents and Trademarks
The Company owns patents relating to its coupling, composite,
synchronous drive, open belted variable speed drive electronic drive and
clutch/brake product lines. The Company also owns several patents relating to
the design of its products. From time to time, the Company will grant licenses
to others to use certain of its patents and will obtain licenses under the
patents of others. In addition, the Company owns or has the right to use
registered United States trademarks for the following principal products:
Sure-Flex(R), Formflex(R), Ultra-V(R), Roto-Cone(R), Var-A-Cone(TM), True
Tube(TM), E-trAC(R), Ultracon(R), Fiberlink(TM), Dura-Flex, Disc-O-Torque, DST,
E-Trol, HST, IST, NLS, Roto-Cam, Softron, and Sure-Grip.
Employees
As of December 29, 2000, the Company employed over 1,100 people. Over
30 of the Company's hourly employees located at its Stratford, Ontario, Canada
facility are represented by the United Steelworkers of Canada pursuant to a
collective bargaining agreement dated January 19, 2001 that expires on January
19, 2004. Over 133 of the Company's employees located at its Mexico City, Mexico
facility are represented by the National Metal Workers' Union of Mexico pursuant
to a collective bargaining agreement that expires on January 31, 2002. The
Company has created the TB Wood's Institute, which offers training programs to
improve employees' operating, management and team-building skills.
Environmental Matters
As with most industrial companies, the Company's operations and
properties are required to comply with, and are subject to liability under,
federal, state, local and foreign laws, regulations and ordinances relating to
the use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of claims with respect to
environmental matters and there can be no assurance that material costs will not
be incurred in connection with such liabilities or claims.
Both the Mt. Pleasant, Michigan (the "Mt. Pleasant Facility") and the
Chambersburg, Pennsylvania (the "Chambersburg Facility") facilities had been
listed on the Comprehensive Environmental Response, Compensation, and Liability
Information System ("CERCLIS") (a list of sites maintained by the United States
Environmental Protection Agency ("USEPA") for which a determination was to be
made concerning whether investigation or remediation under CERCLA would be
required). Both have been designated by USEPA as requiring no further action
under CERCLA; therefore, the Company does not believe that material expenditures
for these sites will be incurred under the CERCLA program. However, this does
not assure that such expenditures would not be required under other federal
and/or state programs.
7
The Mt. Pleasant Facility is currently listed on Michigan's inactive
hazardous waste site list pursuant to the Michigan version of CERCLA (formerly
known as "Act 307", amended and recodified on June 5, 1995 as Part 201 of the
Natural Resources and Environmental Protection Act ("Part 201")). The Mt.
Pleasant Facility was first placed on the Michigan hazardous waste site list in
1991, when the Facility was owned by Dana Corporation. When the Company acquired
the Mt. Pleasant Facility from Dana Corporation, the Asset Purchase Agreement
dated March 31, 1993 (the "Asset Purchase Agreement") included an environmental
indemnity provision. Pursuant to this provision, Dana Corporation agreed to
indemnify the Company with respect to any environmental liabilities to the
extent they arose out of environmental conditions first occurring on or before
the closing date, including the presence or release of any hazardous substances
at, in, or under the Mt. Pleasant Facility and with respect to the
identification of the Mt. Pleasant Facility on the Michigan list of inactive
hazardous waste sites. The Dana Corporation is conducting a limited remediation
with respect to volatile organic compounds found in soils and groundwater. The
Company has not been notified by the Michigan Department of Natural Resources or
any other governmental agency or person that it has any responsibility for
investigating or remediating such environmental conditions. Although the Company
has no reason to believe Dana Corporation cannot fulfill its remediation and
indemnification obligations under the Asset Purchase Agreement, if Dana
Corporation is unable to fulfill such commitments, then the Company may incur
additional costs.
The Company believes that its facilities are in substantial compliance
with current regulatory standards applicable to air emissions under the Clean
Air Act Amendments of 1990 ("CAAA"). At this time, the Company cannot estimate
when other new air standards will be imposed or what technologies or changes in
processes the Company may have to install or undertake to achieve compliance
with any applicable new requirements at its facilities. The Company has no
reason to believe that such expenditures are likely to be material.
Similarly, based upon the Company's experience to date, the Company
believes that the future cost of currently anticipated compliance with existing
environmental laws relating to wastewater, hazardous waste and employee and
community right-to-know should not have a material adverse effect on the
Company's financial condition.
Recent Developments
On February 15, 2001 the Company announced that shares of its common
stock would no longer be traded on the New York Stock Exchange ("NYSE").
Effective February 21, 2001, the Company's common stock began trading on The
Nasdaq Stock Market ("Nasdaq") under the symbol TBWC.
The Company decided to list its common stock on the Nasdaq after the
NYSE notified the Company in December 2000, that it did not meet certain of the
NYSE's continued listing criteria. Following an analysis and recommendation by
management, the Company's Board of Directors determined that moving to the
Nasdaq was in the best interest of the Company. Nasdaq approved the Company's
listing application on February 9, 2001.
8
Item 2. Properties.
The Company owns and operates the following facilities:
Location Operations Sq. Feet
-------- ---------- ---------
Chambersburg, Foundry production of iron, and manufacturing and engineering 440,000
Pennsylvania of mechanical products. Central distribution, administrative
offices and corporate headquarters.
Scotland, Pennsylvania Manufacturing and engineering of electronic products. 51,300
Trenton, Tennessee Manufacturing of mechanical products. 60,000
Stratford, Ontario Manufacturing of mechanical products. Central distribution and 46,000
administrative offices for Canada.
San Marcos, Texas Manufacturing and engineering of mechanical products. 51,000
Mt. Pleasant, Michigan Manufacturing of mechanical products. 30,000
Chattanooga, Tennessee Manufacturing, engineering and sales of integrated electronic 60,000
drive systems. Headquarters of PEC.
Marienheide, Germany Manufacturing, engineering and sales of electronic products. 9,800*
Central distribution and administrative offices for Berges
electronic GmbH.
Naturns, Italy Manufacturing of electrical products. 19,500*
Elk Grove, Illinois Distribution center. 21,700
Bangalore, India Manufacturing, engineering and sales of integrated electronic 4,500*
drive systems.
Greensboro, North Carolina Manufacturing of electrical products. 22,400
- ---------------------
*Includes certain leased space
In addition, the Company leases manufacturing facilities in Mexico
City, Mexico. The Company also has distribution facilities in: Atlanta, Georgia;
Dallas, Texas; Montreal, Quebec; Edmonton, Alberta; Orlando, Florida; and Reno,
Nevada.
Item 3. Legal Proceedings.
The Company is a party to various legal actions arising in the ordinary
course of business. The Company does not believe that the outcome of any of
these actions will have a materially adverse affect on the consolidated
financial position of the Company.
9
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted for a vote of the security holders during the
fiscal quarter ended December 29, 2000.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company consummated the Initial Public Offering ("IPO") of its
common stock on February 8, 1996 and, effective February 21, 2001, its Common
Stock is listed on the Nasdaq National Market. From the time of the IPO up until
February 21, 2001, the Company's common stock was noted on the NYSE. The high
and low prices for the Common Stock, and dividends paid on Common Stock, during
the period from January 2, 1999 through December 29, 2000 were as follows:
Sales Price Dividends
----------- ----------
High Low Declared Paid in Cash
---- --- -------- ------------
Fiscal Year 1999
----------------
1st quarter $12.75 $10.88 $.09 $.09
2nd quarter 12.00 10.63 .09 .09
3rd quarter 11.00 9.63 .09 .09
4th quarter 10.50 8.25 .09 .09
Fiscal Year 2000
----------------
1st quarter $ 9.88 $ 8.25 $.09 $.09
2nd quarter 11.00 8.19 .09 .09
3rd quarter 12.56 9.38 .09 .09
4th quarter 11.13 6.38 .09 .09
On February 2, 2001 there were 163 registered shareholders of the
Company's Common Stock, and the high and low sales prices for the Common Stock
were $8.75 and $8.00, respectively. During fiscal year 2000, the Company
declared and paid total dividends of $.36 on the shares of its Common Stock. The
Company declared a $.09 dividend on January 8, 2001 and paid it on January 31,
2001. The declaration of any dividend, including the amount thereof, will be at
the discretion of the Board of Directors of the Company, and will depend on the
Company's then current financial condition, results of operations and capital
requirements, and such other factors as the Board of Directors deems relevant.
There were no sales of unregistered securities during the period of
December 31, 1999 through December 29, 2000.
Item 6. Selected Financial Data.
The following tables set forth selected historical financial and
operating data for the Company for each of the five years through fiscal year
2000 and have been derived from the Company's financial statements which have
been audited by the Company's independent public accountants. The information
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operation."
11
Effective fiscal year 1995, the Company changed its year-end to the
Friday closest to the last day of December. Fiscal year-ends are as follows:
2000 December 29, 2000
1999 December 31, 1999
1998 January 1, 1999
1997 January 2, 1998
1996 January 3, 1997
1995 December 29, 1995
1994 & prior December 31 of calendar year.
Selected Financial Data
(in thousands, except per share data) Fiscal Year
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $134,357 $125,334 $135,415 $125,463 $103,799
Gross profit 48,500 45,954 49,055 46,448 39,041
Operating income 14,055 12,108 15,566 16,951 12,573
Minority interest 1,554 808 0 0 0
Operating income after minority interest 12,501 11,300 15,566 16,951 12,573
Net income 6,145 5,367 7,890 8,689 4,640
-------------------------------------------------------------
Cash Flow
Cash provided by operations $13,758 $10,050 $ 6,228 $16,829 $ 9,090
Capital expenditures 7,712 8,316 7,481 5,824 3,762
-------------------------------------------------------------
Working capital* $33,378 $34,245 $ 34,644 $27,682 $ 26,962
Total assets 102,660 102,866 96,025 89,617 73,395
Total debt 33,919 36,924 32,469 26,539 22,227
Shareholders' equity 30,092 27,692 28,515 23,606 16,875
-------------------------------------------------------------
Per Share Data
Net income $1.12 $0.91 $1.33 $1.47 $0.83
Cash dividends paid .36 .36 .35 .32 .24
Book value 5.50 4.69 4.81 3.99 3.01
-------------------------------------------------------------
Weighted average shares outstanding 5,473 5,910 5,932 5,921 5,600
* Working capital is defined as the sum of accounts receivable, inventory, and
other current assets, less accounts payable and accrued expenses.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Year Ended December 29, 2000 Compared to Year Ended December 31, 1999
Net sales for fiscal 2000 increased to $134.4 million from $125.3
million in 1999, an increase of $9.1 million, or 7.2%.
Sales and selling, general, and administrative expense data presented
has been adjusted to comply with Emerging Issues Task Force Issue No. 00-10 for
freight billed to customers being considered revenue, not expense. The sales
12
strength was negatively affected by the strong U.S. dollar. Principal areas of
growth were mechanical belted drives, $6.6 million from market growth, and AC
drives, $3.3 million from customer growth.
Gross profit for 2000 increased to $48.5 million from $46.0 million in
1999, an increase of $2.5 million, or 5.5%. Gross profit as a percent of net
sales decreased to 36.1% from 36.7%, due primarily to wage inflation, higher
health care costs, higher depreciation expense, effect of currency on U.S.
dollar component purchases by our European locations, and customer mix change in
Europe. These unfavorable items were partially offset by higher fixed cost
absorption and direct labor and component cost reduction activities.
Selling, general, and administrative ("SG&A") expense for fiscal 2000
increased to $34.4 million from $33.8 million in 1999, an increase of $0.6
million or 1.8%. SG&A expense as a percent of net sales decreased to 25.6% from
27.0% primarily as a result of higher sales and relatively stable costs. As in
1999, the major challenge in 2000 was to execute tight control of discretionary
expenses and head count while continuing to spend on new product projects for
future years' benefit.
Other expense (excluding minority interest) for fiscal 2000 remained
consistent at $2.6 million for 1999 and 2000. Interest expense, a component of
total other expense, increased to $2.9 million in 2000 from $1.9 million in
1999. This increase was due primarily to higher interest rates and additional
debt to finance the Self Tender "Dutch Auction". The effective tax rate for 2000
was 38.0%. Details of the provision for income taxes are discussed in Note 5 to
the financial statements.
Net income for fiscal 2000 increased to $6.1 million from $5.4 million
in 1999, an increase of $0.7 million, or 14.5%. The primarily reason for this
improvement was higher sales volume.
Year Ended December 31, 1999 Compared to Year Ended January 1, 1999
Net sales for fiscal 1999 decreased to $125.3 million from $135.4
million in 1998, a decrease of $10.1 million, or 7.4%. Based on data received
from industry trade associations, this reduction compares to, and management
believes was caused by, changes in the marketplace caused by overall economic
conditions.
Gross profit for 1999 decreased to $46.0 million from $49.1 million in
1998, a decrease of $3.1 million, or 6.3%. Gross profit as a percent of net
sales increased to 36.7% from 36.2%, due primarily to activities to reduce raw
materials and component costs, benefits from the belted drives joint venture,
lower machine set-up costs, increased output per man hour of wage costs, and
closing the Greensboro, North Carolina facility. These favorable results were
partially offset by wage inflation and lower fixed cost absorption, which
resulted in the decrease of gross profit.
Selling, general, and administrative ("SG&A") expense for fiscal 1999
increased to $33.8 million from $33.5 million in 1998, an increase of $0.3
million or 1.1%. SG&A expense as a percent of net sales increased to 27.0% from
24.7%, primarily as a result of lower sales. The major challenge in 1999 was to
control SG&A expenses in absolute dollars while spending on new product projects
which may generate benefits in future years.
Other expense (excluding minority interest) for fiscal 1999 increased
to $2.6 million from $2.4 million in 1998, an increase of $0.2 million or 8.3%.
Other expense for 1999 included $350 thousand of one-time charges to terminate
the proposed acquisition of Lincoln Motors. Interest expense, a component of
total other expense, decreased to $1.9 million in 1999 from $2.0 million in
1998. This decrease was due primarily to lower interest rates. The effective tax
rate for 1999 was 38.5%. Details of the provision for income taxes are discussed
in Note 5 to the financial statements.
Net income for fiscal 1999 decreased to $5.4 million from $7.9 million
in 1998, a decrease of $2.5 million, or 31.6%. The primary reason for this
reduction was the lower sales volume.
13
Year Ended January 1, 1999 Compared to Year Ended January 2, 1998
Net sales for fiscal 1998 increased to $135.4 million from $125.5
million in 1997, an increase of $9.9 million, or 7.9%. The increase in sales was
primarily due to increased electronics business sales resulting from the
acquisition of Berges electronic GmbH on December 1, 1997. The year 1998 started
off with record sales in the first quarter, but beginning in the second quarter,
a softening in our North American market resulted in lower sales levels for the
remainder of the year.
Gross profit for 1998 increased to $49.1 million from $46.4 million in
1997, an increase of $2.7 million, or 5.6%. Gross profit as a percent of net
sales decreased to 36.2% from 37.0%, due primarily to lower margins in the
mechanical business resulting from expenditures for tooling and start-up costs
related to new business, training of new employees, and consolidation of the
gear coupling product line in our San Marcos facility.
Selling, general, and administrative expense for fiscal 1998 increased
to $33.5 million from $29.5 million in 1997, an increase of $4.0 million or
13.5%. SG&A expense as a percent of net sales increased to 24.7% from 23.5%,
primarily as a result of higher SG&A expense as a percent of sales at Berges
electronic GmbH which was not included in 1997 operating results.
Other expense for fiscal 1998 decreased to $2.4 million from $2.5
million in 1997, a decrease of $0.1 million or 1.9%. Interest expense, a
component of total other expense, increased to $2.0 million in 1998 from $1.7
million in 1997. This increase was due primarily to higher debt levels in 1998,
offset by lower interest rates. The effective tax rate for 1998 was 40.0%.
Details of the provision for income taxes are discussed in Note 5 to the
financial statements.
Net income for fiscal 1998 decreased to $7.9 million from $8.7 million
in 1997, a decrease of $.8 million, or 9.2%.
Liquidity and Capital Resources
The Company's principal sources of funds are cash flows from operations
and borrowings under the Company's revolving credit agreement. Cash provided
from operations in 2000 was $13.8 million, an increase of $3.7 million from the
prior year. Net cash used for investing activities during fiscal years 2000,
1999, and 1998 was $7.6 million, $7.8 million, and $7.7 million, respectively.
The Company's investing activities in 2000 and 1999 were primarily capital
expenditures.
Capital expenditures for fiscal years 2000, 1999, and 1998 were $7.7
million, $8.3 million, and $7.5 million, respectively. During the last three
fiscal years, the Company has made significant capital investments in computer
controlled surface mount production ("SMT") lines for populating semiconductors
onto circuit boards, test and production equipment at the Company's foundry in
Chambersburg, and other equipment to improve and modernize production
facilities. In 2000, the Company continued the renovation of the advanced
engineering center in Chambersburg, other equipment to upgrade a portion of
machine tool base for mechanical product business, and tooling and equipment to
support new product introductions for electronic product business. In 1999, the
Company completed the new San Marcos, Texas facility and upgraded some of the
machine tool equipment base for mechanical product business. In 1998, the
Company initiated two major facility projects: 1) an engineering center in
Chambersburg scheduled for completion in late 2000 and 2) a new plant in San
Marcos, Texas to manufacture flexible couplings, which was operational in the
first quarter of 1999. These capital expenditures are intended to reduce costs,
improve product quality, and provide additional capacity for meeting the
Company's growth objectives.
14
In March 1999, the Company borrowed $3.0 million by using Variable Rate
Demand Revenue Bonds, under the authority of the Industrial Development
Corporation City of San Marcos, Texas to finance a new facility for the
mechanical products business.
The Company paid $2.0 million in dividends during 2000. The Company
paid a $0.09 per share dividend in the first, second, third, and fourth quarters
of 2000, and declared a $0.09 dividend on January 8, 2001 and paid it on January
31, 2001. The Company paid $2.1 million in dividends during 1999.
The Company believes that it will have sufficient cash flows from
operations and available borrowings to meet its future short-term and long-term
cash needs for interest, operating expenses, and capital expenditures.
Derivative Financial Instruments
Market risk is the potential change in an instrument's value caused,
for example, by fluctuations in interest and currency exchange rates. The
Company's primary market risk exposures are interest rate and unfavorable
movements in exchange rates between the U.S. dollar and each of the Mexican
peso, Canadian dollar, German deutsche mark, Indian rupee, Italian lira, and the
Euro. Monitoring and managing these risks is a continual process carried out by
senior management. Market risk is managed based on an ongoing assessment of
trends in interest rates, foreign exchange rates, and economic developments,
giving consideration to possible effects on both total return and reported
earnings. The Company's financial advisors, both internal and external, provide
ongoing advice regarding trends that affect management's assessment.
Interest Rate Derivatives at 1999 2000 2001
-----------------------------------------------------------------------
Interest Rate Swap:
Variable to Fixed
Fixed Rate U.S. $............. 10,000 10,000 10,000
Average Pay Rate.............. 5.75% 5.75% 5.75%
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments and requires
recognition of all derivatives as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through earnings.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value will be either offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings, or recognized in
other comprehensive income until the hedged item is recognized in earnings. TB
Wood's adopted the standards as of December 29, 2000, and the adoption did not
materially impact our consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." This bulletin summarizes
certain of the SEC's views in applying accounting principles generally accepted
in the U.S. to revenue recognition in financial statements. TB Wood's has
adopted this standard as of fiscal year 2000, and there is no impact on the
financial statements.
In December 2000, the Emerging Issues Task Force ("EITF") issued EITF
00-10, "Accounting for Shipping and Handling Fees and Costs," which requires all
amounts billed to a customer in a sale transaction related to shipping and
handling to be recorded as revenues earned for the goods provided. Costs
incurred for shipping and handling are classified as costs of sales. The Company
adopted EITF 00-10 in 2000, and all prior period amounts have been restated for
the adoption of EITF 00-10.
15
Safe Harbor Statement
Under the Private Securities Litigation Reform Act of 1995, except for
the historical information contained herein, this annual report contains
forward-looking statements about matters which involve risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed in the Company's filings with
the Securities and Exchange Commission.
16
Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Public Accountants..................................................................... 18
Consolidated Balance Sheets as of December 29, 2000 and December 31, 1999.................................... 19
Consolidated Statements of Operations for the Years Ended December 29, 2000
December 31, 1999, and January 1, 1999.............................................................. 20
Consolidated Statements of Comprehensive Income for the Years Ended December 29, 2000
December 31, 1999, and January 1, 1999.............................................................. 20
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 29, 2000
December 31, 1999, and January 1, 1999.............................................................. 21
Consolidated Statements of Cash Flows for the Years Ended December 29, 2000, December 31, 1999
and January 1, 1999 ................................................................................ 22
Notes to Consolidated Financial Statements................................................................... 23
17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
TB Wood's Corporation:
We have audited the accompanying consolidated balance sheets of TB
Wood's Corporation (a Delaware corporation) and Subsidiaries as of December 29,
2000 and December 31, 1999 and the related consolidated statements of
operations, comprehensive income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 29, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TB Wood's
Corporation and subsidiaries as of December 29, 2000 and December 31, 1999 and
the results of their operations and their cash flows for each of the three years
in the period ended December 29, 2000 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a) (2) of
this Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 2, 2001
18
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share and share amounts) 2000 1999
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 619 $ 1,245
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $410 and $402 in 2000 and 1999, respectively 18,912 18,593
Inventories:
Finished goods 21,927 22,970
Work in process 9,060 9,708
Raw materials 7,112 7,465
LIFO reserve (5,883) (5,983)
--------------------------
32,216 34,160
Other current assets 1,908 1,834
--------------------------
Total current assets 53,655 55,832
--------------------------
Property, Plant, and Equipment:
Machinery and equipment 56,242 50,280
Land, buildings, and improvements 14,535 13,653
--------------------------
70,777 63,933
Less accumulated depreciation 37,060 32,326
--------------------------
33,717 31,607
--------------------------
Other Assets:
Deferred income taxes 3,542 3,454
Goodwill, net of accumulated amortization of
$1,931 and $1,672 in 2000 and 1999, respectively 9,546 9,805
Other 2,200 2,168
--------------------------
Total other assets 15,288 15,427
--------------------------
$102,660 $102,866
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 258 $ 273
Accounts payable 8,663 12,407
Checks outstanding 1,169 1,003
Accrued expenses 10,995 7,935
Deferred income taxes 1,398 1,034
--------------------------
Total current liabilities 22,483 22,652
--------------------------
Long-term debt, less current maturities 33,661 36,651
Postretirement benefit obligation, less current portion 14,133 15,134
Minority interest 2,291 737
Commitments and Contingencies (Note 7)
Shareholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued or outstanding 0 0
Common stock, $.01 par value; 40,000,000 shares authorized, 5,887,698
issued and 5,400,908 outstanding in 2000, and 5,887,698 issued
and 5,465,814 outstanding in 1999 59 59
Common stock in treasury at cost; 486,790 shares in 2000 and 421,884
shares in 1999 (4,566) (3,811)
Additional paid-in capital 29,086 29,086
Retained Earnings 8,147 4,001
Accumulated other comprehensive income (2,634) (1,643)
--------------------------
Total shareholders' equity 30,092 27,692
--------------------------
$102,660 $102,866
==========================
The accompanying notes are an integral part of these consolidated financial
statements.
19
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts) 2000 1999 1998
- ---------------------------------------- ---- ---- ----
Net sales $134,357 $125,334 $135,415
Cost of sales 85,857 79,380 86,360
------------------------------------------
Gross profit 48,500 45,954 49,055
Selling, general, and administrative expenses 34,445 33,846 33,489
------------------------------------------
Operating income 14,055 12,108 15,566
Other (expense) income:
Minority Interest 1,554 808 0
------------------------------------------
Operating income after minority interest 12,501 11,300 15,566
------------------------------------------
Interest expense and other finance charges (2,880) (1,915) (2,040)
Other, net 291 (657) (380)
------------------------------------------
Other expense, net (2,589) (2,572) (2,420)
------------------------------------------
Income before provision for income taxes 9,912 8,728 13,146
Provision for income taxes 3,767 3,361 5,256
------------------------------------------
Net income $6,145 $ 5,367 $ 7,890
==========================================
Per share of common stock:
Basic:
Net income per common share $ 1.12 $ 0.91 $ 1.34
==========================================
Weighted average shares of common stock and
equivalents outstanding 5,468 5,896 5,874
==========================================
Diluted:
Net income per common share $1.12 $ 0.91 $ 1.33
==========================================
Weighted average shares of common stock
and equivalents outstanding 5,473 5,910 5,932
==========================================
Consolidated Statements of Comprehensive Income
2000 1999 1998
---- ---- ----
Net Income $6,145 $5,367 $7,890
Other comprehensive income, net of tax:
Foreign currency translation adjustment (991) (300) (1,140)
-----------------------------------------
Comprehensive income $5,154 $5,067 $6,750
=========================================
The accompanying notes are an integral part of these consolidated financial
statements.
20
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Retained Accumulated
Additional Earnings Other
Common Treasury Paid-In (Accumulated Comprehensive
(in thousands) Stock Stock Capital Deficit) Income (Loss)
- -------------- ----- ----- ------- -------- -------------
Balance, January 2, 1998 $ 58 $ (181) $ 28,340 $ (4,408) $ (203)
Net income 0 0 0 7,890 0
Dividends declared 0 0 0 (2,056) 0
Stock option compensation and proceeds from
Options exercised 1 467 481 (257) 0
Treasury stock, net 0 (444) 0 (33) 0
Foreign currency translation adjustment 0 0 0 0 (1,140)
- -------------------------------------------------------------------------------------------------------------------
Balance January 1, 1999 59 (158) 28,821 1,136 (1,343)
Net income 0 0 0 5,367 0
Stock issuance for employee benefit plans 0 323 0 (35) 0
Dividends declared 0 0 0 (2,120) 0
Stock option compensation and proceeds from
Options exercised 0 426 265 (329) 0
Treasury stock, net 0 (4,402) 0 (18) 0
Foreign currency translation adjustment 0 0 0 0 (300)
- -------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 59 (3,811) 29,086 4,001 (1,643)
Net income 0 0 0 6,145 0
Stock issuance for employee benefit plans 0 372 0 21 0
Dividends declared 0 0 0 (1,976) 0
Proceeds from
Options exercised 0 45 0 (44) 0
Treasury stock, net 0 (1,172) 0 0 0
Foreign currency translation adjustment 0 0 0 0 (991)
- -------------------------------------------------------------------------------------------------------------------
December 29, 2000 $ 59 $(4,566) $ 29,086 $ 8,147 $ (2,634)
========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
21
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
(in thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $6,145 $5,367 $7,890
-----------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,498 4,706 4,687
Change in deferred income taxes 276 (439) 1,892
Stock option compensation and employee stock benefit expense 392 648 1,222
Net (gain) loss on sale of assets 27 (99) 5
Minority interest 1,554 808 0
Other, net 0 (43) (28)
Changes in working capital:
Accounts receivable (319) (1,165) 2,746
Inventories 1,944 (4,305) (4,157)
Other current assets (74) 871 (2,402)
Accounts payable (3,744) 6,075 (2,278)
Accrued and other liabilities 2,059 (2,374) (3,349)
-----------------------------------------
Total adjustments 7,613 4,683 (1,662)
-----------------------------------------
Net cash provided by operating activities 13,758 10,050 6,228
-----------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (7,712) (8,316) (7,481)
Proceeds from sales of fixed assets 10 791 414
Other, net 68 (257) (658)
-----------------------------------------
Net cash used in investing activities (7,634) (7,782) (7,725)
-----------------------------------------
Cash Flows from Financing Activities:
Change in checks outstanding 166 (702) 90
Proceeds from (repayments of) long-term debt, net (515) 2,633 (357)
Proceeds (repayments of) from the PNC revolving credit facility, net (2,490) 2,200 6,287
Payment of dividends (1,976) (2,120) (2,056)
Proceeds from issuance of stock upon option exercise 0 250 70
Purchase of Treasury Stock, net (1,126) (4,994) (754)
Other 182 (511) (674)
-----------------------------------------
Net cash (used in) provided by financing activities (5,759) (3,244) 2,606
-----------------------------------------
Effect of changes in foreign exchange rates (991) (300) (1,140)
-----------------------------------------
Decrease in cash and cash equivalents (626) (1,276) (31)
Cash and cash equivalents at beginning of year 1,245 2,521 2,552
-----------------------------------------
Cash and cash equivalents at end of year $619 $1,245 $2,521
=========================================
Income taxes paid during the year $1,368 $2,052 $3,819
=========================================
Interest paid during the year $2,880 $1,915 $2,040
=========================================
The accompanying notes are an integral part of these consolidated
financial statements
22
TB Wood's Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(in thousands, except per share amounts)
1. NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
TB Wood's Corporation and subsidiaries (collectively, "Wood's" or the
"Company") is an established designer, manufacturer, and marketer of electronic
and mechanical industrial power transmission products which are sold to
distributors, domestic and international manufacturers and users of industrial
equipment. Principal products of the Company include electronic drives,
integrated electronic drive systems, mechanical belted drives, and flexible
couplings. The Company has operations throughout the United States, Canada,
Mexico, Germany, Italy and India. The accompanying consolidated financial
statements include the accounts of TB Wood's Corporation, its wholly owned
subsidiaries and its majority-owned joint venture. All intercompany accounts
have been eliminated in consolidation.
Year-End
Fiscal year-ends are as follows:
2000........................................ December 29, 2000
1999........................................ December 31, 1999
1998........................................ January 1, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
At December 29, 2000, $136 of cash is restricted under the Variable
Rate Demand Revenue Bonds (Note 4). This cash may be used for building
renovations, improvements, or other capital expenditures related to new
production facilities for the electronics systems business and a new production
facility for the mechanical division.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property, Plant, and Equipment
The Company depreciates its property, plant, and equipment principally
using the straight-line method over the estimated useful lives of the assets.
Equipment under capital leases is depreciated over the asset's estimated useful
life and is included in machinery and equipment. Maintenance and repair costs
are charged to expense as incurred, while major renewals and improvements are
capitalized. When property and equipment are retired or otherwise disposed of,
the related carrying value and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income. The depreciable
lives of the major classes of property, plant and equipment are summarized as
follows:
Asset Type Lives
-------------------------------------------------------------------
Machinery and equipment 3 - 15 years
Buildings and improvements 10 - 40 years
23
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulleting No. 101 "Revenue Recognition in Financial Statements"
issued by the Securities and Exchange Commission. Revenue is recognized at the
time product is shipped or title passes pursuant to the terms of the agreement
with the customer which include a standard right of return, the amount due from
the customer is fixed and collectibility of the related receivable is reasonably
assured.
Inventories
Inventories are stated at the lower of cost or market primarily using
the last-in, first-out ("LIFO") method. Market is defined as net realizable
value. Cost includes raw materials, direct labor, and manufacturing overhead.
Approximately 77% and 79% of total inventories in years ending December 29, 2000
and December 31, 1999, respectively, were valued using the LIFO method.
Inventories for foreign operations are stated at the lower of cost or market
using the first-in, first-out ("FIFO") method.
Self-Insurance
The Company maintains workers' compensation insurance policies which
have the potential for retrospective premium adjustments and a partially
self-insured group health insurance policy which is subject to specific
retention levels. Insurance administrators assist the Company in estimating the
fully developed workers' compensation liability and group health insurance
reserves which are accrued by the Company. In the opinion of management,
adequate provision has been made for all incurred claims. At December 29, 2000
the Company has issued letters of credit totaling $540 to cover incurred claims
and other costs related to the workers' compensation.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation."
Translation adjustments, which result from the process of translating financial
statements into U.S. dollars, are accumulated as a separate component of other
comprehensive income. Exchange gains and losses resulting from foreign currency
transactions, primarily intercompany sales of products, are included in other
expense in the accompanying statements of operations and are not material.
Goodwill
The excess of cost over the net assets acquired ("Goodwill") is being
amortized on a straight-line basis over a period of 40 years. Goodwill relates
to the acquisition of certain businesses and product lines in 1986, 1996, and
1997.
Long-Lived Assets and Intangible Assets
The Company reviews the carrying values assigned to long-lived assets
and certain identifiable intangible assets based on expectations of undiscounted
future cash flows and operating income generated by the long-lived assets or the
tangible assets underlying certain identifiable intangible assets in determining
whether the carrying amount of such assets is recoverable.
24
Shareholders' Equity
In 1996, the board of directors authorized the Company to purchase up
to 200,000 of the Company's common shares. At the July 2000 and January 2001
Board of Directors meetings, the directors of TB Wood's expanded this share
repurchase program by authorizing the repurchase of up to an additional 100,000
and 200,000 shares, respectively, of TB Wood's stock. These purchases are
subject to certain business and market conditions. At December 29, 2000 the
number of treasury shares purchased under this authorization was 279,848. The
number of treasury shares issued to employees under option and purchase plans
was 13,324 and under the 401(k) profit-sharing plan was 33,587 for 2000. In
addition, the Board of Directors authorized a self-tender "Dutch Auction" for
400,000 of the Company's common shares at a price not to exceed $12.50 per share
and not lower than $9.00 per share. On December 17, 1999, the Company accepted
400,000 shares at $9.00 per share and incurred related costs.
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable, and
accounts payable, approximate carrying value due to the short-term maturity of
the instruments. The fair value of short-term and long-term debt amounts
approximate carrying value and are based on their effective interest rates
compared to current market rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cyclical Industry
The markets for some of the Company's products are cyclical, generally
following changes in the overall economy. Consequently, during periods of
economic expansion, the Company has experienced increased demand for its
products, and during periods of economic contraction, the Company has
experienced decreased demand for its products. Such changes in the general
economy affect the Company's results of operations in the relevant fiscal
periods.
Research and Development Costs
Research and development costs consist substantially of projects
related to new product development within the electronics business and are
expensed as incurred. Total research and development costs were $3,108 in 2000,
$3,659 in 1999, and $3,482 in 1998.
Major Customers
The Company's five largest customers accounted for approximately 31%,
29%, and 25% of net sales for fiscal years 2000, 1999, and 1998, respectively.
Of these customers, one accounted for close to 20% of net sales for the year
ended December 29, 2000. The loss of one or more of these customers would have
an adverse effect on the Company's performance and operations. Foreign and
export sales accounted for 25% of total sales in fiscal years 2000 and 1999. In
management's opinion, intercompany transactions are consummated on terms
equivalent to those that prevail in arms-length transactions.
25
Supply of Electronic Raw Materials and Purchased Components
Historically, the electronics component industry, which supplies
components for the Company's electronic products, has from time to time
experienced heavy demand for certain components during periods of growth in the
consumer electronic industry. The rapid growth of the AC electronic drive market
has also created heavy demand for power control electronics. While certain of
the Company's components are obtained from a single or limited number of
sources, the Company has potential alternate suppliers for most of the specialty
components used in its manufacturing operations. There can be no assurance,
however, that the Company will not experience shortages of raw materials or
components essential to the production of its products or be forced to seek
alternative sources of supply, which may increase costs or adversely affect the
Company's ability to obtain and fulfill orders for its products.
Employees
As of December 29, 2000, the Company employed over 1,000 people. Over
30 of the Company's hourly employees located at its Stratford, Ontario, Canada
facility are represented by the United Steelworkers of Canada pursuant to a
collective bargaining agreement dated January 19, 2001 that expires on January
19, 2004. Over 133 of the Company's employees located at its Mexico City, Mexico
facility are represented by the National Metal Workers' Union of Mexico pursuant
to a collective bargaining agreement that expires on January 31, 2002. The
Company has created the TB Wood's Institute, which offers training programs to
improve employees' operating management and team-building skills.
Net Income Per Share
Basic earnings per share ("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 difference between primary and fully diluted net income per
share is not material for any of the periods presented and has therefore been
excluded.
The computation of weighted average shares outstanding and net income
per share is as follows for fiscal years 2000, 1999, and 1998:
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Common shares outstanding for basic EPS......................................... 5,468 5,896 5,874
Shares issued upon assumed exercise of outstanding stock options................ 5 14 58
--------------------------------------
Weighted average number of common and common equivalent
shares outstanding........................................................... 5,473 5,910 5,932
======================================
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133. "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivative
instruments and requires recognition of all derivatives as assets or liabilities
in the statement of financial position and measurement of those instruments at
fair value. Derivatives that are not hedges must be adjusted to fair value
through earnings. If the derivative is a hedge, depending on the nature of the
hedge, changes in fair value will be either offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings,
or recognized in other comprehensive income until the hedged item is recognized
in earnings. TB Wood's adopted the standard as of December 30, 2000, and the
adoption did not materially impact our consolidated financial statements.
26
Effective fiscal year 2000, the Company adopted Emerging Issues Task
Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
Therefore, freight charged to customers is now included in sales ($1,707 in
2000) rather than as an offset to freight expense. All prior year amounts
($1,597 in 1999 and $1,466 in 1998) have been restated to conform to the current
presentation.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. ACCRUED EXPENSES
Components of accrued expenses were as follows:
2000 1999
- ---------------------------------------------------------------------------
Accrued payroll and other compensation $2,631 $2,311
Accrued taxes 2,084 (538)
Accrued workers' compensation 264 404
Other accrued liabilities 6,016 5,758
------------------------------
Total $10,995 $7,935
==============================
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations as at the end of each
fiscal period consist of the following:
2000 1999
- ---------------------------------------------------------------------------
Unsecured Revolving Line of Credit $28,287 $30,777
Capital lease obligations 347 597
Industrial revenue bonds 5,285 5,550
--------------------------
33,919 36,924
Less current maturities (258) (273)
--------------------------
$33,661 $36,651
==========================
Aggregate future maturities of long-term debt and capital lease obligations as
of December 29, 2000 are as follows:
2001 258
2002 89
2003 27,660
2004 0
2005 0
Thereafter 5,912
--------------
$33,919
==============
27
The Company has a $52,500 unsecured revolving credit facility, $10,000
of which is payable in German deutschemark. The amount available at December 29,
2000 was $18,928. The revolving credit was arranged by PNC Bank, N.A. ("PNC")
bearing variable interest of LIBOR plus 125.0 basis points, maturing October
2003. The Company has $627 denominated in Italian Lire at December 29, 2000,
maturing after 2005. The rate was 5.625% at December 29, 2000. The average rate
of the revolving debt at December 29, 2000 was 7.68%. The credit facility
contains numerous restrictive financial covenants which require the Company to
comply with certain financial tests including, among other things, maintaining
minimum tangible net worth, as defined, and maintaining certain specified
ratios. The credit facility also contains other restrictive covenants that
include, among other things, restrictions on outside investments and
restrictions on capital expenditures.
In August 1998, the Company entered into an interest rate swap
agreement that effectively converted $10,000 of the underlying variable rate
debt in the unsecured revolving credit facility to fixed rate debt. The notional
principal amount of the swap agreement is $10,000 with an effective fixed rate
of 5.75%. The swap agreement is settled each month and will expire in July 2001.
The fair value of the swap agreement at December 29, 2000 was $10,023.
In April 1997, the Company borrowed approximately $2.3 million by
issuing Variable Rate Demand Revenue Bonds under the authority of the Industrial
Revenue Board of the City of Chattanooga, bearing variable interest as set by
the Industrial Revenue Board of the City of Chattanooga (4.50% at December 29,
2000) maturing April 2022. The bonds were issued to finance the new production
facility for the electronics systems business.
In February 1999, the Company borrowed approximately $3.0 million by
issuing Variable Rate Demand Revenue Bonds under the authority of the Industrial
Development Corporation City of San Marcos, bearing variable interest as set by
the Industrial Development Corporation City of San Marcos (5.65% at December 29,
2000), maturing April 2024. The bonds were issued to finance a new production
facility for the mechanical division.
The gross proceeds from (repayments of) the revolving credit facilities
are as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Proceeds from revolving credit facility 45,227 47,400 40,300
Repayments of revolving credit facility (47,717) (45,200) (34,013)
-----------------------------------
5. INCOME TAXES
The components of the provision for income taxes are shown below:
2000 1999 1998
- --------------------------------------------------------------------------------
Current:
Federal and state $1,855 $2,105 $2,300
Foreign 1,636 817 1,064
-----------------------------------
3,491 2,922 3,364
Deferred: 276 439 1,892
-----------------------------------
Provision for income taxes $3,767 $3,361 $5,256
===================================
Under SFAS No. 109, deferred tax assets or liabilities at the end of
each period are determined by applying the current tax rate to the difference
between the financial reporting and income tax bases of assets and liabilities.
28
The deferred tax benefit is determined based on changes in deferred tax items
exclusive of deferred tax implications of the early extinguishment of debt and
reclassifications between deferred and current taxes.
The components of deferred income taxes are as follows:
2000 1999
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
Book basis in property over tax basis $(2,655) $(2,709)
LIFO inventory basis differences (2,697) (2,680)
Other (209) (604)
---------------------------
Total deferred income tax liabilities (5,561) (5,993)
---------------------------
Deferred income tax assets:
Postretirement benefits not
currently deductible 5,637 6,019
Accrued liabilities not currently deductible 930 821
Allowance for doubtful accounts and
inventory reserves 641 861
Other 497 712
---------------------------
Total deferred income tax assets 7,705 8,413
Net deferred income tax asset $2,144 $2,420
---------------------------
A reconciliation of the provision for income taxes at the statutory
federal income tax rate to the Company's tax provision as reported in the
accompanying statements of operations is shown below:
2000 1999 1998
- --------------------------------------------------------------------------------
Federal statutory income tax $3,347 $2,966 $4,470
State income taxes, net of
federal income tax benefit 162 139 592
Foreign taxes and other, net 258 256 194
---------------------------------------------
$3,767 $3,361 $5,256
=============================================
In 2000, 1999, and 1998 earnings before income taxes included $3,096,
$2,541, and $2,862, respectively, of earnings generated by the Company's foreign
operations. No federal or state income taxes have been provided on such
earnings, since undistributed earnings have been reinvested and are not expected
to be remitted to the parent company.
In June 2000, the Internal Revenue Service completed its review of the
Company's 1996 federal income tax return. The review did not have a material
effect on the Company's operations.
6. BENEFIT PLANS
Compensation Plans
Wood's maintains a discretionary compensation plan for its salaried and
hourly employees which provides for incentive awards based on certain levels of
earnings, as defined. Amounts awarded under the plan and charged to expense in
the accompanying statements of operations were $759, $709, and $1,238, for
fiscal years 2000, 1999, and 1998 respectively.
29
Profit-Sharing Plans
Since January 1, 1988, the Company has maintained a separate defined
contribution 401(k) profit-sharing plan covering all domestic employees. Under
this plan, the Company matches a specified percentage of each eligible
employee's contribution and 50% of the match is invested in funds designated by
the employee. The Company contributed 33,587 shares of common stock held in
treasury in 2000, 21,557 in 1999, and 35,990 in 1998. Cash contributed by the
Company under this profit-sharing plan was approximately $452, $452, and $580
for fiscal years 2000, 1999, and 1998, respectively. In addition, the Company
has a noncontributory profit-sharing plan covering its Canadian employees for
which $12, $38, and $17 was charged to expense for the fiscal years 2000, 1999,
and 1998, respectively.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan ("ESPP") enables employees
of the Company to subscribe for shares of common stock on quarterly offering
dates, at a purchase price which is the lesser of 90% of the fair value of the
shares on the first or last day of the quarterly period. Employee contributions
to the ESPP were $103, $124, and $152 for 2000, 1999, and 1998 respectively.
Pursuant to the ESPP, 13,324 shares were issued to employees during 2000, 12,456
during 1999, and 8,775 during 1998. At the annual meeting on April 11, 1997, the
Company's shareholders approved the reservation of 500,000 shares to be issued
under the ESPP. As of December 29, 2000, 461,009 shares are available for future
issuance.
Stock Options
The Company has a 1996 stock-based incentive compensation plan (the
"1996 Plan"), the purpose of which is to assist the Company in attracting and
retaining valued personnel by offering them a greater stake in the Company's
success and a closer identity with the Company, and to encourage ownership of
the Company's common stock by such personnel.
The 1996 Plan is administered by a committee (the "Committee")
designated by the board of directors. Awards under the 1996 Plan may be made to
all officers and key employees of the Company. No awards can be made under the
1996 Plan after January 31, 2006.
The Committee may grant shares of common stock in the form of either
deferred stock or restricted stock, as defined in the 1996 Plan. Options granted
under the 1996 Plan may be either incentive stock options ("ISOs") or
nonqualified stock options. ISOs are intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code. Unless
an option is specifically designated at the time of grant as an ISO, options
under the 1996 Plan will be nonqualified. The exercise price of the options will
be determined by the Committee. The maximum term of an option or Stock
Appreciation Right ("SAR") granted under the 1996 Plan shall not exceed ten
years from the date of grant or five years from the date of grant if the
recipient on the date of grant owns, directly or indirectly, shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company. No option or SAR may be exercisable sooner than six months from the
date the option or SAR is granted.
As of December 29, 2000, there were 623,100 options outstanding under
the 1996 Plan, and 252,100 are fully vested.
In addition to options issued under the 1996 Plan, there are
outstanding options to acquire 29,125 shares held by executives of the Company.
These options have exercise prices of $3.87 - $7.75 and are fully vested.
30
Stock option activity for the years ended December 29, 2000, December
31, 1999, and January 1, 1999 is as follows:
Number of shares Weighted average
subject to option exercise price
- --------------------------------------------------------------------------------
Options outstanding at
January 2, 1998 361,502 $ 9.88
Granted 226,650 25.67
Canceled (6,000) 25.67
Exercised (80,887) 3.18
Options outstanding at
January 1, 1999 501,265 17.92
Granted 159,750 16.00
Canceled (43,977) 4.69
Exercised (78,227) 6.28
Options outstanding at
December 31, 1999 538,811 20.20
Granted 236,250 12.67
Canceled (106,813) 23.39
Exercised (16,023) 6.28
Options outstanding at
December 29, 2000 652,225 $ 16.08
The following table sets forth the range of exercise price, number of
shares, weighted average exercise price, and remaining contractual lives by
groups of similar price and grant date at December 29, 2000.
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of average average Average
exercise Number exercise contractual Number Exercise
price of shares price life of shares Price
- --------------------------------------------------------------------------------
$ 3.87 - $ 7.74 29,125 $ 5.86 2.2 years 29,125 $ 5.86
$ 14.00 - $ 21.00 623,100 $ 16.56 5.8 years 252,100 $ 19.63
------- -------
652,225 281,225
======= =======
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation", for its stock options. SFAS No. 123 requires companies to
estimate the value of all stock-based compensation using a recognized pricing
model. However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value-based method
of accounting defined in the statement had been applied. The Company has elected
to continue to account for options under APB No. 25.
31
The Company has calculated the value of its stock-based compensations
plan under SFAS No. 123 using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 2000, 1999, and 1998:
2000 1999 1998
---- ---- ----
Risk free interest rate 5.65% 5.5% 5.5%
Expected lives 5 & 10 years 5 & 10 years 5 & 10 years
Expected volatility 9.5% 9.5% 25.7%
Dividend yield 4.9% 4.0% 2.4%
The fair value of options granted in 2000, 1999, and 1998 using the
Black-Scholes method was $57, $50, and $78 respectively, which would be
recognized as expense over the vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS
No. 123, the Company's reported pro forma net income and pro forma net income
per share for the fiscal years from 1998 to 2000 would have been as follows:
2000 1999 1998
---- ---- ----
Net income as reported $6,145 $5,367 $7,890
Pro Forma 6,103 5,235 7,715
EPS as reported
Basic 1.12 0.91 1.34
Diluted 1.12 0.91 1.33
Pro forma
Basic 1.12 0.89 1.31
Diluted 1.12 0.89 1.30
Postretirement Benefits
The Company sponsors a defined benefit postretirement medical plan that
provides coverage for retirees and their dependents. A portion of the plan is
paid for by retiree cost sharing. The accounting for the plan anticipates future
cost sharing increases to keep pace with health care inflation. The plan is
unfunded. The Company adopted the provisions of SFAS No. 132, "Employers
Disclosure About Pensions and Other Postretirement Benefits" effective January
3, 1998.
32
The following table summarizes the Company's postretirement benefit
obligations and the assumptions used in determining postretirement benefit cost:
2000 1999 1998
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $15,633 $16,992 $18,031
Service cost 127 138 205
Interest cost 315 343 503
Amortization (886) (1,535) (1,501)
Retiree benefits (356) (305) (246)
--------------------------------------
Benefit obligation at end of year $14,833 $15,633 $16,992
======================================
Discount rate 7.75% 7.75% 7.75%
--------------------------------------
Initial health care cost trend 6.50% 6.50% 8.00%
--------------------------------------
Ultimate health care cost trend rate 5.00% 5.00% 5.00%
--------------------------------------
Year ultimate health care cost
trend rate reached 2004 2004 2004
--------------------------------------
Net periodic postretirement benefit includes the following components:
2000 1999 1998
- --------------------------------------------------------------------------------
Service cost $ 127 $ 138 $ 205
Interest cost 315 343 503
Amortization (886) (1,535) (1,501)
-------------------------------------
Net benefit $(444) $(1,054) $ (793)
=====================================
7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to a number of legal actions arising in the
ordinary course of business. In management's opinion, the ultimate resolution of
these actions will not materially affect the Company's financial position or
results of operations.
Environmental Risks
The Company's operations and properties are subject to federal, state,
and local laws, regulations, and ordinances relating to certain materials,
substances, and wastes. The nature of the Company's operations exposes it to the
risk of claims with respect to environmental matters. Based on the Company's
experience to date, management believes that the future cost of compliance with
existing environmental requirements will not have a material adverse effect on
the Company's operations or financial position.
33
Operating Lease Commitments
The Company leases office space, office equipment, and other items
under non-cancelable operating leases. The expense for non-cancelable operating
leases was approximately $457, $520, and $385, for fiscal years 2000, 1999, and
1998, respectively. At December 29, 2000, future minimum lease payments under
non-cancelable operating leases are as follows:
2001 $390
2002 341
2003 282
2004 273
2005 and thereafter 160
----------
$1,446
==========
8. JOINT VENTURES
In December 1997, the Company purchased a 65% ownership in a joint
venture with TB Wood's (India) Private Limited ("TBWI") for $91. In November
1999, the Company increased its ownership percentage to 85.5% for $71. TBWI
distributes domestically manufactured electrical components and performs system
integration design in the India market. TBWI was not included in the 1997
financial statements as its impact was immaterial.
In July 1999, the Company entered into a joint venture agreement with
Electron Corporation ("Electron"), forming a Pennsylvania limited partnership
under the name TBWE Belt Drive Components LP (the "Joint Venture"). The parties
also formed a Pennsylvania limited liability company under the name TBWE Belt
Drive Systems LLC which serves as the general partner of the Joint Venture. The
Company and Electron hold a limited partner interest in the Joint Venture of
75.35% and 24.15%, respectively. The general partner holds a 0.5% interest in
the Joint Venture. The Company and Electron hold an interest in the general
partnership of 75.6% and 24.4%, respectively. The operations of the Joint
Venture have been consolidated with the Company as the Company has a controlling
interest in the Joint Venture.
In July 2000, the Joint Venture agreement with Electron Corporation was
amended to reflect changes in the ownership and profit-split percentages.
According to the amendment, the Company and Electron hold a limited partner
interest in the Joint Venture of 76.18% and 23.32%, respectively. The Company
and Electron hold an interest in the general partnership of 76.56% and 23.44%,
in the Joint Venture.
The sole purpose of the Joint Venture is to manufacture, machine,
market, distribute and engineer belted drive components and such other products
having similar uses which may be developed by either the Company or Electron in
the future.
Operating income attributed to the Joint Venture for the year ending
December 29, 2000 and from its inception through the year ending December 31,
1999 was $6,506 and $3,246, respectively. The minority partner's share of these
amounts was $1,554 and $808, respectively.
34
9. BUSINESS SEGMENT INFORMATION
Description of the Types of Products from which Each Segment Derives its
Revenues
The Company is engaged principally in the design, manufacture and sale
of power transmission products. The products manufactured by the Company are
classified into two segments, mechanical business and electronics business. The
mechanical business segment includes belted drives and couplings. The
electronics business segment includes electronic drives and electric drive
systems. Products of these segments are sold to distributors, original equipment
manufacturers and end users for manufacturing and commercial applications.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources based on
profit or loss from operations before income taxes. The accounting policies of
the reportable segments are the same as described in the summary of significant
accounting policies. Inter-segment sales are not material.
Factors Management Used to Identify the Company's Reportable Segments
The Company's reportable segments are business units that manufacture
and market separate and distinct products and are managed separately because
each business requires different processes, technologies, and market strategies.
The following table summarizes revenues, operating income, total assets
and expenditures for long-lived assets by business segment for fiscal years
2000, 1999, and 1998:
Mechanical Electronics
Business Business Total
- -----------------------------------------------------------------------------------------------------------
2000
Revenues from external customer $82,975 $51,382 $134,357
Operating profit after minority interest 9,189 3,312 12,501
Depreciation 2,832 2,038 4,870
Segment assets 56,248 37,492 93,740
Expenditures for long-lived assets 3,770 1,099 4,869
1999:
Revenues from external customer $75,270 $50,064 $125,334
Operating profit after minority interest 8,734 2,566 11,300
Depreciation 2,844 1,464 4,308
Segment assets 55,149 39,932 95,081
Expenditures for long-lived assets 5,406 1,043 6,449
1998:
Revenues from external customers $78,064 $57,351 $135,415
Operating profit 9,485 6,081 15,566
Depreciation 2,900 1,474 4,374
Segment assets 49,403 38,924 88,327
Expenditures for long-lived assets 4,542 2,320 6,862
35
The following table reconciles segment profit to consolidated income
before income taxes and extraordinary items for fiscal years 2000, 1999, and
1998:
2000 1999 1998
- --------------------------------------------------------------------------------
Total operating profit for reportable segments $12,501 $ 11,300 $ 15,566
Interest, net (2,880) (1,915) (2,040)
Other unallocated amounts 291 (657) (380)
---------------------------------
Income before income taxes $ 9,912 $ 8,728 $ 13,146
---------------------------------
The following table reconciles segment assets to consolidated total
assets as of December 29, 2000 and December 31, 1999:
2000 1999
- --------------------------------------------------------------------------------
Total assets for reportable segments $93,740 $ 95,081
Cash 619 1,245
Corporate fixed assets 4,683 2,948
Deferred tax 3,542 3,454
Other unallocated assets 76 138
----------------------------------
Consolidated total $102,660 $102,866
==================================
Information regarding the Company's domestic and foreign operations is as
follows:
Net Long-Lived
Sales Assets
- ----------------------------------------------------------------------
2000:
United States $102,051 $ 38,885
Canada 10,105 922
Germany 5,746 1,998
Italy 11,651 378
Mexico 4,012 993
India 792 87
-------------------------------------------
Consolidated $134,357 $43,263
===========================================
1999:
United States $ 96,344 $36,703
Canada 9,148 1,111
Germany 6,679 1,998
Italy 8,885 512
Mexico 3,690 990
India 588 98
-------------------------------------------
Consolidated $125,334 $41,412
===========================================
1998:
United States $105,336 $33,206
Canada 8,739 869
Germany 7,708 2,105
Italy 10,004 525
Mexico 3,493 966
India 135 84
-------------------------------------------
Consolidated $135,415 $37,755
===========================================
36
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Quarters
2000 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------
Sales $35,687 $34,427 $32,409 $31,834
Gross profit 13,189 12,428 11,269 11,614
Gross profit % 36.9% 36.1% 34.8% 36.5%
Net income 1,628 1,649 1,368 1,500
Basic net income per share 0.30 0.30 0.25 0.27
Diluted net income per share 0.30 0.30 0.25 0.27
Dividends declared per share 0.09 0.09 0.09 0.09
Dividends paid per share 0.09 0.09 0.09 0.09
Fiscal Quarters
1999 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------
Sales $30,413 $31,100 $32,742 $31,079
Gross profit 11,435 10,893 11,985 11,641
Gross profit % 37.6% 35.0% 36.6% 37.5%
Net income 1,176 1,287 1,495 1,409
Basic net income per share .20 .22 .25 .24
Diluted net income per share .20 .22 .25 .24
Dividends declared per share .09 .09 .09 .09
Dividends paid per share .09 .09 .09 .09
Fiscal Quarters
1998 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------
Sales $36,446 $34,536 $34,523 $29,910
Gross profit 13,771 12,627 12,211 10,446
Gross profit % 37.8% 36.6% 35.4% 34.9%
Net income 2,383 2,259 1,759 1,489
Basic net income per share 0.41 0.39 0.30 0.25
Diluted net income per share 0.40 0.38 0.30 0.25
Dividends declared per share .08 .09 .09 .09
Dividends paid per share .08 .09 .09 .09
================================================================================================================
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
37
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this Item regarding directors and
executive officers is set forth in the Company's definitive Proxy Statement for
the 2001 Annual Meeting in the Sections entitled "Election of Directors,"
"Management" and "Section 16(a) Beneficial Ownership Reporting Compliance" and
is incorporated herein by reference.
Item 11. Executive Compensation.
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 2001 Annual Meeting in the Section entitled
"Executive Compensation" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 2001 Annual Meeting in the Section entitled
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 2001 Annual Meeting in the Section entitled
"Certain Relationships and Related Transactions" and is incorporated herein by
reference.
38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) All financial statements;
The consolidated financial statements of the Company and its
subsidiaries on pages 17 through 37 hereof and the report thereon of
Arthur Andersen LLP appearing on page 18 hereof.
(2) Financial Statement Schedule
Schedule II for the fiscal year ended December 29, 2000 and the report
thereon of Arthur Andersen LLP appearing on page 18 hereof. All other
schedules have been omitted because they are not applicable or are not
required. All other required schedules are included in the Consolidated
Financial Statements or notes therein.
(3) Exhibits
Number Description
- ------ -----------
3.1 Amended Certificate of Incorporation of the Company (incorporated by
reference to TB Wood's Corporation Registration Statement filed on Form
S-1, as amended, File No. 33-96498 ("Form S-1") Exhibit 3.1).
3.2 Amended and Restated By-laws of the Company (incorporated by reference
to Form S-1 Exhibit 3.2).
10.1 Stock Purchase Agreement dated January 7, 1994 by and among T. B.
Wood's Sons Company, Plant Engineering Consultants, Inc. and John
Morris, Jesse Batten, Ralph Pedigo, Ronald Bingham, Walter Taeubel and
Cook Family Trust (incorporated by reference to Form S-1 Exhibit 10.1).
10.2 Asset Purchase Agreement dated May 12, 1994 by and between T. B. Wood's
Sons Company and Magnetic Power Systems, Inc. (incorporated by
reference to Form S-1 Exhibit 10.2).
10.3 Non-Qualified Stock Option Agreements between T. B. Wood's Sons Company
and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley
L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III
and James E. Williams (incorporated by reference to Form S-1 Exhibit
10.36).
10.4 Non-Qualified Stock Option Agreement dated as of March 15, 1991 between
T. B. Wood's Sons Company and Michael L. Hurt, together with Addendum
dated as of March 30, 1992 (incorporated by reference to Form S-1
Exhibit 10.37).
10.5 Asset Purchase Agreement between T. B. Wood's Sons Company and Dana
Corporation dated March 31, 1993 (includes Schedule 7.11 On-Site
Environmental Procedures) (incorporated by reference to Form S-1
Exhibit 10.38).
10.6 TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (the
"1996 Plan") (incorporated by reference to Form S-1 Exhibit 10.39).
39
10.7 Amendments to the Non-Qualified Stock Option Agreements between TB
Wood's Incorporated (formerly known as "T. B. Wood's Sons Company") and
Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and
James E. Williams (incorporated by reference to Form S-1 Exhibit
10.40).
10.8 Second Addendum dated July 1, 1995 to the Non-Qualified Stock Option
Agreement dated as of March 15, 1991 between TB Wood's Incorporated
(formerly known as "T. B. Wood's Sons Company") and Michael L. Hurt
(incorporated by reference to Form S-1 Exhibit 10.41).
10.9 Stock Purchase Agreement by and among TB Wood's Incorporated and Grupo
Blaju, S.A. de C.V. and Jorge R. Kiewek, Ninfa D. de Callejas and
Marcela Kiewek G., dated February 14, 1996 (incorporated by reference
to Form 10-K, for fiscal year 1995, Exhibit 10.43).
10.10 Revolving Credit Agreement by and among TB Wood's Incorporated, Plant
Engineering Consultants, Inc., Grupo Blaju, S.A., de C.V., TB Wood's
Canada, Ltd. and the Banks Party thereto and PNC Bank, National
Association, as Agent, dated October 10, 1996 (incorporated by
reference to Form 10-K, for fiscal year 1996, Exhibit 10.44).
10.11 TB Wood's Employee Stock Purchase Plan, dated March 1, 1997
(incorporated by reference to Form 10-K, for fiscal year 1996, Exhibit
10.45).
10.12 Stock Purchase Agreement by and between TB Wood's Incorporated and
Graseby Electro-Optics Inc. dated May 8, 1997 (incorporated by
reference to Form 10-K, for fiscal year 1997, Exhibit 10.46).
10.13 Translated Stock Purchase Agreement by and among TB Wood's Incorporated
and Berges Antriebstechnic GmbH and Karen Sarstedt, dated October 23,
1997 (incorporated by reference to Form 10-K, for fiscal year 1997,
Exhibit 10.47).
10.14 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Michael H. Iversen, Willard C. Macfarland,
Jr., and other key employees dated June 17, 1997 and between TB Wood's
Corporation and Robert J. Dole dated July 29, 1997 (incorporated by
reference to Form 10-K, for fiscal year 1997, Exhibit 10.48).
10.15 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Michael H. Iversen, Willard C. Macfarland,
Jr., and other key employees dated January 29, 1998 (incorporated by
reference to Form 10-K, for fiscal year 1997, Exhibit 10.49).
10.16 Employment Agreement between TB Wood's Incorporated and Michael L. Hurt
dated April 14, 1998 (incorporated by reference to Form 10-K, for
fiscal year 1998, Exhibit 10.16.
10.17 Supplemental Executive Retirement Plan between TB Wood's Corporation
and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson, Michael H.
Iversen and other key employees dated May 7, 1998 (incorporated by
reference to Form 10-K, for fiscal year 1998).
10.18 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Michael H. Iversen, Willard C. Macfarland,
Jr., and other key employees dated January 26, 1999 (incorporated by
reference to Form 10-K, for fiscal year 1998 Exhibit 10.18).
40
10.19 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Michael H. Iversen, Willard C. Macfarland,
Jr., and other key employees dated January 26, 1999 (incorporated by
reference to Form 10-K, for fiscal year 1998 Exhibit 10.19).
10.20 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Michael H. Iversen, Willard C. Macfarland,
Jr. and other key employees dated February 8, 2000.
10.21 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Michael H. Iversen, Willard C. Macfarland,
Jr. and other key employees dated February 8, 2000.
10.22 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Thomas F. Tatarczuch, Michael H. Iversen,
Willard C. Macfarland, Jr. and other key employees dated January 25,
2001.
10.23 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Thomas C. Foley, Michael L.
Hurt, Carl R. Christenson, Thomas F. Tatarczuch, Michael H. Iversen,
Willard C. Macfarland, Jr. and other key employees dated January 25,
2001.
10.24 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Preben H. Petersen dated
February 26, 2001.
10.25 Form of the Non-Qualified Stock Option Agreements issued under the 1996
Plan between TB Wood's Corporation and Preben H. Petersen dated
February 26, 2001.
10.50 Joint Venture Agreement dated July 3, 1999 by and between TB Wood's
Incorporated and The Electron Corp. (incorporated by reference to Form
10-K, for fiscal year 1999).
10.51 Operating Agreement of TBWE Belt Drive Systems LLC dated July 3, 1999
by and between TB Wood's Incorporated and The Electron Corp.
(incorporated by reference to Form 10-K, for fiscal year 1999, Exhibit
10.51).
11.1 Statement regarding Computation of Per Share Earnings.
20.1 Consent of Independent Public Accountants.
(b) Reports on Form 8-K.
There were no reports on Form 8-K by the Registrant during the fourth
quarter of fiscal year 2000.
21.2 Subsidiaries and Joint Ventures of Registrant.
41
SIGNATURES
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 March 12, 2001.
TB WOOD'S CORPORATION
By: /s/ MICHAEL L. HURT
-------------------
Michael L. Hurt
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ THOMAS C. FOLEY Chairman of the Board March 12, 2001
- ------------------- (Principal Executive Officer)
Thomas C. Foley
/s/ MICHAEL L. HURT President and Director March 12, 2001
- ------------------- (Principal Executive Officer
Michael L. Hurt
/s/ JEAN-PIERRE L. CONTE Director March 12, 2001
- ------------------------
Jean-Pierre L. Conte
/s/ ROBERT DOLE Director March 12, 2001
- ---------------
Senator Robert Dole
/s/ CRAIG R. STAPLETON Director March 12, 2001
- ----------------------
Craig R. Stapleton
/s/ THOMAS F. TATARCZUCH Vice President-Finance, March 12, 2001
- ------------------------ (Principal Financial Officer and
Thomas F. Tatarczuch Principal Accounting Officer)
42
TB Wood's Corporation And Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
---------
Deductions (write-offs
of bad debts,
Balance at discounts and claims Balance at
beginning of Charged to costs Charged to in excess of end of
Description period and expenses other accounts provision)(1) period
- --------------------------------------------------------------------------------------------------------------------------
Year ended January 1, 1999:
Allowance for doubtful accounts $334 2 (74) $262
Allowance for discounts and claims 142 10 152
-------------------------------------------------------------------------------------
476 12 (74) 414
=====================================================================================
Year ended December 31, 1999:
Allowance for doubtful accounts $262 (30) $232
Allowance for discounts and claims 152 18 170
-------------------------------------------------------------------------------------
414 18 (30) 402
=====================================================================================
Year ended December 29, 2000:
Allowance for doubtful accounts $232 24 $256
Allowance for discounts and claims 170 (16) 154
-------------------------------------------------------------------------------------
402 (16) 24 410
=====================================================================================
- -------------
Note:
(1) Represents write-off of accounts determined to be uncollectible, less
recoveries of amounts previously written off.
43