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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 28, 2001
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 Identification No.)
incorporation or organization)
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:
None
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 28, 2002, was $24,283,540. On
February 28, 2002, there were 5,226,848 shares of the registrant's common stock
outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2002 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.
1
TB WOOD'S CORPORATION
FISCAL YEAR 2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I........................................................................................................ 3
Item 1. Business........................................................................................ 3
Item 2. Properties...................................................................................... 7
Item 3. Legal Proceedings............................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders............................................. 7
PART II....................................................................................................... 8
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.......................... 8
Item 6. Selected Financial Data........................................................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation........... 9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk..................................... 13
Item 8. Financial Statements and Supplementary Data.................................................... 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................................................... 32
PART III...................................................................................................... 32
Item 10. Directors and Executive Officers of the Registrant............................................. 32
Item 11. Executive Compensation......................................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 32
Item 13. Certain Relationships and Related Transactions................................................. 33
PART IV....................................................................................................... 33
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 33
SIGNATURES.................................................................................................... 36
2
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 145 year-old business operates 12 production
facilities with less than 1,000 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
The Company was incorporated in 1995 to acquire the outstanding common stock of
TB Wood's Incorporated, which occurred in January 1996. TB Wood's Incorporated
("TBW"), which was founded in 1857 and incorporated in 1905 in Pennsylvania as
T.B. Wood's Sons Company, entered the power transmission industry at the turn of
the century.
The Company's core electronic product offerings total 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 four 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 introduced 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 two of the 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 The Electron
Corp., 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 mechanical power
transmission components and electronic drives product categories.
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 information on the Company's operating segments, refer to the
consolidated financial statements and footnote No. 9 included in this Form 10-K.
Sales amounts in the following table are in millions of dollars.
3
2001 2000 1999
Net Sales % Net Sales % Net Sales %
Electronic Power $38.7 35.6% $51.4 38.2% $50.0 39.9%
Transmission
Products
Mechanical Power 70.1 64.4% 83.0 61.8% 75.3 60.1%
Transmission
Products
$108.8 100.0% $134.4 100.0% $125.3 100.0%
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, heating and
ventilating systems, oil production, textile/fibers, 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 printed circuit
boards as well as 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 select
authorized industrial distributors who resell the Company's products to
industrial consumers and OEMs. The 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;
Reno, Nevada; Stratford, Ontario and Mexico City, Mexico and regional
distribution centers in Atlanta, Georgia; Orlando, Florida; Montreal, Quebec;
Edmonton, Alberta; Marienheide, Germany; Naturns, Italy; and Bangalore, India.
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 36% of the Company's net sales in 2001.
4
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, Danfoss 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) were $3.1
million for 2001, $3.1 million for 2000 and $3.7 million for 1999 which as a
percent of net sales during the last three fiscal years have been 2.8% for 2001,
2.3% for 2000, and 2.9% for 1999. The Company completed a new Technology Center
at the Chambersburg facility that is designed to make the research and
development investment more productive by making it easier for engineers to
share insights and collaborate on projects. Electronic drive system research is
conducted in Chattanooga, TN.
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, microprocessors and associated semiconductor integrated
circuits, 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), AmbiTech(TM),
E-trAC(R), Ultracon(R), Fiberlink(TM), Dura-Flex(R), Disc-O-Torque(R),
E-FLOW(R), E-Trol, IMD(R), NLS, Petro-trAC(R), Roto-Cam, S-trAC(R), Sure-Grip,
Volkman(R), All-Pro(R), Superstart(R), and Truetube(R).
Employees
As of December 28, 2001 the Company employed approximately 1,000 people. At its
Stratford, Ontario, Canada facility 32 employees are represented by the United
Steelworkers of America pursuant to a collective bargaining agreement dated
January 20, 2001 that expires on January 19, 2004. On January 31, 2002, 27 of
the employees represented by the United Steelworkers of America were permanently
laid-off as the Company decided to discontinue manufacturing operations at that
location. The National Metal Workers' Union of Mexico represents approximately
100 production employees in the Company's Mexican facilities pursuant to
collective bargaining agreements that expire on January 31, 2003. The Company
has created the TB Wood's Institute, which offers training programs to improve
employees' operating, management and team-building skills.
5
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.
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 Dana Corporation owned the Facility. 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
Effective February 21, 2001, the Company's common stock began trading on The
NASDAQ Stock Market ("NASDAQ") under the symbol TBWC following notification from
the New York Stock Exchange ("NYSE") that the Company 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.
6
The Company has been advised that The Electron Corp. ("Electron"), the minority
partner in a joint venture established to manufacture and market belted drive
products that are part of the Company's Mechanical Power Transmission Products
segment, filed for bankruptcy on November 19, 2001 under Chapter 11
(Reorganization) of the U.S. Bankruptcy Code. Electron is a supplier of castings
for belted drive products to the joint venture. Although Electron has suspended
manufacturing operations pending the development of a reorganization plan, the
joint venture has not suffered any interruptions to its business as these types
of castings are readily available from the Company's own foundry or other
third-party suppliers. Based upon current information available to it,
management does not believe this event will have any material impact upon its
business operations.
As part of the Company's ongoing efforts to reduce costs in the current business
environment, the Company closed its manufacturing operations located in
Stratford, Ontario, Canada, effective January 31, 2002. This closure affects 27
employees. The Company will maintain its distribution facility at that location
to service the Canadian marketplace. The Company's estimates the pretax
severance costs to be $230,000 and other period costs of $240,000 which will be
incurred during the First Quarter of fiscal 2002.
Item 2. Properties.
The Company owns and operates the following facilities:
- --------------------------------------------------------------------------------------------------------------------
Location Operations Sq. Feet
- --------------------------------------------------------------------------------------------------------------------
Chambersburg, Pennsylvania Foundry production of iron, and manufacturing and 440,000
engineering 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, Canada Manufacturing of mechanical products (Closure announced 46,000
January 31, 2002). Central distribution and
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 60,000
electronic drive systems. Headquarters of PEC.
- --------------------------------------------------------------------------------------------------------------------
Greensboro, North Carolina Manufacturing of electrical products. 22,400
- --------------------------------------------------------------------------------------------------------------------
In addition, the Company leases manufacturing facilities in Mexico City, Mexico
(53,700 sq. ft.); San Luis Potosi, Mexico (36,300 sq. ft.); Marienheide, Germany
(9,800 sq. ft.); Naturns, Italy (19,500 sq. ft.); and Bangalore, India (4,500
sq. ft.). The Company leases distribution facilities in Reno, Nevada; Montreal,
Quebec and Edmonton, Alberta in Canada. The Company uses contract warehouses in
Orlando, Florida and Atlanta, Georgia.
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.
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 28, 2001.
7
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 traded
on NASDAQ under the symbol "TBWC". From the time of the IPO up until February
21, 2001, the Company's common stock was listed on the NYSE. The high and low
prices for the Common Stock, and dividends paid on Common Stock, during the
period from January 1, 2000 through December 28, 2001 were as follows:
Sales Price Dividends
----------- ---------
High Low Declared Paid
---- --- -------- ----
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
Fiscal Year 2001 1st quarter $ 8.94 $ 6.75 $.09 $.09
2nd quarter 9.25 7.51 .09 .09
3rd quarter 9.95 7.96 .09 .09
4th quarter 8.66 6.27 .09 .09
On February 28, 2002, there were 167 registered shareholders of the Company's
Common Stock, and the high and low sales price for the Common Stock were $8.50
and $8.40, respectively. During fiscal year 2001, the Company declared and paid
total dividends of $.36 on the shares of its Common Stock. The Company declared
a $.09 dividend on January 3, 2002 and paid it on January 31, 2002. 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 29,
2000 through December 28, 2001, except for sales of shares to key employees and
directors upon exercise of options issued in a non-public offering pursuant to
an exemption from the registration requirements of the 1933 Act, under Section
4(2) of the 1933 Act.
In December 1999, the Company accepted for payment 400,000 shares of Common
Stock at $9.00 per share as part of a self-tender offer to its shareholders. In
August and September 2001, the Company accepted for payment 200,003, shares of
Common Stock at $11.00 per share as part of a self-tender offer to its
shareholders.
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 2001 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."
The Company's fiscal year ends on the Friday closest to the last day of
December. Fiscal year-ends are as follows:
2001 December 28, 2001
2000 December 29, 2000
1999 December 31, 1999
1998 January 1, 1999
1997 January 2, 1998
8
Selected Financial Data
(in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------
Fiscal Year 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
Net sales $108,805 $134,357 $125,334 $135,415 $125,463
Gross profit 37,037 48,500 45,954 49,055 46,448
Operating income before minority interest 5,875 14,055 12,108 15,566 16,951
Minority interest 1,147 1,554 808 0 0
Operating income after minority interest 4,728 12,501 11,300 15,566 16,951
Net income 2,906 6,145 5,367 7,890 8,689
--------------------------------------------------------------
Cash Flow
Cash provided by operations $12,825 $13,758 $10,050 $ 6,228 $ 16,829
Capital expenditures 4,110 7,712 8,316 7,481 5,824
--------------------------------------------------------------
Working capital* $28,571 $33,378 $34,245 $ 34,644 $27,682
Total assets 87,632 102,660 102,866 96,025 89,617
Total debt 28,645 33,919 36,924 32,469 26,539
Shareholders' equity 28,445 30,092 27,692 28,515 23,606
--------------------------------------------------------------
Per Share Data
Net income $0.54 $1.12 $0.91 $1.33 $1.47
Cash dividends paid .36 .36 .36 .35 .32
Book value 5.31 5.50 4.69 4.81 3.99
--------------------------------------------------------------
Diluted Weighted average shares
Outstanding 5,355 5,473 5,910 5,932 5,921
*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 Operations
Year Ended December 28, 2001 Compared to Year Ended December 29, 2000
Net Sales for fiscal 2001 were $108.8 million compared to $134.4 million in
2000; a reduction of $25.6 million or 19.0%. The principal reason for this
reduction has been the length and severity of the US industrial slowdown. Based
on data received from industry trade associations, management believes its main
competitors had similar reductions in sales.
Gross profit for 2001 declined to $37.0 million from $48.5 million in 2000, a
reduction of $11.5 million or 23.6%. Gross profit as a percent of net sales
decreased to 34.0% from 36.1% due primarily to the lower absorption of fixed
manufacturing expenses as a result of the lower level of manufacturing
operations caused by lower sales volume and a reduction of inventory. A major
initiative of the Company during 2001 was the reduction of inventory. The
reduction realized during 2001 totaled $8.4 million. This reduction came about
by better matching of manufacturing operational levels to customer demands and
reduction of manufacturing lead and operational times. This was the first year
of a program that will be ongoing as a result of which the Company anticipates a
further reduction of inventory during 2002 that could be at least $2 million.
Selling, general, and administrative ("SG&A") expense for fiscal 2001 decreased
to $31.2 million from $34.4 million in 2000, a reduction of $3.2 million or
9.5%. SG&A expense as a percent of net sales increased to 28.6% from 25.6%
because the Company was unable to reduce the fixed costs that are part of SG&A
expense. The major challenge in 2001 continued to be executing tight control of
discretionary expenses and head count while continuing to work on new product
development for projects that will benefit the future.
Operating income in fiscal 2001 and 2000 includes a benefit of $2.4 million and
$0.9 million, respectively, from the amortization of unrecognized prior service
benefit and unrecognized net actuarial gain in the Company's defined benefit
postretirement medical plan. The increased benefit in fiscal 2001 relates to
revised actuarial estimates for fiscal 2001. The Company also terminated
postretirement medical plan benefits for all employees retiring subsequent to
December 31, 2001. As a result of the curtailment of postretirement benefits,
the Company realized a gain in fiscal 2001 in the amount of $482,000.
Interest expense for fiscal 2001 of $1.4 million was lower than fiscal 2000 by
$1.5 million. This was due to the consistent reduction of debt levels during
2001 and lower interest rates.
9
Other (expense) income, net for fiscal 2001 was a net of $0.6 million as
compared to $0.3 million for 2000, an improvement of $0.3 million. This was due
primarily to the gain of $.6 million on the selling of a warehouse in 2001.
The effective tax rate for 2001 was 25% down from 38% in 2000. The decrease in
the effective tax rate was primarily due to a tax benefit related to revised
estimates of the Company's income tax liability and the realization of certain
state refunds of approximately $519,000 as well as certain tax credits.
Net income for fiscal 2001 decreased to $2.9 million from $6.1 million in 2000,
a reduction of $3.2 million or a 52.7% decrease from 2000. The principal reasons
for the reduction were lower fixed expense absorption and reduced sales volume.
Our significant accounting policies are more fully described in Note 2 to our
consolidated financial statements. Certain of our accounting policies require
the application of significant judgement by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty and actual
results could differ from these estimates. These judgements are based on our
historical experience, terms of existing contracts, current economic trends in
the industry, information provided by our customers, and information available
from outside sources, as appropriate. Our significant accounting policies
include:
Allowances for doubtful accounts, discounts and claims: The Company maintains
allowances for doubtful accounts, discounts and claims resulting from the
inability of our customers to make required payments, projected cash discounts
to be taken in the month following the end of the accounting period and any
claims customers may have for merchandise. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
Allowance and/or reserve for product warranty and returns: Our warranty reserve
and allowance for product returns is established based upon our best estimate of
the amounts necessary to settle future and existing claims on products sold as
of the balance sheet date. While we believe that our warranty reserve and
allowance for product returns is adequate and that the judgement applied is
appropriate based upon our historical experience for these items, actual amounts
determined to be due and payable would differ and additional allowances may be
required.
Property, Plant and Equipment: Property, plant and equipment and certain other
long-lived assets are depreciated or amortized over their projected useful
lives. Useful lives are based on management's estimates of the period that the
assets will generate revenue. Future technological developments may mean that
the useful lives are shorter than originally anticipated as a result of which
adjustments would have to be made resulting in higher depreciation charges for
future periods.
Reserve for Inventory Obsolescence: The Company writes down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
Revenue Recognition: The Company's revenue recognition policies are in
compliance with Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" issued by the Securities and Exchange Commission. Revenue
is recognized at the time product is shipped and title passes pursuant to the
terms of the agreement with the customer, the amount due from the customer is
fixed and collectibility of the related receivable is reasonably assured. The
Company establishes allowances to cover anticipated doubtful accounts, sales
discounts, product warranty, and returns based upon historical experience.
Shipping and handling costs charged to customers are included as a component of
net sales.
Postretirement Benefit Obligation: The Company in consultation with an actuarial
firm specializing in the valuation of postretirement benefit obligations selects
certain actuarial assumptions to base the actuarial valuation of such obligation
on such as the discount rate (interest rate used to determine present value of
obligations payable in the future), initial health care cost trend rate, the
ultimate cost care trend rate and mortality tables to determine the expected
future mortality of plan participants. To the extent that the actual rates and
mortality vary from the assumptions used to determine the present actuarial
valuation of these postretirement benefits, additional provision for expense may
be necessary.
10
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%. The sales strength was negatively
affected by the strong U.S. dollar. The increase in the exchange rate of the
U.S. Dollar relative to foreign currencies in which our foreign subsidiaries
transact business during 2000 as compared to 1999 had the effect of reducing
sales by $1.8 million and gross profit by $.6 million for 2000. Principal areas
of growth were market growth of $6.6 million in mechanical belted drives, and $
3.3 million of customer growth in electronic AC motor drives.
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.
Operating income in fiscal 2000 and 1999 includes a benefit of $0.9 million and
$1.5 million, respectively, from the amortization of unrecognized prior service
benefit and unrecognized net actuarial gain on the Company's defined benefit
postretirement medical plan.
Minority interest in joint ventures increased from $808,000 in 1999 to
$1,554,000 in 2000 due to the fact that the joint venture with The Electron
Corp. was in operation for 12 months during 2000 while in 1999 it only operated
for six months. 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 offer.
Other, net, a component of total other expense, net, was income of $291,000 in
2000 compared to an expense of $657,000 in 1999 for a change of $948. The 1999
expense included $350,000 of expense due to the termination of a proposed
acquisition and $100,000 of charges related to the closing of a plant which
expenses did not reoccur in 2000. Realized foreign exchange gains increased by
$206,000 in 2000 as compared to 1999 and the loss on disposition of assets
decreased by $124,000 in 2000 as compared to 1999 for a total of $330,000
increase in 2000.
The effective income tax rate for 2000 was 38.0% as compared to 38.5% in the
prior year. The effective income tax rate decreased due to corporate structural
changes made to reduce state income taxes.
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.
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 of $52.5 million. Cash
provided from operations in 2001 was $12.8 million, $13.8 million in 2000 and
$10.1 million in 1999. Net cash used in investing activities during fiscal years
2001, 2000, and 1999 was $2.9 million, $7.6 million, and $7.8 million,
respectively. The Company's investing activities in 2001, 2000 and 1999 were
primarily capital expenditures. The Company's revolving credit agreement, which
matures in October 2003, was recently amended to provide additional flexibility
under certain of the financial covenants.
Capital expenditures for fiscal years 2001, 2000, and 1999 were $4.1 million,
$7.7 million, and $8.3 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 2001, the Company completed the renovation of the advanced
engineering center in Chambersburg, acquired 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 2000, the Company continued the renovation of the advanced engineering center
in Chambersburg, acquired other equipment to upgrade a portion of the 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, upgraded some of the machine tool
equipment base for mechanical product business, and started the renovation of
the advanced engineering center in Chambersburg. These capital expenditures are
intended to reduce costs, improve product quality, and provide additional
capacity for meeting the Company's growth objectives.
The amount of commitments for capital expenditures at December 28, 2001 was
immaterial.
11
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 $1.9 million in dividends during 2001, $2.0 million in 2000,
and $2.1 million in 1999. The Company paid a $0.09 per share dividend in the
first, second, third, and fourth quarters of 2001, and declared a $0.09 dividend
on January 3, 2002 and paid it on January 31, 2002.
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. The Company had
available as of December 28, 2001 $24,243 million under its revolving credit
agreement with PNC Bank, N.A. Because of the reduction of inventory and capital
expenditures during fiscal 2001, the company was able to reduce its long-term
debt.
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 standard
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 adopted this
standard as of fiscal year 2000, and there was 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.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, Business Combinations effective for business acquisitions subsequent to
June 30, 2001, and No. 142, Goodwill and Other Intangible Assets effective for
fiscal years beginning after December 15, 2001. Under these new standards,
goodwill (and intangible assets deemed to have indefinite lives) will no longer
be amortized but will be subject to annual impairment tests in accordance with
the Statements. Other intangible assets will continue to be amortized over their
useful lives. The Company will apply the new rules on accounting for goodwill
and other intangible assets beginning in the first quarter of fiscal 2002.
Application of the nonamortization provisions of the Statement is expected to
result in an increase in net income of $166,000 ($.03 per share) per year.
During 2002, the Company will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of December 29, 2001
(first day of fiscal 2002) and has not yet determined what the impact of
adoption of this statement will be on the earnings and financial position of the
Company.
In June 2001 FASB issued SFAS No. 143 Accounting for Asset Retirement
Obligations and in August 2001 SFAS No. 144 Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002, and SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company does not believe the adoption of
these statements will have a material impact upon the earnings and financial
position of the Company.
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.
12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
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, Euro, and Indian rupee. 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.
The effective interest rate payable on the Company's revolving credit agreement
is influenced by the actions of the Federal Reserve Bank Board in establishing
from time to time the Federal Funds Interest Rate which is the rate banks borrow
from the Federal Reserve Bank. During 2001 the Federal Reserve implemented a
number of reductions in the Federal Funds Interest Rate in an effort to
stimulate the U.S. economy. As a result the effective interest rate that the
Company paid on its borrowings under the revolving credit agreement declined and
interest expense declined as a result thereof and reduced borrowing levels. To
the extent that the Federal Reserve increases the Federal Funds Interest Rate in
the future, the effective interest rate on the Company's revolving credit
agreement will increase and its interest expense will increase accordingly if
borrowing levels remain constant. Based on the balance outstanding under our
revolving credit agreement at year-end, a 1% change in the effective interest
rate would have changed interest expense by $225,000.
In August 1998, the Company entered into an interest rate swap agreement that
effectively converted $10,000,000 of the underlying variable rate debt in the
unsecured PNC revolving credit facility to fixed rate debt. The notional
principal amount of the swap agreement is $10,000,000 with an effective fixed
rate of 5.75%. The swap agreement was settled each month and expired in July
2001. The Company did not renew or reestablish a similar interest swap agreement
in 2001.
Interest Rate Derivatives at 2001 2000 1999
Interest Rate Swap:
Variable to Fixed
Fixed Rate U.S. None $10,000,000 $10,000,000
Average Pay Rate 5.75% 5.75%
13
Item 8. Financial Statements and Supplementary Data.
Page
----
Report of Independent Public Accountants..................................................................... 15
Consolidated Balance Sheets as of December 28, 2001 and December 29, 2000.................................... 16
Consolidated Statements of Operations for the Years Ended December 28, 2001,
December 29, 2000, and December 31, 1999................................................................ 17
Consolidated Statements of Comprehensive Income for the Years Ended December 28, 2001,
December 29, 2000, and December 31, 1999................................................................ 17
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 28, 2001,
December 29, 2000, and December 31, 1999................................................................ 18
Consolidated Statements of Cash Flows for the Years Ended December 28, 2001,
December 29, 2000 and December 31, 1999 ................................................................ 19
Notes to Consolidated Financial Statements................................................................... 20
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 28, 2001
and December 29, 2000 and the related consolidated statements of operations,
comprehensive income, changes in shareholders' equity, and cash flows for each
of the three fiscal years in the period ended December 28, 2001. 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 28, 2001 and December 29, 2000 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 28, 2001 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 of valuation and qualifying
accounts 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 8, 2002
15
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share and share amounts) 2001 2000
ASSETS
Current Assets:
Cash and cash equivalents $ 581 $ 619
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $472 and $410 in 2001 and 2000, respectively 15,706 18,912
Inventories:
Finished goods 16,370 21,927
Work in process 7,298 9,060
Raw materials 5,566 7,112
LIFO reserve (5,432) (5,883)
---------------------------------
23,802 32,216
Other Current Assets: 1,849 1,908
---------------------------------
Total current assets 41,938 53,655
---------------------------------
Property, Plant, and Equipment:
Machinery and equipment 48,750 56,242
Land, buildings, and improvements 16,216 14,535
---------------------------------
64,966 70,777
Less accumulated depreciation 32,025 37,060
---------------------------------
Total Property, Plant and Equipment 32,941 33,717
---------------------------------
Other Assets:
Deferred income taxes 2,265 3,542
Goodwill, net of accumulated amortization of $2,157
and $1,931 in 2001 and 2000, respectively 8,865 9,546
Other 1,623 2,200
---------------------------------
Total other assets 12,753 15,288
---------------------------------
$ 87,632 $ 102,660
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 843 $ 258
Accounts payable 7,469 8,663
Checks outstanding 1,635 1,169
Accrued expenses 5,317 10,995
Deferred income taxes 1,202 1,398
---------------------------------
Total current liabilities 16,466 22,483
---------------------------------
Long-term debt, less current maturities 27,802 33,661
Postretirement benefit obligation, less current portion 11,857 14,133
Minority interest 3,062 2,291
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,
5,639,798 issued and 5,219,447 outstanding in 2001, and
5,887,698 issued and 5,400,908 outstanding in 2000 57 59
Common stock in treasury at cost; 420,351 shares in 2001
and 486,790 shares in 2000 (4,338) (4,566)
Additional paid-in capital 26,720 29,086
Retained earnings 8,968 8,147
Accumulated other comprehensive income(loss) (2,962) (2,634)
---------------------------------
Total shareholders' equity 28,445 30,092
---------------------------------
$ 87,632 $ 102,660
=================================
The accompanying notes are an integral part of these consolidated financial
statements.
16
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts) 2001 2000 1999
Net sales $108,805 $134,357 $125,334
Cost of sales 71,768 85,857 79,380
-------------------------------------
Gross profit 37,037 48,500 45,954
Selling, general, and administrative expenses 31,162 34,445 33,846
-------------------------------------
Operating income before minority interest 5,875 14,055 12,108
Minority interest in joint ventures 1,147 1,554 808
-------------------------------------
Operating income after minority interest 4,728 12,501 11,300
-------------------------------------
Other (expense) income:
Interest expense and other finance charges (1,427) (2,880) (1,915)
Other, net 576 291 (657)
-------------------------------------
Other expense, net (851) (2,589) (2,572)
-------------------------------------
Income before provision for income taxes 3,877 9,912 8,728
Provision for income taxes 971 3,767 3,361
-------------------------------------
Net income $ 2,906 $ 6,145 $ 5,367
=====================================
Per share of common stock:
Basic:
Net income per common share $0.55 $1.12 $ 0.91
=====================================
Weighted average shares of common stock and
equivalents outstanding 5,332 5,468 5,896
=====================================
Diluted:
Net income per common share $0.54 $1.12 $ 0.91
=====================================
Weighted average shares of common stock and
equivalents outstanding 5,355 5,473 5,910
=====================================
Consolidated Statements of Comprehensive Income
- ------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Net Income $ 2,906 $ 6,145 $ 5,367
Other comprehensive income:
Foreign currency translation adjustment (328) (991) (300)
-------------------------------------
Comprehensive income $ 2,578 $ 5,154 $ 5,067
=====================================
The accompanying notes are an integral part of these consolidated financial
statements.
17
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Accumulated
Additional Other
Common Treasury Paid-In Retained Comprehensive
(in thousands) Stock Stock Capital Earnings Income (Loss)
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)
Net Income 0 0 0 2,906 0
Stock issuance for employee benefit plans 0 358 36 (88) 0
Dividends declared 0 0 0 (1,938) 0
Proceeds from options exercised 0 18 0 (59) 0
Retirement of Common Stock, 200,003 shares (2) 2,404 (2,402) 0 0
Treasury stock, net 0 (2,552) 0 0 0
Foreign currency translation adjustment 0 0 0 0 (328)
----------------------------------------------------------
December 28, 2001 $ 57 $ (4,338) $ 26,720 $ 8,968 $ (2,962)
==========================================================
The accompanying notes are an integral part of these consolidated financial
statements.
18
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
- -------------------------------------------------------------------------------------------------------------------
(in thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 2,906 $6,145 $5,367
-----------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,631 5,498 4,706
Change in deferred income taxes 1,081 276 (439)
Stock option compensation and employee stock benefit expense 265 392 648
Net (gain) loss on sale of assets (537) 27 (99)
Minority interest 1,147 1,554 808
Other, net (130) 0 (43)
Changes in working capital:
Accounts receivable 3,206 (319) (1,165)
Inventories 8,414 1,944 (4,305)
Other current assets 59 (74) 871
Accounts payable (1,194) (3,744) 6,075
Accrued and other liabilities (8,023) 2,059 (2,374)
-----------------------------------------------
Total adjustments 9,919 7,613 4,683
-----------------------------------------------
Net cash provided by operating activities 12,825 13,758 10,050
Cash Flows from Investing Activities:
Capital expenditures (4,110) (7,712) (8,316)
Proceeds from sales of fixed assets 745 10 791
Other, net 504 68 (257)
-----------------------------------------------
Net cash used in investing activities (2,861) (7,634) (7,782)
-----------------------------------------------
Cash Flows from Financing Activities:
Change in checks outstanding 466 166 (702)
Distribution of earnings to minority partner (376)
Proceeds from (repayments of) long-term debt, net (231) (515) 2,633
Proceeds from (repayments of) (5,144) (2,490) 2,200
revolving credit facilities, net
Payment of dividends (1,938) (1,976) (2,120)
Proceeds from issuance of stock upon option exercise 0 0 250
Purchase of Treasury Stock, net (2,552) (1,126) (4,994)
Other 101 182 (511)
-----------------------------------------------
Net cash used in financing activities (9,674) (5,759) (3,244)
-----------------------------------------------
Effect of changes in foreign exchange rates (328) (991) (300)
-----------------------------------------------
Decrease in cash and cash equivalents (38) (626) (1,276)
Cash and cash equivalents at beginning of year 619 1,245 2,521
-----------------------------------------------
Cash and cash equivalents at end of year $581 $619 $1,245
===============================================
Income taxes paid, net of refunds during the year $ 1,714 $1,368 $2,052
===============================================
Interest paid during the year $ 1,419 $2,880 $1,915
===============================================
The accompanying notes are an integral part of these consolidated financial
statements.
19
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 ventures. All intercompany accounts
have been eliminated in consolidation.
Year-End
The Company's fiscal year ends on the Friday closest to the last day of
December. The Company's fiscal year ends were as follows:
2001...........................December 28, 2001
2000...........................December 29, 2000
1999...........................December 31, 1999
2. Summary of Significant Accounting Policies
Restricted Cash
At December 28, 2001, and December 29, 2000, $112 and $136, respectively, 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
Revenue Recognition
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" issued
by the Securities and Exchange Commission. Revenue is recognized at the time
product is shipped and title passes pursuant to the terms of the agreement with
the customer, the amount due from the customer is fixed and collectibility of
the related receivable is reasonably assured. The Company establishes allowances
to cover anticipated doubtful accounts, sales discounts, product warranty, and
returns based upon historical experience. Shipping and handling costs charged to
customers are included as a component of net sales.
20
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 72% and 77% of total inventories at December 28, 2001 and December
29, 2000, respectively, were valued using the LIFO method. In 2001, the Company
changed its method for determining LIFO values from the double-extension method
to the link-chain method. This change did not have a material impact upon the
financial statements. Due to the decline in inventories valued using the LIFO
method, the LIFO reserve decreased $451 during the year ended December 28, 2001,
which reduced the Cost of Goods Sold by the same amount. Inventories for foreign
operations are stated at the lower of cost or market using the first-in,
first-out ("FIFO") method.
Self-Insurance
For a portion of fiscal 2000 and prior fiscal years the Company maintained
workers' compensation insurance policies that have the potential for
retrospective premium adjustments. In fiscal 2000 the Company changed to a fully
insured workers' compensation insurance type of policy. For fiscal 2001 and
prior years the Company maintained a partially self-insured group health
insurance policy that is subject to specific retention levels. Effective in
fiscal 2002 the Company is changing to a fully insured group health insurance
policy. Insurance administrators assist the Company in estimating the fully
developed workers' compensation liability and group health insurance reserves
that are accrued by the Company. In the opinion of management, adequate
provision has been made for all incurred claims. At December 28, 2001, the
Company had issued letters of credit totaling $340 to cover incurred claims and
other costs related to its workers' compensation liability.
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
For fiscal 2001 and prior years the excess of cost over the net assets acquired
("Goodwill") was 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. Goodwill amortization for 2001, 2000 and 1999 was $226,
$259 and $254, respectively. Beginning in fiscal 2002 the Company will adopt
SFAS No. 142 "Goodwill and Other Intangible Assets." Under SFAS No. 142 the
Company will no longer amortize goodwill but annually test the value for
impairment. The Company is in the process of implementing SFAS 142 but has not
yet reached a determination of the effect this will have on its financial
statements. It will make this determination prior to issuing the first quarter
report for fiscal 2002.
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.
Shareholders' Equity
Since 1996, the Board of Directors has authorized the Company to purchase up to
a total of 500,000 of the Company's common shares subject to certain business
and market conditions. As of December 28, 2001 the number of treasury shares
purchased under this authorization was 497,936 excluding shares issued to
employees. This total includes 150,003 shares accepted on August 3, 2001 at
$11.00 per share and incurred related costs under the self-tender offer
authorized by the Board of Directors in 2001 and 50,000 shares purchased on
September 7, 2001 at $11.00 per share that were retired. In addition in 1999,
the Board of Directors authorized a self-tender offer for the Company's common
shares under which on December 17, 1999, the Company accepted 400,000 shares at
$9.00 per share and incurred related costs. During 2001, the Company transferred
12,194 shares of treasury stock to the employees stock purchase plan and 23,630
to the 401(k) profit-sharing plan. Further in 2001, 2,103 shares were issued as
the result of an option exercise by an employee.
21
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 $3,077 in 2001, $3,108 in
2000, and $3,659 in 1999.
Major Customers
The Company's five largest customers accounted for approximately 36%, 31%, and
29% of net sales for fiscal years 2001, 2000, and 1999 respectively. Of these
customers, one accounted for close to 21% of net sales for the year ended
December 28, 2001. 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 23%, 25% and 25% of total sales in fiscal years 2001, 2000
and 1999, respectively.
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 28, 2001, the Company employed approximately 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 America pursuant to a
collective bargaining agreement dated January 20, 2001 that expires on January
19, 2004. The National Metal Workers' Union of Mexico represents approximately
100 production employees in the Company's Mexican facilities pursuant to
collective bargaining agreements that expire on January 31, 2003.
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.
22
The computation of weighted average shares outstanding and net income per share
is as follows for fiscal years 2001, 2000, and 1999:
2001 2000 1999
Common shares outstanding for basic EPS 5,332 5,468 5,896
Shares issued upon assumed exercise of outstanding
stock options 23 5 14
---------------------------------------------
Weighted average number of common and common
equivalent shares outstanding 5,355 5,473 5,910
=============================================
Options outstanding for 676,250 shares are excluded from the calculation of
weighted average shares outstanding because they are anti-dilutive.
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.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, effective for
business combinations initiated after June 30, 2001, and SFAS No. 142, Goodwill
and Other Intangible Assets, effective for fiscal years beginning after December
15, 2001. Under these new standards, goodwill (and intangible assets deemed to
have indefinite lives) will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company will apply the new
rules on accounting for goodwill and other intangible assets beginning in the
first quarter of fiscal 2002. Application of the nonamortization provisions of
the Statement is expected to result in an increase in net income of $166 per
year. During 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of December 29, 2001
(first day of fiscal 2002) and has not yet determined what the effect of these
tests will be on the earnings and financial position of the Company.
In June 2001 FASB issued SFAS No. 143 Accounting for Asset Retirement
Obligations and in August 2001 SFAS No. 144 Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002, and SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company does not believe the adoption of
these statements will have a material impact upon the earnings and financial
position of the Company.
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:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Accrued payroll and other compensation $2,483 $ 2,631
Accrued taxes 455 2,084
Accrued workers' compensation 150 264
Other accrued liabilities 2,229 6,016
-------------------------------
Total $5,317 $10,995
===============================
23
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:
2001 2000
Unsecured Revolving Lines of Credit $23,244 $28,287
Capital lease obligations 116 347
Industrial revenue bonds 5,285 5,285
--------------------------------
28,645 33,919
Less current maturities (843) (258)
--------------------------------
$27,802 $33,661
================================
Aggregate future maturities of long-term debt and capital lease obligations as
of December 28, 2001 are as follows:
2002 $ 843
2003 22,517
2004 0
2005 0
2006 0
Thereafter 5,285
--------------
$28,645
==============
The Company has a $52,500 unsecured revolving credit facility with PNC Bank,
N.A. For a portion of 2001 and prior years, $10,000 of the total was payable in
German deutschemarks. During 2001, the Company converted the German deutschemark
portion into a US dollar denominated amount. In addition to the $22,500 actually
borrowed under this facility at December 28, 2001, there were letters of credit
outstanding in the amount of $5,717 primarily to secure the Company's industrial
revenue bonds. The amount available at December 28, 2001 was $24,283. The
revolving credit bears a variable interest of LIBOR plus 125.0 basis points, and
matures October 2003. The average rate of the revolving debt at December 28,
2001 was 3.23% and 7.68% at December 29, 2000. 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. The Company was in compliance with amended debt covenants as of
the end of its fiscal year.
In addition to the above facility one of the Company's foreign subsidiaries has
an unsecured revolving credit facility denominated in Euro that translates into
$744 at December 28, 2001, maturing in 2002. The rate for this facility was
4.24% at December 28, 2001.
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 PNC 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 was settled each month and expired in July 2001.
The Company did not renew or restablish a similar interest swap agreement in
2001.
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 (1.655% at December 28,
2001) maturing April 2022. The bonds were issued to finance a 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 (1.655 % at December
28, 2001), 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:
- ------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Proceeds from revolving credit facilities $ 42,717 $ 45,227 $ 47,400
Repayments of revolving credit facilities (47,861) (47,717) (45,200)
24
5. Income Taxes
The components of the provision for income taxes are shown below:
- ------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Current:
Federal and state $(607) $1,855 $2,105
Foreign 497 1,636 817
----------------------------------------------------
(110) 3,491 2,922
Deferred 1,081 276 439
----------------------------------------------------
Provision for income taxes $971 $3,767 $3,361
====================================================
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.
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:
2001 2000
Deferred income tax liabilities:
Book basis in property over tax basis $(2,551) $(2,655)
LIFO inventory basis difference (1,975) (2,697)
Other (428) (209)
----------------------------------
Total deferred income tax liabilities (4,954) (5,561)
----------------------------------
Deferred income tax assets:
Postretirement benefits not currently deductible 4,623 5,637
Accrued liabilities not currently deductible 366 930
Allowance for doubtful accounts and inventory reserves 515 641
Other 513 497
----------------------------------
Total deferred income tax assets 6,017 7,705
----------------------------------
Net deferred income tax asset $1,063 $2,144
==================================
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:
2001 2000 1999
Federal statutory income tax $1,318 $3,347 $2,966
State income taxes, net of federal income tax benefit (214) 162 139
Foreign taxes and other, net (133) 258 256
----------------------------------------------------
$971 $3,767 $3,361
====================================================
The provision for income taxes in fiscal 2001 includes a tax benefit related to
revised estimates of the Company's income tax liability and the realization of
certain state income tax refunds of approximately $519 as well as certain income
tax credits.
In 2001, 2000, and 1999 earnings before income taxes included $1,151, $3,096,
and $2,541 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 with the exception of the Canadian
subsidiary for which provision has been made.
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.
25
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 $0, $759, and $709 for fiscal
years 2001, 2000, and 1999 respectively.
Profit-Sharing Plans
Since January 1, 1988, the Company has maintained a separate defined
contribution 401(k) profit-sharing plan covering substantially 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 23,630 shares of common
stock held in treasury in 2001, 33,587 shares in 2000 and 21,557 shares in 1999.
Cash contributed by the Company under this profit-sharing plan was approximately
$570, $452, and $452 for fiscal years 2001, 2000, and 1999 respectively. In
addition, the Company has a noncontributory profit-sharing plan covering its
Canadian employees for which $70, $12, and $38 was charged to expense for fiscal
years 2001, 2000, and 1999, 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 85% effective September 2001 or 90% for
prior periods of the fair value of the shares on the first or last day of the
quarterly period. Employee contributions to the ESPP were $78, $103, and $124
for 2001, 2000, and 1999 respectively. Pursuant to the ESPP, 12,194 shares were
issued to employees during 2001, 13,324 during 2000, and 12,456 during 1999. 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 28,
2001, 448,815 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 stock options and 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 Committee will determine the
exercise price of the options. 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 28, 2001, there were 748,050 options outstanding under the 1996
Plan, and 357,392 were fully vested.
26
Stock option activity for the years ended December 28, 2001, December 29, 2000,
and December 31, 1999 is as follows:
Number of shares Weighted average
subject to option exercise price
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
Granted 250,800 10.32
Canceled (148,600) 14.21
Exercised (6,375) 3.87
-----------------------------------------
Options outstanding at December 28, 2001 748,050 $ 15.45
=========================================
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 dates as of December 28, 2001.
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Range of Number of average average Number of average
exercise price shares exercise price contractual life shares exercise price
$7.75 - $11.63 283,650 $10.14 7.47 years 22,748 $ 9.50
$12.00 - $18.00 284,550 $14.93 6.26 years 154,794 $15.06
$19.00 - $28.00 179,850 $24.68 6.05 years 179,850 $24.68
----------- -----------
Total Options Outstanding 748,050 $15.45 6.67 years 357,392 $19.45
=========== ===========
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.
The Company has calculated the value of its stock-based compensation plan under
SFAS No. 123 using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2001, 2000, and 1999:
2001 2000 1999
Risk free interest rate 5.00% 5.65% 5.5%
Expected lives 5 & 10 years 5 & 10 years 5 &10 years
Expected volatility 9.5% 9.5% 9.5%
Dividend yield 5.2% 4.9% 4.0%
The fair value of options granted in 2001, 2000 and 1999 using the Black-Scholes
method was $24, $57, and $50 respectively net of tax, 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 1999 to 2001 would have been as follows:
27
2001 2000 1999
Net income as reported $2,906 $6,145 $5,367
Pro Forma 2,870 6,103 5,235
EPS as reported
Basic 0.55 1.12 0.91
Diluted 0.54 1.12 0.91
Pro Forma
Basic 0.54 1.12 0.89
Diluted 0.54 1.12 0.89
Postretirement Benefits
The Company sponsors a unfunded 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.
In fiscal 2001 the Company terminated post retirement medical plan benefits for
all employees retiring subsequent to December 31, 2001. While employees retiring
after December 31, 2001 will be allowed to participate in the insured medical
plan, these employees will pay 102% of the cost of the monthly insurance premium
to the company for such class of employees. As a result of the curtailment of
these postretirement plan benefits, the Company realized a gain in 2001 in the
amount of $482. During fiscal 2001, the Company also recorded a reduction in the
postretirement benefit obligation of $788 as a result of revised actuarial
estimates.
The following table summarizes the Company's postretirement benefit obligations
and the assumptions used in determining postretirement benefit cost:
2001 2000
Benefit obligation at beginning of year $14,833 $15,633
Service cost 203 127
Interest cost 342 315
Amortization (2,419) (886)
Retiree benefits (310) (356)
Curtailment of plan benefits (482) 0
--------------------------------------
Benefit obligation at end of year $12,167 $14,833
======================================
Accrued Benefit Obligation
Accumulated Benefit Obligation $ 2,649 $4,279
Unrecognized Prior Service Benefit 2,790 2,435
Unrecognized Actuarial Net Gain 6,728 8,119
--------------------------------------
$12,167 $14,833
======================================
Discount rate 7.25% 7.75%
Initial health care cost trend 5.75% 6.50%
Ultimate health care cost trend rate 5.00% 5.00%
Year ultimate health care cost trend rate reached 2004 2004
Net periodic postretirement benefit includes the following components:
2001 2000 1999
Service cost $203 $127 $138
Interest cost 342 315 343
Amortization (2,419) (886) (1,535)
Curtailment of plan benefits (482) 0 0
-----------------------------------------------------
Net benefit $(2,356) $(444) $(1,054)
=====================================================
28
A one percent increase in the assumed health care cost trend rate would increase
the aggregate of the service and interest components of the net benefit for the
year ended December 28, 2001 by $193 and the accumulated postretirement benefit
obligation as of that date by $485. A one percent decrease in the assumed health
care cost trend rate would decrease the aggregate of the service and interest
components of the net benefit for the year ended December 28, 2001 by $157 and
the accumulated postretirement benefit obligation as of that date by $430.
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.
Capital Expenditure Commitments
The amount of commitments for capital expenditures at December 28, 2001 was
immaterial.
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.
Operating Lease Commitments
The Company leases warehouse and office space, office equipment, and other items
under non-cancelable operating leases. The expense for non-cancelable operating
leases was approximately $468, $457, and $520 for fiscal years 2001, 2000 and
1999 respectively. At December 28, 2001, future minimum lease payments under
non-cancelable operating leases are as follows:
2002 $472
2003 450
2004 437
2005 382
2006 205
---------------
2007 and thereafter 85
---------------
$2,031
===============
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.
In July 1999, the Company entered into a joint venture agreement with The
Electron Corp. ("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 that 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 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.
29
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 with Electron for the year
ending December 28, 2001 and from its inception through the year ending December
28, 2001 was $4,841 and $14,591, respectively. Electron's share of these amounts
was $1,135 and $3,476 respectively. During 2001 distributions to Electron were
made totaling $376.
The Company has been advised that The Electron Corp. ("Electron"), the minority
partner in the joint venture filed for bankruptcy on November 19, 2001 under
Chapter 11 (Reorganization) of the U.S. Bankruptcy Code. Electron is a supplier
of castings for belted drive products to the joint venture. Although Electron
has suspending manufacturing operations pending the development of a
reorganization plan, the joint venture has not suffered any interruptions to its
business as these types of castings are readily available from the Company's own
foundry or other third-party suppliers. Management does not believe this event
will have any material impact upon its business operations.
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 2001,
2000, and 1999:
Mechanical Electronics Total
Business Business
2001
Revenues from external customers $70,107 $38,698 $108,805
Operating profit (loss) after minority interest 5,670 (942) 4,728
Depreciation 3,006 1,447 4,453
Segment assets 44,676 31,814 76,490
Expenditures for long-lived assets 2,423 1,008 3,431
2000
Revenues from external customers $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 customers $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
30
The following table reconciles segment profit to consolidated income before
income taxes and extraordinary items for fiscal years 2001, 2000, and 1999:
2001 2000 1999
Total operating profit for reportable segments $ 4,728 $ 12,501 $ 11,300
Interest, net (1,427) (2,880) (1,915)
Other unallocated amounts 576 291 (657)
-------------------------------------------------------
Income before income taxes $ 3,877 $ 9,912 $ 8,728
=======================================================
The following table reconciles segment assets to consolidated total assets as of
December 28, 2001 and December 29, 2000:
2001 2000
Total assets for reportable segments $ 76,490 $ 93,740
Cash 581 619
Corporate fixed assets 7,671 4,683
Deferred taxes 2,265 3,542
Other unallocated assets 625 76
-------------------------------------
Consolidated total $ 87,632 $102,660
=====================================
Information regarding the Company's domestic and foreign operations is as
follows:
Long-Lived
Net Sales Assets
2001
United States $ 81,395 $ 37,267
Canada 8,820 748
Germany 5,159 1,525
Italy 9,332 597
Mexico 3,460 1,590
India 639 79
-------------------------------------
Consolidated $108,805 $ 41,806
=====================================
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
=====================================
31
10. Quarterly Financial Data (Unaudited)
Fiscal Quarters
2001 First Second Third Fourth
Sales $29,948 $28,338 $26,045 $24,474
Gross profit 10,595 9,596 8,358 8,488
Gross profit % 35.3% 33.8% 32.1% 34.6%
Net income 727 1,072 302 805
Basic net income per share 0.13 0.20 0.06 0.16
Diluted net income per share 0.13 0.20 0.06 0.15
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
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
As discussed in footnotes five and six, the Company realized a benefit in the
fourth quarter of 2001 related to revised estimates for the Company's income tax
liability and defined benefit postretirement medical plan obligation.
11. Subsequent Event
As part of the Company's ongoing efforts to reduce costs in the current business
environment, the Company closed its manufacturing operations located in
Stratford, Ontario, Canada, effective January 31, 2002. This closure affects 27
employees. The Company's estimates the pretax severance costs to be $230 and
other period costs of $240 which will be incurred during the First Quarter of
fiscal 2002. The Company will maintain its distribution facility at that
location to service the Canadian marketplace.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
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 2002
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 2002 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 2002 Annual Meeting in the Section entitled "Security
Ownership of Certain Beneficial Owners and Management" and is incorporated
herein by reference.
32
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 2002 Annual Meeting in the Section entitled "Certain
Relationships and Related Transactions" and is incorporated herein by reference.
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 16 through 32 hereof and the report thereon of
Arthur Andersen LLP appearing on page 15 hereof.
(2) Financial Statement Schedule
Schedule II for the fiscal year ended December 28, 2001 and the
report thereon of Arthur Andersen LLP appearing on page 37 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).
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., T.B.
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).
33
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).
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
(incorporated by reference to Form 10-K for fiscal year 2000 Exhibit
10.20).
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
(incorporated by reference to Form 10-K for fiscal 2000 Exhibit
10.21).
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 (incorporated by reference to Form 10-K for fiscal
2000 Exhibit 10.22).
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 (incorporated by reference to Form 10-K for fiscal
2000 Exhibit 10.23).
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 (incorporated by reference to Form 10-K for fiscal
2000 Exhibit 10.24).
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 (incorporated by reference to Form 10-K for fiscal
2000 Exhibit 10.25).
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).
34
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).
10.52 First Amendment to loan documents by and among TB Wood's
Incorporated, individually and as Agent under the Borrower Agency
Agreement, PNC Bank, National Association as Agent, PNC Bank,
National Association, The Sumitomo Bank, Limited and National City
Bank of Pennsylvania, dated April 7, 1997 and effective as of April
1, 1997 (incorporated by reference to Schedule 13E-4 filed by the
company on November 12, 1999, Exhibit b).
10.53 Second Amendment to loan documents by and among TB Wood's
Incorporated, individually and as Agent under the Borrower Agency
Agreement, PNC Bank, National Association as Agent, PNC Bank,
National Association, The Sumitomo Bank, Limited and National City
Bank of Pennsylvania, dated January 20, 1998 (incorporated by
reference to Schedule 13E-4 filed by the company on November 12,
1999, Exhibit b).
10.54 Third Amendment to loan documents by and among TB Wood's
Incorporated, individually and as Agent under the Borrower Agency
Agreement, PNC Bank, National Association as Agent, PNC Bank,
National Association, The Sumitomo Bank, Limited and National City
Bank of Pennsylvania, dated April 24, 1998 (incorporated by reference
to Schedule 13E-4 filed by the company on November 12, 1999, Exhibit
b).
10.55 Fourth Amendment to loan documents by and among TB Wood's
Incorporated, individually and as Agent under the Borrower Agency
Agreement, PNC Bank, National Association as Agent, PNC Bank,
National Association, The Sumitomo Bank, Limited and National City
Bank of Pennsylvania, dated July 21, 1999 (incorporated by reference
to Schedule 13E-4 filed by the company on November 12, 1999, Exhibit
b).
10.56 Fifth Amendment to loan documents by and among TB Wood's
Incorporated, individually and as Agent under the Borrower Agency
Agreement, PNC Bank, National Association as Agent, PNC Bank,
National Association, Summit Bank, First Union National Bank and
National City Bank of Pennsylvania, dated November 8, 1999
(incorporated by reference to Schedule 13E-4 filed by the company on
November 12, 1999, Exhibit b).
10.57 Sixth Amendment to Loan Documents by and among TB Wood's
Incorporated, individually and as Agent under Borrower Agency
Agreement and PNC Bank, National Association as Agent, PNC Bank,
National Association, Fleet Bank (as successor to Summit Bank), First
Union National Bank and National City Bank of Pennsylvania dated
February 25, 2002 effective as of December 28, 2001 (incorporated by
reference to form 10-K for fiscal 2001 Exhibit 10.57).
10.58 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, Preben H. Petersen, Thomas F. Tatarczuch, Michael H.
Iversen, Willard C. Macfarland, Jr. and other key employees dated
January 31, 2002 (incorporated by reference to form 10-K for fiscal
2001 Exhibit 10.58).
10.59 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, Preben H. Petersen, Thomas F. Tatarczuch, Michael H.
Iversen, Willard C. Macfarland, Jr. and other key employees dated
January 31, 2002 (incorporated by reference to form 10-K for fiscal
2001 Exhibit 10.59)
10.60 TB Wood's Corporation 1996 Stock Based Incentive Compensation Plan as
amended (incorporated by reference to form 10-K for fiscal 2001
Exhibit 10.60).
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 2001
21.2 Subsidiaries and Joint Ventures of Registrant.
35
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 15, 2002.
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, 2002
- ------------------- (Principal Executive Officer)
Thomas C. Foley
/s/ MICHAEL L. HURT President and Director March 12, 2002
- ------------------- (Principal Executive Officer)
Michael L. Hurt
/s/ JAMES R. SWENSON Director March 12, 2002
- --------------------
James R. Swenson
/s/ ROBERT DOLE Director March 12, 2002
- ---------------
Robert Dole
/s/ THOMAS F. TATARCZUCH Vice President-Finance, March 12, 2002
- ------------------------ (Principal Financial Officer and
Thomas F. Tatarczuch Principal Accounting Officer)
36
TB Wood's Corporation And Subsidiaries
Schedule II
Valuation and Qualifying Accounts
- --------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
-----------------------
Balance at Charged to Charged Deductions (write-offs of bad
beginning of costs and to other debts, discounts and claims Balance at
Description period expenses accounts in excess of provision)(1) end of period
- --------------------------------------------------------------------------------------------------------------------------
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
=================================================================================
Year ended December 28, 2001:
Allowance for doubtful accounts $256 $247 $(167) $336
Allowance for discounts and claims 154 (18) 136
---------------------------------------------------------------------------------
$410 $247 $(185) $472
=================================================================================
Note:(1) Represents write-off of accounts determined to be uncollectible, less
recoveries of amounts previously written off.
37