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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1997
Commission file number 1-14182
................................
TB Wood's Corporation
............................................................................
(Exact name of registrant as specified in its charter)
Delaware 25-1771145
....................................................... ................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 North Fifth Avenue, Chambersburg, PA 17201
....................................................... ................
(Address of principal executive office (Zip Code)
Registrant's telephone number, including area code (717) 264-7161
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
........................................ ................................
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 March 10, 1997, was $41,832,600. On
March 10, 1997, there were 5,827,397 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 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.
TB WOOD'S CORPORATION
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.........................................................................2
Item 1. Business...........................................................2
Item 2. Properties.........................................................6
Item 3. Legal Proceedings..................................................7
Item 4. Submission of Matters to a Vote of Security Holders................7
PART II........................................................................7
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters ...............................................7
Item 6. Selected Financial Data
and Results of Operation ..........................................7
Item 7. Management's Discussion and Analysis of Financial Condition .......8
Item 8. Financial Statements and Supplementary Data.......................12
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure .........................................29
PART III......................................................................29
Item 10. Directors and Executive Officers of the Registrant ..............29
Item 11. Executive Compensation ..........................................29
Item 12. Security Ownership of Certain Beneficial Owners and
Management ......................................................30
Item 13. Certain Relationships and Related Transactions...................30
PART IV.......................................................................30
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K .....................................................30
SIGNATURES....................................................................35
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 was incorporated in 1995. In January
1996, a subsidiary of the Company merged with TB Wood's Incorporated ("TBW"), a
Pennsylvania Corporation that was formed in 1857, with TBW as the surviving
corporation in the merger. The Company's products are sold to North American and
international manufacturers and users of industrial equipment. Headquartered in
Chambersburg, Pennsylvania, the Company operates ten production facilities with
over 1,000 employees in the United States, Canada and Mexico. The Company has a
network of more than 700 select distributors with over 1,900 locations
nationwide.
History
Since 1992, the Company has increased the breadth of the E-trAC(R) ("WFC"),
NEMA 4, AC electronic drive product line and in 1993, introduced the E-trAC(R)
micro electronic drive product line. During 1996, the Company introduced six new
products or product line extensions. The Company's new WFC-HT line of
full-featured electronic drives improves motor performance at low speeds,
thereby expanding the applications for these products. The Company extended it's
very successful line of micro-inverters to 20 horsepower. The Company introduced
a line of electronic drives for specific Original Equipment Manufacturer (OEM)
applications that are more cost-effective than using a general purpose
electronic drive, a series of 575 volt electronic drives for the Canadian market
and a new DVC line of high-performance electronic drives for motor sizes up to
700 horsepower. Since 1992, several new mechanical products (two synchronous
drives, one hydrostatic drive, and four couplings) have also been introduced.
During 1996, the Company introduced the Dura-Flex(R) coupling to expand it's
line of flexible couplings into higher performance applications and a new
step-precision winding technology for electronic drive systems used in the
synthetic fibers industry.
TB Wood's seeks acquisitions that enhance product offerings, leverages
fixed costs, and extend global reach. In April 1993, the Company acquired
several lines of business including a flexible coupling and mechanical variable
speed drive product line as well as two manufacturing facilities. In January
1994, the Company acquired Plant Engineering Consultants, Inc. ("PEC"), an
integrated electronic drive systems manufacturer and marketer. In early 1996,
the Company acquired Grupo Blaju S.A. de C.V., providing a leading market share
position in belted drive components in Mexico and a strong and cost-effective
Mexican manufacturing operation. In October 1996, the Company acquired the
assets of Ambi-Tech Industries, Inc., a leading manufacturer of electronic
brakes. Ambi-Tech provides an important electronic product extension, as well as
new technical capability to support the Company's aggressive growth plans in the
electronics business. In November 1996, the Company acquired certain assets of
Deck Manufacturing, a producer of gear couplings. Deck provides a valuable
addition to the Company's line of couplings, the fastest growing area of the
Company's mechanical business. The Company completed three other acquisitions
between 1992 and 1995.
The Company uses strategic alliances to gain access to technology and
products that can not be as easily or effectively obtain through internal
development or acquisition and to expand international market penetration. In
1996, the Company entered into a strategic alliance to sell electronic drives in
Taiwan and the rapidly expanding market in China. Through other alliances, TB
Wood's electronic drives are sold throughout Europe, Australia, and New Zealand.
2
Industry Overview
The power transmission industry provides electronic and mechanical products
used in automated manufacturing and material processing activities that transfer
power from a motor or engine to a machine. The power transmission industry
consists of three product categories: mechanical power transmission components,
gear boxes and electronic drives. The Company competes in the electronic drives
and mechanical power transmission components product categories.
Products
The Company designs, manufactures and markets electronic and mechanical
power transmission products. During 1994, 1995 and 1996, net sales for these
product offerings were as follows:
1996 1995 1994
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- - --------- - --------- -
Electronic power ....................... 32.9 32.1% 34.2 33.4% 30.4 31.9%
transmission products
Mechanical power ....................... 69.6 67.9% 68.1 66.6% 64.9 68.1%
transmission products
------- ------ ------- ------- ------- ------
102.5 100.0% 102.3 100.0% 95.3 100.0%
Electronic Product Offering
The Company designs and manufactures Alternating Current ("AC") and Direct
Current ("DC") electronic drives and integrated electronic drive systems which
are marketed throughout North America and internationally. These products are
used to control the speed of electric motors in manufacturing processes. The
Company's standard AC electronic drive products, which represent most of its
electronic drive product offering net sales, are programmable to meet the needs
of general requirements with particular strengths in food processing, materials
handling, packaging and general machinery applications. The Company's electronic
products are designed to meet both North American and European standards. The
Company's integrated electronic drive systems consist of uniquely configured AC
and/or DC electronic drives, programmable logic controllers and in-house
designed custom software. These systems are packaged in custom enclosures to
meet the requirements of specific applications.
Mechanical Product Offering
The Company's mechanical product offering includes a full line of stock and
make-to-order products including V-belt drives, synchronous drives, open belted
variable speed drives, 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, oil field and
specialized industrial machinery, food processing, material handling, pumps,
compressors, mining, pulp and paper and agricultural equipment industries.
Marketing and Distribution
The Company markets its products in North America and internationally. In
North America, the Company sells to selected, authorized, industrial
distributors which resell the Company's products to industrial consumers and
Original Equipment Manufacturers ("OEMs"). The Company also sells directly to
approximately 1,250 OEMs. The
3
Company's products are sold principally throughout North America and, to a
lesser extent, internationally. The Company's marketing alliances include
licensing agreements and distribution agreements with distributors and
manufacturers which, in some cases, market the Company's products under private
label agreements. The Company has a technical sales force of more than 30 people
and several specialized manufacturers' representatives.
The Company operates central distribution centers in Chambersburg,
Pennsylvania; Stratford, Ontario and Mexico City, Mexico and regional
distribution centers in Atlanta, Georgia; Elk Grove, Illinois; Dallas, Texas;
Los Angeles, California; Portland, Oregon; Montreal, Quebec and Edmonton,
Alberta.
Most of the Company's products are manufactured to maintain stock
inventories, and on-time delivery is important, therefore order backlogs are
generally less than one month's shipments.
Customers
The Company's products are consumed principally by industrial users. 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 which are among the largest distributors in the
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 29% of the Company's net sales in 1996.
Motion Industries accounted for more than 10% of the Company's total net sales
in 1996 and has been a significant customer of the Company for more than 15
years.
Competition
The power transmission industry is highly competitive. Competitive factors
in the AC and DC electronic drive product categories include product
performance, physical size of the product, tolerance for hostile environments,
application support, availability and price. The Company's competitors in these
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 for
greater speed and process control from end users. This market includes
maintenance and replacement of existing systems, upgrades to existing systems
and new capacity expansion. Competitive factors include process knowledge and
engineering, software design, product durability and price. Major systems
competitors include Control Techniques Drives, Inc./Emerson Electric Co. Inc.,
Asea Brown Boveri, Allen Bradley and Siemens Corp. The Company competes with
several divisions of large industrial companies as well as many small to
mid-sized independent companies in the mechanical product category. Competitive
factors include availability, quality, price, size capability, engineering and
customer support. The Company's most significant competitors in the mechanical
product category include Dodge, 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
category 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) during the last
three fiscal years have averaged 2.8% of net sales, with a higher percentage
being spent on electronic products.
Raw Materials
4
The Company uses purchased standard components in all of its electronics
products. The Company also purchases components designed by its engineers. These
purchased components include transformers, 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, forgings and powdered metal
components. The Company also designs, tools and outsources 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 grants to others licenses under
certain of its patents and obtains licenses under the patents of others. In
addition, the Company owns, or has the right to use, registered United States
trademarks for the following principal products: Sure-Flex(R), Formflex(R),
Ultra-V(R), Roto-Cone(R), Var-A-Cone(TM), True Tube(TM), E-trAC(R), Ultracon(R)
and Fiberlink(TM).
Employees
As of January 3, 1997, the Company employed approximately 1,068 people.
Approximately 30 of the Company's hourly employees located at its Stratford,
Ontario facility are represented by the United Steelworkers of Canada pursuant
to a collective bargaining agreement dated January 20, 1995 that expires on
January 19, 1998. Approximately 100 of the Company's employees located at its
Mexico City, Mexico facility are represented by the National Metal Workers'
Union of Mexico pursuant to a collective bargaining agreement that expires on
January 31, 1998.
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 the Facility was owned by Dana Corporation. When the Company acquired
the Mt. Pleasant Facility from Dana Corporation, the Asset Purchase Agreement
dated March
5
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. It is
not known at this time whether Dana Corporation will be required to conduct
further investigation or remediation with respect to the 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.
The Company's capital expenditures for environmental matters were $39,151
in 1994, $51,758 in 1995 and $4,530 in 1996.
Item 2. Properties
The Company owns and operates the following facilities:
Location Operations Sq. Feet
-------- ---------- --------
Chambersburg, Foundry production of iron, and manufacturing 440,000
Pennsylvania and engineering of mechanical products. Central
distribution, administrative offices and
corporate headquarters.
Scotland, Manufacturing and engineering of electronic 40,400
Pennsylvania products.
Trenton, Manufacturing of mechanical products. 60,000
Tennessee
Stratford, Manufacturing of mechanical products. Central 46,000
Ontario distribution and administrative offices for Canada.
San Marcos, Manufacturing and engineering of mechanical 31,000*
Texas products.
Mt. Pleasant, Manufacturing of mechanical products. 30,000
Michigan
Chattanooga, Manufacturing, engineering and sales of integrated 22,500*
Tennessee electronic drive systems. Headquarters of PEC.
Elk Grove, Distribution center. 21,700
Illinois
______________________________
*Includes certain leased space
6
In addition, the Company leases manufacturing facilities in: Hillsdale, New
Jersey; Granger, Indiana; Mexico City, Mexico, and distribution facilities in:
Atlanta, Georgia; Dallas, Texas; Montreal, Quebec; Edmonton, Alberta; Los
Angeles, California and Portland, Oregon.
Item 3. Legal Proceedings
The Company is a party to various lawsuits arising in the ordinary course
of business. The Company does not believe that the outcome of any of these
lawsuits will have a material adverse effect on the consolidated financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company consummated the initial public offering of its common stock on
February 8, 1996 and its Common Stock is listed on the New York Stock Exchange.
The high and low prices for the Common Stock, and dividends paid on Common
Stock, during the period from February 8, 1996 though January 3, 1997 were as
follows:
Sales Price Dividends
----------- ---------
Fiscal Year 1996 High Low Paid in Cash
---------------- ---- --- ------------
1st quarter $12.125 $10.875 $.00
2nd quarter 11.750 8.875 .08
3rd quarter 9.875 8.250 .08
4th quarter 11.750 7.625 .08
On March 10, 1997, there were 86 registered shareholders of the Company's
Common Stock, and the high and low sales prices for the Common Stock were $14.25
and $14.00, respectively. During fiscal year 1996, the Company paid total
dividends of $.24 and declared total dividends of $.32 on the shares of its
Common Stock. 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.
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 1996 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."
7
Effective fiscal year 1995, The Company changed its year end to the Friday
closest to the last day of December. Fiscal year-ends are as follows:
1996 January 3, 1997
1995 December 29, 1995
1994 & prior December 31 of calendar year.
Selected Financial Data
(in thousands, except per share data) Fiscal Year
1996 1995 1994 1993 1992
Revenue and Income
Net sales ........................... $ 102,505 $ 102,307 $ 95,315 $ 72,375 $ 55,875
Gross profit ........................ 37,747 36,111 32,886 24,922 20,386
Operating income .................... 12,573 12,593 9,795 6,329 3,837
Net income, before one-time charges* 6,294 4,599 3,077 1,779 (750)
--------- --------- --------- --------- ---------
Cash Flow
Cash provided by operations ......... $ 9,090 $ 9,214 $ 5,379 $ 5,647 $ 2,732
Capital expenditures ................ 3,762 4,531 2,722 2,202 1,155
--------- --------- --------- --------- ---------
Assets and Liabilities
Working capital** ................... $ 26,962 $ 26,160 $ 24,931 $ 19,815 $ 16,046
Total assets ........................ 73,395 66,631 61,075 57,237 39,381
Total debt .......................... 22,227 41,463 42,661 42,900 37,132
Shareholders' equity (deficit) ...... 16,875 (7,488) (12,866) (16,537) (13,672)
--------- --------- --------- --------- ---------
Per Share Data
Net income, before one-time charges* $ 1.12 $ 1.21 $ .82 $ .50 $ (.25)
Cash dividends declared ............. .32 -- -- -- --
Book value ......................... 3.01 (1.97) (3.43) (4.64) (4.56)
--------- --------- --------- --------- ---------
Weighted average shares outstanding . 5,600 3,810 3,750 3,563 3,000
* Before $1,654 of one-time charges in 1996 related to the write-off of a
non-compete agreement and the early retirement of debt related to the Initial
Public Offering, $839 of one-time income in 1994 related to the sale of a
product line, and $9,477 of net one-time charges in 1993 related to
extraordinary income from the early repayment of debt and the cumulative effect
of changes in the accounting for postretirement benefits.
** Working capital is defined as the sum of accounts receivable, inventory, and
other current assets, less accounts payable and accrued expenses.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Year Ended January 3, 1997, Compared to Year Ended December 29, 1995
Net sales for fiscal 1996 increased to $102.5 million from $102.3 million
in 1995, an increase of $.2 million, or .2%. The Company's overall 1996 sales,
excluding sales from the three businesses acquired during the year, declined by
approximately $2.3 million as compared to 1995. This decline resulted primarily
from reduced sales of electronic drive products to distributors who delayed
purchases in anticipation of the Company's introduction of a higher performance
series of electronic drives during the second half of 1996.
Gross profit increased to $37.7 million from $36.1 million in 1995, an
increase of $1.6 million, or 4.5%. Gross profit as a percent of net sales
increased to 36.8% from 35.3%, due primarily to productivity improvements and
cost reductions resulting from the Company's capital expenditure and Total
Quality Management programs.
8
SG&A expense for fiscal 1996 increased to $25.2 million from $23.5 million
in 1995, an increase of $1.7 million, or 7.0%. SG&A expense as a percent of net
sales increased to 24.6% from 23.0%. The increase in SG&A expense resulted
primarily from increases in research and development and marketing expenses
related to new product introductions in the Company's electronics business, as
well as additional SG&A expenses from acquired operations.
Other expense for fiscal 1996 decreased to $2.6 million from $4.9 million
in 1995, a decrease of $2.4 million, or 47.7%. This decrease was due primarily
to lower interest costs as a result of debt repayment from the proceeds of the
Initial Public Offering (IPO), prepayment of a subordinated note at a discount,
and reduced interest rates on the Company's new revolving line of credit. Other
expense included a $.6 million write-off of a non-compete agreement. The
effective tax rate for 1997 was 40.5%. Details of the provision for income taxes
are discussed in Note 5. An extraordinary item of $1.3 million, net of tax, was
related to early repayment of debt with the proceeds from the IPO.
Net income for fiscal 1996 was $4.6 million, unchanged from 1995. In 1996
net income before one time charges, net of tax, increased by $1.7 million over
1995, or 36.9%.
Year Ended December 29, 1995, Compared to Year Ended December 31, 1994
Net sales increased from $95.3 million to $102.3 million, an increase of
$7.0 million, or 7.3%. This increase included approximately $3.9 million of
continued growth from AC electronic drive products. The balance of this increase
was due primarily to price increases, market expansion, and increased market
penetration by the Company's other existing product lines.
Gross profit increased from $32.9 million to $36.1 million, an increase of
$3.2 million, or 9.7%. Gross profit as a percent of net sales increased from
34.5% to 35.3%, due primarily to continued consolidations of acquisitions made
in prior years, focusing of our factories, and restructuring of the Company's
Canadian subsidiary.
SG&A expense increased from $23.1 million to $23.5 million, an increase of
$.4 million, or 1.8%. SG&A expense as a percent of net sales decreased from
24.2% to 23.0%. SG&A expense for 1995 included a 28.3% increase in research and
development expense over the prior year, primarily in electronic products. SG&A
expense in 1995 included $.7 million of non-cash compensation expense related to
stock options granted in 1991 and 1992. Excluding non-cash stock option
compensation expense, SG&A expense as a percent of net sales decreased from
24.2% to 22.3%.
Operating income increased from $9.8 million to $12.6 million, an increase
of $2.8 million, or 28.6%. Excluding the non-cash stock option compensation
expense referred to above, operating income increased from $9.8 million to $13.3
million, an increase of $3.5 million, or 35.7%.
Other expense increased from $3.5 million to $4.9 million, principally
because other expense was reduced in 1994 by a $1.4 million gain from the sale
of the magnetic clutch and brake product lines which was part of an earlier
acquisition. Interest expense and other finance charges increased from $4.4
million to $4.5 million, an increase of $.1 million, or 2.2%. The effective tax
rate for the year was 40.0%. Without giving effect to the gain on the sale of
the magnetic clutch and brake product lines, other expense remained at $4.9
million.
Net income increased from $3.9 million to $4.6 million, an increase of $.7
million, or 17.9%. Net income in 1994 included a $.9 million gain, net of income
taxes, on the sale of the magnetic clutch and brake product lines. Excluding the
gain on the sale and the non-cash stock option expense referred to above, net
income increased from $3.0 million to $5.0 million, an increase of $2.0 million,
or 66.7%.
9
Liquidity and Capital Resources
The Company's principal sources of funds are cash flow from operations and
borrowings under the Company's revolving credit agreement. Cash provided from
operations in 1996 was $9.1 million, down slightly from $9.2 million in 1995. In
1996, cash used for increases in net working capital was only $.1 million versus
$1.0 million in 1995.
Net cash used for investing activities during fiscal years 1996, 1995, and
1994 was $9.2 million, $6.4 million, and $4.4 million, respectively. The
Company's investing activities were primarily acquisitions and capital
expenditures. In 1996, the Company acquired the assets of Deck Manufacturing
Corp. and Ambi-Tech, Inc., and purchased the stock of Grupo Blaju S.A. de C.V.
for a total of $3.7 million in cash and notes. Also in 1996, the Company
purchased 21% of T.B. Wood's Canada Ltd. for $1.6 million in order to make the
Company's Canadian operations a wholly-owned subsidiary.
Capital expenditures for fiscal years 1996, 1995, and 1994 were $3.8
million, $4.5 million, and $2.7 million, respectively. During the last three
fiscal years, the Company has made significant capital investments in computer
numerically controlled (CNC) machine tools, test and production equipment at the
Company's foundry in Chambersburg, and equipment to improve and modernize plants
we acquired through our recent purchases of businesses. These capital
expenditures reduce costs, improve product quality, and provide additional
capacity for meeting the Company's growth objectives.
On February 8, 1996, the Company completed an Initial Public Offering of
its Common Stock that raised approximately $22.5 million in aggregate gross
proceeds for the Company. The proceeds, net of issuance costs of $19.8 million,
were used to repay debt. In July, the Company repurchased a $16.7 junior
subordinated note for $10.7 million. The gain on extinguishment of this debt,
net of taxes, was $3.0 million and was booked directly to shareholders' equity.
In October, the Company entered into a $40 million, unsecured revolving credit
facility arranged by PNC Bank, N.A., of which $19.8 million was unused at year
end. The Company declared $1.9 million in dividends during 1996. The Company
paid an $.08 per share dividend following of the first, second, and third
quarters of 1996, and declared an $.08 dividend on January 3, 1997, paid on
January 31, 1997, to shareholders of record on January 17, 1997.
The Company believes that it will have sufficient cash flow from operations
and available borrowings to meet its future cash needs for interest, operating
expenses, and capital expenditures.
NOTE
The Securities and Exchange Commission has qualified Mexico as a highly
inflationary economy under the provisions of SFAS No. 52. In 1997, the financial
statements of the Mexican operation will be remeasured with the US dollar as the
functional currency. Any gain or loss will be recorded in the Company's
statements of operations.
Safe Harbor Statement
This Annual Report contains various forward-looking statements and includes
assumptions concerning the Company's operations, future results and prospects.
These forward-looking statements are based on current expectations and are
subject to risk and uncertainties. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
provides the following cautionary statement identifying important economic,
political and technology factors which, among others, could cause the actual
results or events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions.
Such factors include the following: (i) changes in the current and future
business environment, including
10
interest rates and capital and consumer spending; (ii) competitive factors and
competitor responses to the Company's initiatives; (iii) successful development
and market introductions of anticipated new products; (iv) changes in government
laws and regulations, including taxes; and (v) favorable environment to make
acquisitions, domestic and foreign, including regulatory requirements and market
value of candidates.
11
Item 8. Financial Statements and Supplementary Data
Page
----
Report of Independent Public Accountants ....................................13
Consolidated Balance Sheets as of January 3, 1997 and
December 29, 1995 ......................................................14
Consolidated Statements of Operations for the Years Ended
January 3, 1997, December 29, 1995 and December 31, 1994 ...............15
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for the Years Ended January 3, 1997, December 29, 1995
and December 31, 1994 ..................................................16
Consolidated Statements of Cash Flows for the Years Ended
January 3, 1997, December 29, 1995 and December 31, 1994 ...............17
Notes to Consolidated Financial Statements ..................................18
12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TB Wood's Corporation:
We have audited the accompanying consolidated balance sheets of TB Wood's
Corporation (a Delaware corporation) and subsidiaries as of January 3, 1997, and
December 29, 1995, and the related consolidated statements of operations,
changes in shareholders' equity(deficit), and cash flows for each of the three
years in the period ended January 3, 1997. 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 generally accepted auditing
standards. 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 January 3, 1997 and December 29, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended January 3, 1997 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under 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
audits 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 7, 1997
13
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share and share amounts) 1996 1995
- -------------------------------------------------------------------------------- -------- --------
ASSETS
Current Assets:
Cash and cash equivalents ...................................................... $ 306 $ 417
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $437 and $510 in 1996 and 1995, respectively ................ 15,518 14,132
Inventories:
Finished goods ............................................................ 16,293 16,057
Work in process ........................................................... 7,994 6,420
Raw materials ............................................................. 3,755 3,211
LIFO reserve .............................................................. (4,057) (3,881)
-------- --------
23,985 21,807
-------- --------
Other current assets ........................................................... 1,053 504
-------- --------
Total current assets ...................................................... 40,862 36,860
-------- --------
Property, Plant, and Equipment:
Machinery and equipment ........................................................ 33,075 28,030
Land, buildings, and improvements .............................................. 8,577 8,207
-------- --------
41,652 36,237
Less accumulated depreciation .................................................. 21,154 18,424
-------- --------
20,498 17,813
======== ========
Other Assets:
Deferred income taxes (Note 5) ................................................. 5,249 5,049
Goodwill, net of accumulated amortization of
$958 and $846 in 1996 and 1995, respectively .............................. 4,603 3,639
Other .......................................................................... 2,183 3,270
-------- --------
Total other assets ........................................................ 12,035 11,958
-------- --------
$ 73,395 $ 66,631
======== ========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Current maturities of long-term debt (Note 4) .................................. $ 520 $ 1,759
Accounts payable ............................................................... 5,210 3,943
Checks outstanding ............................................................. 1,532 2,048
Accrued expenses (Note 3) ...................................................... 8,384 6,340
Deferred income taxes (Note 5) ................................................. 539 1,897
Total current liabilities ................................................. 16,185 15,987
-------- --------
Long-term debt, less current maturities (Note 4) ............................... 21,707 39,704
-------- --------
Postretirement benefit obligation, less current portion ........................ 18,628 18,428
-------- --------
Commitments and Contingencies (Note 8)
Shareholders' Equity (Deficit):
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, 5,827,397 and
3,375,000 shares issued and outstanding in 1996 and 1995, respectively .... 58 33
Warrants ....................................................................... 0 500
Additional paid-in capital ..................................................... 28,158 6,104
Accumulated deficit ............................................................ (11,306) (14,094)
Foreign currency translation adjustment ........................................ (35) (31)
Total shareholders' equity (deficit) ...................................... 16,875 (7,488)
-------- --------
$ 73,395 $ 66,631
======== ========
The accompanying notes are an integral part of these consolidated financial statements
14
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts) 1996 1995 1994
-------------------------------------------------------------------------------------- ---- ---- ----
Net sales ............................................................................. $ 102,505 $ 102,307 $ 95,315
Cost of sales ......................................................................... 64,758 66,196 62,429
--------- --------- ---------
Gross profit ..................................................................... 37,747 36,111 32,886
Selling, general, and administrative expenses ......................................... 25,174 23,518 23,091
--------- --------- ---------
Operating income ................................................................. 12,573 12,593 9,795
--------- --------- ---------
Other (expense) income:
Interest expense and other finance charges ....................................... (1,982) (4,461) (4,355)
Gain on sale of product lines .................................................... 0 0 1,398
Other, net ....................................................................... (593) (467) (542)
--------- --------- ---------
Other expense, net .......................................................... (2,575) (4,928) (3,499)
--------- --------- ---------
Income before provision for income taxes and extraordinary item ....................... 9,998 7,665 6,296
Provision for income taxes (Note 5) ................................................... 4,053 3,066 2,380
--------- --------- ---------
Income before extraordinary item ...................................................... 5,945 4,599 3,916
Extraordinary item, early extinguishment of debt
(less related income tax benefit of $870) ........................................ (1,305) 0 0
--------- --------- ---------
Net income ............................................................................ $ 4,640 $ 4,599 $ 3,916
========= ========= =========
Per share of common stock:
Income before extraordinary item ................................................. $ 1.06 $ 1.21 $ 1.04
Extraordinary item ............................................................... (.23) .00 .00
--------- --------- ---------
Net income per common share ........................................................... $ .83 $ 1.21 $ 1.04
--------- --------- ---------
Weighted average shares of common stock
and equivalents outstanding ...................................................... 5,600 3,810 3,750
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements
15
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
Foreign
Additional Currency
Common Paid-In Accumulated Translation
(in thousands) Stock Warrants Capital Deficit Adjustment
- -------------- ----- -------- ------- ------- ----------
Balance, December 31, 1993 .............. $ 33 $ 500 $ 5,429 $(22,609) $ 110
Net income .............................. 0 0 0 3,916 0
Foreign currency translation adjustment . 0 0 0 0 (245)
- ----------------------------------------- -------- -------- -------- -------- --------
Balance, December 31, 1994 .............. 33 500 5,429 (18,693) (135)
Net income .............................. 0 0 0 4,599 0
Stock option compensation ............... 0 0 675 0 0
Foreign currency translation adjustment . 0 0 0 0 104
- ----------------------------------------- -------- -------- -------- -------- --------
Balance, December 29, 1995 .............. 33 500 6,104 (14,094) (31)
Net income .............................. 0 0 0 4,640 0
Issuance of stock in connection with
the Initial Public Offering ............. 20 0 19,803 0 0
Investment in Wood's-Canada ............. 0 0 (1,600) 0 0
Exercise of warrants .................... 4 (500) 500 0 0
Gain on repayment of subordinated note .. 0 0 2,992 0 0
Dividends declared ...................... 0 0 0 (1,852) 0
Stock option compensation and proceeds
from options exercised .................. 1 0 359 0 0
Foreign currency translation adjustment . 0 0 0 0 (4)
- ----------------------------------------- -------- -------- -------- -------- --------
Balance, January 3, 1997 ................ $ 58 $ 0 $ 28,158 $(11,306) $ (35)
======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
16
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
(in thousands) 1996 1995 1994
- -------------------------------------------------------------- -------- -------- --------
Cash Flows from Operating Activities:
Net income ................................................... $ 4,640 $ 4,599 $ 3,916
-------- -------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................... 3,427 3,618 3,210
Deferral of interest and management fees payable to affiliates 288 1,152 1,019
Change in deferred income taxes, net .................... (1,095) 205 673
Stock option compensation expense ....................... 140 675 0
Gain on sale of product lines ........................... 0 0 (1,398)
Net loss (gain) on sale of assets ....................... (44) 0 19
Write off of non-compete agreement ...................... 563 0 0
Extraordinary loss on early extinguishment of debt, net . 1,305 0 0
Changes in working capital, net of effects of acquisitions:
Accounts receivable, net ........................... (854) (115) (1,634)
Inventories, net ................................... (1,615) (1,612) (1,379)
Prepaid expenses and other current assets .......... (751) (34) 185
Accounts payable ................................... 631 (467) (334)
Accrued and other liabilities ...................... 2,455 1,193 1,102
-------- -------- --------
Total adjustments ............................. 4,450 4,615 1,463
-------- -------- --------
Net cash provided by operating activities ..... 9,090 9,214 5,379
-------- -------- --------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired ........................... (2,920) 0 (3,987)
Capital expenditures ......................................... (3,762) (4,531) (2,722)
Proceeds from sales of product lines ......................... 0 0 2,200
Purchase of minority interest in subsidiary .................. (1,600) 0 0
Proceeds from sales of fixed assets .......................... 128 44 50
Other, net ................................................... (1,004) (1,915) 28
-------- -------- --------
Net cash used in investing activities ................... (9,158) (6,402) (4,431)
-------- -------- --------
Cash Flows from Financing Activities:
Change in checks outstanding ................................. (516) (383) 1,388
Repayments of subordinated note and associated taxes ......... (13,094) 0 (2,000)
Repayments of long-term debt, net ............................ (14,564) (2,131) (2,068)
Proceeds from (repayments of) original
revolving credit facility, net (Note 4) ................. (10,721) (313) 2,244
Proceeds from new revolving credit facility, net (Note 4) .... 20,200 0 0
Proceeds from public sale of common stock .................... 19,823 0 0
Payment of dividends ......................................... (1,386) 0 0
Proceeds from issuance of stock upon option exercise ......... 219 0 0
-------- -------- --------
Net cash used in financing activities ................... (39) (2,827) (436)
-------- -------- --------
Effect of changes in foreign exchange rates .................. (4) 103 (245)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ......... (111) 88 267
Cash and cash equivalents at beginning of year ............... 417 329 62
======== ======== ========
Cash and cash equivalents at end of year ..................... $ 306 $ 417 $ 329
======== ======== ========
Income taxes paid during the year ............................ $ 5,409 $ 2,140 $ 1,585
======== ======== ========
Interest paid during the year ................................ $ 2,040 $ 2,868 $ 2,684
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
17
TB Wood's Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(in thousands, except per share and 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 domestic
and international manufacturers and users of industrial equipment. Principal
products of TB Wood's Incorporated ("Wood's-U.S."), a wholly owned subsidiary of
TB Wood's Corporation, include electronic drives, integrated electronic drive
systems, mechanical belted drives, and flexible couplings. Plant Engineering
Consultants, Inc. ("PEC" (Note 9)), a wholly owned subsidiary of Wood's-U.S.,
manufactures integrated electronic drive systems. TB Wood's Canada, Ltd.
("Wood's-Canada"(Note 9)) and TB Wood's Mexico, S.A., de C.V.
("Wood's-Mexico"(Note 9)), wholly owned subsidiaries of Wood's-U.S., manufacture
and market mechanical industrial power transmission products and act as
distributors for electronic and mechanical products manufactured by the domestic
operations of Wood's-U.S. Wood's-U.S. was organized in 1857 and was incorporated
in Pennsylvania in 1906.
The accompanying consolidated financial statements include the accounts of
TB Wood's Corporation and its wholly owned subsidiaries. The minority interest
in Wood's-Canada, purchased by Wood's-U.S. in connection with the Initial Public
Offering ("Offering"(Note 9)), was not separately classified in the accompanying
financial statements for 1995 because the minority owners were the same
individuals who owned the common stock of Wood's-U.S. All significant
intercompany balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 using
principally the straight-line method over the estimated useful lives of the
assets. Equipment under capital leases is depreciated over the assets estimated
useful life and is included in machinery and equipment. Maintenance and repair
costs are charged to expense as incurred, and major renewals and betterments 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.
Inventories
Wood's-U.S. and PEC inventories are stated at the lower of cost or market
using the last-in, first-out ("LIFO") method. Wood's-Canada and Wood's-Mexico
inventories are stated at the lower of cost or market using the first-in,
first-out ("FIFO") method. Market is defined as net realizable value. Cost
includes raw materials, direct labor, and manufacturing overhead. Approximately
90% and 89% of total inventories were valued using the LIFO method at January 3,
1997 and December 29, 1995, respectively.
18
Self-Insurance
The Company maintains workers' compensation insurance policies which have
the potential for retrospective premium adjustments and a partially self-insured
group health insurance policy which is subject to specific retention levels.
Insurance administrators assist the Company in estimating the fully developed
workers' compensation liability and group health insurance reserves which are
accrued by the Company. In the opinion of management, adequate provision has
been made for all incurred claims. The Company has issued letters of credit
totaling $1,700 to cover incurred claims and other costs related to the workers'
compensation policy.
Foreign Currency Translation
The financial statements of Wood's-Canada and Wood's-Mexico 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
shareholders' equity(deficit). Exchange gains and losses resulting from foreign
currency transactions, primarily intercompany sales of products between
Wood's-U.S., Wood's-Canada and Wood's-Mexico, are included in other income
(expense) in the accompanying statements of operations and are not material. The
Securities and Exchange Commission has qualified Mexico as a highly inflationary
economy under the provisions of SFAS No. 52. In 1997, the financial statements
of the Mexico operation will be remeasured with the U.S. dollar as the
functional currency. Any gain or loss will be recorded in the Company's
statement of operations.
Goodwill
The excess of cost over the net assets acquired ("Goodwill") is being
amortized to income on a straight-line basis over a period of 40 years. Goodwill
relates to the acquisition of the Company in 1986 and the acquisition of certain
businesses and product lines (Note 9).
Long Lived Assets and Intangible Assets
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," effective
December 30, 1995. Adoption of this statement did not have any effect on the
financial statements of the Company. 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.
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.
19
Sales
The Company's five largest customers accounted for approximately 29%, 28%,
and 27% of net sales for fiscal years 1996, 1995, and 1994, respectively. Of
these customers, one accounted for approximately 20% of net sales for the year
ended January 3, 1997. The loss of one or more of these customers would have an
adverse effect on the Company's performance and operations. Export sales
accounted for 17.7%, 14.7%, and 13.8% of total sales in fiscal years 1996, 1995,
and 1994, respectively. Intercompany transactions are consummated on terms
equivalent to those that prevail in arms-length transactions. Information
regarding the Company's domestic and foreign operations is as follows:
United
States Foreign Eliminations Consolidated
- ------------------------ ---------- --------- ------------- -------------
Year ended
January 3, 1997
Net Sales .............. $100,637 $14,789 $(12,921) $102,505
Operating Profit ....... 11,946 627 0 12,573
Identifiable Assets .... 77,679 7,248 (11,532) 73,395
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.
Net Income Per Share
Net income per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares resulting from
stock options and warrants (using the treasury stock method) have been included
in the computation when dilution results. The difference between primary and
fully diluted net income per share is not material for any of the periods
presented and has therefore been excluded.
Year-End
Effective fiscal year 1995, the Company changed its year-end to the Friday
closest to the last day of December. Fiscal year-ends are as follows:
1996 January 3, 1997
1995 December 29, 1995
1994 December 31, 1994
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
20
3. ACCRUED EXPENSES
Components of accrued expenses were as follows:
1996 1995
- --------------------------------------------------- -------------- -------------
Accrued payroll and other compensation ............ $2,619 $2,115
Other accrued liabilities ......................... 4,525 2,971
Accrued workers' compensation ..................... 1,240 1,254
------ ------
Total ............................................. $8,384 $6,340
====== ======
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
1996 1995
- ----------------------------------------------- ------------ ------------
Senior Fleet Term loan ........................ $ 0 $ 5,005
Senior Fleet Revolver loan .................... 0 10,721
Senior subordinated debt
per the USL Agreement .................... 0 9,595
Junior subordinated note payable .............. 0 14,983
Unsecured Revolving Line of Credit ............ 20,200 0
Note payable to a former shareholder
of Wood's ................................ 321 309
Capital lease obligations ..................... 307 560
Other ......................................... 1,399 290
---------- ------------
22,227 41,463
Less current maturities ....................... (520) (1,759)
========== ============
$21,707 $39,704
========== ============
Aggregate future maturities of long-term debt and capital lease obligations as
of January 3, 1997 are as follows:
1997 ...................................................................$ 520
1998 ................................................................... 648
1999 ................................................................... 276
2000 ................................................................... 278
2001 ................................................................... 20,425
Thereafter ............................................................. 80
--------
$22,227
========
A Senior Credit Agreement with Fleet provided for a Term Loan and a
Revolving Loan. Interest was charged on the Senior Credit Facilities at prime
rate, as defined, plus .75% or the 30-, 90-, or 180-LIBOR rate plus 2.75%.
The USL Capital Agreement provided for up to $10,000 of senior subordinated
debt with detachable warrants to purchase up to 375,000 shares of Wood's common
stock. The senior subordinated debt was comprised of a fixed interest rate note
bearing interest at 12.25% and a floating interest rate note bearing interest at
the 90-day LIBOR plus 5.5%.
21
The junior subordinated note payable to a company formerly related by
common ownership, was booked at a discount and bore interest at an effective
interest rate of 8.5%. On July 18, 1996, the Company repaid principal of
approximately $16,674 for approximately $10,677. The gain on extinguishment of
$2,992, net of tax, is reflected as a component of shareholders' equity.
In connection with the proceeds received from the Offering of the Company's
common stock (Note 9), the Company repaid the Fleet Term Loan, the USL
Agreement, and a portion of the Fleet Revolver Loan. An extraordinary loss of
approximately $1,305, net of taxes, was incurred in the first quarter as a
result of the repayment of certain indebtedness.
On October 10, 1996, the Company entered into a new $40,000 unsecured
revolving credit facility arranged by PNC Bank, N.A. The Company used the
proceeds of the new credit facility to repay the balance of the Senior Fleet
Revolver Loan. The Company realized an initial rate reduction of approximately
50 basis points with future rates based on the ratio of total indebtedness to
EBITDA, as defined. The loan agreement 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 loan agreement also
contains other restrictive covenants which include, among other things,
restrictions on outside investments and restrictions on capital expenditures.
The gross proceeds from (repayments of) the revolving credit facilities are
as follows:
1996 1995 1994
- --------------------------------- ------------ ------------ --------------
Proceeds from the original
revolving credit facility .. $88,507 $100,977 $90,396
Repayments of original
revolving credit facility .. (99,228) (101,290) (88,152)
Proceeds from new
revolving credit facility .. 32,900 0 0
Repayments of new
revolving credit facility .. (12,700) 0 0
------------ ------------ --------------
Under SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," the fair value of the Company's long-term debt is estimated based
on the current rates offered to the Company for debt of similar terms and
maturities. At January 3, 1997, the Company's fair value of long-term debt
approximates the carrying value.
5. INCOME TAXES
The components of the provision (benefit) for income taxes are shown
below:
1996 1995 1994
- --------------------------------- ---------------------------------------------
Current:
Federal and state .......... $ 4,407 $ 2,837 $ 1,822
Foreign .................... 442 24 (115)
---------- --------- ---------
4,849 2,861 1,707
---------- --------- ---------
Deferred:
Federal and state .......... (796) 203 673
Foreign .................... 0 2 0
---------- --------- ---------
(796) 205 673
---------- --------- ---------
Provision for income taxes ...... $ 4,053 $ 3,066 $ 2,380
========== ========= =========
22
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:
1996 1995
- -------------------------------------------- --------------------------------
Deferred income tax liabilities:
Book basis in property over tax basis ...... $(1,536) $(1,326)
LIFO inventory basis differences ........... (3,127) (3,192)
Long-term debt basis differences ........... 0 (440)
Other ...................................... (964) (1,194)
--------------------------------
Total deferred income tax liabilities ...... (5,627) (6,152)
--------------------------------
Deferred income tax assets:
Postretirement benefits not
currently deductible .................. 7,652 7,572
Accrued liabilities not currently deductible 1,394 745
Allowance for doubtful accounts and
inventory reserves .................... 662 582
Stock option compensation not
currently deductible .................. 326 270
Other ...................................... 303 135
--------------------------------
Total deferred income tax assets ........... 10,337 9,304
--------------------------------
Net deferred income tax asset .............. $ 4,710 $ 3,152
================================
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:
1996 1995 1994
- ------------------------------------ ---------- ----------- -----------
Federal statutory income
tax rate ...................... $3,399 $2,606 $2,141
State income taxes, net of
federal income tax benefit .... 456 460 378
Changes in the valuation
allowance ..................... 0 (112) (193)
Other, net ......................... 198 112 54
---------- ----------- -----------
$4,053 $3,066 $2,380
========== =========== ===========
In 1996, 1995, and 1994, earnings before income taxes included $884, $283,
and ($524), respectively, of earnings generated by the Company's foreign
operations. No federal or state income taxes have been provided on such
earnings, since undistributed earnings have been reinvested and are not expected
to be remitted to the Parent Company.
In December 1996, the Company was notified of a review of its 1994 federal
income tax return by the Internal Revenue Service. Management believes this
review will not have a material effect on operations.
In 1996, Revenue Canada completed audits of Wood's-Canada's 1993, 1994, and
1995 federal income tax returns. Management believes this review will not have a
material effect on operations.
23
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 $1,664, $1,443, and $1,190, for
fiscal years 1996, 1995, and 1994, respectively.
Profit-Sharing Plans
Since January 1, 1988, the Company has maintained a separate defined
contribution 401(k) profit-sharing plan covering all salaried and nonproduction
unit domestic hourly employees. Under this plan, the Company matches a specified
percentage of each eligible employee's contribution. Amounts contributed by the
Company under this profit-sharing plan were approximately $500, $500, and $353,
for fiscal years 1996, 1995, and 1994, respectively. In addition, the Company
has other noncontributory profit-sharing plans covering its eligible production
employees and Canadian employees for which $40, $41, and $44, were charged to
expense for the fiscal years 1996, 1995, and 1994, respectively.
Stock Options
In March 1991, the Company granted nonqualified stock options to the
president of the Company to purchase 157,893 shares of the Company's common
stock at an option price of $6.33 per share. The options vest 30% in January
1993, 15% in January 1994, 1995, 1996, and 1997, and 10% in January 1998. On
March 30, 1992, the option agreement was amended to set the option price at
$1.58 per share plus an amount equal to the average yield on the 30-year U.S.
Treasury bond maturing on the day closest to the fifteenth anniversary of the
option measurement date. The options are exercisable on or after the seventh
anniversary of the measurement date and expire one year thereafter. During 1992,
the controlling shareholder granted an additional 47,367 options on the
controlling shareholder's shares to a director, with terms similar to the 1991
options, as amended. Also in 1992, the Company granted an additional 30,000
options to an employee with terms similar to the 1991 options, as amended, with
vesting beginning in 1994. The options are exercisable beginning on the seventh
anniversary of the measurement date, as defined, and expire on the eighth
anniversary of the measurement date. The option agreements contain various fair
value puts and calls, with fair value to be determined the board of directors or
an independent appraiser.
As a result of the above amendment, beginning in March 1992, the Company
began accounting for the options under variable plan accounting, whereby
increases in the value of the Company's common stock above the option price
resulted in the recording of compensation expense by the Company. Through
December 31, 1994, the Company recorded no compensation expense related to the
options as, in the opinion of management, the fair value of the Company's common
stock was equal to or below the option price, as adjusted. Due to increases in
the estimated fair value of the Company's common stock, as determined by an
independent appraiser, the Company recorded stock option compensation expense of
$675 for the year ended December 29, 1995. Additional stock option compensation
expense of approximately $230 will be recorded in future periods based on the
vesting schedule of options. In July 1995, the option agreements were amended to
remove features of the options that resulted in variable plan accounting.
Accordingly, subsequent to July 1, 1995, the options are being accounted for as
fixed options whereby future increases in the value of the Company's common
stock will not result in additional stock option compensation expense.
In February 1994, the Company granted an additional 105,000 options with
terms similar to those discussed above, except that the February 1994 options do
not have a put feature and have an option price which
24
escalates during the vesting period at a fixed rate of 6% per year. The February
1994 options are exercisable at a fixed exercise price for a one-year period
following the vesting period. The Company accounts for the February 1994 options
as fixed options whereby future increases in the value of the Company's common
stock do not result in the recording of compensation expense by the Company. The
option agreements contain various fair value puts and calls, with fair value to
be determined by the board of directors or an independent appraiser.
In December 1994, the controlling shareholder of the Company granted 89,004
options on the controlling shareholder's shares to certain members of management
which contain terms similar to the February 1994 options, except that the option
price escalates during the vesting period at a fixed rate of 7.86% per year.
As of January 3, 1997, 77,397 options have been exercised and 67,791
options are exercisable.
The Company has adopted 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 designated by the board of
directors (the "Committee"). The aggregate maximum number of shares of common
stock available for awards under the 1996 Plan is 500,000, subject to adjustment
to reflect changes in the Company's capitalization. Awards under the 1996 Plan
may be made to all officers and key employees of the Company. No awards can be
made under the 1996 Plan after January 31, 2006.
The Committee may grant shares of common stock in the form of either
deferred stock or restricted stock, as defined in the 1996 Plan. Options granted
under the 1996 Plan may be either incentive stock options ("ISOs") or
nonqualified stock options. ISOs are intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code. Unless
an option is specifically designated at the time of grant as an ISO, options
under the 1996 Plan will be nonqualified. The exercise price of the options will
be determined by the Committee. The maximum term of an option or Stock
Appreciation Rights (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 January 3, 1997, no options have been granted under the
1996 Plan.
Effective fiscal year 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." 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, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in APB 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 account for its stock-based compensations plan
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options amended during 1995 using the Black Sholes
options pricing model as prescribed by SFAS No. 123 using the following
assumptions:
Risk free interest rate ............................................. 5.7%
Expected lives ...................................................... 4 years
Expected volatility ................................................. 33.0%
25
The total value of the options amended during the year ended December 29,
1995 was $975, which would be amortized 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 1996 and 1995 would have been as follows:
1996 1995
---- ----
Net income as reported ..................... $4,640 $4,599
Pro forma .................................. 4,629 4,575
Primary EPS as reported .................... .83 1.21
Pro forma .................................. .83 1.20
Postretirement Benefits
The Company sponsors a defined benefit postretirement medical plan which
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 following table summarizes the Company's postretirement benefit
obligations and the assumptions used in determining postretirement benefit cost.
1996 1995
- ----------------------------------------------- ------------ --------------
Accumulated postretirement benefit obligation:
Retirees ...................................... $ 4,061 $ 8,607
Fully eligible active plan participants ....... 938 34
Other active participants ..................... 1,474 1,823
------------ --------------
Total obligation .............................. 6,473 10,464
Unrecognized prior service gain
and actuarial gains ...................... 12,655 8,464
------------ --------------
Postretirement benefit obligation ............. $19,128 $18,928
============ ==============
Discount Rate ................................. 7.75% 7.50%
------------ --------------
Initial health care cost trend ................ 8.00% 9.00%
------------ --------------
Ultimate health care cost trend rate .......... 5.00% 6.00%
------------ --------------
Year ultimate health care cost
trend rate reached ....................... 2004 2007
------------ --------------
The health care cost trend rate has an effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by 1% for each
year would increase the APBO as of January 3, 1997 by approximately $950 and the
aggregate of service and interest costs components of net periodic
postretirement benefit cost for fiscal year 1996 by approximately $135.
Net periodic postretirement benefit costs include the following components:
1996 1995
---- ----
Service cost ...................................... $140 $158
Interest cost ..................................... 762 868
Amortization ...................................... (475) (437)
---- ----
Net benefit cost .................................. $427 $589
==== ====
26
7. TRANSACTIONS WITH AFFILIATE
Prior to the Offering (Note 9), the Company had a management
services agreement and aircraft use agreement. The Company paid The NTC Group,
Inc. an aggregate of $36, $400, and $396, in fiscal years 1996, 1995, and 1994,
respectively.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to a number of legal actions arising in
the ordinary course of business. In management's opinion, the ultimate
resolution of these actions will not materially affect the Company's financial
position or results of operations.
Environmental Risks
The Company's operations and properties are subject to federal, state, and
local laws, regulations, and ordinances relating to certain materials,
substances, and wastes. The nature of the Company's operations exposes it to the
risk of claims with respect to environmental matters. Based on the Company's
experience to date, management believes that the future cost of compliance with
existing environmental requirements will not have a material adverse effect on
the Company's operations or financial position.
Operating Lease Commitments
The Company leases office space, office equipment, and other items under
noncancelable operating leases. The expense for noncancelable operating leases
was approximately $600, $582, and $617, for fiscal years 1996, 1995, and 1994,
respectively. At January 3, 1997, future minimum lease payments under
noncancelable operating leases are as follows:
1997 ................................. $460
1998 ................................. 168
1999 ................................. 88
2000 ................................. 25
2001 and thereafter .................. 12
----
$753
====
9. ACQUISITIONS, MERGERS AND PUBLIC OFFERING
Acquisitions
On January 7, 1994, the Company acquired PEC. PEC manufactures integrated
electronic drive systems. The acquisition was structured as a stock purchase
with total cash consideration of approximately $3,386. The purchase price is
subject to adjustment for certain performance-based earn-out provisions
contained in the purchase agreement. As of January 3, 1997, the amount of the
earn-out has been immaterial. Goodwill associated with the purchase is being
amortized over 40 years using the straight-line method (Note 2).
In May 1994, the Company acquired the composite drive shaft and industrial
couplings rolls product lines from CCDI Composites, Inc. ("CCDI") for total cash
consideration of approximately $711. Adjustments to the purchase price will be
reflected as an adjustment to goodwill. Goodwill associated with the purchase is
being amortized over 40 years using the straight-line method (Note 2).
27
In May 1994, the Company sold certain product lines to a third party for
total cash consideration of approximately $2,200. The Company has recorded a
gain on sale of approximately $1,398 in the accompanying statements of
operations for the year ended December 31, 1994.
In February 1996, the Company exercised an option to purchase the
outstanding shares of Grupo Blaju, S.A., de C.V. (subsequently renamed TB Wood's
Mexico, S.A., de C.V.) and its subsidiaries for approximately $458, including
legal and professional fees. There was no goodwill associated with the purchase.
In October 1996, the Company purchased the assets of Ambi-Tech Industries,
Inc.("Ambi-Tech"), a leading manufacturer of electronic brakes for electric
motors, for approximately $991 of cash, including legal and professional fees,
and an $800 note payable at 7% interest. Principal is due in five annual
installment of $160 beginning September, 1997. Goodwill associated with the
purchase is being amortized over 40 years using the straight-line method (Note
2).
In November 1996, the Company acquired certain assets of Deck Manufacturing
Corp. ("Deck"), an established designer and manufacturer of industrial disc and
gear couplings, for approximately $1,471 of cash, including legal and
professional fees. Goodwill associated with the purchase is being amortized over
40 years using the straight-line method (Note 2). The Company also loaned Deck
$400 which is secured by the excess accounts receivable and the inventory not
acquired. The note receivable is included in other assets.
The acquisitions of Wood's-Mexico, Ambi-Tech, and Deck are not material to
the consolidated financial statements. Accordingly, pro forma results of
operations for the year ended January 3, 1997 have not been presented.
Merger
In January 1996, the Company completed a merger (the "Merger") in
contemplation of an initial public offering of the Company's common stock.
Pursuant to the Merger, a subsidiary of a newly formed holding company merged
with Wood's-U.S., with Wood's-U.S. as the surviving corporation. In the Merger,
the shareholders of Wood's-U.S. received three shares of the holding company's
stock in exchange for each share of Wood's-U.S. stock. The financial statements
of the Company, prior to January 1996, have been restated to include the effects
of the Merger.
Initial Public Offering
Effective February 8, 1996, the Company completed an Offering of its common
stock that raised approximately $22,478 in aggregate gross proceeds for the
Company. The net proceeds (after deducting issuance costs) of approximately
$19,823 from the Offering were used to repay $4,767 of the Fleet Term Loan,
$5,203 of the Senior Fleet Revolver Loan, and $10,000 of the USL Fixed and
Floating Rate Notes. In addition, the Company paid approximately $616 to USL. In
conjunction with the Offering, USL redeemed warrants to purchase 375,000 shares
of the Company's stock which were included in the shares of common stock issued
by selling shareholders. The Company also purchased the remaining 21% interest
of Wood's-Canada held by the shareholders of Wood's-U.S. for approximately
$1,600.
The effects of interest and other charges in fiscal 1996, prior to the
Offering, are not material to the consolidated financial statements.
Accordingly, pro forma results of operations for the year ended January 3, 1997
have not been presented.
28
QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Quarters
1996 First Second Third Fourth
- -------------------------------- ---------- ---------- --------- ------------
Sales .......................... $23,813 $25,107 $25,849 $27,736
Gross profit ................... 8,892 9,190 9,324 10,341
Gross profit % ................. 37.3% 36.6% 36.1% 37.3%
Net income(loss) before
extraordinary item ........ 933 (1) 1,515 1,684 1,813
Per share of common stock:
Net income (loss) before
extraordinary item ........ .19 (1) .26 .29 .31
Net income ..................... (.08)(2) .26 .29 .31
Dividends declared ............. - .08 .08 .08
========== ========== ========= ============
(1) Includes a non-recurring charge of $349 ($.07 per share) net of taxes,
related to the write-off of a non-compete agreement in February 1996.
(2) Includes extraordinary charges of $1,305 ($.27 per share), net of taxes, for
the early repayment of debt related to the Offering of stock in February 1996.
Fiscal Quarters
1995 First Second Third Fourth
- ---------------------- ------------- -------------- -------------- -------------
Sales ................ $25,474 $27,055 $25,263 $24,515
Gross profit ......... 9,032 9,761 8,784 8,534
Gross profit % ....... 35.5% 36.1% 34.8% 34.8%
Net income ........... 1,001 1,207 1,196 1,195
Net income per
common share .... 0.27 0.32 0.31 0.31
------------- -------------- -------------- -------------
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 1997
Annual Meeting in the Sections entitled "Election of Director," "Management" and
"Compliance with Section 16(a) of the Exchange Act" 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 1997 Annual Meeting in the Section entitled
"Executive Compensation" and is incorporated herein by reference.
29
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 1997 Annual Meeting in the Section entitled
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 1997 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 12 through 29 hereof and the report thereon of
Arthur Andersen LLP appearing on page 13 hereof.
(2) Financial Statement Schedule
Schedule II for the fiscal year ended January 3, 1997 and the report
of Arthur Andersen thereon.
(3) Exhibits
Number Description
- ------ -----------
3.1 Amended Certificate of Incorporation of the Company (incorporated by
reference to T.B. 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).
4.1 Shareholders' Agreements by and among T.B. Wood's Sons Company, Thomas
C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald,
Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III,
James E. Williams, Joseph S. Augustine, Bernard M. Goldsmith, Harvey
R. Heller, Robert Patterson Saltsman, F. Philip Handy, F. Philip
Handy, as Guardian of the Property of Kate Elizabeth Handy, F. Philip
Handy, as Guardian of the Property of Philip Breckenridge Handy and F.
Philip Handy, as Guardian of the Property of Abigail Slocum Handy
(incorporated by reference to Form S-1 Exhibit 4.1).
4.2 Amendments to Shareholders' Agreements by and among TB Wood's
Incorporated (formerly known as "T.B. Wood's Sons Company"), Thomas C.
Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald,
Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III,
James E. Williams, Joseph S. Augustine (incorporated by reference to
Form S-1 Exhibit 4.2).
9.1 Voting Trust Agreement dated March 31, 1989, among T.B. Wood's Son's
Company and Bernard M. Goldsmith, Harvey R. Heller, Robert Patterson
Saltsman, F. Philip Handy, F. Philip Handy, as Guardian of
30
the Property of Abigail Slocum Handy, Kate Elizabeth Handy, Philip
Breckenridge Handy and F. Philip Handy, as Trustee (incorporated by
reference to Form S-1 Exhibit 9.1).
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 Loan and Security Agreement dated March 31, 1993 by and between T.B.
Wood's Sons Company and Barclays Business Credit, Inc. (incorporated
by reference to Form S-1 Exhibit 10.3).
10.4 Revolving Credit Note dated March 31, 1993 issued by T.B. Wood's Sons
Company in favor of Barclays Business Credit, Inc. (incorporated by
reference to Form S-1 Exhibit 10.4).
10.5 Term Note dated March 31, 1993 issued by T.B. Wood's Sons Company in
favor of Barclays Business Credit, Inc. (incorporated by reference to
Form S-1 Exhibit 10.5).
10.6 Pledge Agreement dated March 31, 1993 by and between T.B. Wood's Sons
Company and Barclays Business Credit, Inc. (incorporated by reference
to Form S-1 Exhibit 10.6).
10.7 Debenture dated March 1993 issued by TB Wood's Canada, Ltd. in favor
of Barclays Business Credit, Inc. (incorporated by reference to Form
S-1 Exhibit 10.7).
10.8 Guarantee dated March 26, 1993 issued by TB Wood's Canada, Ltd. in
favor of Barclays Business Credit, Inc. (incorporated by reference to
Form S-1 Exhibit 10.8).
10.9 Trademark Collateral Security Agreement dated March 31, 1993 by and
between T.B. Wood's Sons Company and Barclays Business Credit, Inc.
(incorporated by reference to Form S-1 Exhibit 10.9).
10.10 Trademark Assignment of Security dated March 31, 1993 by T.B. Wood's
Sons Company in favor of Barclays Business Credit, Inc. (incorporated
by reference to Form S-1 Exhibit 10.10).
10.11 Patent Collateral Security Agreement dated March 31, 1993 by and
between T.B. Wood's Sons Company in favor of Barclays Business Credit,
Inc. (incorporated by reference to Form S-1 Exhibit 10.11).
10.12 Patent Assignment of Security Agreement dated March 31, 1993 in favor
of Barclays Business Credit, Inc. (incorporated by reference to Form
S-1 Exhibit 10.12).
10.13 Open-end Mortgage and Security Agreement dated as of March 31, 1993
by T.B. Wood's Sons Company to Barclays Business Credit, Inc.
(incorporated by reference to Form S-1 Exhibit 10.13).
10.14 Deed of Trust, Assignment of Rents and Security Agreement from T.B.
Wood's Sons Company to David G. Williams, Esq. for the benefit of
Barclays Business Credit, Inc. (incorporated by reference to Form S-1
Exhibit 10.14).
10.15 Deed of Trust, Assignment of Rents and Security Agreement dated as of
March 31, 1993 from T.B. Wood's Sons Company to Steve Lawrence, Esq.
for the benefit of Barclays Business Credit, Inc. (incorporated by
reference to Form S-1 Exhibit 10.15).
31
10.16 Mortgage and Security Agreement dated as of March 31, 1993 by T.B.
Wood's Sons Company to Barclays Business Credit, Inc. (incorporated by
reference to Form S-1 Exhibit 10.16).
10.17 Mortgage and Security Agreement dated as of March 31, 1993 by T.B.
Wood's Sons Company to Barclays Business Credit, Inc. (incorporated by
reference to Form S-1 Exhibit 10.17).
10.18 First Amendment dated April 2, 1993 to Loan and Security Agreement
dated March 31, 1993 between T.B. Wood's Sons Company and Barclays
Business Credit, Inc. (incorporated by reference to Form S-1 Exhibit
10.18).
10.19 Amendment #2 dated June 7, 1994 to Loan and Security Agreement dated
March 31, 1993 between T.B. Wood's Sons Company and Barclays Business
Credit, Inc. (incorporated by reference to Form S-1 Exhibit 10.19).
10.20 Stock Pledge Agreement dated as of June 7, 1994 between T.B. Wood's
Sons Company and Barclays Business Credit, Inc. (incorporated by
reference to Form S-1 Exhibit 10.20).
10.21 Guaranty dated June 7, 1994 issued by Plant Engineering Consultants,
Inc. in favor of Barclays Business Credit, Inc. (incorporated by
reference to Form S-1 Exhibit 10.21).
10.22 Security Agreement dated June 7, 1994 by and between Plant
Engineering Consultants, Inc. and Barclays Business Credit, Inc.
(incorporated by reference to Form S-1 Exhibit 10.22).
10.23 Note and Warrant Purchase Agreement dated as of March 31, 1993
between T.B. Wood's Sons Company and Unites States Leasing
International, Inc. (incorporated by reference to Form S-1 Exhibit
10.23).
10.24 12.25% Senior Subordinated Fixed Rate Note due March 31, 2002 issued
by T.B. Wood's Sons Company in favor of United States Leasing
International, Inc. (incorporated by reference to Form S-1 Exhibit
10.24).
10.25 Senior Subordinated Floating Rate Note due March 31, 2003 issued by
T.B. Wood's Sons Company in favor of United States Leasing
International, Inc. (incorporated by reference to Form S-1 Exhibit
10.25).
10.26 Lien Priority Agreement dated as of March 31, 1993 by and among
United States Leasing International, Inc., T.B. Wood's Sons Company
and Barclays Business Credit, Inc. (incorporated by reference to Form
S-1 Exhibit 10.26).
10.27 Subordinated Guaranty dated as of March 31, 1993 by TB Wood's Canada,
Ltd. in favor of United States Leasing, Inc. (incorporated by
reference to Form S-1 Exhibit 10.27).
10.28 Subsidiary Pledge Agreement dated as of March 31, 1993 by the
Shareholders listed on the signature page thereto in favor of United
States Leasing, Inc. (incorporated by reference to Form S-1 Exhibit
10.28).
10.29 Subordination Agreement dated as of March 31, 1993 by T.B. Wood's
Sons Company and the junior subordinated creditors listed on the
signature pages thereto (incorporated by reference to Form S-1 Exhibit
10.29).
10.30 Warrant to Purchase Common Stock dated April 1993 issued by T.B.
Wood's Sons Company in favor of United States Leasing International,
Inc. (incorporated by reference to Form S-1 Exhibit 10.30).
10.31 Junior Subordinated Promissory Note dated March 31, 1993 issued by
T.B. Wood's Sons Company in favor of The Bibb Company (incorporated by
reference to Form S-1 Exhibit 10.31).
32
10.32 Warrant to Purchase Common Stock dated April 1993 issued by T.B.
Wood's Sons Company to The Bibb Company (incorporated by reference to
Form S-1 Exhibit 10.32).
10.33 Subordinated Promissory Note dated April 2, 1993 issued by T.B.
Wood's Sons Company in favor of Charles O. Wood, III, together with a
Subordination Agreement dated April 2, 1993 by T.B. Wood's Sons
Company, TB Wood's Canada, Ltd., Mr. Wood and the subordinated
creditors listed on the signature pages thereto (incorporated by
reference to Form S-1 Exhibit 10.33).
10.34 Management Services Agreement dated as of January 1, 1993 between
T.B. Wood's Sons Company and The NTC Group, Inc., together with
Amendment No. 1 dated as of April 2, 1993 (incorporated by reference
to Form S-1 Exhibit 10.34).
10.35 Letter confirming Aircraft Services Agreement dated January 1, 1993
between T.B. Wood's Sons Company and The NTC Group, Inc. (incorporated
by reference to Form S-1 Exhibit 10.35).
10.36 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).
10.37 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).
10.38 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).
10.39 TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan
(incorporated by reference to Form S-1 Exhibit 10.39).
10.40 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).
10.41 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).
10.42 Termination Agreement dated January 27, 1996 between the NTC Group,
Inc. and TB Wood's Incorporated (formerly known as "T.B. Wood's Sons
Company") terminating the Management Services Agreement dated as of
January 1, 1993 (incorporated by reference to Form S-1 Exhibit 10.42).
10.43 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 10k, for fiscal year 1995, Exhibit 10.43).
10.44 Revolving Credit Agreement by and among TB Wood's Incorporated, Plant
Engineering Consultants, Inc., Grupo Blaju, S.A., de C.V., TB Wood's
Canada, Ltd. and the Banks Party thereto and PNC Bank, National
Association, as Agent, dated October 10, 1996.
33
10.45 TB Wood's Employee Stock Purchase Plan, dated March 1, 1997.
11.1 Statement regarding Computation of Per Share Earnings.
21.1 Subsidiaries of Registrant (incorporated by reference to Form S-1
Exhibit 21.1).
(b) Reports on Form 8-K.
There were no reports on Form 8-K by the Registrant during the fourth
quarter of fiscal year 1996.
34
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 25, 1997.
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 25, 1997
- -------------------
Thomas C. Foley (Principal Executive Officer)
/s/ MICHAEL L. HURT President and Director March 25, 1997
- -------------------
Michael L. Hurt (Principal Executive Officer)
/s/ JEAN-PIERRE L. CONTE Director March 25, 1997
- ------------------------
Jean-Pierre L. Conte
/s/ CRAIG R. STAPLETON Director March 25, 1997
- ----------------------
Craig R. Stapleton
/s/ DAVID H. HALLEEN Vice President of Finance, March 25, 1997
- --------------------
David H. Halleen Treasurer and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
35
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 Deductions (write-offs
beginning of Charged to costs Charged to other of bad debts, discounts Balance at
Description period and expenses accounts and claims in excess of end of period
provision)(1)
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994:
Allowance for doubtful $156 65 (49) $172
accounts
Allowance for discounts and 357 13 (163) 207
claims
---------------------------------------------------------------------------------------------
513 78 0 (212) 379
=============================================================================================
Year ended December 29, 1995:
Allowance for doubtful $172 273 (81) $364
accounts
Allowance for discounts and 207 62 (123) 146
claims
---------------------------------------------------------------------------------------------
379 335 0 (204) 510
=============================================================================================
Year ended January 3, 1997:
Allowance for doubtful $364 65 (63) $366
accounts
Allowance for discounts and 146 (75) 71
claims
---------------------------------------------------------------------------------------------
510 65 0 (138) 437
=============================================================================================
______________
Note:
(1) Represents write-off accounts to be uncollectible, less recoveries of
amounts previously written off.