10-Q 1 b413095_10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2006 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 1-14182 TB WOODS'S CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 25-1771145 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 440 NORTH FIFTH AVENUE, CHAMBERSBURG, PA 17201 (Address of principal executive offices) (Zip Code) (717) 264-7161 (Registrant's telephone number, including area code) [NONE] (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ----------------------- -------------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class April 25, 2006 -------------------------------------- --------------------------------- Common Stock, $.01 par value per share 3,729,138 shares 2 TB WOOD'S CORPORATION FORM 10-Q - INDEX MARCH 31, 2006 Part 1. - Financial Information Page No. Item 1. Financial Statements (unaudited): Condensed Consolidated Statements of Operations - for the three months ended March 31, 2006 and April 1, 2005 4 Condensed Consolidated Balance Sheets - March 31, 2006 and December 31, 2005 5 Condensed Consolidated Statements of Cash Flows - for the three months ended March 31, 2006 and April 1, 2005 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 Item 4. Controls and Procedures 15 Part II - Other Information 16 Item 6 Exhibits Signatures 16 Exhibit 31.1 Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 17 Exhibit 31.2 Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 18 Exhibit 32 Statement Pursuant to 18 U.S.C. Section 1350 as required by Section 906 of the Sarbanes Oxley Act of 2002 19 3 PART 1. - FINANCIAL INFORMATION Item 1 Financial Statements TB Wood's Corporation and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 TB Wood's Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. 5 TB Wood's Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements 6 TB Wood's Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (in thousands, except per share amounts) 1. Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments consisting of normal recurring adjustments necessary to present fairly the consolidated financial position of TB Wood's Corporation and Subsidiaries (the "Company") and the results of their operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Certain prior period amounts have been reclassified to conform to the current period presentation. These financial statements should be read together with the audited financial statements and notes in the Company's 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The Company utilizes a calendar year as the annual period for reporting its financial results. However, interim periods consist of four quarters of 13 weeks each, except for the fourth quarter that ends on December 31. 2. Inventories and Cost of Goods Sold The Company uses the last-in, first-out ("LIFO") method for inventories located in the United States, which represents approximately 70% and 71% of inventories at March 31, 2006 and December 31, 2005 respectively. Inventories for foreign operations are stated at the lower of cost or market using the first-in, first-out ("FIFO") method. An actual valuation of inventory under the LIFO method can only be made at the end of each year based upon the inventory levels and costs at that time. Accordingly, interim LIFO inventory determinations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many forces beyond management's control, interim results are subject to final year-end LIFO inventory valuation adjustments. The major classes of inventories, valued principally using the LIFO method, consisted of the following: March 31 December 31 2006 2005 -------------- ---------------- Finished goods $11,801 $11,159 Work in process 3,512 3,452 Raw materials 7,327 7,009 -------------- ---------------- 22,640 21,620 Less: LIFO Reserve (6,187) (6,041) -------------- ---------------- Inventory value at LIFO $16,453 $15,579 ============== ================ During the first quarter of 2006, the LIFO reserve was increased by $146, while in the first quarter of 2005 the LIFO reserve decreased by $170. Had the Company utilized the FIFO method of accounting for all of its inventories, costs of goods sold would have been lower in 2006 and higher in 2005 by the respective amounts of the aforementioned changes in LIFO reserve. 7 Shipping and handling costs incurred by the Company to deliver manufactured goods to its customers are not included in costs of goods sold but are presented as an element of selling, general and administrative expense. The Company incurred $1,720 and $1,637 of shipping and handling costs in the first quarters ended March 31, 2006 and April 1, 2005, respectively. 3. Shareholders' Equity During the first quarter of 2006 the Company issued 6,868 treasury shares to participants in Company sponsored employee stock purchase and 401(k) retirement plans, and 13,828 treasury shares were issued on exercise of vested stock options. On January 13, 2006, the Company granted options for the purchase of 87,000 shares of the common stock to employees and directors at exercise prices equal to or in excess of market price on the date of grant. These options vest over three years following the grant date and expire on January 13, 2016. The Company adopted Financial Accounting Standards Board (FASB) Statement of Accounting Financial Standard (SFAS) No. 123, as amended by SFAS No. 148, to account for stock based compensation cost using the fair value method. During each of the quarters presented, the value of stock based compensation cost has been accounted for using the fair value method at an after tax cost of $72 and $34 for 2006 and 2005 respectively. 4. Other Comprehensive Income Total comprehensive income (loss) was as follows: Quarter Ended March 31, April 1, 2006 2005 ------------ ------------ Net income $ 642 $ 372 Other comprehensive income (loss): Foreign currency translation adjustments 116 (129) ------------ ------------ Total comprehensive income $ 758 $ 243 ============ ============ Accumulated other comprehensive (loss), net of income tax, is comprised of aggregate currency translation adjustments of $(35) and $(151) as of March 31, 2006 and December 31, 2005, respectively. 5. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average shares and common equivalent shares if dilutive. The computation of weighted average shares outstanding is as follows: Quarter Ended March 31, April 1, 2006 2005 ---------- --------- Basic weighted average number of common shares outstanding 3,714 5,177 Shares issueable upon assumed exercise of outstanding stock options 85 -- ---------- --------- Diluted weighted average number of common and common equivalent shares outstanding 3,799 5,177 ========== ========= 8 Total outstanding options to purchase 340,817 and 726,951 shares of common stock as of March 31, 2006 and April 1, 2005, respectively, are not included in the above calculation as their effect would be anti-dilutive. 6. Business Segment Information The Company's reportable segments are business units that manufacture and market separate and distinct products and are managed separately because each business requires different processes, technologies and marketing strategies. Quarter Ended ---------------------------- March 31, April 1, 2006 2005 ------------- -------------- Sales: Mechanical Segment $20,115 $18,153 Electronics Segment 9,304 9,558 ------------- -------------- $29,419 $27,711 ============= ============== Operating income (loss): Mechanical Segment $1,876 $961 Electronics Segment (73) 332 ------------- -------------- $1,803 $1,293 ============= ============== Depreciation and amortization: Mechanical Segment $ 560 $ 677 Electronics Segment 269 306 Corporate 266 276 ------------- -------------- $1,095 $1,259 ============= ============== Expenditures for long-lived assets: Mechanical Segment $451 $168 Electronics Segment 158 221 Corporate 44 62 ------------- -------------- $653 $451 ============= ============== March 31, December 31, 2006 2005 ------------- -------------- Assets: Mechanical Segment $42,931 $42,097 Electronics Segment 21,030 20,760 Corporate 4,702 4,896 ------------- -------------- $68,663 $67,753 ============= ============== The Company measures its business segments at the operating income level, and therefore does not allocate interest and other finance costs to determine pre-tax income on an operating segment basis. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The Company is a worldwide manufacturer of mechanical and electronic products used in the process of power transmission for industrial and other commercial applications. The following table, derived from the Company's condensed consolidated financial statements, presents selected elements of the Company's operating results, and the changes thereto, for the first quarter of the current and the immediately preceding year. Amounts presented in Item 2 are in thousands of dollars, unless otherwise indicated.

First quarter 2006 revenues continued to reflect the effects of a strong economy with total sales increasing by $1.7 million, or 6.2% over prior year's first quarter. Approximately half of this increase came from higher sales to the Company's largest distributor, who bought $0.9 million or 17.8% more as compared to the same quarter last year. Mechanical business sales grew approximately $2.0 million or 10.8% over the prior year's first quarter. Higher volume accounted for $1.4 million of the increase, $0.4 million came from a Fall 2005 price increase, with the remaining attributable to a favorable currency impact, principally a 6% increase in the Canadian dollar. Electronics segment sales fell by $0.3 million or 2.7%. A marginal increase in volume and flat pricing were offset by a $0.3 million unfavorable currency impact, largely due to an 8% decline in the Euro. 10 Total company gross profit increased by $1.0 million to $9.1 million. Stated as a percent of net sales, gross profit margins increased to 30.9% of sales from 29.4% in the prior year's first quarter. The Company's Mechanical Division contributed $5.9 million of gross profit in the first quarter of 2006, or 65% of the Company's gross profit. Mechanical Business margins also increased to 29.2% from 26.3% in the same quarter of last year, resulting in $1.1 million of higher gross profit. Higher volumes contributed $0.7 million and higher prices increased gross profit by $0.4 million. Favorable currency impacts on sales in Canada and Mexico were negated by adverse currency impact of manufacturing product in Mexico. Gross profit in the first quarter of 2005 was $0.3 million lower while excess inventory was being depleted, and labor and overhead costs previously absorbed in this inventory were recognized in 2005. The positive comparative impact of this in 2006, when inventories were increased in the first quarter of this year, was offset by an increase in LIFO reserves during the first quarter of 2006. The Company's Electronics Division contributed $3.2 million of gross profit, or 35% of consolidated gross profit. This represented a decline of $0.2 million from the same quarter of last year, primarily due to the adverse currency impact of the Euro, as approximately 40% of the Company's electronic products are produced and sold in Europe. The remaining decline in profit resulted from inventory and LIFO adjustments. Selling, general and administrative expenses held steady at 24.8% of sales in 2006, increasing by $0.4 million in total, principally from higher bonus accrual, salary and stock option costs in the current first quarter. In addition, the 2005 first-quarter included a $0.3 million favorable adjustment relating to changes in the terms of the former CEO's post-employment payments. Interest expense was approximately $0.8 million in the first quarter of 2006 compared to $0.6 million for the same period in 2005. This increase was caused by higher interest rates incurred under the terms of the Company's new senior secured and senior subordinated debt arrangements finalized in January and October of 2005, respectively, including amortization of the related costs. Interest expense was also higher due to increasing interest rates experienced in capital markets through 2005, which continued in 2006. Income taxes approximate statutory rates. As a result of the above, net income in the first quarter of 2006 compared to the same quarter in the preceding year increased to $0.6 million from $0.4 million. Net income per share in the first quarter of 2006 was $0.17 per share, compared to a net income per share of $0.07 in 2005. Liquidity and Capital Resources: At March 31, 2006 current and long-term debt totaled $31.6 million, compared to $30.3 million at December 31, 2005, and was comprised of $3.0 million and $8.5 million in revolving and term debt, respectively, under the senior secured credit facility; $5.3 million in tax-exempt revenue bonds; $0.5 million of principally foreign revolving and term debt, and $14.3 million of unsecured subordinated term debt. The Company's effective borrowing rates at March 31, 2006 and December 31, 2005 for its long-term obligations were approximately 11.01% and 9.49% respectively. 11 On January 7, 2005, the Company entered into a new senior secured loan and security agreement (the "Loan Agreement") that provided for up to an $18.3 million revolving line of credit and two term loans totaling $13.0 million (Term Loan A--$10.0 million and Term Loan B--$3.0 million). The proceeds were used to retire amounts outstanding under the Company's outstanding revolving line of credit. In addition, the Loan Agreement secures existing letters of credit that support $5.3 million of industrial revenue bonds and certain obligations under various self-insured workers compensation insurance policies. The borrowings under the Loan Agreement are secured by substantially all of the Company's domestic assets and pledges of 65% of the outstanding stock of the Company's Canadian, German and Mexican subsidiaries. The Loan Agreement was amended on July 29, 2005 to extend the term for an additional two years through April 2009 and permit the Company to borrow up to $15.0 million to fund the purchase of up to 1.5 million shares of outstanding common stock and repay Term Loan B, the outstanding balance of which was approximately $2.0 million. All borrowings under the Loan Agreement bear variable interest of a margin plus LIBOR or U.S. Prime Rate, and the remaining Term Loan A is repayable in monthly principal installments totaling $0.13 million. The average borrowing rates for the Company's short-term borrowings under the Loan Agreement at March 31, 2006 and December 31, 2005 were 8.75% and 7.97% respectively. At March 31, 2006 the Company had remaining borrowing capacity of $7.7 million. The Loan Agreement contains restrictive financial covenants that require the Company to comply with certain financial tests including, among other things, maintaining minimum tangible net worth, having a minimum earnings before interest, taxes and depreciation and amortization, and meeting certain specified leverage and operating ratios, all as defined in the Loan Agreement. The Loan Agreement also contains other restrictive covenants that restrict outside investments, capital expenditures, and dividends. The Company was in compliance with the debt covenants at March 31, 2006, including compliance with covenants that could otherwise restrict the payment of a dividend at the discretion of the Company's Board of Directors. On October 20, 2005 the Company entered into a Securities Purchase Agreement in exchange for the issuance of $15.0 million of senior subordinated notes valued at $14.24 million and detachable warrants, valued at $0.76 million, to purchase 174,000 shares of the company's common stock. The senior subordinated notes have a stated rate of 12% (effective rate of 12.97%), are due on October 12, 2012, and contain customary financial covenants similar to, but less restrictive than, the covenants in the Loan Agreement. The proceeds from the sale of the notes and detachable warrants were used to acquire 1.5 million shares of the Company's common stock at a purchase price of $11.25 million, repay approximately $2.0 million of term debt under the Loan Agreement, pay $1.0 million of transaction costs related to the stock purchase and related financing transaction, with the balance providing additional working capital. The Company used $2.0 million of its cash balance for the three months ended March 31, 2006 compared to generating $0.8 million of cash for the same period in fiscal 2005. Operating activities used $3.1 million of cash during the first quarter of 2006 compared to a cash generation of $1.4 million for the same quarter in 2005. In 2005 the Company reduced inventory by $1.1 million in the first quarter, compared to an increase by $0.9 million in the same period this year in the face of higher demand. In addition, the Company reduced accrued expenses in 2006, compared to an increase in 2005, principally for tax payments attributable to 2005 results of operation. Total non-operating investments approximated $0.6 million in the first quarter of 2006, compared to $0.8 million in 2005. Capital expenditures were $0.7 million in the first quarter of 2006 compared to $0.5 million in 2005. The Company has a capital budget of $5.0 in 2006 million compared to $3.1 million of capital expenditures in 2005. This planned increase is primarily to support upgrading the Company's mechanical products manufacturing capabilities and fund certain facility improvements. Based upon our current level of operations, the Company believes that the combination of cash generated by operations and available borrowing capacity under its borrowing agreements described above, is adequate to finance the Company's operations for the foreseeable future. 12 Accounting Policies: Management's discussion and analysis of the Company's financial statements and results of operations are based upon the Company's Consolidated Financial Statements included as part of this document. The preparation of these Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates these estimates, including those related to bad debts, inventories, intangible assets, post-retirement benefits, income taxes, and contingencies and litigation. The Company bases these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect management's more significant judgments and estimates used in the preparation of its Consolidated Financial Statements. For a detailed discussion on the application of these and other accounting policies see Note 2 in the December 31, 2005 Consolidated Financial Statements included in the Company's 2005 annual report on Form 10-K. Certain of our accounting policies require the application of significant judgement by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgements are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. Our critical accounting policies include: Allowance for Doubtful Accounts: The majority of the Company's accounts receivable are due from selected authorized industrial distributors who resell the Company's products to OEMs and end users for replacement parts. Accounts receivable potentially subject the Company to concentrations of credit risk. Credit is extended based on evaluation of a customer's financial condition and, generally, collateral is not required. Accounts receivable are generally due within 30 days and are stated at amounts due from the customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance considering a number of factors, including the length of time trade accounts receivable are past due, the Company's previous loss history, the customer's current ability to pay its obligations to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowances for doubtful accounts. Product Warranty: In the ordinary course of business, the Company warrants its products against defect in design, materials, and workmanship over various time periods. Warranty reserve and allowance for product returns is established based upon management's best estimates of amounts necessary to settle future and existing claims on products sold as of the balance sheet date. The warranty reserve and allowance for product returns is not significant to the financial position of the Company for all periods presented. Inventory: Inventories are valued at the lower of cost or market. Cost is determined on the last-in first-out basis for a majority of US inventories and the first-in first-out method for all remaining inventories. The Company has recorded a reserve for obsolete or otherwise unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 13 Impairment of Goodwill and Long Lived Assets: The Company periodically evaluates the realizable value of long-lived assets including property, plant and equipment, relying on a number of factors including operating results, budgets, economic projections and anticipated future cash flows. The Company's past business acquisitions resulted in the recognition of goodwill, which may result in future impairment expenses. The Company's other intangible assets which primarily consist of product application software, affects the amount of future period amortization expense. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect the Company's Consolidated Financial Statements. Revenue Recognition: The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin No. 104 "Revenue Recognition in Financial Statements" issued by the Securities and Exchange Commission. Revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed and collectibility of the related receivable is reasonably assured. The Company establishes allowances to cover anticipated doubtful accounts, sales discounts, product warranty, and returns based upon historical experience. Shipping and handling costs charged to customers are included as a component of net sales. Income Taxes: Under the requirements of SFAS No. 109, "Accounting for Income Taxes," we record deferred tax assets and liabilities for the future tax consequences attributable to differences between financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management judgment is required in determining the Company's provision for income taxes, deferred tax assets and liabilities, which, if actual experience varies, could result in material adjustments to deferred tax assets and liabilities. Recent Accounting Pronouncements In December 2004, the FASB issued Statement of Accounting Standards No. 123 (revised 2004) "Share-Based Payment", a revision of FASB Statement No. 123 "Accounting for Stock Based Compensation" which the Company adopted in the third quarter of 2005. As the Company had already adopted FASB Statement No. 123 in 2003 the only effects of the revised Statement No. 123 upon the Company are expanded disclosure related to its stock based compensation plan. In November 2004, the FASB issued Statement of Accounting Standards No. 151 "Inventory Costs, an amendment of Accounting Research Bulletin No. 43, Chapter 4" to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) which the Company is required to adopt for the fiscal year ending December 31, 2006. The Statement introduces the concept of "normal capacity" and requires the allocation of fixed production overheads to inventory based upon the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. The Company does not expect this statement to have any significant effect upon its 2006 consolidated financial statements based on current operating and product demand levels. 14 Safe Harbor Statement Certain information included or incorporated by reference in this document may be deemed to be "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts, that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future are forward looking statements. Such statements are characterized by terminology such as "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions. These statements are based on assumptions and assessments made by the Company's management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. These forward looking statements are subject to a number of risks and uncertainties, including but not limited to continuation of the Company's longstanding relationships with major customers, the Company's ability to integrate acquired businesses into its operations and realize planned synergies, the extent to which acquired businesses are able to meet the Company's expectations and operate profitably, the ability to obtain third party financing, changes in regulations that could affect demand for products and unanticipated developments that could occur with respect to contingencies such as environmental matters and litigation. In addition, the Company is subject to risks and uncertainties that affect the manufacturing sector generally, including, but not limited to, economic, competitive, governmental, and technological factors affecting the Company's operations, markets, products, services and prices. Any such forward looking statements are not guarantees of future performances and actual results, developments and business decisions may differ from those envisaged by such forward looking statements. The Company disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the foregoing. Item 3 Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in market risks since the 2005 Annual Report to Shareholders. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures: As of March 31, 2006, the Company carried out an evaluation, under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. "Disclosure controls and procedures" are defined in Exchange Act Rule 13a-15. Based upon this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in the Company's periodic reports filed with the SEC. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in the achieving the stated goals under all potential future conditions, regardless of how remote. (b) Changes in internal controls: There were no significant changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting subsequent to the date of their last evaluation. 15 PART II - OTHER INFORMATION Item 6. Exhibits 10.1 TB Wood's Corporation 2006 Stock-Based Incentive Compensation Plan 31.1 Certification of Principal Executive Officer required by 13a-14(a) 31.2 Certification of Principal Financial Officer required by 13a-14(a) 32 Section 1350 Certification of Principal Executive Officer and Principal Financial Officer 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 Borough of Chambersburg and Commonwealth of Pennsylvania, on May 5, 2006 Date May 5, 2006 TB WOOD'S CORPORATION By: /s/Joseph C. Horvath -------------------- JOSEPH C. HORVATH Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 16

TB WOODS CORP 10-Q