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.



<PAGE>


                              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



<PAGE>
                                     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
<PAGE>

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:

<TABLE>
<CAPTION>
                                                  1996                  1995                   1994
                                                  ----                  ----                   ----
                                        Net Sales      %      Net Sales      %       Net Sales      %
                                        ---------      -      ---------      -       ---------      -
<S>                                        <C>      <C>         <C>        <C>         <C>        <C>
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%
</TABLE>

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
<PAGE>

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
<PAGE>


     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
<PAGE>

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
<PAGE>

     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
<PAGE>

     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.
<TABLE>
<CAPTION>

                                                              Selected Financial Data

(in thousands, except per share data)                               Fiscal Year

<S>                                        <C>         <C>          <C>          <C>          <C>
                                             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
<FN>
* 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.
</FN>
</TABLE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>


                    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
<PAGE>

<TABLE>
<CAPTION>


                     TB Wood's Corporation And Subsidiaries
                           Consolidated Balance Sheets


<S>                                                                                   <C>         <C>
(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
</TABLE>

                                       14
<PAGE>


<TABLE>
<CAPTION>

                                               TB Wood's Corporation And Subsidiaries
                                               Consolidated Statements of Operations

<S>                                                                                            <C>          <C>          <C>
 (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
</TABLE>

                                       15
<PAGE>

<TABLE>
<CAPTION>


                                    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
--------------                                  -----   --------     -------     -------    ----------
<S>                                         <C>        <C>         <C>         <C>         <C>
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.
</TABLE>


                                       16
<PAGE>

<TABLE>
<CAPTION>

                                       TB Wood's Corporation And Subsidiaries
                                        Consolidated Statements Of Cash Flows



<S>                                                                       <C>         <C>         <C>
(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.
</TABLE>


                                       17
<PAGE>

                     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
<PAGE>

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
<PAGE>

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
<PAGE>

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
<PAGE>


     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
<PAGE>

     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
<PAGE>

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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

     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
<PAGE>

                      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
<PAGE>

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
<PAGE>

         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
<PAGE>


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
<PAGE>


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
<PAGE>


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
<PAGE>


                                   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
<PAGE>

<TABLE>
<CAPTION>

                     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)
<S>                                       <C>                 <C>              <C>                  <C>                <C>
----------------------------------------------------------------------------------------------------------------------------

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.
</TABLE>