SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For The Quarterly Period Ended July 3, 1998

                         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       (IRS Employer Identification Number)
  Incorporation of Organization)



  440 North Fifth Avenue, Chambersburg, PA               17201
--------------------------------------------------------------------------------
 (Address of principal executive offices)              (Zip Code)




                                 (717) 264-7161
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


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 ____

Number of shares outstanding of the issuer's Common Stock:

          Class                            Outstanding at July 17, 1998
          -----                            ----------------------------
 Common Stock, $.01 par value                       5,887,698


<PAGE>



                                Table of Contents


Part I. - Financial Information                                         Page No.
-------------------------------                                         --------


Consolidated Balance Sheets -
         July 3, 1998 and January 2, 1998                                      3

Consolidated Statements of Operations -
          For the Second Quarters Ended July 3, 1998 and July 4, 1997          4

Consolidated Statements of Cash Flows -
         For the Second Quarters Ended July 3, 1998 and July 4, 1997           5

Notes to Consolidated Financial Statements                                     6

Management's Discussion and Analysis of
         Financial Condition and Results of Operations                         7


Part II. - Other information                                                  10
----------------------------


<PAGE>


Part I.-Financial Information
Item 1. Financial Statements

                     TB Wood's Corporation And Subsidiaries
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>


(in thousands, except per share and share amounts)
                                                                                  Unaudited
                                                                                    July 3,     January 2,
                                                                                      1998           1998
ASSETS

Current Assets:
<S>                                                                                  <C>            <C>   
Cash and cash equivalents .........................................................  $1,542         $2,552
Accounts receivable, less allowances for doubtful accounts, discounts, 
  and claims of $509 at July 3, 1998 and $476 at January 2, 1998 ..................  19,766         20,174
Inventories .......................................................................  29,290         26,138
Other current assets ..............................................................   1,183            967
                                                                                     ------         ------
     Total current assets .........................................................  51,781         49,831
                                                                                     ------         ------
Property, plant, and equipment ....................................................  51,565         47,882
Less accumulated depreciation .....................................................  27,144         23,794
                                                                                     ------         ------
     Net property, plant and equipment ............................................  24,421         24,088
                                                                                     ------         ------
Other Assets:
Deferred income taxes ............................................................   4,555          4,602
Goodwill, net of accumulated amortization of $1,335 at
  July 3, 1998 and $1,123 at January 2, 1998 ......................................   9,301          9,122
Other .............................................................................   2,397          1,974
                                                                                     ------         ------
     Total other assets ...........................................................  16,253         15,698
                                                                                     ------         ------
TOTAL ASSETS ...................................................................... $92,455        $89,617
                                                                                    =======        =======
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current Liabilities:
Current maturities of long-term debt ..............................................    $278           $611
Accounts payable ..................................................................   8,292          8,610
Checks outstanding ................................................................     631          1,615
Accrued expenses ..................................................................   9,481         10,987
Deferred income taxes .............................................................     729            729
                                                                                     ------         ------
     Total current liabilities ....................................................  19,411         22,552
                                                                                     ------         ------
Long-term debt, less current maturities ...........................................  29,610         25,928
                                                                                     ------         ------
Postretirement benefit obligation, less current portion ...........................  16,970         17,531
                                                                                     ------         ------ 
Minority Interest .................................................................       8             --
                                                                                     ------         ------
Shareholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
  no shares issued or outstanding .................................................      --             --
Common stock,  $.01 par value;  40,000,000  shares  authorized,
5,883,480 and 5,859,286 shares issued and 5,867,930 and 5,849,772
shares  outstanding at July 3, 1998 and January 2, 1998, respectively .............      59             58
Treasury Stock, at cost ...........................................................    (190)          (181)
Additional paid-in capital ........................................................  27,913         28,340
Accumulated deficit ...............................................................    (912)        (4,408)
Foreign currency translation adjustment ...........................................    (414)          (203)
                                                                                     ------         ------
     Total shareholders' equity ...................................................  26,456         23,606
                                                                                     ------         ------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................ $92,455        $89,617
                                                                                    =======        =======
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                        3


<PAGE>
<TABLE>
<CAPTION>

                     TB Wood's Corporation And Subsidiaries
                      Consolidated Statements of Operations


                                                                                          Unaudited          Unaudited
                                                                                   Second Quarter Ended    Year to Date
                                                                                     July 3,    July 4,   July 3,   July 4,
(in thousands, except per share amounts)                                              1998       1997      1998      1997

<S>                                                                                <C>        <C>       <C>       <C>    
Net sales .......................................................................  $34,161    $31,739   $70,212   $62,228

Cost of sales ...................................................................   21,909     20,232    44,584    39,770

     Gross profit ...............................................................   12,252     11,507    25,628    22,458

Selling, general, and administrative expenses ...................................    8,015      7,217    16,729    13,931
                                                                                   -------    -------   -------   -------
     Operating income ...........................................................    4,237      4,290     8,899     8,527
                                                                                   -------    -------   -------   -------
Other expense:
     Interest expense and other finance charges .................................     (507)      (439)   (1,077)     (926)
     Other, net .................................................................       35       (276)      (86)     (464)
                                                                                   -------    -------   -------   -------
          Other expense, net ....................................................     (472)      (715)   (1,163)   (1,390)
                                                                                   -------    -------   -------   -------
Income before provision for income taxes ........................................    3,765      3,575     7,736     7,137
                                                                                   -------    -------   -------   -------
Provision for income taxes ......................................................    1,506      1,430     3,094     2,855
                                                                                   -------    -------   -------   -------
Net income ......................................................................   $2,259     $2,145    $4,642    $4,282
                                                                                   =======    =======   =======   =======
Per share of common stock:

Basic net income per common share ...............................................    $0.38      $0.37     $0.79     $0.73
                                                                                   =======    =======   =======   =======
Weighted average shares of common stock .........................................    5,888      5,831     5,873     5,829
                                                                                   =======    =======   =======   =======
Diluted net income per common share .............................................    $0.38      $0.36     $0.78     $0.72
                                                                                   =======    =======   =======   =======
Weighted average shares of common stock
     and equivalents outstanding ................................................    5,942      5,915     5,943     5,912
                                                                                   =======    =======   =======   =======

</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                        4



<PAGE>

<TABLE>
<CAPTION>

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

     

                                                                                                     Unaudited
                                                                                                    Year to Date
(in thousands)                                                                                  July 3,       July 4, 
                                                                                                  1998          1997

Cash Flows from Operating Activities:
<S>                                                                                             <C>           <C>   
Net income ..................................................................................   $4,642        $4,282
                                                                                               -------       ------- 
Adjustments to reconcile net income to net cash provided 
by operating activities:
  Depreciation and amortization .............................................................    2,506         1,976
  Change in deferred income taxes, net ......................................................       47          (153)
  Stock option compensation expense .........................................................       21            51
  Profit sharing compensation expense .......................................................      240            --
  Minority interest .........................................................................        8            --
  Net gain on sale of assets ................................................................      (17)           -- 
Changes in working capital, net of effects of acquisitions:
  Accounts receivable, net ..................................................................      408        (1,284)
  Inventories, net ..........................................................................   (3,152)        1,590 
  Prepaid expenses and other current assets .................................................     (480)         (306)
  Accounts payable ..........................................................................     (318)           25 
  Accrued and other liabilities .............................................................   (2,070)          345 
                                                                                               -------       ------- 
     Total adjustments ......................................................................   (2,807)        2,244
                                                                                               -------       ------- 
     Net cash provided by operating activities ..............................................    1,835         6,526
                                                                                               -------       ------- 
Cash Flows from Investing Activities:

Acquisitions, net of cash acquired ..........................................................       --        (4,749)
Capital expenditures ........................................................................   (2,535)       (3,532)
Proceeds from sale of fixed assets ..........................................................      246            --
Other, net ..................................................................................     (861)         (485) 

  Net cash used in investing activities .....................................................   (3,150)       (8,766)
                                                                                               -------       ------- 
Cash Flows from Financing Activities:
Change in checks outstanding ................................................................     (984)         (228)
(Repayments)/proceeds of other long-term debt, net ..........................................     (349)        2,344
Proceeds from new revolving credit facility .................................................   22,900        22,900
Repayments of new revolving credit facility .................................................  (19,213)      (20,400)
Payment of dividends ........................................................................     (996)         (932)
Treasury Stock ..............................................................................     (345)         (120)
Other .......................................................................................     (497)           17
                                                                                               -------       ------- 
  Net cash provided by financing activities .................................................      516         3,581
                                                                                               -------       ------- 
Effect of changes in foreign exchange rates .................................................     (211)           14
                                                                                               -------       ------- 
Net (decrease) increase in cash and cash equivalents ........................................   (1,010)        1,355
Cash and cash equivalents at beginning of period ............................................    2,552           306
                                                                                               -------       ------- 

Cash and cash equivalents at end of period ..................................................   $1,542        $1,661
                                                                                               =======       ======= 

</TABLE>

The accompanying notes are an integral part of these consolidated statements.



                                                    5


<PAGE>


                     TB Wood's Corporation And Subsidiaries
                   Notes To Consolidated Financial Statements
                    (in thousands, except per share amounts)

1.   In the  opinion of  management,  the  accompanying  unaudited  consolidated
     financial  statements  contain all adjustments  necessary to present fairly
     the  financial  position of TB Wood's  Corporation  and  Subsidiaries  (the
     "Company")  as of July 3, 1998 and  January  2,  1998,  and the  results of
     operations  and cash  flows for the Second  Quarter  and Year to Date ended
     July 3, 1998 and July 4, 1997.  Operating  results for the interim  periods
     presented  are  not  necessarily  indicative  of the  results  that  may be
     expected for the fiscal year ending January 1, 1999.

2.   The  major  classes  of  inventories  at July 3, 1998 and  January  2, 1998
     consisted of the following:


                                                Unaudited


                                                 July 3,         January 2,
                                                  1998              1998

Raw materials and supplies                       $5,590           $6,073
Work in process                                   9,162            8,467
Finished goods                                   18,357           15,417
                                                -------          ------- 
Total at FIFO cost                               33,109           29,957 
Excess of FIFO cost over LIFO cost               (3,819)          (3,819)
                                                -------          -------
Total at LIFO cost                              $29,290          $26,138
                                                =======          =======


3.   On July 7, 1998, the Board of Directors  declared a quarterly cash dividend
     of $0.09 per share  payable on July 31, 1998 to  stockholders  of record on
     July 17, 1998.

4.   In 1996, the Board of Directors authorized, subject to certain business and
     market  conditions,  the  Company  to  purchase  of up to  200,000  of  the
     Company's  common  shares.  Through  July 3,  1998  the  number  of  shares
     purchased under this  authorization was 69,740. At July 3, 1998, the number
     of treasury  shares  issued to employees  under  employee  option and stock
     purchase  plans  was  26,503  and  the  number  of  shares  issued  for the
     Retirement  Savings and  Investment  plan was  27,687.  As of July 3, 1998,
     15,550 share were held in treasury, at cost.

5.   Effective  January 3, 1998,  the Company  adopted  Statement  of  Financial
     Accounting  Standards  No. 130,  "Reporting  Comprehensive  Income,"  which
     requires companies to disclose components of comprehensive income,  defined
     as the total of net income and all other nonowner changes in equity.

     Total  comprehensive  income for the second quarters ended July 3, 1998 and
     July 4, 1997 was as follows:


                                                Unaudited            Unaudited
                                               July 3, 1998         July 4, 1997

Net Income                                        $4,642               $4,282
Other comprehensive income, net of tax:
  Foreign currency translation adjustments          (211)                  14
                                                  ------               ------
Total comprehensive income                        $4,431               $4,296  
                                                  ======               ======  

                                       6

<PAGE>

6.   Basic net EPS is computed by dividing reported earnings available to common
     shareholders by weighted  average shares  outstanding.  No dilution for any
     potentially  dilutive  securities is included in basic EPS.  Diluted EPS is
     computed by dividing reported earnings available to common  shareholders by
     weighted average shares and common equivalent shares outstanding. All prior
     year EPS amounts have been  restated to conform to the  provisions  of SFAS
     128. The computation of weighted  average shares  outstandin and net income
     per share are as follows:

<TABLE>
<CAPTION>

                                                           Second Quarter         Year to date


(in thousands, except per share amounts)                 July 3,    July 4,      July 3,   July 4,
                                                           1998       1997         1998      1997

Weighted average number of common shares 
<S>                                                       <C>        <C>          <C>       <C>  
outstanding                                               5,888      5,831        5,873     5,829
Shares issued upon assumed exercise of 
outstanding stock options                                    54         84           70        83
                                                          -----      -----        -----     -----
Weighted average number of common and
common equivalent shares outstanding                      5,942      5,915        5,943     5,912
                                                         ======     ======       ======    ======
Net Income                                               $2,259     $2,145       $4,642    $4,282
                                                         ======     ======       ======    ======

Basic net income per common share                         $0.38      $0.37        $0.79     $0.73
                                                         ======     ======       ======    ======
Diluted net income per common share                       $0.38      $0.36        $0.78     $0.72
                                                         ======     ======       ======    ======

</TABLE>

Item 2. Management's  Discussion and Analysis of Financial 
        Condition and Results of Operations

RESULTS OF OPERATIONS (in thousands, except per share amounts)

     TB Wood's Corporation and Subsidiaries (the "Company") posted net sales for
the second  quarter 1998 of $34,161,  compared to $31,739 for the second quarter
1997,  an  increase of 7.6 %. Year to date 1998 sales were  $70,212  compared to
year to date 1997 sales of $62,228,  an increase of $7,984 or 12.8%. The year to
date   increase  in  net  sales  was  primarily  due  to  revenues  from  Berges
Electronics,  acquired in December 1997, and increased AC drive sales. While net
sales  increased in the second  quarter,  that increase was partially  offset by
lower electronic systems sales compared to a record second quarter last year and
minimum sales growth in the mechanical business.

     Cost of sales  ("COS") in the second  quarter 1998 was $21,909  compared to
$20,232 for the same period last year, an increase of 8.3%.  COS as a percent of
sales in the  second  quarter  1998 was 64.1%  compared  to 63.7% for the second
quarter  1997.  Year to date 1998 COS was $44,584 or 63.5% of sales  compared to
year to date 1997 COS of $39,770 or 63.9% of sales. The increase as a percent of
sales in the second  quarter was  primarily  due to higher  manufacturing  costs
associated with the integration of the gear couplings  product line into our San
Marcos facility and start-up costs associated with new made to order products at
the Chambersburg facility.

                                        7
<PAGE>

     Selling,  general  and  administrative  ("SG&A")  expenses  for the  second
quarter 1998 were $8,015,  compared to $7,217 for the second  quarter  1997,  an
increase of $798 or 11.1%.  SG&A as a percent of sales increased to 23.5% in the
second  quarter 1998 from 22.7% in the second  quarter  1997.  Year to date 1998
SG&A was $16,729 or 23.8% of sales compared to year to date 1997 SG&A of $13,931
or 22.4% of sales.  The  increase in SG&A expense and SG&A expense as percent of
sales was primarily due to the December 1997 acquisition of Berges Electronics.

     Operating  profit was $4,237 for the second quarter 1998 compared to $4,290
for the second  quarter 1997, a decrease of $53 or 1.2%.  Operating  profit as a
percent of sales decreased to 12.4% in the second quarter 1998 from 13.5% in the
second quarter 1997.  Year to date 1998 operating  profit was $8,899 or 12.7% of
sales  compared  to year to date  1997  operating  profit  of $8,527 or 13.7% of
sales, an increase of $372 or 4.4%.

     Other income for the second quarter 1998 was $35, compared to other expense
of $276 for the same period last year.  Year to date 1998 other  expense was $86
compared to year to date 1997 other expense of $464. 1997 other expense included
charges  related  to the  consolidation  of the New  Jersey  and North  Carolina
facilities,  one time charges related to 1996  acquisitions and foreign currency
adjustments.

     Net income for the second quarter 1998 was $2,259 or 6.6% of sales compared
to $2,145 or 6.8% of sales for the same period in the prior year, an increase of
$114 or 5.3%.  Year to date  1998  net  income  was  $4,642,  or 6.6% of  sales,
compared  to year to date 1997 net  income of  $4,282 or 6.9% of net  sales,  an
increase of 8.4%.


LIQUIDITY AND CAPITAL RESOURCES (in thousands, except per share amounts)

     The Company's principal sources of funds are cash flows from operations and
borrowings  under the  Company's  revolving  credit  agreement.  Net cash  flows
provided  by  operating  activities  were $1,835 and $6,526 for the year to date
periods  ended July 3, 1998 and July 4, 1997,  respectively.  This was primarily
due to increased investments in inventory and payments for accrued expenses.

     The Company used $3,150 for investment  purposes year to date 1998 compared
to $8,766 for the year to date 1997, a decrease of $5,616.  Capital expenditures
were $2,535 in 1998  compared to $3,532 in 1997. In 1997,  the Company  acquired
Graseby Controls,  Inc. for $4,749. There were no such acquisitions for the same
period in 1998.

         Net cash  provided by  financing  activities  for year to date 1998 was
$0.5 million,  a decrease of $3.1 million compared to cash provided by financing
activities  of $3.6 million in the year to date 1997.  The net proceeds from the
revolving  credit  facility for the year to date 1998 were $3.7  million,  which
were used to fund operating activities and capital expenditures. This was offset
by the payment of dividends of $1.0  million,  payment of a note payable of $0.3
million and a decrease in bank  overdrafts  of $1.0  million.  In 1997,  the net
proceeds from the revolving  credit  facility were $2.5 million,  which included
borrowing  $5.0  million to finance the purchase of Graseby  Controls,  Inc. The
Company  also  borrowed  $2.6  million in 1997 by issuing  Variable  Rate Demand
Revenue Bonds,  under the authority of The Industrial  Revenue Board of the City
of  Chattanooga,  to finance the new  production  facility  for the  electronics
systems business.

                                        8
<PAGE>

         The  Company  has  recognized  the need to  ensure  that  its  computer
operations and operating systems will not be adversely  affected by the upcoming
calendar year 2000 and is cognizant of the time sensitive nature of the problem.
The company has assessed how it may be impacted by year 2000 and has  formulated
and commenced  implementation of a comprehensive plan to address known issues as
they relate to its information  systems.  The plan, as it relates to information
systems,  involves  a  combination  of  software  modifications,   upgrades  and
replacement. The Company estimates that the cost of year 2000 compliance for its
information  systems  will not have a  material  adverse  effect  on the  future
consolidated results of operations of the Company.

         The  Company  is not yet  able to  estimate  the  cost  for  Year  2000
compliance  with  respect to  production  and  facilities  equipment,  products,
customers and suppliers; however, based on a preliminary review, management does
not expect  that such costs  will have a material  adverse  effect on the future
consolidated  results of operations of the Company. The Company expects that the
assessment and  development of remediation  plans with respect to production and
facilities  equipment,  products,  customers and suppliers will be substantially
complete by the end of the third quarter of 1998.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and Hedging  Activities"  (SFAS No. 133),  effective for fiscal years  beginning
after June 15,  1999.  SFAS No. 133 requires  derivatives  to be recorded on the
balance sheet as assets or liabilities,  measured at fair value. Gains or losses
resulting from changes in values of derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting.  The
Company is  completing an analysis of SFAS No. 133 which is not expected to have
a material impact on the Company's results of operations or financial position.


SAFE HARBOR STATEMENT

     This  quarterly  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 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.

                                        9
<PAGE>

Part II - OTHER INFORMATION

Item 1.  Legal Proceedings

          None

Item 2.  Changes in Securities

          None

Item 3.  Defaults Upon Senior Securities

          None

Item 4.  Submission of Matters to a Vote of Security Holders

          The 1998 annual  meeting of  stockholders  was held on April 28, 1998.
          Voting  on  the  election  of two  directors  to the  third  class  of
          directors was conducted.  The  stockholders  voted 4,887,777 shares in
          the affirmative and 1,191 shares in the negative to elect  Jean-Pierre
          L. Conte to the third class of  directors  of the Board of  Directors.
          The  stockholders  voted  4,888,868  shares in the affirmative and 100
          shares in the negative to elect Craig R.  Stapleton to the third class
          of directors of the Board of  Directors.  In addition to Mr. Conte and
          Mr.  Stapleton,  Michael L. Hurt,  Thomas C. Foley, and Robert J. Dole
          will continue as directors after the meeting.

Item 5.  Other Information

          On  August  1,   1998,   Jeffrey   A.   Petry   was   appointed   Vice
          President/General Manager-Electronics Business. Previously he was Vice
          President of Technology at a subsidiary of Ingersoll-Rand  Company. Mr
          Petry holds a B.S.M.E. degree from Worcester Polytechnic Institute and
          has studied at the  graduate  schools of the  University  of Michigan,
          Dartmouth  College and  Northwestern  University's  Kellogg  School of
          Management.

Item 6.  Exhibits and Reports on Form 8-K

a)        Exhibit 27 - Financial Data Schedule

b)        Reports  on Form 8-K - There were no reports on Form 8-K filed for the
          quarter ended July 3, 1998.

<PAGE>

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 August 14, 1998.

                           TB WOOD'S CORPORATION



                           By:      /s/Philip A Garton____________
                                    PHILIP A. GARTON
                                    Vice President-Finance/Corporate
                                    Controller (Principal Financial Officer and 
                                    Principal Accounting Officer)