1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1995 Commission File Number 1-7635
TWIN DISC, INCORPORATED
(Exact name of registrant as specified in its charter)
Wisconsin 39-0667110
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1328 Racine Street, Racine, Wisconsin 53403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 638-4000
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 .
At December 31, 1995, the registrant had 2,777,024 shares of its common
stock outstanding.
2
FINANCIAL STATEMENTS
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 June 30
1995 1995
---- ----
(Thousands)
(Unaudited)
Assets
Cash and cash equivalents $ 3,918 $ 3,741
Accounts and notes receivable 26,659 29,247
Inventories 55,227 47,157
Deferred income taxes 3,865 3,865
Other current assets 6,369 6,480
-------- --------
Total current assets 96,038 90,490
Property, plant and equipment 109,901 109,447
Accumulated Depreciation 73,160 72,099
-------- --------
Net property, plant and equipment 36,741 37,348
Deferred income taxes 4,697 4,119
Intangible pension asset 8,293 8,293
Other assets 17,648 18,051
-------- --------
$163,417 $158,301
-------- --------
-------- --------
Liabilities
Notes payable $ 6,375 $ 2,415
Accounts payable 11,529 12,395
Accrued liabilities 24,531 22,042
-------- --------
Total current liabilities 42,435 36,852
Long-term debt 14,028 14,000
Accrued postretirement benefits 32,769 32,827
-------- --------
Total liabilities 89,232 83,679
Shareholders' Equity
Common stock 11,653 11,653
Retained earnings 67,555 67,054
Translation component 12,818 13,797
-------- --------
92,026 92,504
-------- --------
Treasury stock 17,841 17,882
-------- --------
74,185 74,622
$163,417 $158,301
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of
this statement.
3
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1995 1994 1995 1994
---- ---- ---- ----
Net sales $41,763 $41,102 $78,538 $72,702
Cost of goods sold 32,468 31,856 62,150 57,012
------- ------- ------- -------
9,295 9,246 16,388 15,690
Marketing, engineering and
administrative expenses 6,992 6,945 13,262 12,796
Interest expense 370 320 700 580
Other income, net (188) (320) (123) (312)
------- ------- ------- -------
7,174 6,945 13,839 13,064
Earnings before income tax 2,121 2,301 2,549 2,626
Income taxes 858 917 1,065 1,059
------- ------- ------- -------
Net earnings $ 1,263 $ 1,384 $ 1,484 $ 1,567
------- ------- ------- -------
------- ------- ------- -------
Earnings per share $ .45 $ .49 $ .53 $ .56
Dividends per share $ .175 $ .175 $ .35 $ .35
Average shares outstanding
(thousands) 2,777 2,799 2,776 2,799
Translation component of equity
Balance - beginning of the
period $12,808 $ 8,603 $13,797 $ 7,778
Translation adjustment 10 ( 183) (979) 642
------- ------- ------- -------
Balance - end of the period $12,818 $ 8,420 $12,818 $ 8,420
------- ------- ------- -------
------- ------- ------- -------
In thousands of dollars except per share statistics and average shares
outstanding. Per share figures are based on average shares outstanding.
The notes to consolidated financial statements are an integral part of this
statement.
4
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31
1995 1994
---- ----
(Thousands)
Cash flows from operating activities:
Net earnings $ 1,484 $ 1,567
Non-cash adjustments to net
earnings:
Depreciation 2,419 2,084
Loss on sale of fixed assets 4 20
Net change in working capital,
excluding cash and debt (5,482) (2,184)
------- -------
(1,575) 1,487
------- -------
Cash flows from investing activities:
Acquisitions of fixed assets (1,952) (1,789)
Proceeds from sale of fixed assets 3 9
Dividends received 548 -
Investment in affiliates - (3,000)
------- -------
(1,401) (4,780)
------- -------
Cash flows from financing activities:
Increase in notes payable,net 4,068 2,636
Proceeds from long-term debt 8 1,250
Proceeds from exercise of stock options 30 -
Dividend payments (972) (980)
------- -------
3,134 2,906
------- -------
Effect of exchange rate changes on cash 19 193
------- -------
Net change in cash and cash equivalents 177 (194)
------- -------
Cash and cash equivalents:
Beginning of period 3,741 4,166
------- -------
End of period $ 3,918 $ 3,972
------- -------
------- -------
The notes to consolidated financial statements are an integral part of this
statement.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Basis of Presentation
The unaudited financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) and, in the opinion of the Company, include all
adjustments, consisting only of normal recurring items, necessary for a
fair statement of results for each period. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The
Company believes that the disclosures made are adequate to make the
information presented not misleading. It is suggested that these
financial statements be read in conjunction with financial statements
and the notes thereto included in the Company's latest Annual Report.
The year end condensed balance sheet data was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles.
B. Inventory
The major classes of inventories were as follows (in thousands):
December 31 June 30
1995 1995
----------- ---------
Inventories:
Finished parts $43,542 $32,887
Work in process 7,528 11,036
Raw materials 4,157 3,234
------- -------
$55,227 $47,157
------- -------
C. Contingencies
The Company is involved in various stages of investigation relative to
hazardous waste sites, two of which are on the United States EPA
National Priorities List (Superfund sites). The Company's assigned
responsibility at each of the Superfund sites is less than 2%. The
Company has also been requested to provide administrative information
related to two other potential Superfund sites but has not yet been
identified as a potentially responsible party. Additionally, the
Company is subject to certain product liability matters.
At December 31, 1995, the Company has accrued approximately
$1,200,000, which represents the best estimate available for the
possible losses. This amount has been accrued over the past several
years. Based on the information available, the Company does not expect
that any unrecorded liability related to these matters would materially
affect the consolidated financial position, results of operations or
cash flows.
6
MANAGEMENT DISCUSSION AND ANALYSIS
Demand for Twin Disc products was maintained throughout the quarter at a
levels higher than last year, but, as a result of a shipping disruption at our
domestic operation, net sales for the period were virtually unchanged from a
year ago. However, even without that shipping disruption, sales would not
have shown the double digit increases of the past four quarters. The moderate
earnings decline resulted from the same disruption as most other operations
reported year-to-year earnings gains.
Quarterly net sales from domestic manufacturing were down from a year ago as a
result of disruptions related to installation of new computer systems. In
late November, we converted our domestic computer mainframe to an IBM AS-400
and installed all new business systems software. The new generation of
hardware integrates our networked desktop computers with the company business
systems and provides much more powerful tools with which to serve our
customers. In conjunction with the implementation of the new systems, which
provide for better control within each of our various business units, it was
necessary to conduct a complete physical inventory as of the conversion date.
The hardware conversion, physical inventory, and implementation of the new
business systems were completed successfully during the last two weeks of
November; but the time and manpower required for these activities, as well as
some continuing system performance difficulties, adversely impacted shipping
schedules for November and December. The performance difficulties have been
resolved and, with shipments back on schedule, the December shortfall is
expected to be recovered in the third quarter. The most significant
disruption was to the flow of more profitable renewal parts shipments
resulting in a disproportionate impact on earnings. With normal operations in
November and December, we estimate there would have been a moderate increase
in consolidated sales for the quarter although slightly less than the double
digit year-to-year increases reported in the past four quarters.
The shortfall in domestic shipments was offset by gains at our domestic
marketing subsidiaries and by continuing strong performance from our European
operations which reported a 30 percent increase over last year. The largest
component of the improvement was a 24 percent increase in sales from our
Belgian subsidiary, but marketing operations contributed as well, especially
TD Italia reporting its first year of sales as a Twin Disc subsidiary. Other
overseas marketing subsidiaries reported slight declines in sales for the
quarter but profitability remained stable. Volume improvements continued to
be led by the worldwide demand for marine transmissions, primarily for use in
pleasure craft, and mobile torque converters used in light construction
equipment.
Cost of goods sold as a percentage of sales was comparable to the second
quarter last year and showed improvement over the seasonally high first
quarter. Our Belgian manufacturing operation continues to improve margins as
a result of greater volume and more efficient operations. With lower volume
than expected, an unfavorable sales mix, and higher operating costs, domestic
margins were down compared to last year. However, with the manufacturing
cells and new business systems now in place, the tools are available to
produce more efficiently in the domestic plants.
Marketing, engineering, and administrative expenses were up slightly from last
year as minor increases were caused by the translation of expenses overseas.
Interest expense increased primarily as a result of the higher domestic debt,
but interest rates also have risen slightly since last year.
7
Working capital increased by $1.3 million during the quarter and is about
equal to the balance at year-end. The current ratio remained the same as the
previous quarter but, at 2.3, is slightly below the ratio in June. There was
a modest decline in accounts receivable during the quarter, but inventory rose
by $3 million to a level approximately 16 percent above the prior year-end.
While a small portion of the increase is due to exchange rate differences,
almost all of the increase has been at our domestic operation. It is caused
by a continuing past due order situation and aggravated by the inability to
ship according to schedule in November and December. Cash flow from operating
activities for the year to-date has not been sufficient to cover the increase
in working capital, so debt was increased by approximately $1.2 million during
the past quarter and is $4 million above the June balance. Despite the
increase in borrowings, our balance sheet remains strong and we continue to
have liquidity sufficient for our near-term needs.
8
OTHER INFORMATION
There were no reports on Form 8-K during the three months ended
December 31, 1995. The financial statements included herein have been
subjected to a limited review by Coopers & Lybrand L.L.P., the registrant's
independent public auditors, in accordance with professional standards
and procedures for such review.
There were no securities of the Company sold by the Company during the
three months ended December 31, 1995 which were not registered under
the Securities Act of 1933, in reliance upon an exemption from
registration provided by Section 4 (2) of the Act.
At the Annual Meeting of Shareholders held October 20, 1995, the number
of votes cast for, against or abstentions with respect to each matter
were as follows:
1. Election of Directors:
a) To serve until Annual Meeting in 1998:
James O. Parrish For: 2,601,061 Authority withheld: 7,147
Paul J. Powers For: 2,600,628 Authority withheld: 7,580
Stuart W. Tisdale For: 2,598,142 Authority withheld: 10,066
b) To serve until Annual Meeting in 1996:
David L. Swift For: 2,599,984 Authority withheld: 8,224
David R. Zimmer For: 2,600,171 Authority withheld: 8,037
2. Election of the firm of Coopers & Lybrand L.L.P. as independent public
auditors to examine the accounts for the fiscal year of 1996:
For: 2,601,192 Against: 1,869 Abstain: 5,147
9
SIGNATURE
Pursuant to the requirements 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.
TWIN DISC, INCORPORATED
(Registrant)
February 1, 1996 /S/ FRED H. TIMM
----------------------- ---------------------------
(Date) Fred H. Timm
Corporate Controller and
Secretary
10
Report of Independent Accountants
Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
We have reviewed the condensed consolidated balance sheet of Twin Disc,
Incorporated and subsidiaries as of December 31, 1995, and the related
condensed consolidated statements of operations and cash flows for the
three and six-month periods ended December 31, 1995 and 1994. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons
responsible for financial accounting matters. It is substantially less
in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1995,
and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated July 28, 1995, we expressed
an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 30, 1995, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/
- ------------------------------------
Coopers & Lybrand
Milwaukee, Wisconsin
January 17, 1996
11
[TYPE] EX-15
EXHIBIT 15
Awareness Letter of Independent Accountants
Securities and Exchange Commission
Washington, D.C.
RE: Twin Disc, Incorporated
We are aware that our report dated January 17, 1996 on our review of
interim financial information of Twin Disc, Incorporated for the
three and six-month periods ended December 31, 1995 and 1994 and included in
the Company's quarterly report on Form 10-Q for the quarter then ended,
is incorporated by reference in the registration statements of Twin
Disc, Incorporated on Form S-8 (Twin Disc, Incorporated 1988 Incentive
Stock Option Plan and Twin Disc, Incorporated 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors). Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of that Act.
/S/
- ---------------------------------------
Coopers & Lybrand
Milwaukee, Wisconsin
January 23, 1996
5
1,000
6-MOS
JUN-30-1995
DEC-31-1995
3,918
0
26,954
295
55,227
40,772
109,901
73,160
163,417
42,435
14,028
11,653
0
0
62,532
163,417
78,538
78,538
62,150
62,150
0
0
700
2,549
1,065
1,484
0
0
0
1,484
.53
.53
