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 September 30, 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 September 30, 1995, the registrant had 2,777,024 shares of its
common stock outstanding.
2
TWIN DISC, INCORPORATED
INDEX
FINANCIAL INFORMATION Pages
Condensed Consolidated Balance Sheets -
September 30, 1995 and June 30, 1995 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Management Discussion and Analysis 7
OTHER INFORMATION AND SIGNATURES 8-9
EXHIBIT A - REPORT OF INDEPENDENT ACCOUNTANTS 10
EXHIBIT B - AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS 11
3
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 June 30
1995 1995
------------ -------
(Thousands)
Assets
Cash and cash equivalents $ 3,759 $ 3,741
Accounts and notes receivable 27,233 29,247
Inventories 51,919 47,157
Deferred income taxes 3,865 3,865
Other current assets 4,518 6,480
-------- --------
Total current assets 91,294 90,490
Property, plant and equipment 108,998 109,448
Accumulated Depreciation 72,102 72,100
-------- --------
Net property, plant and equipment 36,896 37,348
Deferme taxes 4,697 4,119
Intangible pension asset 8,293 8,293
Other assets 18,023 8,051
-------- --------
$159,203 $158,301
-------- --------
-------- --------
Liabilities
Notes payable $ 5,241 $ 2,415
Accounts payable 12,509 12,395
Accrued liabilities 21,258 22,042
-------- -------
Total current liabilities 39,008 36,852
Long-term debt 14,028 14,000
Accrued postretirement benefits 32,769 32,827
-------- --------
Total liabilities 85,805 83,679
Shareholders' Equity
Common stock 11,653 11,653
Retained earnings 66,778 67,054
Translation component 12,808 13,797
-------- --------
91,239 92,504
Treasury stock 17,841 17,882
-------- --------
73,398 74,622
-------- --------
$159,203 $158,301
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of
this statement.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30
1995 1994
---- ----
Net sales $36,775 $31,600
Cost of goods sold 29,682 25,156
------- -------
7,093 6,444
Marketing, engineering and
administrative expenses 6,270 5,851
Interest expense 330 260
Other expense, net 65 8
------- -------
6,665 6,119
Earnings before income tax 428 325
Income taxes 207 142
------- -------
Net earnings $ 221 $ 183
------- -------
------- -------
Earnings per share data:
Earnings per share $ .08 $ .07
Dividends per share $ 0.175 $ 0.175
Average shares outstanding
(thousands) 2,776 2,799
Translation component of equity
Balance - beginning of the period $13,797 $ 7,778
Translation adjustment (989) 825
------- -------
Balance - end of the period $12,808 $ 8,603
------- -------
------- -------
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.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30
1995 1994
---- ----
(Thousands)
Cash flows from operating activities:
Net earnings $ 221 $ 183
Non-cash adjustments to net earnings:
Depreciation 1,122 1,228
Loss (gain) on sale of fixed assets (17) 29
Net change in working capital,
excluding cash and debt (2,759) (2,502)
------ ------
(1,433) (1,062)
------ ------
Cash flows from investing activities:
Acquisitions of fixed assets (1,074) (867)
Proceeds from sale of fixed assets 6 -
Dividends received 253 -
Investment in affiliates - (3,000)
------ ------
(815) (3,867)
------ ------
Cash flows from financing activities:
Increase (Decrease) in notes payable, net 2,822 269
Proceeds from long-term debt 8 1,250
Treasury stock 30 -
Dividend payments (486) (490)
------ ------
2,374 1,029
------ ------
Effect of exchange rate changes on cash (108) 982
------ ------
Net change in cash and cash equivalents 18 (2,918)
Cash and cash equivalents:
Beginning of period 3,741 4,166
------ ------
End of period $3,759 $1,248
------ ------
------ ------
The notes to consolidated financial statements are an integral part of
this statement.
6
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):
September 30 June 30
1995 1995
Inventories
Finished part $40,876 $32,887
Work in process 7,131 11,036
Raw materials 3,912 3,234
------ ------
$51,919 $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 September 30, 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.
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MANAGEMENT DISCUSSION AND ANALYSIS
Net sales were up compared with the first quarter a year ago as the
benefits of the economic recovery continued at about the same pace as
recent quarters. All operations reported increased sales, but the
principal strength was at our domestic manufacturing subsidiary. That
operation also was responsible for the flat earnings on higher sales as
a one-time charge was made for the cost of a voluntary separation
program for salaried employees.
Domestic manufacturing shipments were up 26 percent with the
year-to-year improvement continuing to be centered around the pleasure
craft and commercial marine markets and the off-highway vehicle
markets. Sales from our Belgian operation also increased, but some of
the change was due to translation at weaker dollar exchange rates.
Since sales from that operation were up sharply in last year's first
quarter, the current volume represents a continuation of demand
for pleasure craft marine transmissions and mobile torque converters.
Overseas marketing subsidiaries reported higher sales with the most
significant improvement in Australia where demand is strong for higher
horsepower marine transmissions and power take-offs for irrigation.
Our domestic distribution operations also showed sales improvements
compared to last year with consistent increases in earnings.
The ratio of cost of goods sold to net sales continued to decline at
our overseas manufacturing operation as productivity improvements
continue. Domestic margins showed a volume related improvement before
the voluntary separation program charge. That program was related to
the restructuring of our domestic manufacturing organization. Most of
the costs of the program are expected to be recovered as savings during
the year.
Marketing, engineering, and administrative expenses for the current
period were about 7 percent higher than a year ago due to the higher
sales volume and the translation of foreign subsidiary expenses at the
weaker dollar exchange rates. The increase in interest expense is due
primarily to higher outstanding domestic debt but also reflects a
slight increase in bank lending rates.
Working capital decreased by $1.4 million during the quarter and the
current ratio also declined to 2.3 from the 2.5 at the beginning of the
fiscal year. Accounts receivable were reduced during the quarter with
the seasonal decline in sales from the previous fiscal quarter, but
inventory rose substantially over a year ago and was 10 percent above
year-end. Most of the increase was at our domestic operation and was
caused by a past due order situation aggravated by procurement
problems. Those problems have been addressed and should be alleviated
during the next quarter. With the working capital changes, primarily
an increase in inventory, net cash flow from operations was not
sufficient to cover investing activities. An increase of $2.8 million
8
in debt provided the funds needed to purchase capital equipment and
finance the inventory build-up. Despite the increase in borrowings
during the period, our balance sheet remains strong; and we continue to
have liquidity sufficient for our near-term needs.
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OTHER INFORMATION
-----------------
There were no reports on Form 8-K during the three months ended
September 30, 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 September 30, 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
10
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)
- ------------------------ -----------------------------------
(Date) Fred H. Timm, Corporate Controller/
Secretary (Chief Accounting Officer)
5
3-MOS
JUN-30-1995
SEP-30-1995
3,759
0
27,233
409
51,919
91,294
108,998
72,102
159,203
39,008
14,028
11,653
0
0
0
159,203
31,600
31,600
29,156
29,156
0
0
330
428
207
221
0
0
0
221
.08
0
