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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 March 31, 1996 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 March 31, 1996, the registrant had 2,774,374 shares of its common stock
outstanding.
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TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 June 30
1996 1995
---- ----
Assets
Cash and cash equivalents $ 2,438 $ 3,741
Accounts and notes receivable 31,785 29,247
Inventories 58,459 47,157
Deferred income taxes 3,865 3,865
Other current assets 7,744 6,480
-------- --------
Total current assets 104,291 90,490
Property, plant and equipment 109,745 109,447
Accumulated depreciation 73,668 72,099
-------- --------
Net property, plant and equipment 36,077 37,348
Deferred income taxes 4,697 4,119
Intangible pension asset 8,293 8,293
Other assets 18,865 18,051
-------- --------
$172,223 $158,301
-------- --------
-------- --------
Liabilities
Notes payable $ 4,711 $ 2,415
Accounts payable 14,556 12,395
Accrued liabilities 25,252 22,042
-------- --------
Total current liabilities 44,519 36,852
Long-term debt 20,032 14,000
Accrued postretirement benefits 32,750 32,827
-------- --------
Total liabilities 97,301 83,679
Shareholders' Equity
Common stock 11,653 11,653
Retained earnings 68,878 67,054
Translation component 12,232 13,797
-------- --------
92,763 92,504
Treasury stock 17,841 17,882
-------- --------
74,922 74,622
-------- --------
$172,223 $158,301
-------- --------
-------- --------
Unaudited. Amounts in thousands.
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TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
---- ---- ---- ----
Net sales $47,209 $42,946 $125,747 $115,648
Cost of goods sold 35,869 33,444 98,019 90,456
------- ------- -------- --------
11,340 9,502 27,728 25,192
Marketing, engineering and
administrative expenses 7,934 6,746 21,196 19,542
Interest expense 399 359 1,099 939
Other (income)and
expense, net 6 76 (117) (236)
------- ------- ------- -------
8,339 7,181 22,178 20,245
Earnings before income tax 3,001 2,321 5,550 4,947
Income taxes 1,193 916 2,258 1,975
------- ------- -------- --------
Net Earnings $ 1,808 $ 1,405 $ 3,292 $ 2,972
------- ------- -------- --------
------- ------- -------- --------
Earnings per share $ 0.65 $ 0.50 $ 1.18 $ 1.06
------- ------- -------- --------
------- ------- -------- --------
Dividends per share $ .175 $ .175 $ .525 $ .525
Average shares outstanding
2,777 2,787 2,777 2,795
Translation component of equity
Balance - beginning of the
period $12,818 $ 8,420 $ 13,797 $ 7,778
Translation adjustment (586) 2,410 (1,565) 3,052
------- ------- -------- --------
Balance - end of the period$12,232 $10,830 $ 12,232 $ 10,830
------- ------- -------- --------
------- ------- -------- --------
Unaudited. Amounts in thousands except per share data.
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TWIN DISC,INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 3,292 $ 2,972
Non-cash adjustments to net earnings:
Depreciation 3,789 3,133
Net change in working capital,
excluding cash and debt (11,800) (838)
------- -------
(4,719) 5,267
------- -------
Cash flows from investing activities:
Acquisitions of fixed assets (2,887) (2,748)
Proceeds from sale of fixed assets 3 29
Investments in affiliates - (3,168)
Investments in licenses (1,238) -
Dividends received 548 -
------- -------
(3,574) (5,887)
------- -------
Cash flows from financing activities:
Increase (decrease) in notes payable,net 2,391 (615)
Proceeds from long-term debt 6,010 2,510
Dividend payments (1,458) (1,465)
Treasury stock activity - (524)
Proceeds from exercise of stock options 31 -
------- -------
6,974 (94)
------- -------
Effect of exchange rate changes on cash 16 174
------- -------
Net change in cash and cash equivalents (1,303) (540)
Cash and cash equivalents:
Beginning of period 3,741 4,166
------- -------
End of period $ 2,438 $ 3,626
------- -------
------- -------
Unaudited. In thousands of dollars.
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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 account
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):
March 31 June 30
1996 1995
-------- --------
Inventories:
Finished parts $46,423 $32,887
Work in process 7,162 11,036
Raw materials 4,874 3,234
------- -------
$58,459 $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 March 31, 1996, 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
Stable order rates continued to provide the foundation for year-to-year
improvements in sales volume. Consolidated sales were up 10 percent from the
third quarter last year and are about 9 percent ahead for the nine months.
Net earnings were almost 30% higher than last year's third quarter as a result
of the higher sales and improved manufacturing productivity overseas.
Quarterly net sales from domestic manufacturing operations were about 18
percent higher than a year ago. That increase does not include much recovery
of the sales lost to disruptions in the second quarter. The business system
implementation problems causing that shortfall have been corrected, but full
recovery of those sales will extend into the next quarter. The largest
component of the sales increase was marine transmission shipments for use in
fishing boats and other commercial applications. Shipments of transmissions
for large farm tractors and specialty vehicles and torque converters for
gas turbine starting drives also were up from last year.
Sales from our Belgian manufacturing subsidiary increased by more than 10
percent over last year. Most of the growth was in shipments of marine
transmissions for pleasure craft applications and mobile torque converters for
construction equipment.
Most of our marketing operations, both domestic and overseas, showed
improvement over earlier quarters this year and reported double digit
increases over last year s third quarter.
The gross margin for the three months was ahead of last year and compared
favorably with previous quarters this fiscal year. As in earlier periods, the
improvement was due primarily to increased production volume, greater
productivity in Europe, and a favorable product mix. Domestic manufacturing
margins improved from the first half of the year but were about the same as a
year ago. Additional expense was incurred during the quarter as temporary
workers were needed to facilitate our transition to the new business systems.
That added cost will be eliminated during the fourth quarter.
Marketing, engineering and administrative expenses increased by almost 18
percent compared with last year s third quarter and were well ahead as a
percent of sales. There were a number of causes, and approximately
one-quarter of the increase was for non-recurring items. Marketing and
engineering staffing increases, higher expense associated with new product
promotion and other marketing expenses, and additional fixed costs associated
with new computer systems were the more significant items and accounted
for about half of the increase. Interest expense rose by 11 percent as the
cost of carrying a higher debt level was mitigated by domestic interest rate
declines.
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Working capital increased by $6 million during the quarter, about the same as
the change since the beginning of the fiscal year. However, the current
ratio, at 2.3, has had only minor changes in the first nine months. The cash
flow from earnings and depreciation covered investment in fixed assets and
dividends but was not sufficient to fund the growth in working capital. A
significant increase in current assets, primarily domestic inventory, required
additional borrowing. Although inventory change for the quarter was in line
with the higher sales, domestic manufacturing inventories have grown by more
than 20 percent since year-end. Much of the increase early in the year was
caused by an increase in past due orders; and while that situation has
improved, the resultant inventory reduction has been offset by material
purchases to serve production requirements of the Czech contract. Programs to
reduce inventory to an acceptable turnover level are in place and should
provide positive results in the coming quarter. While the additional
borrowing has increased our leverage, we continue to maintain a strong balance
sheet. Liquidity is sufficient to cover our near-term needs.
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OTHER INFORMATION
There were no reports on Form 8-K during the three months ended March 31,
1996. 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 March 31, 1996, 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.
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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)
May 13, 1996 /s/ Fred H. Timm
______________________________ _____________________________
(Date) Fred H. Timm
Corporate Controller/Secretary
(Chief Accounting Officer)
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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 March 31, 1996, and the related
condensed consolidated statements of operations and cash flows for the
three and six-month periods ended March 31, 1996 and 1995. 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/
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Coopers & Lybrand
Milwaukee, Wisconsin
April 11, 1996
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[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 April 11, 1996 on our review of
interim financial information of Twin Disc, Incorporated for the
three and nine-month periods ended March 31, 1996 and 1995 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
April 11, 1996
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