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, 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 September 30, 1996, the registrant had 2,777,274 shares of its common
stock
outstanding.
2
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 June
30
1996 1996
---- ----
(Thousands)
Assets
Cash and cash equivalents $ 4,475 $ 2,043
Accounts and notes receivable 31,436 34,917
Inventories 51,735 51,083
Deferred income taxes 3,403 2,710
Other current assets 6,544 5,887
-------- --------
Total current assets 97,593 96,640
Property, plant and equipment 108,525 108,663
Accumulated Depreciation 73,440 72,948
-------- --------
Net property, plant and equipment 35,085 35,715
Deferred income taxes 3,746 3,758
Intangible pension asset 8,079 8,079
Other assets 17,923 18,507
-------- --------
$162,426 $162,699
-------- --------
-------- --------
Liabilities
Notes payable $ 6,593 $ 7,360
Accounts payable 9,146 8,806
Accrued liabilities 17,210 17,836
-------- --------
Total current liabilities 32,949 34,002
Long-term debt 19,940 19,938
Accrued postretirement benefits 33,606 33,578
-------- --------
Total liabilities 86,495 87,518
Shareholders' Equity
Common stock 11,653 11,653
Retained earnings 72,304 71,658
Translation component 9,810 9,706
-------- --------
93,767 93,017
Treasury stock 17,836 17,836
-------- --------
75,931 75,181
-------- --------
$162,426 $162,699
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of this
statement.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30
1996 1995
---- ----
Net sales $40,941 $36,775
Cost of goods sold 32,254 29,682
------- -------
8,687 7,093
Marketing, engineering and
administrative expenses 7,060 6,270
Interest expense 480 330
Other (income) and expense, net (980) 65
------- -------
6,560 6,665
Earnings before income tax 2,127 428
Income taxes 995 207
------- -------
Net earnings $ 1,132 $ 221
------- -------
------- -------
Earnings per share data:
Earnings per share $ .41 $ .08
Dividends per share $ 0.175 $ 0.175
Average shares outstanding (thousands) 2,777 2,776
Translation component of equity
Balance - beginning of the period $ 9,706 $13,797
Translation adjustment 104 (989)
------- -------
Balance - end of the period $9,810 $12,808
------- -------
------- -------
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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30
1996 1995
---- ----
(Thousands)
Cash flows from operating activities:
Net earnings $1,132 $ 221
Non-cash adjustments to net earnings:
Depreciation 1,263 1,122
Other 125 (17)
Net change in working capital,
excluding cash and debt 1,396 (2,759)
------ ------
3,916 (1,433)
------ ------
Cash flows from investing activities:
Acquisitions of fixed assets (746) (1,074)
Proceeds from sale of fixed assets 431 6
Dividends received 100 253
------ ------
(215) (815)
------ ------
Cash flows from financing activities:
Increase (Decrease) in notes payable, net (773) 2,822
Proceeds from long-term debt - 8
Treasury stock - 30
Dividend payments (486) (486)
------ ------
(1,259) 2,374
------ ------
Effect of exchange rate changes on cash (10) (108)
------ ------
Net change in cash and cash equivalents 2,432 18
Cash and cash equivalents:
Beginning of period 2,043 3,741
------ ------
End of period $4,475 $3,759
------ ------
------ ------
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):
September 30 June 30
1996 1996
Inventories
Finished part $41,693 $41,535
Work in process 5,582 5,429
Raw materials 4,460 4,119
------ ------
$51,735 $51,083
------- -------
------- -------
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, 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.
6
MANAGEMENT DISCUSSION AND ANALYSIS
Net sales were 11 percent higher than the first quarter a year ago
continuing the favorable year-to-year quarterly comparisons of the past
three years. The largest sales increase was at our domestic manufacturing
operation, and that volume combined with greater productivity at both
domestic and European manufacturing operations provided for improved
earnings as well.
The increase in domestic shipments reflected continuing strong demand for
marine transmissions used in commercial applications and improved demand for
power-shift transmissions used in off-highway vehicles.
Sales from our Belgian operation were comparable with last year as demand
for pleasure craft marine transmissions and mobile torque converters
remained at about the level of a year ago. Sales from marketing
subsidiaries increased overall, but results varied by location. Improvement
was noted in the Pacific Basin where better supply of product for the
commercial marine market provided for higher shipments. The earnings of
these subsidiaries improved in line with the sales changes.
The consolidated gross margin increased by two percentage points and
reflected similar improvements realized at both domestic and overseas
manufacturing operations. Better productivity, higher production volume and
cost control contributed to the improved margin. There were unusual charges
in both years that adversely impacted margins. The cost associated with a
voluntary separation program was charged to operations a year ago, and a
lesser amount covering the disposal of discontinued product inventory was
charged against the recently completed quarter.
Marketing, engineering, and administrative expenses for the current period
were about 12 percent higher than a year ago due to higher sales volume and
to increases in domestic engineering and marketing spending. Interest
expense increased due to the higher level of domestic debt but also
reflected a slight decline in average borrowing costs. The principal
component of net other income was interest income related to a favorable tax
settlement which was partially offset by year-to-date losses incurred by our
Japanese affiliate.
Working capital increased by $2 million during the quarter with the cash
balance rising by a similar amount. The increase in cash also caused the
current ratio to increase slightly during the period. There was the normal
seasonal decline in accounts receivable during the quarter, but inventory
was up slightly from the prior year-end. However, with level inventory and
higher sales compared to a year ago, inventory turnover has increased; and
our efforts are directed toward continuing that improvement. Net cash flow
from operations, including the favorable impact of working capital changes,
covered investing and financing activities and provided for an increase in
cash. Our balance sheet remains strong, and we continue to have liquidity
sufficient for our near-term needs.
7
OTHER INFORMATION
There were no reports on Form 8-K during the three months ended September
30, 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 September 30, 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.
8
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)
/s/
- ------------------------ ---------------------------------
(Date) Fred H. Timm, Corporate Controller/
Secretary (Chief Accounting Officer)
9
Report of Independent Accountants
Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
We have reviewed the accompanying condensed consolidated balance sheet of
Twin Disc, Incorporated and subsidiaries as of September 30, 1996, and the
related condensed consolidated statements of operations and cash flows for
the three-month periods ended September 30, 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, 1996, 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, 1996, 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, 1996, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/
- ------------------------------------
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
October 11, 1996
EXHIBIT 15
Awareness Letter of Independent Accountants
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549
RE: Twin Disc, Incorporated
We are aware that our report dated October 11, 1996 on our review of interim
financial information of Twin Disc, Incorporated for the three-month periods
ended September 30, 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 L.L.P.
Milwaukee, Wisconsin
October 29, 1996
5
1,000
3-MOS
JUN-30-1996
SEP-30-1996
4,475
0
31,630
194
51,735
97,593
108,525
73,440
162,426
32,949
19,940
11,653
0
0
64,278
162,426
40,941
40,941
32,254
32,254
0
0
480
2,127
995
1,132
0
0
0
1,132
.41
.41
