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, 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 December 31, 1996, the registrant had 2,780,574 shares of its common stock
outstanding.
2
FINANCIAL STATEMENTS
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 June 30
1996 1996
---- ----
(Thousands)
(Unaudited)
Assets
Cash and cash equivalents $ 6,346 $ 2,043
Accounts and notes receivable 32,237 34,917
Inventories 53,487 51,083
Deferred income taxes 3,403 2,710
Other current assets 5,269 5,887
-------- --------
Total current assets 100,742 96,640
Property, plant and equipment 110,030 108,663
Accumulated Depreciation 74,527 72,948
-------- --------
Net property, plant and equipment 35,503 35,715
Deferred income taxes 3,777 3,758
Intangible pension asset 8,079 8,079
Other assets 17,897 18,507
-------- --------
$165,998 $162,699
-------- --------
-------- --------
Liabilities
Notes payable $ 6,315 $ 7,360
Accounts payable 10,613 8,806
Accrued liabilities 18,524 17,836
-------- --------
Total current liabilities 35,452 34,002
Long-term debt 19,942 19,938
Accrued postretirement benefits 33,606 33,578
-------- --------
Total liabilities 89,001 87,518
Shareholders' Equity
Common stock 11,653 11,653
Retained earnings 73,551 71,658
Translation component 9,562 9,706
-------- --------
94,765 93,017
Treasury stock 17,768 17,836
-------- --------
76,998 75,181
-------- --------
$165,998 $162,699
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of this
statement.
3
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
Net sales $45,496 $41,763 $86,437 $78,538
Cost of goods sold 34,516 32,468 66,770 62,150
------- ------- ------- -------
10,980 9,295 19,667 16,388
Marketing, engineering and
administrative expenses 7,674 6,992 14,734 13,262
Interest expense 495 370 975 700
Other income, net (104) (188) (1,084) (123)
------- ------- ------- -------
8,065 7,174 14,625 13,839
------- ------- ------- -------
Earnings before income tax 2,915 2,121 5,042 2,549
Income taxes 1,173 858 2,168 1,065
------- ------- ------- -------
Net earnings $ 1,742 $ 1,263 $ 2,874 $ 1,484
------- ------- ------- -------
------- ------- ------- -------
Earnings per share $ .63 $ .45 $ 1.04 $ .53
Dividends per share $ .175 $ .175 $ .35 $ .35
Average shares outstanding
(thousands) 2,779 2,777 2,778 2,776
Translation component of equity
Balance - beginning of the
period $ 9,810 $12,808 $ 9,706 $13,797
Translation adjustment (248) 10 (144) (979)
------- ------- ------- -------
Balance - end of the period $ 9,562 $12,818 $ 9,562 $12,818
------- ------- ------- -------
------- ------- ------- -------
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
Six Months Ended
December 31
1996 1995
---- ----
(Thousands)
(Unaudited)
Cash flows from operating activities:
Net earnings $ 2,874 $ 1,484
Non-cash adjustments to net
earnings:
Depreciation 2,602 2,419
Loss (gain) on sale of fixed assets (237) 4
Dividends received 100 548
Net change in working capital,
excluding cash and debt 2,874 (5,482)
------ ------
8,213 (1,027)
------ ------
Cash flows from investing activities:
Acquisitions of fixed assets (2,354) (1,952)
Proceeds from sale of fixed assets 431 3
------ ------
(1,923) (1,949)
------ ------
Cash flows from financing activities:
Increase (decrease) in notes payable, net (1,044) 4,068
Proceeds from (payments on) long-term debt (2) 8
Treasury stock 59 30
Dividend payments (972) (972)
------ ------
(1,959) 3,134
------ ------
Effect of exchange rate changes on cash (28) 19
------ ------
Net change in cash and cash equivalents 4,303 177
Cash and cash equivalents:
Beginning of period 2,043 3,741
------ ------
End of period $ 6,346 $ 3,918
------ ------
------ ------
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
1996 1996
----------- ---------
Inventories:
Finished parts $32,928 $41,535
Work in process 16,312 5,429
Raw materials 4,247 4,119
------- -------
$53,487 $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 December 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.
6
MANAGEMENT DISCUSSION AND ANALYSIS
Net sales for the quarter were 9 percent higher than the same period last year
with domestic manufacturing operations showing the greatest improvement. The
principal components of the increase were transmissions shipped under the
Tatra contract, higher horsepower marine transmissions used in commercial
applications, and aftermarket service parts. The higher parts sales, about
one-third of the increase, represented a return to a more normal sales level
after the disruption last year caused by business systems changes. Shipments
from our Belgian manufacturing operation were down, primarily as a result of
reduced demand from the marine pleasure craft market. However, an increase in
sales of torque converters used in light construction equipment partially
offset that decline. The demand for the larger marine transmissions used in
fishing and work boats continues to be firm, primarily for boats being built
in the U.S. and the Pacific Basin.
Sales from our distribution operations around the world were up slightly with
gains in Australia and the Pacific Basin offsetting some weakness in the U.S.
and Europe. Earnings of these subsidiaries varied by region in line with the
sales trend but, in the aggregate, were up slightly over last year.
The consolidated gross margin increased by almost two percentage points from
last year's second quarter and was well above the first three months of the
fiscal year. As with sales gains, the margin improvement was realized at our
domestic manufacturing operations. The improvement resulted from greater
production efficiency as well as the higher sales volume. Improved
productivity also benefited Belgian margins by compensating for the
unfavorable impact of reduced sales.
Marketing, engineering, and administrative expenses continued at a level about
10 percent higher than a year ago due to increased domestic engineering and
marketing expense. The major components of the increase were added personnel
in both areas and product development and promotional expenses. The increase
in interest expense reflects an increase in domestic debt and a somewhat
higher interest rate on the long-term debt issue in June.
7
Working capital increased by less than $1 million during the quarter and is
$2.6 million higher than at the beginning of the year. The current ratio
declined to the same level as in June. There was a modest increase in
accounts receivable during the quarter related to the higher sales volume, and
inventory rose by almost $2 million. The inventory increase occurred
domestically and is a temporary situation of completed product awaiting
customer pick-up. Cash flows from operating activities for the six months
have exceeded those required for investing and financing activities. Since
the beginning of the year, debt has been reduced and cash balances increased.
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,
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 December 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.
At the Annual Meeting of Shareholders held October 18, 1996, 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 1999:
Michael E. Batten For: 2,575,644 Authority withheld: 6,104
David L. Swift For: 2,575,725 Authority withheld: 6,023
David R. Zimmer For: 2,575,970 Authority withheld: 5,778
2. Election of the firm of Coopers & Lybrand L.L.P. as independent public
auditors to examine the accounts for the fiscal year of 1997:
For: 2,577,479 Against: 1,464 Abstain: 2,805
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)
/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 accompanying condensed consolidated balance sheet of Twin
Disc, Incorporated and subsidiaries as of December 31, 1996, and the related
condensed consolidated statements of operations and cash flows for the
three and six-month periods ended December 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, 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 26, 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
Milwaukee, Wisconsin
January 10, 1997
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 10, 1997 on our review of
interim financial information of Twin Disc, Incorporated for the
three and six-month periods ended December 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
February 5, 1997
5
1,000
6-MOS
JUN-30-1996
DEC-31-1996
6,348
0
32,563
326
53,487
100,742
110,030
74,527
165,998
35,452
19,942
11,653
0
0
65,344
165,998
86,437
86,437
66,770
66,770
0
0
975
5,042
2,168
2,874
0
0
0
2,874
1.04
1.04
