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, 1997 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, 1997, the registrant had 2,826,474 shares of its common
stock outstanding.
2
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 June 30
1997 1997
---- ----
Assets
Current Assets:
Cash and cash equivalents $ 9,142 $ 8,983
Trade accounts receivable, net 31,016 32,428
Inventories 50,206 47,844
Deferred income taxes 3,491 3,491
Other 4,649 5,216
-------- --------
Total current assets 98,504 97,962
Property, plant and equipment, net 34,555 34,249
Investments in affiliates 11,051 10,880
Deferred income taxes 4,590 4,559
Intangible pension asset 4,779 4,779
Other assets 7,673 6,326
-------- --------
$161,152 $158,755
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 204 $ 169
Accounts payable 13,374 12,834
Accrued liabilities 17,044 16,618
-------- --------
Total current liabilities 30,622 29,621
Long-term debt 19,946 19,944
Accrued retirement benefits 35,439 35,393
-------- --------
86,007 84,958
Shareholders' Equity:
Common stock 11,653 11,653
Retained earnings 78,216 77,424
Foreign currency translation adjustment 5,806 6,060
Minimum pension liability adjustment (3,708) (3,708)
-------- --------
91,967 91,429
Less treasury stock, at cost 16,822 17,632
-------- --------
Total shareholders' equity 75,145 73,797
-------- --------
$161,152 $158,755
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of this
statement. Amounts in thousands.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30
1997 1996
---- ----
Net sales $47,880 $40,941
Cost of goods sold 37,944 32,254
------- -------
9,936 8,687
Marketing, engineering and
administrative expenses 7,430 7,060
Interest expense 376 480
Other (income) and expense, net (112) (980)
------- -------
7,694 6,560
Earnings before income tax 2,242 2,127
Income taxes 886 995
------- -------
Net earnings $ 1,356 $ 1,132
------- -------
------- -------
Earnings per share $ .48 $ .41
------- -------
------- -------
Dividends per share $ 0.190 $ 0.175
Average shares outstanding 2,810 2,777
Translation component of equity
Balance - beginning of the period $ 6,060 $10,326
Translation adjustment (254) 104
------- -------
Balance - end of the period $5,806 $10,430
------- -------
------- -------
Amounts in thousands except per share data. 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
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $1,356 $1,132
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,280 1,263
Gain on sale of fixed assets (358) (238)
Equity in earnings of affiliates 123 363
Dividends received from affiliate 100 100
Net change in working capital,
excluding cash and debt (253) 1,396
------ ------
2,248 4,016
------ ------
Cash flows from investing activities:
Acquisitions of fixed assets (1,654) (746)
Proceeds from sale of fixed assets 417 431
Business acquisition (1,059) -
------ ------
(2,296) (315)
------ ------
Cash flows from financing activities:
Increase (decrease) in notes payable, net 46 (773)
Proceeds from exercise of stock options 781 -
Dividends paid (535) (486)
------ ------
292 (1,259)
------ ------
Effect of exchange rate changes on cash (85) (10)
------ ------
Net change in cash and cash equivalents 159 2,432
Cash and cash equivalents:
Beginning of period 8,983 2,043
------ ------
End of period $9,142 $4,475
------ ------
------ ------
The notes to consolidated financial statements are an integral part of this
statement. Amounts in thousands.
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
1997 1997
-------- --------
Inventories:
Finished parts $28,676 $38,713
Work in process 18,244 5,997
Raw materials 3,286 3,134
------- -------
$50,206 $47,844
------- -------
------- -------
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, 1997, the Company has accrued approximately $1,350,000,
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 17 percent higher than the first quarter a year ago and
earnings rose 20 percent continuing the year-over-year increases for the
fourth consecutive year. Most of the improvement occurred at our domestic
manufacturing operation where the added sales volume and higher productivity
improved earnings.
Domestic sales increased primarily due to shipments of power-shift
transmissions to a European vehicle manufacturer and to shipments of power
take-offs and clutches used in recycling, irrigation, and oil field
applications. There was continuing stable demand for marine transmissions
used in commercial applications.
The volume of shipments from our Belgian operation rose more than 10 percent
over last year as a result of strong demand for pleasure craft marine
transmissions. However, due to a strengthening of the U.S. dollar, those
higher shipments did not translate into an increase in reported dollar sales.
Sales and earnings of our domestic marketing subsidiaries were up from a year
ago, but, in the aggregate, our offshore operations experienced a slight
decline. While the stronger dollar affected reported sales from those
operations as well, the negative impact was not significant.
The consolidated gross margin for the quarter was off slightly from the same
period last year with a decline in Europe more significant than the modest
improvement domestically. Greater production volume and higher productivity
were the key elements of the domestic improvement and helped offset the impact
of an unfavorable sales mix at that operation.
Marketing, engineering, and administrative expenses for the current period
were up about 5 percent from a year ago mainly due to the cost of engineering
and marketing personnel added during the second half of last fiscal year.
Interest expense was down from a year ago as short-term domestic borrowings
were repaid during fiscal year 1997.
There was little change in working capital during the quarter, but it was $3
million higher than a year ago as a result of increased cash and marketable
securities and a reduction in short-term debt. The current ratio of 3.2 also
was up slightly from a year ago. Changes in other current assets during the
period were consistent with prior years activity. Accounts receivable
declined on seasonally lower sales volume, and inventory increased in response
to higher Fall production demands. Receivable collections and inventory
turnover have both shown marked improvement since last year. Positive cash
flows, primarily from operating activities, were sufficient to cover capital
equipment purchases, dividends, and the purchase of the assets of Wilson
Equipment, an independent distributor in Western Canada. That acquisition
will be operated as a subsidiary of Mill-Log Equipment, our distributor in
Oregon and Washington. 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,
1997. 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, 1997, 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)
October 28,1997 /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, 1997, and the
related condensed consolidated statements of operations and cash flows for
the three-month periods ended September 30, 1997 and 1996. 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, 1997, 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 18, 1997, 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, 1997, 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 10, 1997
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 10, 1997 on our review of interim
financial information of Twin Disc, Incorporated for the three-month periods
ended September 30, 1997 and 1996 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 24, 1997
5
1,000
3-MOS
JUN-30-1997
SEP-30-1997
9,142
0
31,477
461
50,206
98,504
108,987
74,432
161,152
30,622
19,946
11,653
0
0
63,492
161,152
47,880
47,880
37,944
37,944
0
0
376
2,242
886
1,356
0
0
0
1,356
.48
.48
