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 March 31, 2000 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 (262) 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, 2000, the registrant had 2,809,890 shares of its common stock
outstanding.
2
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 June 30
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents $ 8,481 $ 4,136
Trade accounts receivable, net 31,598 27,201
Inventories 52,772 54,500
Deferred income taxes 6,004 6,004
Other 6,029 5,906
-------- --------
Total current assets 104,884 97,747
Property, plant and equipment, net 35,508 38,935
Investments in affiliates 6,864 6,663
Deferred income taxes 4,526 4,349
Intangible pension asset 3,385 3,385
Other assets 24,721 25,821
-------- --------
$179,888 $176,900
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 8,573 $ 23,015
Accounts payable 14,900 10,724
Accrued liabilities 21,670 21,022
-------- --------
Total current liabilities 45,143 54,761
Long-term debt 35,116 17,112
Accrued retirement benefits 34,671 37,567
-------- --------
114,930 109,440
Shareholders' Equity:
Common stock 11,653 11,653
Retained earnings 81,464 81,430
Accumulated other comprehensive loss (10,712) (8,516)
-------- --------
82,405 84,567
Less treasury stock, at cost 17,447 17,107
-------- --------
Total shareholders' equity 64,958 67,460
-------- --------
$179,888 $176,900
-------- --------
-------- --------
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 Nine Months Ended
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
Net sales $49,467 $41,139 $129,087 $121,872
Cost of goods sold 37,877 33,823 100,688 96,061
------- ------- ------- -------
11,590 7,316 28,399 25,811
Marketing, engineering and
administrative expenses 8,034 8,488 23,918 25,303
Interest expense 777 573 2,261 1,325
Other (income) expense, net (542) 273 (894) 304
------- ------- ------- -------
8,269 9,334 25,285 26,932
------- ------- ------- -------
Earnings (loss) before income taxes 3,321 (2,018) 3,114 (1,121)
Income taxes 1,595 (236) 1,592 364
------- ------- ------- -------
Net earnings (loss) $ 1,726 ($ 1,782) $ 1,522 ($ 1,485)
------- ------- ------- -------
------- ------- ------- -------
Dividends per share $ 0.175 $ 0.21 $ 0.525 $ 0.63
Earnings per share data:
Basic earnings (loss) per share $ 0.61 ($ 0.63) $ 0.54 ($ 0.52)
Diluted earnings (loss)per share $ 0.61 ($ 0.63) $ 0.54 ($ 0.52)
Shares outstanding data:
Average shares outstanding 2,811 2,835 2,824 2,835
Dilutive stock options 0 4 0 13
------- ------- ------- -------
Diluted shares outstanding 2,811 2,839 2,824 2,848
------- ------- ------- -------
------- ------- ------- -------
Comprehensive income:
Net earnings (loss) $ 1,726 ($ 1,782) $ 1,522 ($ 1,485)
Other comprehensive income:
Foreign currency translation
adjustment (1,326) (1,942) (2,196) (387)
------- ------- ------- -------
Comprehensive income (loss) $ 400 ($ 3,724) ($ 674) ($ 1,872)
------- ------- ------- -------
------- ------- ------- -------
In thousands of dollars except per share statistics and shares outstanding
data. Per share figures are based on shares outstanding data.
The notes to consolidated financial statements are an integral part of
this statement.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31
2000 1999
---- ----
Cash flows from operating activities:
Net earnings (loss) $ 1,522 ($ 1,485)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 5,120 4,654
Loss on sale of fixed assets 6 35
Gain on partial sale of affiliate 0 (1,371)
Equity in (earnings)loss of affiliates (701) 1,191
Dividends received from affiliate 500 625
Net change in working capital,
excluding cash and debt, and other (725) 4,334
------ ------
5,722 7,983
------ ------
Cash flows from investing activities:
Acquisitions of fixed assets (1,679) (4,873)
Proceeds from sale of fixed assets 90 17
Business acquisitions 0 (16,340)
------ ------
(1,589) (21,196)
------ ------
Cash flows from financing activities:
Increase in notes payable, net 2,308 14,721
Treasury stock activity (340) 38
Dividends paid (1,488) (1,786)
------ ------
480 12,973
------ ------
Effect of exchange rate changes on cash (268) (112)
------ ------
Net change in cash and cash equivalents 4,345 (352)
Cash and cash equivalents:
Beginning of period 4,136 5,087
------ ------
End of period $8,481 $4,735
------ ------
------ ------
The notes to consolidated financial statements are an integral part of
this statement. Amounts in thousands.
5
NOTES TO CONDENSED 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):
March 31 June 30
2000 1999
---------- ---------
Inventories:
Finished parts $42,056 $42,405
Work in process 6,594 6,385
Raw materials 4,122 5,710
------- -------
$52,772 $54,500
------- -------
------- -------
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 in the normal course of business.
At March 31, 2000 the Company has accrued approximately $1,050,000, which
represents management's best estimate available for possible losses related to
these contingencies. This amount has been provided 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.
D. BUSINESS SEGMENTS
Information about the Company's segments is summarized as follows (in
thousands):
Three Months Ended Nine Months Ended
March 31 March 31
2000 1999 2000 1999
---- ---- ---- ----
Manufacturing segment sales $48,026 $37,032 $120,239 $113,283
Distribution segment sales 12,052 10,459 34,300 30,825
Inter/Intra segment sales (10,611) (6,352) (25,452) (22,236)
------- ------- ------- -------
Net sales $49,467 $41,139 $129,087 $121,872
------- ------- ------- -------
------- ------- ------- -------
Manufacturing segment earnings(loss)$ 2,855 ($ 1,578) $ 1,840 ($ 155)
Distribution segment earnings 727 539 2,120 1,682
Inter/Intra segment earnings (loss) (261) (979) (846) (2,648)
------ ------- ------- -------
Pretax earnings (loss) $ 3,321 ($ 2,018) $ 3,114 ($ 1,121)
------- ------- ------- -------
------- ------- ------- -------
Assets March 31, June 30,
2000 1999
------------- ------------
Manufacturing segment assets $153,631 $152,251
Distribution segment assets 26,766 25,448
Corporate assets and elimination
of inter-company assets (509) (799)
-------- --------
$179,888 $176,900
-------- --------
-------- --------
6
MANAGEMENT DISCUSSION AND ANALYSIS
Third-quarter net sales were up from the previous quarter and more than 20
percent ahead of the same three-month period a year ago. More importantly,
net earnings were more than double those of the second fiscal quarter and
represent a marked turnaround from the quarterly loss reported last year.
The largest component of the revenue increase, both in terms of dollars and
percent improvement, was contributed by our domestic manufacturing operation.
Resurgence in demand for transmissions used in commercial marine applications
and improved service parts sales were among the main components of the
improvement. Also contributing were higher sales of power take-offs for
irrigation and other industrial applications and power-shift transmissions for
four-wheel drive and all-wheel drive vehicles. The power take-off surge was
due primarily to market demand but also included new volume from the product
line acquisition made in last year's third fiscal quarter. Sales increases of
a lesser magnitude also were reported by our Belgian manufacturing operation
as strong demand for pleasure craft marine transmissions offset some softness
in marine control drives. Our Italian subsidiary, acquired in February 1999,
contributed to Twin Disc for the full fiscal quarter this year and supported
the improvement.
Sales and earnings of most of our marketing subsidiaries were up from a year
ago with the most significant improvements reported by our operations in
Singapore, Australia, and Italy. While continued strengthening of the dollar,
especially in Europe, adversely impacts our competitive position and reported
sales gains from the offshore subsidiaries, dollar denominated sales from
Belgium have had a positive offsetting effect on margins.
The gross margin for the quarter rose to 23 percent, a modest improvement over
the previous quarter and well ahead of last year. Last year's third fiscal
quarter margin was unusually low as a result of workforce restructuring
expense, reduced productivity and lower production volume. This year, the
productivity of both domestic and overseas manufacturing operations has
improved, and that improvement coupled with the higher level of activity
provided the higher margin. As noted in last year's third-quarter report, the
restructuring costs included in both manufacturing and administrative expenses
accounted for about one-third of the after-tax loss.
Marketing, engineering and administrative expense was down from last year
despite a full fiscal quarter of expenses associated with the Italian
acquisition mentioned previously. Interest expense was down slightly from the
second quarter but was about 36 percent higher than a year ago due to the
higher, acquisition-related debt level and an increase in the average domestic
interest rate over the past year. Other income and expense for the recently
completed quarter was favorable compared with last year due to improved
affiliate earnings and the absence of currency exchange losses present in the
year-ago results. While individual country tax rates were unchanged, the
effective consolidated rate remains high due to the mix of domestic losses
incurred during the fiscal year and overseas earnings, which are taxed at a
higher rate. A year ago, the effective rate was unusually low due to the tax
treatment of our Japanese affiliate's losses.
Working capital, at $60 million, was comparable to the previous quarter but
much greater than at the prior fiscal year-end. The increase was caused by
restructuring much of the current borrowings at year-end to long-term debt
during the first fiscal quarter. Accounts receivable were up from the
previous quarter as a result of increased sales, while inventory declined by
more than $2 million as turnover continued to improve. For the nine months,
cash flow from operating activities was more than needed to finance fixed
asset acquisitions and dividend payments. While debt levels are high by our
historical standards, our balance sheet is strong, and we continue to have
sufficient liquidity for near-term needs.
7
OTHER INFORMATION
Item 1. Legal Proceedings.
There were no reports on Form 8-K during the three months ended March 31,
2000. The financial statements included herein have been subjected to a
limited review by PricewaterhouseCoopers LLP, the registrant's independent
public accountants, in accordance with professional standards and procedures
for such review.
Item 2. Changes in Securities and Use of Proceeds.
There were no securities of the Company sold by the Company during the three
months ended March 31, 2000 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.
Item 5. Other Information.
The discussions in this report on Form 10-Q and in the documents incorporated
herein by reference, and oral presentations made by or on behalf of the
Company contain or may contain various forward-looking statements
(particularly those referring to the expectations as to possible strategic
alternatives, future business and/or operations, in the future tense, or using
terms such as "believe", "anticipate", "expect" or "intend") that involve
risks and uncertainties. The Company's actual future results could differ
materially from those discussed, due to the factors which are noted in
connection with the statements and other factors. The factors that could
cause or contribute to such differences include, but are not limited to, those
further described in the "Management's Discussion and Analysis".
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/ FRED H. TIMM
----------------------- ---------------------------
(Date) Fred H. Timm
Corporate Controller and
Secretary
9
Report of Independent Accountants
To the 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 March 31, 2000, and the related
condensed consolidated statements of operations for the three and nine-month
periods ended March 31, 2000 and 1999 and the related condensed
consolidated statements of cash flows for the nine-month periods ended March
31, 2000 and 1999. 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 accompanying 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, 1999,
and the related consolidated statements of operations, changes in
shareholders' equity and comprehensive income, and cash flows for the year
then ended (not presented herein); and in our report dated July 23, 1999, 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, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/
- ------------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 2, 2000
10
[TYPE] EX-15
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 May 2, 2000 on our review of
interim financial information of Twin Disc, Incorporated for the
three and nine month periods ended March 31, 2000 and 1999 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; Twin Disc, Incorporated 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors; Twin Disc, Incorporated
1998 Incentive Compensation Plan; and Twin Disc, Incorporated 1998 Stock
Option Plan for Non-Employee Directors).
/S/
- ---------------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 2, 2000