1 TWIN DISC, INCORPORATED
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, 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 September 30, 2000, the registrant had 2,807,832 shares of its common stock
outstanding.
2
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 June 30
2000 2000
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,620 $ 5,651
Trade accounts receivable, net 26,933 28,828
Inventories,net 53,585 50,190
Other 5,257 5,333
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Total current assets 90,395 90,002
Property, plant and equipment, net 32,891 34,303
Investments in affiliates 7,013 6,968
Deferred income taxes 4,510 4,416
Prepaid pension asset 14,328 14,335
Other assets 24,019 24,166
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$173,156 $174,190
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Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 7,083 $ 7,428
Accounts payable 13,173 11,571
Accrued liabilities 22,353 21,909
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Total current liabilities 42,609 40,908
Long-term debt 31,254 31,254
Accrued retirement benefits 22,308 23,795
-------- --------
96,171 95,957
Shareholders' Equity:
Common stock 11,653 11,653
Retained earnings 83,642 83,228
Accumulated other comprehensive loss (829) 799
-------- --------
94,466 95,680
Less treasury stock, at cost 17,481 17,447
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Total shareholders' equity 76,985 78,233
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$173,156 $174,190
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-------- --------
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
2000 1999
---- ----
Net sales $41,349 $35,277
Cost of goods sold 31,605 28,421
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9,744 6,856
Marketing, engineering and
administrative expenses 7,529 7,745
Interest expense 758 656
Other income, net (177) (101)
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8,110 8,300
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Earnings (loss) before income taxes 1,634 (1,444)
Income taxes 728 (547)
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Net earnings (loss) $ 906 ($ 897)
------- -------
------- -------
Dividends per share $ 0.175 $ 0.175
Earnings per share data:
Basic earnings (loss) per share $ 0.32 ($ 0.32)
Diluted earnings (loss)per share $ 0.32 ($ 0.32)
Shares outstanding data:
Average shares outstanding 2,810 2,835
Dilutive stock options - 2
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Diluted shares outstanding 2,810 2,837
------- -------
------- -------
Comprehensive income:
Net earnings (loss) $ 906 ($ 897)
Other comprehensive income:
Foreign currency translation adjustment (1,628) (12)
------- -------
Comprehensive loss ($ 722) ($ 909)
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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)
Three Months Ended
September 30
2000 1999
---- ----
Cash flows from operating activities:
Net earnings (loss) $ 906 ($ 897)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,583 1,729
Equity in earnings of affiliates (145) (143)
Dividends received from affiliate 100 125
Net change in working capital,
excluding cash and debt, and other (2,421) (2,313)
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23 (1,499)
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Cash flows from investing activities:
Acquisitions of fixed assets (341) (427)
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(341) (427)
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Cash flows from financing activities:
Increase in notes payable, net - 3,933
Treasury stock activity (34) 2
Dividends paid (492) (497)
------ ------
(526) 3,438
------ ------
Effect of exchange rate changes on cash (187) 6
------ ------
Net change in cash and cash equivalents (1,031) 1,518
Cash and cash equivalents:
Beginning of period 5,651 4,136
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End of period $4,620 $5,654
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------ ------
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):
September 30 June 30
2000 2000
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Inventories:
Finished parts $42,991 $40,313
Work in process 6,120 5,880
Raw materials 4,474 3,997
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$53,585 $50,190
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------- -------
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 September 30,2000 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):
September 30, September 30,
2000 1999
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Manufacturing segment sales $ 38,638 $ 31,219
Distribution segment sales 11,328 10,539
Inter/Intra segment sales (8,617) (6,481)
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Net sales $ 41,349 $ 35,277
--------- ---------
--------- ---------
Manufacturing segment earnings (loss) $ 1,207 $ (1,788)
Distribution segment earnings (loss) 947 546
Inter/Intra segment earnings (loss) (520) (202)
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Pretax earnings (loss) $ 1,634 $ (1,444)
--------- ---------
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Assets September 30, June 30,
2000 2000
------------- -------------
Manufacturing segment assets $151,963 $154,971
Distribution segment assets 23,992 24,518
Corporate assets and elimination
of inter-company assets (2,799) (5,299)
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$173,156 $174,190
-------- --------
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6
MANAGEMENT DISCUSSION AND ANALYSIS
Sales continued to register year-over-year improvement during the first fiscal
quarter. Revenues for the first three months were 17 percent higher than a
year ago with operations throughout the company contributing to the
improvement. Net earnings also compared very favorably to the loss reported
in last year's first quarter. As expected, both sales and earnings were lower
than the fiscal 2000 final quarter as a result of normal seasonal factors.
The increase from year-ago shipping levels was broad based, with the most
significant amounts registered at our manufacturing operations. While demand
was up sharply from a year ago, it continued at a rate very similar to that of
the preceding two quarters. Domestically, the increase over last year's
shipments was in the larger horsepower commercial marine transmissions, power
shift transmissions for AARF vehicles, and Arneson surface drives. In
addition, aftermarket parts sales were well above year-ago levels. The demand
for pleasure craft marine transmissions from our Belgian subsidiary continued
to be strong, in part due to attractive pricing related to weakness of the
Euro. Also, renewal parts shipments from that facility recovered from last
year's first-quarter shortfall, which was caused by the implementation of a
new enterprise-wide business system. All distribution subsidiaries had higher
shipments, but the improvement as reported from overseas subsidiaries was
mitigated by the strong dollar.
Profitability also improved, with the consolidated gross margin four
percentage points ahead of last year's first fiscal quarter. Much of the
increase was volume related as the greater production activity enabled more
efficient use of our facilities. Also contributing to the better margins was
improved domestic productivity and the continuing favorable impact of the
strong dollar in Europe.
Marketing, engineering, and administrative (ME&A) expenses were reported below
year-ago levels, and that accurately reflects our attention to these costs.
However, after adjusting for the one-time expenses associated with the systems
implementation in Europe last year, there was a slight rise in ME&A spending,
well below the sales increase. The increase in interest expense was due solely
to higher rates as the balance of borrowings declined by $6 million during the
past 12 months. While individual country tax rates were unchanged, the
effective consolidated rate is relatively high due to the mix of domestic
losses incurred and overseas earnings, which are taxed at a higher rate.
Working capital, at $48 million, was down $1 million from the previous quarter
due to a slight increase in liabilities. The seasonal changes in receivables
and inventory offset each other. Receivables declined with the lower sales
level and inventory increased in preparation for the higher second fiscal
quarter demand. Net cash flow from operating activities was slightly
positive, but there was some reduction in cash after meeting the modest needs
for investing and financing. The Company's balance sheet remains strong with
anticipated operating cash flows and existing financing arrangements
sufficient to provide 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 September 30,
2000.
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 September 30, 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)
November 10, 2000 /S/ FRED H. TIMM
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(Date) Fred H. Timm
Corporate Controller and
Secretary