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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended June 30, 2001
Commission File Number 1-7635
TWIN DISC, INCORPORATED
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(Exact Name of Registrant as Specified in its Charter)
Wisconsin 39-0667110
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1328 Racine Street, Racine, Wisconsin 53403
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including area code: (262)638-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common stock, no par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
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(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
At September 1, 2001, the aggregate market value of the common stock held by
non-affiliates of the registrant was $32,016,095. Determination of stock
ownership by affiliates was made solely for the purpose of responding to this
requirement and registrant is not bound by this determination for any other
purpose.
At September 1, 2001, the registrant had 2,807,832 shares of its common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The incorporated portions of such documents being specifically identified in
the applicable Items of this Report.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held October 19, 2001 are incorporated by reference into Part III.
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PART I
Item 1. Business
Twin Disc designs, manufactures and sells heavy duty off-highway power
transmission equipment. Products offered include: hydraulic torque
converters; power-shift transmissions; marine transmissions and surface
drives; universal joints; gas turbine starting drives; power take-offs and
reduction gears; industrial clutches; fluid couplings and control systems. The
Company sells its product to customers primarily in the construction
equipment, industrial equipment, government, marine, energy and natural
resources and agricultural markets. The Company's worldwide sales to both
domestic and foreign customers are transacted through a direct sales force and
a distributor network. There have been no significant changes in products or
markets since the beginning of the fiscal year. The products described above
have accounted for more than 90% of revenues in each of the last three fiscal
years.
Most of the Company's products are machined from cast iron, forgings, cast
aluminum and bar steel which generally are available from multiple sources and
which are believed to be in adequate supply.
The Company has pursued a policy of applying for patents in both the United
States and certain foreign countries on inventions made in the course of its
development work for which commercial applications are considered probable.
The Company regards its patents collectively as important but does not
consider its business dependent upon any one of such patents.
The business is not considered to be seasonal except to the extent that
employee vacations are taken mainly in the months of July and August
curtailing production during that period.
The Company's products receive direct widespread competition, including from
divisions of other larger independent manufacturers. The Company also
competes for business with parts manufacturing divisions of some of its major
customers. Ten customers accounted for approximately 47% of the Company's
consolidated net sales during the year ended June 30, 2001. Sewart Supply,
Inc., an independent distributor of Twin Disc products, accounted for
approximately 11% of consolidated net sales in 2001.
Unfilled open orders for the next six months of $39,405,000 at June 30, 2001
compares to $52,991,000 at June 30, 2000. Since orders are subject to
cancellation and rescheduling by the customer, the six-month order backlog is
considered more representative of operating conditions than total backlog.
However, as procurement and manufacturing "lead times" change, the backlog
will increase or decrease; and thus it does not necessarily provide a valid
indicator of the shipping rate. Cancellations are generally the result of
rescheduling activity and do not represent a material change in backlog.
Management recognizes that there are attendant risks that foreign governments
may place restrictions on dividend payments and other movements of money, but
these risks are considered minimal due to the political relations the United
States maintains with the countries in which the Company operates or the
relatively low investment within individual countries. The Company's business
is not subject to renegotiation of profits or termination of contracts at the
election of the Government.
Engineering and development costs include research and development expenses
for new product development and major improvements to existing products, and
other charges for ongoing efforts to refine existing products. Research and
development costs charged to operations totaled $1,942,000, $1,852,000 and
$2,505,000 in 2001, 2000, and 1999, respectively. Total engineering and
development costs were $6,309,000, $6,322,000 and $7,829,000 in 2001, 2000 and
1999, respectively.
Compliance with federal, state and local provisions regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, is not anticipated to have a material effect on capital
expenditures, earnings or the competitive position of the Company.
The number of persons employed by the Company at June 30, 2001 was 986.
A summary of financial data by segment for the years ended June 30, 2001, 2000
and 1999 appears in Note J to the consolidated financial statements on pages
20 through 22 of this form.
Item 2. Properties
The Company owns two manufacturing, assembly and office facilities in Racine,
Wisconsin, U.S.A. and one in Nivelles, Belgium. The aggregate floor space of
these three plants approximates 677,000 square feet. One of the Racine
facilities includes office space which is the location of the Company's
corporate headquarters. The Company leases additional manufacturing, assembly
and office facilities in Decima, Italy.
The Company also has operations in the following locations, all of which are
used for sales offices, warehousing and light assembly or product service.
The following properties are leased:
Jacksonville, Florida, U.S.A. Chambery, France
Miami, Florida, U.S.A. Brisbane, Queensland, Australia
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Loves Park, Illinois, U.S.A. Perth, Western Australia, Australia
Coburg, Oregon, U.S.A. Singapore
Kent, Washington, U.S.A. Shanghai, China
Edmonton, Alberta, Canada Viareggio, Italy
Vancouver, British Columbia, Canada
The properties are generally suitable for operations and are utilized in the
manner for which they were designed. Manufacturing facilities are currently
operating at less than 65% capacity and are adequate to meet foreseeable needs
of the Company.
Item 3. Legal Proceedings
Twin Disc is a defendant in several product liability or related claims
considered either adequately covered by appropriate liability insurance or
involving amounts not deemed material to the business or financial condition
of the Company.
The Company has joined with a group of potentially responsible parties in
signing a consent decree with the Illinois Environmental Protection Agency
("IEPA") to conduct a remedial investigation and feasibility study at the
Interstate Pollution Control facility in Rockford, Illinois. The consent
decree was signed on October 17, 1991, and filed with the federal court in the
Northern District of Illinois. The Company's total potential liability on the
site cannot be estimated with particularity until a final remedy is selected
by the IEPA and an allocation scheme is adopted by the parties. The IEPA is
expected to issue its decision by early fall, 2001. Based upon current
assumptions, however, the Company anticipates potential liability of
approximately $200,000.
The Company has also joined with a group of potentially responsible parties in
signing a consent decree with the Illinois Environmental Protection Agency to
conduct a remedial investigation and feasibility study at the MIG\DeWane
Landfill in Rockford, Illinois. The consent decree was signed on March 29,
1991, and filed with the federal court in the Northern District of Illinois.
The IEPA issued its record of decision for the site in April 2000, selecting a
remedy with an estimated cost of $18 million. The Company's total potential
liability on the site cannot be estimated with particularity until an
allocation scheme is adopted by the parties. Based upon current assumptions,
however, the Company anticipates potential liability of approximately
$300,000.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to
be held on October 19, 2001.
Principal Occupation
Name Last Five Years Age
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Michael E. Batten Chairman, Chief Executive Officer since 1983 61
Michael H. Joyce President - Chief Operating Officer since 1995 60
James O. Parrish Vice President - Finance and Treasurer since 1982 61
Lance J. Melik Vice President - Transmission and Industrial 58
products since June 1999 and Vice President
- Corporate Development since September 1995
Paul A. Pelligrino Vice President - Engineering since 1996 62
Henri Claude Fabry Vice President - Marine and Distribution since 55
June 1999; formerly Director of Marketing and
Sales, Twin Disc International S.A. since
February 1997; formerly Managing Director of
Marine Power Europe since 1985
James E. Feiertag Vice President - Manufacturing since November 44
2000; formerly Vice President of Manufacturing
for the Drives and Systems Group, Rockwell
Automation Group since 1999; formerly Director
of Manufacturing for the Drives Group, Rockwell
Automation Group
Fred H. Timm Corporate Controller and Secretary since 1995 55
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Officers are elected annually by the Board of Directors at the Board meeting
held preceding each Annual Meeting of the Shareholders. Each officer holds
office until his successor is duly elected, or until he resigns or is removed
from office.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock is traded on the New York Stock Exchange under the
symbol TDI. The price information below represents the high and low sales
prices for each period:
Fiscal Year Ended June 30, 2001 Fiscal Year Ended June 30, 2000
High Low High Low
First Quarter 17 13/16 15 3/4 First Quarter 20 3/8 16 1/2
Second Quarter 17 5/16 14 1/4 Second Quarter 16 5/8 11
Third Quarter 15 3/32 13 1/16 Third Quarter 18 5/16 11 7/8
Fourth Quarter 17 19/64 14 1/4 Fourth Quarter 17 9/16 15 7/16
Quarterly dividends of $0.175 per share were declared and paid for each of the
quarters above. As of June 30, 2001 there were 1,060 shareholder accounts.
Pursuant to a shareholder rights plan (the "Rights Plan"), on April 17, 1998,
the Board of Directors declared a dividend distribution, payable to
shareholders of record at the close of business on June 30, 1998, of one
Preferred Stock Purchase Right ("Rights") for each outstanding share of Common
Stock. The Rights will expire 10 years after issuance, and will be
exercisable only if a person or group becomes the beneficial owner of 15% or
more of the Common Stock (or 25% in the case of any person or group which
currently owns 15% or more of the shares or who shall become the Beneficial
Owner of 15% or more of the shares as a result of any transfer by reason of
the death of or by gift from any other person who is an Affiliate or an
Associate of such existing holder or by succeeding such a person as trustee of
a trust existing on the record date) (an "Acquiring Person"), or 10 business
days following the commencement of a tender or exchange offer that would
result in the offeror beneficially owning 25% or more of the Common Stock. A
person who is not an Acquiring Person will not be deemed to have become an
Acquiring Person solely as a result of a reduction in the number of shares of
Common Stock outstanding due to a repurchase of Common Stock by the Company
until such person becomes beneficial owner of any additional shares of Common
Stock. Each Right will entitle shareholders who received
the Rights to buy one newly issued unit of one one-hundredth of a share of
Series A Junior Preferred Stock at an exercise price of $160, subject to
certain anti-dilution adjustments. The Company will generally be entitled to
redeem the Rights at $.05 per Right at any time prior to 10 business days
after a public announcement of the existence of an Acquiring Person. In
addition, if (i) a person or group accumulates more than 25% of the Common
Stock (except pursuant to an offer for all outstanding shares of Common Stock
which the independent directors of the Company determine to be fair to and
otherwise in the best interests of the Company and its shareholders and except
solely due to a reduction in the number of shares of Common Stock outstanding
due to the repurchase of Common Stock by the Company), (ii) a merger takes
place with an Acquiring Person where the Company is the surviving corporation
and its Common Stock is not changed or exchanged, (iii) an Acquiring Person
engages in certain self-dealing transactions, or (iv) during such time as
there is an Acquiring Person, an event occurs which results in such Acquiring
Person's ownership interest being increased by more than 1% (e.g., a reverse
stock split), each Right (other than Rights held by the Acquiring Person and
certain related parties which become void) will represent the right to
purchase, at the exercise price, Common Stock (or in certain circumstances, a
combination of securities and/or assets) having a value of twice the exercise
price. In addition, if following the public announcement of the existence of
an Acquiring Person the Company is acquired in a merger or other business
combination transaction, except a merger or other business combination
transaction that takes place after the consummation of an offer for all
outstanding shares of Common Stock that the independent directors of the
Company have determined to be fair, or a sale or transfer of 50% or more of
the Company's assets or earning power is made, each Right (unless previously
voided) will represent the right to purchase, at the exercise price, common
stock of the acquiring entity having a value of twice the exercise price at
the time.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on a substantial number of Rights being
acquired. However, the Rights are not intended to prevent a take-over, but
rather are designed to enhance the ability of the Board of Directors to
negotiate with an acquirer on behalf of all of the shareholders. In addition,
the Rights should not interfere with a proxy contest.
The Rights should not interfere with any merger or other business combination
approved by the Board of Directors since the Rights may be redeemed by the
Company at $.05 per Right prior to 10 business days after the public
announcement of the existence of an Acquiring Person.
The news release announcing the declaration of the Rights dividend, dated
April 17, 1998, filed as Item 14(a)(3), Exhibit 4(b) of Part IV of the Annual
Report on Form 10-K for the year ended June 30, 1998 is hereby incorporated by
reference.
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Item 6. Selected Financial Data
Financial Highlights
(dollars in thousands, except per share amounts and shares outstanding)
For the years ended June 30,
Statement of Operations Data: 2001 2000 1999 1998 1997
Net sales $180,786 $177,987 $168,142 $202,643 $189,942
Net earnings (loss) 6,169 3,773 (1,018) 9,363 7,729
Basic earnings (loss) per share 2.20 1.34 (.36) 3.30 2.78
Diluted earnings (loss) per share 2.20 1.34 (.36) 3.24 2.75
Dividends per share .70 .70 .805 .76 .70
Balance Sheet Data (at end of period):
Total assets 156,734 174,190 176,900 160,954 158,755
Total debt 31,058 38,682 40,127 20,225 20,113
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Sales, New Orders and Backlog
There was a small increase in revenues in fiscal 2001 following the modest
improvement a year earlier. While sales improved, demand from our various
markets was mixed and the strong dollar heightened competitive pressure.
Order rates declined throughout the most recent fiscal year after an
improvement in fiscal 2000. The backlog of orders scheduled for shipment
during the next six months (six-month backlog) increased 32 percent to $53
million at June 2000 but dropped by 26 percent to $39 million by the end of
fiscal 2001.
Net sales of $178 million in fiscal 2000 were six percent ahead of the
previous fiscal year and rose another two percent to $181 million in fiscal
2001. Order rates improved early in fiscal year 2000, and year-over-year
improvements in shipments began in the second fiscal quarter. The most
significant components of the year 2000 improvement were registered within our
domestic manufacturing operation. Shipments of power take-offs, attributable
to the product line purchased in fiscal 1999; higher-horsepower marine
transmissions used in commercial boats; power-shift transmissions for
construction applications; and aftermarket parts sales all contributed to the
increase. Shipments from our Belgian plant of lower-horsepower marine
transmissions also increased slightly as demand for their use in pleasure
craft applications remained steady; and shipments from our Italian
manufacturing subsidiary acquired in fiscal 1999 contributed for the full
year.
Demand continued at a steady pace for the first part of fiscal 2001, but eased
somewhat by mid-year. Shipments followed the same pattern with favorable
year-to-year comparisons during the first half in all forward market product
lines as well as aftermarket service parts. As the year progressed, we
experienced a softening demand for power-shift transmissions and torque
converters and for power take-offs used in irrigation and waste recycling
applications. These declines were partially offset by increased volume of
shipments for military applications, surface drive marine propulsion units,
and the continuing steady demand for marine transmissions produced overseas.
Indicative of a modest recovery in certain of the Company's markets, fourth
quarter shipments of power take-offs were approximately equal to year ago
levels.
Shipments from our wholly owned distribution companies, primarily those
offshore, rebounded in fiscal 2000 after the modest decline in 1999; and that
improvement continued in fiscal 2001. Recovering economies, particularly in
the Pacific Rim, were a positive influence, but the stronger dollar
intensified competition and inhibited realization of the full market
potential.
The U.S. dollar strengthened against most currencies in each of the last three
fiscal years, particularly Asian currencies in fiscal 1999 and the Euro in
fiscal 2000 and 2001, resulting in two negative influences on revenues. There
was increased pricing pressure from non-dollar based competition, and sales
from our offshore subsidiaries were down when translated into U.S. dollars for
reporting. An offsetting favorable impact was the improved margins on dollar-
denominated shipments from our Belgian subsidiary. Price increases,
implemented selectively in each year, generated revenues about equal to the
rate of inflation.
At the end of fiscal 2000, six-month backlog was $53 million, a substantial
increase from the prior year-end. The improvement was due mainly to improved
demand for commercial marine and certain industrial products. As fiscal 2001
opened, order rates began to decline in selected markets, most notably
industrial products, and that continued through the year. By the end of
fiscal 2001 industrial products demonstrated evidence of some recovery in
demand, but the order rate for marine transmissions had fallen. As a result,
the six-month backlog at the end of fiscal 2001 had declined to $39 million,
26 percent below the prior year-end.
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Margins, Costs and Expenses
Manufacturing method and process improvements as well as programs to reduce
inventory and manage assets more effectively have been part of our on-going
efforts to improve operating margins. We also have given constant attention
to fixed costs so that greater profitability can be achieved, especially
during cyclical downturns.
The gross margin increased by almost two percentage points in fiscal 2000 with
all manufacturing operations showing improvement. Domestically, higher
production volume, a favorable product mix, strict control of general
manufacturing costs, and the cost benefit of fiscal 1999 manufacturing
personnel reductions were the most significant factors. Overseas,
productivity improvements, expansion of the production workweek, and the
favorable impact of sales denominated in the relatively strong dollar provided
added profitability.
In fiscal 2001, incremental improvements in all aspects of our manufacturing
operations from on-time delivery to inventory reduction and cellular layout
led the way to higher gross margins. During the fourth quarter, we recorded
several one-time charges against operations for inventory obsolescence and
product warranty issues. Although the fourth-quarter margin was down somewhat
from the comparable period a year ago, it was consistent with previous fiscal
2001 quarters.
Marketing, engineering, and administrative (ME&A) expense declined four
percent in fiscal 2000 as a result of previous-year staff reductions,
continued attention to cost, and closure of our South African distribution
operation. In fiscal 2001, ME&A was virtually unchanged from the previous
year.
Recognizing the reduced order activity in the latter half of fiscal year 2001,
severance and voluntary separation programs to reduce the domestic
manufacturing workforce were implemented in the fourth quarter. In addition,
representing about one-third of the $1.5 million fourth quarter restructuring
charge, reserves were taken for the rationalization of several smaller
branches and operations whose markets will continue to be served from other
locations.
Early in fiscal 2001, we closed our wholly owned distribution company in Spain
and engaged an existing company to represent Twin Disc in that market. The
impact on revenues and profitability was not significant. During the third
fiscal quarter, we sold our minority interest in Niigata Converter Company to
our joint-venture partner and recorded a gain of $3.9 million in Other Income.
Most of the proceeds were applied to the outstanding debt, but a portion was
used to capitalize a new marketing and engineering joint venture that will
support our global marine product line.
Interest, Taxes and Net Earnings
Interest expense increased sharply in fiscal 2000 primarily due to the
increased debt needed to finance acquisitions in fiscal 1999. In fiscal 2001,
interest declined as debt was reduced by $8 million and, although the majority
of our debt is in fixed-rate notes, we also benefited from the drop in U.S.
interest rates. In the last fiscal quarter, settlement of a federal tax issue
allowed the reversal of previously accrued interest expense; and that further
reduced fiscal 2001 interest expense.
The substantial tax provision on almost-breakeven pre-tax earnings in fiscal
1999 was caused by lower tax rates on losses domestically, offset by higher
rates on income overseas; and by the lack of a recordable tax benefit on the
provision for loss on the closure of our South African distribution
subsidiary. In fiscal 2000 and again in fiscal 2001, limitations on foreign
tax credit utilization, continued high proportion of foreign earnings, and
settlement of some state tax issues resulted in an unusually high effective
tax rate. Statutory rates generally have remained unchanged.
Liquidity and Capital Resources
The net cash provided by operating activities in fiscal 2000 was almost $7
million, down approximately $2 million from the previous year. Positive cash
flows from earnings, depreciation, and working capital reductions were
partially offset by increased contributions to Company pension funds. In
fiscal 2001, net cash provided by operations remained about $7 million with
earnings, depreciation and asset reduction the primary components.
Expenditures for capital equipment were reduced from plan to conserve cash
during the fiscal 1999 downturn. For the past two years, spending has been
well below depreciation as we have been more rigorous in establishing capital
budgets that are consistent with long-term manufacturing strategy. Looking
forward, we expect the level of capital spending will rise as necessary to
provide for more efficient machinery and to allow further refinement of
individual manufacturing cells.
Working capital and the current ratio dropped in fiscal 1999 as short-term
debt was used to finance acquisitions. Early in fiscal 2000, the short-term
borrowings were replaced with a term revolver and those liquidity measures
returned to more normal levels. At the end of each of the last two fiscal
years, working capital has been approximately $50 million with the current
ratio unchanged at 2.2.
The book value of the Company, and thus its reported capital structure,
changed significantly at each of the last three fiscal year-ends. It was
reduced by a non-cash charge to equity of $11.1 million at June 30, 1999. The
charge was caused primarily by using a more conservative mortality table to
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estimate pension liabilities and generally reflected the amount by which those
liabilities exceeded plan assets. In fiscal 2000, the charge was reversed as a
result of good market return on plan assets and equity increased by a similar
amount. Then in the most recent year, poor market performance reduced plan
assets and required a new non-cash charge to equity of $17.8 million, net of
tax. In accordance with applicable accounting standards, the after-tax effects
of the changes were charged directly to equity and shown in comprehensive
income but did not affect reported primary earnings. In addition, the
aforementioned non-cash accounting adjustment reflects, in large part, a
mismatch between cash contributed to the plan and the expense charged against
operations and does not indicate a need for large cash contributions. Our
pension plans are well funded.
The Company believes the capital resources available in the form of existing
cash, lines of credit (see Footnote G to the consolidated financial
statements), and funds provided by operations will be adequate to meet
anticipated capital expenditures and other foreseeable business requirements
in the future.
Other Matters
Environmental Matters
The Company is involved in various stages of investigation relative to
hazardous waste sites on the United States EPA National Priorities List. It
is not possible at this time to determine the ultimate outcome of those
matters; but, as discussed further in Footnote O to the consolidated financial
statements, they are not expected to affect materially the Company's
operations, financial position, or cash flows.
Note on Forward-Looking Statements
Statements in this report and in other Company communications that are not
historical facts are forward-looking statements, which are based on
management's current expectations. These statements involve risks and
uncertainties that could cause actual results to differ materially from what
appears here.
Forward-looking statements include the Company's description of plans and
objectives for future operations and assumptions behind those plans. The
words "anticipates," "believes," "intends," "estimates," and "expects," or
similar anticipatory expressions, usually identify forward-looking statements.
In addition, goals established by Twin Disc, Incorporated, should not be
viewed as guarantees or promises of future performance. There can be no
assurance the Company will be successful in achieving its goals.
In addition to the assumptions and information referred to specifically in the
forward-looking statements, other factors could cause actual results to be
materially different from what is presented here.
Item 7(a). Quantitative and Qualitative Disclosure About Market Risk.
The Company is exposed to market risks from changes in interest rates,
commodities and foreign exchange. To reduce such risks, the Company
selectively uses financial instruments and other pro-active management
techniques. All hedging transactions are authorized and executed pursuant to
clearly defined policies and procedures, which prohibit the use of financial
instruments for trading or speculative purposes. Discussions of the Company's
accounting policies and further disclosure relating to financial instruments
is included in Note A of Notes to Consolidated Financial Statements on pages
16 through 17 of this form.
Interest rate risk - The Company currently has lines of credit bearing
interest predominantly at the prime interest rate minus .75%. Due to the
relative stability of interest rates, the Company does not utilize any
financial instruments to manage interest rate risk exposure.
Commodity price risk - The Company is exposed to the fluctuation in market
prices for such commodities as steel and aluminum. Due to the relative
stability of these commodities, the Company does not utilize commodity price
hedges to manage commodity price risk exposure.
Currency risk - The Company has exposure to foreign currency exchange
fluctuations. The Company does not hedge the translation exposure represented
by the net assets of its foreign subsidiaries. Foreign currency translation
adjustments are recorded as a component of shareholders' equity. Forward
foreign exchange contracts are used to hedge the currency fluctuations on
transactions denominated in foreign currencies. Gains and losses from foreign
currency transactions are included in earnings. At June 30, 2001 and 2000, the
Company had outstanding forward exchange contracts to purchase 208,189,000 and
189,972,000 Belgian francs at a cost of $4,500,000 and $4,500,000,
respectively. The contracts have a weighted average maturity of 48 days and 40
days, respectively. In addition, the Company had outstanding forward foreign
exchange contracts to sell 776,913,000 Italian Lira for $345,000. The
contracts have a weighted average maturity of 21 days as of June 30, 2001.
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Item 8. Financial Statements and Supplementary Data
See consolidated financial statements and Financial Statement Schedule on
Pages 10 through 29 of this form.
Sales and Earnings by Quarter (dollars in thousands, except per share amounts)
2001 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
Net sales $41,349 $44,025 $47,642 $47,770 $180,786
Gross profit 9,744 10,456 11,878 11,617 43,695
Net earnings 906 960 4,033 270 6,169
Basic earnings per share .32 .34 1.44 .10 2.20
Diluted earnings per share .32 .34 1.44 .10 2.20
Dividends per share .175 .175 .175 .175 .70
2000 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
Net sales $35,277 $44,342 $49,467 $48,901 $177,987
Gross profit 6,856 9,952 11,590 12,960 41,358
Net earnings (897) 693 1,726 2,251 3,773
Basic earnings per share (.32) .25 .61 .80 1.34
Diluted earnings per share (.32) .25 .61 .80 1.34
Dividends per share .175 .175 .175 .175 .70
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this report.
For information with respect to the Directors of the Registrant, see "Election
of Directors" in the Proxy Statement for the Annual Meeting of Shareholders to
be held October 19, 2001, which is incorporated into this report by reference.
For information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, see "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement for the Annual Meeting of
Shareholders to be held October 19, 2001, which is incorporated into this
report by reference.
Item 11. Executive Compensation
The information set forth under the captions "Compensation of Executive
Officers", "Stock Options","Retirement Income Plan", "Supplemental Retirement
Benefit Plan", "Compensation of Directors" and "Employment Contracts" in the
Proxy Statement for the Annual Meeting of Shareholders to be held on October
19, 2001 is incorporated into this report by reference. Discussion in the
Proxy Statement under the captions "Board Executive Selection and Salary
Committee Report on Executive Compensation" and "Corporate Performance Graph"
is not incorporated by reference and shall not be deemed "filed" as part of
this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain beneficial owners and management is set forth in
the Proxy Statement for the Annual Meeting of Shareholders to be held on
October 19, 2001 under the caption "Principal Shareholders, Directors and
Executive Officers" and incorporated into this report by reference.
There are no arrangements known to the Registrant, the operation of which may
at a subsequent date result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions
None.
9
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on page 10, the Report of Independent Accountants on page 11 and the
Consolidated Financial Statements on pages 12 to 27, all of which are
incorporated by reference.
Individual financial statements of the 50% or less owned entities accounted
for by the equity method are not required because the 50% or less owned
entities do not constitute significant subsidiaries.
(a)(2) Consolidated Financial Statement Schedules
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on page 10, the Report of Independent Accountants on Financial
Statement Schedule on page 28 and the Consolidated Financial Statement
Schedule on page 29, all of which are incorporated by reference.
(a)(3) Exhibits. See Exhibit Index included as the last page of this form,
which is incorporated by reference.
Copies of exhibits filed as a part of this Annual Report on Form 10-K may be
obtained by shareholders of record upon written request directed to the
Secretary, Twin Disc, Incorporated, 1328 Racine Street, Racine, Wisconsin
53403.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants....................................... 11
Consolidated Balance Sheets as of June 30, 2001 and 2000................ 12
Consolidated Statements of Operations for the years
ended June 30, 2001, 2000 and 1999..................................... 13
Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999..................................... 14
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the years ended June 30, 2001, 2000 and 1999.. 15
Notes to Consolidated Financial Statements........................... 16-27
INDEX TO FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants on Financial Statement Schedule...... 28
Schedule II - Valuation and Qualifying Accounts........................ 29
Schedules, other than those listed, are omitted for the reason that they are
inapplicable, are not required, or the information required is shown in the
financial statements or the related notes.
10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Twin Disc, Incorporated
Racine, Wisconsin
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity and
comprehensive income and cash flows present fairly, in all material respects,
the financial position of Twin Disc, Incorporated and Subsidiaries at June 30,
2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2001, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- - - - - - - - - - - - - - -
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 20, 2001, except as to Note G
which is as of August 1, 2001
11
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 and 2000
(Dollars in thousands) 2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 5,961 $ 5,651
Trade accounts receivable, net 27,058 28,828
Inventories, net 46,492 50,190
Deferred income taxes 8,330 -
Other 3,925 5,333
------- -------
Total current assets 91,766 90,002
Property, plant and equipment, net 31,584 34,303
Investments in affiliates 2,358 6,968
Goodwill, net 13,719 14,401
Deferred income taxes 6,302 4,416
Intangible pension asset 1,988 -
Prepaid pension asset - 14,335
Other assets 9,017 9,765
------- -------
$156,734 $174,190
======= =======
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,797 $ 4,571
Current maturities on long-term debt 2,857 2,857
Accounts payable 10,368 11,571
Deferred income taxes - 1,157
Accrued liabilities 23,428 20,752
------- -------
Total current liabilities 41,450 40,908
Long-term debt 23,404 31,254
Accrued retirement benefits 33,121 23,795
------- -------
97,975 95,957
Minority interest 337 -
Shareholders' equity:
Common shares authorized: 15,000,000;
issued: 3,643,630; no par value 11,653 11,653
Retained earnings 87,431 83,228
Accumulated other comprehensive (loss) income (23,181) 799
------- -------
75,903 95,680
Less treasury stock, at cost 17,481 17,447
------- -------
Total shareholders' equity 58,422 78,233
------- -------
$156,734 $174,190
======= =======
The notes to consolidated financial statements
are an integral part of these statements.
12
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 2001, 2000 and 1999
(In thousands, except per share data)
2001 2000 1999
---- ---- ----
Net sales $180,786 $177,987 $168,142
Cost of goods sold 137,091 136,629 132,061
------- ------- -------
Gross profit 43,695 41,358 36,081
Marketing, engineering and
administrative expenses 31,716 31,476 32,755
Restructuring of operations 1,453 - -
------- ------- -------
Earnings from operations 10,526 9,882 3,326
Other income (expense):
Interest income 262 244 237
Interest expense (2,194) (2,979) (2,070)
Equity in net earnings
(loss) of affiliates 820 906 (945)
Gain on sale of affiliate 3,935 - 1,355
Loss on closure of subsidiary - - (1,140)
Other, net (258) 14 (749)
------- ------- -------
2,565 (1,815) (3,312)
------- ------- -------
Earnings before income
taxes 13,091 8,067 14
Income taxes 6,922 4,294 1,032
------- ------- -------
Net earnings (loss) $ 6,169 $ 3,773 $ (1,018)
======= ======= =======
Earnings (loss) per share data:
Basic earnings (loss) per share $ 2.20 $ 1.34 $ (.36)
Diluted earnings (loss) per share 2.20 1.34 (.36)
Shares outstanding data:
Average shares outstanding 2,808 2,821 2,835
Dilutive stock options - - 9
------- ------- -------
Diluted shares outstanding 2,808 2,821 2,844
======= ======= =======
The notes to consolidated financial statements
are an integral part of these statements.
13
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net earnings (loss) $ 6,169 $ 3,773 $ (1,018)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 6,392 6,980 6,454
(Loss) gain on sale of plant assets 10 (3) 38
Gain on partial sale of affiliate (3,935) - (1,355)
Loss on closure of subsidiary - - 1,140
Loss on restructuring of operations 1,262 - -
Equity in net (earnings)
loss of affiliates (820) (906) 945
Provision for deferred income taxes (4,680) (284) -
Dividends received from affiliate 632 600 625
Changes in operating assets and
liabilities:
Trade accounts receivable, net 672 (2,922) 3,898
Inventories, net 1,483 3,211 3,468
Other assets 3,535 (770) (1,757)
Accounts payable (1,677) 2,402 (1,360)
Accrued liabilities 1,210 168 (759)
Accrued/prepaid retirement benefits (2,869) (5,364) (1,361)
------- ------- -------
Net cash provided by
operating activities 7,384 6,885 8,958
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of plant assets 52 92 24
Proceeds from sale of affiliate 7,173 - -
Acquisitions of plant assets (3,492) (2,134) (6,439)
Acquisitions of businesses - - (16,785)
Investment in joint venture (654) - -
------- ------- -------
Net cash provided (used) by
investing activities 3,079 (2,042) (23,200)
------- ------- -------
Cash flows from financing activities:
Increases (decreases) in notes
payable, net (5,000) (15,000) 15,000
Proceeds from long-term debt - 18,000 -
Payments of long-term debt (2,857) (3,857) -
Acquisition of treasury stock (34) (343) -
Proceeds from exercise of stock options - 2 38
Dividends paid (1,966) (1,974) (2,282)
------- ------- -------
Net cash (used) provided by
financing activities (9,857) (3,172) 12,756
------- ------- -------
Effect of exchange rate changes on cash (296) (156) 535
------- ------- -------
Net change in cash and cash equivalents 310 1,515 (951)
Cash and cash equivalents:
Beginning of year 5,651 4,136 5,087
------- ------- -------
End of year $ 5,961 $ 5,651 $ 4,136
======= ======= =======
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 2,078 $ 3,008 $ 2,037
Income taxes 5,155 4,401 127
The notes to consolidated financial statements
are an integral part of these statements.
14
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
for the years ended June 30, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
---- ---- ----
Common stock
Balance, June 30 $ 11,653 $ 11,653 $ 11,653
------- ------- -------
Retained earnings
Balance, July 1 83,228 81,430 84,738
Net earnings (loss) 6,169 3,773 (1,018)
Cash dividends (1,966) (1,974) (2,282)
Stock options exercised - (1) (8)
------- ------- -------
Balance, June 30 87,431 83,228 81,430
------- ------- -------
Accumulated other comprehensive income (loss)
Balance, July 1 799 (8,516) 2,757
------- ------- -------
Foreign currency translation adjustment
Balance, July 1 799 3,288 3,418
Current adjustment (6,219) (2,489) (130)
------- ------- -------
Balance, June 30 (5,420) 799 3,288
------- ------- -------
Minimum pension liability adjustment, net
Balance, July 1 - (11,804) (661)
Current adjustment, net of related income
taxes ($11,356 in 2001, $(7,547) in 2000
and $7,125 in 1999) (17,761) 11,804 (11,143)
------- ------- -------
Balance, June 30 (17,761) - (11,804)
------- ------- -------
Accumulated other comprehensive income (loss)
Balance, June 30 (23,181) 799 (8,516)
------- ------- -------
Treasury stock, at cost
Balance, July 1 (17,447) (17,107) (17,153)
Shares acquired (34) (343) -
Stock options exercised - 3 46
------- ------- -------
Balance, June 30 (17,481) (17,447) (17,107)
------- ------- -------
Shareholders' equity balance, June 30 $ 58,422 $ 78,233 $ 67,460
======= ======= =======
Comprehensive income (loss)
Net earnings (loss) $ 6,169 $ 3,773 $ (1,018)
Other comprehensive income (loss)
Foreign currency translation adjustment (6,219) (2,489) (130)
Minimum pension liability adjustment (17,761) 11,804 (11,143)
------- ------- -------
Other comprehensive income (loss) (23,980) 9,315 (11,273)
------- ------- -------
Comprehensive income (loss) $(17,811) $ 13,088 $(12,291)
======= ======= =======
The notes to consolidated financial statements
are an integral part of these statements.
15
TWIN DISC, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in
the preparation of these financial statements:
Consolidation Principles--The consolidated financial statements include the
accounts of Twin Disc, Incorporated and its wholly and partially owned
domestic and foreign subsidiaries. Certain foreign subsidiaries are included
based on fiscal years ending March 31 or May 31, to facilitate prompt
reporting of consolidated accounts. All significant intercompany transactions
have been eliminated.
Translation of Foreign Currencies--Substantially all foreign currency balance
sheet accounts are translated into United States dollars at the rates of
exchange prevailing at year-end. Revenues and expenses are translated at
average rates of exchange in effect during the year. Foreign currency
translation adjustments are recorded as a component of shareholders' equity.
Gains and losses from foreign currency transactions are included in earnings.
Included in other income (expense) of the consolidated statement of operations
are foreign currency transaction losses of $145,000, $144,000 and $682,000 in
2001, 2000 and 1999, respectively.
Cash Equivalents--The Company considers all highly liquid marketable
securities purchased with a maturity date of three months or less to be cash
equivalents.
Receivables--Trade accounts receivable are stated net of an allowance for
doubtful accounts of $699,000 and $704,000 at June 30, 2001 and 2000,
respectively.
Fair Value of Financial Instruments--The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents, accounts
receivable, accounts payable, notes payable and current maturities on long-
term debt approximate fair value because of the immediate short-term maturity
of these financial instruments. The carrying amounts reported for long-term
debt approximates fair value because the underlying instruments bear interest
at, or near, a current market rate.
Derivative Financial Instruments--Derivative financial instruments (primarily
forward foreign exchange contracts) may be utilized by the Company to hedge
foreign exchange rate risk. The Company has established policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not enter into
financial instruments for trading or speculative purposes. For financial
reporting purposes, forward foreign exchange contracts used to hedge the
currency fluctuations on transactions denominated in foreign currencies are
marked-to-market and the resulting gains and losses, together with the
offsetting losses and gains on hedged transactions, are recorded in the "Other
income (expense)" caption in the statement of operations. At June 30, 2001 and
2000, the Company had outstanding forward foreign exchange contracts to
purchase $4,500,000 and $4,500,000, respectively, of Belgian francs with a
weighted average maturity of 48 days and 40 days, respectively. In addition,
the Company had outstanding forward foreign exchange contracts to sell
$345,000 of Italian lira with a weighted average maturity of 21 days as of
June 30, 2001. The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities " which establishes standards for accounting for
derivatives and hedging activities. FAS 133 was effective for the Company on
July 1, 2000 and did not have a significant impact on the Company's earnings
or financial position.
Inventories--Inventories are valued at the lower of cost or market. Cost has
been determined by the last-in, first-out (LIFO) method for parent company
inventories, and by the first-in, first-out (FIFO) method for all other
inventories.
Property, Plant and Equipment and Depreciation--Assets are stated at cost.
Expenditures for maintenance, repairs and minor renewals are charged against
earnings as incurred. Expenditures for major renewals and betterments are
capitalized and amortized by depreciation charges. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets for
financial reporting and on accelerated methods for income tax purposes. The
lives assigned to buildings and related improvements range from 10 to 40
years, and the lives assigned to machinery and equipment range from 5 to 15
years. Upon disposal of property, plant and equipment, the cost of the asset
and the related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in earnings. Fully depreciated assets are
not removed from the accounts until physically disposed.
The Company reviews the carrying value of property, plant and equipment for
impairment whenever events and circumstances indicate that the carrying value
of an asset may not be recoverable from the estimated future cash flows
expected to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the carrying value, an
impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets.
Investments in Affiliates--The majority of the Company's investments in 20% to
50%-owned affiliates are accounted for using the equity method. Investments in
less than 20%-owned affiliates are accounted for using the cost method.
Revenue Recognition--Revenue is recognize by the Company when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred and ownership has transferred to the customer; the price
to the customer is fixed or determinable; and collectability is reasonably
assured. In December 1999, the Securities and Exchange Commission (SEC)
released Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements". SAB 101 was effective for the Company in the fourth
quarter of 2001 and did not have a material effect on the Company's financial
statements.
16
Goodwill--Goodwill consists of costs in excess of net assets of businesses
acquired. Goodwill is amortized using the straight-line method over its
estimated beneficial lives, not to exceed 40 years. Subsequent to an
acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate whether the goodwill should be
evaluated for possible impairment. Goodwill at June 30, 2001 and 2000 of
$13,719,000 and $14,401,000, respectively, are net of accumulated amortization
of $1,397,000 and $1,542,000, respectively.
Income Taxes--The Company recognizes deferred tax liabilities and assets for
the expected future income tax consequences of events that have been
recognized in the Company's financial statements. Under this method, deferred
tax liabilities and assets are determined based on the temporary differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse.
The Company does not provide for taxes which would be payable if undistributed
earnings of its foreign subsidiaries or its foreign affiliate were remitted
because the Company either considers these earnings to be invested for an
indefinite period or anticipates that if such earnings were distributed,
the U.S. income taxes payable would be substantially offset by foreign tax
credits.
Management Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual amounts could differ from those estimates.
Shipping and Handling Fees and Costs--The Company adopted the provisions of
the Emerging Issues Task Force (EITF) Issue No. 00-10 "Accounting for Shipping
and Handling Fees and Costs". EITF 00-10 was effective for the Company in the
fourth quarter of 2001 and did not have a material effect on the Company's
financial statements.
Recently Issued Accounting Standards--In July 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets." The statements eliminate the pooling-of-interest method of
accounting for business combinations and require that goodwill and certain
intangible assets not be amortized. Instead, these assets will be reviewed
for impairment annually with any related losses recognized in earnings when
incurred. SFAS 141 is effective for the Company July 1, 2001. SFAS 142 will
be effective for the Company July 1, 2002. Early application is permitted.
The Company is currently evaluating the impact of SFAS 142.
B. INVENTORIES
The major classes of inventories at June 30 were as follows (in thousands):
2001 2000
---- ----
Finished parts $37,711 $40,313
Work-in-process 4,931 5,880
Raw materials 3,850 3,997
------ ------
$46,492 $50,190
====== ======
Inventories stated on a LIFO basis represent approximately 29% and 35% of
total inventories at June 30, 2001 and 2000, respectively. The approximate
current cost of the LIFO inventories exceeded the LIFO cost by $20,565,000 and
$20,549,000 at June 30, 2001 and 2000, respectively.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 were as follows (in thousands):
2001 2000
---- ----
Land $ 1,403 $ 1,406
Buildings 22,407 22,582
Machinery and equipment 91,773 92,715
------ ------
115,583 116,703
Less accumulated depreciation 83,999 82,400
------ ------
$ 31,584 $ 34,303
====== ======
17
D. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates as of June 30, 2001 consists of a 25%
interest in a domestic distributor of Twin Disc products. The Company's
investments in affiliates as of June 30, 2000 consisted of the 25% interest in
the domestic distributor and a 19.5% investment in Niigata Converter Company,
LTD., Japan (Niigata), a manufacturer of power transmission equipment. In
March of 1999, the Company sold a portion of its investment in Niigata in
exchange for a $1.7 million note receivable due in various annual amounts
commencing December 31, 2002 through December 31, 2008. The sale was a non-
cash transaction for purposes of the consolidated statement of cash flows. As
a result, a pre-tax gain of $1.3 million was recognized in 1999. In January
of 2001 the Company sold their remaining investment in Niigata. The total
proceeds from the transaction was $7.2 million, including the elimination of
the $1.7 million note receivable, and resulted in a pre-tax gain of $3.9
million recognized in 2001.
Prior to the sale in 1999 the Company accounted for its 25% interest in
Niigata using the equity method. The Company recognized its share of
Niigata's loss from April 1, 1998 through March 1, 1999 of $1.5 million.
Combined condensed financial data for investments in affiliates accounted for
under the equity method of accounting are summarized below (in thousands).
The balance sheet information for 2001 and 2000 includes the domestic
distributor balances only. The statement of operations information for 2001
and 2000 includes the results of operation of the domestic distributor from
June 1, 2000 through May 31, 2001 and June 1, 1999 through May 31, 2000,
respectively. The statement of operations information for 1999 includes the
domestic distributor results from June 1, 1998 through May 31, 1999 and
Niigata results from April 1, 1998 through March 1, 1999.
2001 2000
---- ----
Current assets $ 11,485 $ 10,145
Other assets 5,458 5,452
------- -------
$ 16,943 $ 15,597
======= =======
Current liabilities $ 7,363 $ 6,681
Other liabilities 149 235
Shareholders' equity 9,431 8,681
------- -------
$ 16,943 $ 15,597
======= =======
2001 2000 1999
---- ---- ----
Net sales $ 27,516 $ 23,866 $116,115
Gross profit 9,832 9,813 13,008
Net earnings (loss) 3,281 3,624 (3,780)
E. JOINT VENTURE
On April 2, 2001 the Company entered into a Joint Venture Agreement with
Niigata Engineering Co. LTD., Japan (Niigata) to form NICO Transmissions Co.,
Inc. (N.C.). N.C. is an engineering and marketing company supporting the
Company's expanding global marine product line as well as a distribution
company for Niigata's family of transmission products.
Pursuant to the terms of the Joint Venture Agreement, the Company contributed
$0.7 million in exchange for a 66% ownership interest in N.C. and Niigata
contributed $0.3 million for a 34% ownership interest. As a result of the
Company's controlling interest, the Company will consolidate N.C. For
reporting purposes, N.C.'s balance sheet and statement of operations as of and
for the year ended March 31 will be consolidated with the Company's balance
sheet and statement of operations as of and for the year ended June 30.
Results of operation of N.C. for the three months ended June 30, 2001 were not
significant.
F. ACCRUED LIABILITIES
Accrued liabilities at June 30 were as follows (in thousands):
2001 2000
---- ----
Salaries and wages $ 4,533 $ 3,989
Retirement benefits 4,944 4,024
Other 13,951 12,739
------- -------
$ 23,428 $ 20,752
======= =======
18
G. DEBT
Notes payable consists of amounts borrowed under unsecured line of credit
agreements. Unused lines of credit total $19,476,000 at June 30, 2001. These
lines of credit are available predominantly at the prime interest rate minus
.75% and may be withdrawn at the option of the banks. The weighted average
interest rate of the lines outstanding at June 30, 2001 and 2000 was 5.6% and
5.26%, respectively.
Included in long-term debt is $14,286,000 and $17,142,000 on 7.37% ten-year
unsecured notes, net of $43,000 and $51,000 unamortized debt issuance costs at
June 30, 2001 and 2000, respectively. These notes contain certain covenants,
including the maintenance of a current ratio of not less than 1.5 and
consolidated net worth must be at least equal to the sum of $61,810,000 plus
35% of consolidated net earnings for each quarter from July 1, 1996. As a
result of the minimum pension liability adjustment recorded by the Company
during 2001 in accordance with Statement of Financial Accounting Standards
(SFAS) No. 87 "Employers' Accounting for Pensions" the Company was in
violation of the consolidated net worth covenant of the notes. On August 1,
2001, the Company received an amendment effective June 30, 2001 to it's note
agreement which cured this violation. The Company was in compliance with all
other debt covenants as of June 30, 2001. Principal payments of $2,857,000 are
due in the years 2000 through 2005, with the remaining balance due on June 1,
2006. During 2000 the Company entered into a $20,000,000 revolving loan
agreement which expires on September 30, 2002. This agreement contains certain
covenants, including restrictions on investments, acquisitions and
indebtedness. As of June 30, 2001, The Company was in compliance with all debt
covenants. The outstanding balance of $12,000,000 and $17,000,000 at June 30,
2001 and 2000, respectively, is classified as a long-term liability as
repayment is not expected within the next year. Notes under this agreement
bear interest on a schedule determined by the Company's leverage ratio and the
LIBOR interest rate. The rate was 4.9% and 7.9% at June 30, 2001 and 2000,
respectively.
H. LEASE COMMITMENTS
Approximate future minimum rental commitments under noncancellable operating
leases are as follows (in thousands):
Fiscal Year
- - - - - -
2002 $2,169
2003 1,799
2004 990
2005 641
2006 576
Thereafter 1,318
-----
$7,493
=====
Total rent expense for operating leases approximated $3,444,000, $3,023,000
and $2,941,000 in 2001, 2000 and 1999, respectively.
I. SHAREHOLDERS' EQUITY
At June 30, 2001 and 2000, treasury stock consisted of 835,798 and 833,740
shares of common stock, respectively. The Company issued 150 shares of
treasury stock in 2000, to fulfill its obligations under the stock option
plans. The difference between the cost of treasury shares issued and the
option price is recorded in retained earnings. The Company acquired 2,058 and
25,444 shares of treasury stock in 2001 and 2000, respectively.
Cash dividends per share were $.70 in 2001, $.70 in 2000 and $.805 in 1999.
In 1998, the Company's Board of Directors established a Shareholder Rights
Plan and distributed to shareholders one preferred stock purchase right for
each outstanding share of common stock. Under certain circumstances, a right
may be exercised to purchase one one-hundredth of a share of Series A Junior
Preferred Stock at an exercise price of $160, subject to certain anti-dilution
adjustments. The rights become exercisable ten (10) days after a public
announcement that a party or group has either acquired at least 15% (or at
least 25% in the case of existing holders who currently own 15% or more of the
common stock), or commenced a tender offer for at least 25% of the Company's
common stock. Generally, after the rights become exercisable, if the Company
is a party to certain merger or business combination transactions, or
transfers 50% or more of its assets or earnings power, or certain other events
occur, each right will entitle its holders, other than the acquiring person,
to buy a number of shares of common stock of the Company, or of the other
party to the transaction, having a value of twice the exercise price of the
right. The rights expire June 30, 2008, and may be redeemed by the Company
for $.05 per right at any time until ten (10) days following the stock
acquisition date. The Company is authorized to issue 200,000 shares of
preferred stock, none of which have been issued. The Company has designated
50,000 shares of the preferred stock for the purpose of the Shareholder Rights
Plan.
19
J. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged in the manufacture and sale of
power transmission equipment. Principal products include industrial clutches,
hydraulic torque converters, fluid couplings, power-shift transmissions,
marine transmissions, universal joints, power take-offs and reduction gears.
The Company sells to both domestic and foreign customers in a variety of
market areas, principally construction, industrial, energy and natural
resources, marine and agricultural.
The Company has two reportable segments: manufacturing and distribution. These
segments are managed separately because each provides different services and
requires different technology and marketing strategies. The accounting
practices of the segments are the same as those described in the summary of
significant accounting policies. Transfers among segments are at established
inter-company selling prices.
Information about the Company's segments is summarized as follows (in
thousands):
Manufacturing Distribution Total
------------- ------------ -----
2001
Net sales $171,439 $45,337 $216,776
Intra-segment sales 7,953 304 8,257
Inter-segment sales 27,009 724 27,733
Interest income 393 76 469
Interest expense 2,796 107 2,903
Income taxes 4,072 851 4,923
Depreciation and amortization 5,997 269 6,266
Segment earnings 5,562 1,365 6,927
Segment assets 141,737 24,822 166,559
Expenditures for segment assets 3,245 247 3,492
2000
Net sales $166,067 $46,726 $212,793
Intra-segment sales 7,176 613 7,789
Inter-segment sales 26,327 690 27,017
Interest income 321 73 394
Interest expense 3,159 125 3,284
Income taxes 3,904 916 4,820
Depreciation and amortization 6,589 264 6,853
Segment earnings 3,464 1,587 5,051
Segment assets 154,971 24,518 179,489
Expenditures for segment assets 1,766 368 2,134
1999
Net sales $156,661 $41,426 $198,087
Intra-segment sales 7,235 439 7,674
Inter-segment sales 21,545 726 22,271
Interest income 350 92 442
Interest expense 2,134 228 2,362
Income taxes 519 1,036 1,555
Depreciation and amortization 6,062 291 6,353
Segment earnings 1,147 170 1,317
Segment assets 152,251 25,448 177,699
Expenditures for segment assets 6,017 422 6,439
20
The following is a reconciliation of reportable segment net sales, earnings
(loss) and assets, to the Company's consolidated totals (in thousands):
2001 2000 1999
Net sales ---- ---- ----
Total net sales from reportable segments $216,776 $212,793 $198,087
Elimination of inter-company sales (35,990) (34,806) (29,945)
------- ------- -------
Total consolidated net sales $180,786 $177,987 $168,142
======= ======= =======
Earnings (loss)
Total earnings from
reportable segments $ 6,927 $ 5,051 $ 1,317
Other corporate expenses (758) (1,278) (2,335)
------- ------- -------
Total consolidated net earnings (loss) $ 6,169 $ 3,773 $ (1,018)
======= ======= =======
Assets
Total assets for reportable segments $166,559 $179,489
Elimination of inter-company assets (16,802) (18,120)
Corporate assets 6,977 12,821
------- -------
Total consolidated assets $156,734 $174,190
======= =======
Other significant items:
Segment Consolidated
Totals Adjustments Totals
2001 ------- ----------- ------------
Interest income $ 469 $ (207) $ 262
Interest expense 2,903 (709) 2,194
Income taxes 4,923 1,999 6,922
Depreciation and amortization 6,266 126 6,392
Expenditures for segment assets 3,492 - 3,492
2000
Interest income $ 394 $ (150) $ 244
Interest expense 3,284 (305) 2,979
Income taxes 4,820 (526) 4,294
Depreciation and amortization 6,853 127 6,980
Expenditures for segment assets 2,134 - 2,134
1999
Interest income $ 442 $ (205) $ 237
Interest expense 2,362 (292) 2,070
Income taxes 1,555 (523) 1,032
Depreciation and amortization 6,353 101 6,454
Expenditures for segment assets 6,439 - 6,439
All adjustments represent inter-company eliminations and corporate amounts.
21
Geographic information about the Company is summarized as follows (in
thousands):
2001 2000 1999
---- ---- ----
Net sales
United States $120,522 $113,377 $106,051
Other countries 60,264 64,610 62,091
------- ------- -------
Total $180,786 $177,987 $168,142
======= ======= =======
Long-lived assets
United States $ 50,305 $ 70,831
Belgium 8,221 8,291
Other countries 5,078 5,306
Elimination of inter-company assets (4,939) (4,656)
------- -------
Total $ 58,665 $ 79,772
======= =======
One customer accounted for approximately 11%, 10% and 8% of consolidated net
sales in 2001, 2000 and 1999, respectively.
K. STOCK OPTION PLANS
During fiscal 1999, the Company adopted the Twin Disc, Incorporated 1998 Stock
Option Plan for Non-Employee Directors, a non-qualified plan, for non-employee
directors to purchase up to 35,000 shares of common stock, and the Twin Disc,
Incorporated 1998 Incentive Compensation Plan, a plan, where options are
determined to be non-qualified or incentive at the date of grant, for officers
and key employees to purchase up to 165,000 shares of common stock. The plans
are administered by the Executive Selection and Compensation Committee of the
Board of Directors which has the authority to determine which officers and key
employees will be granted options. The grant of options to non-employee
directors is fixed at options to purchase 1,000 shares of common stock per
year or 600 at time of appointment. Except as described in the following
sentence, all options allow for exercise prices not less than the grant date
fair market value, immediately vest and expire ten years after the date of
grant. For options under the Incentive Compensation Plan, if the optionee
owns more than 10% of the total combined voting power of all classes of the
Company's stock, the price will be not less than 110% of the grant date fair
market value and the options expire five years after the grant date. In
addition, the Company has 78,750 incentive stock option plan options and
56,250 non-qualified stock option plan options outstanding at June 30, 2001
under the Twin Disc, Incorporated 1988 Incentive Stock Option plan and the
Twin Disc, Incorporated 1988 Non-Qualified Stock Option Plan for Officers, Key
Employees and Directors, respectively. The plans terminated during 1999.
Shares available for future options as of June 30 were as follows:
2001 2000
---- ----
1998 Stock Option Plan for Non-Employee Directors 20,650 23,000
1998 Incentive Compensation Plan 100,350 132,750
Stock option transactions under the plans during 2001, 2000 and 1999 were
as follows:
Weighted Weighted Weighted
Average Average Average
2001 Price 2000 Price 1999 Price
---- -------- ---- ------- ---- --------
Non-qualified stock options:
Options outstanding
at beginning of year 83,600 $22.06 84,600 $22.55 80,500 $22.50
Granted 15,750 17.47 12,000 19.94 19,000 24.69
Canceled (11,000) 21.47 (13,000) 23.31 (14,700) 25.08
Exercised - - - - (200) 26.00
------ ------- ------
Options outstanding
at June 30 88,350 $21.31 83,600 $22.06 84,600 $22.55
====== ======= ======
Options price range
($14.00 - $20.00)
Number of shares 52,650
Weighted average price $ 18.86
Weighted average remaining life 6.15 years
Options price range
($20.875 - $28.75)
Number of shares 35,700
Weighted average price $ 24.93
Weighted average remaining life 6.84 years
22
Weighted Weighted Weighted
Average Average Average
2001 Price 2000 Price 1999 Price
---- -------- ---- ------- ---- -------
Incentive stock options:
Options outstanding
at beginning of year 119,400 $23.24 132,250 $23.70 124,300 $23.57
Granted 26,800 17.81 22,800 20.20 33,900 25.80
Canceled (20,550) 21.95 (35,500) 23.25 (23,950) 26.58
Exercised - - (150) 14.00 (2,000) 16.63
------- ------- -------
Options outstanding
at June 30 125,650 $22.29 119,400 $23.24 132,250 23.70
======= ======= =======
Options price range
($14.00 - $20.00)
Number of shares 64,300
Weighted average price $ 18.83
Weighted average remaining life 7.27 years
Options price range
($20.875 - $28.75)
Number of shares 56,850
Weighted average price $ 25.47
Weighted average remaining life 7.02 years
Options price range
($31.625 - $32.25)
Number of shares 4,500
Weighted average price $ 31.63
Weighted average remaining life 7.00 years
The Company accounts for its stock option plans under the guidelines of
Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost
has been recognized in the statement of operations. Had the Company
recognized compensation expense determined based on the fair value at the
grant date for awards under the plans, consistent with the method prescribed
by FAS 123, the net earnings and earnings per share would have been as follows
(in thousands, except per share amounts):
2001 2000 1999
---- ---- ----
Net earnings (loss)
As reported $ 6,169 $ 3,773 $(1,018)
Pro forma 6,028 3,648 (1,277)
Basic earnings (loss) per share
As reported $ 2.20 $ 1.34 $ (.36)
Pro forma 2.15 1.29 (.45)
Diluted earnings (loss) per share
As reported $ 2.20 $ 1.34 $ (.36)
Pro forma 2.15 1.29 (.45)
The above pro forma net earnings and earnings per share were computed using
the fair value of options at the date of grant (for options granted after June
1995) as calculated by the Black-Scholes option-pricing method and the
following assumptions: 22% volatility, 4.2% annual dividend yield, interest
rates based on expected terms and grant dates, a 5 year term and an exercise
price equal to the fair market value on the date of grant except for incentive
options granted to greater than 10% shareholders which are calculated using a
3 year term and an exercise price equal to 110% of the fair market value on
the date of grant. For those options granted during 2001, 2000 and 1999 with
exercise prices equal to the grant date fair market value, the exercise prices
and weighted average fair values of the options were $17.54 and $3.38 in 2001,
$19.94 and $3.70 in 2000 and $25.26 and $5.02 in 1999, respectively. For those
options granted with exercise prices greater than the grant date fair market
value, the exercise prices and weighted average fair values of the options
were $19.59 and $2.50 in 2001,$21.93 and $2.43 in 2000 and $28.08 and $2.71 in
1999,respectively.
23
L. ENGINEERING AND DEVELOPMENT COSTS
Engineering and development costs include research and development expenses
for new products, development and major improvements to existing products, and
other charges for ongoing efforts to refine existing products. Research and
development costs charged to operations totaled $1,942,000, $1,852,000 and
$2,505,000 in 2001, 2000 and 1999, respectively. Total engineering and
development costs were $6,309,000, $6,322,000 and $7,829,000 in 2001, 2000 and
1999, respectively.
M. RETIREMENT PLANS
The Company has non-contributory, qualified defined benefit pension plans
covering substantially all domestic employees and certain foreign employees.
Domestic plan benefits are based on years of service, and, for salaried
employees, on average compensation for benefits earned prior to January 1,
1997 and on a cash balance plan for benefits earned after January 1, 1997.
The Company's funding policy for the plans covering domestic employees is to
contribute an actuarially determined amount which falls between the minimum
and maximum amount that can be contributed for federal income tax purposes.
Domestic plan assets consist principally of listed equity and fixed income
securities.
In addition, the Company has unfunded, non-qualified retirement plans for
certain management employees and directors. Benefits are based on final
average compensation and vest upon retirement from the Company.
In addition to providing pension benefits, the Company provides health care
and life insurance benefits for certain domestic retirees. All employees
retiring after December 31, 1992, and electing to continue coverage through
the Company's group plan, are required to pay 100% of the premium cost.
The following table sets forth the Company's defined benefit pension plans'
and other postretirement benefit plan's funded status and the amounts
recognized in the Company's balance sheets and income statements as of June 30
(dollars in thousands):
Other
Post
Pension retirement
Benefits Benefits
---------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation, beginning of year $109,087 $115,865 $ 30,227 $ 32,749
Service cost 1,284 1,518 16 19
Interest cost 8,333 8,028 2,298 2,265
Actuarial (gain) loss 4,094 (6,806) 3,110 (1,481)
Benefits paid (8,773) (9,518) (3,684) (3,325)
------- ------- ------ ------
Benefit obligation, end of year $114,025 $109,087 $ 31,967 $ 30,227
======= ======= ====== ======
Change in plan assets:
Fair value of assets, beginning of year $112,689 $ 98,283 $ - $ -
Actual return on plan assets (11,560) 16,876 - -
Employer contribution 5,996 7,048 3,684 3,325
Benefits paid (8,773) (9,518) (3,684) (3,325)
------- ------- ------ ------
Fair value of assets, end of year $ 98,352 $112,689 $ - $ -
======= ======= ====== ======
Funded status $(15,673)$ 3,602 $(31,967)$(30,227)
Unrecognized net transition obligation 375 606 - -
Unrecognized actuarial loss 30,008 4,398 9,582 6,817
Unrecognized prior service cost 1,823 2,495 - -
------ ------ ------ -------
Net amount recognized $ 16,533 $ 11,101 $(22,385)$(23,410)
====== ====== ====== =======
Amounts recognized in the balance sheet
consist of:
Prepaid benefit cost $ 6 $ 14,335 $ - $ -
Accrued benefit liability (14,578) (3,234) (22,385) (23,410)
Intangible asset 1,988 - - -
Deferred tax asset 11,356 - - -
Minimum pension liability adjustment 17,761 - - -
------- ------ ------- -------
Net amount recognized $ 16,533 $ 11,101 $(22,385)$(23,410)
======= ====== ======= =======
Weighted average assumptions as of June 30:
Discount rate 7.50% 8.00% 7.50% 8.00%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.00% 5.00%
24
Pension Benefits
--------------------------
2001 2000 1999
---- ---- ----
Service cost $ 1,284 $ 1,518 $ 1,517
Interest cost 8,333 8,028 7,254
Expected return on plan assets (9,837) (8,532) (8,617)
Amortization of prior service cost 151 672 672
Amortization of transition obligation 181 179 183
Recognized net actuarial loss 456 699 102
------ ------ ------
Net periodic benefit cost $ 568 $ 2,564 $ 1,111
====== ====== ======
Postretirement Benefits
--------------------------
2001 2000 1999
---- ---- ----
Service cost $ 16 $ 19 $ 23
Interest cost 2,298 2,265 1,978
Recognized net actuarial loss 345 457 399
------ ------ ------
Net periodic benefit cost $ 2,659 $ 2,741 $ 2,400
====== ====== ======
The pension plans held 62,402 shares of Company stock with a fair market value
of $989,000 and $1,065,000 at June 30, 2001 and 2000, respectively.
The assumed weighted average health care cost trend rate was 6% in fiscal year
2001 and 2000. A 1% increase in the assumed health care cost trend would
increase the accumulated postretirement benefit obligation by approximately
$2.1 million and the service and interest cost by approximately $160,000. A 1%
decrease in the assumed health care cost trend would decrease the accumulated
postretirement benefit obligation by approximately $2.0 million and the
service and interest cost by approximately $150,000.
The Company sponsors defined contribution plans covering substantially all
domestic employees and certain foreign employees. These plans provide for
employer contributions based primarily on employee participation. The total
expense under the plans was $1,591,000, $1,699,000 and $1,572,000 in 2001,
2000 and 1999, respectively.
N. INCOME TAXES
United States and foreign earnings (loss) before income taxes were as follows
(in thousands):
2001 2000 1999
---- ---- ----
United States $ 3,457 $ 367 $(3,555)
Foreign 9,634 7,700 3,569
------ ------ ------
$13,091 $ 8,067 $ 14
====== ====== ======
The provision (credit) for income taxes is comprised of the following (in
thousands):
2001 2000 1999
---- ---- ----
Currently payable:
Federal $ 7,046 $ 664 $(1,376)
State 101 6 49
Foreign 4,455 3,908 2,359
------ ------ ------
11,602 4,578 1,032
------ ------ ------
Deferred:
Federal (5,045) (137) 402
State 481 220 (292)
Foreign (116) (367) (110)
------ ------ ------
(4,680) (284) -
------ ------ ------
$ 6,922 $ 4,294 $ 1,032
====== ====== ======
25
The components of the net deferred tax asset as of June 30, were as
follows (in thousands):
2001 2000
---- ----
Deferred tax assets:
Retirement plans and employee benefits $13,241 $ 4,852
Alternative minimum tax credit
carryforwards 1,453 301
Foreign tax credit carryforwards 2,414 1,933
State net operating loss and other
state credit carryforwards 531 771
Other 8,618 3,950
------ ------
26,257 11,807
------ ------
Deferred tax liabilities:
Property, plant and equipment 5,631 5,744
Other - 2,804
------ ------
5,631 8,548
------ ------
Valuation allowance (1,500) -
------ ------
Total net deferred tax assets $19,126 $ 3,259
====== ======
Following is a reconciliation of the applicable U.S. federal income taxes to
the actual income taxes reflected in the statements of operations:
2001 2000 1999
---- ---- ----
U.S. federal income tax at 34% $ 4,451 $ 2,743 $ 5
Increases (reductions)
in tax resulting from:
Foreign tax items 234 1,387 463
State taxes 351 149 (161)
Valuation allowance 1,500 - -
Disposition of investment in subsidiary 286 - -
Accrual for prior years 2 150 74
Other, net 98 (135) 651
----- ----- -----
$ 6,922 $ 4,294 $1,032
===== ===== =====
During 2001 the Company recorded a $1.5 million valuation allowance as it
believes more likely than not certain foreign tax credit carryforwards will
not be utilized prior to their expiration beginning June, 2002.
O. 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 3%. 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 June 30, 2001, 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.
P. RESTRUCTURING OF OPERATIONS
During the fourth quarter of 2001, the Company recorded a pre-tax
restructuring charge of $1.5 million in connection with the reduction of its
workforce and consolidation of facilities. These actions were taken in an
effort to streamline the Company's cost structure and utilization of available
capacity at other locations. The charge included $1.0 million in employee
termination and severance benefits, $0.3 million for remaining costs related
to preexisting leases, $0.1 million for the estimated loss on fixed assets
which were held for disposal, and $0.1 million in miscellaneous costs. During
26
2001 the Company had cash payments of $0.2 million and has a remaining balance
in accrued liabilities of $1.3 million.
Q. CLOSURE OF SUBSIDIARIES
In June 1999, the Company approved a plan to terminate operations at its South
African subsidiary, Twin Disc (South Africa) Pty. Ltd, early in fiscal 2000.
The Company recorded a loss of $1,140,000 in 1999 related to the termination
of operations, which consists primarily of the recognition of cumulative
translation losses of $829,000 with the remaining amounts related to disposals
of inventories and fixed assets, and severance benefits. The results of the
subsidiary's operations through June 30, 1999 are included in the consolidated
financial statements.
27
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
Our audits of the consolidated financial statements referred to in our report
dated July 20, 2001, except as to Note G which is as of August 1, 2001,
appearing on page 11 of this form 10-K also included an audit of the
information set forth in the Financial Statement Schedule listed in Item
14(a)(2)of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
- - - - - - - - - - - - - - -
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 20, 2001
TWIN DISC, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended June 30, 2001, 2000 and 1999
(In thousands)
Additions
Balance at Charged to Balance at
Beginning costs and end of
Description of Period Expenses Deductions<F1>of Period
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
2001:
Allowance for losses on
accounts receivable $ 704 $ 157 $ 162 $ 699
Reserve for inventory
obsolescence 1,371 2,470 495 3,346
2000:
Allowance for losses on
accounts receivable $ 534 $ 371 $ 201 $ 704
Reserve for inventory
obsolescence 1,161 1,212 1,002 1,371
1999:
Allowance for losses on
accounts receivable $ 647 $ 170 $ 283 $ 534
Reserve for inventory
obsolescence 1,125 779 743 1,161
<FN>
<F1>
Accounts receivable written-off and inventory disposed of during the year and
other adjustments.
</FN>
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ FRED H. TIMM
Fred H. Timm, Corporate
Controller and Secretary
(Chief Accounting Officer)
September 18, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
( By /s/ MICHAEL E. BATTEN
( Michael E. Batten, Chairman,
( Chief Executive Officer and Director
(
(
(
September 18, 2001 ( By /s/ MICHAEL H. JOYCE
( Michael H. Joyce, President,
( Chief Operating Officer and Director
(
(
(
( By /s/ JAMES O. PARRISH
( James O. Parrish, Vice President-
( Finance, Treasurer and Director
( Chief Financial Officer)
( Paul J. Powers, Director
September 18, 2001 ( David L. Swift, Director
( John A. Mellowes, Director
( George E. Wardeberg, Director
( David R. Zimmer, Director
( David B. Rayburn, Director
(
(
( By /s/ JAMES O. PARRISH
( James O. Parrish, Attorney in Fact
29
EXHIBIT INDEX
TWIN DISC, INCORPORATED
10-K for Year Ended June 30, 2001
Exhibit Description Filed Herewith
3a) Articles of Incorporation, as restated October 21, 1988
(Incorporated by reference to Exhibit 3(a) of the
Company's Form 10-K for the year ended June 30, 1989).
b) Corporate Bylaws, as amended through June 22, 1998
(Incorporated by reference to Exhibit 3(b) of the
Company's Form 10-K for the year ended June 30, 1998).
4a) Form of Rights Agreement dated as of April 17, 1998 by
and between the Company and the Firstar Trust Company,
as Rights Agent, with Form of Rights Certificate
(Incorporated by reference to Exhibits 1 and 2 of the
Company's Form 8-A dated May 4, 1998).
b) Announcement of Shareholder Rights Plan per news release
dated April 17, 1998 (Incorporated by reference to Exhibit
6(a), of the Company's Form 10-Q dated May 4, 1998).
Material Contracts
10a) The 1988 Incentive Stock Option Plan (Incorporated by
reference to Exhibit B of the Proxy Statement for the
Annual Meeting of Shareholders held on October 21, 1988).
b) The 1988 Non-Qualified Stock Option Plan for Officers,
Key Employees and Directors (Incorporated by reference
to Exhibit C of the Proxy Statement for the Annual Meeting
of Shareholders held on October 21,1988).
c) Amendment to 1988 Incentive Stock Option Plan of Twin Disc,
Incorporated (Incorporated by reference to Exhibit A of the
Proxy Statement for the Annual Meeting of Shareholders held
on October 15, 1993).
d) Amendment to 1988 Non-Qualified Incentive Stock Option Plan
for Officers, Key Employees and Directors of Twin Disc,
Incorporated (Incorporated by reference to Exhibit B of the
Proxy Statement for the Annual Meeting of Shareholders held
on October 15, 1993).
e) Form of Severance Agreement for Senior Officers and form of
Severance Agreement for Other Officers (Incorporated by
reference to Exhibit 10(c) and (d), respectively, of the
Company's Form 10-K for the year ended June 30, 1989).
f) Supplemental Retirement Plan (Incorporated by reference to
Exhibit 10(f) of the Company's Form 10-K for the year ended
June 30, 1998).
g) Director Tenure and Retirement Policy (Incorporated by
reference to Exhibit 10(f) of the Company's Form 10-K for
the year ended June 30, 1993).
10h) Form of Twin Disc, Incorporated Corporate Short Term
Incentive Plan (Incorporated by reference to Exhibit
10(g) of the Company's Form 10-K for the year ended
June 30, 1993).
i) The 1998 Incentive Compensation Plan (Incorporated by
reference to Exhibit A of the Proxy Statement for the
Annual Meeting of Shareholders held on October 16, 1998).
j) The 1998 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Exhibit B of the Proxy
Statement for the Annual Meeting of Shareholders held
on October 16, 1998).
21 Subsidiaries of the Registrant X
23 Consent of Independent Accountants X
24 Power of Attorney X