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, 2005 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 .
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X .
At October 31, 2005, the registrant had 2,904,834 shares of its common stock
outstanding.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Unaudited)
September 30 June 30
2005 2005
---- ----
Assets
Current assets:
Cash and cash equivalents $ 9,502 $ 11,614
Trade accounts receivable, net 34,195 37,751
Inventories, net 53,345 48,481
Deferred income taxes 5,807 5,514
Other 4,015 3,423
----- -----
Total current assets 106,864 106,783
Property, plant and equipment, net 39,957 40,331
Goodwill 12,764 12,854
Deferred income taxes 14,627 16,230
Other assets 8,932 9,097
----- -----
$183,144 $185,295
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 3,135 $ 3,522
Current maturities of long-term debt 2,849 2,849
Accounts payable 15,880 21,746
Accrued liabilities 32,702 35,050
------ ------
Total current liabilities 54,566 63,167
Long-term debt 20,277 14,958
Accrued retirement benefits 38,346 39,680
------ ------
113,189 117,805
Minority Interest 517 591
Shareholders' Equity:
Common stock 11,653 11,653
Retained earnings 91,297 89,316
Unearned Compensation (150) (203)
Accumulated other comprehensive loss (17,842) (17,567)
-------- --------
84,958 83,199
Less treasury stock, at cost 15,520 16,300
------ ------
Total shareholders' equity 69,438 66,899
------ ------
$183,144 $185,295
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of this
statement. Amounts in thousands.
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TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Unaudited)
Three Months Ended
September 30
2005 2004
---- ----
Net sales $49,577 $45,382
Cost of goods sold 35,173 33,730
------- ------
14,404 11,652
Marketing, engineering and
administrative expenses 10,147 9,509
Interest expense 316 219
Other income, net (54) (44)
------ ------
10,409 9,684
Earnings before income taxes
and minority interest 3,995 1,968
Income taxes 1,466 866
----- -----
Earnings before minority interest 2,529 1,102
Minority interest (43) (25)
------ ------
Net earnings $ 2,486 $ 1,077
------- --------
------- --------
Dividends per share $ 0.175 $ 0.175
Earnings per share data:
Basic earnings per share $ 0.87 $ 0.38
Diluted earnings per share $ 0.85 $ 0.37
Shares outstanding data:
Average shares outstanding 2,866 2,836
Dilutive shares 55 52
----- -----
Diluted shares outstanding 2,921 2,888
----- -----
----- -----
Comprehensive income:
Net earnings $ 2,486 $ 1,077
Other comprehensive income:
Foreign currency translation adjustment (275) 229
------ -----
Comprehensive income: $ 2,211 $ 1,306
In thousands of dollars except per share statistics. Per share figures are
based on shares outstanding data.
The notes to consolidated financial statements are an integral part of this
statement.
4
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited)
Three Months Ended
September 30
2005 2004
---- ----
Cash flows from operating activities:
Net earnings $ 2,486 $ 1,077
Adjustments to reconcile net earnings to
net cash used by operating activities:
Depreciation and amortization 1,317 1,237
Net change in working capital,
excluding cash (9,620) (5,099)
----- -----
(5,817) (2,785)
----- -----
Cash flows from investing activities:
Acquisitions of fixed assets (1,303) (1,740)
----- -----
(1,303) (1,740)
----- -----
Cash flows from financing activities:
Decrease in notes payable, net (303) (261)
Proceeds from long-term debt 5,375 3,707
Proceeds from exercise of stock options 731 486
Purchase of treasury stock (125) -
Dividends paid (505) (500)
--- ---
5,173 3,432
----- -----
Effect of exchange rate changes on cash (165) (26)
--- --
Net change in cash and cash equivalents (2,112) (1,119)
Cash and cash equivalents:
Beginning of period 11,614 9,127
------ -----
End of period $ 9,502 $ 8,008
------ -----
------ -----
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,
2005 2005
---- ----
Inventories:
Finished parts $37,506 $35,591
Work in process 10,303 7,565
Raw materials 5,536 5,325
------- -------
$53,345 $48,481
------- -------
------- -------
C. Warranty
Twin Disc engages in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of its suppliers.
However, its warranty obligation is affected by product failure rates, the
extent of the market affected by the failure and the expense involved in
satisfactorily addressing the situation. The warranty reserve is established
based on our best estimate of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. When
evaluating the adequacy of the reserve for warranty costs, management takes
into consideration the term of the warranty coverage, historical claim rates
and costs of repair, knowledge of the type and volume of new products and
economic trends. While we believe the warranty reserve is adequate and that
the judgment applied is appropriate, such amounts estimated to be due and
payable in the future could differ materially from what actually transpires.
The following is a listing of the activity in the warranty reserve during the
three months ended September 30, 2005 and 2004.
Three Months Ended September 30
-------------------------------
2005 2004
---- ----
Reserve balance, beginning of period $6,679,000 $6,478,000
Current period expense 837,000 1,217,000
Payments or credits to customers (1,053,000) (1,057,000)
Translation (26,000) 20,000
--------- ---------
Reserve balance, end of period $6,437,000 $6,658,000
---------- ----------
---------- ----------
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D. Contingencies
The Company is involved in litigation of which the ultimate outcome and
liability to the Company, if any, is not presently determinable. Management
believes that final disposition of such litigation will not have a material
impact on the Company's results of operations or financial position.
E. Business Segments
Information about the Company's segments is summarized as follows (in
thousands):
Three months ended
------------------
September 30, September 30,
2005 2004
---- ----
Manufacturing segment sales $ 44,404 $ 40,799
Distribution segment sales 19,452 15,468
Inter/Intra segment sales (14,279) (10,885)
------ ------
Net sales $ 49,577 $ 45,382
------ ------
------ ------
Manufacturing segment earnings $ 3,753 $ 2,126
Distribution segment earnings 2,044 1,336
Inter/Intra segment loss (1,802) (1,494)
----- -----
Earnings before income taxes
and minority interest $ 3,995 $ 1,968
----- -----
----- -----
Assets September 30, June 30,
2005 2005
---- ----
Manufacturing segment assets $ 193,854 $ 170,782
Distribution segment assets 34,192 33,356
Corporate assets and elimination
of inter-company assets (44,902) (18,843)
------ ------
$ 183,144 $ 185,295
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------- -------
F. Stock Option Plans
In July 2005, the Company adopted the Financial Accounting Standards Board
SFAS No. 123R "Share Based Payment" (FAS 123R). This statement requires the
Company to expense the cost of employee services received in exchange for an
award of equity instruments using the fair-value-based method. No options were
granted in the first quarter of fiscal 2006 or 2005. All options outstanding
were 100% vested at the adoption of this statement, therefore no compensation
cost has been recognized in the condensed consolidated statements of
operations.
Prior to July 2005, the Company accounted for its stock option plans under the
guidelines of Accounting Principles Board Opinion No. 25. Accordingly, no
compensation cost was recognized in the condensed consolidated statements of
operations. Had the Company recognized compensation expense determined based
on the fair value at the grant date for awards under the plans, the net
earnings and earnings per share would have been as follows (in thousands,
except per share amounts):
Three Months Ended
September 30,
-------------
2004
----
Net earnings
As reported $ 1,077
Pro forma 1,077
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Basic earnings per share
As reported $ 0.38
Pro forma 0.38
Diluted earnings per share
As reported $ 0.37
Pro forma 0.37
In fiscal 2005 and during the first quarter of 2006, the Company granted 31,500
and 32,850 performance stock awards, respectively, to various employees of the
Company, including executive officers. The stock awards will vest if the
Company achieves specified consolidated gross revenue objectives in the fiscal
years ending June 30, 2007 and 2008.
The fair-value of the performance shares is based on the closing trading value
of the Company's stock on the date of grant. The fair value of the stock
awards is expensed over the performance period for the shares that are expected
to ultimately vest. The compensation expense for the three months ended
September 30, 2004 and 2005, related to performance stock awards, approximated
$0 and $173,000, respectively.
In addition to the performance shares mentioned above, the Company has unvested
restricted stock outstanding that will vest if certain service conditions are
fulfilled. During the first quarter of fiscal 2005 and 2006, the Company
granted 27,500 and 0 service based restricted shares to employees. There were
27,500 and 18,800 unvested shares outstanding at September 30, 2004 and 2005,
respectively. Compensation expense of $42,000 and $45,000 was recognized
during the three months ended September 30, 2004 and 2005, respectively,
related to these service-based awards.
G. Periodic Benefit Cost
The Company has non-contributory, qualified defined benefit plans covering
substantially all domestic employees hired prior to October 1, 2003 and certain
foreign employees. Components of Net Periodic Benefit Cost (in thousands):
Three months ended
September 30,
2005 2004
---- ----
Pension Benefits:
Service cost $ 281 $ 287
Interest cost 1,731 1,780
Expected return on plan assets (1,945) (1,822)
Amortization of prior service cost (156) (149)
Amortization of transition obligation 11 11
Unrecognized net loss 963 994
--- ---
Net periodic benefit cost $ 885 $1,101
------ ------
------ ------
Postretirement Benefits:
Service cost $ 18 $ 13
Interest cost 352 418
Recognized net actuarial loss 86 164
--- ---
Net periodic benefit cost $ 456 $ 595
------ ------
------ ------
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The Company previously disclosed in its financial statements for the year ended
June 30, 2005, that it expected to contribute $4,457,000 to its pension plan in
fiscal 2006. As of September 30, 2005, $1,894,000 of contributions have been
made.
Item 2. Management Discussion and Analysis
In the financial review that follows, we discuss our results of operations,
financial condition and certain other information. This discussion should be
read in conjunction with our consolidated financial statements and related
notes.
Results of Operations
Comparison of the First Quarter of FY 2006 with the First Quarter of FY 2005
Net sales for the first quarter improved 9.2% to $49.6 million from $45.4
million in the same period a year ago. The year-over-year improvement came in
a number of the Company's product markets. The Company's North American
manufacturing and distribution operations saw increased demand for transmission
and industrial products for oil-servicing and commercial applications. In
addition, sales of the Company's military transmissions were up significantly.
Sales of marine transmissions for commercial applications also saw significant
year-over-year improvement in sales and order activities.
Sales at our manufacturing operations were up 8.8% versus the same period last
year. Sales at our US domestic manufacturing location were up over 19%. Sales
at our Belgian manufacturing location were down over 18% over the same period
last year, primarily due to certain material shortages and critical equipment
downtime encountered in the first quarter. As noted above, the sales growth in
our domestic operations was primarily driven by increased sales of commercial
marine transmissions, military and oilfield series transmissions,and industrial
products.
Our distribution segment experienced an increase of 25.8% in sales compared to
the first quarter of fiscal 2005. The majority of this increase came from our
distribution operations in Asia-Pacific and North America. Sales growth in our
commercial and pleasure craft marine transmission product lines primarily drove
the increase in Asia-Pacific, while increased transmission and industrial
product sales drove the growth in North America.
The elimination for net inter/intra segment sales increased $3.4 million,
accounting for the remainder of the net change in sales versus the same period
last year. This increase was consistent with the overall increase in sales and
order levels experienced by the Company in the first quarter.
Gross margin as a percentage of sales increased to 29.1% of sales, compared to
25.7% of sales for the same period last year. This 340 basis point improvement
can be attributed to improved product mix, selective price increases, improved
productivity and absorption, and the impact of cost reduction programs. These
favorable margin items were partially offset by higher prices for steel,
shipping and energy versus the same period of the prior fiscal year. Higher
volume, level fixed costs, increased manufacturing productivity and absorption
at our domestic manufacturing operations, and lower pension expense helped to
partially offset higher raw material and other costs.
Marketing, engineering, and administrative (ME&A) expenses were 6.7% higher
compared to last year's first fiscal quarter. As a percentage of sales, ME&A
expenses were down slightly to 20.5% of sales versus 21.0% of sales in the
first quarter of fiscal 2005. The overall increase can be attributed to (1) the
year-over-year increase in salary and wage costs, and (2) increased
professional service and external consulting fees related to the internal
control requirements of Section 404 of Sarbanes-Oxley.
Interest expense of $0.3 million for the quarter was up over 40% versus last
year's first fiscal quarter. The increase can be attributed to higher
borrowing levels, as well as an overall increase in interest rates versus the
prior year. For the first quarter of fiscal 2005, the interest rate on the
Company's revolving credit facility was in the range of 2.4% to just under
3.0%, whereas for the first quarter of fiscal 2006 the range was 4.4% to just
under 5.0%.
The consolidated income tax rate was lower than a year ago primarily due to
(1) the impact of certain business restructuring activities undertaken in the
fourth quarter of fiscal 2005, which will allow the Company to utilize
previously unutilized foreign tax credits and (2) changes in the mix of foreign
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versus domestic earnings.
Financial Condition, Liquidity and Capital Resources
Comparison between September 30, 2005 and June 30, 2005
As of September 30, 2005, the Company had net working capital of $52.3 million,
which represents an increase of $8.7 million from the net working capital of
$43.6 million as of June 30, 2005.
Cash and cash equivalents decreased $2.1 million, or approximately 18%, to $9.5
million as of September 30, 2005. The majority of the cash and cash
equivalents as of September 30, 2005 are at our overseas operations in Europe
and Asia-Pacific.
Trade receivables of $34.2 million were down $3.6 million versus last fiscal
year-end. The net change is consistent with the sales volume experienced in
the fourth fiscal quarter of the prior fiscal year versus the first fiscal
quarter of fiscal 2006.
Net inventory increased by $4.9 million versus June 30, 2005 to $53.3 million.
The majority of the increase came at the Company's domestic manufacturing
location, where a significant increase in the order rate has been experienced.
As compared to June 30, 2005, the Company's domestic operations saw a 37%
increase in its order backlog, including a 19% increase in orders to be shipped
in the next six months. On a consolidated basis, as of September 30, 2005, the
Company's backlog of orders to be shipped over the next six months approximates
$74.7 million, up 15% since the year began and up 37% compared with the same
period a year ago.
Net property, plant and equipment (PP&E) decreased $0.4 million versus June 30,
2005. This includes the addition of $1.3 million in capital expenditures,
primarily at the Company's Racine-based manufacturing operation, which was more
than offset by depreciation. In total, the Company expects to invest more than
$10 million in capital assets in fiscal 2006. This compares to just over $12
million in fiscal 2005. The Company's capital program is focusing on
modernizing key core manufacturing, assembly and testing processes at its
facilities around the world.
Accounts payable of $15.9 million were down 27% from June 30, 2005.
Total borrowings, notes payable and long-term debt, as of September 30, 2005
increased by $4.9 million, or 23%, to $26.3 million versus June 30, 2005. This
increase is primarily attributable to increased working capital requirements,
primarily inventory driven, due to significant increased sales and order
activities. In addition, the Company made pension contributions of nearly $2
million in the quarter, a $2.3 million payment on a nearly $3 million flexible
machining system capitalized in fiscal 2005, and the payment of fiscal 2005
incentive bonuses. In fiscal 2006, the Company expects to make pension
contributions of just under $4.5 million, compared to just over $8.1 million in
fiscal 2005.
Total shareholders' equity increased by $2.5 million to a total of $69.4
million. Retained earnings increased by $2.0 million. The net increase in
retained earnings included $2.5 million in net earnings reported year-to-date,
offset by $0.5 million in dividend payments. Net unfavorable foreign currency
translation of $0.3 million was reported as the U.S. Dollar strengthened
10
against the Euro and Asian currencies during the first three months.
Accounting for the balance of the change, treasury stock decreased nearly $0.8
million from the prior fiscal year-end due to the exercising of stock options
in the first three months of fiscal 2006.
The Company's balance sheet remains very strong, there are no off-balance-sheet
arrangements, and we continue to have sufficient liquidity for near-term needs.
As of September 30, 2005, the Company had outstanding available borrowing under
its revolving line of credit of $16.1 million. Furthermore, the Company has
over $9.5 million in cash and cash equivalents at its subsidiaries around the
world. Management believes that available cash, our revolver facility, cash
generated from operations, existing lines of credit and access to debt markets
will be adequate to fund our capital requirements for the foreseeable future.
The Company has obligations under non-cancelable operating lease contracts and
a senior note agreement for certain future payments. A summary of those
commitments follows (in thousands):
Less than 1-3 3-5 After 5
Contractual Obligations Total 1 year Years Years Years
Short-term debt $ 3,135 $ 3,135
Revolver borrowing $18,875 $18,875
Long-term debt $ 4,251 $ 2,849 $ 1,402
Operating leases $ 8,535 $ 2,449 $ 2,951 $2,071 $1,064
Total obligations $34,796 $ 8,433 $23,228 $2,071 $1,064
New Accounting Releases
During December 2004, the Financial Accounting Standards Board ("FASB") issued
FSP FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP
FAS 109-2"), which provides guidance on the accounting for the potential impact
of the repatriation provisions of the American Jobs Creation Act of 2004 (the
"Jobs Act") on enterprises' income tax expense and deferred tax liability. The
Jobs Act, which was signed into law on October 22, 2004, introduces relief on
the potential income tax impact of repatriating foreign earnings and certain
other provisions. FSP FAS 109-2 states that an enterprise is allowed time
beyond the financial reporting period of enactment to evaluate the effect of
the Jobs Act on its plan for reinvestment or repatriation of foreign earnings
for purposes of applying SFAS 109. Based on our analysis to date, we are not
in a position to decide on whether, or to what extent, we might repatriate
foreign earnings under the provision of the Jobs Act. However, we expect to
be in a position to finalize our assessment by June 2006. It is not expected
that this will have a significant impact on the Company's financial statements.
In May of 2005, the FASB issued SFAS No. 154 "Accunting Changes and Error
Corrections - a replacment of APB Opinion No. 20 and FASB Statement No. 3".
This statement requires retrospective appilication to prior periods' financial
statements of changes in accounting principle, where practicable. The adoption
of this statement is not expected to have a significant impact on the Company's
financial statements.
Critical Accounting Policies
The preparation of this Quarterly Report requires management's judgment to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the dates of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. There can be no assurance that actual results
will not differ from those estimates.
Twin Disc's significant accounting policies are described in Note A in the
Notes to Consolidated Financial Statements in the Annual Report for June 30,
2005. There have been no significant changes to those accounting policies
subsequent to June 30, 2005.
Item 3. 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
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policies and procedures, which prohibit the use of financial instruments for
trading or speculative purposes.
Interest rate risk - The Company's earnings exposure related to adverse
movements of interest rates is primarily derived from outstanding floating rate
debt instruments that are indexed to the prime and LIBOR interest rates. In
accordance with the $35,000,000 revolving loan agreement expiring October 31,
2007, the Company has the option of borrowing at the prime interest rate or
LIBOR plus an additional "Add-On", between 1% and 2.75%, depending on the
Company's Total Funded Debt to EBITDA ratio. Due to the relative stability of
interest rates, the Company did not utilize any financial instruments at
September 30, 2005 to manage interest rate risk exposure. A 10 percent
increase or decrease in the applicable interest rate would result in a change
in pretax interest expense of approximately $94,000.
Commodity price risk - The Company is exposed to fluctuation in market prices
for such commodities as steel and aluminum. 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. Approximately 40% of the Company's revenues in the three months
ended September 30, 2005 and 2004 were denominated in currencies other than the
U.S. dollar. Of that total, approximately half was denominated in euros with
the balance composed of Japanese yen and the Australian and Singapore dollars.
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 significant
transactions denominated in foreign currencies.
Derivative Financial Instruments - The Company has written policies and
procedures that place all financial instruments under the direction of the
company corporate treasury and restrict derivative transactions to those
intended for hedging purposes. The use of financial instruments for trading
purposes is prohibited. The Company uses financial instruments to manage the
market risk from changes in foreign exchange rates.
The Company primarily enters into forward exchange contracts to reduce the
earnings and cash flow impact of non-functional currency denominated
receivables and payables. These contracts are highly effective in hedging the
cash flows attributable to changes in currency exchange rates. Gains and
losses resulting from these contracts offset the foreign exchange gains or
losses on the underlying assets and liabilities being hedged. The maturities
of the forward exchange contracts generally coincide with the settlement dates
of the related transactions. Gains and losses on these contracts are recorded
in Other income (expense), net in the Consolidated Statement of Operations as
the changes in the fair value of the contracts are recognized and generally
offset the gains and losses on the hedged items in the same period. The
primary currency to which the Company was exposed in fiscal 2005 and 2004 was
the Euro. At September 30, 2005 the Company had net outstanding forward
exchange contracts to purchase Euros in the value of $3,700,000 with a
weighted average maturity of 49 days. The fair value of the Company's
contracts was a gain of approximately $6,000 at September 30, 2005. At
June 30, 2005 the Company had net outstanding forward exchange contracts to
purchase Euros in the value of $2,153,000 with a weighted average maturity of
31 days. The fair value of the Company's contracts was a loss of approximately
$56,000 at June 30, 2005.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
As required by new Rules 13a-15 and 15d-15 of the Securities Exchange Act of
1934, within the 90-day period prior to the filing of this report and under the
supervision and with the participation of management, including the Chief
Executive Officer and the Chief Financial Officer, the Company has evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures. Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that such disclosure controls and procedures
are effective in ensuring that material information relating to the Company,
including its consolidated subsidiaries, is made known to the certifying
officers by others within the Company and its consolidated subsidiaries during
the period covered by this report.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls for
financial reporting or in other factors that could significantly affect such
internal controls subsequent to the date of such evaluation. However, in
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connection with the new rules, the Company has been engaged in the process of
further reviewing and documenting its disclosure controls and procedures,
including its internal accounting controls. The Company may from time to time
make changes aimed at enhancing the effectiveness of its disclosure controls
and procedures, including its internal controls, to ensure that the Company's
systems evolve with its business.
Part II. OTHER INFORMATION
Item 1. 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.
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, 2005, 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.
During the period covered by this report, the Company offered participants in
the Twin Disc, Incorporated B The Accelerator 401(k) Savings Plan (the "Plan")
the option to invest their Plan accounts in a fund comprised of Company stock.
Participation interests of Plan participants in the Plan, which may be
considered securities, were not registered with the SEC. During the fiscal
year ended June 30, 2005, 83 Plan participants allocated an aggregate of
$153,000 toward this investment option. Participant accounts in the Plan
consist of a combination of employee deferrals, Company matching contributions,
and, in some cases, additional Company profit-sharing contributions. No
underwriters were involved in these transactions. On September 6, 2002, the
Company filed a Form S-8 to register 100,000 shares of Company common stock
offered through the Plan, as well as an indeterminate amount of Plan
participation interests.
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".
Item 6. Exhibits and Reports on Form 8-K.
A Form 8-K was filed on July 19 regarding the restatement of earnings resulting
from the change in the elimination of intercompany profit within inventory. A
Form 8-K was filed on August 2 which included a press release announcing
financial results for the fiscal 2005 fourth quarter, along with disclosure on
executive compensation agreements.
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 14, 2005 /S/ JEFFREY S. KNUTSON
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(Date) Jeffrey S. Knutson
Corporate Controller
Chief Accounting Officer