1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
Form 10 Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1997 Commission File Number
1-7635
TWIN DISC, INCORPORATED
(Exact name of registrant as specified in its charter)
Wisconsin 39-0667110
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification
No.)
1328 Racine Street, Racine, Wisconsin 53403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 638-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
At December 31, 1997, the registrant had 2,833,534 shares of its common stock
outstanding.
2
FINANCIAL STATEMENTS
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31 June 30
1997 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $ 13,706 $ 8,983
Trade accounts receivable, net 31,577 32,428
Inventories 47,409 47,844
Deferred income taxes 3,491 3,491
Other 3,518 5,216
-------- --------
Total current assets 99,701 97,962
Property, plant and equipment, net 34,954 34,249
Investments in affiliates 10,996 10,880
Deferred income taxes 4,585 4,559
Intangible pension asset 4,779 4,779
Other assets 8,140 6,326
-------- --------
$163,155 $158,755
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 179 $ 169
Accounts payable 13,493 12,834
Accrued liabilities 18,354 16,618
-------- --------
Total current liabilities 32,026 29,621
Long-term debt 19,940 19,944
Accrued retirement benefits 35,469 35,393
-------- --------
87,435 84,958
Shareholders' Equity:
Common stock 11,653 11,653
Retained earnings 79,847 77,424
Foreign currency translation adjustment 4,737 6,060
Minimum pension liability adjustment (3,708) (3,708)
-------- --------
92,529 91,429
Less treasury stock, at cost 16,809 17,632
-------- --------
Total shareholders' equity 75,720 73,797
-------- --------
$163,155 $158,755
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of this
statement. Amounts in thousands.
3
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
---- ---- ---- ----
Net sales $53,994 $45,496 $101,874 $86,437
Cost of goods sold 41,744 34,516 79,688 66,770
------- ------- ------- -------
12,250 10,980 22,186 19,667
Marketing, engineering and
administrative expenses 8,797 7,674 16,227 14,734
Interest expense 383 495 759 975
Other (income) and expense, net (497) (104) (609) (1,084)
------- ------- ------- -------
8,683 8,065 16,377 14,625
------- ------- ------- -------
Earnings before income tax 3,567 2,915 5,809 5,042
Income taxes 1,451 1,173 2,337 2,168
------- ------- ------- -------
Net earnings $ 2,116 $ 1,742 $ 3,472 $ 2,874
------- ------- ------- -------
------- ------- ------- -------
Dividends per share $ .190 $ .175 $ .380 $ .350
Earnings per share data:
Basic earnings per share $ .75 $ .63 $ 1.23 $ 1.04
Diluted earnings per share $ .73 $ .62 $ 1.21 $ 1.03
Shares outstanding data:
Average shares outstanding 2,834 2,779 2,822 2,778
Dilutive stock options 65 21 57 23
------- ------- ------- -------
Fully diluted shares 2,899 2,800 2,879 2,801
------- ------- ------- -------
------- ------- ------- -------
Translation component of equity
Balance - beginning of the
period $ 5,806 $ 9,810 $ 6,060 $ 9,706
Translation adjustment (1,069) (248) (1,323) (144)
------- ------- ------- -------
Balance - end of the period $ 4,737 $9,562 $ 4,737 $ 9,562
------- ------- ------- -------
------- ------- ------- -------
Amounts in thousands except per share data. 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
(Unaudited)
Six Months Ended
December 31
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 3,472 $ 2,874
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 2,608 2,602
Gain on sale of fixed assets (364) (237)
Equity in earnings of affiliates (461) 363
Dividends received from affiliate 270 100
Net change in working capital,
excluding cash and debt 3,575 2,511
------- -------
9,100 8,213
------- -------
Cash flows from investing activities:
Acquisitions of fixed assets (3,355) (2,354)
Proceeds from sale of fixed assets 426 431
Business acquisition (1,021) -
------ ------
(3,950) (1,923)
------ ------
Cash flows from financing activities:
Increase (decrease) in notes payable, net 15 (1,046)
Treasury stock activity 850 59
Dividends paid (1,076) (972)
------ ------
(211) (1,959)
------ ------
Effect of exchange rate changes on cash (216) (28)
------ ------
Net change in cash and cash equivalents 4,723 4,303
Cash and cash equivalents:
Beginning of period 8,983 2,043
------ ------
End of period $13,706 $ 6,346
------ ------
------ ------
The notes to consolidated financial statements are an integral part of this
statement. Amounts in thousands.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Basis of Presentation
The unaudited financial statements have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC)
and, in the opinion of the Company, include all adjustments, consisting only
of normal recurring items, necessary for a fair statement of results for each
period. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. The Company believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with financial statements and the
notes thereto included in the Company's latest Annual Report. The year end
condensed balance sheet data was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles.
B. Inventory
The major classes of inventories were as follows (in thousands):
December 31 June 30
1997 1997
----------- ---------
Inventories:
Finished parts $39,605 $38,713
Work in process 4,556 5,997
Raw materials 3,248 3,134
------- -------
$47,409 $47,844
------- -------
C. Contingencies
The Company is involved in various stages of investigation relative to
hazardous waste sites, two of which are on the United States EPA National
Priorities List (Superfund sites). The Company's assigned responsibility at
each of the Superfund sites is less than 2%. The Company has also been
requested to provide administrative information related to two other potential
Superfund sites but has not yet been identified as a potentially responsible
party. Additionally, the Company is subject to certain product liability
matters.
At December 31, 1997 the Company has accrued approximately $1,350,000, which
represents the best estimate available for the possible losses. This amount
has been accrued over the past several years. Based on the information
available, the Company does not expect that any unrecorded liability related
to these matters would materially affect the consolidated financial position,
results of operations or cash flows.
D. Earnings Per Share
During the second quarter, the Company adopted Statement of Financial
Accounting Standards (FAS) 128 "Earnings Per Share", which establishes new
standards for reporting earnings per share. The earnings per share
computations for prior periods have been restated to conform with the
provisions of FAS 128.
6
MANAGEMENT DISCUSSION AND ANALYSIS
Net sales were up 19 percent for the quarter and 18 percent for the six months
compared to the same periods last year. The improvement was widespread with
increases at most operations. The greatest dollar increase was at our
domestic manufacturing operation with higher shipments of power shift
transmissions for specialty trucks and agricultural tractors and greater sales
of power take-offs for irrigation being the principal components. Shipments
of marine transmissions for pleasure craft applications and torque converters
used in construction equipment provided most of the increase reported by our
Belgian subsidiary for the quarter.
With the exception of our marketing subsidiary in Singapore which has been
adversely impacted by the Asian economic crisis, shipments from our
distribution operations around the world were up nicely. The most significant
gains were in the U.S. and Europe. However, the weakening of local currencies
overseas against the dollar has put pressure on margins and earnings from the
distribution operations generally are down from a year ago.
The consolidated gross margin percentage improved from the seasonally low
first quarter but was down slightly from the strong quarter reported last
year. Most of the decline was at our domestic manufacturing operation and, as
mentioned previously, the overseas distribution subsidiaries. Domestic
manufacturing productivity has not declined, but cost of sales as a percent of
sales increased due to a shift in product mix and lower production activity
related to our inventory reduction. There was a slight improvement in
manufacturing margins overseas.
Marketing, engineering, and administrative expenses for the quarter and year-
to-date were down as a percent of sales, but absolute expense increased. For
the quarter, the major components of the 15 percent increase were one-time
acquisition costs and on-going operating expenses of our new subsidiary in
Western Canada and a provision for bad debts made at one of our marketing
subsidiaries. Interest expense was down from a year ago as domestic short-
term debt was repaid during the second half of last fiscal year.
7
Working capital has fluctuated within a narrow range for the past year and
ended the quarter at $67.7 million, essentially unchanged from the prior
period. The current ratio, at 3.1 and still high by historical standards, was
slightly lower than the prior year-end. Accounts receivable collections and
inventory turnover, representing the two primary components of working
capital, both improved during the quarter. The receivable balance was stable
on a significantly higher sales volume, and inventory dropped to its lowest
level in years, about $3 million below the previous quarter. Cash flows from
operating activities for the six months have exceeded those required for
investing and financing activities and have provided an increase in the cash
balance. Our balance sheet remains strong, and we continue to have liquidity
sufficient for our near-term needs.
8
OTHER INFORMATION
There were no reports on Form 8-K during the three months ended December 31,
1997. The financial statements included herein have been subjected to a
limited review by Coopers & Lybrand L.L.P., the registrant's independent
public auditors, in accordance with professional standards and procedures for
such review.
There were no securities of the Company sold by the Company during the three
months ended December 31, 1997 which were not registered under the Securities
Act of 1933, in reliance upon an exemption from registration provided by
Section 4 (2) of the Act.
At the Annual Meeting of Shareholders held October 17, 1997, the number of
votes cast for, against or abstentions with respect to each matter were as
follows:
1. Election of Directors:
a) To serve until Annual Meeting in 2000:
Michael H. Joyce For: 2,506,310 Authority withheld: 5,184
Richard T. Savage For: 2,506,739 Authority withheld: 4,755
George E. Wardeberg For: 2,506,871 Authority withheld: 4,623
2. Election of the firm of Coopers & Lybrand L.L.P. as independent public
auditors to examine the accounts for the fiscal year of 1998:
For: 2,500,375 Against: 3,690 Abstain: 7,429
9
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)
February 9, 1998 /S/ FRED H. TIMM
----------------------- ---------------------------
(Date) Fred H. Timm
Corporate Controller and
Secretary
10
Report of Independent Accountants
Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
We have reviewed the accompanying condensed consolidated balance sheet of Twin
Disc, Incorporated and subsidiaries as of December 31, 1997, and the related
condensed consolidated statements of operations and cash flows for the
three and six-month periods ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons
responsible for financial accounting matters. It is substantially less
in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1997,
and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated July 18, 1997, we expressed
an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 30, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/
- ------------------------------------
Coopers & Lybrand
Milwaukee, Wisconsin
January 8, 1997
11
[TYPE] EX-15
EXHIBIT 15
Awareness Letter of Independent Accountants
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Twin Disc, Incorporated
We are aware that our report dated January 8, 1997 on our review of
interim financial information of Twin Disc, Incorporated for the
three and six-month periods ended December 31, 1997 and 1996 and included in
the Company's quarterly report on Form 10-Q for the quarter then ended,
is incorporated by reference in the registration statements of Twin
Disc, Incorporated on Form S-8 (Twin Disc, Incorporated 1988 Incentive
Stock Option Plan and Twin Disc, Incorporated 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors). Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of that Act.
/S/
- ---------------------------------------
Coopers & Lybrand
Milwaukee, Wisconsin
January 23, 1998