36
EXHIBIT 13
FINANCIAL HIGHLIGHTS
1998 1997 1996
Net Sales $202,643 $189,942 $176,657
Net Earnings 9,363 7,729 6,559
Basic Earnings Per Share 3.30 2.78 2.36
Diluted Earnings Per Share 3.24 2.75 2.34
Dividends Per Share .76 .70 .70
Average Shares Outstanding For The Year 2,833,663 2,781,174 2,776,805
Diluted Shares Outstanding For The Year 2,886,209 2,808,226 2,805,123
Sales and Earnings by Quarter
1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
Net Sales $47,880 $53,994 $49,029 $51,740 $202,643
Gross Profit 9,936 12,250 12,810 15,132 50,128
Net Earnings 1,356 2,116 2,384 3,507 9,363
Basic Earnings Per Share .48 .75 .84 1.23 3.30
Diluted Earnings Per Share .47 .73 .82 1.21 3.24
Dividends Per Share .19 .19 .19 .19 .76
Stock Price Range:
High 30 5/8 34 1/8 33 3/8 33 1/8 34 1/8
Low 28 1/8 29 3/8 29 15/16 32 7/16 28 1/8
Sales and Earnings by Quarter
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
Net Sales $40,941 $45,496 $49,204 $54,301 $189,942
Gross Profit 8,687 10,980 11,724 12,428 43,819
Net Earnings 1,132 1,742 1,916 2,939 7,729
Basic Earnings Per Share .41 .63 .69 1.05 2.78
Diluted Earnings Per Share .40 .62 .68 1.04 2.75
Dividends Per Share .175 .175 .175 .175 .70
Stock Price Range:
High 23 5/8 22 5/8 25 1/8 28 3/4 28 3/4
Low 21 3/4 21 3/8 21 3/8 23 3/8 21 3/8
Based on average shares outstanding for the period.
In thousands of dollars except per share and stock price range statistics.
(1)
37
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
NET SALES, NEW ORDERS AND BACKLOG
Revenues increased in both fiscal 1997 and 1998; fiscal 1998 represented the
sixth consecutive year of higher sales. Greater demand for our traditional
products, which was relatively stable during fiscal 1997, provided most of the
improvement in the recently completed year. Order rates softened in selected
markets as the year progressed, and this trend, combined with the completion
of a major truck transmission contract, led to a 29 percent decline in backlog
by year-end.
Net sales for fiscal 1998 were $203 million, an increase of 7 percent over the
$190 million reported in fiscal 1997, and 14 percent above the $177 million
for fiscal 1996. Most of the fiscal 1997 improvement resulted from a new
business opportunity with the initial shipments of automatic transmissions for
a major vehicle contract. Though some softness in demand for the lower
horsepower marine transmissions occurred at the middle of fiscal 1997,
shipments to our principal markets for the twelve months generally were good
and provided a solid base of sales comparable with the previous year. The
transmission contract was completed in January, but growth in other product
markets provided the bridge to another year of sales improvement in fiscal
1998. The markets providing most of the growth were the pleasure craft marine
market, supplied primarily from our Belgian operation, and a variety of
applications for power take-offs and clutches such as irrigation, recycling,
and oilfield.
The changes in shipping levels of our distribution companies, marketing and
service subsidiaries around the world varied by region; in most cases fiscal
1998 differed from fiscal 1997. Domestic distribution sales, which were off in
fiscal 1997, recovered in fiscal 1998 as a result of greater demand for
marine transmissions, general industrial products, and service work. European
distribution shipments increased between 15 and 20 percent each year, with
Arneson surface drives representing the major component of the improvements.
Elsewhere in the world, primarily the Pacific Basin, the fiscal 1997 sales
increase, spurred by boat building activity, was reversed in fiscal 1998
because of the declining Asian economy and the strong U.S. dollar.
The U.S. dollar, after a year of relative stability in 1996, strengthened in
1997 and 1998. The currencies of the countries in which Twin Disc operates on
average were off approximately 6 percent in fiscal 1997 and an additional 10
percent in fiscal 1998. Overall, the impact of currency translation on
revenues was a relatively minor reduction of 2 percent and 3 percent in fiscal
1997 and fiscal 1998, respectively. Price increases, implemented selectively
in each year, raised revenues by approximately the rate of inflation.
At the beginning of fiscal 1997, the backlog of orders scheduled for shipment
during the next six months was $66 million, 10 percent of which was attribut
able to the automatic truck transmission contract that extended through the
first half of fiscal 1998. Order rates improved early in fiscal 1997 and,
although modest softening was experienced in selected markets by mid-year, the
backlog at June 30, 1997 was up 16 percent from the prior year. Despite
stable-to-improved order rates for pleasure craft marine transmissions and
38
most other products, the completion of the previously mentioned transmission
contract resulted in a 10 percent decline in six-month backlog at December 31,
1997. By fiscal 1998 year-end, backlog was off 29 percent from a year earlier
as demand slowed in many product lines, particularly the higher horsepower
marine transmissions used in commercial boats.
(23)
MARGINS, COSTS AND EXPENSES
Manufacturing operations have been cellularized and improvements in process
time, machine capability, and utilization continue to be provided by evolu
tionary refinements to the cells. In 1996, we also initiated a pay-for-skills
program in our domestic plant that motivated manufacturing associates to learn
new machine operating skills and increase production flexibility and effi
ciency. Delivery times were reduced, particularly during the latter half of
fiscal 1998, as the Company has more fully utilized the scheduling capabili
ties of recently installed computer systems.
The steady improvement in gross margin that began in fiscal 1991 was main
tained in fiscal 1997 with a minimal increase. Solid year-to-year increases
in domestic gross margins through each of the quarters were countered by lower
profitability at the Belgian operation in the second half of the year. That
decline in Europe was caused by a temporary drop in orders, leading to short
workweeks and reduced productivity.
In fiscal 1998, improved productivity at our domestic plant, coupled with
greater volume in the first half of the year, provided for higher domestic
margins. Production volume at our Belgian subsidiary rose during the second
quarter with the increased demand for marine transmissions, favorably impact
ing productivity and margins. Additionally, with sales denominated in the
strong U.S. dollar, the Belgian margin showed a significant increase for the
year.
Marketing, engineering, and administrative (MEA) expense in terms of dollars
increased by almost 9 percent for fiscal 1997 but rose only slightly as a
percentage of sales. The increase occurred at the Company's domestic opera
tions and consisted mainly of salary expense for an added number of marketing
and engineering personnel, a one-time expense associated with an accelerated
product development program, and a salaried associate bonus payment not made
in the previous year. A propulsion products marketing group also was estab
lished in 1997 to focus on development of markets for a full line of marine
propulsion products - transmissions, Arneson drives, water jets, and elec
tronic controls.
In fiscal 1998, MEA rose 9 percent, again slightly outpacing the sales
increase. The principal components of the increase were the write-off of a
loss on the bankruptcy restructuring of a customer in South Africa, marketing
and domestic engineering personnel additions, and the expenses associated with
a mid-year acquisition.
INTEREST, TAXES AND NET EARNINGS
Virtually all of the short-term debt required to finance working capital needs
in fiscal 1996 was repaid by the end of fiscal 1997, and interest expense
declined by about 8 percent in that year. Short-term borrowings remained very
low in fiscal 1998 and, as a result, interest expense declined about 15
percent from the prior year.
The effective income tax rates have remained relatively consistent throughout
the three-year period with minor variations between years caused by a
39
fluctuation in the proportion of foreign earnings which are generally taxed at
a higher rate. Also, in fiscal 1998, an additional accrual of taxes for prior
years added to the effective rate.
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities in fiscal 1997 was a record
$20.5 million. Higher earnings and depreciation were supplemented by reduc
tions in accounts receivable and inventory as receivable days outstanding
(DSO) and inventory turnover ended fiscal 1997 at their best levels since
1990. After lowering the rate on most of the Company's debt through a private
placement in 1996, the Company focused on improving cash flow in fiscal 1997
and reduced short-term borrowings, primarily domestic, by $7 million. In
fiscal 1998,the positive cash flows from earnings, depreciation, and a further
reduction in accounts receivable DSO were partially offset by inventory
increases necessary to satisfy the level of
(24)
demand at our Belgian subsidiary and by the prepayment of the current year
domestic pension contribution. The result was a $7 million operating cash
flow after the $8 million reduction for prepaid pension expense.
For several years prior to fiscal 1998, fixed asset purchases were less than
depreciation as manufacturing cells were established and existing machinery
was rearranged. Expenditures for capital equipment exceeded depreciation by
about $2 million in fiscal 1998 as experience helped identify the equipment
needed to further improve cell performance. We expect capital spending will
continue to exceed depreciation as individual cell structures are refined.
Working capital and the current ratio declined in fiscal 1998 after increasing
during both of the preceding two years. In fiscal 1997 working capital
increased $5.7 million, reflecting higher balances of cash and short-term
investments and reduced short-term borrowings. The decline in working capital
of $4.3 million at the end of fiscal 1998 was nearly equivalent to the
reduction in accounts receivable, as the inventory increase was offset by a
decline in cash. The current ratio of 3.2 at June 30, 1998 was down slightly
from the 3.3 reported at the previous year-end.
The Company believes the capital resources available in the form of existing
cash, lines of credit (described in Footnote F to the consolidated financial
statements) and funds provided by operations will be adequate to meet antici
pated capital expenditures and other foreseeable business requirements in the
future.
OTHER MATTERS
YEAR 2000 READINESS
The Company has assessed the potential impact of the Year 2000 date change on
its business systems and operations. With the change to a new information
system for domestic operations in late 1995 and a similar update currently
being implemented at its Belgian manufacturing subsidiary, the Company's
systems will be prepared to handle the century date change. Testing of these
systems will occur in fiscal year 1999. Network systems and other affected
equipment throughout the Company and its subsidiaries either are already
capable of handling the date change or will be as updates are completed during
the next six months. In addition, suppliers and service providers are being
40
contacted to ensure they are actively involved in a program to address the
Year 2000 issue and provide uninterrupted service to Twin Disc. The remaining
costs of complying with the Year 2000 requirements are not expected to be
significant. The Company believes, based on currently available information,
that it will be able to manage its Year 2000 transition without material
adverse effect on the Company's future consolidated results of operations,
liquidity and capital resources.
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 N to the consolidated financial
statements, they are not expected to affect materially the Company's opera
tions, financial position or cash flows.
RECENT FINANCIAL REPORTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of Finan
cial Accounting Standards (FAS) 130, "Comprehensive Income," FAS 131, "Disclo
sures about Segments of an Enterprise and Related Information," FAS 132,
"Employers' Disclosure about Pensions and Other Post-retirement Benefits" and
FAS 133, "Accounting for Derivative Instruments and Hedging Activities," which
are addressed in Footnote A to the consolidated financial statements.
(25)
41
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 and 1997
(Dollars in thousands) 1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 5,087 $ 8,983
Trade accounts receivable, net 28,320 32,428
Inventories 53,280 47,844
Deferred income taxes 1,987 3,491
Other 4,906 5,216
------- -------
Total current assets 93,580 97,962
Property, plant and equipment, net 35,728 34,249
Investments in affiliates 10,356 10,880
Deferred income taxes 1,241 4,559
Intangible pension asset 4,082 4,779
Other assets 15,967 6,326
------- -------
$160,954 $158,755
------- -------
------- -------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 276 $ 169
Accounts payable 9,917 12,834
Accrued liabilities 19,360 16,618
------- -------
Total current liabilities 29,553 29,621
Long-term debt 19,949 19,944
Accrued retirement benefits 29,457 35,393
------- -------
78,959 84,958
Shareholders' equity:
Common shares authorized: 15,000,000;
issued: 3,643,630; no par value 11,653 11,653
Retained earnings 84,738 77,424
Foreign currency translation adjustment 3,418 6,060
Minimum pension liability adjustment (661) (3,708)
------- -------
99,148 91,429
Less treasury stock, at cost 17,153 17,632
------- -------
Total shareholders' equity 81,995 73,797
------- -------
$160,954 $158,755
------- -------
------- -------
The notes to consolidated financial statements
are an integral part of these statements.
(26)
42
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1998, 1997 and 1996
(In thousands, except per share data)
1998 1997 1996
---- ---- ----
Net sales $202,643 $189,942 $176,657
Cost of goods sold 152,515 146,123 135,780
------- ------- -------
Gross profit 50,128 43,819 40,877
Marketing, engineering and
administrative expenses 34,092 31,219 28,706
------- ------- -------
Earnings from operations 16,036 12,600 12,171
Other income (expense):
Interest income 550 1,335 121
Interest expense (1,505) (1,781) (1,942)
Equity in earnings of affiliates 651 307 45
Other, net 313 219 512
------- ------- -------
9 80 (1,264)
------- ------- -------
Earnings before income
taxes 16,045 12,680 10,907
Income taxes 6,682 4,951 4,348
------- ------- -------
Net earnings $ 9,363 $ 7,729 $ 6,559
------- ------- -------
------- ------- -------
Earnings per share data:
Basic earnings per share $ 3.30 $ 2.78 $ 2.36
Diluted earnings per share 3.24 2.75 2.34
Shares outstanding data:
Average shares outstanding 2,834 2,781 2,777
Dilutive stock options 52 27 28
------- ------- -------
Diluted shares outstanding 2,886 2,808 2,805
------- ------- -------
------- ------- -------
The notes to consolidated financial statements
are an integral part of these statements.
(27)
43
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1998, 1997 and 1996
(In thousands) 1998 1997 1996
---- ---- ----
Cash flows from operating
activities:
Net earnings $ 9,363 $ 7,729 $ 6,559
Adjustments to reconcile
to net cash provided (used)
by operating activities:
Depreciation and amortization 5,607 5,489 5,233
Gain on sale of plant assets (402) (127) (26)
Equity in earnings of affiliates (651) (307) (45)
Provision for deferred income taxes 2,873 1,481 1,646
Dividends received from affiliate 495 300 548
Changes in operating assets and
liabilities:
Trade accounts receivable, net 3,361 1,267 (6,055)
Inventories (5,673) 2,882 (3,926)
Other assets (7,842) (954) (987)
Accounts payable (2,695) 3,463 (3,513)
Accrued liabilities 2,777 (391) (3,982)
Deferred retirement plan (244) (345) 415
------- ------- -------
Net cash provided (used) by
operating activities 6,969 20,487 (4,133)
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of plant assets 574 501 18
Acquisitions of plant assets (7,154) (4,734) (4,140)
Investment in subsidiary (1,021) - -
Payment for license agreement (1,515) - (2,402)
------- ------- -------
Net cash used by investing activities (9,116) (4,233) (6,524)
------- ------- -------
Cash flows from financing activities:
Increases (decreases) in notes
payable, net 112 (7,182) 5,076
Proceeds from long-term debt - 4 19,914
Principal payments on long-term debt - - (14,000)
Acquisition of treasury stock (1,314) - -
Proceeds from exercise of stock options 1,904 188 35
Dividends paid (2,160) (1,947) (1,943)
------- ------- -------
Net cash provided (used) by
financing activities (1,458) (8,937) 9,082
------- ------- -------
Effect of exchange rate changes on cash (291) (377) (123)
------- ------- -------
Net change in cash and cash equivalents (3,896) 6,940 (1,698)
Cash and cash equivalents:
Beginning of year 8,983 2,043 3,741
------- ------- -------
End of year $ 5,087 $ 8,983 $ 2,043
------- ------- -------
------- ------- -------
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,505 $ 1,822 $ 1,802
Income taxes 4,698 3,318 4,946
The notes to consolidated financial statements
are an integral part of these statements.
(28)
44
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended June 30, 1998, 1997 and 1996
(In thousands) 1998 1997 1996
---- ---- ----
Common stock
Balance, June 30 $ 11,653 $ 11,653 $ 11,653
------- ------- -------
Retained earnings
Balance, July 1 77,424 71,658 67,054
Net earnings 9,363 7,729 6,559
Cash dividends (2,160) (1,947) (1,943)
Stock options exercised 111 (16) (12)
------- ------- -------
Balance, June 30 84,738 77,424 71,658
------- ------- -------
Foreign currency translation adjustment
Balance, July 1 6,060 10,326 14,081
Current adjustment (2,642) (4,266) (3,755)
------- ------- -------
Balance, June 30 3,418 6,060 10,326
------- ------- -------
Minimum pension liability adjustment, net
Balance, July 1 (3,708) (620) (284)
Current adjustment, net of related income
taxes ($(1,948)in 1998, $1,975 in 1997
and $215 in 1996) 3,047 (3,088) (336)
------- ------- -------
Balance, June 30 (661) (3,708) (620)
------- ------- -------
Treasury stock, at cost
Balance, July 1 (17,632) (17,836) (17,882)
Shares acquired (1,314) - -
Stock options exercised 1,793 204 46
------- ------- -------
Balance, June 30 (17,153) (17,632) (17,836)
------- ------- -------
Shareholders' equity balance, June 30 $ 81,995 $ 73,797 $ 75,181
------- ------- -------
------- ------- -------
The notes to consolidated financial statements
are an integral part of these statements.
(29)
45
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 subsidiaries, all of which are
wholly owned. Certain foreign subsidiaries are included based on fiscal years
ending May 31, to facilitate prompt reporting of consolidated accounts. All
significant inter-company 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.
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 $647,000 and $538,000 at June 30, 1998 and 1997, respec
tively.
Fair Value of Financial Instruments--The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents, accounts receiv
able, accounts payable and short-term debt approximates fair value because of
the immediate short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value because
the underlying instrument bears interest at 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 proce
dures 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, 1998 and
1997, the Company had outstanding forward foreign exchange contracts to
purchase $5,000,000 and $3,000,000, respectively, of Belgian francs with a
weighted average maturity of 56 days and 34 days, respectively.
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 other invento
ries.
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 physical disposition.
46
Investments in Affiliates--The Company's 25% investments in affiliates are
stated at cost, adjusted for equity in undistributed earnings since acquisi
tion.
(30)
Revenue Recognition--Revenues are recognized when products are shipped.
Income Taxes--The Company recognizes deferred tax liabilities and assets for
the expected future income tax consequences of events that have been recog
nized 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.
Recently Issued Accounting Standards--During the second quarter of 1998, the
Company adopted Statement of Financial Accounting Standards (FAS) 128 "Earn
ings 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.
During 1997, the Financial Accounting Standards Board (FASB) issued FAS 130
"Comprehensive Income" and FAS 131 "Disclosures about Segments of an Enter
prise and Related Information", and during 1998 the FASB issued FAS 132
"Employers' Disclosure about Pensions and Other Postretirement Benefits" and
FAS 133 "Accounting for Derivative Instruments and Hedging Activities". FAS
130, 131, and 132 are effective for the Company's 1999 fiscal year and FAS 133
is effective for the Company's 2000 fiscal year. A brief description of each
standard and the potential effect on the Company's financial statements
follows:
FAS 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. FAS 130 requires
financial statement disclosures for prior periods to be restated. The Company
is in the process of determining its preferred disclosure format.
FAS 131 establishes new standards for the way that public companies report
information about operating segments in annual financial statements. FAS 131
also establishes standards for related disclosures about products and services
geographic areas, and major customers and requires financial statement
disclosure for prior periods to be restated. The Company's reporting under FAS
131 will disclose required information about two operating segments, Manufac
turing and Distribution.
FAS 132 establishes standards for disclosing information about pensions and
other postretirement benefits in the financial statements and requires
disclosure for prior periods to be restated. The Company is evaluating the
extent to which its disclosures may be affected by FAS 132.
FAS 133 establishes standards for accounting for derivatives and hedging
activities. The Company is evaluating the extent to which its accounting for
derivative and hedging activities may be affected by FAS 133.
(31)
47
B. INVENTORIES
The major classes of inventories at June 30 were as follows:
(In thousands) 1998 1997
---- ----
Finished parts $43,848 $38,713
Work-in-process 5,524 5,997
Raw materials 3,908 3,134
------ ------
$53,280 $47,844
------ ------
------ ------
Inventories stated on a LIFO basis represent approximately 33% and 42% of
total inventories at June 30, 1998 and 1997, respectively. The approximate
current cost of the LIFO inventories exceeded the LIFO cost by $18,252,000 and
$17,526,000 at June 30, 1998 and 1997, respectively.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 were as follows:
(In thousands) 1998 1997
---- ----
Land $ 1,295 $ 1,335
Buildings 19,065 18,708
Machinery and equipment 92,309 87,832
------ ------
112,669 107,875
Less accumulated depreciation 76,941 73,626
------ ------
$35,728 $34,249
------ ------
------ ------
D. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates consists of 25% interests in Niigata
Converter Company, Ltd., Japan (a manufacturer of power transmission equip
ment), and Palmer Johnson Distributors, LLC (a domestic distributor of Twin
Disc products).
Undistributed earnings of the affiliates included in consolidated retained
earnings approximated $3,283,000 and $3,127,000 at June 30, 1998 and 1997,
respectively.
(32)
Combined condensed financial data of the above-listed affiliates are
summarized as follows:
(In thousands)
1998 1997
---- ----
Current assets $ 78,214 $ 87,375
Other assets 40,171 43,582
------- -------
$118,385 $130,957
------- -------
------- -------
Current liabilities $ 83,066 $ 85,479
Other liabilities 412 8,479
Shareholders' equity 34,907 36,999
------- -------
$118,385 $130,957
------- -------
------- -------
48
1998 1997 1996
----- ---- ----
Net sales $152,558 $166,171 $183,487
Gross profit 20,897 19,911 23,436
Net earnings 2,606 1,228 181
E. ACCRUED LIABILITIES
Accrued liabilities at June 30 were as follows:
(In thousands) 1998 1997
---- ----
Salaries and wages $ 6,871 $ 5,983
Retirement benefits 2,930 2,150
Other 9,559 8,485
------- -------
$ 19,360 $ 16,618
------- -------
------- -------
F. DEBT
Short-term notes payable consists of amounts borrowed under unsecured line of
credit agreements. Unused lines of credit total $18,370,000 at June 30, 1998.
These lines of credit are available predominately at the LIBOR interest rate
and may be withdrawn at the option of the banks. The weighted average
interest rate of short-term lines outstanding at June 30, 1998 and 1997 was
6.8% and 7.3%, respectively.
Included in long term debt is $20 million of 7.37% ten-year unsecured notes,
net of $69,000 unamortized debt issuance costs at June 30, 1998. These notes
contain certain covenants, including the maintenance of a current ratio of not
less than 1.5. Principal payments of $2,857,000 are due in the years 2000
through 2005, with the remaining balance due on June 1, 2006. Also included
in long-term debt is $18,000 of debt related to a foreign subsidiary.
(33)
G. LEASE COMMITMENTS
Approximate future minimum rental commitments under noncancellable operating
leases are as follows (in thousands):
Fiscal Year
-----------
1999 $2,414
2000 1,736
2001 1,260
2002 925
2003 596
Thereafter 241
-----
$7,172
=====
Total rent expense for operating leases approximated $2,571,000, $2,254,000
and $2,109,000 in 1998, 1997 and 1996, respectively.
H. SHAREHOLDERS' EQUITY
At June 30, 1998 and 1997, treasury stock consisted of 810,646 and 856,456
shares of common stock, respectively. The Company issued 86,850 and 9,900
shares of treasury stock in 1998 and 1997, respectively, to fulfill its
obligations under the stock option plans. The difference between the cost of
treasury shares issued and the option price is credited to retained earnings.
The Company acquired 41,040 shares of treasury stock in 1998.
49
Cash dividends per share were $.76 in 1998 and $.70 in 1997 and 1996.
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 trans
fers 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.
(34)
I. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged in one line of business, the
manufacture and sale of power transmission equipment. Transfers among
geographic areas are made at established intercompany selling prices.
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, government, marine, energy and natural resources and
agricultural.
Two customers each accounted for approximately 11%, 11% and 10% of consoli
dated net sales in 1998, 1997 and 1996, respectively.
Information about the Company's operations in different geographic areas is
summarized as follows:
(In thousands) 1998 1997 1996
---- ---- ----
Sales to unaffiliated customers:
United States $147,819 $131,844 $120,137
Foreign:
Europe 35,418 34,332 34,206
Other 19,406 23,766 22,314
------- ------- --------
Total $202,643 $189,942 $176,657
------- ------- -------
------- ------- -------
Transfers between geographic areas:
United States $ 28,994 $ 28,716 $ 30,230
Foreign:
Europe 21,778 16,398 23,130
Other 378 415 322
------- ------- --------
Total $ 51,150 $ 45,529 $ 53,682
------- ------- -------
------- ------- -------
Net sales:
United States $176,813 $160,560 $150,367
Foreign:
Europe 57,196 50,730 57,336
Other 19,784 24,181 22,636
Eliminations (51,150) (45,529) (53,682)
------- ------- -------
Total $202,643 $189,942 $176,657
------- ------- -------
------- ------- -------
50
Earnings before income taxes:
United States $ 7,944 $ 6,009 $ 2,821
Foreign:
Europe 7,000 4,378 6,126
Other 1,101 2,293 1,960
------- ------- -------
Total $ 16,045 $ 12,680 $ 10,907
------- ------- -------
------- ------- -------
Identifiable assets at June 30:
United States $117,024 $115,973 $117,552
Foreign:
Europe 37,125 33,329 36,356
Other 11,438 12,947 12,794
Eliminations (4,633) (3,494) (4,003)
------- ------- -------
Total $160,954 $158,755 $162,699
------- ------- -------
------- ------- -------
(35)
Net earnings of the foreign subsidiaries were $4,428,000, $3,840,000 and
$4,758,000 in 1998, 1997 and 1996, respectively. The net assets of the
foreign subsidiaries were $31,515,000 and $31,517,000 at June 30, 1998 and
1997, respectively. Undistributed earnings of foreign subsidiaries, on which
no provisions for United States income taxes have been made, aggregated
approximately $21,335,000 (including $54,000 translation component) at June
30, 1998. Included in earnings are foreign currency transaction gains
(losses) of $(343,000), $334,000 and $409,000 in 1998, 1997 and 1996, respec
tively.
J. STOCK OPTION PLANS
The Company has a non-qualified stock option plan for officers, key employees
and directors to purchase up to 125,000 shares of common stock, and an
incentive stock option plan for officers and key employees to purchase up to
225,000 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 and based on
such directors' seniority. Except as described in the following sentence, all
options allow for exercise prices not less than the grant date fair market
value, immediate vesting and expire ten years after the date of grant. For
options under the incentive stock option 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.
Shares available for future options as of June 30 were as follows:
1998 1997
---- ----
Non-qualified stock
option plan 10,850 23,950
Incentive stock option plan 30,550 53,400
51
Stock option transactions under the plans during 1998 and 1997 were
as follows:
Weighted Weighted Weighted
Average Average Average
1998 Price 1997 Price 1996 Price
---- -------- ---- ------- ---- --------
Non-qualified stock
option plan:
Options outstanding
at beginning of year 94,150 $21.71 95,350 $21.69 81,450 $21.21
Granted 13,100 28.75 15,100 21.88 13,900 24.50
Cancelled - - (10,400) 23.32 - -
Exercised ($14.00-$29.63
per share) (26,750) 22.81 (5,900) 19.03 - -
------ ------ ------
Options outstanding
at June 30 80,500 $22.50 94,150 $21.71 95,350 $21.69
------ ------ ------
------ ------ ------
Options price range
($14.00 - $20.00)
Number of shares 34,300
Weighted average price $19.06
Weighted average remaining life 5.91 years
(36)
Options price range
($20.01 - $29.63)
Number of shares 46,200
Weighted average price $25.05
Weighted average remaining life 6.33 years
Weighted Weighted Weighted
Average Average Average
1998 Price 1997 Price 1996 Price
---- -------- ---- ------- ---- -------
Incentive stock option plan:
Options outstanding
at beginning of year 161,550 $21.60 151,450 $21.52 132,050 $20.78
Granted 29,900 29.18 24,250 22.05 25,050 24.89
Canceled (7,050) 20.15 (10,150) 22.57 (3,400) 23.60
Exercised ($14.00-$19.50
per share) (60,100) 21.53 (4,000) 18.81 (2,250) 15.29
------- ------- -------
Options outstanding
at June 30 124,300 $23.57 161,550 $21.60 151,450 $21.52
------- ------- -------
------- ------- -------
Options price range
($14.00 - $20.00)
Number of shares 36,600
Weighted average price $18.71
Weighted average remaining life 5.63 years
52
Options price range
($20.01 - $29.63)
Number of shares 87,700
Weighted average price $25.59
Weighted average remaining life 6.18 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):
1998 1997 1996
---- ---- ----
Net earnings
As reported $9,363 $7,729 $6,559
Pro forma 9,125 7,554 6,365
Basic earnings per share
As reported $ 3.30 $ 2.78 $ 2.36
Pro forma 3.22 2.72 2.29
Diluted earnings per share
As reported $ 3.24 $ 2.75 $ 2.34
Pro forma 3.16 2.69 2.27
(37)
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: 20% volatility, 3% 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 1998, 1997 and 1996 with
exercise prices equal to the grant date fair market value, the exercise prices
and weighted average fair values of the options were $28.75 and $5.81 in 1998,
$21.88 and $4.61 in 1997 and $24.50 and $5.23 in 1996, 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 $31.63 and $3.26 in 1998, $24.06 and $2.69 in 1997 and $26.95 and $3.04
in 1996, respectively.
K. 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 $3,104,000, $3,050,000 and
$2,457,000 in 1998, 1997 and 1996, respectively. Total engineering and
development costs were $8,833,000, $8,288,000 and $6,998,000 in 1998, 1997 and
1996, respectively.
L. RETIREMENT PLANS
The Company has noncontributory, qualified defined benefit pension plans
covering substantially all domestic employees and plans covering 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
53
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 at retirement from the Company.
Net pension expense for the Company's domestic defined benefit plans
consists of the following components:
(In thousands) 1998 1997 1996
---- ---- ----
Service cost-benefits earned during the year $ 1,248 $ 1,636 $ 1,529
Interest cost on projected benefit obligation 7,056 7,056 6,823
Actual return on plan assets (20,405) (5,198) (9,956)
Net amortization and deferral 14,548 (188) 5,304
------ ------ ------
Net pension cost $ 2,447 $ 3,306 $ 3,700
------ ------ ------
------ ------ ------
(38)
The following table sets forth the Company's domestic defined
benefit plans' funded status and the amounts recognized in the Company's
balance sheets as of June 30:
(In thousands) 1998 1997
------------------------- -----------
Plan Assets Obligations Obligations
Exceed Exceed Plan Exceed Plan
Obligations Assets Assets
----------- ----------- -----------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 49,932 $ 37,940 $ 76,030
Non-vested benefit obligation 3,048 7,592 12,451
------- ------- -------
Accumulated benefit
obligation 52,980 45,532 88,481
Effect of projected future
compensation levels - 2,963 552
------- ------- -------
Projected benefit obligation 52,980 48,495 89,033
Plan assets at fair value (55,845) (42,477) (76,097)
------- ------ ------
Plan assets (less than)
in excess of projected
benefit obligations (2,865) 6,018 12,936
Unrecognized net loss (3,094) (955) (7,012)
Unrecognized prior service
cost 1,007 (4,846) (3,427)
Unrecognized transitional net
asset (liability) 73 (476) (535)
Adjustment required to
recognize additional
minimum liability - 5,165 10,858
------- ------- -------
(Prepaid) accrued retirement cost
at June 30 $ (4,879) $ 4,906 $ 12,820
------- ------- -------
------- ------- -------
54
Assumptions used in accounting for the retirement plans
are as follows:
1998 1997
---- ----
Discount rate 7.25% 8.00%
Rate of increase in compensation
levels 4.50% 4.50%
Expected long-term rate of return on
plan assets 9.00% 9.00%
Total accrued (prepaid) retirement costs at June 30 are summarized as follows:
(In thousands) 1998 1997
---- ----
Current:
Domestic defined benefit plans $ 179 $ (493)
Foreign benefit plans 315 446
------ ------
494 (47)
Long-term:
Domestic defined benefit plans:
Prepaid costs (8,030) -
Accrued costs 7,878 13,313
------ ------
(152) 13,313
------ ------
$ 342 $13,266
------ ------
------ ------
(39)
Effective as of January 1, 1997, the Twin Disc, Incorporated Retirement Plan
for Salaried Employees was amended to freeze the benefit formula in effect
prior to January 1, 1997 and to change the formula for benefit accruals to a
cash balance pension plan. The effect of this change was to decrease the
unrecognized prior service cost by $4.2 million.
Retirement plan expense for the Company's foreign plans was $661,000, $667,000
and $837,000 in 1998, 1997 and 1996, respectively.
The Company sponsors defined contribution plans covering substantially all
domestic employees. These plans provide for employer contributions based
primarily on employee participation. The total expense under the plans was
$1,227,000, $1,023,000 and $903,000 in 1998, 1997 and 1996, respectively.
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 Company recognized $2,379,000, $2,293,000 and $2,680,000 in non-pension
post-retirement benefit expense in 1998, 1997 and 1996, respectively, which
consists primarily of interest cost.
55
The following table sets forth the status of the post-retirement benefit
programs (other than pensions) and amounts recognized in the Company's
consolidated balance sheet at June 30:
(In thousands) 1998 1997
---- ----
Accumulated post-retirement benefit obligation:
Retirees $27,813 $25,998
Fully eligible active plan participants 423 440
Other active participants 383 504
------ ------
28,619 26,942
Unamortized net amount resulting
from changes in plan experience and
actuarial assumptions (4,397) (2,665)
------ ------
Accrued post-retirement benefit obligation $24,222 $24,277
------ ------
------ ------
The current portion of the accumulated post-retirement benefit obligation of
$2,643,000 and $2,197,000 is included in accrued liabilities at June 30, 1998
and 1997, respectively.
The assumed weighted average discount rate used in determining the actuarial
present value of the accumulated post-retirement benefit obligation was 7.25%
and 8.00% at June 30, 1998 and 1997, respectively. The assumed weighted
average health care cost trend rate was 7% in fiscal year 1998 and will
decrease to 6% in fiscal year 1999 and remain constant thereafter. A 1%
increase in the assumed health care trend would increase the accumulated
post-retirement benefit obligation by approximately $1.9 million and the
interest cost by approximately $133,000.
M. INCOME TAXES
United States and foreign earnings before income taxes were as follows:
(In thousands) 1998 1997 1996
---- ---- ----
United States $ 7,944 $ 6,009 $ 2,821
Foreign 8,101 6,671 8,086
------ ------ ------
$16,045 $12,680 $10,907
------ ------ ------
------ ------ ------
(40)
The provision (credit) for income taxes is comprised of the following:
(In thousands) 1998 1997 1996
---- ---- ----
Currently payable:
Federal $ 154 $ 913 $ 829
State 114 100 78
Foreign 3,541 2,457 1,925
------ ------ ------
3,809 3,470 2,832
------ ------ ------
Deferred:
Federal 2,582 1,559 388
State 183 (51) (54)
Foreign 108 (27) 1,182
------ ------ ------
2,873 1,481 1,516
------ ------ ------
$ 6,682 $ 4,951 $ 4,348
------ ----- ------
------ ------ ------
56
The components of the net deferred tax asset as of June 30, were as
follows:
(In thousands) 1998 1997
---- ----
Deferred tax assets:
Retirement plans and employee benefits $ 8,074 $11,605
Other 3,039 3,078
Alternative minimum tax credit
carryforwards 143 1,143
Foreign tax credit carryforwards 250 -
------ ------
11,506 15,826
------ ------
Deferred tax liabilities:
Property, plant and equipment 5,488 5,634
Other 2,790 2,142
------ ------
8,278 7,776
------ ------
Total net deferred tax assets $3,228 $ 8,050
----- ------
----- ------
Following is a reconciliation of the applicable U.S. federal income tax rate
to the effective tax rates reflected in the statements of operations:
1998 1997 1996
---- ---- ----
U.S. federal income tax rate 34.0% 34.0% 34.0%
Increases (reductions)
in tax rate resulting from:
Foreign tax items 1.2 .2 4.2
Accrual for prior years 4.4 3.7 -
Other, net 2.0 1.1 1.7
---- ---- ----
41.6% 39.0% 39.9%
---- ---- ----
---- ---- ----
(41)
N. 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 June 30, 1998, the Company has accrued approximately $1,350,000, 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.
(42)
57
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
cash flows present fairly, in all material respects, the financial position of
Twin Disc, Incorporated and Subsidiaries at June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1998, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards 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.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 24, 1998
(43)
58
FINANCIAL SUMMARY
1998 1997 1996 1995 1994
(In thousands of dollars, except where noted)
Statement of Operations
Net sales $202,643 $189,942 $176,657 $164,232 $141,193
Costs and expenses,
including marketing,
engineering and
administrative 186,607 177,342 164,486 154,347 136,244
Earnings
from operations 16,036 12,600 12,171 9,885 4,949
Other income
(expense) 9 80 (1,264) (1,301) 18
Earnings
before income taxes 16,045 12,680 10,907 8,584 4,967
Income taxes 6,682 4,951 4,348 2,912 578
Net earnings 9,363 7,729 6,559 5,672 4,389
Overseas operations
Sales 54,824 58,098 56,520 55,625 45,862
Earnings (loss) 4,428 3,840 4,758 2,480 2,365
Balance Sheet
Assets
Cash and equivalents 5,087 8,983 2,043 3,741 4,166
Receivables, net 28,320 32,428 34,917 29,247 25,682
Inventories 53,280 47,844 51,083 47,157 41,569
Other current assets 6,893 8,707 8,597 10,345 8,993
Total current assets 93,580 97,962 96,640 90,490 80,410
Investments and
other assets 31,646 26,544 30,344 30,463 26,830
Fixed assets less
accumulated
depreciation 35,728 34,249 35,715 37,348 36,676
Total assets 160,954 158,755 162,699 158,301 143,916
Net assets overseas 31,515 31,517 30,671 32,368 29,580
Liabilities and Shareholders' Equity
Current liabilities 29,553 29,621 34,002 36,852 32,710
Long-term debt 19,949 19,944 19,938 14,000 11,500
Deferred liabilities 29,457 35,393 33,578 32,827 34,309
Shareholders' equity 81,995 73,797 75,181 74,622 65,397
Total liabilities and
shareholders' equity 160,954 158,755 162,699 158,301 143,916
(44-45)
59
FINANCIAL SUMMARY (CONTINUED)
1998 1997 1996 1995 1994
(In thousands of dollars, except where noted)
Comparative Financial Information
Per share statistics
Basic earnings 3.30 2.78 2.36 2.03 1.57
Diluted earnings 3.24 2.75 2.34 2.02 1.56
Dividends .76 .70 .70 .70 .70
Shareholders' equity 28.94 26.48 27.07 26.75 23.36
Return on equity 11.4% 10.5% 8.7% 7.6% 6.7%
Return on assets 5.8% 4.9% 4.0% 3.6% 3.0%
Return on sales 4.6% 4.1% 3.7% 3.5% 3.1%
Average shares
outstanding 2,833,663 2,781,174 2,776,805 2,790,111 2,799,390
Diluted shares
outstanding 2,886,209 2,808,226 2,805,123 2,812,703 2,809,390
Number of shareholder
accounts 774 845 913 996 1,058
Number of employees 1,078 1,081 1,080 1,097 1,099
Additions to plant
and equipment 7,154 4,734 4,140 4,290 4,216
Depreciation 5,205 5,141 5,071 4,792 4,670
Net working capital 64,027 68,341 62,638 53,638 47,700
(44-45)
60
DIRECTORS
MICHAEL E. BATTEN
Chaiman, Chief Executive Officer
MICHAEL H. JOYCE
President, Chief Operating Officer
JAMES O. PARRISH
Vice President-Finance & Treasurer
PAUL J. POWERS
Chairman, President-Chief Executive Officer, Commercial Intertech Corp.,
(Manufacturer of Hydraulic Components, Fluid Purification Products, Pre-
Engineered Buildings and Stamped Metal Products), Youngstown, Ohio
RICHARD T. SAVAGE
Retired President-Chief Executive Officer, Modine Manufacturing Company,
Manufacturer of Heat Exchange Equipment), Racine, Wisconsin
DAVID L. SWIFT
Retired Chairman, President-Chief Executive Officer, Acme-Cleveland
Corporation, (Manufacturer of Diversified Industrial Products), Pepper Pike,
Ohio
STUART W. TISDALE
Retired Chairman-Chief Executive Officer, WICOR, Inc. (Parent Company of
Wisconsin Gas Company, Sta-Rite Industries, Shurflo Pump Manufacturing and
Hypro Corporation), Milwaukee, Wisconsin
GEORGE E. WARDEBERG
Chairman, Chief Executive Officer, WICOR, Inc. (Parent Company of Wisconsin
Gas Company, Sta-Rite Industries, Shurflo Pump Manufacturing and Hypro
Corporation), Milwaukee, Wisconsin
DAVID R. ZIMMER
Executive Vice President-Operations, United Dominion Industries,
(Manufacturer of Diversified Engineered Products), Charlotte, North Carolina
(46)
61
OFFICERS
MICHAEL E. BATTEN
Chairman, Chief Executive Officer
MICHAEL H. JOYCE
President, Chief Operating Officer
JAMES O. PARRISH
Vice President-Finance & Treasurer
PHILIPPE PECRIAUX
Vice President-Europe
JAMES MCINDOE
Vice President-International Marketing
LANCE J. MELIK
Vice President-Corporate Development
FRED H. TIMM
Corporate Controller & Secretary
PAUL A. PELLIGRINO
Vice President-Engineering
JOHN W. SPANO
Vice President-Sales and Marketing
ARTHUR A. ZINTEK
Vice President-Human Resources
(47)
62
CORPORATE DATA
ANNUAL MEETING
Roma Lodge, Racine, WI, 2:00 PM, October 16, 1998
SHARES TRADED
New York Stock Exchange: Symbol TDI
ANNUAL REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM 10-K
SINGLE COPIES OF THE COMPANY'S 1998 ANNUAL REPORT ON SECURITIES AND
EXCHANGE
COMMISSION FORM 10-K WILL BE PROVIDED WITHOUT CHARGE TO
SHAREHOLDERS AFTER
SEPTEMBER 30, 1998, UPON WRITTEN REQUEST DIRECTED TO THE SECRETARY,
TWIN DISC,
INCORPORATED, 1328 RACINE STREET, RACINE, WISCONSIN 53403.
TRANSFER AGENT & REGISTRAR
Firstar Trust Company, Milwaukee, Wisconsin
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, Milwaukee, Wisconsin
GENERAL COUNSEL
von Briesen, Purtell, & Roper,s.c., Milwaukee, Wisconsin
CORPORATE OFFICES
Twin Disc, Incorporated, Racine, Wisconsin 53403, Telephone: (414) 638-4000
WHOLLY OWNED SUBSIDIARIES
Twin Disc International S.A., Nivelles, Belgium
Twin Disc Spain, S.A., Madrid, Spain
Twin Disc Italia S.R.L., Viareggio, Italy
Twin Disc (Pacific) Pty. Ltd., Brisbane, Queensland, Australia
Twin Disc (Far East) Ltd., Singapore
Twin Disc (South Africa) Pty. Ltd., Johannesburg, South Africa
Mill-Log Equipment Co., Inc., Coburg, Oregon
Southern Diesel Systems Inc., Miami, Florida
TD Electronics, Inc., Loves Park, Illinois
PARTIALLY OWNED AFFILIATES
Niigata Converter Company, Ltd., Kamo, Omiya and Tokyo, Japan
Palmer Johnson Distributors, LLC, Sturgeon Bay, Wisconsin
MANUFACTURING FACILITIES
Racine, Wisconsin; Nivelles, Belgium; Kamo and Omiya Japan
SALES OFFICES
DOMESTIC
Racine, Wisconsin; Coburg, Oregon; Seattle, Washington; Miami, Florida;
Jacksonville, Florida
OVERSEAS
Nivelles, Belgium; Brisbane and Perth Australia; Singapore; Johannesburg,
South Africa; Madrid, Spain; Viareggio, Italy
AFFILIATES
Tokyo, Japan; Sturgeon Bay, Wisconsin
MANUFACTURING LICENSES
Niigata Converter Company, Ltd., Tokyo, Japan; Transfluid S.R.L., Milan,
Italy; Nakamura Jico Co. Ltd., Tokyo, Japan; Hindustan Motors, Ltd., Madras,
India
(48)