<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
For the Fiscal Year Ended June 30, 1996
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 Identification
Incorporation or Organization) Number)
1328 Racine Street, Racine, Wisconsin 53403
- ------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (414) 638-4000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common stock, no par value New York Stock Exchange
- -------------------------- ------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
- ------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
At August 30, 1996, the aggregate market value of the common stock held by
non-affiliates of the registrant was $46,939,728. Determination of stock
ownership by affiliates was made solely for the purpose of responding to this
requirement and registrant is not bound by this determination for any other
purpose.
At August 30, 1996, the registrant had 2,777,274 shares of its common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The incorporated portions of such documents being specifically identified in
the applicable Items of this Report.
Portions of the Annual Report to Shareholders for the year ended June 30, 1996
are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held October 18, 1996 are incorporated by reference into Parts I, III and IV.
Portions of the Company's Annual Report on Form 10-K for the year ended June
30, 1988, are incorporated by reference into Part II.
<PAGE> 2
PART I
Item 1. Business
The Company is engaged in one line of business. Twin Disc designs,
manufactures and sells heavy duty off-highway power transmission equipment.
Products offered include: hydraulic torque converters; power-shift
transmissions; marine transmissions and surface drives; universal joints; gas
turbine starting drives; power take-offs and reduction gears; industrial
clutches; fluid couplings and control systems. Principal markets are:
construction equipment, industrial equipment, government, marine, energy and
natural resources and agriculture. The Company's worldwide sales to both
domestic and foreign customers are transacted through a direct sales force and
a distributor network. There have been no significant changes in products or
markets since the beginning of the fiscal year. The products described above
have accounted for more than 90% of revenues in each of the last three fiscal
years.
During 1995, the Company purchased the outstanding stock of Marine Diffusion,
S.R.L. The acquisition did not require significant capital investment. A
further description of this acquisition appears in Note N to the consolidated
financial statements on page 37 of the 1996 Annual Report, which financial
statements are incorporated by reference in this Form 10-K Annual Report in
Part II.
In July 1994, the Company acquired a minority interest in Palmer Johnson
Distributors, LLC, a major distributor of Twin Disc products. A further
description of this transaction appears in Note E to the consolidated
financial statements on page 29 of the 1996 Annual Report, which financial
statements are incorporated by reference in this Form 10-K Annual Report in
Part II. The Company also began operations of a fully owned marketing
subsidiary in Madrid, Spain in fiscal year 1994. The establishment of this
subsidiary did not require significant capital investment.
The Company's products receive direct widespread competition, including from
divisions of other larger independent manufacturers. The Company also
competes for business with parts manufacturing divisions of some of its major
customers. Ten customers accounted for approximately 45% of the Company's
consolidated net sales during the year ended June 30, 1996. One such customer
is Caterpillar Inc. which accounted for approximately 10% of consolidated net
sales in 1996.
Unfilled open orders for the next six months of $65,574,000 at June 30, 1996
compares to $72,183,000 at June 30, 1995. Since orders are subject to
cancellation and rescheduling by the customer, the six-month order backlog is
considered more representative of operating conditions than total backlog.
However, as procurement and manufacturing "lead times" change, the backlog
will increase or decrease; and thus it does not necessarily provide a valid
indicator of the shipping rate. Cancellations are generally the result of
rescheduling activity and do not represent a material change in backlog.
Most of the Company's products are machined from cast iron, forgings, cast
aluminum and bar steel which generally are available from multiple sources and
which are believed to be in adequate supply.
The Company has pursued a policy of applying for patents in both the United
States and certain foreign countries on inventions made in the course of its
development work for which commercial applications are considered probable.
The Company regards its patents collectively as important but does not
consider its business dependent upon any one of such patents.
Engineering and development costs include research and development expenses
for new product development and major improvements to existing products, and
other charges for ongoing efforts to refine existing products. Research and
development costs charged to operations totalled $2,564,000, $2,718,000 and
$2,649,000 in 1996, 1995 and 1994, respectively. Total engineering and
development costs were $6,998,000, $7,411,000 and $6,843,000 in 1996, 1995 and
1994, respectively.
<PAGE> 3
Item 1. Business (continued)
Compliance with federal, state and local provisions regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, is not anticipated to have a material effect on capital
expenditures, earnings or the competitive position of the Company.
The number of persons employed by the Company at June 30, 1996 was 1,080.
The business is not considered to be seasonal except to the extent that
employee vacations are taken mainly in the months of July and August
curtailing production during that period.
Management recognizes that there are attendant risks that foreign governments
may place restrictions on dividend payments and other movements of money, but
these risks are considered minimal due to the political relations the United
States maintains with the countries in which the Company operates or the
relatively low investment within individual countries.
A summary of financial data by geographic area for the years ended June 30,
1996, 1995 and 1994 appears in Note D to the consolidated financial statements
on pages 27 through 29 of the 1996 Annual Report to Shareholders, which
financial statements are incorporated by reference in this Form 10-K Annual
Report in Part II.
Item 2. Properties
The Company owns two manufacturing, assembly and office facilities in Racine,
Wisconsin, U.S.A. and one in Nivelles, Belgium. The aggregate floor space of
these three plants approximates 677,000 square feet. The Racine facility
includes office space which is the location of the Company's corporate
headquarters.
The Company also has operations in the following locations, all of which are
used for sales offices, warehousing and light assembly or product service.
The following properties are leased except for the Johannesburg, South Africa
location, which is owned:
Jacksonville, Florida, U.S.A. Brisbane, Queensland, Australia
Miami, Florida, U.S.A. Perth, Western Australia, Australia
Loves Park, Illinois, U.S.A. Viareggio, Italy
Coburg, Oregon, U.S.A. Singapore
Seattle, Washington, U.S.A. Johannesburg, South Africa
Madrid, Spain
The properties are generally suitable for operations and are utilized in the
manner for which they were designed. Manufacturing facilities are currently
operating at less than 70% capacity and are adequate to meet foreseeable needs
of the Company.
<PAGE> 4
Item 3. Legal Proceedings
Twin Disc is a defendant in several product liability or related claims
considered either adequately covered by appropriate liability insurance or
involving amounts not deemed material to the business or financial condition
of the Company.
The Company has joined with a group of potentially responsible parties in
signing a consent decree with the Illinois Environmental Protection Agency to
conduct a remedial investigation and feasibility study at the Interstate
Pollution Control facility in Rockford, Illinois. The consent decree was
signed on October 17, 1991, and filed with the federal court in the Northern
District of Illinois. The Company's total potential liability on the site
cannot be estimated with particularity until completion of the remedial
investigation. Based upon current assumptions, however, the Company
anticipates potential liability of approximately $500,000.
The Company has also joined with a group of potentially responsible parties in
signing a consent decree with the Illinois Environmental Protection Agency to
conduct a remedial investigation and feasibility study at the MIG\DeWane
Landfill in Rockford, Illinois. The consent decree was signed on March 29,
1991, and filed with the federal court in the Northern District of Illinois.
The Company's total potential liability on the site cannot be estimated with
particularity until completion of the remedial investigation. Based upon
current assumptions, however, the Company anticipates potential liability of
approximately $126,000.
The Company also is involved with other potentially responsible parties in
various stages of investigation and remediation relating to other hazardous
waste sites, some of which are on the United States EPA National Priorities
List (Superfund sites). While it is impossible at this time to determine with
certainty the ultimate outcome of such environmental matters, they are not
expected to materially affect the Company's financial position, operating
results or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
(Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to
be held on October 18, 1996.)
<TABLE>
<CAPTION>
Principal Occupation
Name Last Five Years Age
- ------------------ --------------------------------------- ---
<S> <C> <C>
Michael E. Batten Chairman, Chief Executive Officer since 56
October 1991; formerly Chairman, President,
Chief Executive Officer
Michael H. Joyce President-Chief Operating Officer since 55
October 1991; formerly President-North
American Operations since January 1991;
formerly President, Mobile Fluid Products
Division, Dana Corporation
James O. Parrish Vice President - Finance and Treasurer 56
Philippe O. Pecriaux Vice President - Europe 58
Lance J. Melik Vice President - Corporate Development 53
since September 1995; formerly Vice
President - Marketing
<PAGE> 5
Executive Officers of the Registrant (continued)
Principal Occupation
Name Last Five Years Age
- ---- --------------------- ---
Michael J. Hablewitz Vice President - Quality Assurance 50
since February 1994;
formerly Vice President -
Manufacturing Services
James McIndoe Vice President - International Marketing 57
Darrell J. Olson Vice President - Human Resources since 49
November 1995; formerly Vice President -
Operations, Intercraft Company Division,
Newell Company since March 1994; formally
Vice President - Human Resources,
Mirro Company Division, Newell Company
Paul A. Pelligrino Vice President - Engineering since 57
April 1996; formerly Chief Engineer
of Corporate Engineering
John W. Spano Vice President - Sales and Marketing 52
since September 1995; formerly Director
Mobile Market Group, Trinova Corporation
since June 1993; formerly Director of
Customer Service since October 1991;
formerly Marine Market Sales Manager
Fred H. Timm Corporate Controller and Secretary 50
since August 1994; formerly Controller
and Secretary
</TABLE>
Officers are elected annually by the Board of Directors at the first meeting
of the Board held after each Annual Meeting of the Shareholders. Each officer
shall hold office until his successor has been duly elected, or until he shall
resign or shall have been removed from office.
PART II
Item 5.Market for the Registrant's Common Stock and Related Shareholder
Matters
The dividends per share and stock price range information set forth under the
caption "Sales and Earnings by Quarter" on page 1 of the Annual Report for the
year ended June 30, 1996 are incorporated into this Report
by reference.
As of June 30, 1996 there were 913 shareholder accounts. The Company's stock
is traded on the New York Stock Exchange. The market price of the Company's
common stock as of the close of business on August 30, 1996 was $22.00 per
share.
Pursuant to a shareholder rights plan (the "Rights Plan"), on June 17, 1988,
the Board of Directors declared a dividend distribution, payable to
shareholders of record on July 1, 1988, of one Preferred Stock Purchase Right
for each outstanding share of Common Stock. The Rights will expire 10 years
after issuance, and will be exercisable only if a person or group becomes the
beneficial owner of 20% or more (or 30% in the case of any person or group
which currently owns 20% or more of the shares or who shall become the
Beneficial Owner of 20% or more of the shares as a result of any transfer by
reason of the death of or by gift from any other person who is an Affiliate or
an Associate of such existing holder or by succeeding such a person as trustee
of a trust existing on the Record Date) of the Common Stock (such person or
group, an "Acquiring Person") or commences a tender or exchange offer which
would result in the offeror beneficially owning 30% or more of the Common
Stock. A person who is not an Acquiring Person will not be deemed to have
become an Acquiring Person solely as a result of a reduction in the
<PAGE> 6
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters (continued)
number of shares of Common Stock outstanding due to a repurchase of Common
Stock by the Company until such person becomes beneficial owner of any
additional shares of Common Stock. Each Right will entitle shareholders to
buy one newly issued unit of one one-hundredth of a share of Series A Junior
Preferred Stock at an exercise price of $80, subject to certain antidilution
adjustments. The Company will generally be entitled to redeem the Rights at
$.05 per Right at any time prior to 10 business days after a public
announcement of the existence of an Acquiring Person. In addition, if (i) a
person or group accumulates more than 30% of the Common Stock (except pursuant
to an offer for all outstanding shares of Common Stock which the independent
directors of the Company determine to be fair to and otherwise in the best
interests of the Company and its shareholders and except solely due to a
reduction in the number of shares of Common Stock outstanding due to the
repurchase of Common Stock by the Company), (ii) a merger takes place with an
Acquiring Person where the Company is the surviving corporation and its Common
Stock is not changed or exchanged, (iii) an Acquiring Person engages in
certain self-dealing transactions, or (iv) during such time as there is an
Acquiring Person, an event occurs which results in such Acquiring Person's
ownership interest being increased by more than 1% (e.g., a reverse stock
split), each Right (other than Rights held by such Acquiring Person and
certain related parties which become void) will represent the right to
purchase, at the exercise price, Common Stock (or in certain circumstances, a
combination of securities and/or assets) having a value of twice the exercise
price. In addition, if following the public announcement of the existence of
an Acquiring Person the Company is acquired in a merger or other business
combination transaction, except a merger or other business combination
transaction that takes place after the consummation of an offer for all
outstanding shares of Common Stock that the independent directors of the
Company have determined to be fair, or a sale or transfer of 50% or more of
the Company's assets or earning power is made, each Right (unless previously
voided) will represent the right to purchase, at the exercise price, common
stock of the acquiring entity having a value of twice the exercise price at
the time.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on a substantial number of Rights being
acquired. However, the Rights are not intended to prevent a take-over, but
rather are designed to enhance the ability of the Board of Directors to
negotiate with an acquiror on behalf of all of the shareholders. In addition,
the Rights should not interfere with a proxy contest.
The Rights should not interfere with any merger or other business combination
approved by the Board of Directors since the Rights may be redeemed by the
Company at $.05 per Right prior to 10 business days (as such period may be
extended by the Company) after the public announcement of the existence of an
Acquiring Person.
The press release announcing the declaration of the Rights dividend, dated
June 20, 1988, and a letter to the Company's shareholders, dated June 22,
1988, explaining the Rights, filed as Item 14(a)(3), Exhibits 4(a) and (b) of
Part IV of the Annual Report on Form 10-K for the year ended June 30, 1988 are
hereby incorporated by reference.
Item 6. Selected Financial Data
The information set forth under the caption "Ten-Year Financial Summary" on
pages 40 and 41 of the Annual Report to Shareholders for the year ended June
30, 1996 is incorporated into this report by reference.
Item 7.Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under the caption "Management's Discussion and
Analysis" on pages 19 through 21 of the Annual Report to Shareholders for the
year ended June 30, 1996 is incorporated into this report by reference.
<PAGE> 7
Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements of Twin Disc, Incorporated and
Subsidiaries set forth on pages 22 through 39 of the Annual Report to
Shareholders for the year ended June 30, 1996 are incorporated into this
report by reference:
Consolidated Balance Sheets, June 30, 1996 and 1995
Consolidated Statements of Operations for the years ended June 30,
1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30,
1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for the
years ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants for the year ended June 30, 1996
The supplementary data regarding quarterly results of operations set forth
under the caption "Sales and Earnings by Quarter" on page 1 of the Annual
Report to Shareholders for the year ended June 30, 1996 is incorporated into
this report by reference.
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
For information with respect to the executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this report.
For information with respect to the Directors of the Registrant, see "Election
of Directors" on pages 5 through 6 of the Proxy Statement for the Annual
Meeting of Shareholders to be held October 18, 1996, which is incorporated
into this report by reference.
Item 11. Executive Compensation
The information set forth under the captions "Compensation of Executive
Officers", "Stock Options" and "Compensation Pursuant to Plans" on pages 8
through 10 of the Proxy Statement for the Annual Meeting of Shareholders to be
held on October 18, 1996 is incorporated into this report by reference.
Discussion in the Proxy Statement under the captions "Board Executive
Selection and Salary Committee Report on Executive Compensation" and
"Corporate Performance Graph" is not incorporated by reference and shall not
be deemed "filed" as part of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain beneficial owners and management is set forth on
pages 3 and 4 of the Proxy Statement for the Annual Meeting of Shareholders to
be held on October 18, 1996 under the caption "Principal Shareholders and
Share Ownership of Directors and Executive Officers" and incorporated into
this report by reference.
There are no arrangements known to the Registrant, the operation of which may
at a subsequent date result in a change in control of the Registrant.
<PAGE> 8
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following Consolidated Financial Statements of Twin Disc,
Incorporated and Subsidiaries set forth on pages 22 through 39 of the Annual
Report to Shareholders for the year ended June 30, 1996 are incorporated by
reference into this report in Part II:
Consolidated Balance Sheets, June 30, 1996 and 1995
Consolidated Statements of Operations for the years ended June 30, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for the years
ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants for the year ended June 30, 1996
The supplementary data regarding quarterly results of operations under the
caption "Sales and Earnings by Quarter" on page 1 of the Annual Report to
Shareholders for the year ended June 30, 1996 is incorporated by reference
into this report in Part II hereof.
Individual financial statements of the 50% or less owned entities accounted
for by the equity method are not required because such 50% or less owned
entities do not constitute significant subsidiaries.
(a)(2) Consolidated Financial Statement Schedule (numbered in accordance with
Regulation S-X) for the three years ended June 30, 1996:
Page
----
Report of Independent Accountants 12
Schedule II-Valuation and Qualifying Accounts 13
Schedules, other than those listed, are omitted for the reason that they are
inapplicable, are not required, or the information required is shown in the
financial statements or the related notes thereto.
The Report of the Independent Accountants of the Registrant with respect to
the above-listed consolidated financial statement schedule appears on page 12
of this report.
<PAGE> 9
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(a)(3) List of Exhibits: (numbered in accordance with Item 601 of Regulation
S-K)
2 Not applicable
3 a) Articles of Incorporation, as restated October 21, 1988
(Incorporated by reference to Exhibit 3(a) of the Company's
Form 10-K for the year ended June 30, 1989).
b) Corporate Bylaws, amended through June 16, 1995
(Incorporated by reference to Exhibit 3(b) of the Company's
Form 10-K for the year ended June 30, 1995).
4 Instruments defining the rights of security holders, including
indentures
a) Form of Rights Agreement dated as of June 17, 1988 by and
between the Company and the First Wisconsin Trust Company,
as Rights Agent, with Form of Rights Certificate
(Incorporated by reference to Exhibits 1 and 2 of the
Company's Form 8-A dated June 27, 1988).
b) Announcement of Shareholder Rights Plan per press release
dated June 20, 1988 and explanation of plan per letter to
Company's shareholders dated June 20, 1988 (Incorporated by
reference to Exhibit 4(a) and (b), respectively, of the
Company's Form 10-K for the year ended June 30, 1988).
9 Not applicable
10 Material Contracts
a) * The 1988 Incentive Stock Option Plan (Incorporated by
reference to Exhibit B of the Proxy Statement for the Annual
Meeting of Shareholders held on October 21, 1988).
b) * The 1988 Non-Qualified Stock Option Plan for Officers, Key
Employees and Directors (Incorporated by reference to
Exhibit C of the Proxy Statement for the Annual Meeting of
Shareholders held on October 21,1988).
c) * Amendment to 1988 Incentive Stock Option Plan of Twin
Disc, Incorporated (Incorporated by reference to Exhibit A
of the Proxy Statement for the Annual Meeting of
Shareholders held on October 25, 1993).
d) * Amendment to 1988 Non-Qualified Incentive Stock Option
Plan for Officers, Key Employees and Directors of Twin
Disc, Incorporated (Incorporated by reference to Exhibit B
of the Proxy Statement for the Annual Meeting of
Shareholders held on October 15, 1993).
e) * Form of Severance Agreement for Senior Officers and form
of Severance Agreement for Other Officers (Incorporated by
reference to Exhibit 10(c) and (d), respectively, of the
Company's Form 10-K for the year ended June 30, 1989).
f) *Supplemental Retirement Plan (Incorporated by reference to
Exhibit 10(a) of the Company's Form 10-K for the year ended
June 30, 1986).
g) * Director Tenure and Retirement Policy (Incorporated by
reference to Exhibit 10(f) of the Company's Form 10-K for
the year ended June 30, 1993).
<PAGE> 10
(a)(3) List of Exhibits: (numbered in accordance with Item 601 of Regulation
S-K) (continued)
h) * Form of Twin Disc, Incorporated Corporate Short Term
Incentive Plan (Incorporated by reference to Exhibit 10(g)
of the Company's Form 10-K for the year ended June 30,
1993).
* Denotes management contract or compensatory plan or arrangement.
11 Not applicable
12 Not applicable
13 Annual Report of the Registrant for the year ended June 30,
1996 is separately filed as Exhibit (13) to this Report
(except for those portions of such Annual Report separately
incorporated by reference into this Report, such Annual
Report is furnished for the information of the Securities
and Exchange Commission and shall not be deemed "filed" as
part of this report).
18 Not applicable
21 Subsidiaries of the registrant
22 Not applicable
23 Consent of Independent Accountants
24 Power of Attorney
27 Financial Data Schedule for the year ended June 30, 1996 is
separately filed as Exhibit (27) to this report. (This
schedule is furnished for the information of the Securities
and Exchange Commission and shall not be deemed "filed" for
purposes of Section 11 of the Securities Act or Section 18
of the Exchange Act.)
28 Not applicable
99 Foreign Affiliate Separate Financial Statements
a) Niigata Converter Co., Ltd. financial statements for
the year ended March 31, 1995 prepared in accordance
with Japanese Commercial Code (Incorporated by
reference to Exhibit 99(a) of the Company's Form 10-K
for the year ended June 30, 1995).
b) Niigata Converter Co., Ltd. financial statements for the
year ended March 31, 1994 prepared in accordance with
Japanese Commercial Code (Incorporated by reference to
Exhibit 99(b) of the Company's Form 10-K for the year ended
June 30, 1995).
Copies of exhibits filed as a part of this Annual Report on Form 10-K may be
obtained by shareholders of record upon written request directed to the
Secretary, Twin Disc, Incorporated, 1328 Racine Street, Racine, Wisconsin
53403.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TWIN DISC, INCORPORATED
By FRED H TIMM
------------------------------
Fred H. Timm, Corporate Controller
and Secretary (Chief Accounting Officer)
September 16, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
( By MICHAEL E. BATTEN
( ----------------------------------
( Michael E. Batten, Chairman,
( (Chief Executive Officer and Director(
(
(
(
September 16, 1996 ( By MICHAEL H. JOYCE
( ----------------------------------
( Michael H. Joyce, President,
( Chief Operating Officer and Director
(
(
(
( By JAMES O. PARRISH
( ----------------------------------
( James O. Parrish, Vice President-
( Finance, Treasurer and Director
( (Chief Financial Officer)
( William W. Goessel, Director
( Jerome K. Green, Director
( John L. Murray, Director
(
( Paul J. Powers, Director
September 16, 1996 ( Richard T. Savage, Director
( David L. Swift, Director
( Stuart W. Tisdale, Director
( David R. Zimmer, Director
(
(
( By JAMES O. PARRISH
----------------------------------
( James O. Parrish, Attorney in Fact
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
(See Item 14)
Consolidated Financial Statement Schedule of
Twin Disc, Incorporated and Subsidiaries
To the Shareholders
Twin Disc, Incorporated
Racine, Wisconsin
Our report on the consolidated financial statements of Twin Disc, Incorporated
and Subsidiaries has been incorporated by reference in this Form 10-K from
page 39 of the 1996 Annual Report to Shareholders of Twin Disc, Incorporated
and Subsidiaries. In connection with our audits of such financial statements,
we have also audited the related financial statement schedule listed in the
index on page 8 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L. L. P.
Milwaukee, Wisconsin
July 26, 1996
<PAGE> 13
<TABLE>
TWIN DISC, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended June 30, 1996, 1995 and 1994
(In thousands)
<CAPTION>
Balance at Additions Charged Balance at
Beginning of to Costs and end of
Description Period Expenses Deductions(1) Period
- ----------- ------------ ----------------- ------------- ----------
<S> <C> <C> <C> <C>
1996:
Allowance for losses on
accounts receivable $ 408 $ 41 $ 77 $ 372
------ ------ ------ ------
------ ------ ------ ------
Reserve for inventory
obsolescence 1,581 845 1,500 926
------ ------ ------ ------
------ ------ ------ ------
1995:
Allowance for losses on
accounts receivable $ 441 $ 54 $ 87 $ 408
------ ------ ------ ------
------ ------ ------ ------
Reserve for inventory
obsolescence 1,586 886 891 1,581
------ ------ ------ ------
------ ------ ------ ------
1994:
Allowance for losses on
accounts receivable $ 416 $ 264 $ 239 $ 441
------ ------ ------ ------
------ ------ ------ ------
Reserve for inventory
obsolescence - 2,094 508 1,586
------ ------ ------ ------
------ ------ ------ ------
<FN>
<F1> Accounts receivable written-off and inventory disposed of during the
year and other adjustments.
</FN>
</TABLE>
<PAGE> 14
<TABLE> EXHIBIT INDEX
<CAPTION>
Exhibit Description Page
<S> <C> <C>
3a) Articles of Incorporation, as restated October 21, 1988
(Incorporated by reference to Exhibit 3(a) of the Company's
Form 10-K for the year ended June 30, 1989). -
b) Corporate Bylaws, as amended through June 16, 1995
(Incorporated by reference to Exhibit 3(b) of the Company's
Form 10-K for the year ended June 30, 1995). -
4a) Form of Rights Agreement dated as of June 17, 1988 by and
between the Company and the First Wisconsin Trust Company,
as Rights Agent, with Form of Rights Certificate
(Incorporated by reference to Exhibits 1 and 2 of the
Company's Form 8-A date June 27, 1988). -
b) Announcement of Shareholder Rights Plan per press release
dated June 20, 1988 and explanation of plan per letter to
Company's shareholders dated June 20, 1988 (Incorporated by
reference to Exhibit 4(a) and (b), respectively of the
Company's Form 10-K for the year ended June 30, 1988). -
Material Contracts
10a) The 1988 Incentive Stock Option Plan (Incorporated by
reference to Exhibit B of the Proxy Statement for the Annual
Meeting of Shareholders held on October 21, 1988). -
b) The 1988 Non-Qualified Stock Option Plan for Officers, Key
Employees and Directors (Incorporated reference to
Exhibit C of the Proxy Statement for the Annual Meeting of
Shareholders held on October 21,1988). -
c) Amendment to 1988 Incentive Stock Option Plan of Twin Disc,
Incorporated (Incorporated by reference to Exhibit A
of the Proxy Statement for the Annual Meeting of Shareholders
held on October 15, 1993). -
d) Amendment to 1988 Non-Qualified Incentive Stock Option Plan
for Officers, Key Employees and Directors of Twin Disc,
Incorporated (Incorporated by reference to Exhibit B of the
Proxy Statement for the Annual Meeting of Shareholders held
on October 15, 1993). -
e) Form of Severance Agreement for Senior Officers and form of
Severance Agreement for Other Officers (Incorporated by
reference to Exhibit 10(c) and (d), respectively, of the
Company's Form 10-K for the year ended June 30, 1989). -
f) Supplemental Retirement Plan (Incorporated by reference to
Exhibit 10(a) of the Company's Form 10-K for the year ended
June 30, 1986). -
g) Director Tenure and Retirement Policy (Incorporated by
reference to Exhibit 10(f) of the Company's Form 10-K for the
year ended June 30, 1993). -
h) Form of Twin Disc, Incorporated Corporate Short Term
Incentive Plan (Incorporated by reference to Exhibit 10(g) of
the Company's Form 10-K for the year ended June 30, 1993). -
<PAGE> 15
EXHIBIT INDEX
(Continued)
Exhibit Description Page
13 Annual Report of the Registrant for the year ended June 30,
1996 16
21 Subsidiaries of the Registrant 41
23 Consent of Independent Accountants 42
24 Power of Attorney 43
27 Financial Data Schedule for the year ended June 30, 1996 44
Foreign Affiliate Separate Financial Statements
99a) Niigata Converter Co., Ltd. financial statements for the year
ended March 31, 1995 prepared in accordance with Japanese
Commercial Code (Incorporated by reference to Exhibit 99(a)
of the Company's Form 10-K for the year ended June 30, 1995). -
b) Niigata Converter Co., Ltd. financial statements for the year
ended March 31, 1994 prepared in accordance with Japanese
Commercial Code (Incorporated by reference to Exhibit 99(b)
of the Company's Form 10-K for the year ended June 30, 1995). -
</TABLE>
<PAGE> 16
EXHIBIT 13
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Sales $176,657 $164,232 $141,193
Earnings Before Accounting Changes 6,559 5,672 4,389
Earnings Per Share Before Accounting Changes 2.36 2.03 1.57
Dividends Per Share .70 .70 .70
Average Shares Outstanding For The Year 2,776,805 2,790,111 2,799,390
</TABLE>
<TABLE>
Sales and Earnings by Quarter
<CAPTION>
1996 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
<S> <C> <C> <C> <C> <C>
Net Sales $36,775 $41,763 $47,209 $50,910 $176,657
Gross Profit 7,093 9,295 11,340 13,149 40,877
Net Earnings 221 1,263 1,808 3,267 6,559
Net Earnings Per Share .08 .45 .65 1.18 2.36
Dividends Per Share .175 .175 .175 .175 .70
Stock Price Range:
High 25 1/4 23 3/4 23 1/4 25 1/2 25 1/2
Low 22 1/2 22 21 3/8 22 1/4 21 3/8
</TABLE>
<TABLE>
Sales and Earnings by Quarter
<CAPTION>
1995 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
<S> <C> <C> <C> <C> <C>
Net Sales $31,600 $41,102 $42,946 $48,584 $164,232
Gross Profit 6,444 9,246 9,502 11,154 36,346
Net Earnings 183 1,384 1,405 2,700 5,672
Net Earnings Per Share .07 .49 .50 .97 2.03
Dividends Per Share .175 .175 .175 .175 .70
Stock Price Range:
High 24 1/4 23 5/8 21 1/4 25 25
Low 19 3/8 17 18 3/8 21 3/8 17
</TABLE>
Based on average shares outstanding for the period.
In thousands of dollars except per share and stock price range statistics.
(1)
<PAGE> 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
NET SALES, NEW ORDERS AND BACKLOG
Sales for 1996 continued the upward trend of the past three years but at a
rate below that of the previous year. The increased demand occurred in most
markets, but was most evident in the marine pleasure craft and commercial
markets. The multi-year trend of order rate and backlog improvement ended in
fiscal year 1996 with order rates stabilizing early in the year and moderating
during the last fiscal quarter.
Net sales for 1996 were $176 million, an increase of 7 percent over the $164
million reported in 1995, and 25 percent above the $141 million in 1994. The
recovery begun in 1994 strengthened worldwide in 1995 with the pleasure craft
and commercial marine, light construction equipment, agricultural tractor, and
specialty vehicle markets all providing support for increased domestic and
European production volume. In 1996, the demand from marine and construction
equipment markets continued, and there was new interest in modulating clutches
for marine and environmental applications overseas.
Shipments from our overseas marketing subsidiaries in 1995 were up
approximately 8 percent from the previous year and increased by about 10
percent in the year just completed. In 1995, sales gains were realized in
Arneson surface drives and higher-horsepower marine transmissions for the
Australian fish boat market. There also was continuing improvement in the
volume of transmissions sold through our South African subsidiary to the
agricultural tractor market. The 1996 sales gains of about 10 percent from
these subsidiaries continued to be driven by the marine market with some
moderation in the agricultural tractor business.
The six-month order backlog (orders to be shipped within the following six
months) showed a modestly improving trend through fiscal year 1994, but during
1995 order rates improved considerably. The 53 percent improvement in six-
month backlog from $47 million to $72 million during the year was continuous
and strong. Order rates were steady through most of fiscal 1996 and closely
matched our shipping rates. However, due to higher shipments and lower order
rates during the fourth quarter, the six-month backlog declined to $66 million
at year-end, down 9 percent for the year.
For several years prior to fiscal 1995, the fluctuation in foreign currency
exchange rates had little impact on the dollar sales. However, in fiscal 1995
the dollar weakened significantly against the currencies of most of the
countries in which the Company operates, most notably about 15 percent against
European currencies. That decline in the dollar's value helped boost reported
sales and accounted for about one-half of the offshore sales increase in 1995.
In 1996, exchange rate fluctuations again were relatively small and did not
have a significant impact on dollar sales. Price increases, which were
implemented selectively in each year, had the overall effect of increasing
revenues by a rate about equal to the rate of inflation.
MARGINS, COSTS AND EXPENSES
There have been continuing efforts during the past three years to adjust
manpower requirements and to restructure manufacturing facilities to establish
a foundation for more efficient operations. Most of the recent activity has
been at our domestic operations. A voluntary separation program for hourly
(19)
employees in early 1994 and rearrangement of machine tools into cells during
much of the past three years have been the principal activities. While those
efforts caused some inefficiencies during the period, we recently have begun
to realize the benefits of the changes.
The gross margin increased by more than 2 percentage points in 1995, caused
<PAGE> 18
primarily by the increased domestic sales volume. The European margin also
improved in 1995 as a result of higher volume and greater productivity, but
those gains were partially offset by the effects of the decline in the value
of the U.S. dollar. The weaker dollar put pressure on profit margins since
much of the incremental demand was in dollar denominated sales. Fortunately,
our Belgian employees were able to achieve greater productivity to offset some
of the margin loss.
The consolidated gross margin increased an additional 1 percentage point in
1996 primarily as a result of good productivity and a favorable product mix at
our Belgian operation. Domestic margins improved during the last quarter of
the fiscal year, but were slightly lower for the full year. A charge was made
in the first quarter to cover the costs associated with a salaried employee
voluntary separation program, but savings later in the year offset much of
that expense. The factory rearrangement was completed in the second fiscal
quarter, but there was a mid-year production and shipping disruption caused by
the installation of new computer hardware and business systems software in
November.
Marketing, engineering, and administrative (MEA)expenses for fiscal year 1995
increased by almost 16 percent over 1994 but declined as a percent of sales.
Principal components of the increase were computer leasing and training costs
associated with the planned new business systems, weakness of the dollar
exchange rates, and expenses associated with domestic operational changes.
In 1996, the MEA expenses increased by 8 percent, about the same as the sales
growth. Increases were due primarily to the addition of marketing and
engineering personnel, higher computer related expense, and additional product
promotion and other marketing expense.
INTEREST, TAXES AND NET EARNINGS
Interest expense increased significantly in 1995 as a result of both higher
bank rates and greater domestic borrowing. The incremental debt was related
to a business acquisition made early in the fiscal year. In 1996, there was
another large increase in interest expense which was attributed about equally
to higher domestic debt and payment of interest related to the audit of prior
years' tax returns. As discussed in more detail below, additional debt was
required to finance the working capital increase.
The effective income tax rate of 12 percent in 1994 was well below normal and
resulted from the utilization of foreign tax credits to offset the domestic
tax liability. The effective income tax rate returned to a more normal range
in 1995 but was still somewhat below historical figures as we again were able
to utilize a small amount of foreign tax credit. There was a further increase
of five percentage points in the effective tax rate in 1996 due primarily to
the proportionately greater foreign earnings on which a higher tax rate is
applied.
The Financial Accounting Standards Board recently issued Statement of
Accounting Standard 123, "Accounting for Stock Based Compensation", which is
addressed in Footnote J to the consolidated financial statements.
ACQUISITIONS
Twin Disc purchased the stock of Marine Diffusion, SRL, an Italian company
active in the distribution of the Arneson surface drive in May 1995. The
company, renamed Twin Disc Italia, SRL, provides sales and service for the
full range of Twin Disc products and improves product visibility and service
capability for our European customers.
(20)
In February 1996, the Company entered into an agreement with Doen Marine Pty.,
Melbourne, giving Twin Disc the right to manufacture and market the Doen line
of axial-flow water jet propulsion systems for boats. The water jets will be
manufactured in Racine and will complement our line of marine transmissions,
surface drives, and electronic control systems.
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows for 1995 increased to $7.6 million with some working
capital increases, primarily inventory, partially offsetting the cash flow
generated by improved net earnings. The operating cash flows and $1.4 million
of net additional borrowing provided funds to invest in business acquisitions,
purchase capital equipment and pay dividends. In 1996, the net cash from
operating activities was a deficit of $4.8 million. Despite the higher
earnings, working capital increases more than offset the positive cash flows.
Receivables as a percent of net sales rose two percentage points from last
year, but most of that increase was due to the high domestic shipments in
June. Inventory, at higher levels throughout the year, declined during the
fourth quarter and, as a percent of sales, ended the year at about the same
rate as in 1995. Also, current liabilities were down from the prior year due
to lower trade payables and a decline in the amount of current pension
liabilities. During the year we took advantage of relatively low interest
rates to convert $20 million of our revolving bank credit into fixed rate 10-
year private placement debt. This will provide a stable financial base for
future development and growth. Overall debt rose by $11 million in 1996 to
cover increased working capital and purchase of the water jet license.
Fixed asset purchases in 1995 and 1996 were less than depreciation. We will
continue to make the changes necessary to enhance our manufacturing capability
and expect future spending will exceed depreciation somewhat in order to
support more efficient manufacture of current and newly developed product.
With the increase in current assets and decline in liabilities, the current
ratio at June 30, 1996 rose to 3.0, up from 2.5 at the previous two year-
ends. Working capital increased by $6 million in 1995, generally reflecting
the funds required to support the higher sales volume. Further increases of
$9 million in 1996 related to the higher sales volume and the reduction of
current liabilities discussed above.
The Company is involved in various stages of investigation relative to
hazardous waste sites on the United States EPA National Priorities List. It
is not possible at this time to determine the ultimate outcome of those
matters; but, as discussed further in footnote O to the audited financial
statements, they are not expected to affect materially the Company's
operations, financial position, or cash flows. The Company believes the
capital resources available in the form of existing cash, lines of credit and
funds provided by operations will be adequate to meet anticipated requirements
for capital expenditures and other foreseeable business requirements in the
future.
(21)
<PAGE> 20
<TABLE>
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 and 1995
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,043 $ 3,741
Trade accounts receivable, net 34,917 29,247
Inventories 51,083 47,157
Deferred income taxes 2,710 3,865
Other 5,887 6,480
------- -------
Total current assets 96,640 90,490
Property, plant and equipment, net 35,715 37,348
Investment in affiliates 12,079 14,249
Deferred income taxes 3,758 4,119
Intangible pension asset 8,079 8,293
Other assets 6,428 3,802
------- -------
$162,699 $158,301
------- -------
------- -------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 7,360 $ 2,415
Accounts payable 8,806 12,395
Accrued liabilities 17,836 22,042
------- -------
Total current liabilities 34,002 36,852
Long-term debt 19,938 14,000
Accrued retirement benefits 33,578 32,827
------- -------
87,518 83,679
Shareholders' equity:
Common shares authorized: 15,000,000;
issued: 3,643,630; no par value 11,653 11,653
Preferred shares authorized: 200,000 - -
Retained earnings 71,658 67,054
Cumulative adjustments 9,706 13,797
------- -------
93,017 92,504
Less treasury stock, at cost 17,836 17,882
------- -------
Total shareholders' equity 75,181 74,622
------- -------
$162,699 $158,301
------- -------
------- -------
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(22)
<PAGE> 21
<TABLE>
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1996, 1995 and 1994
<CAPTION>
(In thousands, except per share data)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $176,657 $164,232 $141,193
Cost of goods sold 135,780 127,886 113,404
------- ------- -------
Gross profit 40,877 36,346 27,789
Marketing, engineering and
administrative expenses 28,706 26,461 22,840
------- ------- -------
Earnings from operations 12,171 9,885 4,949
Other income (expense):
Interest income 121 186 173
Interest expense (1,942) (1,281) (733)
Equity in earnings of affiliates 45 186 522
Other, net 512 (392) 56
------- ------- -------
(1,264) (1,301) 18
------- ------- -------
Earnings before income
taxes 10,907 8,584 4,967
Income taxes 4,348 2,912 578
------- ------- -------
Net earnings $ 6,559 $ 5,672 $ 4,389
------- ------- -------
------- ------- -------
Earnings per common share, based
on weighted average shares
outstanding $ 2.36 $ 2.03 $ 1.57
------- ------- -------
------- ------- -------
Weighted average shares
outstanding 2,777 2,790 2,799
------- ------- -------
------- ------- -------
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(23)
<PAGE> 22
<TABLE>
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1996, 1995 and 1994
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $ 6,559 $ 5,672 $ 4,389
Adjustments to reconcile
to net cash provided by
operating activities:
Depreciation and amortization 5,233 4,847 4,726
Gain (loss)on sale of fixed assets (26) 65 (185)
Equity in earnings of affiliates (45) (186) (522)
Provision for deferred income taxes 1,646 1,038 (161)
Changes in operating assets and
liabilities:
Trade accounts receivable, net (6,055) (2,266) (66)
Inventories (3,926) (3,259) 1,969
Other assets (987) (3,608) (1,842)
Accounts payable (3,513) 3,765 501
Accrued liabilities (3,231) 1,170 (570)
Deferred retirement plan (336) 337 (1,099)
------- ------- -------
Net cash provided (used) by
operating activities (4,681) 7,575 7,140
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of plant assets 18 39 1,126
Dividends received from affiliate 548 371 342
Acquisitions of plant assets (4,140) (4,290) (4,216)
Payments for business acquisitions
and investment in affiliates - (3,172) -
Payment for license agreement (2,402) - -
------- ------- -------
Net cash used by investing activities (5,976) (7,052) (2,748)
------- ------- -------
Cash flows from financing activities:
Increases (decreases) in notes
payable, net 5,076 (1,113) 262
Proceeds from long-term debt 19,914 2,500 -
Principal payments on long-term debt (14,000) - (1,500)
Acquisition of treasury stock - (586) -
Proceeds from exercise of stock options 35 71 -
Dividends paid (1,943) (1,951) (1,960)
------- ------- -------
Net cash provided (used) by
financing activities 9,082 (1,079) (3,198)
------- ------- -------
Effect of exchange rate changes on cash (123) 131 69
------- ------- -------
Net change in cash and cash equivalents (1,698) (425) 1,263
Cash and cash equivalents:
Beginning of year 3,741 4,166 2,903
------- ------- -------
End of year $ 2,043 $ 3,741 $ 4,166
------- ------- -------
------- ------- -------
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(24)
<PAGE> 23
<TABLE>
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended June 30, 1996, 1995 and 1994
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common stock
Balance, June 30 $ 11,653 $ 11,653 $ 11,653
------- ------- -------
Retained earnings
Balance, July 1 67,054 63,353 60,924
Net earnings 6,559 5,672 4,389
Cash dividends (1,943) (1,951) (1,960)
Stock options exercised (12) (20) -
------- ------- -------
Balance, June 30 71,658 67,054 63,353
------- ------- -------
Treasury stock, at cost
Balance, July 1 (17,882) (17,387) (17,387)
Shares acquired - (586) -
Stock options exercised 46 91 -
------- ------- -------
Balance, June 30 (17,836) (17,882) (17,387)
------- ------- -------
Cumulative adjustments
Balance, July 1 13,797 7,778 6,219
Foreign currency translation adjustment (3,755) 5,352 2,510
Minimum pension liability adjustment, net (336) 667 (951)
------- ------- -------
Balance, June 30 9,706 13,797 7,778
------- ------- -------
Shareholders' equity balance, June 30 $ 75,181 $ 74,622 $ 65,397
------- ------- -------
------- ------- -------
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(25)
<PAGE> 24
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 intercompany transactions have been eliminated.
Revenue Recognition--Revenues are recognized when products are shipped.
Investment In Affiliates--The Company's 25% investments in affiliates are
stated at cost, adjusted for equity in undistributed earnings since
acquisition.
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 $372,000 and $409,000 at June 30, 1996 and 1995,
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
inventories.
Property, Plant and Equipment and Depreciation--Assets are stated at cost.
Expenditures for maintenance, repairs and minor renewals are charged against
earnings as incurred. Expenditures for major renewals and betterments are
capitalized and amortized by depreciation charges. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets for
financial reporting and on accelerated methods for income tax purposes. The
lives assigned to buildings and related improvements range from 10 to 40
years, and the lives assigned to machinery and equipment range from 5 to 15
years. Upon disposal of property, plant and equipment, the cost of the asset
and the related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in earnings. Fully depreciated assets are
not removed from the accounts until physical disposition.
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.
Fair Value of Financial Instruments--The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents, accounts
receivable, 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.
<PAGE> 25
Income Taxes--The Company recognizes deferred tax liabilities and assets for
the expected future income tax consequences of events that have been
recognized in the company's financial statements. Under this method, deferred
tax liabilities and assets are determined based on the temporary differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse.
(26)
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.
Reclassification--Certain amounts in the consolidated financial statements for
prior years have been reclassified to conform to the 1996 presentation.
B. INVENTORIES
The major classes of inventories at June 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Finished parts $41,535 $32,887
Work-in-process 5,429 7,849
Raw materials 4,119 6,421
------- -------
$51,083 $47,157
------- -------
------- -------
</TABLE>
Inventories stated on a LIFO basis represent approximately 36% of total
inventories at June 30, 1996 and 1995. The approximate current cost of the
LIFO inventories exceeded the LIFO cost by $17,171,000 and $16,782,000 at June
30, 1996 and 1995, respectively.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Land $ 1,399 $ 1,406
Buildings 19,082 19,366
Machinery and equipment 88,182 88,675
------- -------
108,663 109,447
Less accumulated depreciation 72,948 72,099
------- -------
$35,715 $37,348
------- -------
------- -------
</TABLE>
D. 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
<PAGE> 26
construction, industrial, marine, energy and natural resources and
agricultural.
One customer accounted for approximately 10%, 12% and 13% of consolidated net
sales in 1996, 1995 and 1994, respectively.
(27)
Information about the Company's operations in different geographic areas for
the years ended June 30, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $120,137 $108,607 $ 95,331
Foreign:
Europe 34,206 35,572 27,222
Other 22,314 20,053 18,640
------- ------- -------
Total $176,657 $164,232 $141,193
------- ------- -------
------- ------- -------
Transfers between geographic areas:
United States $ 30,230 $ 26,167 $ 24,003
Foreign:
Europe 23,130 15,024 10,508
Other 322 361 132
------- ------- -------
Total $ 53,682 $ 41,552 $ 34,643
------- ------- -------
------- ------- -------
Net sales:
United States $150,367 $134,774 $119,334
Foreign:
Europe 57,336 50,596 37,730
Other 22,636 20,414 18,772
Eliminations (53,682) (41,552) (34,643)
------- ------- -------
Total $176,657 $164,232 $141,193
------- ------- -------
------- ------- -------
Earnings before income taxes:
United States $ 2,821 $ 4,332 $ 1,500
Foreign:
Europe 6,126 2,635 1,513
Other 1,960 1,617 1,954
------- ------- -------
Total $ 10,907 $ 8,584 $ 4,967
------- ------- -------
------- ------- -------
Identifiable assets at June 30:
United States $117,552 $106,971 $ 98,945
Foreign:
Europe 36,356 39,537 30,778
Other 12,794 10,269 9,814
Eliminations (4,003) 1,524 4,379
------- ------- -------
Total $162,699 $158,301 $143,916
------- ------- -------
------- ------- -------
</TABLE>
Net earnings of the foreign subsidiaries were $4,758,000,$2,480,000 and
$2,365,000 in 1996, 1995 and 1994, respectively. The net assets of the
foreign subsidiaries were $32,085,000 and $32,368,000 at June 30, 1996 and
1995, respectively. Undistributed earnings of foreign subsidiaries, on which
no provisions for United States income taxes have been made, aggregated
approximately $22,949,000 (including $5,170,000 translation component) at June
(28)
<PAGE> 27
30, 1996. Included in earnings are foreign currency transaction gains
(losses) of $409,000, $(248,000) and $21,000 in 1996, 1995 and 1994,
respectively.
E. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates consists of 25% interests in Niigata
Converter Company, Ltd., Japan and Palmer Johnson Distributors, LLC, a
domestic distributor of Twin Disc products. The Company acquired the interest
in Palmer Johnson Distributors, LLC, in July 1994.
Undistributed earnings of the affiliates included in consolidated retained
earnings approximated $3,120,000 and $3,623,000 at June 30, 1996 and 1995,
respectively.
Combined condensed financial data of the above-listed affiliates are
summarized in U.S. dollars as follows:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
---- ----
<S> <C> <C>
Current assets $104,949 $111,393
Other assets 51,263 63,898
------- -------
$156,212 $175,291
------- -------
------- -------
Current liabilities $100,153 $100,836
Other liabilities 14,622 24,693
Shareholders' equity 41,437 49,762
------- -------
$156,212 $175,291
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $183,487 $169,256 $152,728
Gross profit 23,436 26,173 21,864
Net earnings 181 742 2,087
</TABLE>
F. ACCRUED LIABILITIES
Accrued liabilities at June 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Salaries and wages $ 5,756 $ 6,476
Retirement plans 4,122 7,818
Other 7,958 7,748
------- -------
$ 17,836 $ 22,042
------- -------
------- -------
(29)
</TABLE>
G. DEBT
Short-term notes payable consists of amounts borrowed under line of credit
agreements. Unused lines of credit total $11,632,000 at June 30, 1996. These
lines of credit are available predominately at the LIBOR rate and may be
<PAGE> 28
withdrawn at the option of the banks. The weighted average interest rate of
short-term lines outstanding at June 30, 1996 and 1995 was 8.4% and 9.4%,
respectively.
Prior to June 1996, the Company maintained a three-year revolving credit
agreement (the "Agreement") for borrowings of up to $16 million. The
Agreement provided that the Company could select among various loan
arrangements with interest based on the LIBOR or prime rates. The Company
paid a commitment fee of 3/8 of 1% annually on the unused portion of the
Agreement. In June 1996, the Company issued $20 million of 7.37% ten-year
notes in a private placement offering, net of $86,000 unamortized debt
issuance costs. Principal payments of $2,857,000 are due in the years 2000
through 2005, with the remaining balance due on June 1, 2006.
Cash paid for interest was $1,802,000, $1,288,000 and $771,000 in 1996, 1995
and 1994, respectively.
H. LEASE COMMITMENTS
Approximate future minimum rental commitments under noncancellable operating
leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
----------- ------------
<S> <C>
1997 $ 2,000
1998 1,693
1999 1,245
2000 738
2001 469
Thereafter 229
-----
$ 6,374
-----
-----
</TABLE>
Total rent expense for operating leases approximated $2,109,000, $1,939,000
and $1,633,000 in 1996, 1995 and 1994, respectively.
I. SHAREHOLDERS' EQUITY
At June 30, 1996 and 1995, treasury stock consisted of 866,356 and 868,606
shares of common stock, respectively. The Company issued 2,250 shares of
treasury stock in 1996 to fulfill its obligations under the stock option
plans. The difference between the cost of treasury shares issued and the
option price is charged to retained earnings.
Cash dividends per share were $.70 in 1996, 1995 and 1994.
(30)
In 1988, the Company's Board of Directors established a Shareholder Rights
Plan and distributed to shareholders of record on July 1, 1988, 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 $80,
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 20%, (or at least 30% in the case of existing holders who
currently own 20% or more of the common stock), or commenced a tender offer
for at least 30%, of the Company's common stock. Generally, after the rights
become exercisable, if the Company is a party to certain merger or business
combination transactions, or transfers 50% or more of its assets or earnings
power, or certain other events occur, each right will entitle its holders,
other than the acquiring person, to buy a number of shares of common stock of
the Company, or of the other party to the transaction, having a value of twice
<PAGE> 29
the exercise price of the right. The rights expire June 30, 1998 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 has designated 50,000
shares of the preferred stock for the purpose of a Shareholder Rights Plan.
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 of the Company will be granted options. The grant
of options to non-employee directors is fixed and based on such directors'
seniority. All options allow for the purchase of common stock at prices not
less than the fair market value at the date of grant, except 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, in which
case the option price will be not less than 110% of the fair market value of
such stock. Options granted under the plans become exercisable immediately
and expire ten years after the date of grant, unless the employee owns more
than 10% of the total combined voting power of all classes of the Company's
stock, in which case they must be exercised within five years of the date of
grant.
Shares available for future options as of June 30 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Non-qualified stock
option plan 28,650 42,550
Incentive stock option plan 67,500 89,150
</TABLE>
(31)
Stock option transactions under the plans during 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Non-qualified stock
option plan:
Options outstanding
at beginning of year 81,450 71,550
Granted 13,900 12,600
Cancelled - (1,700)
Exercised ($17.88-$19.50
per share) - (1,000)
------- -------
Options outstanding
at June 30 95,350 81,450
------- -------
------- -------
Options price range
at June 30 $ 14.00 - $ 14.00 -
29.63 29.63
Incentive stock option plan:
Options outstanding
at beginning of year 132,050 118,550
Granted 25,050 24,450
Cancelled (3,400) (7,550)
Exercised ($14.00-$19.50
per share) (2,250) (3,400)
<PAGE> 30
------- -------
Options outstanding
at June 30 151,450 132,050
------- -------
------- -------
Options price range
at June 30 $ 14.00 - $ 14.00 -
29.63 29.63
</TABLE>
The Company is required to adopt the pro forma disclosure requirements of SFAS
No. 123, "Accounting for Stock Based Compensation," in fiscal year 1997. In
the current fiscal year, the Company accounted for its stock option plan under
the provisions of Accounting Principles Board Opinion No. 25.
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 totalled $2,564,000, $2,718,000 and
$2,649,000 in 1996, 1995 and 1994, respectively. Total engineering and
development costs were $6,998,000, $7,411,000 and $6,843,000 in 1996, 1995 and
1994, respectively.
L. INCOME TAXES
United States and foreign earnings before income taxes were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $ 2,821 $ 4,332 $ 1,500
Foreign 8,086 4,252 3,467
------ ------ ------
$10,907 $ 8,584 $ 4,967
------ ------ ------
------ ------ ------
</TABLE>
(32)
The provision (credit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ 829 $ 782 $ (112)
State 78 12 39
Foreign 1,925 1,007 812
------ ------ ------
2,832 1,801 739
------ ------ ------
Deferred:
Federal 388 452 (150)
State (54) 12 -
Foreign 1,182 647 (11)
------ ------ ------
1,516 1,111 (161)
------ ------ ------
$ 4,348 $ 2,912 $ 578
------ ------ ------
------ ------ ------
</TABLE>
The components of the net deferred tax asset as of June 30, were as
follows:
<PAGE> 31
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Retirement plans and employer benefits $ 9,971 $10,878
Research and development expenses 926 205
Other 1,550 1,205
Foreign net operating
loss carryforwards 380 1,823
Foreign tax credit carryforwards 292 2,150
R&E tax credit carryforwards 335 250
Alternative minimum tax credit
carryforwards 1,223 979
Valuation allowance - (1,430)
------ ------
14,677 16,060
------ ------
Deferred tax liabilities:
Fixed assets 6,368 6,771
Other 1,841 1,305
------ ------
8,209 8,076
------ ------
Total net deferred tax assets $ 6,468 $ 7,984
------ ------
------ ------
</TABLE>
[CAPTION]
(33)
The Company previously recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized due to the expiration
of net operating loss and tax credit carryforwards. The change in the
valuation allowance is as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Balance at July 1 $(1,430) $(2,453)
Utilization of foreign net operating loss
carryforwards - 139
Utilization of foreign tax credit carryforwards 1,430 884
------ ------
Balance at June 30 $ - $(1,430)
------ ------
------ ------
</TABLE>
Following is a reconciliation of the applicable U.S. federal income tax rate
to the effective tax rates reflected in the statements of operations:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax rate 34.0% 34.0% 34.0%
Increases (reductions)
in tax rate resulting from:
Utilization of net operating
loss carryforwards - (1.6) (12.2)
Foreign tax items 4.2 (1.8) (13.8)
Employee benefits - foreign - 1.8 3.2
Other, net 1.7 1.5 0.4
---- ---- ----
39.9% 33.9% 11.6%
---- ---- ----
---- ---- ----
</TABLE>
At June 30, 1996, net operating loss carryforwards of approximately $900,000
were available for reduction of future foreign income taxes payable at Twin
Disc International, S. A.
Cash paid for income taxes was $4,946,000, $2,698,000 and $1,636,000 in 1996,
<PAGE> 32
1995 and 1994, respectively.
M. RETIREMENT PLANS
The Company has noncontributory, qualified defined benefit pension plans
covering substantially all domestic employees and contributory plans covering
certain foreign employees. Domestic plan benefits are based on years of
service, and for salaried employees on final average compensation. The
Company's funding policy for the plans covering domestic employees is to
contribute an actuarially determined amount which falls between the minimum
and maximum amount that can be contributed for federal income tax purposes.
Domestic plan assets consist principally of listed equity and fixed income
securities.
In addition, the Company has unfunded, non-qualified retirement plans for
certain management employees and directors. Benefits are based on final
average compensation and do not vest until such management employee reaches
normal retirement with the Company.
(34)
Net pension expense for the Company's domestic defined benefit plans
consists of the following components:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 1,529 $ 1,585 $ 1,382
Interest cost on projected benefit obligation 6,823 6,643 6,518
Actual return on plan assets (9,956) (3,835) (1,882)
Net amortization and deferral 5,304 (588) (2,432)
------ ------ ------
Net pension cost $ 3,700 $ 3,805 $ 3,586
------ ------ ------
------ ------ ------
</TABLE>
The following table sets forth the Company's domestic defined
benefit plans' funded status and the amounts recognized in the Company's
balance sheet as of June 30:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 70,042 $ 63,804
Non-vested benefit obligation 15,683 14,622
------- -------
Accumulated benefit
obligation 85,725 78,426
Effect of projected future
compensation levels 4,622 4,475
------- -------
Projected benefit obligation 90,347 82,901
Plan assets at fair value (73,422) (64,110)
------ ------
Deficiency of plan assets compared
to projected benefit obligation 16,925 18,791
Unrecognized net loss (4,042) (2,139)
Unrecognized prior service cost (8,656) (9,651)
Unrecognized transitional net
liability (667) (799)
Adjustment required to recognize
additional minimum liability 9,095 8,758
------- -------
Accrued retirement cost at June 30 $ 12,655 $ 14,960
------- -------
------- -------
</TABLE>
<PAGE> 33
Assumptions used in accounting for the retirement plans
are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate 7.8% 8.5%
Rate of increase in compensation
levels 4.5% 4.5%
Expected long-term rate of return on
plan assets 9.0% 9.0%
</TABLE>
(35)
Total accrued retirement costs at June 30 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
Current:
Domestic defined benefit plans $ 1,156 $ 3,907
Foreign contributory benefit plans 673 1,092
------ ------
1,829 4,999
Long-term:
Domestic defined benefit plans 11,499 11,053
------ ------
$13,328 $16,052
------ ------
------ ------
</TABLE>
Retirement plan expense for the Company's foreign plans was $597,000, $307,000
and $246,000 in 1996, 1995 and 1994, 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
$1,056,000, $906,000 and $933,000 in 1996, 1995 and 1994, respectively.
In addition to providing pension benefits, the Company provides health care
and life insurance benefits for certain domestic retirees. In 1993, the
Company executed amendments to the health care insurance plan to require all
employees retiring after December 31, 1992, and electing to continue coverage
through the Company's group plan, to pay 100% of the premium cost.
The Company recognized $2,680,000, $2,841,000 and $2,193,000 in non-pension
postretirement benefit expense in 1996, 1995 and 1994, respectively, which
consists primarily of interest cost.
The following table sets forth the status of the postretirement benefit
programs (other than pensions) and amounts recognized in the Company's
consolidated balance sheet at June 30:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $28,077 $29,993
Fully eligible active plan participants 433 387
Other active participants 471 393
------ ------
28,981 30,773
Unamortized net amount resulting
from changes in plan experience and
actuarial assumptions (4,279) (6,222)
------ ------
Accrued postretirement benefit obligation $24,702 $24,551
------ ------
------ ------
</TABLE>
<PAGE> 34
The current portion of the accumulated postretirement benefit obligation of
$2,293,000 and $2,680,000 is included in accrued liabilities at June 30, 1996
and 1995, respectively.
The assumed weighted average discount rate used in determining the actuarial
present value of the accumulated postretirement benefit obligation was 7.75%
and 8% at June 30, 1996 and 1995, respectively. The assumed weighted average
health care cost trend rate was 10% in fiscal year 1996, decreasing by 1% each
year thereafter until it reaches 7% in fiscal year 1999, and remains constant
thereafter. A 1% increase in the assumed health care trend would increase the
accumulated postretirement benefit obligation by approximately $1.9 million
and the interest cost by approximately $154,000.
(36)
N. ACQUISITION
Effective January 1, 1995, the Company purchased all outstanding stock of
Marine Diffusion SRL, an Italian distributor of Twin Disc products and other
marine components and assemblies. The purchase price ($172,000) approximated
the fair value of assets acquired.
The purchase method of accounting was applied to the above transaction. The
results of operations of the acquisition are included in the accompanying
consolidated financial statements since the date of acquisition. Pro forma
results of operations are not presented as the amounts do not significantly
differ from historical results.
O. CONTINGENCIES
The Company is involved in various stages of investigation relative to
hazardous waste sites, two of which are on the United States EPA National
Priorities List (Superfund sites). The Company's assigned responsibility at
each of the Superfund sites is less than 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, 1996, the Company has accrued approximately $1,200,000, 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.
(37)
<PAGE> 35<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Twin Disc, Incorporated
Racine, Wisconsin
We have audited the accompanying consolidated balance sheets of Twin Disc,
Incorporated and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and
cash flows for each of the three years in the period ended June 30, 1996.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Twin Disc,
Incorporated and Subsidiaries as of June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
July 26, 1996
(39)
<PAGE> 36
<TABLE>
FINANCIAL SUMMARY
<CAPTION>
1996 1995 1994 1993 1992
(In thousands of dollars, except where noted)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net sales $176,657 $164,232 $141,193 $139,403 $136,255
Costs and expenses,
including marketing,
engineering and
administrative 164,486 154,347 136,244 135,284 134,242
Earnings
from operations 12,171 9,885 4,949 4,119 2,013
Other income
(expense) (1,264) (1,301) 18 (95) (162)
Earnings
before income taxes 10,907 8,584 4,967 4,024 1,851
Income taxes 4,348 2,912 578 1,362 810
Net earnings 6,559 5,672 4,389 2,662 1,041
Overseas operations
Sales 55,520 55,625 45,862 44,766 45,668
Earnings (loss) 4,758 2,480 2,365 1,673 (478)
Balance Sheet
Assets
Cash and equivalents 2,043 3,741 4,166 2,903 2,987
Receivables, net 34,917 29,247 25,682 25,106 26,026
Inventories 51,083 47,157 41,569 42,562 36,686
Other current assets 8,597 10,345 8,993 6,961 4,521
Total current assets 96,640 90,490 80,410 77,532 70,220
Investments and
other assets 30,344 30,463 26,830 21,813 10,554
Fixed assets less
accumulated
depreciation 35,715 37,348 36,676 37,560 38,724
Total assets 162,699 158,301 143,916 136,905 119,498
Net assets overseas 32,085 32,368 29,580 28,059 30,477
Liabilities and Shareholders' Equity
Current liabilities 34,002 36,852 32,710 31,252 35,694
Long-term debt 19,938 14,000 11,500 13,000 -
Deferred liabilities 33,578 32,827 34,309 31,244 7,365
Shareholders' equity 75,181 74,622 65,397 61,409 76,439
Total liabilities and
shareholders' equity 162,699 158,301 143,916 136,905 119,498
1993 Net Earnings data and Return percentages reflect operating earnings
before the
effect of adopting Financial Accounting Standards 106 and 109. The cumulative
effect of their adoption was a net loss of $14.44 million or $5.16 per share.
(40-41)
<PAGE> 37
FINANCIAL SUMMARY (CONTINUED)
<CAPTION>
1996 1995 1994 1993 1992
(In thousands of dollars, except where noted)
Comparative Financial Information
<S> <C> <C> <C> <C> <C>
Per share statistics
Net earnings 2.36 2.03 1.57 .95 .37
Dividends .70 .70 .70 .70 .70
Shareholders' equity 27.07 26.75 23.36 21.93 27.10
Return on equity 8.7% 7.6% 6.7% 4.3% 1.4%
Return on assets 4.0% 3.6% 3.0% 1.9% .9%
Return on sales 3.7% 3.5% 3.1% 1.9% .8%
Average shares
outstanding 2,776,805 2,790,111 2,799,390 2,799,603 2,820 513
Number of shareholder
accounts 913 996 1,058 1,139 1,214
Number of employees 1,080 1,097 1,099 1,114 1,221
Additions to plant
and equipment 4,140 4,290 4,216 4,684 4,390
Depreciation 5,071 4,792 4,670 4,958 5,452
Net working capital 62,638 53,638 47,700 46,280 34,526
</TABLE>
1993 Net Earnings data and Return percentages reflect operating earnings
before the
effect of adopting Financial Accounting Standards 106 and 109. The cumulative
effect of their adoption was a net loss of $14.44 million or $5.16 per share.
(40-41)
<PAGE> 38
DIRECTORS
MICHAEL E. BATTEN
Chairman, Chief Executive Officer
WILLIAM W. GOESSEL
Retired Chairman and former Chief Executive Officer, Harnischfeger
Industries,
Incorporated, (Manufacturer of Cranes, Mining Equipment and Papermaking
Machines),
Milwaukee, Wisconsin
JEROME K. GREEN
Former Group Vice President, The Marmon Group, (A Diversified Manufacturer),
Chicago, Illinois
MICHAEL H. JOYCE
President, Chief Operating Officer
JOHN L. MURRAY
Retired Chairman-Chief Executive Officer, Universal Foods Corporation,
(Manufacturer and Marketer of Food Ingredients and Specialty Foods),
Milwaukee,
Wisconsin
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
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, Incorporated and WEXCO of Delaware,
Incorporated),
Milwaukee, Wisconsin
DAVID R. ZIMMER
President-Chief Executive Officer, Core Industries, Inc., (Manufacturer of
Specialized Products for Electronics, Fluid Controls, Construction and Farm
Equipment Markets), Bloomfield Hills, Michigan
(42)
<PAGE> 39
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
MICHAEL J. HABLEWITZ
Vice President-Quality Assurance
FRED H. TIMM
Corporate Controller & Secretary
PAUL A. PELLIGRINO
Vice President-Engineering
JOHN W. SPANO
Vice President-Sales and Marketing
DARRELL J. OLSON
Vice President-Human Resources
(43)
<PAGE> 40
CORPORATE DATA
ANNUAL MEETING
Corporate Offices, 2:00 PM, October 18, 1996
SHARES TRADED
New York Stock Exchange: Symbol TDI
ANNUAL REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM 10-K
SINGLE COPIES OF THE COMPANY'S 1996 ANNUAL REPORT ON SECURITIES AND
EXCHANGE
COMMISSION FORM 10-K WILL BE PROVIDED WITHOUT CHARGE TO
SHAREHOLDERS AFTER
SEPTEMBER
30, 1996, 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
Coopers & Lybrand L.L.P., Milwaukee, Wisconsin
GENERAL COUNSEL
von Briesen, Purtell, & Roper, S.C., Milwaukee, Wisconsin
CORPORATE OFFICES
Twin Disc, Incorporated, Racine, Wisconsin 53403, Telephone: (414) 638-4100
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
(44)
<PAGE> 41
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
--------------------------
Twin Disc, Incorporated, the registrant (a Wisconsin Corporation) owns 100% of
the following subsidiaries:
1. Twin Disc International, S.A. (a Belgian corporation)
2. Twin Disc Spain, S.A. (a Spanish corporation)
3. Twin Disc Italia S.R.L. (an Italian corporation)
4. Twin Disc (Pacific) Pty. Ltd. (an Australian corporation)
5. Twin Disc (Far East) Ltd. (a Delaware corporation operating in
Singapore and Hong Kong)
6. Twin Disc (South Africa) Pty. Ltd. (a South African corporation)
7. Mill-Log Equipment Co., Inc. (an Oregon corporation)
8. Southern Diesel Systems Inc. (a Florida corporation)
9. TD Electronics, Inc. (a Wisconsin corporation)
The registrant has no parent nor any other subsidiaries. All of the above
subsidiaries are included in the consolidated financial statements.
<PAGE> 42
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation 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) of our reports dated July 26,
1996, on our audits of the consolidated financial statements and financial
statement schedule of Twin Disc, Incorporated as of June 30, 1996 and 1995 and
for the years ended June 30, 1996, 1995 and 1994, which reports are included
in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
September 24, 1996
<PAGE> 43
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned directors of Twin Disc, Incorporated hereby severally
constitute Michael E. Batten and James O. Parrish , and each of them singly,
true and lawful attorneys with full power to them, and each of them, singly,
to sign for us and in our names as directors the Form 10-K Annual Report for
the fiscal year ended June 30, 1996 pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, and generally do all such things in our names
and behalf as directors to enable Twin Disc, Incorporated to comply with the
provisions of the Securities and Exchange Act of 1934 and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures so they may be signed by our attorneys, or either of them, as set
forth below.
/S/ WILLIAM W. GOESSEL
- -------------------------------
William W. Goessel, Director
/S/ JEROME K. GREEN
- -------------------------------
Jerome K. Green, Director
/S/ JOHN L. MURRAY
- -------------------------------
John L. Murray, Director
/S/ PAUL J. POWERS July 26, 1996
- --------------------------------
Paul J. Powers, Director)
/S/ RICHARD T. SAVAGE
- --------------------------------
Richard T. Savage, Director)
/S/ DAVID L. SWIFT
- --------------------------------
David L. Swift, Director)
/S/ DAVID R. ZIMMER
- --------------------------------
David R. Zimmer, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TWIN DISC, INCORPORATED AND
SUBSIDIARIES
SET FORTH IN THE ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,043
<SECURITIES> 0
<RECEIVABLES> 35,289
<ALLOWANCES> 372
<INVENTORY> 51,083
<CURRENT-ASSETS> 96,640
<PP&E> 108,663
<DEPRECIATION> 72,948
<TOTAL-ASSETS> 162,699
<CURRENT-LIABILITIES> 34,002
<BONDS> 19,938
0
0
<COMMON> 11,653
<OTHER-SE> 63,528
<TOTAL-LIABILITY-AND-EQUITY> 162,699
<SALES> 176,657
<TOTAL-REVENUES> 176,657
<CGS> 135,780
<TOTAL-COSTS> 135,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,942
<INCOME-PRETAX> 10,907
<INCOME-TAX> 4,348
<INCOME-CONTINUING> 6,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,559
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 0
</TABLE>
