[DESCRIPTION] TWIN DISC, INCORPORATED
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission File Number 1-7635
TWIN DISC, INCORPORATED
(Exact name of registrant as specified in its charter)
Wisconsin 39-0667110
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1328 Racine Street, Racine, Wisconsin 53403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 638-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports ) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
At March 31, 1997, the registrant had 2,783,574 shares of its common stock
outstanding.
<PAGE> 2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31 June 30
1997 1996
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $ 7,803 $ 2,043
Accounts and notes receivable 31,263 34,917
Inventories 50,918 51,083
Deferred income taxes 3,403 2,710
Other current assets 5,113 5,887
-------- --------
Total current assets 98,500 96,640
Property, plant and equipment 108,788 108,663
Accumulated depreciation 74,105 72,948
-------- --------
Net property, plant and equipment 34,683 35,715
Deferred income taxes 3,920 3,758
Intangible pension asset 8,079 8,079
Other assets 17,467 18,507
-------- --------
$162,649 $162,699
-------- --------
-------- --------
Liabilities
Notes payable $ 2,195 $ 7,360
Accounts payable 11,037 8,806
Accrued liabilities 19,533 17,836
-------- --------
Total current liabilities 32,765 34,002
Long-term debt 19,943 19,938
Accrued postretirement benefits 33,653 33,578
-------- --------
Total liabilities 86,361 87,518
Shareholders' Equity
Common stock 11,653 11,653
Retained earnings 74,976 71,658
Translation component 7,365 9,706
-------- --------
93,994 93,017
Treasury stock 17,706 17,836
-------- --------
76,288 75,181
-------- --------
$162,649 $162,699
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of this
statement. Amounts in thousands.
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $49,204 $47,209 $135,641 $125,747
Cost of goods sold 37,480 35,869 104,250 98,019
------- ------- -------- -------
11,724 11,340 31,391 27,728
Marketing, engineering and
administrative expenses 7,819 7,934 22,553 21,196
Interest expense 443 399 1,418 1,099
Other (income)and
expense, net 133 6 (951) (117)
------- ------- ------- -------
8,395 8,339 23,020 22,178
------- ------- ------- -------
Earnings before income tax 3,329 3,001 8,371 5,550
Income taxes 1,413 1,193 3,581 2,258
------- ------- -------- --------
Net Earnings $ 1,916 $ 1,808 $ 4,790 $ 3,292
------- ------- -------- --------
------- ------- -------- --------
Earnings per share $ 0.69 $ 0.65 $ 1.73 $ 1.18
------- ------- -------- --------
------- ------- -------- --------
Dividends per share $ .175 $ .175 $ .525 $ .525
Average shares outstanding 2,783 2,777 2,780 2,777
Translation component of equity
Balance - beginning of the
period $ 9,562 $12,818 $ 9,706 $ 13,797
Translation adjustment (2,197) (586) (2,341) (1,565)
------- ------- -------- --------
Balance - end of the period $ 7,365 $12,232 $ 7,365 $ 12,232
------- ------- -------- --------
------- ------- -------- --------
In thousands of dollars except per share statistics and average shares
outstanding. Per share figures are based on average shares outstanding.
The notes to consolidated financial statements are an integral part of this
statement.
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,790 $ 3,292
Non-cash adjustments to net earnings:
Depreciation 3,754 3,789
Gain on sale of fixed assets (239) -
Dividends received 200 548
Net change in working capital,
excluding cash and debt 6,849 (11,800)
------- -------
15,354 (4,171)
------- -------
Cash flows from investing activities:
Acquisitions of fixed assets (3,264) (2,887)
Proceeds from sale of fixed assets 436 3
Investments in licenses - (1,238)
------- -------
(2,828) (4,122)
------- -------
Cash flows from financing activities:
Increase (decrease) in notes payable, net (5,145) 2,391
Proceeds from long-term debt - 6,010
Dividend payments (1,460) (1,458)
Treasury stock activity 118 -
Proceeds from exercise of stock options - 31
------- -------
(6,487) 6,974
------- -------
Effect of exchange rate changes on cash (279) 16
------- -------
Net change in cash and cash equivalents 5,760 (1,303)
Cash and cash equivalents:
Beginning of period 2,043 3,741
------- -------
End of period $ 7,803 $ 2,438
------- -------
------- -------
The notes to consolidated financial statements are an integral part of this
statement.
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Basis of Presentation
The unaudited financial statements have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC)
and,in the opinion of the Company, include all adjustments, consisting only
of normal recurring items, necessary for a fair statement of results for each
period. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted account
principles have been condensed or omitted pursuant to such SEC rules and
regulations. The Company believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with financial statements and the
notes thereto included in the Company's latest Annual Report. The year end
condensed balance sheet data was derived from audited financial statements
but does not include all disclosures required by generally accepted
accounting principles.
B. Inventory
The major classes of inventories were as follows (in thousands):
March 31 June 30
1997 1996
-------- --------
Inventories:
Finished parts $30,654 $41,535
Work in process 16,224 5,429
Raw materials 4,040 4,119
------- -------
$50,918 $51,083
------- -------
------- -------
C. Contingencies
The Company is involved in various stages of investigation relative to
hazardous waste sites, two of which are on the United States EPA National
Priorities List (Superfund sites). The Company's assigned responsibility
at each of the Superfund sites is less than 2%. The Company has also been
requested to provide administrative information related to two other
potential Superfund sites but has not yet been identified as a potentially
responsible party. Additionally, the Company is subject to certain product
liability matters.
At March 31, 1997, 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.
<PAGE> 6
MANAGEMENT DISCUSSION AND ANALYSIS
Shipments of powershift transmissions to Tatra, the Czech Republic truck
manufacturer, provided the incremental volume that allowed continuation of
the year-to-year quarterly sales improvements. Consolidated sales were up 4
percent from the third quarter last year and are about 8 percent ahead for
the nine months. Net earnings were about 6 percent higher than last year's
third quarter as a result of the higher sales and improved domestic
manufacturing productivity.
Quarterly net sales from domestic manufacturing operations were up from a
year ago due to the transmission sales mentioned above. We also increased
shipments of marine transmissions for fishing boat and other commercial
marine applications. Those improvements offset minor declines in our clutch,
power take-off, and aftermarket businesses.
Sales from our Belgian manufacturing subsidiary continued to lag last year
primarily as a result of a decline in demand for pleasure craft marine
transmissions. In addition, the strengthening of the dollar against European
currencies during the past year reduced the dollar sales reported by that
operation.
In the aggregate, sales and earnings of our marketing subsidiaries showed
improvement over the same period a year ago. Results were better at several
of the overseas operations, but softening domestic demand caused our U.S.
subsidiaries to report lower sales and earnings than last year.
The gross margin for the quarter was slightly lower than last year but was
comparable with margins in previous quarters this fiscal year. There has
been an improvement in domestic margins due primarily to improved
productivity. The production efficiency in our manufacturing cells has
improved and is consistently higher on a month-to-month basis. Offsetting
the domestic margin improvement has been the effect of the reduced volume in
Belgium. Since October, that subsidiary has been operating at about 80
percent of normal output using temporary layoffs to properly size its work
force.
Marketing, engineering and administrative expenses declined slightly from the
level of last year s third quarter. A year ago there were some non-recurring
expenses associated with the new computer system implementation and new
product promotions. The stronger dollar also favorably affected the
translation of certain foreign subsidiary expenses. The increase in interest
expense for the third quarter was due to the higher interest rate on long-
term debt and, for the nine months, also reflected higher debt levels earlier
in the year. The main component of other expense was the operating loss of
our Japanese affiliate recorded during the quarter.
There was a small increase in working capital during the quarter as cash and
debt changes offset improving receivable and inventory turnover. Working
capital now stands about $3 million higher than at the beginning of the
fiscal year. The current ratio rose to 3.0 as more cash was generated by
operations than was required to service our debt. For the nine months, the
cash flow from earnings and depreciation was about twice that needed for
fixed asset purchases and dividends, and a reduction in working capital,
excluding cash and debt, for the nine months provided additional operating
cash flow. We continue to maintain a strong balance sheet and believe we
have liquidity sufficient to meet our near-term needs.
The Financial Accounting Standards Board recently issued Financial Accounting
Standards No. 128, Earnings per Share, and No. 129, Disclosure of Information
about Capital Structure, both effective for financial statements issued for
periods ending after December 15, 1997. The impact of these statements on
the Company's financial statements has not yet been determined.
<PAGE> 7
OTHER INFORMATION
There were no reports on Form 8-K during the three months ended March 31, 1997
The financial statements included herein have been subjected to a limited
review by Coopers & Lybrand L.L.P., the registrant's independent public
auditors, in accordance with professional standards and procedures for such
review.
There were no securities of the Company sold by the Company during the three
months ended March 31, 1997, which were not registered under the Securities
Act of 1933, in reliance upon an exemption from registration provided by
Section 4 (2) of the Act.
<PAGE> 8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TWIN DISC, INCORPORATED
(Registrant)
______________________________ _____________________________
(Date) Fred H. Timm
Corporate Controller/Secretary
(Chief Accounting Officer)
<PAGE> 10
Report of Independent Accountants
Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
We have reviewed the condensed consolidated balance sheet of Twin Disc,
Incorporated and subsidiaries as of March 31, 1997, and the related
condensed consolidated statements of operations and cash flows for the
three and nine-month periods ended March 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons
responsible for financial accounting matters. It is substantially less
in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1996,
and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated July 26, 1996, we expressed
an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 30, 1996, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/
- ------------------------------------
Coopers & Lybrand
Milwaukee, Wisconsin
April 11, 1997
<PAGE> 11
[TYPE] EX-15
EXHIBIT 15
Awareness Letter of Independent Accountants
Securities and Exchange Commission
Washington, D.C.
RE: Twin Disc, Incorporated
We are aware that our report dated April 11, 1997 on our review of
interim financial information of Twin Disc, Incorporated for the
three and nine-month periods ended March 31, 1997 and 1996 and included in
the Company's quarterly report on Form 10-Q for the quarter then ended,
is incorporated by reference in the registration statements of Twin
Disc, Incorporated on Form S-8 (Twin Disc, Incorporated 1988 Incentive
Stock Option Plan and Twin Disc, Incorporated 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors). Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by
us within the meaning of Sections 7 and 11 of that Act.
/S/
- ---------------------------------------
Coopers & Lybrand
Milwaukee, Wisconsin
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TWIN
DISC, INCORPORATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SET FORTH IN
THE THIRD QUARTER REPORT TO SHAREHOLDERS FOR THE NINE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,803
<SECURITIES> 0
<RECEIVABLES> 31,637
<ALLOWANCES> 374
<INVENTORY> 50,918
<CURRENT-ASSETS> 98,500
<PP&E> 108,788
<DEPRECIATION> 74,105
<TOTAL-ASSETS> 162,649
<CURRENT-LIABILITIES> 32,765
<BONDS> 19,943
<COMMON> 11,653
0
0
<OTHER-SE> 64,635
<TOTAL-LIABILITY-AND-EQUITY> 162,649
<SALES> 135,641
<TOTAL-REVENUES> 135,641
<CGS> 104,250
<TOTAL-COSTS> 104,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,418
<INCOME-PRETAX> 8,371
<INCOME-TAX> 3,581
<INCOME-CONTINUING> 4,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,790
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
