<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, 1998
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 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 September 2, 1998, the aggregate market value of the common stock held by
non-affiliates of the registrant was $51,020,893. 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 September 2, 1998, the registrant had 2,835,184 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, 1998
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 16, 1998 are incorporated by reference into Parts I, III and IV.
<PAGE> 2
PART I
Item 1. 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. The
Company sells its product to customers primarily in the construction
equipment, industrial equipment, government, marine, energy and natural
resources and agricultural markets. 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.
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.
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.
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 47% of the Company's
consolidated net sales during the year ended June 30, 1998. Two customers,
Caterpillar Inc. and Sewart Supply, Inc., each accounted for approximately 11%
of consolidated net sales in 1998.
Unfilled open orders for the next six months of $54,225,000 at June 30, 1998
compares to $76,429,000 at June 30, 1997. 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.
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. The Company's business
is not subject to renegotiation of profits or termination of contracts at the
election of the Government.
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 totaled $3,104,000, $3,050,000 and
$2,457,000 in 1998, 1997 and 1996, respectively. Total engineering and
development costs were $8,833,000, $8,288,000 and $6,998,000 in 1998, 1997 and
1996, respectively.
<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, 1998 was 1,078.
A summary of financial data by geographic area for the years ended June 30,
1998, 1997 and 1996 appears in Note I to the consolidated financial statements
on pages 35 through 36 of the 1998 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. One of the Racine
facilities 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:
Jacksonville, Florida, U.S.A. Brisbane, Queensland, Australia
Miami, Florida, U.S.A. Perth, Western Australia, Australia
Loves Park, Illinois, U.S.A. Auckland, New Zealand
Coburg, Oregon, U.S.A. Singapore
Seattle, Washington, U.S.A. Johannesburg, South Africa
Vancouver, British Columbia, Canada
Madrid, Spain
Edmonton, Alberta, Canada
Viareggio, Italy
Shanghai, China
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 79% 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 $535,000.
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 16, 1998.)
<TABLE>
<CAPTION>
Principal Occupation
Name Last Five Years Age
- ------------------ -------------------------------------- --
<S> <C> <C>
Michael E. Batten Chairman, Chief Executive Officer 58
Michael H. Joyce President-Chief Operating Officer 57
James O. Parrish Vice President - Finance and Treasurer 58
Philippe O. Pecriaux Vice President - Europe 60
Lance J. Melik Vice President - Corporate Development 55
since September 1995; formerly Vice
President - Marketing
<PAGE> 5
Executive Officers of the Registrant (continued)
Principal Occupation
Name Last Five Years Age
- ------------------ --------------------------------------- ---
James McIndoe Vice President - International Marketing 59
Paul A. Pelligrino Vice President - Engineering since 59
April 1996; formerly Chief Engineer
of Corporate Engineering
John W. Spano Vice President - Sales and Marketing 54
since September 1995; formerly Director
Mobile Market Group, Trinova Corporation
since June 1993
Arthur A. Zintek Vice President - Human Resources 51
since January 1998;
formerly Vice President Human Resources,
Mitsubishi Motor Manufacturing of
North America since April 1997; formerly
Director of Human Resources,
Harley Davidson, Inc. since September 1992
Fred H. Timm Corporate Controller and Secretary 52
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 Stockholder
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, 1998 are incorporated into this Report
by reference.
As of June 30, 1998 there were 774 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 September 2, 1998 was $23.38 per
share.
Pursuant to a shareholder rights plan (the "Rights Plan"), on April 17, 1998,
the Board of Directors declared a dividend distribution, payable to
shareholders of record at the close of business on June 30, 1998, of one
Preferred Stock Purchase Right ("Rights") 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 15% or
more of the Common Stock (or 25% in the case of any person or group which
currently owns 15% or more of the shares or who shall become the Beneficial
Owner of 15% 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),(an "Acquiring Person"), or 10 business
days following the commencement of a tender or exchange offer that would
result in the offeror beneficially owning 25% 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 number of shares of
<PAGE> 6
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters (Continued)
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 who received the Rights to buy
one newly issued unit of one one-hundredth of a share of Series A Junior
Preferred Stock at an exercise price of $160, 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 25% 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 the 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 may 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 after the public
announcement of the existence of an Acquiring Person.
The news release announcing the declaration of the Rights dividend, dated
April 17, 1998, filed as Item 14(a)(3), Exhibits 4(b) of Part IV of the
Annual Report on Form 10-K for the year ended June 30, 1998 are hereby
incorporated by reference.
Item 6. Selected Financial Data
The information set forth under the caption "Ten-Year Financial Summary" on
pages 44 and 45 of the Annual Report to Shareholders for the year ended June
30, 1998 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 23 through 25 of the Annual Report to Shareholders for the
year ended June 30, 1998 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 26 through 43 of the Annual Report to
Shareholders for the year ended June 30, 1998 are incorporated into this
report by reference:
Consolidated Balance Sheets, June 30, 1998 and 1997
Consolidated Statements of Operations for the years ended June 30, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997
and 1996
Consolidated Statements of Changes in Shareholders' Equity for the years ended
June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
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, 1998 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 16, 1998, which is incorporated
into this report by reference.
For information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, see "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 13 of the Proxy Statement for the Annual
Meeting of Shareholders to be held October 16, 1998, 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","Retirement Income Plan" and "Supplemental
Retirement Benefit Plan" on pages 8 through 10 of the Proxy Statement for the
Annual Meeting of Shareholders to be held on October 16, 1998 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.
<PAGE> 8
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 16, 1998 under the caption "Principal Shareholders,
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.
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 26 through 43 of the Annual
Report to Shareholders for the year ended June 30, 1998 are incorporated by
reference into this report in Part II:
Consolidated Balance Sheets, June 30, 1998 and 1997
Consolidated Statements of Operations for the years ended June 30, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997
and 1996
Consolidated Statements of Changes in Shareholders' Equity for the years ended
June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
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, 1998 is incorporated by reference
into this Form in Part II.
Individual financial statements of the 50% or less owned entities accounted
for by the equity method are not required because the 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 3 years ended June 30, 1998:
Page
----
Report of Independent Accountants 13
Schedule II-Valuation and Qualifying Accounts 14
<PAGE> 9
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
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.
The Report of the Independent Accountants of the Registrant with respect to
the above-listed consolidated financial statement schedule appears on page 13
of this Form.
(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 22, 1998
(Incorporated by reference to Exhibit 3(b) of the Company's
Form 10-K for the year ended June 30, 1998).
4 Instruments defining the rights of security holders, including
indentures
a) Form of Rights Agreement dated as of April 17, 1998 by and
between the Company and the Firstar 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 May 4, 1998).
b) Announcement of Shareholder Rights Plan per news release
dated April 17, 1998 (Incorporated by reference to Exhibit
99, of the Company's Form 10-Q dated May 4, 1998 ).
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 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).
<PAGE> 10
(a)(3) List of Exhibits: (numbered in accordance with Item 601 of Regulation
S-K) (continued)
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(f) of the Company's Form 10-K for the year ended
June 30, 1998).
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)
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, 1998 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 Form).
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, 1998 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).
<PAGE> 11
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
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> 12<PAGE>
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 21, 1998
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 21, 1998 ( 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)
( Paul J. Powers, Director
( Richard T. Savage, Director
September 21, 1998 ( David L. Swift, Director
( Stuart W. Tisdale, Director
( George E. Wardeberg, Director
( David R. Zimmer, Director
(
( By JAMES O. PARRISH
-------------------------------------
( James O. Parrish, Attorney in Fact
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
(See Item 14)
Consolidated Financial Statement Schedule of
Twin Disc, Incorporated and Subsidiaries
To the Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
Our audits of the consolidated financial statements referred to in our report
dated July 24, 1998 appearing on page 43 of the 1998 Annual Report to
Shareholders of Twin Disc, Incorporated and Subsidiaries (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial schedule listed
in the index on page 8 of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 24, 1998
<PAGE> 14
<TABLE>
TWIN DISC, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended June 30, 1998, 1997 and 1996
(In thousands)
<CAPTION>
Balance at Additions Charged Balance at
Beginning of to Costs and end of
Description Period Expenses Deductions<F1> of Period
- ----------- ------------ ----------------- ------------ ----------
<S> <C> <C> <C> <C>
1998:
Allowance for
losses on
accounts receivable $ 538 $ 355 $ 246 $ 647
-------- -------- -------- --------
-------- -------- -------- --------
Reserve for inventory
obsolescence 1,013 893 781 1,125
-------- -------- -------- --------
-------- -------- -------- --------
1997:
Allowance for
losses on
accounts receivable $ 372 $ 267 $ 101 $ 538
-------- -------- -------- --------
-------- -------- -------- --------
Reserve for inventory
obsolescence 926 1,770 1,683 1,013
-------- -------- -------- --------
-------- -------- -------- --------
1996:
Allowance for
losses on
accounts receivable $ 408 $ 41 $ 77 $ 372
-------- -------- -------- --------
-------- -------- -------- --------
Reserve for inventory
obsolescence 1,581 845 1,500 926
-------- -------- -------- --------
-------- -------- -------- --------
<FN>
<F1>Accounts receivable written-off and inventory disposed of during the year
and other adjustments.
</FN>
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT INDEX
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 22, 1998
(Incorporated by reference to Exhibit 3(b) of the Company's
Form 10-K for the year ended June 30, 1998). 17
4a) Form of Rights Agreement dated as of April 17, 1998 by and
between the Company and the Firstar 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 May 4, 1998). -
b) Announcement of Shareholder Rights Plan per news release
dated April 17, 1998 (Incorporated by reference to Exhibit
6(a), of the Company's Form 10-Q dated May 4, 1998). -
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(f) of the Company's Form 10-K for the year ended
June 30, 1998). 29
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> 16
EXHIBIT INDEX
(Continued)
Exhibit Description Page
- ------- ----------- ----
13 Annual Report of the Registrant for the year ended
June 30, 1998 36
21 Subsidiaries of the Registrant 63
23 Consent of Independent Accountants 64
24 Power of Attorney 65
27 Financial Data Schedule for the year ended June 30, 1998 66
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> 17
EXHIBIT 3(b)
- - - - - -
RESTATED BYLAWS
OF
TWIN DISC, INCORPORATED
(Adopted April 19, 1991)
(Amended July 28, 1995)
(Amended October 18, 1996)
(Amended June 22, 1998)
ARTICLE I. OFFICE
- - - - - - - - - -
The principal office of the Corporation in the State of Wisconsin shall
be located in the City of Racine, Racine County. The Corporation may have
such other offices, either within or without the State of Wisconsin, as the
Board of Directors may designate or as the business of the Corporation may
require.
The registered office of the Corporation required by the Wisconsin
Business Corporation Law to be maintained in the State of Wisconsin may be,
but need not be, identical with the principal office in the State of
Wisconsin, and the address of the registered office may be changed from time
to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
- - - - - - - - - - - - -
(1) ANNUAL MEETING. The Annual Meeting of the Shareholders, for the
purpose of electing directors and for the transaction of such other business
as may come before the meeting, shall be held during the months of September
or October in each year at such place, on such date and at such time as the
Board of Directors may designate, written notice of the place, date and time
of such meeting to be given each Shareholder not less than ten (10) days nor
more than sixty (60) days prior to the date of the meeting. If the place,
date and time of the Annual Shareholders Meeting for any year shall not have
been designated by the Board of Directors at least thirty (30) days prior to
the first day of September of such year, then the Annual Meeting of the
Shareholders shall be held at the registered office of the Corporation on the
third Friday of October in such year at 2 o'clock p.m., if not a legal
holiday, but if a legal holiday, then on the next business day following.
(2) SPECIAL MEETINGS. Special Meetings of the Shareholders may be
called by the Chairman and Chief Executive Officer, the President and Chief
Operating Officer or the Secretary, and shall be called by the President and
Chief Operating Officer or Secretary at the request in writing of a majority
of the Board of Directors, or at the request of Shareholders owning not less
than twenty-five percent (25%) of the outstanding shares of stock of the
Corporation entitled to vote at the meeting. Any such request shall state the
purpose, or purposes, of the proposed meeting. At any Special Meeting, the
order of business thereat shall be determined by the Chairman and Chief
Executive Officer, the President and Chief Operating Officer of the Company.
(3) PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Wisconsin, as the place of
meeting for any Annual Meeting, or for any Special Meeting called by the Board
of Directors. If no designation is made, or if a Special Meeting be otherwise
called, the place of the meeting shall be the registered office of the
Corporation, but any meeting may be adjourned to reconvene at any place
designated by a vote of a majority of the shares represented at such meeting.
(1)
(4) NOTICE OF MEETING. Written notice stating the place, date and
time of the meeting, and in case of a Special Meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10)
days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman and Chief
Executive Officer, President and Chief Operating Officer, Secretary, the Board
of Directors, or other person or persons calling the meeting, to each
Shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
<PAGE> 18
mail, addressed, to the Shareholder at his address as it appears on the stock
record book or similar records of the Corporation, with postage thereon
prepaid. Notice of any meeting of the Shareholders shall clearly state that
proxy appointments will be ruled invalid unless received by the Secretary
before the deadlines prescribed in these By-Laws.
(5) RECORD DATE. The Board of Directors may fix in advance a record
date to determine the Shareholders entitled to notice of a Shareholders
meeting, which record date shall be not more than seventy (70) nor less than
five (5) days prior to the meeting or action requiring a determination of the
Shareholders. A determination of the Shareholders entitled to notice of or to
vote at a Shareholders' meeting is effective for any adjournment of the
meeting unless the Board of Directors fixes a new date, which it shall be
required to do only if the meeting is adjourned to a date more than one
hundred twenty (120) days after the date fixed for the original meeting.
(6) SHAREHOLDERS LIST. After fixing a record date for a Shareholders
meeting, the Secretary shall prepare a list of names of all its Shareholders
who are entitled to notice of the Shareholders meeting. The Secretary shall
make the list available for inspection by any Shareholder, beginning two (2)
days after notice of the meeting is given for which the list was prepared, at
the Corporation's principal place of business, or at a place designated in the
meeting notice. During the period specified in this By-Law, a Shareholder or
such Shareholder's agent may inspect the list during regular business hours on
written notice to the Secretary stating the date upon which the inspection is
requested to take place, which date shall be not less than five (5) days from
the date the request is made. The Corporation shall make the list available
at the meeting, and any Shareholder or his agent may inspect the list at any
time during the meeting or any adjournment thereof. Refusal or failure to
prepare or make available the Shareholders' list pursuant to this Bylaw shall
not affect the validity of any action taken at the meeting.
(7) QUORUM. Except as otherwise provided by law, these By-laws or
the Articles of Organization, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders, and a majority of votes cast
at any meeting at which a quorum is present shall be decisive of any motion or
election, unless a greater number is required by law, by these By-laws or by
the Articles of Organization. The meeting may be adjourned from time to time
by a majority of the votes cast. The Secretary must give proper notice of the
time, date, or place unless the new time, date, or place is announced at the
meeting. Once a share is represented for any purpose at a meeting other than
for the purpose of objecting to the holding of the meeting or the transaction
of business at the meeting, such share is considered present for the purpose
of determining whether a quorum exists for any adjournment of that meeting,
unless a new record date is set for that adjourned meeting.
(8) PROXIES. At any meetings of the Shareholders, any Shareholder is
entitled to vote by proxy. A Shareholder may appoint a person to vote or
otherwise act for him by signing an appointment form, either personally or by
his authorized agent. Such a proxy appointment form shall be delivered to the
Secretary of the Corporation in person, by mail or by messenger, not less than
forty-eight (48) hours
(2)
prior to the date of any Shareholder meeting. No proxy shall be valid after
eleven (11) months from the date of its execution unless otherwise provided
conspicuously on the face of the appointment form. Appointment forms or
revocations transmitted by facsimile, telex, telegram, or electronic means
shall not be accepted.
(8.25) REVOKING PROXIES. A Shareholder may revoke a proxy appoint-
ment form signed by him by:
(a) openly stating the revocation at the Shareholders
meeting;
(b) voting at the Shareholders meeting in person;
(c) submitting a proxy appointment form bearing a later
date to the corporate Secretary pursuant to the provisions of these Bylaws; or
(d) delivering a signed written statement revoking the
proxy to the corporate Secretary prior to the date of the meeting.
<PAGE> 19
(8.50) PROXY VALIDATION. Any valid proxy appointment form must meet
the following standards:
(a) The proxy appointment form must be delivered to the
Secretary of the Corporation pursuant to the provisions of these Bylaws;
(b) The appointment form shall bear a signature in
handwriting sufficiently legible to allow the inspector to distinguish it as
representing the name of a registered Shareholder, or be accompanied by a
rubber stamp facsimile or hand-printed name, including the Shareholder's
surname, and either the Shareholder's first or middle name as represented on
the corporate records, and any titles, offices or words indicating agency
which appear in the corporate records;
(c) If the name appearing on the appointment form does not
correspond with the Shareholder's name in the corporate records, the signature
on the appointment form must then include some indication of the signator's
agency, office or authority allowing them to represent these Shareholder in
this particular matter;
(d) If the Shareholder is an entity, the person signing
the form must demonstrate their authority as officer or agent;
(e) If the person signing the appointment form purports to
be a personal representative, administrator, executor, guardian or conser-
vator, the person signing the form must demonstrate their authority to
represent the Shareholder in this matter; or
(f) If two or more persons are Shareholders as co-tenants
or fiduciaries and the name signed purports to be the name of at least one of
the co-owners, the person signing the form must demonstrate their authority
to act on behalf of the other co-owners(s).
The inspector shall in good faith, considering the facts and
circumstances, determine whether each proxy appointment satisfies these
standards. In making his determination the inspector shall be entitled to
rely upon the genuineness of all signatures and purported authority of persons
designated as officers, agents, representatives or co-owners. The inspector's
determination shall be final.
(9) VOTING. Each outstanding share entitled to vote shall be entitled
to one (1) vote upon each matter submitted to a vote at a meeting of
Shareholders. Upon demand of any Shareholder, the vote for Directors shall be
by ballot.
(3)
(10) VOTING OF SHARES BY CERTAIN SHAREHOLDERS. Shares standing in the
name of another Corporation may be voted either in person or by proxy, by the
President of such Corporation or any other officer appointed by such
President. Shares held by an administrator, executor, guardian, conservator,
trustee in bankruptcy, receiver, or assignee for creditors may be voted by
him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a fiduciary may be voted by him, either
in person or by proxy. A Shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into the
name of the pledgee, and thereafter, the pledgee shall be entitled to vote the
shares so transferred.
Shares of its own stock belonging to the Corporation shall not be voted,
directly or indirectly at any meeting, and shall not be counted in determining
the total number of outstanding shares entitled to vote at any given time, but
shares of its own stock held by it in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
(11) INSPECTORS OF ELECTION. Prior to the meeting, the Board of
Directors may appoint no fewer than one (1) but no more than seven (7)
inspectors to serve at any meeting of the Shareholders. The inspectors may be
selected from among the employees of the Corporation or any individuals not
affiliated with the Corporation. The inspectors shall determine the number of
shares outstanding and the voting power of each share, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxy appointments. The inspectors shall also receive votes,
ballots and consents, hear and determine challenges and questions in
connection with the right to vote, decide all questions relating to the
qualifications of voters and the validity of proxy appointments pursuant to
the provisions of these Bylaws, count and tabulate all votes, ballots or
consents, and do such acts as are proper to conduct the election with fairness
to all Shareholders. In the event the Board of Directors does not appoint any
<PAGE> 20
inspector, the Secretary of the Corporation shall perform any duties and
exercise any authority provided to the inspector under these By-Laws.
(11.5) PROCEDURES AT THE SHAREHOLDER MEETING. The Chairman of the
meeting shall follow the order of business prepared by the Secretary of the
Corporation pursuant to the provisions of these By-laws. The Chairman of the
meeting may rule out of order any motion from the floor to consider a matter
not appearing on the agenda. All matters on the agenda may be combined on a
single ballot, and in the case of an election for the Board of Directors, all
names of those candidates properly nominated under these By-laws may appear
together on a single ballot. The Chairman shall announce the outcome
following each vote, however the final count may be completed after the
meeting provided the inspectors of the election sign a supplemental
certification of election specifying the final count. The inspectors shall
determine that each individual admitted to the meeting is a Shareholder on or
prior to the record date, and no other individual shall participate in or
observe the meeting, otherwise than by direction of the Chairman. The Board
of Directors may provide for security to maintain reasonable decorum and
ensure the safety of the participants.
The Chairman of the meeting is responsible for enforcing the rules of
procedure on the floor of the meeting. Statements by Shareholders may not
exceed two (2) minutes, or three (3) minutes in the case of the proponent's
initial remarks on a matter before the Shareholders. The Chairman of the
meeting may rule out of order any statement that exceeds the allotted time,
goes beyond the matter before the Shareholders, repeats earlier statements at
the meeting, or relates to subject matters beyond the general interest of the
Shareholders. The Chairman of the meeting shall have the power to rule on any
other points of order and his decision shall be final.
(4)
(12) WAIVER OF NOTICE BY SHAREHOLDERS. Whenever any notice whatever
is required to be given to any Shareholder of the Corporation under the
Articles of Incorporation or By-laws or any provision of law, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting,
by the Shareholder entitled to such notice, shall be deemed equivalent to the
giving of such notice, provided that such waiver in respect to any matter of
which notice is required under any provision of Wisconsin law, shall contain
the same information as would have been required to be included in such
notice, except the time and place of meeting.
(13) INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted by the Articles of Incorporation or By-laws or any provision of law
to be taken at a meeting of the Shareholders, may be taken without a meeting
if a consent in writing, setting forth the action so taken shall be signed by
all of the Shareholders entitled to vote with respect to the subject matter
thereof.
(14) BUSINESS CONDUCTED AT THE MEETING.
(a) At any Annual Meeting or Special Meeting of
Shareholders, only such business shall be conducted, and only such proposals
shall be acted as shall have been properly brought before the meeting in
accordance with these By-Laws. To be properly brought before any Annual
Meeting or Special Meeting, any proposed business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the Board of Directors; (ii) otherwise brought before the meeting by or at
the direction of the Board of Directors; or (iii) properly brought before the
meeting by a shareholder. For a proposal to be properly brought before a
meeting by a shareholder (other than a shareholder proposal specified in the
notice of the meeting given by or at the direction of the Board of Directors
and included in the Corporation's proxy statement pursuant to Rule 14(a)-8
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Corporation (a) not less than sixty (60) days before the anniversary date
of the date on which the Corporation first mailed its proxy materials for the
immediately preceding Annual Meeting, or (b) in the case of a Special Meeting
or in the event the date of the Annual Meeting has changed more than thirty
(30) days from the prior year, notice by the shareholder to be timely must be
given so as to be received not later than the close of business on the tenth
(10th) day following the earlier of the day on which notice of the date of
such meeting was mailed or public disclosure of the date of such meeting was
<PAGE> 21
made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting, (i) a brief
description of the proposal desired to be brought before the meeting and the
reasons for conducting such business at the meeting; (ii) the name and record
address, as they appear on the Corporation's books, of the shareholder
proposing such business and any other shareholders known by such shareholder
to be supporting such proposal; (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the shareholder on the
date of such shareholder notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of such shareholder
notice; and (iv) any financial interest of the shareholder in such proposal.
(b) The Secretary shall compose an agenda prescribing the
order of business for the meeting, which shall include all matters properly
submitted under these By-Laws and provide the agenda to the Chairman of the
meeting. The Secretary shall also deliver to the Chairman of the meeting a
list of those matters not properly submitted, and the chairman shall so
declare at the meeting and state that any such business shall not be
transacted.
(5)
(c) This provision shall not prevent the consideration and
approval or disapproval at the meeting of matters properly brought before the
meeting nor of reports of officers, directors and committees of the Board of
Directors; however, in connection with such reports, no business shall be
acted upon at such meeting unless properly submitted as herein provided.
ARTICLE III. BOARD OF DIRECTORS
- - - - - - - - - - - - - - - - -
(1) GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
(2) SPECIFIC POWERS. Without prejudice to such general powers and
subject to the laws of Wisconsin and the Articles of Organization, it is
hereby expressly declared that the Directors shall have the following powers,
to-wit: to adopt and alter a common seal of the Corporation; to make and
change regulations not inconsistent with these By-Laws, for the management of
the Corporation's business and affairs; to purchase or otherwise acquire for
the Corporation any property, rights or privileges which the Corporation is
authorized to acquire; to pay for any property purchased for the Corporation
either wholly or partly in money, stock, bonds, debentures or other securities
of the Corporation; to borrow money and to make and issue notes, bonds, and
other negotiable and transferable instruments, mortgages, necessary to
effectuate the same; to appoint and remove or suspend such subordinate
officers, agents or factors as they may deem necessary and to determine their
duties, and fix and from time to time change their salaries or renumeration,
and to require security as and when they think fit; to confer upon any officer
of the company the power to appoint, remove and suspend subordinate officers,
agents and factors; to determine who shall be authorized on the Corporation's
behalf to make and sign bills, notes, acceptances, endorsements, checks,
releases, contracts and other instruments.
(3) NUMBER, TENURE, RESIGNATION AND QUALIFICATIONS. The number of
directors of the Corporation shall be nine (9). Directors need not be
residents of the State of Wisconsin nor Shareholders of the Corporation.
The Board of Directors shall be divided into three classes, consisting of
three, three and three Directors. The term of office of each Director elected
for a full term shall be the period of three years to expire at the Annual
Meeting of Shareholders three years after the date of his election. The
number of Directors to be elected at such meeting shall be equal to the number
whose term expires at the time of such meeting. Each Director shall hold
office for the term for which he is elected and until the next Annual Meeting
of Shareholders at which his successor shall be elected, or until his death,
or until he shall resign or shall have been removed in a manner provided in
these By-Laws.
(4) REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law immediately after and at
the same place as the Annual Meeting of Shareholders and each adjournment
thereof. The Board of Directors may provide by resolution the time and place,
either within or without the State of Wisconsin, for the holding of additional
regular meetings without other notice to Directors than such resolution.
<PAGE> 22
(5) SPECIAL MEETINGS. Special Meetings of the Board of Directors may
be called by or at the request of the Chairman, President, Secretary, or any
five (5) Directors. Special Meetings of the Board of Directors shall be held
at such place, either within or without the State of Wisconsin, as the
majority of the members of the Board of Directors may from time to time
appoint.
(6)
(6) NOTICE. Notice of any Special Meeting shall be given at least
forty-eight (48) hours previously thereto by written notice, delivered
personally or mailed to each Director at his business address, or by telegram.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Whenever any notice whatever
is required to be given to any Director of the Corporation under the Articles
of Incorporation or By-Laws, or any provision of law, a waiver thereof in
writing, signed at any time whether before or after the time of meeting, by
the Director entitled to such notice, shall be deemed equivalent to the giving
of such notice. The attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting, except where a Director attends a meeting
and objects thereat to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or Special Meeting of the Board of Directors
need to be specified in the notice or waiver of notice of such meeting.
(7) QUORUM. Except as otherwise provided by law or by these By-Laws,
a majority of the number of Directors fixed by Section (3) of this Article III
shall constitute a quorum for the transaction of business at any meeting of
the Board of Directors, but a majority of the Directors present (though less
than such quorum) may adjourn the meeting from time to time without further
notice.
(8) MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors, unless the act of a greater number is required by law by
the Articles of Organization or by these By-Laws.
(8.5) CONDUCTING MEETINGS. Any or all directors may participate in or
conduct a regular or Special Meeting of the Board of Directors through the use
of any means of communication by which all participating directors may
simultaneously hear each other during the meeting, and all communication
during the meeting is immediately transmitted to each participating director
and each participating director is able to send immediately messages to all
participating directors. If any means of communication as described above is
to be utilized at a meeting of the Board of Directors, all participating
directors must be informed that a meeting is taking place at which official
business may be transacted.
(9) VACANCIES. Any vacancy in the Board of Directors, including a
vacancy created by an increase in the number of Directors, may be filled until
the next succeeding annual election by the affirmative vote of a majority of
the Directors then in office, though less than a quorum of the Board of
Directors. In the event of removal of one or more Directors as provided by
these By-Laws, a new Director or Directors to fill such vacancy or vacancies,
as the case may be, may be elected at the same meeting of Shareholders at
which such action of removal is taken.
(10) COMPENSATION. The Board of Directors, by affirmative vote of a
majority of the Directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
Directors for services to the Corporation as Directors, officers or otherwise.
The Board of Directors also shall have authority to provide for reasonable
pensions, disability or death benefits, and other benefits or payments, to
Directors, officers and employees and to their estates, families, dependents
or beneficiaries on account of prior services rendered by such Directors,
officers and employees to the Corporation. Each Director shall also be
reimbursed for his necessary expenses in connection with attending meetings of
the Board of Directors.
<PAGE> 23
(7)
(11) PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a Director who voted in favor of such action.
(12) INFORMAL ACTION BY DIRECTORS. Any action required or permitted
by the Articles of Incorporation, By-Laws, or other provision of law, which
might be taken at a meeting of the Board of Directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the Directors.
(12.5) EMERGENCY BY-LAWS. In the event of an emergency, which, for
purposes of this By-Law, is defined as a catastrophic event including but
without limitation to, a fire, plane crash, tornado, flood, or snow storm,
preventing a quorum of the Board of Directors from being assembled, the
following emergency By-Law provisions shall become and remain effective until
such time as it is practicable for a normally constituted Board of Directors
to resume management of the business of the Corporation.
(a)Those members of the Board of Directors who are available
during the emergency shall continue to manage the business of the Corporation.
A director is unavailable under this By-Law if such director is unable to
receive notice of a Board of Directors meeting as provided in Article III,
Section (6) of the By-Laws, or having received notice is by reason of the
emergency unable to participate in the meeting so noticed.
(b)Three (3) directors shall constitute a quorum of the Board of
Directors during an emergency. If the number of available directors should
drop below three (3), additional directors may be appointed by the remaining
directors from the officers or employees of the Corporation. Not more than
three (3) directors shall be appointed under this provision.
(c)Meetings during an emergency may be called by any available
director, using any reasonable means of communication in an effort to contact
or give notice to each remaining director.
(d)During an emergency, any director may participate in or
conduct a meeting of the Board of Directors through any available means of
communication which allows all directors participating to simultaneously hear
each other, and such communication is immediately transmitted to each
director.
(e)The provisions of the Corporation's regular By-laws shall
remain effective during the emergency period except to the extent inconsistent
therewith.
(f)The emergency By-laws shall no longer be effective after the
emergency ceases and the term of any Director appointed to serve during such
emergency shall end.
(13) RESIGNATION AND REMOVAL FOR CAUSE. Any Director, member of a
committee or other officer may resign at any time. Such resignation shall be
made in writing, and shall take effect at the time specified therein, and if
no time be specified, at the time of its receipt by the President or Secre
tary. The acceptance of a resignation shall not be necessary to make it
effective.
A Director may be removed from office during the term of such office but
only upon a showing of good cause, such removal to be by affirmative vote of a
majority of the outstanding shares entitled to vote for the election of such
Director and which action may only be taken at a Special Meeting of stockhold
ers called for that purpose.
(8)
A Special Meeting of the stockholders as herein referred to may only be
held after a hearing on the matter of cause claimed to exist has been held by
the full Board of Directors of the company at which hearing the Director or
Directors proposed for removal shall be given an adequate opportunity for
preparation and attendance in person (together with representation by coun
sel); provided, however, that such hearing shall be held only after written
notice has been given to said Director or Directors proposed for removal
specifying the matters of cause claimed to exist. The conclusions of said
hearing shall be reported by the Board of Directors in writing accompanying
the notice of the special stockholders' meeting sent to each stockholder
eligible to vote at said Special Meeting.
<PAGE> 24
(14) DIRECTORS EMERITUS. The Board of Directors may from time to time
name Directors Emeritus of the Board of Directors of the Corporation who shall
be entitled to receive notice of all meetings of the Board and to attend
thereat, provided that they shall not be entitled to a vote upon any proposi
tion to be voted by said Board of Directors. Director Emeritus shall serve at
the pleasure of the Board.
ARTICLE IV. OFFICERS
- - - - - - - - - - -
(1) NUMBER AND QUALIFICATION. The principal officers of the Corpora
tion shall be a Chairman and Chief Executive Officer, at the option of the
Board, a President and Chief Operating Officer, an Executive Vice President,
one or more other Vice Presidents as the Board may choose to select, a
Secretary, a Treasurer, and at the option of the Board, a President of North
American Operations. The Chairman and Chief Executive Officer and the
President and Chief Operating Officer shall be selected from among the
membership of the Board of Directors and shall hold office until their
successors are elected and qualified notwithstanding any earlier termination
of their office as director, other than their removal for cause. Such other
officers and assistant officers that may be deemed necessary may be elected or
appointed by the Board and any two or more offices may be held by the same
person except the offices of President and Chief Operating Officer and Vice
President.
(2) ELECTION AND TERM OF OFFICE. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each
Annual Meeting of the Shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected, or until his death, or until he shall resign, or shall
have been removed in a manner hereinafter provided.
(3) REMOVAL. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever, in its
judgment, the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment shall not of itself create
contract rights. The Chairman and Chief Executive Officer or President and
Chief Operating Officer may suspend any officer until the next Board meeting.
(4) VACANCIES. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
(9)
(5) CHAIRMAN AND CHIEF EXECUTIVE OFFICER. The Chairman and Chief
Executive Officer shall preside at all meetings of the Board of Directors, and
shall have the general powers and duties of supervision and management of the
business of the Corporation, its officers and agents. He shall have authority
to sign certificates for shares of the Corporation as provided in ARTICLE VII
hereof. He shall have authority, subject to such agents and employees of the
Corporation as he shall deem necessary, to prescribe their powers, duties and
compensation and to delegate authority to them. Such agents and employees
shall hold office at the discretion of the Chairman and Chief Executive
Officer. In his capacity as Chairman and Chief Executive Officer, he shall
also appoint all Board committees and their chairmen and he shall have such
other power and duties as may from time to time be prescribed by the Board of
Directors.
(6) PRESIDENT AND CHIEF OPERATING OFFICER. The President and Chief
Operating Officer shall, in general, supervise, direct and control the
operations and business of the Corporation subject to the supervision and
direction of the Chairman and Chief Executive Officer and the Board of
Directors and the provisions of these By-Laws. The President and Chief
Operating Officer shall also, subject to such rules as may be prescribed by
these By-laws, the Chairman and Chief Executive Officer, or the Board of
Directors, have the authority to sign, execute and acknowledge on behalf of
the Corporation all deeds, mortgages, contracts, leases, reports and all other
documents or instruments necessary or proper to be executed in the course of
the Corporation's regular business, including certificates for shares of the
Corporation. In the absence of the Chairman and Chief Executive Officer, he
shall preside at all meetings of the Shareholders and Board of Directors.
<PAGE> 25
(7) VICE PRESIDENTS. In the absence of the President and Chief
Operating Officer, or in the event of his death, inability or refusal to act,
the Executive Vice President or in his absence the Vice President-Finance (or
should neither be available then the other Vice Presidents in the order
designated at the time of their election or in the absence of any designation,
then in the order of their election) shall perform the duties of the President
and Chief Operating Officer, and when so acting shall have all the powers of
and be subject to all the restrictions upon the President and Chief Operating
Officer. Any Vice President may sign, with the Chairman and Chief Executive
Officer and with the Secretary or Assistant Secretary, certificates for shares
of the Corporation; and shall perform such other duties and have such author
ity as from time to time may be assigned to him by the Chairman and Chief
Executive Officer or President and Chief Operating Officer or by the Board of
Directors. Any Vice President is authorized to affix the seal of the Corpora
tion to any document which requires the same.
(8) SECRETARY. The Secretary shall: (a) keep the minutes of the
Shareholders' and of the Board of Directors' Meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accor
dance with the provisions of these By-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents which require the
same, the execution of which on behalf of the Corporation under its seal is
duly authorized by another officer hereunder or by the Board of Directors; (d)
keep a register of the post office addresses of each Shareholder which shall
be furnished to the Secretary by such Shareholders; (e) sign with the Chairman
and with the President or a Vice President certificates for shares of the Cor-
poration, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the Corporation; and (g) in general, perform all duties incident to the office
of Secretary and have such other duties, and exercise such authority as from
time to time may be delegated or assigned to him by the Chairman and Chief
Executive Officer or President and Chief Operating Officer or by the Board of
Directors.
(10)
(9) TREASURER. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; receive
and give receipts for monies due and payable to the Corporation from any
source whatsoever, and deposit all such monies in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article VI of these By-Laws; and (b) in
general, perform all of the duties incident to the office of Treasurer and
have such other duties and exercise such other authority as from time to time
may be delegated or assigned to him by the Chairman or President or by the
Board of Directors. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and
with such surety or sureties as the Board of Directors shall determine. The
Treasurer is authorized to affix the seal of the Corporation to any document
which requires the same.
(10) ASSISTANT AND ACTING OFFICERS. The Board of Directors shall have
the power to appoint any person to act as assistant to any officers when
deemed desirable, or to perform the duties of such officer whenever for any
reason it is impractical for such officer to act personally, and such assis
tant or acting officer so appointed by the Board of Directors shall have the
power to perform all the duties of the office to which he is so appointed to
be assistant, or as to which he is so appointed to act, except as such power
may be otherwise defined, conditioned or restricted by the Board of Directors.
(11) SALARIES. The salaries of the officers shall be fixed from time
to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by the reason of the fact that he is also a Director of
the Corporation.
ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
To the fullest extent allowed by law, this Corporation shall indemnify
its directors and officers against expenses (including attorney's fees, court
costs, and disbursements) and liabilities (including ERISA excise taxes,
<PAGE> 26
judgments, fines and amounts paid in settlement) incurred in connection with
any actual or threatened action, suit or proceeding to which such person is
made or threatened to be made a party by reason of being, or having been, a
director or officer or, upon written request of the Corporation pursuant to a
resolution of its Board of Directors, serving or having served any other
entity, including any benefit plan of the Corporation.
Prior to the final disposition of an action, the Corporation may advance
expenses for the defense thereof, provided it has received adequate assurances
of repayment if it is ultimately determined that the individual is not
entitled to repayment.
The Corporation shall have the power and authority to purchase and
maintain insurance on behalf of any person who is or was a director, officer
or employee of the Corporation or is or was serving at the request of the
Corporation in such capacity in any other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out
of his status as such whether or not the Corporation itself would have the
power to indemnify him against such liability under the remaining provisions
of this By-Law.
Indemnification pursuant to this By-Law shall not be exclusive and shall
be in addition to that granted from time to time by operation of law, agree
ment, or vote of the Corporation's directors or Shareholders. With respect to
liabilities and/or expenses arising from or incurred in connection with an
individual serving, at the Corporation's request, any other entity, indemni-
fication by the Corporation shall be deemed to be excess and any indemnifica
tion or insurance provided by such other entity shall be deemed to be primary.
(11)
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
- - - - - - - - - - - - - - - - - - - - - - - - - -
(1) CONTRACTS. To the extent not otherwise authorized by these By-
Laws, the Board of Directors may authorize any officer or officers, or agent
or agents, or the Corporation to enter into any contract or execute and
deliver any instrument in the names of and on behalf of the Corporation, and
such authorization may be general or confined to specific instances.
(2) LOANS. No loans shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by or under the authority of a resolution of the Board of Directors. Such
authorization may be general or confined to specific instances.
(3) CHECKS, DRAFTS, AND OTHER EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for the payment of money issued in the name of the
Company shall be signed by such employee or employees, agent or agents, of the
Company as are appointed by the President, and in such manner, including
facsimile and printed signatures, as may be designed by the President. In
connection with the furnishing of authorizing resolution and signature card
forms needed by commercial banks, the Corporate Secretary, or any Assistant
Secretary, is authorized to execute and certify to such forms as he may deem
appropriate as adopted under the authority of this By-Law and as binding upon
the Company in acceptance therewith, thereby empowering employees or agents
appointed by the President to sign checks, drafts, or other orders for the
payment of money in the name of the Company.
(4) DEPOSITS. All funds of the Corporation, not otherwise employed,
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as may be selected by or under
the authority of the Board of Directors.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(1) CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Such Certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and may be signed by
the Chairman of the Board and may be sealed with the seal of the Corporation
or a facsimile thereof. Signatures of the Chairman of the Board, the Presi
dent, the Vice President, the Secretary or Assistant Secretary on a certifi
cate may be facsimiles if the certificate is countersigned by a transfer agent
<PAGE> 27
or registered by a registrar other than the Corporation or an employee of the
Corporation. In the event any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if such person were such officer at
the date of issue of such certificate. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the Corpora
tion as the Board of Directors may prescribe.
(12)
(2) TRANSFER OF SHARES. Transfer of shares of the Corporation shall
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall if so required
furnish proper evidence of incumbency or appointment and of authority to
transfer, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name
shares stand on the books of the Corporation is to be the owner thereof for
all purposes.
(3) LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the Corporation, alleged to
have been lost or destroyed, and the Board of Directors may, in their discre
tion, require the owner of the lost or destroyed certificate or his legal
representatives to give the Corporation a bond, in such sum as they may
direct, not exceeding double the value of the stock evidenced by such certifi-
cate, to indemnify the Corporation against any claim that may be made against
it on account of the alleged loss of any such certificate, or the issuance of
any such new certificate.
(4) STOCK REGULATIONS. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as they may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the Corporation.
ARTICLE VIII. FISCAL YEAR
- - - - - - - - - - - - - -
The fiscal year of the Corporation shall begin on the 1st day of July in
each year and shall end on the 30th day of June in the following year.
ARTICLE IX. DIVIDENDS
- - - - - - - - - - - -
The Board of Directors may from time to time declare, and the Corpora
tion pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law. Before declaring any dividends, there may be
set apart out of any funds of the Corporation available for dividends, such
sum or sums as the Board of Directors from time to time in their discretion
deem proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends, or for such other purposes as the Board of Directors
shall deem conducive to the best interest of the Corporation.
ARTICLE X. SEAL
- - - - - - - - -
The corporate seal shall be a round metallic disk with the words "TWIN
DISC, INCORPORATED, Racine, Wisconsin" around the circumference, and the words
"Corporate Seal" in the center. If a facsimile or printed seal is used on
stock certificates, it shall be similar in content and design to the above.
ARTICLE XI. AMENDMENTS
- - - - - - - - - - - -
These By-laws may be amended, repealed or altered in whole or in part by
<PAGE> 28
the affirmative vote of not less than two-thirds (2/3rds) of the shares of the
company entitled to vote thereon or by the affirmative vote of not less than
two-thirds (2/3rds) of the full Board of Directors of the Company at any
regular meeting of the Shareholders or Board of Directors, or at any Special
Meeting of the Shareholders or Board of Directors provided that such action
has been specified in the notice of any such Special Meeting.
(13)
<PAGE> 29
EXHIBIT 10(f)
TWIN DISC, INCORPORATED
SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1998)
July 1998
<PAGE> 30
TWIN DISC, INCORPORATED
SUPPLEMENTAL RETIREMENT PLAN
(as amended and restated effective January 1, 1998)
PREAMBLE
Effective January 1, 1984, the Company adopted the Twin Disc, Incorporated
Supplemental Retirement Plan to ensure the payment of a competitive level of
retirement income in order to retain and motivate selected executives. The
Plan was amended effective January 1, 1985 for executives named to the Plan on
or after January 1, 1985. Effective as of January 1, 1998, the Plan is hereby
amended and restated as set forth herein to, among other things, change the
formula for calculating the amount of benefits payable to executives who were
participants in the Plan as of December 31, 1997 but who had not yet termi
nated employment as of such date.
The rights and benefits, if any, of a Participant who terminated employment
prior to January 1, 1998, shall be determined in accordance with the provi
sions of the Plan as in effect on the date his employment terminated.
SECTION I - DEFINITIONS
1.1 "Actuarial Equivalent" means equality in value of the aggregate
amounts expected to be received under different forms of payment, based on the
1983 Group Annuity Mortality Table (male table only), with interest at 8.0%.
1.2 "Average Annual Earnings" means the average compensation used in
benefit calculations, determined in accordance with the Schedule applicable to
such Participant.
1.3 "Basic Plan" means the Twin Disc, Incorporated Retirement Plan for
Salaried Employees (amended and restated effective January 1, 1997), as
amended from time to time.
1.4 "Basic Qualified Plan Benefit" means twelve times the amount defined
in Section 1.2 ("Accrued Benefit") of the Basic Plan.
1.5 "Committee" means the Compensation Committee of the Board of Directors
of the Company, which has been given complete and discretionary authority by
the Board of Directors to administer and interpret this Plan.
1.6 "Company" means Twin Disc, Incorporated.
1.7 "Disabled" means that a Participant should cease to be an Employee
because of an illness or physical disability that will entitle him to receive
monthly disability income benefits under the Company's long term disability
plan.
1.8 "Earnings" means total compensation used in the calculation of Average
Annual Earnings, which is determined in accordance with the Schedule applica
ble to such Participant.
1.9 "Employee" means any person in the employ of the Company.
1.10 "Participant" means an employee of the Company designated as a
Participant by the Committee. An employee shall become a Participant in the
Plan as of the date he is individually selected by, and specifically named in
the resolutions of, the Committee for inclusion in the Plan. A Participant
shall cease to be an active Participant in this Plan and he shall not be
entitled to receive benefits hereunder if he ceases to be an Employee of the
Company for any reason other than Early Retirement or disability as defined in
Section 3.4 prior to his sixty-fifth (65th) birthday.
1.11 "Plan" means the Company's Supplemental Retirement Plan.
<PAGE> 31
1.12 "Plan Year" means the twelve (12) consecutive month period ending
June 30.
1.13 "Prior Plan" means the Twin Disc, Incorporated Supplemental Retire
ment Plan in effect immediately prior to January 1, 1998.
(1)
1.14 "Retirement" means the termination of a Participant's employment with
the Company on one of the retirement dates specified in Section 2.1.
1.15 "Service" means the aggregate of all periods of employment of an
Employee by the Company, including full and partial years, calculated from his
date of employment. Service will include the period of time, if any, during
which a Participant received disability income benefits under the Company's
long term disability plan.
1.16 "Surviving Spouse" means an individual who is a surviving spouse of a
Participant as defined under the Basic Plan.
(2)
The masculine gender, where appearing in the Plan will be deemed to include
the feminine gender, and the singular may include the plural, unless the
context clearly indicates the contrary.
SECTION II - ELIGIBILITY FOR BENEFITS
2.1 Each Participant is eligible to retire and receive a benefit under
this Plan beginning on one of the following dates:
(a) "Normal Retirement Date," which is the first day of the month
coinciding with or next following a Participant's sixty-fifth
(65th) birthday with at least five (5) years of Service.
(b) "Early Retirement Date," which is the first day of any month
following the month in which the Participant reaches the age
and service requirement set forth in the attached Schedule for
each Participant.
(c) "Postponed Retirement Date," which is the first day of the
month following the Participant's Normal Retirement Date in
which the Participant terminates employment with the Company.
2.2 If a Participant should become Disabled, he shall be entitled to
receive retirement benefits after cessation of his disability income benefits,
as described in Section 3.4 of the Plan.
2.3 Anything herein to the contrary notwithstanding, if any Participant
(including a Participant that has terminated employment with the Company)
engages in competition with the Company (without prior authorization given by
the Committee in writing) or is discharged for cause, or performs acts of
willful malfeasance or gross negligence in a matter of material importance to
the Company, all rights to any benefits payable under this Plan thereafter
(whether payable to such Participant or such Participant's Surviving Spouse)
shall, at the discretion of the Committee, be forfeited and the Company will
have no further obligation hereunder to such Participant or Surviving Spouse.
(3)
<PAGE> 32
SECTION III - AMOUNT AND FORM OF RETIREMENT BENEFIT
Amount of Benefit
- - - - - - - - - -
3.1 The annual benefit payable at a Normal Retirement Date will equal the
amount determined in accordance with the Schedule applicable to such
Participant.
3.2 The annual benefit payable at an Early Retirement Date will equal the
benefit determined in accordance with the Schedule applicable to such
Participant.
3.3 The annual benefit payable at a Postponed Retirement Date will be
equal to the benefit determined in accordance with Section 3.1 as of
the Participant's Postponed Retirement Date.
3.4 A Participant who becomes Disabled shall receive no benefits under
this Plan while he is entitled to receive disability income benefits
under the Company's long term disability plan. If payment of
disability income ceases before the Participant has attained either
his Early Retirement Date or his Normal Retirement Date and if he does
not then return to active employment with the Company he shall not be
entitled to receive any benefits under the Plan. If the Participant
does not return to active employment but payment of disability income
ceases on or after the Participant has attained his Early Retirement
Date or Normal Retirement Date, he shall be entitled to retire on an
Early or Normal Retirement Date, as the case may be. In either case
his Retirement Benefit shall be calculated and paid as described in
Section 3.1 or 3.2 of the Plan, whichever may be applicable, based on
Average Annual Earnings calculated at the time of his initial
disablement and Service calculated including the period of time he was
receiving benefits under the Company's long term disability plan plus
the elimination period, if any.
3.5 In no event will the annual benefit calculated under Sections 3.1, 3.2
or 3.3 of this Plan be less than the Actuarial Equivalent of the benefit
calculated under the Prior Plan, which is the benefit the Participant could
have received on December 31, 1997 if he had attained either his Early
Retirement Date or his Normal Retirement Date, had elected to retire, and
started receiving an immediate benefit in accordance with the terms of the
Prior Plan. For this purpose, the Actuarial Equivalent adjustment requires
converting the benefit from the ten-year temporary form defined in the Prior
Plan to the single life annuity form defined in this Plan. The amount
calculated under this Section 3.5 and payable at January 1, 1998 in the ten-
year temporary form is shown on the Schedule applicable to such Participant.
Form of Benefit
- - - - - - - - -
3.6 The benefit determined under this Plan in accordance with Section 3.1,
3.2 or 3.3 is calculated in the form of a single life annuity, providing
benefits for the life of the Participant with no benefits payable to any
beneficiary. The benefit determined under Section 3.7 is calculated in the
form of a single life temporary annuity, providing benefits for the shorter of
the life of the Participant or 120 monthly payments.
(4)
Any benefits payable under this Plan will automatically be paid as a lump sum
equal to the Actuarial Equivalent of the annual benefit payable under both the
single life annuity form and the single life temporary annuity form. If the
lump sum is equal to or less than $500,000, the lump sum will be paid in a
single payment. In the event that the lump sum is in excess of $500,000,
then the first payment will be limited to $500,000, with the unpaid balance
increasing with interest at 8% per year, and additional payments (also limited
to no more than $500,000 each) will be made on each twelve month anniversary
of the first payment until the balance is paid. If the Participant dies after
the first payment but prior to the time when the balance has been fully
discharged, the Surviving Spouse (or the named beneficiary) shall receive the
subsequent payment(s) at the same time and in the same amount as if the
Participant was alive to receive the payments.
<PAGE> 33
Payments of the benefits, if any, calculated under Section 3.7 may only be
paid in the form of a single life temporary annuity or a lump sum. Payments
of the benefits calculated under Sections 3.1, 3.2, or 3.3 may be paid under
one of the following optional forms of payment if the Participant files an
election in writing at least twelve (12) calendar months in advance of the
date his benefit payments begin.
The annual benefit payable under any optional form shall be determined as the
Actuarial Equivalent of the annual benefit payable under the Single Life
Annuity Form. A Participant may elect any optional form of payment listed
below:
(a) Single Life Annuity Form, under which monthly payments are
made to the Participant during his lifetime, with no further
payments from the Plan on his behalf after his death. This is
the calculated form of benefit and does not require an
Actuarial Equivalent adjustment.
(b) Contingent Annuitant Form, under which reduced monthly
payments are made to the Participant during his lifetime, with
payments from the Plan on his death equal to 50% of the rate
previously payable to the Participant to be continued to and
for the lifetime of his Surviving Spouse. The reduced
payments under this option shall be the Actuarial Equivalent
of the annual benefit payable under the Single Life Annuity
Form. In the event the Surviving Spouse dies prior to the
time his first payment commences, the form of benefit shall
automatically revert to the Single Life Annuity Form and there
shall be no reduction of his benefit.
(c) Ten Year Temporary Annuity Form, under which increased monthly
payments are made to the Participant for a ten year period as
long as the Participant is alive. Payments cease at the
earlier of the completion of the ten year period or the death
of the Participant. The increased payments under this option
shall be the Actuarial Equivalent of the annual benefit
payable under the Single Life Annuity Form.
Additional Basic Plan Benefit
- - - - - - - - - - - - - - - -
3.7 Upon Retirement, a Participant who elects to receive any or all of
their monthly benefits from the Basic Plan immediately in the form of a Joint
and Survivor Annuity for Married Participant
(5)
(Section 5.1(b) of the Basic Plan) will receive an additional benefit from
this Plan. This benefit is intended to make-up for the reduction in monthly
Basic Plan benefits due to Joint and Survivor coverage and is equal to the
difference, if any, between the monthly Basic Plan benefit payable immediately
in the single life form and the monthly Basic Plan benefit payable immediately
in the Joint and Survivor Annuity for Married Participant form. In the event
the Participant elects to receive all or a part of the Basic Plan benefit as a
single life annuity or as a lump sum, the additional benefit calculated in
this Section 3.7 will not be based on the portion of the Basic Plan benefit
that is paid in a form other than the Joint and Survivor Annuity for Married
Participant.
The benefit determined under this Section 3.7 is calculated in the form of a
single life temporary annuity, providing benefits for the shorter of the life
of the Participant or 120 monthly payments.
No additional benefit under this Section 3.7 shall be paid if the Participant
does not elect to receive Basic Plan benefits commencing at the same time as
any other benefits payable under this Plan.
(6)
SECTION IV - PAYMENT OF RETIREMENT BENEFITS
4.1 Benefits payable in accordance with Section III will commence on first
day of the month following the Participant's date of Retirement, or as soon
thereafter as administratively practical.
<PAGE> 34
If the Participant elected an optional form of payment, payments will
continue to be paid on the first day of each succeeding month. The last
payment will be on the first day of the month in which the retired Participant
dies unless otherwise elected in accordance with Section 3.6.
4.2 No benefits are payable under this Plan if a Participant terminates
employment for any reason other than Retirement, disability or death.
(7)
SECTION V - DEATH BENEFITS PAYABLE
5.1 If a Participant should die after attaining either his Early
Retirement Date or his Normal Retirement Date and before Retirement, the
Surviving Spouse will receive, in the form of a lump sum, a benefit equal to
the Participant's benefit determined in accordance with Section III as if the
Participant had retired and commenced receiving a benefit on the first of the
month following the date of his death. If the lump sum is equal to or less
than $500,000, the lump sum will be paid in a single payment. In the event
that the lump sum is in excess of $500,000, then the first payment will be
limited to $500,000, with the unpaid balance increasing with interest at 8%per
year, and additional payments (also limited to no more than $500,000) made on
each twelve month anniversary of the first payment until the balance is paid.
If the Surviving Spouse dies after the first payment but prior to the time
when the balance has been fully discharged, a named beneficiary shall receive
the subsequent payment(s) at the same time and in the same amount as if the
Surviving Spouse was alive to receive the payments.
5.2 The initial payment under this Section V will be paid within 60 days
following the month in which the Participant dies. If additional payments are
required, each such payment will be made on the date which follows the prior
payment by twelve months.
5.3 If a Participant should die prior to attaining his Early Retirement
Date or his Normal Retirement Date, no benefits will be payable from this
Plan. If a Participant should die without a Surviving Spouse, no benefit
under this Section V is payable.
(8)
SECTION VI - MISCELLANEOUS
6.1 The Committee may, in its sole discretion, terminate, suspend or amend
this Plan at any time or from time to time, in whole or in part. However, no
amendment or suspension of the Plan will affect any of the following:
(a) a retired Participant's right or the right of such retired
Participant's Surviving Spouse to continue to receive a benefit in accordance
with the terms of the Plan as in effect on the date in effect on the date such
Participant commenced to receive a benefit under the Plan; and
(b) the right of any Participant not covered under Section 6.1(a)
above to receive benefits that have been earned (with the amount of earned
benefit determined in accordance with Section 3 based on Earnings and Service
as of the date of the amendment or suspension) payable on the date they would
have been paid if the Plan had not been amended or suspended, all in accor
dance with the Plan in effect on the date of such amendment or suspension.
In the event the Plan is terminated, any earned benefits (whether or not in
pay status) will be nonforfeitable and the Company shall pay the Actuarial
Equivalent of the annual benefit earned to date in a lump sum to each Partici
pant within sixty (60) days following such termination.
6.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company, nor will it interfere with the
right of the Company to discharge or otherwise deal with Participants without
regard to the existence of this Plan.
<PAGE> 35
6.3 This Plan is unfunded, and the Company will make Plan benefit payments
solely on a current disbursement basis from its general assets.
6.4 To the maximum extent permitted by law, no benefit under this Plan
shall be assignable or subject in any manner to alienation, sale, transfer,
claims of creditors, pledge, attachment or encumbrances of any kind.
6.5 The Committee may adopt rules and regulations to assist it in the
administration of the Plan. The Committee shall have complete and discretion
ary authority to determine eligibility, the amount of benefits payable under
the Plan and to otherwise interpret the provisions of the Plan.
6.6 Each Participant shall receive a copy of this Plan, and the Committee
will make available for inspection by any Participant a copy of the rules and
regulations used by the Committee in administering the Plan. Not withstanding
the immediately preceding sentence, to the extent any Participants are named
in Schedules to this Plan only those Participants shall receive a copy of such
Schedule.
6.7 This Plan is established under, and will be construed according to,
the laws of the State of Wisconsin, except to the extent preempted by ERISA or
other federal law.
(9)
<PAGE> 36
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net Sales $202,643 $189,942 $176,657
Net Earnings 9,363 7,729 6,559
Basic Earnings Per Share 3.30 2.78 2.36
Diluted Earnings Per Share 3.24 2.75 2.34
Dividends Per Share .76 .70 .70
Average Shares Outstanding For The Year 2,833,663 2,781,174 2,776,805
Diluted Shares Outstanding For The Year 2,886,209 2,808,226 2,805,123
</TABLE>
Sales and Earnings by Quarter
<TABLE>
<CAPTION>
1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
<S> <C> <C> <C> <C> <C>
Net Sales $47,880 $53,994 $49,029 $51,740 $202,643
Gross Profit 9,936 12,250 12,810 15,132 50,128
Net Earnings 1,356 2,116 2,384 3,507 9,363
Basic Earnings Per Share .48 .75 .84 1.23 3.30
Diluted Earnings Per Share .47 .73 .82 1.21 3.24
Dividends Per Share .19 .19 .19 .19 .76
Stock Price Range:
High 30 5/8 34 1/8 33 3/8 33 1/8 34 1/8
Low 28 1/8 29 3/8 29 15/16 32 7/16 28 1/8
</TABLE>
Sales and Earnings by Quarter
<TABLE>
<CAPTION>
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
<S> <C> <C> <C> <C> <C>
Net Sales $40,941 $45,496 $49,204 $54,301 $189,942
Gross Profit 8,687 10,980 11,724 12,428 43,819
Net Earnings 1,132 1,742 1,916 2,939 7,729
Basic Earnings Per Share .41 .63 .69 1.05 2.78
Diluted Earnings Per Share .40 .62 .68 1.04 2.75
Dividends Per Share .175 .175 .175 .175 .70
Stock Price Range:
High 23 5/8 22 5/8 25 1/8 28 3/4 28 3/4
Low 21 3/4 21 3/8 21 3/8 23 3/8 21 3/8
</TABLE>
Based on average shares outstanding for the period.
In thousands of dollars except per share and stock price range statistics.
(1)
<PAGE> 37
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
NET SALES, NEW ORDERS AND BACKLOG
Revenues increased in both fiscal 1997 and 1998; fiscal 1998 represented the
sixth consecutive year of higher sales. Greater demand for our traditional
products, which was relatively stable during fiscal 1997, provided most of the
improvement in the recently completed year. Order rates softened in selected
markets as the year progressed, and this trend, combined with the completion
of a major truck transmission contract, led to a 29 percent decline in backlog
by year-end.
Net sales for fiscal 1998 were $203 million, an increase of 7 percent over the
$190 million reported in fiscal 1997, and 14 percent above the $177 million
for fiscal 1996. Most of the fiscal 1997 improvement resulted from a new
business opportunity with the initial shipments of automatic transmissions for
a major vehicle contract. Though some softness in demand for the lower
horsepower marine transmissions occurred at the middle of fiscal 1997,
shipments to our principal markets for the twelve months generally were good
and provided a solid base of sales comparable with the previous year. The
transmission contract was completed in January, but growth in other product
markets provided the bridge to another year of sales improvement in fiscal
1998. The markets providing most of the growth were the pleasure craft marine
market, supplied primarily from our Belgian operation, and a variety of
applications for power take-offs and clutches such as irrigation, recycling,
and oilfield.
The changes in shipping levels of our distribution companies, marketing and
service subsidiaries around the world varied by region; in most cases fiscal
1998 differed from fiscal 1997. Domestic distribution sales, which were off in
fiscal 1997, recovered in fiscal 1998 as a result of greater demand for
marine transmissions, general industrial products, and service work. European
distribution shipments increased between 15 and 20 percent each year, with
Arneson surface drives representing the major component of the improvements.
Elsewhere in the world, primarily the Pacific Basin, the fiscal 1997 sales
increase, spurred by boat building activity, was reversed in fiscal 1998
because of the declining Asian economy and the strong U.S. dollar.
The U.S. dollar, after a year of relative stability in 1996, strengthened in
1997 and 1998. The currencies of the countries in which Twin Disc operates on
average were off approximately 6 percent in fiscal 1997 and an additional 10
percent in fiscal 1998. Overall, the impact of currency translation on
revenues was a relatively minor reduction of 2 percent and 3 percent in fiscal
1997 and fiscal 1998, respectively. Price increases, implemented selectively
in each year, raised revenues by approximately the rate of inflation.
At the beginning of fiscal 1997, the backlog of orders scheduled for shipment
during the next six months was $66 million, 10 percent of which was attribut
able to the automatic truck transmission contract that extended through the
first half of fiscal 1998. Order rates improved early in fiscal 1997 and,
although modest softening was experienced in selected markets by mid-year, the
backlog at June 30, 1997 was up 16 percent from the prior year. Despite
stable-to-improved order rates for pleasure craft marine transmissions and
<PAGE> 38
most other products, the completion of the previously mentioned transmission
contract resulted in a 10 percent decline in six-month backlog at December 31,
1997. By fiscal 1998 year-end, backlog was off 29 percent from a year earlier
as demand slowed in many product lines, particularly the higher horsepower
marine transmissions used in commercial boats.
(23)
MARGINS, COSTS AND EXPENSES
Manufacturing operations have been cellularized and improvements in process
time, machine capability, and utilization continue to be provided by evolu
tionary refinements to the cells. In 1996, we also initiated a pay-for-skills
program in our domestic plant that motivated manufacturing associates to learn
new machine operating skills and increase production flexibility and effi
ciency. Delivery times were reduced, particularly during the latter half of
fiscal 1998, as the Company has more fully utilized the scheduling capabili
ties of recently installed computer systems.
The steady improvement in gross margin that began in fiscal 1991 was main
tained in fiscal 1997 with a minimal increase. Solid year-to-year increases
in domestic gross margins through each of the quarters were countered by lower
profitability at the Belgian operation in the second half of the year. That
decline in Europe was caused by a temporary drop in orders, leading to short
workweeks and reduced productivity.
In fiscal 1998, improved productivity at our domestic plant, coupled with
greater volume in the first half of the year, provided for higher domestic
margins. Production volume at our Belgian subsidiary rose during the second
quarter with the increased demand for marine transmissions, favorably impact
ing productivity and margins. Additionally, with sales denominated in the
strong U.S. dollar, the Belgian margin showed a significant increase for the
year.
Marketing, engineering, and administrative (MEA) expense in terms of dollars
increased by almost 9 percent for fiscal 1997 but rose only slightly as a
percentage of sales. The increase occurred at the Company's domestic opera
tions and consisted mainly of salary expense for an added number of marketing
and engineering personnel, a one-time expense associated with an accelerated
product development program, and a salaried associate bonus payment not made
in the previous year. A propulsion products marketing group also was estab
lished in 1997 to focus on development of markets for a full line of marine
propulsion products - transmissions, Arneson drives, water jets, and elec
tronic controls.
In fiscal 1998, MEA rose 9 percent, again slightly outpacing the sales
increase. The principal components of the increase were the write-off of a
loss on the bankruptcy restructuring of a customer in South Africa, marketing
and domestic engineering personnel additions, and the expenses associated with
a mid-year acquisition.
INTEREST, TAXES AND NET EARNINGS
Virtually all of the short-term debt required to finance working capital needs
in fiscal 1996 was repaid by the end of fiscal 1997, and interest expense
declined by about 8 percent in that year. Short-term borrowings remained very
low in fiscal 1998 and, as a result, interest expense declined about 15
percent from the prior year.
The effective income tax rates have remained relatively consistent throughout
the three-year period with minor variations between years caused by a
<PAGE> 39
fluctuation in the proportion of foreign earnings which are generally taxed at
a higher rate. Also, in fiscal 1998, an additional accrual of taxes for prior
years added to the effective rate.
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities in fiscal 1997 was a record
$20.5 million. Higher earnings and depreciation were supplemented by reduc
tions in accounts receivable and inventory as receivable days outstanding
(DSO) and inventory turnover ended fiscal 1997 at their best levels since
1990. After lowering the rate on most of the Company's debt through a private
placement in 1996, the Company focused on improving cash flow in fiscal 1997
and reduced short-term borrowings, primarily domestic, by $7 million. In
fiscal 1998,the positive cash flows from earnings, depreciation, and a further
reduction in accounts receivable DSO were partially offset by inventory
increases necessary to satisfy the level of
(24)
demand at our Belgian subsidiary and by the prepayment of the current year
domestic pension contribution. The result was a $7 million operating cash
flow after the $8 million reduction for prepaid pension expense.
For several years prior to fiscal 1998, fixed asset purchases were less than
depreciation as manufacturing cells were established and existing machinery
was rearranged. Expenditures for capital equipment exceeded depreciation by
about $2 million in fiscal 1998 as experience helped identify the equipment
needed to further improve cell performance. We expect capital spending will
continue to exceed depreciation as individual cell structures are refined.
Working capital and the current ratio declined in fiscal 1998 after increasing
during both of the preceding two years. In fiscal 1997 working capital
increased $5.7 million, reflecting higher balances of cash and short-term
investments and reduced short-term borrowings. The decline in working capital
of $4.3 million at the end of fiscal 1998 was nearly equivalent to the
reduction in accounts receivable, as the inventory increase was offset by a
decline in cash. The current ratio of 3.2 at June 30, 1998 was down slightly
from the 3.3 reported at the previous year-end.
The Company believes the capital resources available in the form of existing
cash, lines of credit (described in Footnote F to the consolidated financial
statements) and funds provided by operations will be adequate to meet antici
pated capital expenditures and other foreseeable business requirements in the
future.
OTHER MATTERS
YEAR 2000 READINESS
The Company has assessed the potential impact of the Year 2000 date change on
its business systems and operations. With the change to a new information
system for domestic operations in late 1995 and a similar update currently
being implemented at its Belgian manufacturing subsidiary, the Company's
systems will be prepared to handle the century date change. Testing of these
systems will occur in fiscal year 1999. Network systems and other affected
equipment throughout the Company and its subsidiaries either are already
capable of handling the date change or will be as updates are completed during
the next six months. In addition, suppliers and service providers are being
<PAGE> 40
contacted to ensure they are actively involved in a program to address the
Year 2000 issue and provide uninterrupted service to Twin Disc. The remaining
costs of complying with the Year 2000 requirements are not expected to be
significant. The Company believes, based on currently available information,
that it will be able to manage its Year 2000 transition without material
adverse effect on the Company's future consolidated results of operations,
liquidity and capital resources.
ENVIRONMENTAL MATTERS
The Company is involved in various stages of investigation relative to
hazardous waste sites on the United States EPA National Priorities List. It
is not possible at this time to determine the ultimate outcome of those
matters; but, as discussed further in Footnote N to the consolidated financial
statements, they are not expected to affect materially the Company's opera
tions, financial position or cash flows.
RECENT FINANCIAL REPORTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of Finan
cial Accounting Standards (FAS) 130, "Comprehensive Income," FAS 131, "Disclo
sures about Segments of an Enterprise and Related Information," FAS 132,
"Employers' Disclosure about Pensions and Other Post-retirement Benefits" and
FAS 133, "Accounting for Derivative Instruments and Hedging Activities," which
are addressed in Footnote A to the consolidated financial statements.
(25)
<PAGE> 41
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,087 $ 8,983
Trade accounts receivable, net 28,320 32,428
Inventories 53,280 47,844
Deferred income taxes 1,987 3,491
Other 4,906 5,216
------- -------
Total current assets 93,580 97,962
Property, plant and equipment, net 35,728 34,249
Investments in affiliates 10,356 10,880
Deferred income taxes 1,241 4,559
Intangible pension asset 4,082 4,779
Other assets 15,967 6,326
------- -------
$160,954 $158,755
------- -------
------- -------
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 276 $ 169
Accounts payable 9,917 12,834
Accrued liabilities 19,360 16,618
------- -------
Total current liabilities 29,553 29,621
Long-term debt 19,949 19,944
Accrued retirement benefits 29,457 35,393
------- -------
78,959 84,958
Shareholders' equity:
Common shares authorized: 15,000,000;
issued: 3,643,630; no par value 11,653 11,653
Retained earnings 84,738 77,424
Foreign currency translation adjustment 3,418 6,060
Minimum pension liability adjustment (661) (3,708)
------- -------
99,148 91,429
Less treasury stock, at cost 17,153 17,632
------- -------
Total shareholders' equity 81,995 73,797
------- -------
$160,954 $158,755
------- -------
------- -------
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(26)
<PAGE> 42
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1998, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $202,643 $189,942 $176,657
Cost of goods sold 152,515 146,123 135,780
------- ------- -------
Gross profit 50,128 43,819 40,877
Marketing, engineering and
administrative expenses 34,092 31,219 28,706
------- ------- -------
Earnings from operations 16,036 12,600 12,171
Other income (expense):
Interest income 550 1,335 121
Interest expense (1,505) (1,781) (1,942)
Equity in earnings of affiliates 651 307 45
Other, net 313 219 512
------- ------- -------
9 80 (1,264)
------- ------- -------
Earnings before income
taxes 16,045 12,680 10,907
Income taxes 6,682 4,951 4,348
------- ------- -------
Net earnings $ 9,363 $ 7,729 $ 6,559
------- ------- -------
------- ------- -------
Earnings per share data:
Basic earnings per share $ 3.30 $ 2.78 $ 2.36
Diluted earnings per share 3.24 2.75 2.34
Shares outstanding data:
Average shares outstanding 2,834 2,781 2,777
Dilutive stock options 52 27 28
------- ------- -------
Diluted shares outstanding 2,886 2,808 2,805
------- ------- -------
------- ------- -------
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(27)
<PAGE> 43
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $ 9,363 $ 7,729 $ 6,559
Adjustments to reconcile
to net cash provided (used)
by operating activities:
Depreciation and amortization 5,607 5,489 5,233
Gain on sale of plant assets (402) (127) (26)
Equity in earnings of affiliates (651) (307) (45)
Provision for deferred income taxes 2,873 1,481 1,646
Dividends received from affiliate 495 300 548
Changes in operating assets and
liabilities:
Trade accounts receivable, net 3,361 1,267 (6,055)
Inventories (5,673) 2,882 (3,926)
Other assets (7,842) (954) (987)
Accounts payable (2,695) 3,463 (3,513)
Accrued liabilities 2,777 (391) (3,982)
Deferred retirement plan (244) (345) 415
------- ------- -------
Net cash provided (used) by
operating activities 6,969 20,487 (4,133)
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of plant assets 574 501 18
Acquisitions of plant assets (7,154) (4,734) (4,140)
Investment in subsidiary (1,021) - -
Payment for license agreement (1,515) - (2,402)
------- ------- -------
Net cash used by investing activities (9,116) (4,233) (6,524)
------- ------- -------
Cash flows from financing activities:
Increases (decreases) in notes
payable, net 112 (7,182) 5,076
Proceeds from long-term debt - 4 19,914
Principal payments on long-term debt - - (14,000)
Acquisition of treasury stock (1,314) - -
Proceeds from exercise of stock options 1,904 188 35
Dividends paid (2,160) (1,947) (1,943)
------- ------- -------
Net cash provided (used) by
financing activities (1,458) (8,937) 9,082
------- ------- -------
Effect of exchange rate changes on cash (291) (377) (123)
------- ------- -------
Net change in cash and cash equivalents (3,896) 6,940 (1,698)
Cash and cash equivalents:
Beginning of year 8,983 2,043 3,741
------- ------- -------
End of year $ 5,087 $ 8,983 $ 2,043
------- ------- -------
------- ------- -------
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,505 $ 1,822 $ 1,802
Income taxes 4,698 3,318 4,946
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
(28)
<PAGE> 44
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Common stock
Balance, June 30 $ 11,653 $ 11,653 $ 11,653
------- ------- -------
Retained earnings
Balance, July 1 77,424 71,658 67,054
Net earnings 9,363 7,729 6,559
Cash dividends (2,160) (1,947) (1,943)
Stock options exercised 111 (16) (12)
------- ------- -------
Balance, June 30 84,738 77,424 71,658
------- ------- -------
Foreign currency translation adjustment
Balance, July 1 6,060 10,326 14,081
Current adjustment (2,642) (4,266) (3,755)
------- ------- -------
Balance, June 30 3,418 6,060 10,326
------- ------- -------
Minimum pension liability adjustment, net
Balance, July 1 (3,708) (620) (284)
Current adjustment, net of related income
taxes ($(1,948)in 1998, $1,975 in 1997
and $215 in 1996) 3,047 (3,088) (336)
------- ------- -------
Balance, June 30 (661) (3,708) (620)
------- ------- -------
Treasury stock, at cost
Balance, July 1 (17,632) (17,836) (17,882)
Shares acquired (1,314) - -
Stock options exercised 1,793 204 46
------- ------- -------
Balance, June 30 (17,153) (17,632) (17,836)
------- ------- -------
Shareholders' equity balance, June 30 $ 81,995 $ 73,797 $ 75,181
------- ------- -------
------- ------- -------
The notes to consolidated financial statements
are an integral part of these statements.
(29)<PAGE>
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed in
the preparation of these financial statements:
Consolidation Principles--The consolidated financial statements include the
accounts of Twin Disc, Incorporated and its subsidiaries, all of which are
wholly owned. Certain foreign subsidiaries are included based on fiscal years
ending May 31, to facilitate prompt reporting of consolidated accounts. All
significant inter-company transactions have been eliminated.
Translation of Foreign Currencies--Substantially all foreign currency balance
sheet accounts are translated into United States dollars at the rates of
exchange prevailing at year-end. Revenues and expenses are translated at
average rates of exchange in effect during the year. Foreign currency
translation adjustments are recorded as a component of shareholders' equity.
Gains and losses from foreign currency transactions are included in earnings.
Cash Equivalents--The Company considers all highly liquid marketable
securities purchased with a maturity date of three months or less to be cash
equivalents.
Receivables--Trade accounts receivable are stated net of an allowance for
doubtful accounts of $647,000 and $538,000 at June 30, 1998 and 1997, respec
tively.
Fair Value of Financial Instruments--The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents, accounts receiv
able, accounts payable and short-term debt approximates fair value because of
the immediate short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value because
the underlying instrument bears interest at a current market rate.
Derivative Financial Instruments--Derivative financial instruments (primarily
forward foreign exchange contracts) may be utilized by the Company to hedge
foreign exchange rate risk. The Company has established policies and proce
dures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not enter into
financial instruments for trading or speculative purposes. For financial
reporting purposes, forward foreign exchange contracts used to hedge the
currency fluctuations on transactions denominated in foreign currencies are
marked-to-market and the resulting gains and losses, together with the
offsetting losses and gains on hedged transactions, are recorded in the "Other
income (expense)" caption in the statement of operations. At June 30, 1998 and
1997, the Company had outstanding forward foreign exchange contracts to
purchase $5,000,000 and $3,000,000, respectively, of Belgian francs with a
weighted average maturity of 56 days and 34 days, respectively.
Inventories--Inventories are valued at the lower of cost or market. Cost has
been determined by the last-in, first-out (LIFO) method for parent company
inventories, and by the first-in, first-out (FIFO) method for other invento
ries.
Property, Plant and Equipment and Depreciation--Assets are stated at cost.
Expenditures for maintenance, repairs and minor renewals are charged against
earnings as incurred. Expenditures for major renewals and betterments are
capitalized and amortized by depreciation charges. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets for
financial reporting and on accelerated methods for income tax purposes. The
lives assigned to buildings and related improvements range from 10 to 40
years, and the lives assigned to machinery and equipment range from 5 to 15
years. Upon disposal of property, plant and equipment, the cost of the asset
and the related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in earnings. Fully depreciated assets are
not removed from the accounts until physical disposition.
<PAGE> 46
Investments in Affiliates--The Company's 25% investments in affiliates are
stated at cost, adjusted for equity in undistributed earnings since acquisi
tion.
(30)
Revenue Recognition--Revenues are recognized when products are shipped.
Income Taxes--The Company recognizes deferred tax liabilities and assets for
the expected future income tax consequences of events that have been recog
nized in the Company's financial statements. Under this method, deferred tax
liabilities and assets are determined based on the temporary differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse.
The Company does not provide for taxes which would be payable if undistributed
earnings of its foreign subsidiaries or its foreign affiliate were remitted
because the Company either considers these earnings to be invested for an
indefinite period or anticipates that if such earnings were distributed,
the U.S.income taxes payable would be substantially offset by foreign tax
credits.
Management Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual amounts could differ from those estimates.
Recently Issued Accounting Standards--During the second quarter of 1998, the
Company adopted Statement of Financial Accounting Standards (FAS) 128 "Earn
ings Per Share", which establishes new standards for reporting earnings per
share. The earnings per share computations for prior periods have been
restated to conform with the provisions of FAS 128.
During 1997, the Financial Accounting Standards Board (FASB) issued FAS 130
"Comprehensive Income" and FAS 131 "Disclosures about Segments of an Enter
prise and Related Information", and during 1998 the FASB issued FAS 132
"Employers' Disclosure about Pensions and Other Postretirement Benefits" and
FAS 133 "Accounting for Derivative Instruments and Hedging Activities". FAS
130, 131, and 132 are effective for the Company's 1999 fiscal year and FAS 133
is effective for the Company's 2000 fiscal year. A brief description of each
standard and the potential effect on the Company's financial statements
follows:
FAS 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. FAS 130 requires
financial statement disclosures for prior periods to be restated. The Company
is in the process of determining its preferred disclosure format.
FAS 131 establishes new standards for the way that public companies report
information about operating segments in annual financial statements. FAS 131
also establishes standards for related disclosures about products and services
geographic areas, and major customers and requires financial statement
disclosure for prior periods to be restated. The Company's reporting under FAS
131 will disclose required information about two operating segments, Manufac
turing and Distribution.
FAS 132 establishes standards for disclosing information about pensions and
other postretirement benefits in the financial statements and requires
disclosure for prior periods to be restated. The Company is evaluating the
extent to which its disclosures may be affected by FAS 132.
FAS 133 establishes standards for accounting for derivatives and hedging
activities. The Company is evaluating the extent to which its accounting for
derivative and hedging activities may be affected by FAS 133.
(31)
<PAGE> 47
B. INVENTORIES
The major classes of inventories at June 30 were as follows:
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Finished parts $43,848 $38,713
Work-in-process 5,524 5,997
Raw materials 3,908 3,134
------ ------
$53,280 $47,844
------ ------
------ ------
</TABLE>
Inventories stated on a LIFO basis represent approximately 33% and 42% of
total inventories at June 30, 1998 and 1997, respectively. The approximate
current cost of the LIFO inventories exceeded the LIFO cost by $18,252,000 and
$17,526,000 at June 30, 1998 and 1997, respectively.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Land $ 1,295 $ 1,335
Buildings 19,065 18,708
Machinery and equipment 92,309 87,832
------ ------
112,669 107,875
Less accumulated depreciation 76,941 73,626
------ ------
$35,728 $34,249
------ ------
------ ------
</TABLE>
D. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates consists of 25% interests in Niigata
Converter Company, Ltd., Japan (a manufacturer of power transmission equip
ment), and Palmer Johnson Distributors, LLC (a domestic distributor of Twin
Disc products).
Undistributed earnings of the affiliates included in consolidated retained
earnings approximated $3,283,000 and $3,127,000 at June 30, 1998 and 1997,
respectively.
(32)
Combined condensed financial data of the above-listed affiliates are
summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
---- ----
<S> <C> <C>
Current assets $ 78,214 $ 87,375
Other assets 40,171 43,582
------- -------
$118,385 $130,957
------- -------
------- -------
Current liabilities $ 83,066 $ 85,479
Other liabilities 412 8,479
Shareholders' equity 34,907 36,999
------- -------
$118,385 $130,957
------- -------
------- -------
<PAGE> 48
1998 1997 1996
----- ---- ----
Net sales $152,558 $166,171 $183,487
Gross profit 20,897 19,911 23,436
Net earnings 2,606 1,228 181
</TABLE>
E. ACCRUED LIABILITIES
Accrued liabilities at June 30 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Salaries and wages $ 6,871 $ 5,983
Retirement benefits 2,930 2,150
Other 9,559 8,485
------- -------
$ 19,360 $ 16,618
------- -------
------- -------
</TABLE>
F. DEBT
Short-term notes payable consists of amounts borrowed under unsecured line of
credit agreements. Unused lines of credit total $18,370,000 at June 30, 1998.
These lines of credit are available predominately at the LIBOR interest rate
and may be withdrawn at the option of the banks. The weighted average
interest rate of short-term lines outstanding at June 30, 1998 and 1997 was
6.8% and 7.3%, respectively.
Included in long term debt is $20 million of 7.37% ten-year unsecured notes,
net of $69,000 unamortized debt issuance costs at June 30, 1998. These notes
contain certain covenants, including the maintenance of a current ratio of not
less than 1.5. Principal payments of $2,857,000 are due in the years 2000
through 2005, with the remaining balance due on June 1, 2006. Also included
in long-term debt is $18,000 of debt related to a foreign subsidiary.
(33)
G. LEASE COMMITMENTS
Approximate future minimum rental commitments under noncancellable operating
leases are as follows (in thousands):
Fiscal Year
-----------
1999 $2,414
2000 1,736
2001 1,260
2002 925
2003 596
Thereafter 241
-----
$7,172
=====
Total rent expense for operating leases approximated $2,571,000, $2,254,000
and $2,109,000 in 1998, 1997 and 1996, respectively.
H. SHAREHOLDERS' EQUITY
At June 30, 1998 and 1997, treasury stock consisted of 810,646 and 856,456
shares of common stock, respectively. The Company issued 86,850 and 9,900
shares of treasury stock in 1998 and 1997, respectively, to fulfill its
obligations under the stock option plans. The difference between the cost of
treasury shares issued and the option price is credited to retained earnings.
The Company acquired 41,040 shares of treasury stock in 1998.
<PAGE> 49
Cash dividends per share were $.76 in 1998 and $.70 in 1997 and 1996.
In 1998, the Company's Board of Directors established a Shareholder Rights
Plan and distributed to shareholders, one preferred stock purchase right for
each outstanding share of common stock. Under certain circumstances, a right
may be exercised to purchase one one-hundredth of a share of Series A Junior
Preferred Stock at an exercise price of $160, subject to certain anti-dilution
adjustments. The rights become exercisable ten (10) days after a public
announcement that a party or group has either acquired at least 15% (or at
least 25% in the case of existing holders who currently own 15% or more of the
common stock), or commenced a tender offer for at least 25%, of the Company's
common stock. Generally, after the rights become exercisable, if the Company
is a party to certain merger or business combination transactions, or trans
fers 50% or more of its assets or earnings power, or certain other events
occur, each right will entitle its holders, other than the acquiring person,
to buy a number of shares of common stock of the Company, or of the other
party to the transaction, having a value of twice the exercise price of the
right. The rights expire June 30, 2008 and may be redeemed by the Company for
$.05 per right at any time until ten (10) days following the stock acquisition
date. The Company is authorized to issue 200,000 shares of preferred stock,
none of which have been issued. The Company has designated 50,000 shares of
the preferred stock for the purpose of the Shareholder Rights Plan.
(34)
I. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged in one line of business, the
manufacture and sale of power transmission equipment. Transfers among
geographic areas are made at established intercompany selling prices.
Principal products include industrial clutches, hydraulic torque converters,
fluid couplings, power-shift transmissions, marine transmissions, universal
joints, power take-offs, and reduction gears. The Company sells to both
domestic and foreign customers in a variety of market areas, principally
construction, industrial, government, marine, energy and natural resources and
agricultural.
Two customers each accounted for approximately 11%, 11% and 10% of consoli
dated net sales in 1998, 1997 and 1996, respectively.
Information about the Company's operations in different geographic areas is
summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States $147,819 $131,844 $120,137
Foreign:
Europe 35,418 34,332 34,206
Other 19,406 23,766 22,314
------- ------- --------
Total $202,643 $189,942 $176,657
------- ------- -------
------- ------- -------
Transfers between geographic areas:
United States $ 28,994 $ 28,716 $ 30,230
Foreign:
Europe 21,778 16,398 23,130
Other 378 415 322
------- ------- --------
Total $ 51,150 $ 45,529 $ 53,682
------- ------- -------
------- ------- -------
Net sales:
United States $176,813 $160,560 $150,367
Foreign:
Europe 57,196 50,730 57,336
Other 19,784 24,181 22,636
Eliminations (51,150) (45,529) (53,682)
------- ------- -------
Total $202,643 $189,942 $176,657
------- ------- -------
------- ------- -------
<PAGE> 50
Earnings before income taxes:
United States $ 7,944 $ 6,009 $ 2,821
Foreign:
Europe 7,000 4,378 6,126
Other 1,101 2,293 1,960
------- ------- -------
Total $ 16,045 $ 12,680 $ 10,907
------- ------- -------
------- ------- -------
Identifiable assets at June 30:
United States $117,024 $115,973 $117,552
Foreign:
Europe 37,125 33,329 36,356
Other 11,438 12,947 12,794
Eliminations (4,633) (3,494) (4,003)
------- ------- -------
Total $160,954 $158,755 $162,699
------- ------- -------
------- ------- -------
</TABLE>
(35)
Net earnings of the foreign subsidiaries were $4,428,000, $3,840,000 and
$4,758,000 in 1998, 1997 and 1996, respectively. The net assets of the
foreign subsidiaries were $31,515,000 and $31,517,000 at June 30, 1998 and
1997, respectively. Undistributed earnings of foreign subsidiaries, on which
no provisions for United States income taxes have been made, aggregated
approximately $21,335,000 (including $54,000 translation component) at June
30, 1998. Included in earnings are foreign currency transaction gains
(losses) of $(343,000), $334,000 and $409,000 in 1998, 1997 and 1996, respec
tively.
J. STOCK OPTION PLANS
The Company has a non-qualified stock option plan for officers, key employees
and directors to purchase up to 125,000 shares of common stock, and an
incentive stock option plan for officers and key employees to purchase up to
225,000 shares of common stock. The plans are administered by the Executive
Selection and Compensation Committee of the Board of Directors which has the
authority to determine which officers and key employees will be granted
options. The grant of options to non-employee directors is fixed and based on
such directors' seniority. Except as described in the following sentence, all
options allow for exercise prices not less than the grant date fair market
value, immediate vesting and expire ten years after the date of grant. For
options under the incentive stock option plan, if the optionee owns more than
10% of the total combined voting power of all classes of the Company's stock,
the price will be not less than 110% of the grant date fair market value and
the options expire five years after the grant date.
Shares available for future options as of June 30 were as follows:
1998 1997
---- ----
Non-qualified stock
option plan 10,850 23,950
Incentive stock option plan 30,550 53,400
<PAGE> 51
Stock option transactions under the plans during 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
1998 Price 1997 Price 1996 Price
---- -------- ---- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Non-qualified stock
option plan:
Options outstanding
at beginning of year 94,150 $21.71 95,350 $21.69 81,450 $21.21
Granted 13,100 28.75 15,100 21.88 13,900 24.50
Cancelled - - (10,400) 23.32 - -
Exercised ($14.00-$29.63
per share) (26,750) 22.81 (5,900) 19.03 - -
------ ------ ------
Options outstanding
at June 30 80,500 $22.50 94,150 $21.71 95,350 $21.69
------ ------ ------
------ ------ ------
Options price range
($14.00 - $20.00)
Number of shares 34,300
Weighted average price $19.06
Weighted average remaining life 5.91 years
(36)
Options price range
($20.01 - $29.63)
Number of shares 46,200
Weighted average price $25.05
Weighted average remaining life 6.33 years
Weighted Weighted Weighted
Average Average Average
1998 Price 1997 Price 1996 Price
---- -------- ---- ------- ---- -------
Incentive stock option plan:
Options outstanding
at beginning of year 161,550 $21.60 151,450 $21.52 132,050 $20.78
Granted 29,900 29.18 24,250 22.05 25,050 24.89
Canceled (7,050) 20.15 (10,150) 22.57 (3,400) 23.60
Exercised ($14.00-$19.50
per share) (60,100) 21.53 (4,000) 18.81 (2,250) 15.29
------- ------- -------
Options outstanding
at June 30 124,300 $23.57 161,550 $21.60 151,450 $21.52
------- ------- -------
------- ------- -------
Options price range
($14.00 - $20.00)
Number of shares 36,600
Weighted average price $18.71
Weighted average remaining life 5.63 years
<PAGE> 52
Options price range
($20.01 - $29.63)
Number of shares 87,700
Weighted average price $25.59
Weighted average remaining life 6.18 years
</TABLE>
The Company accounts for its stock option plans under the guidelines of
Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost
has been recognized in the statement of operations. Had the Company
recognized compensation expense determined based on the fair value at the
grant
date for awards under the plans, consistent with the method prescribed by FAS
123, the net earnings and earnings per share would have been as follows (in
thousands, except per share amounts):
1998 1997 1996
---- ---- ----
Net earnings
As reported $9,363 $7,729 $6,559
Pro forma 9,125 7,554 6,365
Basic earnings per share
As reported $ 3.30 $ 2.78 $ 2.36
Pro forma 3.22 2.72 2.29
Diluted earnings per share
As reported $ 3.24 $ 2.75 $ 2.34
Pro forma 3.16 2.69 2.27
(37)
The above pro forma net earnings and earnings per share were computed using
the fair value of options at the date of grant (for options granted after June
1995) as calculated by the Black-Scholes option-pricing method and the
following assumptions: 20% volatility, 3% annual dividend yield, interest
rates based on expected terms and grant dates, a 5 year term and an exercise
price equal to the fair market value on the date of grant except for incentive
options granted to greater than 10% shareholders which are calculated using a
3 year term and an exercise price equal to 110% of the fair market value on
the date of grant. For those options granted during 1998, 1997 and 1996 with
exercise prices equal to the grant date fair market value, the exercise prices
and weighted average fair values of the options were $28.75 and $5.81 in 1998,
$21.88 and $4.61 in 1997 and $24.50 and $5.23 in 1996, respectively. For those
options granted with exercise prices greater than the grant date fair market
value, the exercise prices and weighted average fair values of the options
were $31.63 and $3.26 in 1998, $24.06 and $2.69 in 1997 and $26.95 and $3.04
in 1996, respectively.
K. ENGINEERING AND DEVELOPMENT COSTS
Engineering and development costs include research and development expenses
for new products, development and major improvements to existing products, and
other charges for ongoing efforts to refine existing products. Research and
development costs charged to operations totaled $3,104,000, $3,050,000 and
$2,457,000 in 1998, 1997 and 1996, respectively. Total engineering and
development costs were $8,833,000, $8,288,000 and $6,998,000 in 1998, 1997 and
1996, respectively.
L. RETIREMENT PLANS
The Company has noncontributory, qualified defined benefit pension plans
covering substantially all domestic employees and plans covering certain
foreign employees. Domestic plan benefits are based on years of service, and
for salaried employees on average compensation for benefits earned prior to
January 1, 1997 and on a cash balance plan for benefits earned after January
1, 1997. The Company's funding policy for the plans covering domestic
<PAGE> 53
employees is to contribute an actuarially determined amount which falls
between the minimum and maximum amount that can be contributed for federal
income tax purposes. Domestic plan assets consist principally of listed
equity and fixed income securities.
In addition, the Company has unfunded, non-qualified retirement plans for
certain management employees and directors. Benefits are based on final
average compensation and vest at retirement from the Company.
Net pension expense for the Company's domestic defined benefit plans
consists of the following components:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 1,248 $ 1,636 $ 1,529
Interest cost on projected benefit obligation 7,056 7,056 6,823
Actual return on plan assets (20,405) (5,198) (9,956)
Net amortization and deferral 14,548 (188) 5,304
------ ------ ------
Net pension cost $ 2,447 $ 3,306 $ 3,700
------ ------ ------
------ ------ ------
</TABLE>
(38)
The following table sets forth the Company's domestic defined
benefit plans' funded status and the amounts recognized in the Company's
balance sheets as of June 30:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
------------------------- -----------
Plan Assets Obligations Obligations
Exceed Exceed Plan Exceed Plan
Obligations Assets Assets
----------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 49,932 $ 37,940 $ 76,030
Non-vested benefit obligation 3,048 7,592 12,451
------- ------- -------
Accumulated benefit
obligation 52,980 45,532 88,481
Effect of projected future
compensation levels - 2,963 552
------- ------- -------
Projected benefit obligation 52,980 48,495 89,033
Plan assets at fair value (55,845) (42,477) (76,097)
------- ------ ------
Plan assets (less than)
in excess of projected
benefit obligations (2,865) 6,018 12,936
Unrecognized net loss (3,094) (955) (7,012)
Unrecognized prior service
cost 1,007 (4,846) (3,427)
Unrecognized transitional net
asset (liability) 73 (476) (535)
Adjustment required to
recognize additional
minimum liability - 5,165 10,858
------- ------- -------
(Prepaid) accrued retirement cost
at June 30 $ (4,879) $ 4,906 $ 12,820
------- ------- -------
------- ------- -------
<PAGE> 54
Assumptions used in accounting for the retirement plans
are as follows:
1998 1997
---- ----
Discount rate 7.25% 8.00%
Rate of increase in compensation
levels 4.50% 4.50%
Expected long-term rate of return on
plan assets 9.00% 9.00%
Total accrued (prepaid) retirement costs at June 30 are summarized as follows:
(In thousands) 1998 1997
---- ----
Current:
Domestic defined benefit plans $ 179 $ (493)
Foreign benefit plans 315 446
------ ------
494 (47)
Long-term:
Domestic defined benefit plans:
Prepaid costs (8,030) -
Accrued costs 7,878 13,313
------ ------
(152) 13,313
------ ------
$ 342 $13,266
------ ------
------ ------
</TABLE>
(39)
Effective as of January 1, 1997, the Twin Disc, Incorporated Retirement Plan
for Salaried Employees was amended to freeze the benefit formula in effect
prior to January 1, 1997 and to change the formula for benefit accruals to a
cash balance pension plan. The effect of this change was to decrease the
unrecognized prior service cost by $4.2 million.
Retirement plan expense for the Company's foreign plans was $661,000, $667,000
and $837,000 in 1998, 1997 and 1996, respectively.
The Company sponsors defined contribution plans covering substantially all
domestic employees. These plans provide for employer contributions based
primarily on employee participation. The total expense under the plans was
$1,227,000, $1,023,000 and $903,000 in 1998, 1997 and 1996, respectively.
In addition to providing pension benefits, the Company provides health care
and life insurance benefits for certain domestic retirees. All employees
retiring after December 31, 1992, and electing to continue coverage through
the Company's group plan, are required to pay 100% of the premium cost.
The Company recognized $2,379,000, $2,293,000 and $2,680,000 in non-pension
post-retirement benefit expense in 1998, 1997 and 1996, respectively, which
consists primarily of interest cost.
<PAGE> 55
The following table sets forth the status of the post-retirement benefit
programs (other than pensions) and amounts recognized in the Company's
consolidated balance sheet at June 30:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $27,813 $25,998
Fully eligible active plan participants 423 440
Other active participants 383 504
------ ------
28,619 26,942
Unamortized net amount resulting
from changes in plan experience and
actuarial assumptions (4,397) (2,665)
------ ------
Accrued post-retirement benefit obligation $24,222 $24,277
------ ------
------ ------
</TABLE>
The current portion of the accumulated post-retirement benefit obligation of
$2,643,000 and $2,197,000 is included in accrued liabilities at June 30, 1998
and 1997, respectively.
The assumed weighted average discount rate used in determining the actuarial
present value of the accumulated post-retirement benefit obligation was 7.25%
and 8.00% at June 30, 1998 and 1997, respectively. The assumed weighted
average health care cost trend rate was 7% in fiscal year 1998 and will
decrease to 6% in fiscal year 1999 and remain constant thereafter. A 1%
increase in the assumed health care trend would increase the accumulated
post-retirement benefit obligation by approximately $1.9 million and the
interest cost by approximately $133,000.
M. INCOME TAXES
United States and foreign earnings before income taxes were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States $ 7,944 $ 6,009 $ 2,821
Foreign 8,101 6,671 8,086
------ ------ ------
$16,045 $12,680 $10,907
------ ------ ------
------ ------ ------
</TABLE>
(40)
The provision (credit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ 154 $ 913 $ 829
State 114 100 78
Foreign 3,541 2,457 1,925
------ ------ ------
3,809 3,470 2,832
------ ------ ------
Deferred:
Federal 2,582 1,559 388
State 183 (51) (54)
Foreign 108 (27) 1,182
------ ------ ------
2,873 1,481 1,516
------ ------ ------
$ 6,682 $ 4,951 $ 4,348
------ ----- ------
------ ------ ------
</TABLE>
<PAGE> 56
The components of the net deferred tax asset as of June 30, were as
follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Retirement plans and employee benefits $ 8,074 $11,605
Other 3,039 3,078
Alternative minimum tax credit
carryforwards 143 1,143
Foreign tax credit carryforwards 250 -
------ ------
11,506 15,826
------ ------
Deferred tax liabilities:
Property, plant and equipment 5,488 5,634
Other 2,790 2,142
------ ------
8,278 7,776
------ ------
Total net deferred tax assets $3,228 $ 8,050
----- ------
----- ------
</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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax rate 34.0% 34.0% 34.0%
Increases (reductions)
in tax rate resulting from:
Foreign tax items 1.2 .2 4.2
Accrual for prior years 4.4 3.7 -
Other, net 2.0 1.1 1.7
---- ---- ----
41.6% 39.0% 39.9%
---- ---- ----
---- ---- ----
</TABLE>
(41)
N. CONTINGENCIES
The Company is involved in various stages of investigation relative to
hazardous waste sites, two of which are on the United States EPA National
Priorities List (Superfund sites). The Company's assigned responsibility at
each of the Superfund sites is less than 2%. The Company has also been
requested to provide administrative information related to two other potential
Superfund sites but has not yet been identified as a potentially responsible
party. Additionally, the Company is subject to certain product liability
matters.
At June 30, 1998, the Company has accrued approximately $1,350,000, which
represents management's best estimate available for possible losses related to
these contingencies. This amount has been provided over the past several
years. Based on the information available, the Company does not expect that
any unrecorded liability related to these matters would materially affect the
consolidated financial position, results of operations or cash flows.
(42)
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Twin Disc, Incorporated
Racine, Wisconsin
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Twin Disc, Incorporated and Subsidiaries at June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 24, 1998
(43)
<PAGE> 58
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(In thousands of dollars, except where noted)
Statement of Operations
<S> <C> <C> <C> <C> <C>
Net sales $202,643 $189,942 $176,657 $164,232 $141,193
Costs and expenses,
including marketing,
engineering and
administrative 186,607 177,342 164,486 154,347 136,244
Earnings
from operations 16,036 12,600 12,171 9,885 4,949
Other income
(expense) 9 80 (1,264) (1,301) 18
Earnings
before income taxes 16,045 12,680 10,907 8,584 4,967
Income taxes 6,682 4,951 4,348 2,912 578
Net earnings 9,363 7,729 6,559 5,672 4,389
Overseas operations
Sales 54,824 58,098 56,520 55,625 45,862
Earnings (loss) 4,428 3,840 4,758 2,480 2,365
Balance Sheet
Assets
Cash and equivalents 5,087 8,983 2,043 3,741 4,166
Receivables, net 28,320 32,428 34,917 29,247 25,682
Inventories 53,280 47,844 51,083 47,157 41,569
Other current assets 6,893 8,707 8,597 10,345 8,993
Total current assets 93,580 97,962 96,640 90,490 80,410
Investments and
other assets 31,646 26,544 30,344 30,463 26,830
Fixed assets less
accumulated
depreciation 35,728 34,249 35,715 37,348 36,676
Total assets 160,954 158,755 162,699 158,301 143,916
Net assets overseas 31,515 31,517 30,671 32,368 29,580
Liabilities and Shareholders' Equity
Current liabilities 29,553 29,621 34,002 36,852 32,710
Long-term debt 19,949 19,944 19,938 14,000 11,500
Deferred liabilities 29,457 35,393 33,578 32,827 34,309
Shareholders' equity 81,995 73,797 75,181 74,622 65,397
Total liabilities and
shareholders' equity 160,954 158,755 162,699 158,301 143,916
(44-45)
<PAGE> 59
FINANCIAL SUMMARY (CONTINUED)
1998 1997 1996 1995 1994
(In thousands of dollars, except where noted)
Comparative Financial Information
Per share statistics
Basic earnings 3.30 2.78 2.36 2.03 1.57
Diluted earnings 3.24 2.75 2.34 2.02 1.56
Dividends .76 .70 .70 .70 .70
Shareholders' equity 28.94 26.48 27.07 26.75 23.36
Return on equity 11.4% 10.5% 8.7% 7.6% 6.7%
Return on assets 5.8% 4.9% 4.0% 3.6% 3.0%
Return on sales 4.6% 4.1% 3.7% 3.5% 3.1%
Average shares
outstanding 2,833,663 2,781,174 2,776,805 2,790,111 2,799,390
Diluted shares
outstanding 2,886,209 2,808,226 2,805,123 2,812,703 2,809,390
Number of shareholder
accounts 774 845 913 996 1,058
Number of employees 1,078 1,081 1,080 1,097 1,099
Additions to plant
and equipment 7,154 4,734 4,140 4,290 4,216
Depreciation 5,205 5,141 5,071 4,792 4,670
Net working capital 64,027 68,341 62,638 53,638 47,700
</TABLE>
(44-45)
<PAGE> 60
DIRECTORS
MICHAEL E. BATTEN
Chaiman, Chief Executive Officer
MICHAEL H. JOYCE
President, Chief Operating Officer
JAMES O. PARRISH
Vice President-Finance & Treasurer
PAUL J. POWERS
Chairman, President-Chief Executive Officer, Commercial Intertech Corp.,
(Manufacturer of Hydraulic Components, Fluid Purification Products, Pre-
Engineered Buildings and Stamped Metal Products), Youngstown, Ohio
RICHARD T. SAVAGE
Retired President-Chief Executive Officer, Modine Manufacturing Company,
Manufacturer of Heat Exchange Equipment), Racine, Wisconsin
DAVID L. SWIFT
Retired Chairman, President-Chief Executive Officer, Acme-Cleveland
Corporation, (Manufacturer of Diversified Industrial Products), Pepper Pike,
Ohio
STUART W. TISDALE
Retired Chairman-Chief Executive Officer, WICOR, Inc. (Parent Company of
Wisconsin Gas Company, Sta-Rite Industries, Shurflo Pump Manufacturing and
Hypro Corporation), Milwaukee, Wisconsin
GEORGE E. WARDEBERG
Chairman, Chief Executive Officer, WICOR, Inc. (Parent Company of Wisconsin
Gas Company, Sta-Rite Industries, Shurflo Pump Manufacturing and Hypro
Corporation), Milwaukee, Wisconsin
DAVID R. ZIMMER
Executive Vice President-Operations, United Dominion Industries,
(Manufacturer of Diversified Engineered Products), Charlotte, North Carolina
(46)
<PAGE> 61
OFFICERS
MICHAEL E. BATTEN
Chairman, Chief Executive Officer
MICHAEL H. JOYCE
President, Chief Operating Officer
JAMES O. PARRISH
Vice President-Finance & Treasurer
PHILIPPE PECRIAUX
Vice President-Europe
JAMES MCINDOE
Vice President-International Marketing
LANCE J. MELIK
Vice President-Corporate Development
FRED H. TIMM
Corporate Controller & Secretary
PAUL A. PELLIGRINO
Vice President-Engineering
JOHN W. SPANO
Vice President-Sales and Marketing
ARTHUR A. ZINTEK
Vice President-Human Resources
(47)
<PAGE> 62
CORPORATE DATA
ANNUAL MEETING
Roma Lodge, Racine, WI, 2:00 PM, October 16, 1998
SHARES TRADED
New York Stock Exchange: Symbol TDI
ANNUAL REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM 10-K
SINGLE COPIES OF THE COMPANY'S 1998 ANNUAL REPORT ON SECURITIES AND
EXCHANGE
COMMISSION FORM 10-K WILL BE PROVIDED WITHOUT CHARGE TO
SHAREHOLDERS AFTER
SEPTEMBER 30, 1998, UPON WRITTEN REQUEST DIRECTED TO THE SECRETARY,
TWIN DISC,
INCORPORATED, 1328 RACINE STREET, RACINE, WISCONSIN 53403.
TRANSFER AGENT & REGISTRAR
Firstar Trust Company, Milwaukee, Wisconsin
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, Milwaukee, Wisconsin
GENERAL COUNSEL
von Briesen, Purtell, & Roper,s.c., Milwaukee, Wisconsin
CORPORATE OFFICES
Twin Disc, Incorporated, Racine, Wisconsin 53403, Telephone: (414) 638-4000
WHOLLY OWNED SUBSIDIARIES
Twin Disc International S.A., Nivelles, Belgium
Twin Disc Spain, S.A., Madrid, Spain
Twin Disc Italia S.R.L., Viareggio, Italy
Twin Disc (Pacific) Pty. Ltd., Brisbane, Queensland, Australia
Twin Disc (Far East) Ltd., Singapore
Twin Disc (South Africa) Pty. Ltd., Johannesburg, South Africa
Mill-Log Equipment Co., Inc., Coburg, Oregon
Southern Diesel Systems Inc., Miami, Florida
TD Electronics, Inc., Loves Park, Illinois
PARTIALLY OWNED AFFILIATES
Niigata Converter Company, Ltd., Kamo, Omiya and Tokyo, Japan
Palmer Johnson Distributors, LLC, Sturgeon Bay, Wisconsin
MANUFACTURING FACILITIES
Racine, Wisconsin; Nivelles, Belgium; Kamo and Omiya Japan
SALES OFFICES
DOMESTIC
Racine, Wisconsin; Coburg, Oregon; Seattle, Washington; Miami, Florida;
Jacksonville, Florida
OVERSEAS
Nivelles, Belgium; Brisbane and Perth Australia; Singapore; Johannesburg,
South Africa; Madrid, Spain; Viareggio, Italy
AFFILIATES
Tokyo, Japan; Sturgeon Bay, Wisconsin
MANUFACTURING LICENSES
Niigata Converter Company, Ltd., Tokyo, Japan; Transfluid S.R.L., Milan,
Italy; Nakamura Jico Co. Ltd., Tokyo, Japan; Hindustan Motors, Ltd., Madras,
India
(48)
<PAGE> 63
EXHIBIT 21
SUBSIDIARIES OF THE 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> 64
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 24,
1998, on our audits of the consolidated financial statements and financial
statement schedule of Twin Disc, Incorporated as of June 30, 1998 and 1997 and
for the years ended June 30, 1998, 1997 and 1996, which reports are included
(or incorporated by reference) in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 21, 1998
<PAGE> 65
EXHIBIT 24
POWER OF ATTORNEY
- - - - - - - - -
The undersigned directors of Twin Disc, Incorporated hereby severally consti
tute 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, 1998 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.
PAUL J. POWERS )
- ------------------------------------- )
Paul J. Powers, Director )
)
)
RICHARD T. SAVAGE )
- ------------------------------------- )
Richard T. Savage, Director )
)
) July 31, 1998
DAVID L. SWIFT )
- ------------------------------------- )
David L. Swift, Director )
)
)
STUART W. TISDALE )
- ------------------------------------- )
Stuart W. Tisdale, Director )
)
)
GEORGE E. WARDEBERG )
- ------------------------------------- )
George E. Wardeberg, Director )
)
)
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, 1998 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-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,087
<SECURITIES> 0
<RECEIVABLES> 28,967
<ALLOWANCES> 647
<INVENTORY> 53,280
<CURRENT-ASSETS> 93,580
<PP&E> 112,669
<DEPRECIATION> 76,941
<TOTAL-ASSETS> 160,954
<CURRENT-LIABILITIES> 29,553
<BONDS> 19,949
0
0
<COMMON> 11,653
<OTHER-SE> 70,342
<TOTAL-LIABILITY-AND-EQUITY> 160,954
<SALES> 202,643
<TOTAL-REVENUES> 202,643
<CGS> 152,515
<TOTAL-COSTS> 152,515
<OTHER-EXPENSES> 34,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,505
<INCOME-PRETAX> 16,045
<INCOME-TAX> 6,682
<INCOME-CONTINUING> 9,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,363
<EPS-PRIMARY> 3.30
<EPS-DILUTED> 3.24
</TABLE>
