<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999 Commission File Number 1-7635
TWIN DISC, INCORPORATED
(Exact name of registrant as specified in its charter)
Wisconsin 39-0667110
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1328 Racine Street, Racine, Wisconsin 53403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 638-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
At September 30, 1999, the registrant had 2,835,334 shares of its common stock
outstanding.
<PAGE> 2
FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30 June 30
1999 1999
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,654 $ 4,136
Trade accounts receivable, net 24,940 27,201
Inventories 56,346 54,500
Deferred income taxes 6,004 6,004
Other 7,270 5,906
-------- --------
Total current assets 100,214 97,747
Property, plant and equipment, net 37,920 38,935
Investments in affiliates 6,681 6,663
Deferred income taxes 4,449 4,349
Intangible pension asset 3,385 3,385
Other assets 24,994 25,821
-------- --------
$177,643 $176,900
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 9,182 $ 23,015
Accounts payable 11,101 10,724
Accrued liabilities 21,127 21,022
-------- --------
Total current liabilities 41,410 54,761
Long-term debt 35,114 17,112
Accrued retirement benefits 35,062 37,567
-------- --------
111,586 109,440
Shareholders' Equity:
Common stock 11,653 11,653
Retained earnings 80,036 81,430
Accumulated other comprehensive (loss) income (8,528) (8,516)
-------- --------
83,161 84,567
Less treasury stock, at cost 17,104 17,107
-------- --------
Total shareholders' equity 66,057 67,460
-------- --------
$177,643 $176,900
-------- --------
-------- --------
The notes to consolidated financial statements are an integral part of
this statement. Amounts in thousands.
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1999 1998
---- ----
<S> <C> <C>
Net sales $35,277 $40,625
Cost of goods sold 28,421 31,405
------- -------
6,856 9,220
Marketing, engineering and
administrative expenses 7,745 7,851
Interest expense 656 377
Other income, net (101) (117)
------- -------
8,300 8,111
------- -------
Earnings (loss) before income taxes (1,444) 1,109
Income taxes (547) 521
------- -------
Net earnings (loss) ($ 897) $ 588
------- -------
------- -------
Dividends per share $ 0.175 $ 0.21
Earnings per share data:
Basic earnings (loss) per share ($ 0.32) $ 0.21
Diluted earnings (loss)per share ($ 0.32) $ 0.21
Shares outstanding data:
Average shares outstanding 2,835 2,834
Dilutive stock options 2 28
------- -------
Diluted shares outstanding 2,837 2,862
------- -------
------- -------
Comprehensive income:
Net earnings (loss) ($ 897) $ 588
Other comprehensive income:
Foreign currency translation adjustment (12) 193
------- -------
Comprehensive income (loss) ($ 909) $ 781
------- -------
------- -------
In thousands of dollars except per share statistics and shares outstanding
data. Per share figures are based on shares outstanding data.
The notes to consolidated financial statements are an integral part of
this statement.
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($ 897) $ 588
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,729 1,368
Equity in earnings of affiliates (143) (52)
Dividends received from affiliate 125 250
Net change in working capital,
excluding cash and debt, and other (2,313) (2,268)
------ ------
(1,499) (114)
------ ------
Cash flows from investing activities:
Acquisitions of fixed assets (427) (1,434)
------ ------
(427) (1,434)
------ ------
Cash flows from financing activities:
Increase in notes payable, net 3,933 500
Treasury stock activity 2 38
Dividends paid (497) (595)
------ ------
3,438 (57)
------ ------
Effect of exchange rate changes on cash 6 (32)
------ ------
Net change in cash and cash equivalents 1,518 (1,637)
Cash and cash equivalents:
Beginning of period 4,136 5,087
------ ------
End of period $5,654 $3,450
------ ------
------ ------
The notes to consolidated financial statements are an integral part of
this statement. Amounts in thousands.
</TABLE>
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Basis of Presentation
The unaudited financial statements have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC)
and, in the opinion of the Company, include all adjustments, consisting only
of normal recurring items, necessary for a fair statement of results for each
period. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. The Company believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with financial statements and the
notes thereto included in the Company's latest Annual Report. The year end
condensed balance sheet data was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles.
B. Inventory
The major classes of inventories were as follows (in thousands):
September 30 June 30
1999 1999
----------- ---------
Inventories:
Finished parts $45,461 $42,405
Work in process 5,874 6,385
Raw materials 5,011 5,710
------- -------
$56,346 $54,500
------- -------
------- -------
C. Contingencies
The Company is involved in various stages of investigation relative to
hazardous waste sites, two of which are on the United States EPA National
Priorities List (Superfund sites). The Company's assigned responsibility at
each of the Superfund sites is less than 2%. The Company has also been
requested to provide administrative information related to two other potential
Superfund sites but has not yet been identified as a potentially responsible
party. Additionally, the Company is subject to certain product liability
matters in the normal course of business.
At September 30, 1999 the Company has accrued approximately $1,050,000, 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.
D. BUSINESS SEGMENTS
Information about the Company's segments is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Manufacturing segment sales $ 31,219 $ 38,203
Distribution segment sales 10,539 10,140
Inter/Intra segment sales (6,481) (7,718)
--------- ---------
Net sales $ 35,277 $ 40,625
--------- ---------
--------- ---------
Manufacturing segment earnings (loss) $ (1,788) $ 1,238
Distribution segment earnings (loss) 546 513
Inter/Intra segment earnings (loss) (202) (642)
--------- ---------
Pretax earnings (loss) $ (1,444) $ 1,109
--------- ---------
--------- ---------
Assets September 30, June 30,
1999 1999
------------- -------------
<S> <C> <C>
Manufacturing segment assets $150,966 $152,251
Distribution segment assets 25,125 25,448
Corporate assets and elimination
of inter-company assets 1,552 (799)
-------- --------
$177,643 $176,900
-------- --------
-------- --------
</TABLE>
<PAGE> 6
MANAGEMENT DISCUSSION AND ANALYSIS
Shipments for the quarter were down due to the normal seasonal reduction in
demand. In addition, continuing softness in many of our markets caused sales
to decline 13 percent from the first quarter last year. Partially offsetting
the softness were the current year sales from the new businesses acquired
during fiscal year 1999. The impact of the sales decline on earnings was more
dramatic with a net loss in the current quarter compared with net earnings
last year.
The significant components of the decline were sales from our principal
manufacturing subsidiaries as most other operations reported modest
improvements from a year ago. Reduced shipments of transmissions for military
applications and torque converters for construction equipment were major
elements of the decline in domestic sales. Also, aftermarket part sales were
down from a year ago as demand continued to be soft. At our Belgian operation,
despite a recent improvement in order rates, shipments of marine transmissions
and torque converters were off for the quarter. Also, the implementation of
new enterprisewide business systems during the quarter temporarily limited our
ability to ship service parts from that facility. The installation has been
completed and no further adverse impact is anticipated.
The consolidated gross margin declined about three percentage points from the
year-ago quarter. The lack of profitability resulted principally from lower
sales volume, but was magnified by the shortfall in higher-margin after-market
service parts. The causes of the decline in marginal income were shared
equally by both domestic and Belgian manufacturing operations. Marketing,
engineering, and administrative expenses for the current period were slightly
lower than a year ago but were higher than expected due to one-time costs
associated with the systems implementation in Europe.
Debt-restructuring arrangements were completed during the quarter with a
resulting sharp increase in working capital and current ratio. However, both
measures are below a year ago mainly due to the remaining short-term debt
incurred in making acquisitions in the middle of last fiscal year. The volume-
related decline in accounts receivable offset an order-driven increase in
domestic inventory, and the positive cash flow from depreciation covered
equipment purchases and dividends. Increased bank borrowing is attributable to
the higher required pension plan contributions and operating losses. Despite
the increased leverage from a year ago, the Company's balance sheet remains
solid; and existing financing arrangements continue to provide liquidity
sufficient for near-term needs.
Year 2000 Readiness
The Company has assessed the potential impact of the Year 2000 (Y2K) date
change on its business systems and operations. New information systems, which
are prepared to handle the century date change, have been installed at all
operations. Substantial testing of these systems has occurred and will
continue prior to December 31, 1999. Network systems and other building,
service, and manufacturing equipment throughout the Company and its
subsidiaries have been inventoried, assessed, modified as necessary or
replaced, and are capable of handling the date change. In addition, suppliers
and service providers have been contacted to ensure they are actively involved
in programs to address the Year 2000 issue and provide uninterrupted service
to Twin Disc. Although the Company cannot assure Y2K compliance by its key
suppliers and distributors, no major part or critical operation of the Company
relies on a single source for raw materials, supplies, or services, and the
Company has multiple distribution channels for its products. Should the
Company discover that a supplier or distributor will not be Y2K compliant, the
Company believes it will be able to find cost-competitive alternative sources
and continue its production and distribution.
It is estimated that approximately $5.7 million has been spent on hardware,
software, consulting services and staff time during the past four years to
become Y2K compliant. Substantially all of the costs have been incurred at
this time. The work has been completed in the normal course of operations and
has not delayed other projects critical to the financial strength or operating
results of the Company.
The Company believes the Y2K issue will not pose significant operational
problems. However, if all Y2K issues are not properly identified, or
assessment, remediation, and testing are not completed for Y2K problems that
are identified, there can be no assurance that the Y2K issue will not have a
material adverse effect on the Company's relationships with its customers,
suppliers, distributors and others. In addition, there can be no assurance
that the Y2K issues of other entities will not have a material adverse impact
on the Company's systems or results of operations.
<PAGE> 7
OTHER INFORMATION
Item 1. Legal Proceedings.
There were no reports on Form 8-K during the three months ended September 30,
1999. The financial statements included herein have been subjected to a
limited review by PricewaterhouseCoopers LLP, the registrant's independent
public accountants, in accordance with professional standards and procedures
for such review.
Item 2. Changes in Securities and Use of Proceeds.
There were no securities of the Company sold by the Company during the three
months ended September 30, 1999 which were not registered under the Securities
Act of 1933, in reliance upon an exemption from registration provided by
Section 4 (2) of the Act.
Item 5. Other Information.
The discussions in this report on Form 10-Q and in the documents incorporated
herein by reference, and oral presentations made by or on behalf of the
Company contain or may contain various forward-looking statements
(particularly those referring to the expectations as to possible strategic
alternatives, future business and/or operations, in the future tense, or using
terms such as "believe", "anticipate", "expect" or "intend") that involve
risks and uncertainties. The Company's actual future results could differ
materially from those discussed, due to the factors which are noted in
connection with the statements and other factors. The factors that could
cause or contribute to such differences include, but are not limited to, those
further described in the "Management's Discussion and Analysis".
<PAGE> 8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TWIN DISC, INCORPORATED
(Registrant)
/S/ FRED H. TIMM
----------------------- ---------------------------
(Date) Fred H. Timm
Corporate Controller and
Secretary
<PAGE> 9
Report of Independent Accountants
To the Board of Directors
Twin Disc, Incorporated
Racine, Wisconsin
We have reviewed the accompanying condensed consolidated balance sheet of Twin
Disc, Incorporated and subsidiaries as of September 30, 1999, and the related
condensed consolidated statements of operations and cash flows for the three-
month periods ended September 30, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons
responsible for financial accounting matters. It is substantially less
in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1999,
and the related consolidated statements of operations, changes in
shareholders' equity and comprehensive income, and cash flows for the year
then ended (not presented herein); and in our report dated July 23, 1999, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 30, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/
- ------------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 8, 1999
<PAGE> 10
[TYPE] EX-15
EXHIBIT 15
Awareness Letter of Independent Accountants
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Twin Disc, Incorporated
We are aware that our report dated October 8, 1999 on our review of
interim financial information of Twin Disc, Incorporated for the
three-month periods ended September 30, 1999 and 1998 and included in
the Company's quarterly report on Form 10-Q for the quarter then ended,
is incorporated by reference in the registration statements of Twin
Disc, Incorporated on Form S-8 (Twin Disc, Incorporated 1988 Incentive
Stock Option Plan; Twin Disc, Incorporated 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors; Twin Disc, Incorporated
1998 Incentive Compensation Plan; and Twin Disc, Incorporated 1998 Stock
Option Plan for Non-Employee Directors).
/S/
- ---------------------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE TWIN DISC, INCORPORATED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SET FORTH IN THE THIRD QUARTER REPORT TO SHAREHOLDERS FOR THE NINE
MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,654
<SECURITIES> 0
<RECEIVABLES> 25,485
<ALLOWANCES> 545
<INVENTORY> 56,346
<CURRENT-ASSETS> 100,214
<PP&E> 120,193
<DEPRECIATION> 82,273
<TOTAL-ASSETS> 177,643
<CURRENT-LIABILITIES> 41,410
<BONDS> 35,114
<COMMON> 11,653
0
0
<OTHER-SE> 54,404
<TOTAL-LIABILITY-AND-EQUITY> 177,643
<SALES> 35,277
<TOTAL-REVENUES> 35,277
<CGS> 28,421
<TOTAL-COSTS> 28,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 656
<INCOME-PRETAX> (1,444)
<INCOME-TAX> (547)
<INCOME-CONTINUING> (897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (897)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.32)
</TABLE>
