-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
SR+sXdYQ4xAQOGefpEQX/+i78NwdV3iLWniuNxvmuuVG7VR1YZ6fUBjas+h1p5DF
JAA+9M/6LWitJX7jiQ1W1A==
<SEC-DOCUMENT>0000100378-04-000032.txt : 20060913
<SEC-HEADER>0000100378-04-000032.hdr.sgml : 20060913
<ACCEPTANCE-DATETIME>20040920123957
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER: 0000100378-04-000032
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 18
CONFORMED PERIOD OF REPORT: 20040920
FILED AS OF DATE: 20040920
DATE AS OF CHANGE: 20050916
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TWIN DISC INC
CENTRAL INDEX KEY: 0000100378
STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560]
IRS NUMBER: 390667110
STATE OF INCORPORATION: WI
FISCAL YEAR END: 0906
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-07635
FILM NUMBER: 041037108
BUSINESS ADDRESS:
STREET 1: 1328 RACINE ST
CITY: RACINE
STATE: WI
ZIP: 53403
BUSINESS PHONE: 2626384000
MAIL ADDRESS:
STREET 1: 1328 RACINE STREET
CITY: RACINE
STATE: WI
ZIP: 53403
FORMER COMPANY:
FORMER CONFORMED NAME: TWIN DISC CLUTCH CO
DATE OF NAME CHANGE: 19770217
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>r10k2004.txt
<TEXT>
<PAGE> 1
UNITED STATES
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, 2004
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 Office) (Zip Code)
Registrant's Telephone Number, including area code: (262) 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].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X .
At August 30, 2004, the aggregate market value of the common stock held by
non-affiliates of the registrant was $66,665,702. Determination of stock
ownership by affiliates was made solely for the purpose of responding to this
requirement and registrant is not bound by this determination for any other
purpose.
At August 30, 2004, the registrant had 2,867,342 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 Proxy Statement for the Annual Meeting of Shareholders to be
held October 15, 2004 are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Twin Disc was incorporated under the laws of the state of Wisconsin in
1918. 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
products 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
<PAGE> 2
are transacted through a direct sales force and a distributor network. At the
end of May, 2004, the Company acquired Rolla SP Propellers SA a manufacturer of
custom high performance propellers. 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. Primary competitive factors for the Company's products are
performance, price, service and availability. Ten customers accounted for
approximately 32% of the Company's consolidated net sales during the year ended
June 30, 2004. Sewart Supply, Inc., an independent distributor of Twin Disc
products, accounted for approximately 11% of consolidated net sales in 2004.
Unfilled open orders for the next six months of $49,400,000 at June 30,
2004 compares to $30,593,000 at June 30, 2003. 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 $2,840,000, $2,220,000 and
$1,887,000 in 2004, 2003 and 2002, respectively. Total engineering and
development costs were $7,600,000, $7,190,000 and $6,718,000 in 2004, 2003 and
2002, respectively.
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, 2004 was 860.
A summary of financial data by segment and geographic area for the years
ended June 30, 2004, 2003 and 2002 appears in Note M to the consolidated
financial statements on pages 36 through 39 of this form.
ITEM 2. PROPERTIES
The Company owns two manufacturing, assembly and office facilities in
Racine, Wisconsin, U.S.A. , one in Nivelles, Belgium and one in Decima, Italy.
The aggregate floor space of these four 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 leases additional manufacturing,
assembly and office facilities in Decima, Italy and Balerna, Switzerland
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:
<PAGE> 3
Jacksonville, Florida, U.S.A. Chambery, France
Miami, Florida, U.S.A. Brisbane, Queensland, Australia
Coburg, Oregon, U.S.A. Perth, Western Australia, Australia
Kent, Washington, U.S.A. Singapore
Edmonton, Alberta, Canada Shanghai, China
Vancouver, British Columbia, Canada Capezzano Planore, Italy
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 80% capacity and are adequate to meet foreseeable needs
of the Company.
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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended June 30, 2004.
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 15, 2004.
Principal Occupation
Name Last Five Years Age
------ ---------------------- ---
Michael E. Batten Chairman, Chief Executive Officer since 1983 64
Michael H. Joyce President - Chief Operating Officer since 1995 63
James E. Feiertag Executive Vice President since October 2001: 47
formerly Vice President - Manufacturing since
November 2000; formerly Vice President of
Manufacturing for the Drives and Systems Group,
Rockwell Automation Group since 1999
Christopher J. Eperjesy
Vice President - Finance and Treasurer since 36
November 2002: formerly Divisional Vice President -
Financial Planning & Analysis, Kmart Corporation
since 2001; formerly Senior Manager - Corporate
Finance, DaimlerChrysler AG since 1999
Henri Claude Fabry Vice President - Global Distribution since 58
October 2001; formerly Vice President Marine and
Distribution since 1999
Fred H. Timm Vice President - Administration and Secretary 58
since October 2001, formerly Corporate Controller
And Secretary since 1995
John H. Batten Vice President and General Manager - Marine and 39
Propulsion since October 2001; formerly Commercial
Manager - Marine and Propulsion since 1998
Officers are elected annually by the Board of Directors at the Board
meeting held preceding each Annual Meeting of the Shareholders. Each officer
holds office until his successor is duly elected, or until he resigns or is
removed from office. John H. Batten is the son of Michael E. Batten.
<PAGE> 4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange under
the symbol TDI. The price information below represents the high and low sales
prices for each period:
<TABLE>
<CAPTION
Fiscal Year Ended June 30, 2004 Fiscal Year Ended June 30, 2003
High Low High Low
<S> <C> <C> <S> <C> <C>
First Quarter 17.00 14.12 First Quarter 15.14 12.90
Second Quarter 19.54 16.55 Second Quarter 13.25 11.90
Third Quarter 21.25 19.00 Third Quarter 13.35 9.90
Fourth Quarter 25.15 19.44 Fourth Quarter 14.35 10.70
Quarterly dividends of $0.175 per share were declared and paid for each of
the quarters above. As of June 30, 2004 there were 1,003 shareholder accounts.
The sales price of Twin Disc common stock as of August 30, 2004 was $23.25.
</TABLE>
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 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 anti-dilution 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
acquirer on behalf of all of the shareholders. In addition, the Rights should
not interfere with a proxy contest.
<PAGE> 5
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), Exhibit 4(b) of Part IV of the
Annual Report on Form 10-K for the year ended June 30, 1998 is hereby
incorporated by reference.
Recent Sales of Unregistered Securities
During the period covered by this report, the Company offered participants
in the Twin Disc, Incorporated B The Accelerator 401(k) Savings Plan (the
"Plan") the option to invest their Plan accounts in a fund comprised of Company
stock. Participation interests of Plan participants in the Plan, which may be
considered securities, were not registered with the SEC. During the fiscal year
ended June 30, 2002, 68 Plan participants allocated an aggregate of $81,000
toward this investment option. Participant accounts in the Plan consist of a
combination of employee deferrals, Company matching contributions, and, in some
cases, additional Company profit-sharing contributions. No underwriters were
involved in these transactions. On September 6, 2002, the Company filed a Form
S-8 to register 100,000 shares of Company common stock offered through the Plan,
as well as an indeterminate amount of Plan participation interests.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Financial Highlights
(dollars in thousands, except per share amounts and shares outstanding)
<CAPTION>
For the years ended June 30,
Statement of Operations Data: 2004 2003 2002 2001 2000
<S> <C> <C> <C> <C> <C>
Net sales $186,089 $179,591 $179,385 $180,786 $177,987
Net earnings (loss) 5,243 (2,368) 2,058 6,169 3,773
Basic earnings (loss) per share 1.86 (.84) .73 2.20 1.34
Diluted earnings (loss) per share 1.84 (.84) .73 2.20 1.34
Dividends per share .70 .70 .70 .70 .70
Balance Sheet Data (at end of period):
Total assets $176,637 $170,358 $157,280 $156,734 $174,190
Total Long-Term Debt 16,813 16,584 18,583 23,404 31,524
</TABLE>
Effective May 31, 2004, the company acquired 100% of the common stock of
Rolla SP Propellers SA of Balerna, Switzerland. Rolla designs and manufactures
custom propellers. Rolla will have a fiscal year ended May 31, since the
acquisition was also effective May 31. No results of operations of Rolla are
included in consolidated results for the year ended June 30, 2004.
In January 2004, the Company sold its 25% minority interest in Palmer
Johnson Distributors, LLC (PJD) to the majority holder, PJD, Inc. for $3,811,000
cash, which approximated the net book value of the investment. The Company
recognized pre-tax earnings of $240,000, $414,000 and $481,000 in fiscal years
2004, 2003 and 2002 respectively, from its investment in PJD. In addition, the
Company received cash distributions of $195,000, $303,000 and $400,000 in fiscal
years 2004, 2003 and 2002, respectively.
During the third quarter of 2001, the Company sold its investment in
Niigata Converter Company, Ltd., resulting in a net gain of $2,288,000 or $.81
per share.
On April 2, 2001, the Company entered into a Joint Venture Agreement with
Niigata Engineering Co. LTD., Japan to form NICO Transmissions Co., Inc. (NTC).
Effective April 1, 2003, Niigata Engineering Co. LTD's ownership interest was
transferred to Hitachi Nico Transmission Co. LTD. and NTC was renamed Twin Disc
Nico Co. LTD (TDN). TDN's balance sheet as of March 31, 2004 and 2003 are
consolidated with the Company's balance sheet as of June 30, 2004 and 2003,
respectively. TDN's statement of operations for the years ended March 31, 2004,
2003 and 2002 are consolidated with the Company's statement of operations for
the years ended June 30, 2004, 2003 and 2002, respectively. TDN contributed the
following for the years ended June 30 (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Net sales $ 1,180 $13,708 $12,217
<PAGE> 6
Net earnings 48 23 263
Basic and diluted earnings per share .02 .01 .09
Total assets 3,162 6,076 6,169
Total long-term obligations 0 0 0
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Note on Forward Looking Statements
Statements in this report (including but not limited to certain statements in
Items 1, 3 and 7) and in other Company communications that are not historical
facts are forward-looking statements, which are based on managements current
expectations. These statements involve risks and uncertainties that could cause
actual results to differ materially from what appears here.
Forward-looking statements include the Company's description of plans and
objectives for future operations and assumptions behind those plans. The words
"anticipates," "believes," "intends," "estimates," and "expects," or similar
anticipatory expressions, usually identify forward-looking statements. In
addition, goals established by Twin Disc, Incorporated should not be viewed as
guarantees or promises of future performance. There can be no assurance the
Company will be successful in achieving its goals.
In addition to the assumptions and information referred to specifically in
the forward-looking statements, other factors could cause actual results to be
materially different from what is presented here.
<TABLE>
<CAPTION>
Results of Operations
(In thousands)
2004 % 2003 % 2002 %
---- -- ---- -- ---- --
<S> <C> <C> <C> <C> <C> <C>
Net sales $186,089 $179,591 $179,385
Cost of goods sold 138,459 144,575 139,146
------- ------- -------
Gross profit 47,630 25.6% 35,016 19.5% 40,239 22.4%
Marketing, engineering and
administrative expenses 37,168 20.0 34,790 19.4 34,638 19.3
Restructuring of operations - 0.0 2,042 1.1 - 0.0
------ ---- ------- --- ------- ---
Earnings (loss) from operations $10,462 5.6 $(1,816) (1.0) $5,601 3.1
======== === ======== === ====== ===
</TABLE>
Fiscal 2004 Compared to Fiscal 2003
Net Sales
Net sales increased $6.5 million, or nearly four percent in fiscal 2004.
In fiscal 2004, the joint venture agreement governing Twin Disc Nico Co.,
LTD (TDN) was amended. Under the new agreement, sales into certain
territories have been transferred to the joint venture partner in exchange
for which TDN receives a product development fee equal to the gross margin
formerly earned on such sales. The effect of this change was to reduce sales
by $13.7 million for the fiscal year ended June 30, 2004, with no effect on
net earnings. Product development fees included in net sales in fiscal year
2004 approximated $ 0.7 million. In fiscal 2003, the company recognized
$13.0 million of sales that are no longer recognized in accordance with the
new agreement. As a result of the strong Euro and Asian currencies versus
the dollar, foreign currency exchange had a net favorable impact on sales
of $10.4 million in fiscal 2004, compared to fiscal 2003.
In fiscal 2004, sales for our worldwide manufacturing operations, before
eliminating intra-segment and inter-segment sales, were $19.0 million, or 12.3%,
higher than in the prior year. Over half of this increase came at our domestic
manufacturing operations, which saw a recovery across most of its product
markets. Of the remaining increase, approximately $5.9 million was due to the
impact of net favorable exchange rate movements on our European operations in
Belgium and Italy.
Net sales for distribution operations were down $4.2 million, or 6.7%, in
fiscal 2004. However, there was a $13.0 million decrease due to the change in
the TDN agreement mentioned above. Adjusting for this change, sales were $8.8
million, or 17.5%, higher than fiscal 2003. Of this increase, the net positive
<PAGE> 7
impact due to the change in foreign exchange rates was $4.5 million, or 8.9%.
From a product perspective, the Company saw increases of 9.1%, 8.6%, and
14.1% in its industrial, transmission and propulsion product sales. After
adjusting for the impact of the change in the TDN agreement, marine product
sales were 14.0% higher (down 3.3% before adjusting). Of particular note in
fiscal 2004 was the continued acceptance of our QuickShift TM marine
transmissions, the overall recovery of the marine pleasure craft market, the
double-digit sales growth in our Arneson Surface Drives (propulsion) and 8500
series transmission for oilfield applications.
Gross Profit
Gross profit as a percentage of sales improved 610 basis points in fiscal
2004 to 25.6%, compared to 19.5% in fiscal 2003. The improvement in fiscal 2004
can be attributed to a number of factors: (1) increased sales and favorable
product mix, which accounted for over half of the current year's improvement,
(2) increased productivity and absorption, (3) lower fixed costs as a result of
cost reduction initiatives, (4) favorable purchase price variances as a result
of a material cost reduction program and (5) the absence in fiscal 2004 of a
$0.8 million SFAS 144 impairment charge taken in fiscal 2003. These were
partially offset by a $1 million increase in pension expense in fiscal 2004
compared to fiscal 2003.
Marketing, Engineering and Administrative (ME&A) Expenses
Marketing, engineering, and administrative (ME&A) expenses increased $2.4
million, or 6.8%, in fiscal 2004 versus fiscal 2003. Over $1.5 million, or 425
basis points, of this increase can be attributed to the unfavorable exchange
rate impact of the weakening dollar on our overseas operations' ME&A expenses.
Increased pension expense for salaried and administrative employees accounted
for another $0.8 million of the increase.
Restructuring
During the second quarter of 2003, the Company recorded a pre-tax
restructuring charge of $2.0 million in connection with the reduction of its
workforce. These actions were taken in an effort to streamline the Company's
cost structure and align its corporate workforce with market conditions. The
charge consisted of employee termination and severance benefits for a total of
58 employees; 48 production employees and 10 salaried employees. During 2004
and 2003, the Company made cash payments of $0.4 million and $0.6 million,
respectively. Accrued restructuring costs were $0.9 million and $1.3 million at
June 30, 2004 and 2003, respectively.
Interest Expense
Interest expense decreased by $250,000, or 19%, in fiscal 2004. The
average outstanding debt for fiscal 2004 of $20.4 million (computed monthly) was
$2.3 million lower than fiscal 2003. The decrease in interest expense for the
fifth straight year can be attributed to overall lower debt levels and a lower
weighted interest rate. The latter is partially due to the fact that the
Company continues to pay down its Senior Notes, which carry a fixed rate of
7.37%, which is significantly higher than the interest rate on its other credit
facilities.
Equity in Net Earnings of Affiliate
In January 2004, the Company sold its 25% minority interest in Palmer
Johnson Distributors,LLC. to the majority holder, PJD, Inc. for $3,900,000 cash,
which approximated the net book value of the investment. The Company recognized
pre-tax earnings of $240,000 and $414,000 in fiscal years 2004 and 2003
respectively, from its investment in PJD. In addition, the Company received
cash distributions of $195,000 and $303,000 in fiscal years 2004 and 2003,
respectively.
Income Taxes
In fiscal 2004, the effective income tax rate was adversely impacted by the
inability to utilize foreign tax credits and a relatively high proportion of
foreign earnings. The low effective tax rate in fiscal 2003 results from the
benefit of domestic losses partially offset by taxes incurred on foreign
earnings, the inability to utilize foreign tax credits and a reduction in
statutory rates at some foreign locations.
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize deferred
tax assets except for certain foreign tax credit carryforwards for which a
<PAGE> 8
valuation allowance has been recorded.
Order Rates
In fiscal 2004, we saw an improvement in our order rates for most of our
products. As of fiscal year end, our manufacturing facilities in the United
States, Belgium and Italy saw year-over-over increases in their six-month
backlogs of 15.8%, 10.0% and 21.4%, respectively. The backlog of orders
scheduled for shipment during the next six months (six-month backlog) of $49.4
million at the end of fiscal 2004 compared favorably to the $30.6 million for
fiscal year end 2003. In June 2003, the Company announced that it had received
an order to provide transmission systems for medium tactical vehicles to be
supplied to Israeli Defense Forces. As of June 30, 2004, $6.7 million of the
six-month backlog related to this military contract. Prior to the over 60%
improvement experienced this fiscal year, order rates for most of our products
were down throughout much of the prior three fiscal years, contributing along
with improved deliveries, to a steady decline in backlog. The year-over-year
change in foreign exchange rates resulted in an approximately $0.8 million
increase in the backlog at June 30, 2004 versus June 30, 2003.
Other
On July 15, 2003, the Company announced a number of actions to address
rising pension and retiree healthcare costs, meant to ensure both the future
strength of our pension fund and the Company's ability to remain globally
competitive. In addition to changes to both the pension and post-retirement
healthcare plans (see Footnote P to the consolidated financial statements), the
Company announced across-the-board wage reductions for corporate officers, and
most domestic salaried and hourly employees. Domestic employee groups,
including officers, also will forego performance bonuses in both fiscal 2003 and
2004. The 401(k) company match also has been reduced from 75 percent to 50
percent on the first six percent of employees' contributions. The combined
effect of these actions approximately offset projected increases for both
pension and post-retirement healthcare costs in fiscal 2004. In the first
quarter of fiscal 2005, the Company will restore salary and wages to their prior
levels and plans to implement a new incentive plan that emphasizes the
achievement of earning returns in excess of the Company's cost of capital as
well as other financial and non-financial objectives. It is estimated that the
annual net pre-tax impact of the salary and wage restoration will be
approximately $0.7 million.
FISCAL 2003 COMPARED TO FISCAL 2002
Net Sales
Net sales increased less than one percent to $179.6 million in fiscal 2003
from $179.4 million in the prior fiscal year. As a result of the strong Euro
and Asian currencies versus the dollar, foreign currency exchange had a net
favorable impact on sales of $9.6 million in fiscal 2003, compared to fiscal
2002.
In fiscal 2003, our domestic operations experienced a decline in sales
versus 2002 in all market segments except for Propulsion, which had a very
strong year. After adjusting for the impact of foreign exchange rate changes,
sales for overseas operations were slightly higher in fiscal 2003 compared to
2002. Overall, the Company's three major markets, marine, transmission and
industrial products, all continued to be impacted by global economic conditions.
However, the second half of the fiscal 2003 saw significant contributions from
new-product introductions, such as our high-performance QuickShift TM marine
transmissions and the 8500 series transmissions for oilfield applications, which
supplemented improving core business strength. Our continuing ability to
compete successfully for defense applications was underscored by the $14.8
million contract for transmission systems announced in June 2003, augmenting
recently awarded U.S. defense contracts for other land-based transmissions.
Sales from this contract were first realized in late fiscal 2004.
For fiscal 2003, the Company's wholly-owned distribution companies posted
a 9% improvement in sales, of which 6% can be attributed to the favorable impact
of exchange rate fluctuations versus fiscal 2002. In particular, we saw strong
sales for Arneson Surface Drives and the Italian Luxury Yacht industry weathered
the pleasure craft downturn better than any other segment. Our distribution
offices in Italy and the Pacific Rim continued to show strength in spite of weak
global market conditions.
We had mixed results in our manufacturing operations in fiscal 2003. Our
Italian operations posted another strong sales year with an increase of 18.4%
versus fiscal 2002. However, the majority of this increase was caused by the
strengthening Euro. Although our Belgian operations got off to a slow start in
<PAGE> 9
fiscal 2003, the second half of the year saw some recovery as we began to
produce and see the effects of our new QuickShift <trademark> marine
transmissions. After adjusting for the impact of a strengthening Euro in fiscal
2003, our Belgian operations posted a slight increase in sales, primarily driven
by a very strong fourth quarter. In the U.S., our domestic operations were
faced with a number of challenges early in fiscal 2003. In the first quarter,
quality problems necessitated downtime in order to segregate non-conforming
parts received from two of the Company's vendors. By the end of the second
quarter, the disruption of production flow as a result of these vendor-supplied
off-spec parts was normalized. In the second quarter, the Company announced
restructuring actions that impacted both our U.S. and Belgian manufacturing
operations (see Footnote S to the consolidated financial statements). These
actions were taken in an effort to streamline the Company's cost structure and
align its corporate workforce with market conditions. In addition to these
challenges, the Company continued to be confronted with softness in many of its
key markets. However, propulsion products continued to be a strong area for
the Company in fiscal 2003, increasing over 30% versus the prior year (almost
half of this increase is attributable to exchange rate changes versus fiscal
2002).
Gross Profit
Gross profit as a percentage of sales deteriorated 290 basis points to
19.5% in fiscal 2003 compared to fiscal 2002. Almost half of the deterioration
can be attributed to increased pension and medical costs of nearly $1.6 million,
and a $0.8 million impairment charge taken in the second quarter (see Footnote
F to the consolidated financial statements). The remaining deterioration was
due to unfavorable volume and mix in fiscal 2003 as well as supplier quality
issues the Company experienced in the first and second quarters of fiscal 2003.
The latter was somewhat offset by ongoing productivity and cost improvement
initiatives in our manufacturing operations. Despite early setbacks caused by
the supplier quality issues and restructuring actions taken in the first half
of 2003, the second half of the year was much stronger. For example, fourth
quarter gross profit as a percentage of sales of 22.7% compared favorably with
fiscal 2002 at 22.9%.
Marketing, Engineering and Administrative (ME&A) Expenses
In fiscal 2003, marketing, engineering, and administrative (ME&A) expenses
remained flat versus the prior year, in spite of an almost $1.4 million increase
attributable to the unfavorable exchange rate impact of the weakening dollar on
our overseas operations. This was achievable primarily as a result of ongoing
cost reduction initiatives, including the restructuring actions announced in the
2nd quarter. For fiscal 2003, total engineering related expenses were
approximately $1 million higher than the prior year as the Company continued to
invest in engineering projects related to the development of new marine,
industrial, surface drive and electronic control products. This increase was
more than offset by reductions in marketing and administrative expenses, even
with the negative foreign exchange impact. Approximately one-half of the $2.9
million increase in fiscal 2002 spending was due to the first-year expenses of
NTC, and the balance consisted of added marketing and engineering expenses
related to a new product introduction.
Restructuring
During the second quarter of 2003, the Company recorded a pre-tax
restructuring charge of $2.0 million in connection with the reduction of its
workforce. These actions were taken in an effort to streamline the Company's
cost structure and align its corporate workforce with market conditions. The
charge consisted of employee termination and severance benefits for a total of
58 employees; 48 production employees and 10 salaried employees. During 2003,
the Company made cash payments of $0.6 million. Accrued restructuring costs
were $1.3 million at June 30, 2003.
Interest Expense
Interest expense declined for the fourth straight year in fiscal 2003 as
debt was further reduced by $2 million, excluding the impact of foreign
exchange, and the company continued to pay down its senior notes, which carry
a significantly higher interest rate than its revolver facility.
Income Taxes
The effective tax rate in fiscal 2004 was adversely effected by state
income taxes and higher taxes at foreign operations. The low effective tax rate
in fiscal 2003 results from the benefit of domestic losses partially offset by
taxes incurred on foreign earnings, the inability to utilize foreign tax credits
and a reduction in statutory rates at some foreign locations. In fiscal year
2002, limitations on foreign tax credit utilization, the relatively high
<PAGE> 9
proportion of foreign earnings and settlement of some state tax issues resulted
in an unusually high tax rate. The effective rate in fiscal 2002 was increased
further by two third-quarter adjustments totaling about $300,000. Also in
fiscal 2002, a tax incentive provided by the Belgian government several years
ago was disallowed by the European Commission and was refunded to the
government, and the United States tax provision was adjusted upward for the
taxes due on an asset sale gain recorded in the prior year's third quarter.
Statutory rate changes at European operations reduced taxes in 2003 by
approximately $100,000.
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize deferred
tax assets except for certain foreign tax credit carryforwards for which a
valuation allowance has been recorded.
Order Rates
Order rates for most of our products were down throughout much of fiscal
2003 and 2002, contributing along with improved deliveries, to a steady decline
in backlog. The backlog of orders scheduled for shipment during the next six
months (six-month backlog) remained relatively flat at $31 million at the end of
fiscal 2003. However, the year-over-year change in foreign exchange rates
resulted in an approximately $2.1 million increase in the backlog at June 30,
2003 versus June 30, 2002. The year-over-year change in foreign exchange rates
resulted in an approximately $1.0 million increase in the backlog at June 30,
2002 versus June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Years 2004, 2003 and 2002
Cash flows from operating activities were $12.2 million, $6.7 million and
$13.2 million, in fiscal 2004, 2003 and 2002, respectively.
The fiscal 2004 cash flows from operating activities were $5.5 million
higher than the prior year. Fiscal 2004 experienced significantly higher net
earnings than in fiscal 2003, a profit of $5.2 million versus a loss of $2.4
million in the prior fiscal year, for a net increase of $7.6 million. In
addition, improved cash flows in fiscal 2004 related to a decrease in accounts
receivable and other assets versus increases in the prior year (for a net change
of $3.6 million and $3.6 million, respectively) as well as a net change in
provision for deferred income taxes of $11.4 million. These net favorable
year-over-year operating cash flows were offset partially by the net
year-over-year unfavorable cash flow impacts of increased inventories of $6.3
million and decreased accrued/prepaid retirement benefits of $11.8 million.
The fiscal 2003 cash flows from operating activities were $6.5 million
lower than fiscal 2002. Fiscal 2003 experienced a net loss of $2.4 million
versus net earnings of $2.1 million in fiscal 2002, for a net decrease in
operating cash flows of $4.5 million. In addition, a further reduction in
operating cash flows in fiscal 2003 related to an increase in accounts
receivable and other assets versus the prior year of $2 million and $5.6
million, respectively, as well as a net decrease in the operating cash flow
impact of the year-over-year change in the provision for deferred income taxes
of $4.8 million. These net unfavorable year-over-year operating cash flows
were offset partially by the net year-over-year favorable cash flow impacts of
a smaller decrease in accrued liabilities in fiscal 2003 versus 2002 of $2.6
million and increased accrued/prepaid retirement benefits of $6.9 million.
The net cash used for investing activities in fiscal 2004 consisted of the
net acquisition price for Rolla SP Propellers SA of $5.1 million, net of $1.2
million cash acquired, and nearly $4.2 million in investments in capital
equipment offset by the net proceeds from the sale of the Company's 25% minority
interest in PJD, Inc. to the majority holder for $3.8 million.
In fiscal 2003 and 2002, the net cash used for investing activities
consisted primarily of capital expenditures at our domestic and European
manufacturing locations.
In fiscal 2004, the Company continued its effort to invest in key
manufacturing cells in both our domestic and European operations. Total
capital spending totaled $4.2 million in fiscal 2004, slightly below the level
of the prior year and just over $2 million higher than in fiscal 2002. A
little over 60% of the capital investment made in fiscal 2004 was at our
domestic manufacturing locations. With the acquisition of Rolla SP Propellers
SA of Balerna, Switzerland in May 2004, the Company is in the process of
constructing a new state-of-the-art facility for the design and manufacturing
of high-performance, custom propellers. As a result, management expects
capital expenditures in fiscal 2005 to significantly exceed recent years,
<PAGE> 10
reversing a trend of below depreciation capital spending.
In fiscal 2004, 2003 and 2002, the net cash flow used by financing
activities consisted primarily of dividends paid to shareholders of $2.0
million and the repayment of long-term debt. In each fiscal year, the Company
repaid $2.9 million of its 7.37% Senior Notes due 2006. The net
payments/proceeds from long-term debt were payments or borrowings on the
Company's revolving credit facility.
Future Liquidity and Capital Resources
Twin Disc has a three-year $20 million revolving credit facility that
expires in October 2005. This credit facility is used to fund seasonal working
capital requirements and other financing needs. This facility and Twin Disc's
other indebtedness contain certain restrictive covenants as are fully disclosed
in Note J of the Notes to the Consolidated Financial Statements. Twin Disc is
currently renegotiating its revolving credit agreement and plans to have a new
agreement negotiated by the end of fiscal 2005's first quarter. At this time,
we do not foresee any difficulties in securing an extension as well as an
increase in the available borrowings under the agreement.
The overall liquidity of the Company remains strong. We continue to reduce
total borrowings, have over $7.2 million of available borrowings on our $20
million revolving loan agreement, and continue to generate enough cash from
operations to meet our operating and investing needs. In fiscal 2005, the
Company expects to contribute $7.5 million to its pension plans, an increase of
nearly $3 million over fiscal 2004. The Company intends to meet this funding
requirement from cash from operations and, if necessary, from available
borrowings under existing credit facilities. Working capital increased $5
million to about $56 million in fiscal 2004, and the current ratio has been
unchanged at between 2.1 and 2.2 for the past four fiscal years. The Company's
balance sheet is strong, there are no off-balance sheet arrangements, and we
continue to have sufficient liquidity for near-term needs.
Twin Disc expects capital expenditures to be up to $10 million in fiscal
2005, partially reflecting the impact of the cost of a new a facility under
construction in Switzerland noted above. These anticipated expenditures reflect
our plans to continue to reinvest in modern equipment and facilities, and new
products.
Management believes that available cash, the credit facility, cash
generated from future operations, existing lines of credit and access to debt
markets will be adequate to fund Twin Disc's capital requirements for the
foreseeable future.
Off Balance Sheet Arrangements and Contractual Obligations
The Company had no off-balance sheet arrangements, guarantees or
obligations except for normal open purchase orders and operating leases as of
June 30, 2004 and 2003. Obligations for operating leases are listed in the
table below.
<TABLE>
The Company has obligations under non-cancelable operating lease contracts
and loan and senior note agreements for certain future payments. A summary of
those commitments follows (in thousands):
<CAPTION>
Less than 1-3 4-5 After
Contractual Obligations Total 1 Year Years Years 5 Years
<S> <C> <C> <C> <C> <C>
Short-term debt $ 1,607 $ 1,607 - - -
Revolving loan borrowing $12,800 - $12,800 - -
Long-term debt $ 7,031 $ 3,018 $ 4,013 - -
Operation Leases $10,285 $ 2,700 $ 3,711 $2,404 $1,470
</TABLE>
The Company believes the capital resources available in the form of
existing cash, lines of credit (see Footnote J to the consolidated financial
statements), and funds provided by operations will be adequate to meet
anticipated capital expenditures and other foreseeable future business
requirements, including pension funding requirements. As noted above, the
Company is currently in discussions to increase the borrowings available under
and extend its $20,000,000 revolving loan agreement, which expires on
October 31, 2005. Management expects to have the amended agreement finalized
before the end of fiscal 2005's first quarter.
OTHER MATTERS
Environmental Matters
The Company has been involved in various stages of investigation relative
<PAGE> 11
to hazardous waste sites, two of which were on the United States EPA National
Priorities List (Superfund sites). The Company's involvement in one of the
Superfund sites was settled in 2003 for approximately $191,000. The Company
has made a $117,000 payment in trust in settlement of its exposure related to
the second Superfund site and anticipates that no further payments will be
required. The excess reserve for these sites of $300,000 was reversed against
cost of sales in 2003.
Critical Accounting Policies
The preparation of this Annual Report requires management's judgment to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the dates of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. There can be no assurance that actual results
will not differ from those estimates.
Twin Disc's significant accounting policies are described in Note A to the
consolidated financial statements on pages 31 through 33 of this form. Not
all of these significant accounting policies require management to make
difficult, subjective, or complex judgments or estimates. However, the
policies management considers most critical to understanding and evaluating
our reported financial results are the following:
Revenue Recognition
Twin Disc recognizes revenue from product sales at the time of shipment
and passage of title. While we respect the customer's right to return products
that were shipped in error or do not function properly, historical experience
shows those types of adjustments have been immaterial and thus no provision is
made. With respect to other revenue recognition issues, management has
concluded that its policies are appropriate and in accordance with the guidance
provided by Securities and Exchange Commissions' Staff Accounting Bulletin (SAB)
No. 104, "Revenue Recognition".
Accounts Receivable
Twin Disc performs ongoing credit evaluations of our customers and adjusts
credit limits based on payment history and the customer's credit-worthiness as
determined by review of current credit information. We continuously monitor
collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer-collection issues. In addition, senior management reviews the accounts
receivable aging on a monthly basis to determine if any receivable balances may
be uncollectible. Although our accounts receivable are dispersed among a large
customer base, a significant change in the liquidity or financial position of
any one of our largest customers could have a material adverse impact on the
collectibility of our accounts receivable and future operating results.
Inventory
Inventories are valued at the lower of cost or market. Cost has been
determined by the last-in, first-out (LIFO) method for the majority of the
inventories located in the United States, and by the first-in, first-out (FIFO)
method for all other inventories. Management specifically identifies obsolete
products and analyzes historical usage, forecasted production based on future
orders, demand forecasts, and economic trends when evaluating the adequacy of
the reserve for excess and obsolete inventory. The adjustments to the reserve
are estimates that could vary significantly, either favorably or unfavorably,
from the actual requirements if future economic conditions, customer demand or
competitive conditions differ from expectations.
Warranty
Twin Disc engages in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of its suppliers.
However, its warranty obligation is affected by product failure rates, the
extent of the market affected by the failure and the expense involved in
satisfactorily addressing the situation. The warranty reserve is established
based on our best estimate of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. When evaluating
the adequacy of the reserve for warranty costs, management takes into
consideration the term of the warranty coverage, historical claim rates and
costs of repair, knowledge of the type and volume of new products and economic
trends. While we believe the warranty reserve is adequate and that the
judgment applied is appropriate, such amounts estimated to be due and payable
in the future could differ materially from what actually transpires.
Income Taxes
<PAGE> 12
As part of the process of preparing our consolidated financial statements,
income taxes in each of the jurisdictions in which we operate must be estimated.
This process involves estimating the actual current tax exposure and assessing
the realizability of deferred tax assets. If it is deemed more likely than not
that a deferred tax asset will be realized, a valuation allowance is recorded.
Recently Issued Accounting Standards
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45").
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the
requirements of FAS 5, "Accounting for Contingencies," relating to guarantor's
accounting for, and disclosure of, the issuance of certain types of guarantees.
The Interpretation?s provisions for initial recognition and measurement should
be applied on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for financial
statements of annual periods that end after December 15, 2002. The adoption
of the accounting and disclosure provisions of this Interpretation did not have
a significant impact on the Company's financial statements for the year ending
June 30, 2004.
In May 2003, the FASB issued SFAS No. 150. "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not expect the adoption of
the provisions of this Statement to have a significant impact on its financial
statements.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks from changes in interest rates,
commodities and foreign exchange. To reduce such risks, the Company selectively
uses financial instruments and other pro-active management techniques. All
hedging transactions are authorized and executed pursuant to clearly defined
policies and procedures, which prohibit the use of financial instruments for
trading or speculative purposes. Discussions of the Company's accounting
policies and further disclosure relating to financial instruments is included
in Note A to the consolidated financial statements on pages 27 through 30 of
this form.
Interest rate risk - The Company's earnings exposure related to adverse
movements of interest rates is primarily derived from outstanding floating rate
debt instruments that are indexed to the prime and LIBOR interest rates. During
fiscal 2003, the Company entered into a $20,000,000 revolving loan agreement,
which expires on October 31, 2005. In accordance with the loan agreement, the
Company has the option of borrowing at the prime interest rate or LIBOR plus an
additional "Add-On", between 1% and 2.75%, depending on the Company's Total
Funded Debt to EBITDA ratio. Due to the relative stability of interest rates,
the Company did not utilize any financial instruments at June 30, 2004 to
manage interest rate risk exposure. A 10 percent increase or decrease in the
applicable interest rate would result in a change in pretax interest expense of
approximately $30,000.
Commodity price risk - The Company is exposed to fluctuation in market
prices for such commodities as steel and aluminum. The Company does not utilize
commodity price hedges to manage commodity price risk exposure.
Currency risk - The Company has exposure to foreign currency exchange
fluctuations. Approximately one-third of the Company's revenues in the years
ended June 30, 2004, 2003 and 2002 were denominated in currencies other than
the U.S. dollar. Of that total, approximately two-thirds was denominated in
euros with the balance composed of Japanese yen and the Australian and Singapore
dollars. The Company does not hedge the translation exposure represented by the
net assets of its foreign subsidiaries. Foreign currency translation adjustments
are recorded as a component of shareholders' equity. Forward foreign exchange
contracts are used to hedge the currency fluctuations on significant
transactions denominated in foreign currencies.
Derivative Financial Instruments - The Company has written policies and
procedures that place all financial instruments under the direction of the
Company corporate treasury and restrict derivative transactions to those
intended for hedging purposes. The use of financial instruments for trading
<PAGE> 13
purposes is prohibited. The Company uses financial instruments to manage the
market risk from changes in foreign exchange rates.
The Company primarily enters into forward exchange contracts to reduce the
earnings and cash flow impact of non-functional currency denominated receivables
and payables. These contracts are highly effective in hedging the cash flows
attributable to changes in currency exchange rates. Gains and losses resulting
from these contracts offset the foreign exchange gains or losses on the
underlying assets and liabilities being hedged. The maturities of the forward
exchange contracts generally coincide with the settlement dates of the related
transactions. Gains and losses on these contracts are recorded in Other Income
(Expense), net in the Consolidated Statement of Operations as the changes in the
fair value of the contracts are recognized and generally offset the gains and
losses on the hedged items in the same period. The primary currency to which
the Company was exposed in 2004, 2003 and 2002 was the euro. At June 30, 2004,
the Company had net outstanding forward exchange contracts to purchase Euros in
the value of $2,901,000 with a weighted average maturity of 45 days. The fair
value of the Company?s contracts was a loss of approximately $58,000 at June 30,
2004. At June 30, 2003, the Company had net outstanding forward exchange
contracts to purchase Euros in the value of $2,701,000 with a weighted average
maturity of 50 days. The fair value of the Company's contracts was approximately
zero at June 30, 2003.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See consolidated financial statements and Financial Statement Schedule on Pages
10 through 28 of this form.
<TABLE>
Sales and Earnings by Quarter (dollars in thousands, except per share amounts)
<CAPTION>
2004 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
<S> <C> <C> <C> <C> <C>
Net sales $37,966 $42,371 $48,606 $57,146 $186,089
Gross profit 8,896 10,721 12,917 15,096 47,630
Net earnings 171 508 1,776 2,788 5,243
Basic earnings per share .06 .18 .63 .99 1.86
Diluted earnings per share .06 .18 .62 .97 1.84
Dividends per share .175 .175 .175 .175 .70
2003 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
<S> <C> <C> <C> <C> <C>
Net sales $36,521 $42,794 $47,177 $53,099 $179,591
Gross profit 5,930 6,680 10,425 11,981 35,016
Net earnings (loss) (1,731) (3,087) 509 1,941 (2,368)
Basic earnings (loss)
per share (.62) (1.10) .18 .70 (.84)
Diluted earnings (loss)
per share (.62) (1.10) .18 .70 (.84)
Dividends per share .175 .175 .175 .175 .70
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9(a). CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of
1934, as of the end of the period covered by this report and under the
supervision and with the participation of management, including the Chief
Executive Officer and the Chief Financial Officer, the Company has evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures. Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that such disclosure controls and procedures
are effective in ensuring that material information relating to the Company,
including its consolidated subsidiaries, is made known to the certifying
officers by others within the Company and its consolidated subsidiaries during
the period covered by this report.
(b) Changes in Internal Controls.
There were no changes in the Company's internal controls for financial
reporting or other factors during the fourth quarter of the most recent fiscal
year that could significantly affect such internal controls. However, in
connection with the new rules, the Company has been engaged in the process of
<PAGE> 14
further reviewing and documenting its disclosure controls and procedures,
including its internal accounting controls. The Company may from time to time
make changes aimed at enhancing the effectiveness of its disclosure controls
and procedures, including its internal controls, to ensure that the Company's
systems evolve with its business.
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" in the Proxy Statement for the Annual Meeting of
Shareholders to be held October 15, 2004, 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" in the Proxy Statement for the Annual Meeting of
Shareholders to be held October 15, 2004, which is incorporated into this
report by reference.
For information with respect to the Company's Code of Ethics , see "Code
of Ethics" in the Proxy Statement for the Annual Meeting of Shareholders to be
held October 15, 2004, which is incorporated into this report by reference. The
Company's Code of Ethics, entitled, "Guidelines for Business Conduct and
Ethics", is included on the Company?s website, www. twindisc.com.
For information with respect to changes to procedures by which shareholders
may recommend nominees to the Company's Board of Directors, see "Selection of
Nominees for the Board" in the Proxy Statement for the Annual Meeting of
Shareholders to be held October 15, 2004, which is incorporated into this
report by reference.
For information with respect to the Audit Committee Financial Expert , see
"Roles of the Board's Committees: Audit Committee" in the Proxy Statement for
the Annual Meeting of Shareholders to be held October 15, 2004, which is
incorporated into this report by reference.
For information with respect to the Audit Committee Disclosure, see
"Roles of the Board's Committees: Audit Committee" in the Proxy Statement for
the Annual Meeting of Shareholders to be held October 15, 2004, 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", "Supplemental Retirement
Benefit Plan", "Compensation of Directors" and "Employment Contracts" in the
Proxy Statement for the Annual Meeting of Shareholders to be held on October 15,
2004 is incorporated into this report by reference. Discussion in the Proxy
Statement under the captions "Board Compensation Committee Report on Executive
Compensation" and "Corporate Performance Graph" is incorporated by reference
but shall not be deemed "soliciting material" or to be "filed" as part of this
report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management is set
forth in the Proxy Statement for the Annual Meeting of Shareholders to be held
on October 15, 2004 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.
<TABLE>
The following table summarizes certain information regarding the Company's
equity-based compensation plans:
<CAPTION>
# of Securities
# of Securities to Remaining
be Issued Under Weighted Average Available for
Exercise of Price of Future Issuance
Outstanding Options, Outstanding OptionS Under Equity
Plan Category Warrants and Rights Warrants and Rights Compensation Plans
<PAGE> 15
- ------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Equity
Compensation
Plans Approved
by Shareholders 188,200 $19.69 $24,250
Equity
Compensation
Plans Not
Approved By
Shareholders 0 N/A 0
------------------ ------------------- ----------------
Total 188,200 $19.69 $24,250
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Company incorporates by reference the information contained in the Company's
definitive Proxy Statement dated October 15, 2004 under the heading "Fees to
Independent Registered Public Accounting Firm".
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on page 22, the Report of Independent Registered Public Accounting
Firm on page 23 and the Consolidated Financial Statements on pages 24 to 47,
all of which are incorporated by reference.
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 Schedules
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on page 22, and the Consolidated Financial Statement Schedule on page
49, all of which are incorporated by reference.
(a)(3) Exhibits. See Exhibit Index included as the last page of this form,
which is incorporated by reference.
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.
(b) A Form 8-K was filed on April 16, 2004 announcing the financial results
for the third fiscal quarter of 2004.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm................. 23
Consolidated Balance Sheets as of June 30, 2004 and 2003................ 24
Consolidated Statements of Operations for the years
ended June 30, 2004, 2003 and 2002..................................... 25
Consolidated Statements of Cash Flows for the years
ended June 30, 2004, 2003 and 2002..................................... 26
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the years ended June 30, 2004, 2003 and 2002.. 27
Notes to Consolidated Financial Statements........................... 28-47
<PAGE> 16
INDEX TO FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts........................ 49
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.
Report of Independent Registered Public Accounting Firm
To the Shareholders of
Twin Disc, Incorporated:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Twin Disc, Incorporated and Subsidiaries at June 30, 2004
and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 2004 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 15(a)(2) present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, 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 our opinion.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 30, 2004
<TABLE>
<CAPTION>
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 and 2003
(Dollars in thousands) 2004 2003
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,127 $ 5,908
Trade accounts receivable, net 37,091 35,367
Inventories, net 52,079 47,247
Deferred income taxes 4,216 4,469
Other 3,111 4,104
------- ------
Total current assets 105,624 97,095
Property, plant and equipment, net 33,222 30,210
Investment in affiliate - 2,550
Goodwill, net 12,717 12,876
Deferred income taxes 15,668 20,164
Intangible pension asset - 24
Other assets 9,406 7,439
------- -------
$176,637 $170,358
======= =======
LIABILITIES and SHAREHOLDERS' EQUITY
<PAGE> 17
Current liabilities:
Notes payable $ 1,607 $ 2,429
Current maturities on long-term debt 3,018 2,857
Accounts payable 17,241 16,115
Accrued liabilities 27,262 24,885
------- -------
Total current liabilities 49,128 46,286
Long-term debt 16,813 16,584
Accrued retirement benefits 49,456 56,732
------- -------
115,397 119,602
Minority interest 509 485
Shareholders' equity:
Preferred shares authorized: 200,000;
issued: none; no par - -
Common shares authorized: 15,000,000;
issued: 3,643,630; no par value 11,653 11,653
Retained earnings 86,443 83,191
Unearned Compensation (304) -
Accumulated other comprehensive loss (20,301) (26,978)
------- -------
77,491 67,866
Less treasury stock, at cost 16,760 17,595
------- -------
Total shareholders' equity 60,731 50,271
------- -------
$176,637 $170,358
======= =======
The notes to consolidated financial statements are an integral part of
these statements.
</TABLE>
<TABLE>
<CAPTION>
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 2004, 2003 and 2002
(In thousands, except per share data)
2004 2003 2002
<S> <C> <C> <C>
Net sales $186,089 $179,591 $179,385
Cost of goods sold 138,459 144,575 139,146
------- ------- -------
Gross profit 47,630 35,016 40,239
Marketing, engineering and
administrative expenses 37,168 34,790 34,638
Restructuring of operations - 2,042 -
------- ------- -------
Earnings(Loss)from operations 10,462 (1,816) 5,601
Other income (expense):
Interest income 252 167 294
Interest expense (1,078) (1,323) (1,700)
Equity in net earnings
of affiliate 240 414 481
Other, net 101 (81) 467
------- ------- -------
(485) (823) (458)
------- ------- -------
Earnings (loss) before income
taxes and minority interest 9,977 (2,639) 5,143
Income taxes 4,709 (283) 2,950
------- ------- -------
Earnings (loss) before
minority interest 5,268 (2,356) 2,193
Minority interest (25) (12) (135)
------- ------- -------
Net earnings (loss) $ 5,243 $ (2,368) $ 2,058
======= ======= =======
<PAGE> 18
Earnings (loss) per share data:
Basic earnings (loss) per share $ 1.86 $ (0.84) $ .73
Diluted earnings (loss) per share 1.84 (0.84) .73
Weighted average shares outstanding data:
Basic shares outstanding 2,814 2,805 2,808
Dilutive stock options 29 - -
------- ------- -------
Diluted shares outstanding 2,843 2,805 2,808
======= ======= =======
The notes to consolidated financial statements are an integral part of
these statements.
</TABLE>
<TABLE>
<CAPTION>
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2004, 2003 and 2002
(In thousands) 2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 5,243 $(2,368) $ 2,058
Adjustments to reconcile net earnings
(loss)to net cash provided by
operating activities:
Depreciation and amortization 5,692 5,673 5,709
Write-off of impaired asset - 773 -
Loss on sale of plant assets 55 105 90
Minority interest 25 12 135
(Gain)loss on restructuring
of operations - 1,278 (53)
Unearned compensation 188 - -
Equity in net earnings of affiliate (240) (414) (481)
Provision for deferred income taxes 1,312 (1,424) 378
Dividends received from affiliate 195 303 400
Changes in operating assets and
liabilities:
Trade accounts receivable, net 622 (2,977) (995)
Inventories, net (2,575) 3,725 3,724
Other assets 940 (1,193) 67
Accounts payable (377) 1,489 2,456
Accrued liabilities 427 577 (3,702)
Accrued/prepaid retirement benefits 733 1,151 3,375
------ ------ ------
Net cash provided by
operating activities 12,240 6,710 13,161
------ ------ ------
Cash flows from investing activities:
Proceeds from sale of plant assets 1 20 25
Proceeds from sale of affiliate 3,811 - -
Acquisitions of plant assets (4,180) (4,410) (2,063)
Acquisition of affiliate, net of
cash acquired (5,085) - -
------ ------ ------
Net cash used by investing activities (5,453) (4,390) (2,038)
------ ------ ------
Cash flows from financing activities:
Decreases in notes payable, net (1,382) (23) (3,082)
Payments of long-term debt (922) (1,992) (4,857)
Proceeds from exercise of stock options 343 - -
Acquisition of treasury stock - (114) -
Dividends paid (1,991) (1,965) (1,965)
------ ------ ------
Net cash used by financing activities (3,952) (4,094) (9,904)
------ ------ ------
Effect of exchange rate changes on cash 384 282 220
------ ------ ------
Net change in cash and cash equivalents 3,219 (1,492) 1,439
Cash and cash equivalents:
Beginning of year 5,908 7,400 5,961
------ ------ ------
End of year $ 9,127 $ 5,908 $ 7,400
<PAGE> 19
====== ====== ======
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,563 $ 1,870 $ 1,882
Income taxes 2,127 1,675 1,908
The notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
TWIN DISC, INCORPORATED and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
for the years ended June 30, 2004, 2003 and 2002
(In thousands) 2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Common stock
Balance, June 30 $ 11,653 $ 11,653 $ 11,653
------- ------- -------
Retained earnings
Balance, July 1 83,191 87,524 87,431
Net earnings (loss) 5,243 (2,368) 2,058
Cash dividends (1,991) (1,965) (1,965)
------- ------- -------
Balance, June 30 86,443 83,191 87,524
------- ------- -------
Accumulated other comprehensive loss
Balance, July 1 (26,978) (23,187) (23,181)
------- ------- -------
Foreign currency translation adjustment
Balance, July 1 4,409 (1,520) (5,420)
Current adjustment 2,480 5,929 3,900
------- ------- -------
Balance, June 30 6,889 4,409 (1,520)
------- ------- -------
Minimum pension liability adjustment, net
Balance, July 1 (31,387) (21,667) (17,761)
Current adjustment, net of related income
taxes (($2,683) in 2004 $6,215 in 2003,
and $2,497 in 2002) 4,197 (9,720) (3,906)
------- ------- -------
Balance, June 30 (27,190) (31,387) (21,667)
------- ------- -------
Accumulated other comprehensive loss
Balance, June 30 (20,301) (26,978) (23,187)
------- ------- -------
Treasury stock, at cost
Balance, July 1 (17,595) (17,481) (17,481)
Shares issued (acquired) 531 (114) -
------- ------- -------
Balance, June 30 (17,064) (17,595) (17,481)
------- ------- -------
Shareholders' equity balance, June 30 $ 60,731 $ 50,271 $ 58,509
======= ======= =======
Comprehensive income (loss)
Net earnings (loss) $ 5,243 $ (2,368) $ 2,058
Other comprehensive income (loss)
Foreign currency translation adjustment 2,480 5,929 3,900
Minimum pension liability adjustment, net 4,197 (9,720) (3,906)
------- ------- -------
Other comprehensive income (loss) 6,677 (3,791) (6)
------- ------- -------
Comprehensive income (loss) $ 11,920 $(6,159) $ 2,052
======= ======= =======
The notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
TWIN DISC, INCORPORATED AND SUBSIDIARIES
<PAGE> 20
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 wholly and partially owned
domestic and foreign subsidiaries. Certain foreign subsidiaries are included
based on fiscal years ending March 31 or May 31, to facilitate prompt reporting
of consolidated accounts. All significant intercompany transactions have been
eliminated.
Translation of Foreign Currencies -- The financial statements of the
Company's non-U.S. subsidiaries are translated using the current exchange rate
for assets and liabilities and the weighted average exchange rate for the year
for revenues and expenses. Foreign currency translation adjustments are
recorded as a component of shareholders' equity. Gains and losses from foreign
currency transactions are included in earnings. Included in other income
(expense) are foreign currency transaction losses (gains) of $73,000, $123,000
and $(170,000) in 2004, 2003 and 2002, respectively.
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 $604,000 and $502,000 at June 30, 2004 and 2003,
respectively.
Fair Value of Financial Instruments -- The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximate fair value because of the
immediate short-term maturity of these financial instruments. The fair value
of long-term debt exceeds its carrying amount by $252,000 and $438,000 at
June 30, 2004 and 2003, respectively, based on the current rates that would be
offered to the Company for debt with the same remaining maturity.
Derivative Financial Instruments -- The Company has written policies and
procedures that place all financial instruments under the direction of the
Company's corporate treasury and restrict all derivative transactions to those
intended for hedging purposes. The use of financial instruments for trading
purposes is prohibited. The Company uses financial instruments to manage the
market risk from changes in foreign exchange rates.
The Company primarily enters into forward exchange contracts to reduce the
earnings and cash flow impact of non-functional currency denominated receivables
and payables. These contracts are highly effective in hedging the cash flows
attributable to changes in currency exchange rates. Gains and losses resulting
from these contracts offset the foreign exchange gains or losses on the
underlying assets and liabilities being hedged. The maturities of the forward
exchange contracts generally coincide with the settlement dates of the related
transactions. Gains and losses on these contracts are recorded in other income
(expense), net as the changes in the fair value of the contracts are recognized
and generally offset the gains and losses on the hedged items in the same
period. The primary currency to which the Company was exposed in 2004, 2003
and 2002 was the Euro. At June 30, 2004, the Company had net outstanding
forward exchange contracts to purchase Euros in the value of $2,901,000 with a
weighted average maturity of 45 days. The fair value of the Company's contracts
was a loss of approximately $58,000 at June 30, 2004. At June 30, 2003, the
Company had net outstanding forward exchange contracts to purchase Euros in the
value of $2,701,000 with a weighted average maturity of 50 days. The fair value
of the Company's contracts was approximately zero at June 30, 2003.
Inventories -- Inventories are valued at the lower of cost or market. Cost
has been determined by the last-in, first-out (LIFO) method for the majority of
inventories located in the United States, and by the first-in, first-out (FIFO)
method for all other inventories.
Property, Plant and Equipment and Depreciation -- Assets are stated at
cost. Expenditures for maintenance, repairs and minor renewals are charged
against earnings as incurred. Expenditures for major renewals and betterments
are capitalized and depreciated. 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
<PAGE> 21
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 physically disposed.
Impairment of Long-lived Assets -- The Company reviews long-lived assets
for impairment whenever events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully recoverable in
accordance with the Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment of Long-lived Assets". For property,
plant and equipment and other long-lived assets, excluding indefinite lived
intangible assets, the Company performs undiscounted operating cash flow
analyses to determine if an impairment exists. If an impairment is determined
to exist, any related impairment loss is calculated based on fair value.
Investments in Affiliates -- The Company's investments in 20% to 50%-owned
affiliates in which it has significant influence are accounted for using the
equity method. Investments in affiliates where significant control does not
exist are accounted for using the cost method.
Revenue Recognition -- Revenue is recognized by the Company when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred and ownership has transferred to the customer; the price
to the customer is fixed or determinable; and collectibility is reasonably
assured.
Goodwill and Other Intangibles -- Goodwill is tested for impairment at
least annually and more frequently if an event occurs which indicates the
goodwill may be impaired in accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets".
Impairment of goodwill is measured according to a two step approach. In the
first step, the fair value of a reporting unit, as defined by the statement,
is compared to the carrying value of the reporting unit, including goodwill.
If the carrying amount exceeds the fair value, the second step of the goodwill
impairment test is performed to measure the amount of the impairment loss, if
any. In the second step the implied value of the goodwill is estimated as the
fair value of the reporting unit less the fair value of all other tangible and
identifiable intangible assets of the reporting unit. If the carrying amount
of the goodwill exceeds the implied fair value of the goodwill, an impairment
loss is recognized in an amount equal to that excess, not to exceed the
carrying amount of the goodwill.
Deferred Taxes -- The Company recognizes deferred tax liabilities and
assets for the expected future income tax consequences of events that have been
recognized in the Company's financial statements. Under this method, deferred
tax liabilities and assets are determined based on the temporary differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse.
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.
Stock-Based Compensation -- At June 30, 2004, the Company has two
stock-based compensation plans, which are described more fully in Note N,
"Stock Option Plans." The Company accounts for these plans under the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.
No stock-based employee compensation cost related to stock options is reflected
in earnings, as all option grants under those plans had an exercise price equal
to or greater than the market value of the underlying common stock on the date
of grant. The effect on net earnings and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation is disclosed in
Note N.
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.
Shipping and Handling Fees and Costs -- The Company records revenue from
shipping and handling costs in net sales. The cost associated with shipping
<PAGE> 22
and handling of products is reflected in cost of sales.
Reclassification -- Certain amounts in prior year financial statements
have been reclassified to conform to the presentation in the 2004 financial
statements.
B. ACQUISITION
Effective May 31, 2004, the company acquired 100% of the common stock of
Rolla SP Propellers SA of Balerna, Switzerland. Rolla designs and manufactures
custom propellers.
Rolla will have a fiscal year ended May 31, since the acquisition was also
effective May 31. No results of operations of Rolla are included in consolidated
results for the year ended June 30, 2004.
The acquisition cost, including consulting fees, net of cash acquired was
$5,085,000.
<TABLE>
<CAPTION>
The condensed balance sheet of Rolla as of May 31, 2004 is as follows(in
thousands):
<S> <C>
Current assets $ 3,323
Net fixed Assets 3,636
Intangibles 3,189
-------
Total $10,148
=======
Current liabilities $ 2,056
Long term debt 1,146
Deferred taxes 655
Stockholders' equity 6,291
- - - -
Total $10,148
=======
Intangible Assets Identified and the Amounts
Assigned are as Follows:
Intangible Assets Subject
to amortization:
Proprietary Technology $ 840
Computer Software 860
Other 408
-------
$ 2,108
=======
The Weighted Average Amortization Period is 7 years.
Intangible Assets Not Subject to Amortization:
Goodwill $ 927
Tradename 154
-------
$ 1,081
=======
The goodwill is not expected to be deductible for tax purposes.
</TABLE>
C. INVENTORIES
<TABLE>
<CAPTION>
The major classes of inventories at June 30 were as follows (in thousands):
2004 2003
---- ----
<S> <C> <C>
Finished parts $39,139 $36,175
Work-in-process 8,187 7,003
Raw materials 4,753 4,069
<PAGE> 23
------ ------
$52,079 $47,247
====== ======
Inventories stated on a LIFO basis represent approximately 45% and 43% of total
inventories at June 30, 2004 and 2003, respectively. The approximate current
cost of the LIFO inventories exceeded the LIFO cost by $19,898,000 and
$20,542,000 at June 30, 2004 and 2003, respectively. Inventory quantities were
reduced in 2003 resulting in a liquidation of LIFO inventory quantities carried
at costs prevailing in prior years which were lower than current costs. The
effect was to decrease the 2003 net loss by $70,000.
</TABLE>
D. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant and equipment at June 30 were as follows (in thousands):
2004 2003
---- ----
<S> <C> <C>
Land $ 3,414 $ 1,412
Buildings 26,421 24,948
Machinery and equipment 96,749 92,371
------ ------
126,584 118,731
Less accumulated depreciation 93,362 88,521
------ ------
$ 33,222 $ 30,210
====== ======
</TABLE>
E. INVESTMENT IN AFFILIATE
The Company's investment in affiliate consisted of a 25% minority interest
in Palmer Johnson Distributors, LLC (PJD) a domestic distributor of Twin Disc
products.
In January 2004, the Company sold its 25% minority interest in PJD to the
majority holder, PJD, Inc. for $3,811,000 cash, which approximated the net book
value of the investment. The Company recognized pre-tax earnings of $240,000,
$414,000 and $481,000 in fiscal years 2004, 2003 and 2002 respectively, from its
investment in PJD. In addition, the Company received cash distributions of
$195,000, $303,000 and $400,000 in fiscal years 2004, 2003 and 2002,
respectively.
Combined condensed financial data for the investment in affiliate accounted
for under the equity method of accounting through the date of sale are
summarized below (in thousands). The statement of operations information
includes the results of operations of the domestic distributor from June 1
through December 31 for 2004 and from June 1 through May 31 for 2003 and 2002.
<TABLE>
<CAPTION>
2003
----
<S> <C>
Current assets $ 12,792
Other assets 2,125
-------
$ 14,917
=======
Current liabilities $ 2,662
Other liabilities 2,164
Shareholders' equity 10,091
-------
$ 14,917
=======
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Net sales $15,165 $ 27,008 $23,774
Gross profit 4,710 8,831 8,300
Net earnings 962 1,607 1,925
</TABLE>
<PAGE> 24
At June 30, 2003, trade receivables from the 25% owned distributor were
$1,719,000.
Sales to the Company's 25% owned domestic distributor were the same terms
and conditions as sales to independent distributors. Sales to this distributor
were $6,240,000, $10,886,000 and $9,250,000 in fiscal 2004, 2003 and 2002,
respectively.
F. GOODWILL AND OTHER INTANGIBLES
The Company performed impairment tests of its goodwill during 2004 ,2003
and 2002 and determined that no impairment of goodwill existed. Goodwill at
June 30, 2004 and 2003 is net of accumulated amortization of $789,000. There
were no other significant indefinite lived intangible assets identified by the
Company at June 30, 2004 or 2003.
<TABLE>
<CAPTION>
The changes in the carrying amount of goodwill, substantially all of which
is allocated to the manufacturing segment, for the years ended June 30, 2004 and
2003 were as follows (in thousands):
<S> <C>
Balance at June 30, 2002 $ 12,311
Translation adjustment 565
-----
Balance at June 30, 2003 12,876
Disposal (1,188)
Translation adjustment 102
Acquisition 927
-----
Balance at June 30, 2004 $12,717
=====
Included in Other assets on the Company's Consolidated Balance Sheet as of the
end of June 30, 2004 and 2003, respectively, are the following acquired
intangible assets (in thousands):
2004 2003
---- ----
<S> <C> <C>
Intangible assets with finite lives:
Licensing agreements $ 3,015 $ 5,490
Other 2,865 1,259
------ ------
5,880 6,749
Accumulated amortization 2,475 4,211
Write off of impaired asset - 773
------ ------
Total $ 3,405 $ 1,765
====== ======
In the second quarter of 2003, a charge of $773,000 was recorded based on
SFAS 144 impairment tests. This charge was classified as a component of cost of
sales pertaining to the Company's Manufacturing segment.
The weighted average remaining useful life of the intangible assets
included in the table above is approximately 11 years.
Intangible amortization expense for the year ended June 30, 2004 , 2003
and 2002 was $466,000, $601,000 and $726,000, respectively. Estimated
intangible amortization expense for each of the subsequent five fiscal years
is as follows (in thousands):
<S> <C>
Fiscal Year
2005 $ 495
2006 382
2007 374
2008 374
2009 374
Thereafter 1,406
-----
$3,405
=====
</TABLE>
<PAGE> 25
G. JOINT VENTURE
On April 2, 2001, the Company entered into a Joint Venture Agreement with
Niigata Engineering Co. LTD., Japan to form NICO Transmissions Co., Inc. (NTC).
NTC is an engineering and marketing company supporting the Company's expanding
global marine product line as well as a distribution company for Niigata's
family of transmission products.
In 2002, Niigata filed for creditor protection in Japan under the
local bankruptcy code. Niigata was acquired out of bankruptcy in 2003 and the
acquiring company is participating in the joint venture under the original terms
of the joint agreement. Subsequent to the acquisition of Niigata, the name of
the Joint Venture was changed to Twin Disc Nico Co. LTD. During 2002 the
Company fully reserved for its receivable from Niigata in the amount of $237,000
as a result of this filing and wrote off this amount in 2003.
H. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities at June 30 were as follows (in thousands):
2004 2003
---- ----
<S> <C> <C>
Salaries and wages $ 4,911 $ 4,756
Retirement benefits 7,559 6,309
Warranty 6,478 6,070
Other 8,314 7,750
------- -------
$ 27,262 $ 24,885
======= =======
</TABLE>
I. WARRANTY
The Company warrants all assembled products and parts (except component
products or parts on which written warranties are issued by the respective
manufacturers thereof and are furnished to the original customer, as to which
the Company makes no warranty and assumes no liability) against defective
materials or workmanship. Such warranty generally extends from periods ranging
from 12 months to 24 months.
The Company engages in extensive product quality programs and processes,
including actively monitoring and evaluating the quality of its suppliers.
However, its warranty obligation is affected by product failure rates, the
extent of the market affected by the failure and the expense involved in
satisfactorily addressing the situation. The warranty reserve is established
based on the Company's best estimate of the amounts necessary to settle future
and existing claims on products sold as of the balance sheet date. When
evaluating the adequacy of the reserve for warranty costs, management takes
into consideration the term of the warranty coverage, historical claim rates
and costs of repair, knowledge of the type and volume of new products and
economic trends. While the Company believes the warranty reserve is adequate
and that the judgment applied is appropriate, such amounts estimated to be due
and payable in the future could differ materially from what actually transpires.
<TABLE>
<CAPTION>
The following is a listing of the activity in the warranty reserve during the
years ended June 30 (in thousands):
2004 2003
----- -----
<S> <C> <C>
Reserve balance, July 1 $6,070 $5,294
Current period expense 4,764 4,417
Payments or credits to customers (4,356) (3,766)
Adjustments to pre-existing warranties - 125
----- -----
Reserve balance, June 30 $6,478 $6,070
===== =====
</TABLE>
J. DEBT
Notes payable consists of amounts borrowed under unsecured line of credit
agreements. Unused lines of credit total $8,969,000 at June 30, 2004. These
lines of credit may be withdrawn at the option of the banks. The weighted
<PAGE> 26
average interest rate of the lines outstanding was 2.8% and 3.4% at June 30,
2004 and 2003, respectively.
Included in long-term debt is $2,841,000 and $5,698,000 of 7.37% ten-year
unsecured notes at June 30, 2004 and 2003, respectively. The current portion
of these notes was $2,857,000 at June 30, 2004 and 2003.These notes contain
certain covenants, including the maintenance of a current ratio of not less
than 1.5 and the maintenance of an EBITDA to fixed charges ratio greater than
1.75. Consolidated net worth must be at least equal to the sum of $60,310,000
plus 35% of consolidated net earnings for each quarter from July 1, 1996,
however the Company may exclude up to $34,000,000 of net worth adjustments that
result from changes to the assumptions used by the Company in determining its
pension liability or changes in the market value of plan assets. As of June 30,
2004, the Company was in compliance with all debt covenants.
In December 2002, the Company entered into a $20,000,000 revolving loan
agreement which expires on October 31, 2005. This agreement contains certain
covenants, including restrictions on investments, acquisitions and indebtedness.
Financial covenants include a minimum consolidated net worth calculated
consistently with the net worth covenant discussed in the above paragraph,
minimum EBITDA of $11,000,000 at June 30, 2004 and a maximum total funded debt
to EBITDA ratio of 2.5 at June 30, 2004. As of June 30, 2004, the Company was
in compliance with all debt covenants. The outstanding balance of $12,800,000
and $10,865,000 at June 30, 2004 and 2003, respectively, is classified as
long-term debt. Notes under this agreement bear interest on a schedule
determined by the Company's leverage ratio and the LIBOR interest rate (LIBOR
plus 1.25% and 2.75% at June 30, 2004 and 2003, respectively). The rate was
2.375% and 4.07% at June 30, 2004 and 2003, respectively.
As part of the acquisition of Rolla SP Propellers S.A., the Company assumed
$1,077,020 of secured long term debt which is due May 28, 2008. The long term
debt bears interest of 4.25%. The debt is to be used for the construction of a
new manufacturing facility and is secured by that facility. An additional
secured line of credit of $1,777,000 is available for the construction of the
new facility and is secured by the facility. The line of credit bears interest
of 3.0% at June 30, 2004. In addition the Company assumed short and long term
capital lease obligations of $161,000 and $ 69,000, respectively.
<TABLE>
<CAPTION>
The aggregate scheduled maturities of outstanding long term debt
obligations in subsequent years are as follows (in thousands):
Fiscal Year
<S> <C>
2005 $ 3,018
2006 15,736
2007 -
2008 1,077
------
$19,831
======
</TABLE>
K. LEASE COMMITMENTS
<TABLE>
<CAPTION>
Approximate future minimum rental commitments under noncancellable
operating leases are as follows (in thousands):
Fiscal Year
<S> <C>
2005 $ 2,700
2006 2,205
2007 1,506
2008 1,257
2009 1,147
Thereafter 1,470
------
$10,285
======
</TABLE>
Total rent expense for operating leases approximated $3,587,000,
$3,320,000, and $3,135,000 in 2004, 2003, and 2002 respectively.
L. SHAREHOLDERS' EQUITY
<PAGE> 27
At June 30, 2004 and 2003, treasury stock consisted of 792,748 and 845,798
shares of common stock, respectively. The Company issued 23,050 shares of
treasury stock in 2004 to fulfill its obligations under the stock option plans
and 25,000 shares were issued as stock grants. The difference between the cost
of treasury shares and the option price is recorded in retained earnings. The
fair value of the stock grants are recorded as unearned compensation and
amortized over 2 and 4 year periods. The Company acquired 10,000 shares of
treasury stock in 2003 for $114,000.
Cash dividends per share were $0.70 in 2004, 2003 and 2002.
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 transfers 50%
or more of its assets or earnings power, or certain other events occur, each
right will entitle its holders, other than the acquiring person, to buy a number
of shares of common stock of the Company, or of the other party to the
transaction, having a value of twice 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.
M. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged in the manufacture and sale of
power transmission equipment. 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, energy and natural resources and
marine and agricultural.
The Company has two reportable segments: manufacturing and distribution.
These segments are managed separately because each provides different services
and requires different technology and marketing strategies. The accounting
practices of the segments are the same as those described in the summary of
significant accounting policies. Transfers among segments are at established
inter-company selling prices.
<TABLE>
<CAPTION>
Information about the Company's segments is summarized as follows (in
thousands):
Manufacturing Distribution Total
2004 ------------- ------------ -----
<S> <C> <C> <C>
Net sales $172,688 $59,176 $231,864
Intra-segment sales 8,930 2,512 11,442
Inter-segment sales 30,081 4,252 34,333
Interest income 395 36 431
Interest expense 1,176 111 1,287
Income taxes 3,734 1,671 5,405
Depreciation and amortization 5,284 355 5,639
Segment earnings 5,356 2,975 8,331
Segment assets 166,049 30,247 196,296
Expenditures for segment assets 8,980 285 9,265
2003
Net sales $153,713 $63,413 $217,126
Intra-segment sales 6,587 2,890 9,477
Inter-segment sales 25,848 2,210 28,058
Interest income 470 25 495
Interest expense 1,480 137 1,617
Income taxes (1,054) 1,073 19
Depreciation and amortization 5,291 292 5,583
Segment (loss) earnings (1,866) 1,943 77
<PAGE> 28
Segment assets 152,093 32,761 184,854
Expenditures for segment assets 3,882 528 4,410
2002
Net sales $155,730 $61,848 $217,578
Intra-segment sales 6,696 1,870 8,566
Inter-segment sales 22,784 6,843 29,627
Interest income 468 43 511
Interest expense 1,783 131 1,914
Income taxes 1,940 1,362 3,302
Depreciation and amortization 5,409 210 5,619
Segment earnings 2,247 2,366 4,613
Segment assets 139,810 30,275 170,085
Expenditures for segment assets 1,851 212 2,063
The following is a reconciliation of reportable segment net sales, earnings
and assets to the Company?s consolidated totals (in thousands):
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Net sales:
Total net sales from reportable segments $231,864 $217,126 $217,578
Elimination of inter-company sales (45,775) (37,535) (38,193)
------- ------- -------
Total consolidated net sales $186,089 $179,591 $179,385
======= ======= =======
Earnings (loss):
Total earnings from
reportable segments $ 8,331 $ 77 $ 4,613
Other corporate expenses (3,088) (2,445) (2,555)
------- ------- -------
Total consolidated net (loss) earnings $ 5,243 $( 2,368) $ 2,058
======= ======= =======
Assets
Total assets for reportable segments $196,296 $184,854
Elimination of inter-company assets (21,100) (19,402)
Corporate assets 1,441 4,906
------- -------
Total consolidated assets $176,637 $170,358
======= =======
Other significant items:
Elimination
Segment and Corporate Consolidated
Totals Adjustments Totals
------- ----------- ------------
<S> <C> <C> <C>
2004
Interest income $ 431 $ (179) $ 252
Interest expense 1,287 (209) 1,078
Income taxes 5,405 (696) 4,709
Depreciation and amortization 5,639 53 5,692
Expenditures for segment assets 9,265 - 9,265
2003
Interest income $ 495 $ (328) $ 167
Interest expense 1,617 (294) 1,323
Income taxes 19 (302) (283)
Depreciation and amortization 5,583 90 5,673
Expenditures for segment assets 4,410 - 4,410
2002
Interest income $ 511 $ (217) $ 294
Interest expense 1,914 (214) 1,700
Income taxes 3,302 (352) 2,950
Depreciation and amortization 5,619 90 5,709
Expenditures for segment assets 2,063 - 2,063
Geographic information about the Company is summarized as follows
(in thousands):
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
<PAGE> 29
Net sales
United States $107,146 $ 95,813 $108,288
Other countries 78,943 83,778 71,097
------- ------- -------
Total $186,089 $179,591 $179,385
======= ======= =======
Long-lived assets
United States $ 55,774 $ 63,865
Belgium 11,490 11,228
Other countries 12,995 6,646
Elimination of inter-company assets (9,246) (8,476)
------- -------
Total $ 71,013 $ 73,263
======= =======
</TABLE>
One customer accounted for approximately 11%, 10% and 11% of consolidated
net sales in 2004, 2003 and 2002, respectively.
N. STOCK OPTION PLANS
During fiscal 1999, the Company adopted the Twin Disc, Incorporated 1998
Stock Option Plan for Non-Employee Directors, a non-qualified plan for
non-employee directors to purchase up to 35,000 shares of common stock, and the
Twin Disc, Incorporated 1998 Incentive Compensation Plan, a plan where options
are determined to be non-qualified or incentive at the date of grant, for
officers and key employees to purchase up to 165,000 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 at options to purchase 1,000 shares of common stock per year
or 600 at time of appointment. Except as described in the following sentence,
all options allow for exercise prices not less than the grant date fair market
value, vest immediately and expire ten years after the date of grant. For
options under the Incentive Compensation 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. In addition, the Company has
34,200 incentive stock option plan options and 31,300 non-qualified stock option
plan options outstanding at June 30, 2004 under the Twin Disc, Incorporated 1988
Incentive Stock Option plan and the Twin Disc, Incorporated 1988 Non-Qualified
Stock Option Plan for Officers, Key Employees and Directors, respectively. Stock
options can no longer be issued from the 1988 Plans.
<TABLE>
<CAPTION>
Shares available for future options as of June 30 were as follows:
2004 2003
---- ----
<S> <C> <C>
1998 Stock Option Plan for Non-Employee Directors 6,400 6,400
1998 Incentive Compensation Plan 17,850 47,250
Stock option transactions under the plans during 2004, 2003 and 2002 were
as follows:
Weighted Weighted Weighted
Average Average Average
2004 Price 2003 Price 2002 Price
---- -------- ---- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Non-qualified stock options:
Options outstanding
at beginning of year 133,150 $18.54 102,350 $20.46 88,350 $21.31
Granted - - 48,800 14.37 14,500 15.05
Canceled (15,450) 19.89 (18,000) 18.14 (500) 14.00
Exercised (13,350) 14.18 - - - -
------- ------ ------ ------ ------ -----
Options outstanding
at June 30 104,350 $18.90 133,150 $18.54 102,350 $20.46
======= ====== ======= ====== ======= ======
<S> <C>
Options price range
($14.45 - $20.00)
<PAGE> 30
Number of shares 72,650
Weighted average price $ 16.28
Weighted average remaining life 8.40 years
Options price range
($21.875 - $28.75)
Number of shares 31,700
Weighted average price $ 24.90
Weighted average remaining life 4.83 years
Weighted Weighted Weighted
Average Average Average
2004 Price 2003 Price 2002 Price
---- -------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Incentive stock options:
Options outstanding
at beginning of year 106,700 $20.55 146,000 $20.75 125,650 $22.29
Granted - - - - 30,200 15.25
Canceled (13,150) 23.16 (39,300) 21.32 (9,850) 23.47
Exercised ( 9,700) 15.86 - - - -
------- ------ ------- ------ ------- ------
Options outstanding
at June 30 83,850 $20.68 106,700 $20.55 146,000 $20.75
======= ====== ======= ====== ======= ======
<S> <C>
Options price range
($15.05 - $20.00)
Number of shares 51,450
Weighted average price $ 17.77
Weighted average remaining life 7.40 years
Options price range
($21.875 - $28.75)
Number of shares 32,400
Weighted average price $ 25.30
Weighted average remaining life 4.99 years
The Company accounts for its stock option plans under the guidelines of
Accounting Principles Board Opinion No. 25. Had the Company recognized
compensation expense determined based on the fair value at the grant date for
awards under the plans, the net earnings and earnings per share would have been
as follows (in thousands, except per share amounts):
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss)
As reported $ 5,243 $(2,368) $ 2,058
Pro forma 5,243 (2,442) 1,954
Basic earnings (loss) per share
As reported $ 1.86 $( 0.84) $ 0.73
Pro forma 1.86 ( 0.87) 0.70
Diluted earnings (loss) per share
As reported $ 1.84 $( 0.84) $ 0.73
Pro forma 1.84 ( 0.87) 0.70
</TABLE>
There were no options granted during 2004. 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: 22%
volatility, 4.8% annual dividend yield, risk free interest rates of 3.58% and
2.71% in 2003 and 23% volatility, 4.5% annual dividend yield, risk free
interest rate of 4.53% in 2002, 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 2003 and 2002 with exercise prices equal to
the grant date fair market value, the exercise prices and weighted average fair
values of the options were $14.34 and $1.83 in 2003 and $15.05 and $2.37 in
2002, respectively. For those options granted with exercise prices greater than
<PAGE> 31
the grant date fair market value, the exercise prices and weighted average fair
values of the options were none in 2003 and $16.56 and $1.83 in 2002,
respectively.
In fiscal 2004, the Company issued restricted stock grants for 25,000
shares, 12,500 of these shares vest in two years from the date of grant and
12,500 vest in four years. The fair value of the grants based on the market
price at the date of grant was $421,000. The grants are recorded as Unearned
Compensation and amortized over two and four year periods. Amortization expense
as of June 30, 2004 approximated $188,500.
O. 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 $2,840,000,
$2,220,000, and $1,887,000 in 2004, 2003 and 2002 respectively. Total
engineering and development costs were $7,600,000, $7,190,000, and $6,718,000
in 2004, 2003 and 2002 respectively.
P. Pension and Other Postretirement Benefit Plans
The Company has non-contributory, qualified defined benefit pension plans
covering substantially all domestic employees hired prior to October 1, 2003
and 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 employees is to contribute an actuarially determined amount which
falls between the minimum and maximum amount that can be deducted for federal
income tax purposes. Domestic plan assets consist principally of listed equity
and fixed income securities.
On June 20, 2003 the Board of Directors amended the defined benefit pension
plans covering domestic salaried and hourly employees to exclude all employees
hired after October 1, 2003 from the plans. In addition, a portion of the
medical supplement for post-1992 retirees that is payable prior to Medicare
eligibility has been removed from the plan. The $19.24 per month benefit times
years of service has been reduced to $4.42 per month times years of service.
This is effective October 1, 2003 for all participants. The $14.82 benefit
removed is now provided through the retiree health plan discussed below. The
remaining medical supplement will be calculated using service frozen as of
October 1, 2003.
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 upon retirement from the Company.
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. On June 20,
2003 the Board of Directors amended the coverage under the plans as follows:
* Pre-1993 retirees are required to pay any cost increases after 2003 for
retiree medical coverage.
* Dental and vision coverage for Pre-1993 retirees was eliminated.
* Life insurance coverage for individuals who retire on or after
October 1, 2003 was eliminated.
* Access to retiree medical coverage after age 65 for individuals who
retire on or after October 1, 2003 and their spouses was eliminated.
* Retiree medical coverage was eliminated for all employees hired on or
after October 1, 2003.
* A Healthcare Reimbursement Account ("HRA") program will be established
for individuals who retire after January 1, 1993 but before age 65.
OBLIGATIONS AND FUNDED STATUS
The following table sets forth the Company's defined benefit pension plans'
and other post-retirement benefit plan's funded status and the amounts
recognized in the Company's balance sheets and income statements as of June 30
(dollars in thousands):
<PAGE> 32
<TABLE>
<CAPTION>
Other
Pension Post-Retirement
Benefits Benefits
---------------- --------------
2004 2003 2004 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $115,960 $115,147 $ 32,369 $ 32,999
Service cost 1,260 1,344 45 17
Interest cost 7,475 8,277 2,057 2,362
Amendments - (6,376) - (6,106)
Actuarial loss 9,603 7,034 (633) 6,678
Benefits paid (10,147) (9,466) (4,043) (3,581)
------- ------- ------ ------
Benefit obligation, end of year $124,151 $115,960 $ 29,795 $ 32,369
======= ======= ====== ======
Change in plan assets:
Fair value of assets, beginning of year $ 75,278 $ 92,405 $ - $ -
Actual return on plan assets 19,325 (9,403) - -
Employer contribution 4,582 1,742 4,043 3,581
Benefits paid (10,147) (9,466) (4,043) (3,581)
------- ------- ------ ------
Fair value of assets, end of year $ 89,038 $ 75,278 $ - $ -
======= ======= ====== ======
Funded status $(35,113)$(40,682)$(29,795)$(32,369)
Unrecognized net transition obligation 358 391 - -
Unrecognized actuarial loss 50,252 58,128 14,979 17,159
Unrecognized prior service cost (5,467) (5,842) (5,427) (6,106)
------ ------ ------ -------
Net amount recognized $ 10,030 $ 11,995 $(20,243)$(21,316)
====== ====== ====== =======
Amounts recognized in the balance sheet
consist of:
Accrued benefit liability (34,544) (39,483) (20,243) (21,316)
Intangible asset - 24 - -
Deferred tax asset 17,384 20,067 - -
Minimum pension liability adjustment 27,190 31,387 - -
------- ------ ------- -------
Net amount recognized $ 10,030 $ 11,995 $(20,243)$(21,316)
======= ====== ======= =======
The accumulated benefit obligation for all defined benefit pension plans
was $124,151,000 and $115,960,000 at June 30, 2004 and 2003, respectively.
Information for pension plans with an accumulated benefit obligation in excess
of plan assets:
June 30
2004 2003
---- ----
<S> <C> <C>
Projected and accumulated benefit obligation $124,151 $115,960
Fair value of plan assets 89,038 75,278
Components of Net Periodic Benefit Cost
Pension Benefits
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Service cost $ 1,260 $ 1,344 $ 1,361
Interest cost 7,475 8,277 8,203
Expected return on plan assets (6,361) (7,883) (8,476)
Amortization of prior service cost 124 624 625
Amortization of transition obligation 60 56 49
Unrecognized net loss 3,990 2,492 1,802
------ ------ ------
Net periodic benefit cost $ 6,548 $ 4,910 $ 3,564
====== ====== ======
<PAGE> 33
Postretirement Benefits
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Service cost $ 45 $ 17 $ 17
Interest cost 2,057 2,362 2,281
Recognized prior service cost (678) - -
Recognized net actuarial loss 1,547 798 580
------ ------ ------
Net periodic benefit cost $ 2,971 $ 3,177 $ 2,878
====== ====== ======
Additional Information
Pension Benefits Other Benefits
2004 2003 2004 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) in minimum
liability included in other
comprehensive income $ 4,197 $(9,720) N/A N/A
Assumptions
2004 2003 2004 2003
---- ---- ---- ----
Weighted average assumptions used
to determine benefit obligations
at June 30:
Discount rate 6.00% 6.75% 6.00% 6.75%
Expected return on plan assets 8.50% 9.00%
2004 2003 2004 2003
---- ---- ---- ----
Weighted average assumptions used
to determine net periodic benefit
cost for years ended June 30:
Discount rate 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.00% 5.00%
</TABLE>
The assumed weighted average health care cost trend rate was 8% in 2004.
A 1% increase in the assumed health care cost trend would increase the
accumulated postretirement benefit obligation by approximately $401,000 and
the service and interest cost by approximately $24,000. A 1% decrease in the
assumed health care cost trend would decrease the accumulated postretirement
benefit obligation by approximately $376,000 and the service and interest cost
by approximately $22,000.
The Medicare Prescription Drug Improvement and Modernization Act of 2003
provides for a prescription drug benefit beginning in 2006 under Medicare Part
D as well as a subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D.
Based on the benefits provided and expected future prescription costs it has
been estimated that the Company's plans will be actuarially equivalent through
fiscal 2008. The effect of this was to reduce the Company's benefit obligation
by approximately $1,600,000 and reduced related expense in fiscal 2005 by
approximately $225,000.
PLAN ASSETS
The Company's pension plan weighted-average asset allocations at June 30,
2004 and 2003, by asset category are as follows:
<TABLE>
<CAPTION>
Target June 30
Allocation 2004 2003
--------- ---- ----
<S> <C> <C> <C>
Asset Category
Equity securities 61% 66% 58%
Debt securities 35% 30% 42%
Real Estate 4% 4% -
<PAGE> 34
---- ---- ----
100% 100% 100%
====== ====== ======
</TABLE>
Due to market conditions and other factors, actual asset allocation may
vary from the target allocation outlined above. The pension plans held 62,402
shares of Company stock with a fair market value of $1,522,609 ( 1.7% percent
of total plan assets) and $882,988 (1.2% percent of total plan assets) at
June 30, 2004 and 2003, respectively.
Twin Disc employs a total return on investment approach whereby a mix of
equities and fixed income investments are used to maximize long-term return of
plan assets while avoiding excessive risk. Pension plan guidelines have been
established based upon an evaluation of market conditions, tolerance for risk,
and cash requirements for benefit payments. Investment risk is measured and
monitored on an ongoing basis through quarterly investment portfolio reviews,
and annual liability measurements.
The plans have a long-term return assumption of 8.50%. This rate was
derived based upon historical experience and forward-looking return expectations
for major asset class categories.
CASH FLOWS
Contributions
The Company expects to contribute $7,476,000 to its pension plans in
fiscal 2005.
Estimated Future Benefit Payments
<TABLE>
<CAPTION>
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid:
Pension Other
Benefits Benefits
-------- --------
<S> <C> <C>
2005 $9,269 $3,799
2006 8,931 4,603
2007 9,129 5,273
2008 9,259 5,673
2009 9,350 6,131
Years 2010-2014 47,273 33,776
</TABLE>
The Company sponsors defined contribution plans covering substantially all
domestic employees and certain foreign employees. These plans provide for
employer contributions based primarily on employee participation. The total
expense under the plans was $1,266,000, $1,568,000 and $1,780,000 in 2004, 2003,
and 2002 respectively.
Q. INCOME TAXES
United States and foreign (loss) earnings before income taxes and after
minority interest were as follows (in thousands):
<TABLE>
<CAPTION>
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
United States $ 3,243 $ (6,808) $ 694
Foreign 6,734 4,169 4,440
------ ------ ------
$ 9,977 $ (2,639) $ 5,134
====== ====== ======
The provision (credit) for income taxes is comprised of the following
(in thousands):
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ 545 $ ( 176) $ 168
State 50 48 70
Foreign 2,802 1,269 2,334
<PAGE> 35
------ ------ ------
3,397 1,141 2,572
------ ------ ------
Deferred:
Federal 826 (1,281) 441
State 279 (587) (83)
Foreign 207 444 20
------ ------ ------
1,312 (1,424) 378
------ ------ ------
$ 4,709 $( 283) $ 2,950
====== ====== ======
The components of the net deferred tax asset as of June 30 are summarized
in the table below (in thousands).
2004 2003
---- ----
<S> <C> <C>
Deferred tax assets:
Retirement plans and employee benefits $20,280 $23,571
Alternative minimum tax credit
carryforwards 986 509
Foreign tax credit carryforwards 1,403 641
State net operating loss and other
state credit carryforwards 406 553
Federal net operating loss carryforward - 1,206
Other 3,590 3,610
------ ------
26,665 30,090
------ ------
Deferred tax liabilities:
Property, plant and equipment 3,996 4,222
Intangibles 1,382 594
------ ------
5,378 4,816
------ ------
Valuation allowance (1,403) (641)
------ ------
Total net deferred tax assets $19,884 $24,633
====== ======
</TABLE>
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize deferred
tax assets except for certain foreign tax credit carryforwards. Of the
$1,403,000 in foreign tax credit carryforwards at June 30, 2004, $257,000 will
expire in 2005, $223,000 will expire in 2006, $161,000 will expire in 2007 and
$762,000 will expire in 2009. The alternative minimum tax credit carryforwards
will be carried forward indefinitely. Of the $347,000 of state net operating
loss carryforwards, net of Federal tax, at June 30, 2004, $326,000 will expire
in 2014, $17,000 will expire in 2015 and $4,000 will expire in 2017. Of the
$58,000 net of federal tax of state credit carryforwards, any credits not used
by 2006 will be deducted in 2007 and 2008.
Following is a reconciliation of the applicable U.S. federal income taxes
to the actual income taxes reflected in the statements of operations (in
thousands):
<TABLE>
<CAPTION>
2004 2003 2002
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax at 34% $ 3,384 $ ( 901) $ 1,749
Increases (reductions)
in tax resulting from:
Foreign tax items 1,082 291 144
State taxes 313 ( 366) ( 298)
Valuation allowance - - 920
Disposition of investment in subsidiary - - 522
Statutory rate change - 97 -
Other, net ( 70) 596 ( 87)
----- ----- -----
$ 4,709 $ ( 283) $ 2,950
===== ===== =====
</TABLE>
The Company has not recorded deferred income taxes applicable to
<PAGE> 36
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. The undistributed earnings amount to
approximately $20.8 million at June 30, 2004. If these earnings were
remitted to the U.S., they would be subject to U.S. income tax. However
this tax would be substantially less than the U.S. statutory income tax
because of available foreign tax credits.
R. CONTINGENCIES
The Company is involved in litigation of which the ultimate outcome and
liability to the Company, if any, is not presently determinable. Management
believes that final disposition of such litigation will not have a material
impact on the Company's results of operations or financial position.
S. RESTRUCTURING OF OPERATIONS
During the second quarter of fiscal 2003, the Company recorded a pre-tax
restructuring charge of $2.0 million in connection with the reduction of its
workforce. These actions were taken in an effort to streamline the Company's
cost structure and align its corporate workforce with market conditions. The
charge consists of employee termination and severance benefits for a total of
58 employees; 48 production employees and 10 salaried employees. During 2004
and 2003, the Company made cash payments of $358,000 and $600,000, respectively.
Accrued restructuring costs were $942,000 and $1,300,000 at June 30, 2004 and
2003,respectively.
TWIN DISC, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended June 30, 2004, 2003 and 2002
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and end of
Description of Period Expenses Deductions(F1) of Period
- ----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
2004:
Allowance for losses on
accounts receivable $ 502 $ 208 $ 106 $ 604
Reserve for inventory
obsolescence 5,413 1,873 2,614 4,672
2003:
Allowance for losses on
accounts receivable $ 756 $ 135 $ 389 $ 502
Reserve for inventory
obsolescence 4,593 1,822 1,002 5,413
2002:
Allowance for losses on
accounts receivable $ 699 $ 336 $ 279 $ 756
Reserve for inventory
obsolescence 3,346 2,178 931 4,593
(FN)
(F1) Accounts receivable written-off and inventory disposed of during the
year and other adjustments (primarily foreign currency translation adjustments).
</FN>
</TABLE>
<PAGE> 37
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 /s/ FRED H. TIMM
Fred H. Timm, Vice President -
Administration and Secretary
(Chief Accounting Officer)
September 15, 2004
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 /s/ MICHAEL E. BATTEN
( Michael E. Batten, Chairman,
( Chief Executive Officer and Director
(
(
(
September 15, 2004 ( By /s/ MICHAEL H. JOYCE
( Michael H. Joyce, President,
( Chief Operating Officer and Director
(
(
(
( By /s/ CHRISTOPHER J. EPERJESY
( Christopher J. Eperjesy, Vice
( President-Finance, Treasurer and
( Chief Financial Officer
( Paul J. Powers, Director
September 15, 2004 ( David L. Swift, Director
( John A. Mellowes, Director
( George E. Wardeberg, Director
( David R. Zimmer, Director
( David B. Rayburn, Director
( John H. Batten, Director
(
( By /s/ CHRISTOPHER J. EPERJESY
( Christopher J. Eperjesy, Attorney in
Fact
<PAGE> 38
EXHIBIT INDEX
EXHIBIT INDEX
TWIN DISC, INCORPORATED
10-K for Year Ended June 30, 2004
Filed
Exhibit Description Herewith
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, 2004).
b) Corporate Bylaws, as amended through July 30, 2004
(Incorporated by reference to Exhibit 3(b) of the Company's
Form 10-K for the year ended June 30, 2004).
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 10(a) of the Company's Form 10-K for
the year ended June 30, 2004).
b) The 1988 Non-Qualified Stock Option Plan for Officers, Key
Employees and Directors (Incorporated by reference to
Exhibit 10(b) of the Company's Form 10-K for the year ended
June 30, 2004).
c) Amendment to 1988 Incentive Stock Option Plan of Twin Disc,
IncorporatedIncorporated by reference to Exhibit 10(c)of
the Company's Form 10-K for the year ended June 30, 2004).
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
10(d) of the Company's Form 10-K for the year ended
June 30, 2004).
e) Form of Severance Agreement for Senior Officers and form
of Severance Agreement for Senior Officers (Incorporated
by reference to Exhibit 10(e) of the Company's Form 10-K
for the year ended June 30, 2004).
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(g) of the Company's Form 10-K for
the year ended June 30, 2004).
10h) Form of Twin Disc, Incorporated Corporate Short Term
Incentive Plan (Incorporated by reference to Exhibit 10(h)
of the Company's Form 10-K for the year ended June 30,
2004). i) The 1998 Incentive Compensation Plan
(Incorporated by reference to Exhibit A of the Proxy
Statement for the Annual Meeting of Shareholders held on
October 16, 1998).
j) The 1998 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Exhibit B of the Proxy
Statement for the Annual Meeting of Shareholders held
on October 16, 1998).
21 Subsidiaries of the Registrant X
23 Consent of Independent Registered Public Accounting Firm X
24 Power of Attorney X
31a Certification X
31b Certification X
32a Certification pursuant to 18 U.S.C. Section 1350 X
32b Certification pursuant to 18 U.S.C. Section 1350 X
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>r10kex21.txt
<TEXT>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Twin Disc, Incorporated, the registrant (a Wisconsin Corporation) owns
directly or indirectly 100% of the following subsidiaries:
1. Twin Disc International, S.A. (a Belgian corporation)
2. Twin Disc Technodrive Srl (an Italian corporation)
4. Rolla Sp Propellers SA (a Swiss corporation)
3. Twin Disc Srl (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. Mill-Log Equipment Co., Inc. (an Oregon corporation)
7. Twin Disc South East, Inc. (a Florida corporation)
8. Technodrive SARL (A French corporation)
Twin Disc, Incorporated also owns 66% of Twin Disc Nico Co. LTD.
The registrant has no parent nor any other subsidiaries. All of the above
subsidiaries are included in the consolidated financial statements.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>r10kex23.txt
<TEXT>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
on Form S-8 (File Nos. 33-26816, 33-26817, 333-9929, 333-69361 and 333-69015)
of Twin Disc, Incorporated of our report dated July 30, 2004 relating to the
financial statements and financial statement schedules, which appears in this
form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
July 30, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>5
<FILENAME>r10kex24.txt
<TEXT>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of Twin Disc, Incorporated hereby severally
constitute Michael E. Batten and Christopher J. Eperjesey, 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, 2004 pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, and generally do all such things in
our names and behalf as directors to enable Twin Disc, Incorporated to comply
with the provisions of the Securities and Exchange Act of 1934 and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures so they may be signed by our attorneys, or either
of them, as set forth below.
/s/ JOHN A. MELLOWES )
John A. Mellowes, Director )
)
)
/s/ PAUL J. POWER )
Paul J. Powers, Director )
)
)
/s/ DAVID B. RAYBURN )
David B. Rayburn, Director )
)
) July 25, 2004
/s/ DAVID L. SWIFT )
David L. Swift, Director )
)
)
/s/ GEORGE E. WARDEBERG )
George E. Wardeberg, Director )
)
)
/s/ DAVID R. ZIMMER )
David R. Zimmer, Director )
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>6
<FILENAME>r10kex31a.txt
<TEXT>
<PAGE> 1
EXHIBIT 31a
CERTIFICATIONS
I, Michael E. Batten, certify that:
1. I have reviewed this annual report on Form 10-K of Twin Disc,
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
annual report based on such evaluation; and
c) disclosed in this annual report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of this annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: September 15, 2004 /s/ MICHAEL E. BATTEN
Michael E. Batten
Chairman, Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>7
<FILENAME>r10kex31b.txt
<TEXT>
<PAGE> 1
Exhibit 31b
CERTIFICATIONS
I, Christopher J. Eperjesy, certify that:
1. I have reviewed this annual report on Form 10-K of Twin Disc,
Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this annual report
based on such evaluation; and
c) disclosed in this annual report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of this annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 15, 2004 /s/ CHRISTOPHER J. EPERJESY
Christopher J. Eperjesy
Vice President - Finance, Treasurer,
Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>8
<FILENAME>r10kex32a.txt
<TEXT>
<PAGE> 1
EXHIBIT 32a
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Twin Disc, Incorporated (the
"Company") on Form 10-K for the fiscal year ending June 30, 2004, as filed
with the Securities and Exchange Commission as of the date hereof (the
"Report"), I, Michael E. Batten, Chairman and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1) the Report fully complies with Section 13(a) of the Securities
Exchange Act of 1934, and
(2) the information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ MICHAEL E. BATTEN
Michael E. Batten
Chairman, Chief Executive Officer
September 15, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>9
<FILENAME>r10kex32b.txt
<TEXT>
<PAGE> 1
EXHIBIT 32b
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Twin Disc, Incorporated (the
"Company") on Form 10-K for the fiscal year ending June 30, 2004, as filed
with the Securities and Exchange Commission as of the date hereof (the
"Report"), I, Christopher J. Eperjesy, Vice President - Finance, Treasurer and
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
(1) the Report fully complies with Section 13(a) of the Securities
Exchange Act of 1934, and
(2) the information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ CHRISTOPHER J. EPERJESY
Christopher J. Eperjesy
Vice President ? Finance, Treasurer,
Chief Financial Officer
September 15, 2004
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>10
<FILENAME>r10kex3a.txt
<DESCRIPTION>ARTICLES OF INCORPORATION
<TEXT>
<PAGE> 1 Exhibit 3a
RESTATED ARTICLES OF INCORPORATION
OF
TWIN DISC, INCORPORATED
ARTICLE I.
The name of this Corporation shall be: "TWIN DISC, INCORPORATED"
ARTICLE II.
The purpose or purposes for which this Corporation is organized is
to engage in any lawful activities within the purposes for which
corporations may be organized under the Wisconsin Business Corporation
Law. In particular, but without limitation thereto by reason of such
enumeration or restriction upon exercise of any powers, objects or
purposes to manufacture, produce, buy, sell, deal and dispose of all
kinds of goods, wares, merchandise, manufactures, products, commodities
and supplies, either of its own design or under license from others of
their design, and in general to carry on a manufacturing business on
its own behalf or as a contractor therefore in any state, district or
country, and to acquire, own, use, convey, lease, sell, ledge, mortgage,
encumber and otherwise dispose of real and personal property, tangible
and intangible property, property of mixed characteristics, patents,
franchises, privileges, and rights of any and all kinds and wheresoever
situated, and to borrow such funds and issue evidences of indebtedness of
any and all kinds therefore, and to secure the same, all in such fashion
as is deemed to be in the best interests of the Corporation.
ARTICLE III.
A. The capital stock of this Corporation shall consist of 15,000,000
shares of common stock without nominal or par value and 200,000 shares
of no-par preferred stock, the latter as more fully hereinafter provided.
No holder of shares of capital stock of this Corporation shall
have any preemptive, preferential or other right to subscribe for or
purchase any part of the unissued capital stock or capital stock of
this Corporation held in the corporate treasury, whether now or
hereafter authorized, or of other securities of this Corporation of any
type or class which are convertible into capital stock of this
Corporation excepting as the preferred shares herein provided may be
made convertible into shares of the common stock of this Corporation.
Shares of preferred stock may be issued from time to time in one
or more series, each such series to have such distinctive designation or
title as may be fixed by the Board of Directors prior to the issuance of any
shares thereof, and the number of shares of preference stock to be issued
shall be determined from time to time by the Board of Directors. Each such
series may differ from every other series already outstanding as may be
determined from time to time by the Board of Directors prior to the issuance
of any shares thereof, in any or all of the following, but in not other,
respects:
(a) The rate of dividend which the preferred stock of any such
series shall be entitled to receive;
(b) The price at and the terms and conditions upon which such
shares may be redeemed;
(c) The amount payable upon such shares in the event of voluntary
or involuntary liquidation;
(d) Sinking fund provisions for the redemption or purchase of such
shares;
(e) The terms and conditions upon which such shares may be
converted into shares of common stock, if the shares of any series are
issued with the privilege of conversion.
Except as to the matters expressly set forth hereinabove, all series of
the preferred stock whenever designated and issued shall have the same
preferences, limitations, and relative rights and shall rank equally, share
ratably, and be identical in all respects as to all other matters. All
shares of one series of preferred stock shall be alike in every particular
and each series of preferred stock shall be so designated as to distinguish
the shares thereof from the shares of all other series or classes.
<PAGE> 2
Before any dividends shall be paid or set apart for payment upon the
common stock, the holders of preferred stock shall be entitled to receive
dividends at the rate per annum specified by the Board of Directors as above
provided, and no more, payable at such times in each year as may be fixed by
the Board of Directors out of the unreserved and unrestricted earned surplus
of the Corporation or any net capital surplus legally available for the
payment of such dividends. All dividends on preferred stock shall be
cumulative. The holders, however, shall not be entitled to participate in
any other earnings or profits of the Corporation except for such premiums,
if any, as may be payable in case of redemption, liquidation, dissolution or
winding up.
Holders of the common stock and of the preferred stock of the
Corporation shall be entitled to one vote for each share held, on all
questions on which shareholders of the Corporation are entitled to vote.
Holders of each class of stock shall also have such right to vote as a class
as is provided by the applicable statutes of the State of Wisconsin.
B. Pursuant to the authority vested in the Board of Directors of this
Corporation in accordance with the provisions of its Restated Articles of
Incorporation, a series of Preferred Stock of the Corporation be and it
hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
SECTION 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Preferred Stock" and the number of shares
constituting such series shall be 150,000.
SECTION 2. Dividends and Distributions.
A. Subject to the prior and superior rights of the holders of any
series of Preferred Stock ranking prior and superior to the shares of Series
A Junior Preferred Stock with respect to dividends, the holders of shares of
Series A Junior Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of January,
April, July and October in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Preferred Stock, in an amount per
shares (rounded to the nearest cent) equal to the greater of (a) $5.00 or
(b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, without par
value of the Corporation (the "Common Stock") since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share of
fraction of a share of Series A Junior Preferred Stock. In the event the
Corporation shall at any time after June 17, 1988 (the "Rights Declaration
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
B. The Corporation shall declare a dividend or distribution on the
Series A Junior Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $5.00 per
share on the Series A Junior Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
C. Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Junior Preferred Stock, unless the date of issue of such shares is prior to
<PAGE> 3
the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
shares of Series A Junior Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Series A Junior Preferred Stock in an
amount less that the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors of
shares of Series A Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for payment thereof.
SECTION 3. Voting Rights. The holders of shares of Series A Junior
Preferred Stock shall have the following voting rights:
A. Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Preferred Stock shall entitle the holder thereof to
one vote on all matters submitted to a vote of the stockholders of the
Corporation.
B. Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to
a vote of shareholders of the Corporation.
C. (i) If at any time dividends on any Series A Junior Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of
Series A Junior Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, all holders
of Preferred Stock (including holders of the Series A Junior Preferred
Stock) with dividends in arrears in an amount equal to six (6) quarterly
dividends thereon, voting as a class, irrespective of series, shall have the
right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders
of Series A Junior Preferred Stock may be exercised initially at a special
meeting called pursuant to subparagraph (iii) of this Section 3(c) or at any
annual meeting of shareholders, and thereafter at annual meetings of
shareholders, provided that neither such voting right nor the right of the
holders of any other series of Preferred Stock, if an, to increase, in
certain cases, the authorized number of Directors shall be exercised unless
the holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum
of the holders of the Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right initially during
an existing default period, they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in the Board of Directors as
my then exist up to two (2) Directors or, if such right is exercised at an
annual meeting, to elect two (2) Directors. If the number which may be so
elected at any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by them
of the required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and during
the continuance of such period, the number of Directors shall not be
increased or decreased except by vote of the holders of Preferred Stock as
herein provided or pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series A Junior Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any shareholder or
shareholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special meeting of the holders of
Preferred Stock, which meeting shall thereupon be called by the President,
a Vice-President or the Secretary of the Corporation. Notice of such meeting
and of any annual meeting at which holders of Preferred Stock are entitled
to vote pursuant to this paragraph (C) (iii) shall be given to each holder
of record of Preferred Stock by mailing a copy of such notice to him at his
last address as the same appears on the books of the Corporation. Such
<PAGE> 4
meeting shall be called for a time not earlier than 20 days and not later
than 60 days after such order or request or in default of the calling of
such meeting within 60 days after such order or request, such meeting may be
called on similar notice by any shareholder or shareholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding. Notwithstanding the provisions of this
paragraph (C)(iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed for the next
annual meeting of the shareholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of Preferred
Stock shall have exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their successors
shall have been elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as provided
in paragraph (c)(ii) or this Section 3) be filled by vote of a majority of the
remaining Directors theretofore elected by the holders of the class of stock
which elected by the holders of the class of stock which elected the Director
whose office shall have become vacant. References in this paragraph (C) to
Directors elected by the holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as provided in clause (y)
of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect Directors shall cease,
(y) the term of any Directors elected by the holders of Preferred Stock as a
class shall terminate, and (z) the number of Directors shall be such number as
may be provided for in the articles of incorporation or by-laws irrespective of
any increase made pursuant to the provisions of paragraph (C)(ii) of this
Section 3 (such number being subject, however, to change thereafter in any
manner provided by law or in the articles of incorporation or by-laws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
Directors.
D. Except as set forth herein, holders of Series A Junior Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
SECTION 4. Certain Restrictions.
A. Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Junior Preferred
Stock outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Junior Preferred Stock.
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with Series A Junior Preferred Stock,
except dividends paid ratably on the Series A Junior Preferred Stock and all
such parity stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
hares of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Preferred Stock, or any shares of stock ranking on a parity
with the Series A Junior Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
<PAGE> 5
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
B. The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) or this Section 4,
purchase or otherwise acquire such shares at such time in such manner.
SECTION 5. Reacquired Shares. Any shares of Series A Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth herein.
SECTION 6. Liquidation, Dissolution or Winding Up.
A. Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation , no distribution shall be made to the holders of shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Stock unless, prior thereto,
the holders of shares of Series A Junior Preferred Stock shall have received a
premium of $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A Junior Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series A Liquidations Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph C below to reflect such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series A Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series A
Junior Preferred Stock and Common Stock, respectively, holders of Series A
Junior Preferred Stock, as a further premium upon such liquidation, dissolution
or winding up of the Company, and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
B. In the Event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Junior Preferred Stock, then such remaining
asset shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
C. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which the number of shares Common Stock that
were outstanding immediately prior to such event.
SECTION 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares
of Series A Junior Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
<PAGE> 6
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. Optional Redemption
A. The Corporation shall have the right to redeem the Series A Junior
Preferred Stock at any time, either in whole or in such portions as from time
to time the provision for adjustment hereinafter set forth, 100 times the
"current per share market price" of the Common Stock on the date of the mailing
of the notice of redemption, plus an amount equal to accrued and unpaid
dividends thereon to the date fixed for redemption (the "Redemption Date") (the
total sum so payable upon any redemption being hereinafter referred to as the
"Redemption Price"). In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Junior
Preferred Stock were otherwise entitled immediately prior to such even under
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator or which is the number of shares of Common Stock
outstanding immediately prior to such event. The "current per share market
price" on any date shall be deemed to be the average of the closing price per
share of such Common Stock for the 10 consecutive Trading Days (as such term
is hereinafter defined) immediately prior to such date. The closing price for
each day shall be the last sale price, regular way, or in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations Systems ("NASDAQ")
or such other system then in use or, if on any such date the Common Stock is
not quoted by such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Corporation. If on such
date no such market maker is making a market in the Common Stock, the fair
value of the Common Stock on such date as determined in good faith by the Board
of Directors of the Corporation shall be used. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Common Stock listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday
on which banking institutions in the State of Wisconsin are not authorized or
obligated by law or executive order to close.
B. At its election, the Corporation, on or prior to the Redemption Date,
may deposit the aggregate of the Redemption Price of the shares so to be
redeemed with such responsible band or trust company in Milwaukee, Wisconsin
(hereinafter referred to as the "Depositary"), as may be designated by the
Board of Directors, in trust for payment on and after the Redemption Date to
the holders of the Series A Junior Preferred Stock then to be redeemed. If less
than the whole amount of the outstanding Series A Junior Preferred Stock of any
particular series shall be redeemed at any time the shares thereof to be
redeemed shall be selected pro rata, by lot, or in such other manner as the
Board of Directors in its discretion may determine. Notice of any such
redemption shall be mailed to each holder of record of the shares of the Series
A Junior Preferred Stock so to be redeemed, at his address registered with the
Corporation, no more than 60 nor less than 30 days prior to the Redemption
Date, and if less than all the shares owned by such shareholder are then to be
redeemed the notice shall specify the shares which are to be redeemed. Notice
of redemption having been so given, the shares therein designated for
redemption shall not be entitled to any dividends which may be declared after
the Redemption Date specified in such notice, unless default be made in the
payment or deposit of the Redemption Price, and on such Redemption Date, or
any date prior thereto on which the deposit herein provided for shall have been
made, all rights of the respective holders of the said shares, as shareholders
of the Corporation by reason of the ownership of such shares, shall cease,
except the right to receive the Redemption Price of such shares upon
presentation and surrender of their respective certificates representing the
said shares (and except also the right to receive from the Depositary on any
quarterly dividend date which may intervene between the deposit of monies and
the Redemption Date the amount of such quarterly dividend); and such shares
<PAGE> 7
shall not after such Redemption Date or date of deposit be deemed to be
outstanding. In case less than all the shares represented by such certificates
are redeemed a new certificate shall be issued representing the unredeemed
shares.
C. In case the holder of shares of Series A Junior Preferred Stock which
shall have been called for redemption shall not, within 5 years after the
Redemption Date, claim the amount deposited with respect to the redemption
thereof, and the Depositary shall , upon demand, pay over to the Corporation
such unclaimed amount, the Depositary shall be relieved of all responsibility
in respect thereof to such holder and such holder shall look only to the
Corporation for the payment thereof. Any interest accrued on any funds so
deposited shall belong to the Corporation.
D. All shares of Series A Junior Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of authorized
but unissued shares of Preferred Stock, without designation as to series until
such shares are once more designated as part of a particular series by the
Board of Directors.
SECTION 9. Ranking. The Series A Junior Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
SECTION 10. Amendment. At such time as shares of Series A Junior Preferred
Stock are outstanding, the Restated Articles of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Junior Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of a majority or more of the outstanding shares of Series
A Junior Preferred Stock, voting separately as a class.
SECTION 11. Fractional Shares. Series A Junior Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Junior Preferred Stock.
ARTICLE IV.
A. Except as set forth in parts (b) and (e) of the Article, the
affirmative vote or consent of the holders of shares of all classes of stock of
the Corporation possessing four-fifths of the voting rights in elections of
Directors, considered for the purpose of this Article as one class, shall be
required:
(i) for the adoption of any agreement for the merger or consolidation
of this Corporation with or into any other corporation, or
(ii) to authorize any sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of any substantial part of the assets
of the Corporation or any subsidiary of the Corporation to any other
corporation, or
(iii) to authorize the issuance or transfer by this Corporation of
securities of this Corporation in exchange for the securities or assets of any
other corporation.
Such affirmative vote or consent shall be in lieu of the vote or consent
of the holders of the stock of the Corporation otherwise required by law, these
Articles of Incorporation, or any agreement or contact to which the Corporation
is a party.
B. The provisions of Subparagraph (a) of this Article shall not be
applicable to any transaction described therein if such transaction is approved
by resolution of the Board of Directors of this Corporation, provided that the
majority of the members of the Board of Directors voting for approval of such
transaction were duly elected and acting members of the Board of Directors
prior to the time that any such other corporations became a beneficial owner of
shares of stock of the Corporation possessing more than 10% of the voting
rights in elections of Directors.
C. For the purposes of this Article, any corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of stock of the
Corporation which such entity has the right to acquire pursuant to any
agreement of upon exercise of conversion rights, warranties or options or
otherwise or which are beneficially owned, directly or indirectly, by any other
corporation, person or entity with which it or its "affiliate" or "associate",
as those terms are defined in Rule 12b-2 or the General Rules and Regulations
<PAGE> 8
under the Securities and Exchange Act of 1934 in effect January 1, 1970.
D. The Board of Directors of this Corporation shall have the power and
duty to determine for the purposes of this Article on the basis of information
known to the Corporation whether such other corporation, person or entity
beneficially owns more than 10% of the outstanding shares of stock of the
Corporation entitled to vote in elections of Directors, and whether it is an
affiliate or associate of another as defined above, and whether the agreement,
contract or understanding referred to in Subparagraph (e) of this Article is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this Article.
E. The provisions of Subparagraph (a) of this Article shall further be
inapplicable to any of the transactions therein described if the Board of
Directors of this Corporation shall be resolution have approved a memorandum of
understanding with such other corporation with respect to and substantially
consistent with such transaction prior to the time that such other corporation
or entity shall have become a beneficial holder of more than 10% of the
outstanding shares of stock of this Corporation entitled to vote in election of
Directors.
F. No amendment to the Articles of Incorporation of this Corporation
shall amend, alter, change or repeal any of the provisions of this Article
unless the amendment affecting such amendment, alteration or repeal shall
receive the affirmative vote or consent of the holders of four-fifths of all
classes of the stock of the Corporation entitled to vote in elections of
Directors, considered for the purposes of this Article as one class.
ARTICLE V.
The Board of Directors of this Corporation shall consist of such number of
members as the By-Laws may provide, but not less than seven (7) members.
Members of the Board of Directors shall have such qualifications and shall be
elected in such manner, including division into classes for election, as may
from time to time be provided by the By-Laws of this Corporation.
ARTICLE VI.
The period of existence of this Corporation shall be perpetual.
ARTICLE VII.
The address of the registered office of this Corporation at the time of
the adoption of these Restated Articles of Incorporation is 1328 Racine Street,
Racine, Wisconsin, 53403, and the name of its registered agent at such address
James O. Parrish.
These Restated Articles of Incorporation shall supersede and take the
place of the heretofore existing Restated Articles of Incorporation of this
Corporation and any and all amendments thereto.
Signed and the corporate seal affixed on this 21st day of October, 1988.
______________________________
President and Chief
Executive Officer
Attest:
__________________________________
Secretary
[Seal]
This document was drafted by Attorney Clay R. Williams.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2 BYLAWS
<SEQUENCE>11
<FILENAME>r10kex3b.txt
<DESCRIPTION>CORPORATE BY-LAWS
<TEXT>
<PAGE> 1
Exhibit 3b
RESTATED BYLAWS
OF
TWIN DISC, INCORPORATED
(Adopted April 19, 1991)
(Amended July 28, 1995)
(Amended October 18, 1996)
(Amended June 22, 1998)
(Amended July 30, 2004)
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 Corporate 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 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 the Chief
Operating Office or Secretary at the request in writing of a majority of the
Board of Directors, or at the request of the 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 Office 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 majority of the shares represented at such meeting.
(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 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
<PAGE> 2
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 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 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 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 appointment
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 By-laws; or
(d) delivering a signed written statement revoking the proxy to the
corporate Secretary prior to the date of the meeting.
(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 t 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 manner;
<PAGE> 3
(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 conservator, 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-owner(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.
(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) INSPECTOR 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 questions relating to the qualifications of voters 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 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 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 participants.
<PAGE> 4
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. The Chairman of the meeting
shall have the power to rule on any other points of order and his decision
shall be final.
(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 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 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.
(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.
<PAGE> 5
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; to pay
for any property purchased for the Corporation either wholly or partly in
money, stock, 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 ten (10). 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 four 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.
(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) 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 ACTIONG. 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.
<PAGE> 6
(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
much 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, my be elected at the same meeting of Shareholders at which
such action of removal was 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.
(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 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 of 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
other.
<PAGE> 7
(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 Secretary.
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
stockholders called for that purpose.
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 counsel);
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.
(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 vote upon any proposition
to be voted by said Board of Directors. Directors Emeritus shall serve at the
pleasure of the Board.
ARTICLE IV. OFFICERS
(1) NUMBER AND QUALIFICATION. The principal officers of the
Corporation 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, or 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.
(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
<PAGE> 8
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 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
Operation 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.
(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 authority
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 Corporation 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 on e of more books
provided for the at purpose; (b) see that all notices are duly given in
accordance 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
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of stock transfer books for 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.
(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 assistant 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
<PAGE> 9
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.
ATICLES V. INDEMIFICATION 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,
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,
agreement, 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,
indemnification by the Corporation shall be deemed to be excess and any
indemnification or insurance provided by such other entity shall be deemed the
primary.
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 final 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 Vice President
and by the Secretary or an Assistant Secretary and may be signed by the
<PAGE> 10
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 President, the
Vice President, the Secretary or Assistant Secretary on a certificate may be
facsimiles if the certificate is countersigned by a transfer agent 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 cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefore upon such terms and indemnity to the
Corporation as the Board of Directors may prescribe.
(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
discretion, 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 certificate, 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 Corporation
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
The By-laws may be amended, repealed or altered in whole or in part by 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
pecified in the notice of any such Special Meeting.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>12
<FILENAME>r10kex10a.txt
<DESCRIPTION>1988 INCENTIVE STOCK OPTION PLAN
<TEXT>
<PAGE> 1
Exhibit 10a
1988 INCENTIVE STOCK OPTION PLAN
OF TWIN DISC, INCORPORATED
(1) PURPOSE The purpose of this incentive stock option plan
(hereinafter called "Plan") is to secure for Twin Disc, Incorporated
(hereinafter called "Company") the benefits which result from providing
present or future officers and key employees of the Company with the
performance incentives inherent in common stock ownership. This Plan is
expected to benefit the Company's shareholders by enabling the Company to
attract and retain qualified management personnel, to provide incentive
compensation to such personnel, and to encourage such personnel to acquire
or increase their proprietary interests in the Company. It is intended that
options issued pursuant to this Plan shall constitute incentive stock options
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended.
(2) STOCK The total number of shares of common stock to be subject
to options upon the exercise of options granted under this Plan will not
exceed 125,000 shares of the Company's common stock, subject to adjustment as
provided in Paragraph 9(a) hereof. Such shares may be authorized and unissued
shares of common stock which have been reacquired by the Company, or a
combination thereof. Shares subject to an option under this Plan which is not
exercised in full, or shares as to which the right to purchase is forfeited
through default or otherwise, shall remain available for other options under
this Plan.
(3) ELIGIBILITY An option may be granted to any officer or key
employee of the Company (hereinafter called "Eligible Participant").
(4) MAXIMUM CALENDAR YEAR GRANT TO ANY EMPLOYEE The aggregate fair
market value (determined at the time an option is granted) of the stock for
which an Eligible Participant may be granted incentive stock options first
exercisable in any calendar year shall not exceed $100,000.
(5) ADMINISTRATION
(a) This Plan will be administered by a committee (hereinafter called
"Committee") of not less than three (3) non-officer directors, who
shall be appointed and serve at the pleasure of the Board of
Directors.
(b) A majority of the Committee shall constitute a quorum, and acts
of a majority at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee shall be deemed the
acts of the Committee.
(c) The Committee shall select one of its members as Chairman. The
Committee shall appoint a Secretary, who shall maintain a record of
its actions, decisions and proceedings. The Committee shall have the
authority to grant options, and subject to the express provisions of
this Plan:
(1) Determine the number of shares subject to each option and the
terms thereof;
(2) Prescribe rules and regulations from time to time for
administration of this Plan;
(3) Decide any questions arising as to the interpretation or
application of any provision of this Plan.
(d) No member of the Board of Directors or the Committee shall be
liable for any action or determination made in good faith with respect
to the Plan or any option granted under it.
(6) OPTION PRICE Each option shall state the option price, which
shall be not less than the fair market value of such stock at the date of grant
of the option, unless an optionee (hereinafter called "Participant") owns more
than ten percent (10%) of the total combined voting power of all classes of the
Company's stock, in which case the option price shall be at least one hundred
ten percent (110%) of the fair market value of the such stock. The fair market
value of the stock at the date of grant shall be the closing price of the stock
on the business day preceding the date of grant on the principal stock exchange
on which the Company's stock is then listed.
(7) TERMS OF OPTION Options shall be exercisable upon the terms and
conditions set forth below. Each option granted under this Plan shall be
evidenced by an agreement between the Company and the Participant, and shall
<PAGE> 2
contain, in such form and with such other provisions as the Committee shall
from time to time approve and determine, provisions to the following effect:
(a) An option shall be nontransferable and may be exercised only by
the Participant during the Participant's lifetime. A Participant shall
have the right upon his death to transfer options granted to him,
either by will or under the laws of intestate succession, subject to
the provisions of Paragraph 7(b)(2) hereof.
(b)
(1) If a Participant's employment by the Company is terminated for
any reason other than death or disability, the Participant may,
within the ninety (90) days after termination, exercise any rights
under any option theretofore granted to the Participant which the
Participant would have been entitled to exercise on the date of
such determination.
(2) If a Participant's employment by the Company is terminated by
death, the person or persons to whom any option theretofore granted
to the Participant passes, pursuant to his will or under the laws
of intestate succession, may exercise any rights under any option
theretofore granted to the Participant which the Participant would
have been entitled to exercise on the date of his death, but such
exercise must be made within one year of the death of the
Participant. If the termination is due to disability, the
Participant may exercise the option within one (1) year form the
date of such termination.
(3) To the extent any option has not yet become exercisable on the
date a Participant's employment is terminated, such option shall
automatically terminate.
(c) An option must be exercised within ten (10) years of its grant,
unless the Participant owns more than ten percent (10%) of the total
combined voting power of all classes of the Company's stock, in which
case it must be exercised within five (5) years its grant.
(d) An option shall be exercised by delivering to the Chief Financial
Officer of the Company at its principal business office a written
notice designating the number of shares for which it is being
exercised. Payment in full for the number of shares for which the
option is being exercised must accompany such notice.
(8) SHARES ACQUIRED ON EXERCISE OF OPTION
(a) At the time of exercise, unless the shares acquired are the
subject of an effective registrations statement, a Participant shall
be required to give a written representation that he is acquiring such
shares for his own account and for purposes of investment, and not with
a view to, or for sale in connection with, the distribution of such
shares, nor with any present intention of distributing such shares. The
Participant shall further acknowledge his understanding that such
shares are not registered under the Securities Act of 1933, as amended,
on the ground that the issuance of shares pursuant to the exercise of
an option granted pursuant to this Plan is exempt from registration as
not involving any public offering, and that the Company's reliance on
such exemption is in part based on the foregoing representation. The
Participant shall further agree that he will not sell or transfer any
shares purchased through exercise of an option until a registration
statement covering the shares is effective, or until he receives an
opinion by the Company's counsel that a proposed sale or transfer will
not violate the Securities Act of 1933, as amended, or until he obtains
a no-action letter from the Securities Exchange Commission with respect
thereto.
(b) Unless shares acquired are covered by an effective registration
statement, their certificates shall bear an appropriate legend
restricting their transfer.
(9) MISCELLANEOUS
(a) In the event any stock dividend, subdivision, stock split,
combination of shares, reclassification, recapitalization, or if the
Company shall participate in a merger or consolidation in which the
Company is the surviving corporation, or if other similar change in the
capitalization of the Company occurs affecting its common stock, the
Committee shall make corresponding adjustments in(1) the number of
shares and the price per share applicable to the outstanding options,
(2) the number of shares then reserved for award under options
thereafter to be granted, and (3) applicable limitations set forth in
<PAGE> 3
this Plan with respect to the granting of options.
(b) No fractional shares of stock shall be issued upon the exercise of
any option and the Company shall not be under any obligation to
compensate any Participant for fractional shares.
(c) This Plan does not impose on the Company an obligation to continue
the employment of any Participant or Eligible Participant.
(d) No Participant shall have any rights as a shareholder of the
Company with respect to any shares for which he has an option to
purchase until issuance to him of a certificate representing such
shares.
(10) EFFECTIVE DATE OF PLAN This plan shall become effective upon the
later of the date of adoption by the Board of Directors of the Company or the
date of ratification by the Company's shareholders, subject to compliance with
all applicable laws.
(11) TERM OF PLAN Options may be granted pursuant to this Plan form
time to time within a period of ten (10) years from the effective date of the
Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>13
<FILENAME>r10kex10b.txt
<DESCRIPTION>1988 NON-QUALIFIED STOCK OPTION PLAN
<TEXT>
<PAGE> 1
exhibit 10b
1988 NON-QUALIFIED STOCK OPTION PLAND FOR
OFFICERS, KEY EMPLOYEES, AND DIRECTORS
OF TWIN DISC, INCORPORATED
1. PURPOSE. The purpose of this stock option plan (hereinafter called
"Plan") is to secure for Twin Disc, Incorporated (hereinafter called "Company")
the benefits which result from providing present or future officers,
key employees, and directors of the Company with the performance incentives
inherent in common stock ownership. This Plan is expected to benefit the
Company's shareholders by enabling the Company to attract and retain qualified
individuals to serve as its officers, key employees, and directors, to provide
incentive compensation to such individuals, and to encourage such individuals
to acquire or increase their proprietary interests in the Company.
2. STOCK. The total number of shares of common stock to be subject to
options upon the exercise of options granted under this Plan will not exceed
75,000 shares of the Company's common stock, subject to adjustment as provided
in Paragraph 8(a) hereof. Such shares may be authorized and unissued shares of
common stock, or issued shares of common stock which have been reacquired by
the Company, or a combination thereof. Shares subject to an option under this
Plan which is not exercised in full, or shares as to which the right to
purchase is forfeited through default or otherwise, shall remain available for
other options under this Plan.
3. ELIGIBILITY. An option may be granted to any officer, key employee,
or director of the Company (hereinafter called "Eligible Participant").
4. ADMINISTRATION.
(a) This Plan will be administered by the Salary and Selection
Committee of the Company's Board of Directors (hereinafter called
"Committee").
(b) A majority of the Committee shall constitute a quorum, and
acts of majority present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee shall be
deemed the acts of the Committee.
(c) The Committee shall select one of its members as Chairman. The
Committee shall appoint a Secretary, who shall maintain a record of
its actions, decisions and proceedings. The Committee shall have the
authority to grant options, and subject to the express provisions of
this Plan:
(1) Determine the number of shares subject to each option and
the terms thereof;
(2) Prescribe rules and regulations from time to time for
administration of this Plan;
(3) Decide any questions arising as to the interpretation or
application of any provision of this Plan
(d) No member of the Board of Directors or the Committee shall be
liable for any action or determination made in good faith with respect
to the Plan or any option granted under it.
5. OPTION PRICE. Each option shall state the option price, which shall
be not less than the fair market value of such stock at the date of grant of the
option. The fair market value of the stock at the date of grant shall be the
closing price of the stock on the business day preceding the date of grant on
the principal stock exchange on which the Company's stock is then listed.
6. TERMS OF OPTION. Options shall be exercisable upon the terms and
conditions set forth below. Each option granted under this Plan shall be
evidenced by an agreement between the Company and the optionee (hereinafter
called "Participant") and shall contain, in such form and with such other
provisions as the Committee shall from time to time approve and determine,
provisions to the following effect:
(a) An option shall be nontransferable and may be exercised only
by the participant during the Participant's lifetime. A Participant
shall have the right upon his death to transfer options granted to
him, either by will or under the law of intestate succession, subject
to the provisions of Paragraph 6(b)(2) hereof.
(b)
(1) If a Participant's employment or retention by the Company
<PAGE> 2
is terminated for any reason other than death or disability, the
Participant may, within the ninety (90) days after terminations,
exercise any rights under any option theretofore granted to the
Participant which the Participant would have been entitled to
exercise on the date of such termination.
(2) If a Participant's employment or retention by the Company
is terminated by death, the person or persons to whom any option
theretofore granted to the Participant passes, pursuant to his
will or under the laws of intestate succession, may exercise any
rights under any option theretofore granted to the Participant
which the Participant would have been entitled to exercise on the
date of his death, but such exercise must be made within one year
of the death of the Participant. If the termination is due to
disability, the Participant may exercise the option within one
(1) year from the date of such termination.
(3) To the extent any option has not yet become exercisable on
the date a Participant's employment or retention is terminated,
such option shall automatically terminate.
(c) An option must be exercised within ten (10) years of its grant.
(d) An option shall be exercised by delivering to the Chief
Financial Officer of the Company at its principal business office a
written notice designating the number of shares for which it is being
exercised. Payment in full for the number of shares for which the
option is being exercised must accompany such notice.
(e) A Participant shall pay to the Company, upon its demand, such
sums as may be requested by the Company for the purpose of satisfying
its liability to withhold federal, state or local income or other
taxes occurred by reason of the exercise of an option or the transfer
of shares upon such exercise.
7. SHARES ACQUIRED ON EXERCISE OF OPTION.
(a) At the time of exercise, unless the shares acquired are the
subject of an effective registration statement, a Participant shall
be required to give a written representation that he is acquiring
such shares for his own account and for purposes of investment, and
not with a view to, or for sale in connection with, the distribution
of such shares, nor with any present intention of distributing such
shares. The Participant shall further acknowledge his understanding
that such shares are not registered under the Securities Act of 1933,
as amended, on the ground that the issuance of shares pursuant to
the exercise of an option granted pursuant to this Plan is exempt
from registration as not involving any public offering, and that the
Company's reliance on such exemption is in part based on the foregoing
representation. The Participant shall further agree that he will not
sell or transfer any shares purchased through exercise of an option
until a registration statement covering the shares is effective, or
until he receives an opinion by the Company's counsel that a proposed
sale or transfer will not violate the Securities Act of 1933, as
amended, or until he obtains a no-action letter from the Securities
Exchange Commission with respect thereto.
(b) Unless shares acquired are covered by an effective registration
statement, their certificates shall bear an appropriate legend
restricting their transfer.
8. MISCELLANEOUS.
(a) In the event of any stock dividend, subdivision, stock split,
combination of shares, reclassification, recapitalization, or if the
Company shall participate in a merger or consolidation in which the
Company is the surviving corporation, or if other similar change in
the capitalization of the Company occurs affecting its common stock,
the Committee shall make corresponding adjustments in (1) the number
of shares and the price per share applicable to the outstanding
options, (2) the number of shares then reserved for award under
options thereafter to be granted, and (3) applicable limitations set
forth in this Plan with respect to the granting of options.
(b) No fractional shares of stock shall be issued upon the exercise
of any option and the Company shall not be under any obligation to
compensate any Participant for fractional shares.
(c) This Plan does not impose on the Company an obligation to
continue the employment or retention of any Participant or Eligible
Participant.
<PAGE> 3
(d) No Participant shall have any rights as a shareholder of the
Company with respect to any shares for which he has an option to
purchase until issuance to him of a certificate representing such
shares.
9. EFFECTIVE DATE OF PLAN. This Plan shall become effective upon the
later of the date of adoption by the Board of Directors of the Company or the
date of ratification by the Company's shareholders, subject to compliance with
all applicable laws.
10. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years form the effective date of the Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>14
<FILENAME>r10kex10c.txt
<DESCRIPTION>AMENDMENT TO 1988 STOCK OPTION PLAN
<TEXT>
<PAGE> 1
exhibit 10c
AMENDMENT TO 1988 INCENTIVE STOCK OPTION PLAN
OF TWIN DISC, INCORPORATED
The following is the text of Paragraph 2 of the 1988 Incentive Stock Plan
of Twin Disc, Incorporated. The proposed change is in italics.
2. STOCK. The total number of shares of common stock to be subject to
options upon the exercise of options granted under this Plan will not exceed
225,000 shares of the Company's common stock, subject to adjustment as provided
in Paragraph 9(a) hereof. Such shares may be authorized and unissued shares of
common stock, or issued shares of common stock which have been reacquired by
the Company, or a combination thereof. Shares subject to an option under this
Plan which is not exercised in full, or shares as to which the right to
purchase is forfeited through default or otherwise, shall remain available
for other options under this Plan.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>15
<FILENAME>r10kex10d.txt
<DESCRIPTION>AMENDMENT TO 1988 NON-QUALIFIED STOCK OPTION PLAN
<TEXT>
<PAGE> 1
exhibit 10d
AMENDMENT TO 1988 NON-QUALIFIED STOCK OPTION PLAN
FOR OFFICERS, KEY EMPLOYEES AND DIRECTORS
OF TWIN DISC, INCORPORATED
The following is the text to Paragraph 2 of the 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors of Twin Disc,
Incorporated. The proposed change is in italics.
2. STOCK. The total number of shares of common stock to be subject to
options upon the exercise of options granted under this Plan will not exceed
125,000 shares of the Company's common stock, subject to adjustment as provided
in Paragraph 8(a) hereof. Such shares may be authorized and unissued shares of
common stock, or issued shares of common stock which have been reacquired by the
Company, or a combination thereof. Shares subject to an option under this Plan
which is not exercised in full, or shares as to which the right to purchase is
forfeited through default or otherwise, shall remain available for other options
under this Plan.
The following is the text of Paragraph 4(e) of the 1988 Non-Qualified Stock
Option Plan for Officers, Key Employees and Directors of Twin Disc,
Incorporated.
4. ADMINISTRATION. Each Director of the Company may be granted options
each year to purchase shares of the Company's common stock based upon the number
of years which each Director has served the Company as Director. Each Director
who has served as Director for one year or more is entitled to an annual base
award of options for three hundred (300) shares. In addition, after the first
year of service, each Director is entitled to an additional award of options
for one hundred (100) shares for each year of service, up to a maximum total
award of options for one thousand (1,000) shares. After the first year of
service as a Director, each Director is entitled to automatic award of base
and additional options based upon years of service as follows: 0 to 1 year, no
award; 1 to 2 years, 400 options; 2 to 3 years, 500 options; 3 to 4 years, 600
options; 4 to 5 years, 700 options; 5 to 6 years, 800 options; 6 to 7 years,
900 options; 7 or more years, 1,000 options. Each option shall bear an exercise
price equal to the fair market value of the Company's common stock on the date
of grant of such option. Other than to comply with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act or any other
applicable law or rules promulgated thereunder, this Paragraph 4(e) may not be
modified or amended more than once every six (6) months. Except as specified
in this Paragraph 4(e), all other terms and conditions under the Plan shall
apply to options granted to Directors pursuant to this paragraph.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>16
<FILENAME>r10kex10e.txt
<DESCRIPTION>SEVERANCE AGREEMENT
<TEXT>
<PAGE> 1
exhibit 10e
SEVERANCE AGREEMENT
THIS AGREEMENT is executed and entered into as of this _____ day of
________ 200X, by and between Twin Disc, Incorporated, a Wisconsin corporation,
with its principal offices located at 1328 Racine Street, Racine,
Wisconsin ("Corporation"), and ______________ ("Employee").
WITNESSETH:
WHEREAS, the Board of Directors of the Corporation is aware of the
uncertainties created by the current business environment in which tender offers
for publicly-held corporations are increasingly frequent, is aware that the
possibility of a change in control of the Corporation raises questions and
uncertainties, and is aware that these questions and uncertainties are cause
for legitimate concern among key Corporation employees about their future with
the Corporation; and
WHEREAS, the Board of Directors of the Corporation recognizes that the
efforts of those employees identified by the Board as key management employees
have contributed and will continue to contribute to the growth and success of
the Corporation; and
WHEREAS, the Board of Directors of the Corporation is concerned that the
uncertainties associated with the current business environment may adversely
affect the morale of key management employees of the Corporation, undermine the
confidence of such key management employees in the ability of the Corporation
to remain a viable and competitive entity and jeopardize the ability of the
Corporation to attract and retain the services of key management employees in
the future; and
WHEREAS, the Board of Directors of the Corporation believes that in the
best interests of the Corporation, it is essential that key management
employees, including Employee, be retained and that the Corporation be in a
position to rely on their ongoing dedication and commitment to render services
to the Corporation, irrespective of whether the Corporation is or may be
acquired or merged with or into another corporation.
NOW, THEREFORE, in consideration of, and as a specific inducement for, the
continued services of Employee, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date hereof
and shall continue in effect until ____________; provided, however, that
commencing on __________, 200X, and each _______________ thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than August 1 of that year, the Corporation shall have given notice
that it does not wish to extend this Agreement; provided, further, if a Change
in Control (as defined in Section 2 below) of the Corporation shall have
occurred during the original or extended term of this Agreement, this Agreement
shall continue in effect for a period of twenty-four (24) months beyond the
month in which such Change in Control of the Corporation occurred.
2. CHANGE IN CONTROL OF THE CORPORATION.
(a) No benefits shall be payable hereunder unless there shall have
been a Change in Control of the Corporation, as set forth below. For purposes of
this Agreement, a "Change in Control of the Corporation" shall mean a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") whether or not the Corporation is
then subject to such reporting requirement; provided that without limitation,
such a change in control shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) other than Michael Batten or any member of his family (the "Batten
Family"), is or becomes the "beneficial owner' (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Corporation
representing thirty percent (30%) or more of the combined voting power of the
Corporation's then outstanding securities;
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement) there shall
cease to be a majority of the Board comprised as follows: individuals who at
the beginning of such period constitute the Board and any new director(s) whose
election by the Board or nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved; or
<PAGE> 2
(iii) the shareholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation, or the shareholders of the Corporation
approve a plan of complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of all or substantially all the
Corporation's assets.
(b) For purposes of this Agreement a "Potential Change in Control of
the Corporation" shall be deemed to have occurred if (i) the Corporation enters
into an agreement, the consummation of which would result in the occurrence of
a Change in Control of the Corporation, (ii) any person (including the
Corporation) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control of the
Corporation, (iii) any person, other than a member of the Batten Family or a
trustee or other fiduciary holding securities under an employee benefit plan of
the Corporation or a corporation owned, directly or indirectly, by the
shareholders of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation, who is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing 9.5% or
more of the combined voting power of the Corporation's then outstanding
securities, increases his beneficial ownership of such securities by 5% or more
over the percentage so owned by such person on the date hereof; or (iv) the
Board adopts a resolution to the effect that, for purposes of this Agreement,
a Potential Change in Control of the Corporation has occurred. Employee agrees
that, subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control of the Corporation, Employee shall not terminate his
employment with the Corporation until the earliest of (i) a date which is six
(6) months from the occurrence of such Potential Change in Control of the
Corporation, (ii) the termination by Employee of his employment by reason of
Disability or Retirement (at Employee's normal retirement age), as defined in
Subsection 3(a) hereof, or (iii) the occurrence of a Change in Control of the
Corporation.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL OF THE CORPORATION. If any
of the events described in Section 2 hereof constituting a change in control of
the Corporation shall have occurred, Employee shall be entitled to the benefits
provided in Subsection 4(d) hereof immediately upon a termination of his
employment which occurs during the term of this Agreement unless such
termination is (i) due to Employee's death, Disability or Retirement, (ii) by
the Corporation for Cause, or (iii) by Employee other than for Good Reason.
(a) DISABILITY;RETIREMENT. If, as a result of Employee's incapacity
due to physical or mental illness, Employee shall have been absent from the
full-time performance of his duties with the Corporation for six (6) consecutive
months, and within thirty (30) days after written notice of termination is
given, Employee shall not have returned to the full-time performance of his
duties, the Corporation may terminate Employee's employment for "Disability."
Termination by the Corporation or by Employee of Employee's employment by reason
of "Retirement" shall mean termination on or after Employee's "Normal Retirement
Date" as defined in Section 4.1 of Twin Disc Incorporated Supplemental
Retirement Plan, Approved June 21, 1984 and Amended January 1, 1985 (the
"Supplemental Retirement Plans"), as applicable to Employee, as of the date
hereof, or in accordance with any retirement arrangement established with
Employee's consent, with respect to Employee.
(b) CAUSE. Termination by the Corporation of Employee's employment
for "Cause" shall mean termination upon (i) the willful and continued failure
by Employee to substantially perform his duties with the Corporation (other
than any such failure resulting from termination for Good Reason) after a
demand for substantial performance is delivered to Employee that specifically
identifies the manner in which the Corporation believes that Employee has not
substantially performed his duties, and Employee has failed to resume
substantial performance of his duties on a continuous basis within fourteen
(14) days of receiving such demand, (ii) the willful engaging by Employee in
conduct which is demonstrably and materially injurious to the Corporation,
monetarily or otherwise or (iii) Employee's conviction of a felony or conviction
of a misdemeanor which materially impairs Employee's ability substantially to
perform his duties with the Corporation. For purposes of this Subsection, no
act or failure to act, on Employee's part shall be deemed "willful" unless done,
or omitted to be done, by Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of the Corporation.
(c) GOOD REASON. Employee shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good Reason"
<PAGE> 3
shall mean, without Employee's express written consent, the occurrence after
a Change in Control of the Corporation of any one or more of the following:
(i) the assignment to Employee of duties, responsibilities or
status inconsistent with his present duties, responsibilities and status as the
Vice President-Finance of the Corporation or a reduction or alteration in the
nature or status of Employee's duties and responsibilities from those in effect
as of the date hereof;
(ii) a reduction by the Corporation in Employee's base salary as
in effect on the date hereof or as the same shall be increased from time to time
("Base Salary");
(iii) the Corporation's requiring Employee to be based at an
office location other than in Racine, Wisconsin;
(iv) the failure by the Corporation to continue in effect the
Corporation's Salaried Retirement Plan, Supplemental Retirement Plan, Choice
Plan (Cafeteria plan under section 125 for qualified group insurance benefits),
Incentive Bonus Program, The Accelerator 401(k) Savings Plan, Key Man Life
Insurance Program, Travel Accident Insurance, Qualified and Non-Qualified Stock
Option Plans or any other of the Corporation's employee benefit plans, policies,
practices or arrangements in which Employee participates or the failure by the
Corporation to continue Employee's participation therein on substantially the
same basis, both in terms of the amount of benefits provided and the level of
Employee's participation relative to other participants, as existed as of the
date hereof;
(v) the failure of the Corporation to obtain a satisfactory
agreement from any successor to he Corporation to assume and agree to perform
this Agreement as contemplated in Section 5 hereof; and
(vi) any purported termination by the Corporation of Employee's
employment that is not effected pursuant to a Notice of Termination satisfying
the requirements of Subsection (d) below, and for purposes of this Agreement, no
such purported termination shall be effective. Employee's right to terminate
his employment pursuant to this Subsection shall not be affected by his
incapacity due to physical or mental illness. Employee's continued employment
shall not constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
(d) NOTICE OF TERMINATION. Any termination by the Corporation for
Cause or by Employee for Good Reason shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee's employment under the provision so indicated.
(e) DATE OF TERMINATION. "Date of Termination" shall mean the date
specified in the Notice of Termination where required or in any other case the
date upon which Employee ceases to perform services to the Corporation; provided
that if within thirty (30) days after any Notice of Termination one party
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date finally determined to be the Date of
Termination, either by mutual written agreement of the parties or by the final
nonappealable determination of a court of competent jurisdiction.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
Change in Control of the Corporation, as defined in Section 2 hereof, upon
termination of Employee's employment or during a period of disability Employee
shall be entitled to the following benefits:
(a) During any period that Employee fails to perform his full-time
duties with the Corporation as a result of incapacity due to physical or mental
illness or disability, Employee shall continue to receive his Base Salary at the
rate in effect at the commencement of any such period, until Employee's
employment is terminated pursuant to Subsection 3(a) hereof. Thereafter,
Employee's benefits shall be determined in accordance with the Corporation's
retirement, insurance and other applicable programs and plans then in effect.
(b) If Employee's employment shall be terminated by the Corporation
for Cause or by Employee other than for Good Reason, the Corporation shall pay
Employee his full Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given or on the Date of Termination
if no Notice of Termination is required hereunder, plus all other amounts to
which Employee is entitled under any compensation plan of the Corporation at the
time such payments are due, and the Corporation shall have no further
obligations to Employee under this Agreement.
<PAGE> 4
(c) If Employee's employment terminates by reason of his Retirement
or by reason of his death, then Employee's benefits shall be determined in
accordance with the Corporation's Supplemental Retirement Plans, and its
retirement, survivor's benefits, insurance, and/or such other applicable
programs and plans then in effect.
(d) If Employee's employment by the Corporation shall be terminated
(i) by the Corporation other than for Cause, Retirement or Disability or (ii) by
Employee for Good Reason, Employee shall be entitled to the benefits (the
"Severance Payments") provided below:
(A) the Corporation shall pay Employee his full Base Salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of Termination
is required hereunder;
(B) the Corporation shall pay as severance benefits to
Employee, not later than the tenth (10th) day following the Date of Termination
a lump sum severance payment equal to the product of (i) the sum of (I)
Employee's annual Base Salary in effect immediately prior to the occurrence of
the circumstances giving rise to such termination, and (II) the most recent
annual bonus awarded to Employee; times (ii) the lesser of (I) 1.50 or (II) the
number of whole and fractional years occurring between Employee's Date of
Termination and his Normal Retirement Date as set forth in the Supplemental
Retirement Plans;
(C) in lieu of shares of common stock of the Corporation
("Option Shares") issuable upon exercise of outstanding options ("Options"), if
any, granted to Employee under the Corporation's 1988 Incentive Stock Option
Plan and 1988 Non-Qualified Stock Option Plan, together with any additional,
substitute or successor option program or plan as may be in effect from time to
time, (which Options shall be canceled upon the making of the payment referred
to below), Employee shall receive an amount in cash equal to the product of (i)
the higher of the closing price of shares reported on the New York Stock
Exchange on the Date of Termination or the highest per share price for Option
Shares actually paid in connection with any Change in Control of the
Corporation, over the per share exercise price of each Option held by Employee,
times (ii) the number of Option Shares covered by each such Option;
(D) for a twenty-four (24) month period after such termination,
the Corporation will arrange to provide Employee, at the Corporation's expense,
with benefits under the Corporation's applicable employee fringe benefit plans,
which benefits shall be the same or substantially similar to the benefits
Employee was receiving immediately prior to the Notice of Termination; but in no
event shall Employee be provided the benefits described herein after his Normal
Retirement Date; and provided further that benefits otherwise receivable by
Employee pursuant to this Subsection (D) shall be reduced to the extent
comparable benefits are actually received by Employee during the twenty-four
(24) month period following Employee's termination and any such benefits
actually received by Employee shall be reported to the Corporation.
(e) in the event that Employee becomes entitled to the Severance
Payments, if it is determined that any of the Severance Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986 ("Code") (or any similar tax that may hereafter be imposed), the
Severance Payments to which Employee is entitled hereunder shall be reduced to
the extent necessary to avoid the imposition of any Excise Tax upon such
Severance Payments. In the event Severance Payments shall have previously been
made to Employee which are or would be subject to the Excise Tax, Employee shall
immediately repay to the Corporation that portion of the Severance Payments
determined to be subject to such Excise Tax. For purposes of determining
whether any of the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) any other payments or benefits received or to be
received by Employee in connection with a Change in Control of the Corporation
or Employee's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Corporation, any
person whose actions result in a Change in Control of the Corporation or any
person affiliated with the Corporation or such person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b)(1) shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Corporation's independent auditors and acceptable to Employee
such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to
the Excise Tax, (ii) the amount of the Severance Payments which shall be treated
<PAGE> 5
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Severance Payments or (B) the amount of excess parachute payments
within the meaning of Section 280G(b)(1) (after applying clause (i) above), and
(iii) the value of any non-cash benefits or any deferred payment or benefits
shall be determined by the Corporation's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code. In the event that
the Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time of termination of Employee's employment, the
Corporation shall repay to the Employee at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Severance
Payments previously repaid by Employee to the Corporation hereunder attributable
to such reduction plus interest on the amount of such repayment at the rate
provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the time of
the termination of Employee's employment, Employee shall repay to the
Corporation such further excess portion of the Severance Payments as would be
subject to the Excise Tax (plus any interest payable with respect to such
excess) at the time that the amount of such excess is finally determined.
(f) In the event the amount of Severance Payments that Employee
would be entitled to receive hereunder, following a Change in Control of the
Corporation, upon termination of Employee's employment, would, under any
applicable provision of law, render the validity, legality or enforceability
of this Agreement and the Severance Payments made hereunder contingent upon
this Agreement having first been approved by the affirmative vote of a majority
of the aggregate outstanding voting securities of the Corporation, (i) the
Severance Payments due Employee hereunder shall be reduced to the extent
necessary to avoid rendering this Agreement subject, under any applicable
provision of law, to prior shareholder approval as specified above; or (ii) if
Severance Payments have previously been made to Employee hereunder, the amount
of which Severance Payments would render this Agreement subject to prior
shareholder approval, as specified above, as a condition precedent to its
validity, legality or enforceability, Employee shall immediately repay to the
Corporation that portion of the Severance Payments which served to render this
Agreement subject to said prior shareholder approval.
(g) The payments provided for in Subsection (d) above shall be made
no later than the tenth (10th) day following the Date of Termination; provided.
however, that if the amounts of such payments cannot be finally determined on or
before such day, the Corporation shall pay to Employee on such day an estimate
as determined in good faith by the Corporation of the minimum amount of such
payments and shall pay the remainder of such payments (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Corporation to Employee payable on the
tenth (l0th) day after demand by the Corporation (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(h) The Corporation shall also pay to Employee all legal fees and
expenses incurred by Employee as a result of such termination of employment
(including all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provided hereunder).
(i) Employee shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Section 4 be reduced by
any compensation earned by Employee as the result of employment by another
employer after the Date of Termination, or otherwise.
(j) The Severance Payments to be paid pursuant to Subsection (d)
above are not intended as stipulated or liquidated damages for breach of any
promise of a term of employment, no such promise being made herein, but are
payments which shall be fully earned as of the Date of Termination, and shall
be compensation for: Employee's continued services rendered to the Corporation
after the date hereof and prior to such Date of Termination; the foregoing of
other possibly more secure employment; consequential losses which may result
from such termination, including, but not limited to, permanent injury to
reputation, loss of career development opportunities, and emotional stress; and
actual losses which may result from such termination including, but not limited
to, lost wages and expenses of securing other employment.
(k) The Corporation shall have no obligation to provide or cause to
be provided to Employee the benefits described in this Agreement if the
Corporation or Employee shall terminate Employee's employment prior to a Change
<PAGE> 6
of Control. This Agreement is not and nothing contained herein shall be deemed
to create a contract of employment between the Employee and the Corporation.
5. SUCCESSORS;BINDING AGREEMENT.
(a) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation or of any
division or subsidiary thereof employing Employee to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle Employee to compensation from the Corporation in the same
amount and on the same terms as Employee would be entitled hereunder if Employee
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable
by Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Employee should die
while any amount would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein. shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee or
other designees or, if there is no such designee, to Employee's estate.
6. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
(a) If to the Corporation:
Twin Disc, Incorporated
1328 Racine Street
Racine, Wisconsin 53403
(b) If to Employee:
____________________
____________________
____________________
7. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Employee and such officer as may be specifically
designated by the Board. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Wisconsin.
8. VALIDITY. The invalidity or unenforceability of any provision of this
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
9. INTERPRETATION. All terms used herein in the singular shall be
construed to include the plural and all terms used herein in the masculine
gender shall be construed to include the feminine gender as may be required by
the context in which the terms are used.
10. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the matters covered hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement in the City
and County of Racine, Wisconsin, effective as of the date first set forth above.
TWIN DISC, INCORPORATED
By:
Attest:
EMPLOYEE:
___________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>17
<FILENAME>r10kex10g.txt
<DESCRIPTION>DIRECTOR TENURE AND RETIREMENT POLICY
<TEXT>
<PAGE> 1
exhbit 10g
Twin Disc, Incorporated
Director Tenure and Retirement Policy
January 18, 1993
It is the policy of the Board that outside directors be independent from
any potential conflict of interest in representing the interest of the
Shareholders. Accordingly, no outside directors shall be elected by the
directors to this Board or nominated by the directors to the shareholders for
election to this Board if such person or his employer has a material or
significant business relationship with the Corporation.
No outside director shall be elected by the directors to this Board or
nominated by the directors to the shareholders for election to this Board who
is not at such time employed full-time or who is then over 68 years of age.
No outside director shall be nominated by the directors to the shareholders
for re-election to this Board who would be over 68 years of age at the time of
re-election.
Any outside director whose full-time employment terminates may remain on
this Board until his/her current term expires and, provided the director is not
over 68 years of age upon expiration of his/her current term, will be eligible
for nomination by the directors to the shareholders for election to one
additional term.
Any inside director whose employment by this Corporation terminates for
any reason is expected to resign from this Board effective as of the
commencement of the next regular or special meeting of this Board following
said termination. However, any director who retires from this Corporation as
its Chief Executive Officer may remain on this Board until his/her current term
expires.
Exceptions to this tenure policy may only be effected by an action of this
Board upon the unanimous recommendation from its Board Affairs and Nominating
Committee.
Provided that he serves at least one complete three year term, a
non-employee director who retires from the Board, resigns from the Board, or
decides not to stand for re-election to the Board shall be entitled to an
annual retirement payment equal to the sum of:
1. The annual retainer at the time of his/her resignation.
2. Six Board meeting fees at the rates prevailing at the time of his/her
resignation.
Retirement payments, payable quarterly, shall continue for such number of
years as is equal to the number of his/her service, or until his/her
death, whichever time elapses first.
This Director Tenure and Retirement Policy replaces all prior tenure and
retirement compensation policies and is effective as of 1/18/93.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>18
<FILENAME>r10kex10h.txt
<DESCRIPTION>SHORT TERM INCENTIVE PLAN
<TEXT>
<PAGE> 1
exhibit 10h
Twin Disc, Incorporated
Twinco Salaried Employees Short Term Incentive Plan
FY 2004
(1) PURUPOSE: The purpose of this Corporate Incentive Plan is to
motivate salaried employees to grow the earnings and to efficiently utilize the
assets of the Corporation. The ultimate aim is to increase Shareholder Value by
achieving returns which are greater than the cost of capital off the
Corporation.
(2) ELIGIBILITY FOR PARTICIPATION: Participants will be all the salaried
employees of the Twinco Operations.
(3) ELIGIBILITY FOR INCENTIVE BONUS PAYMENT: Participants must be
employed at the end of the Bonus Year in order to receive an Incentive Bonus.
However, the Incentive Bonus will be prorated and paid to a Participant who
dies, is disabled or retires during a Bonus Year. The proration will be based
on the period of actual employment and earnings during that period. A
Participant whose employment is terminated for any other reason prior to the end
of a Bonus Year will not be entitled to an Incentive Bonus for that Bonus Year.
(4) INCENTIVE AWARD DETERMINATION: The Twinco Salary Incentive Plan will
be based on one criterion:
* Achievement of Target RONAE as contained in the Annual Business
Plan approved by the Board of Directors.
The approved Target RONAE for the current year is listed in Exhibit A.
(5) PAYOUT RANGE: The payout range is recommended annually by the
President-Chief Operation Officer for the approval of the Chairman-Chief
Executive Officer and the Executive Selection & Salary Committee of the Board
of Directors.
(6) DEFINITIONS:
RETURN ON NET ASSETS EMPLOYED (RONAE): Operating Income divided by Average
Net Assets Employed (Average NAE).
OPERATING INCOME: Operating Income as reported in the audited,
consolidated financial statements of the Company prior to accrual for the
Incentive Bonus.
NET ASSETS EMPLOYED (NAE):Balance sheet footing of total assets plus any
reserve for LIFO valuation of inventory, less:
- cash and cash equivalents; and
- all non-interest bearing liabilities, regardless of maturity, with
the exception of;
- accrued interest
- accruals for Incentive Bonuses
- dividends payable
AVERAGE NAE: Thirteen (13) point average of NAE at the end of each month
starting with the last day of the previous Bonus Year and ending with the last
day of the current Bonus Year.
(7) ADMINISTRATIVE GUIDELINES: Unless the Executive Selection & Salary
Committee of the Board of Directors decides otherwise:
- Losses resulting from bad debts, inventory write-downs, plant closures,
or similar adjustments to asset values will be reflected in Operating
Income and NAE from the date of adjustment.
- Adjustments or material transactions not in the ordinary course of
business, e.g., compliance with changes in accounting standards,
litigation awards or settlements, insurance recoveries, transaction
costs incurred in the acquisition or sale of a business unit, etc.,
will be excluded from the determination of Operating Income.
- New acquisitions will be included in the determination of Operating
Income and NAE for the date of acquisition.
- Discontinued operations and divestitures will be included in the
determination of Operating Income and NAE until the date of disposal;
and
- Gains or losses on the sale of subsidiaries, divisions or business units,
whether by sale of assets, stock or other securities, will be excluded
from the determination of Operating Income.
<PAGE> 2
(8) INDIVIDUAL SALARY BASE: The Participant's total salary compensation
for the Bonus Year:
- Plus any salary deferred under an 401(k) plan;
- Less any Incentive payments and other payments made in lieu of benefits.
(9) INCENTIVE YEAR: The Company's fiscal year.
(10) PAYOUT DATE:Established by the Executive Selection & Salary Committee
of the Board of Directors but typically annually within four weeks after the
Board's acceptance of the Company's annual audit report.
(11) WITHOLDING TAXES: The Company shall deduct from all Incentive Bonus
payments made under this program all taxes required by law to be withheld.
(12) EMPLOYMENT NOT GUARNTEED:Neither this Incentive Bonus Program nor
any action taken hereunder shall be construed as giving any Participant a right
to remain as an employee of the Company at any time or for any period.
(13) CONSTRUCTION: This Incentive Bonus Program shall be construed
according the laws of the State of Wisconsin.
(14) AMENDMENT OR TERMINATION: The Board of Directors of the Company
may, without prior notice, amend or terminate this Incentive Bonus Program at
any time.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>COVER
<SEQUENCE>19
<FILENAME>filename19.txt
<TEXT>
<PAGE> 1
TWIN DISC, INCORPORATED
1328 RACINE STREET
RACINE, WISCONSIN 53403
September 120, 2004
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Dear Sirs:
In accordance with the Securities and Exchange Commission regulations,
submitted herewith for filing of behalf of Twin Disc, Incorporated (the
'Company'), is the Company's Annual Report on Form 10-K for the year ended
June 30, 2004.
This filing is being effected by direct transmission to the Commission's
EDGAR system.
Very truly yours,
/s/ Fred H. Timm
-----------------------------
VP - Administration/Secretary
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----