Twin Disc Inc. (TWIN, Financial) filed Quarterly Report for the period ended 2009-11-04.
TWIN DISC INC. designs manufactures and sells heavy duty off-highway power transmission equipment. Products offered include: hydraulic torqueconverters; power-shift transmissions; marine transmissions and surfacedrives; universal joints; gas turbine starting drives; power take-offs andreduction gears; industrial clutches; fluid couplings and control systems.Principal markets are: construction equipment industrial equipmentgovernment marine energy and natural resources and agriculture. Twin Disc Inc. has a market cap of $105.7 million; its shares were traded at around $9.45 with a P/E ratio of 15.8 and P/S ratio of 0.4. The dividend yield of Twin Disc Inc. stocks is 2.9%. Twin Disc Inc. had an annual average earning growth of 17.4% over the past 10 years.
Interest expense of $0.6 million for the quarter was up 3.7% versus last year s first fiscal quarter. For the first quarter of fiscal 2009, the interest rate on the Company s revolving credit facility was in the range of 3.71% to 3.74%, whereas for the first quarter of fiscal 2010 the rate was 4.0%. The average balance of the Company s revolving credit facility increased less than 1% and the total interest on the revolver increased nearly 21% to $0.2 million. The interest expense on the Company s $25 million Senior Note was flat year over year, at a fixed rate of 6.05%, at $0.4 million.
Net inventory decreased by $2.8 million versus June 30, 2009 to $89.5 million. The impact of foreign currency translation was to increase net inventory by $1.8 million versus June 30, 2009. After adjusting for the impact of foreign currency translation, the net decrease of $4.6 million came at the Company s European manufacturing and Asian distribution locations offset by an increase at the Company s domestic manufacturing operation as it amped back up production after its July shutdown. The overall decrease reflects lower sales volumes and a continued emphasis on inventory management and reduction in fiscal 2010. On a consolidated basis, as of September 25, 2009, the Company s backlog of orders to be shipped over the next six months approximates $62.5 million, compared to $60.6 million at June 30, 2009 and $118.6 million at September 26, 2008.Net property, plant and equipment (PP&E) decreased $0.5 million versus June 30, 2009. This includes the addition of $1.0 million in capital expenditures, primarily at the Company s Racine-based manufacturing operation, which was more than offset by depreciation of $2.2 million. The net remaining decrease is due to foreign currency translation effects. In total, the Company expects to invest between $7 and $10 million in capital assets in fiscal 2010. The Company continues to review its capital plans based on overall market conditions and availability of capital, and may make changes to its capital plans accordingly. In addition, the quoted lead times on certain manufacturing equipment purchases may push some of the capital expenditures into the next fiscal year. This compares to $8.9 million and $15.0 million in capital expenditures in fiscal 2009 and fiscal 2008, respectively. The Company s capital program is focusing on modernizing key core manufacturing, assembly and testing processes at its facilities around the world as well as the implementation of a global ERP system.
Total equity remained flat at $107.8 million. Retained earnings decreased by $3.2 million. The net decrease in retained earnings included $2.4 million in net losses reported year-to-date and $0.8 million in dividend payments. Net favorable foreign currency translation of $2.9 million was reported. The remaining movement of $0.9 million represents an adjustment for the amortization of net actuarial loss and prior service cost on the Company s defined benefit pension plans.
In December 2002, the Company entered into a $20,000,000 revolving loan agreement with M&I Marshall & Ilsley Bank (“M&I”), which had an original expiration date of October 31, 2005. In September 2004, the revolving loan agreement was amended to increase the commitment to $35,000,000 and the termination date of the agreement was extended to October 31, 2007. During the first quarter of fiscal 2007, the term was extended by an additional two years to October 31, 2009. An additional amendment was agreed to in the first quarter of fiscal 2008 to extend the term by an additional year to October 31, 2010, and eliminate the covenants limiting capital expenditures and restricted payments (dividend payments and stock repurchases). During the fourth quarter of fiscal 2009, the term was further extended to May 31, 2012 and the funded debt to EBITDA maximum was increased from 2.5 to 3.0. This agreement contains certain covenants, including restrictions on investments, acquisitions and indebtedness. Financial covenants include a minimum consolidated net worth, minimum EBITDA for the most recent four fiscal quarters of $11,000,000 at September 25, 2009, and a maximum total funded debt to EBITDA ratio of 3.0 at September 25, 2009. As of September 25, 2009, the Company was in compliance with these covenants with a rolling four quarter EBITDA total of $22,398,000 and a funded debt to EBITDA ratio of 2.19. The minimum net worth covenant fluctuates based upon actual earnings and is subject to adjustment for certain pension accounting adjustments to equity. As of September 25, 2009 the minimum equity requirement was $100,614,000 compared to an actual result of $141,012,000 after all required adjustments. The outstanding balance of $21,150,000 and $22,450,000 at September 25, 2009 and June 30, 2009, respectively, is classified as long-term debt. In accordance with the loan agreement as amended, the Company has the option of borrowing at the prime interest rate or LIBOR plus an additional “Add-On,” between 2% and 3.5%, depending on the Company s Total Funded Debt to EBITDA ratio, subject to a minimum interest rate of 4%. The rate was 4.0% at September 25, 2009 and June 30, 2009, respectively.
The Company s balance sheet remains very strong, there are no off-balance-sheet arrangements other than the operating leases listed below, and we continue to have sufficient liquidity for near-term needs. The Company had $13.8 million of available borrowings on our $35 million revolving loan agreement as of September 25, 2009, and continues to generate enough cash from operations to meet our operating and investing needs. For the quarter ended September 25, 2009, the Company generated net cash from operating activities of $8.5 million. As of September 25, 2009, the Company also had cash of $17.1 million, primarily at its overseas operations. These funds, with limited restrictions, are available for repatriation as deemed necessary by the Company. In fiscal 2010, the Company expects to contribute $455,000 to its defined benefit plans, the minimum contributions required. However, if the Company elects to make voluntary contributions in fiscal 2010, it intends to do so using cash from operations and, if necessary, from available borrowings under existing credit facilities. In the fourth fiscal quarter of 2009, the Company announced $25 million of cost avoidance and savings actions in light of softening that was anticipated in many of its key markets. Based on its annual financial plan, which reflects these actions and the softening forecast, the Company does not expect to violate any of its financial covenants in fiscal 2010.
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TWIN DISC INC. designs manufactures and sells heavy duty off-highway power transmission equipment. Products offered include: hydraulic torqueconverters; power-shift transmissions; marine transmissions and surfacedrives; universal joints; gas turbine starting drives; power take-offs andreduction gears; industrial clutches; fluid couplings and control systems.Principal markets are: construction equipment industrial equipmentgovernment marine energy and natural resources and agriculture. Twin Disc Inc. has a market cap of $105.7 million; its shares were traded at around $9.45 with a P/E ratio of 15.8 and P/S ratio of 0.4. The dividend yield of Twin Disc Inc. stocks is 2.9%. Twin Disc Inc. had an annual average earning growth of 17.4% over the past 10 years.
Highlight of Business Operations:
Gross profit as a percentage of sales decreased nearly 700 basis points to 20.7% of sales, compared to 27.6% of sales for the same period last year. Profitability for fiscal 2010 s first quarter was significantly impacted by lower volumes, unfavorable product mix, higher pension expenses and unfavorable plant absorption. The Company estimates that the majority of the deterioration was the result of unfavorable absorption due to the impact of lower volumes and the effect of the temporary plant shutdowns along with government sponsored layoffs, and normal seasonal actions, to adjust production levels to near term demand. In the first quarter of fiscal 2009, the Company recorded $0.2 million of pension expense for its domestic defined benefit pension plan, compared to pension expense of $0.6 million in the first quarter of fiscal 2010, for a net year over year increase in pension expense of $0.4 million. It is estimated that the fiscal year impact of the increase in pension expense to cost of goods sold will be $2.8 million.Interest expense of $0.6 million for the quarter was up 3.7% versus last year s first fiscal quarter. For the first quarter of fiscal 2009, the interest rate on the Company s revolving credit facility was in the range of 3.71% to 3.74%, whereas for the first quarter of fiscal 2010 the rate was 4.0%. The average balance of the Company s revolving credit facility increased less than 1% and the total interest on the revolver increased nearly 21% to $0.2 million. The interest expense on the Company s $25 million Senior Note was flat year over year, at a fixed rate of 6.05%, at $0.4 million.
Net inventory decreased by $2.8 million versus June 30, 2009 to $89.5 million. The impact of foreign currency translation was to increase net inventory by $1.8 million versus June 30, 2009. After adjusting for the impact of foreign currency translation, the net decrease of $4.6 million came at the Company s European manufacturing and Asian distribution locations offset by an increase at the Company s domestic manufacturing operation as it amped back up production after its July shutdown. The overall decrease reflects lower sales volumes and a continued emphasis on inventory management and reduction in fiscal 2010. On a consolidated basis, as of September 25, 2009, the Company s backlog of orders to be shipped over the next six months approximates $62.5 million, compared to $60.6 million at June 30, 2009 and $118.6 million at September 26, 2008.Net property, plant and equipment (PP&E) decreased $0.5 million versus June 30, 2009. This includes the addition of $1.0 million in capital expenditures, primarily at the Company s Racine-based manufacturing operation, which was more than offset by depreciation of $2.2 million. The net remaining decrease is due to foreign currency translation effects. In total, the Company expects to invest between $7 and $10 million in capital assets in fiscal 2010. The Company continues to review its capital plans based on overall market conditions and availability of capital, and may make changes to its capital plans accordingly. In addition, the quoted lead times on certain manufacturing equipment purchases may push some of the capital expenditures into the next fiscal year. This compares to $8.9 million and $15.0 million in capital expenditures in fiscal 2009 and fiscal 2008, respectively. The Company s capital program is focusing on modernizing key core manufacturing, assembly and testing processes at its facilities around the world as well as the implementation of a global ERP system.
Total equity remained flat at $107.8 million. Retained earnings decreased by $3.2 million. The net decrease in retained earnings included $2.4 million in net losses reported year-to-date and $0.8 million in dividend payments. Net favorable foreign currency translation of $2.9 million was reported. The remaining movement of $0.9 million represents an adjustment for the amortization of net actuarial loss and prior service cost on the Company s defined benefit pension plans.
In December 2002, the Company entered into a $20,000,000 revolving loan agreement with M&I Marshall & Ilsley Bank (“M&I”), which had an original expiration date of October 31, 2005. In September 2004, the revolving loan agreement was amended to increase the commitment to $35,000,000 and the termination date of the agreement was extended to October 31, 2007. During the first quarter of fiscal 2007, the term was extended by an additional two years to October 31, 2009. An additional amendment was agreed to in the first quarter of fiscal 2008 to extend the term by an additional year to October 31, 2010, and eliminate the covenants limiting capital expenditures and restricted payments (dividend payments and stock repurchases). During the fourth quarter of fiscal 2009, the term was further extended to May 31, 2012 and the funded debt to EBITDA maximum was increased from 2.5 to 3.0. This agreement contains certain covenants, including restrictions on investments, acquisitions and indebtedness. Financial covenants include a minimum consolidated net worth, minimum EBITDA for the most recent four fiscal quarters of $11,000,000 at September 25, 2009, and a maximum total funded debt to EBITDA ratio of 3.0 at September 25, 2009. As of September 25, 2009, the Company was in compliance with these covenants with a rolling four quarter EBITDA total of $22,398,000 and a funded debt to EBITDA ratio of 2.19. The minimum net worth covenant fluctuates based upon actual earnings and is subject to adjustment for certain pension accounting adjustments to equity. As of September 25, 2009 the minimum equity requirement was $100,614,000 compared to an actual result of $141,012,000 after all required adjustments. The outstanding balance of $21,150,000 and $22,450,000 at September 25, 2009 and June 30, 2009, respectively, is classified as long-term debt. In accordance with the loan agreement as amended, the Company has the option of borrowing at the prime interest rate or LIBOR plus an additional “Add-On,” between 2% and 3.5%, depending on the Company s Total Funded Debt to EBITDA ratio, subject to a minimum interest rate of 4%. The rate was 4.0% at September 25, 2009 and June 30, 2009, respectively.
The Company s balance sheet remains very strong, there are no off-balance-sheet arrangements other than the operating leases listed below, and we continue to have sufficient liquidity for near-term needs. The Company had $13.8 million of available borrowings on our $35 million revolving loan agreement as of September 25, 2009, and continues to generate enough cash from operations to meet our operating and investing needs. For the quarter ended September 25, 2009, the Company generated net cash from operating activities of $8.5 million. As of September 25, 2009, the Company also had cash of $17.1 million, primarily at its overseas operations. These funds, with limited restrictions, are available for repatriation as deemed necessary by the Company. In fiscal 2010, the Company expects to contribute $455,000 to its defined benefit plans, the minimum contributions required. However, if the Company elects to make voluntary contributions in fiscal 2010, it intends to do so using cash from operations and, if necessary, from available borrowings under existing credit facilities. In the fourth fiscal quarter of 2009, the Company announced $25 million of cost avoidance and savings actions in light of softening that was anticipated in many of its key markets. Based on its annual financial plan, which reflects these actions and the softening forecast, the Company does not expect to violate any of its financial covenants in fiscal 2010.
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