Twin Disc Inc. (TWIN, Financial) filed Quarterly Report for the period ended 2010-05-05.
Twin Disc Inc. has a market cap of $147.9 million; its shares were traded at around $13.21 with a P/E ratio of 110.1 and P/S ratio of 0.5. The dividend yield of Twin Disc Inc. stocks is 2.1%. Twin Disc Inc. had an annual average earning growth of 26.1% over the past 10 years.TWIN is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Gross profit as a percentage of sales decreased nearly 270 basis points to 25.1% of sales, compared to 27.8% of sales for the same period last year. Profitability for fiscal 2010 s first nine months was significantly impacted by lower volumes, unfavorable product mix, higher pension expenses and unfavorable plant absorption, partially offset by lower warranty expense. 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 nine months of fiscal 2009, the Company recorded $0.6 million of pension expense for its defined benefit pension plans, compared to pension expense of $1.8 million in the first nine months of fiscal 2010, for a net year over year increase in pension expense of $1.2 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. These were partially offset by a net reduction in warranty expense of $1.4 million, from $4.2 million in the prior fiscal year s first nine months to $2.8 million for the current fiscal year s first nine months. The prior year warranty expense was impacted by a specific quality campaign in the Company s domestic land-based transmission business.
Interest expense of $1.8 million for the first nine months was flat versus last fiscal year s first nine months. For the first nine months of fiscal 2009, the interest rate on the Company s revolving credit facility was in the range of 1.67% to 4.00%, whereas for the first nine months of fiscal 2010 the rate was 4.0%. The average balance of the Company s revolving credit facility decreased by $8.1 million, or over 34%, and the total interest on the revolver decreased nearly 11% to $0.5 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 $1.1 million. The net remaining increase in interest of $0.1 million was primarily driven by higher interest expense at the Company s Swiss manufacturing operation, as the result of a prepayment penalty for the early extinguishment of nearly $2 million of debt.
Net property, plant and equipment (PP&E) decreased $4.7 million versus June 30, 2009. This includes the addition of $2.8 million in capital expenditures, primarily at the Company s domestic and Belgian manufacturing operations, which was offset by depreciation of $6.7 million. The net remaining decrease is due to foreign currency translation effects. As a result of current external business factors, the Company expects to invest between $4 and $7 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 decreased $3.7 million to $104.1 million as March 26, 2010 compared to June 30, 2009. Retained earnings decreased by $3.8 million. The net decrease in retained earnings included $1.4 million in net losses reported year-to-date and $2.4 million in dividend payments. Net unfavorable foreign currency translation of $1.2 million was reported. The remaining movement of $1.4 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 March 26, 2010, and a maximum total funded debt to EBITDA ratio of 3.0 at March 26, 2010. As of March 26, 2010, the Company was in compliance with these covenants with a four quarter EBITDA total of $14,750,000 and a funded debt to EBITDA ratio of 2.38. The minimum net worth covenant fluctuates based upon actual earnings and is subject to adjustment for certain pension accounting adjustments to equity. As of March 26, 2010 the minimum equity requirement was $101,122,000 compared to an actual result of $137,282,000 after all required adjustments. The outstanding balance of $9,250,000 and $22,450,000 at March 26, 2010 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 March 26, 2010 and June 30, 2009, respectively.
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Twin Disc Inc. has a market cap of $147.9 million; its shares were traded at around $13.21 with a P/E ratio of 110.1 and P/S ratio of 0.5. The dividend yield of Twin Disc Inc. stocks is 2.1%. Twin Disc Inc. had an annual average earning growth of 26.1% over the past 10 years.TWIN is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
Gross profit as a percentage of sales decreased 50 basis points to 27.1% of sales, compared to 27.6% of sales for the same period last year. Profitability for fiscal 2010 s third quarter was impacted by lower volumes, unfavorable product mix, higher pension expenses and unfavorable plant absorption, partially offset by lower warranty expense. 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 third quarter of fiscal 2009, the Company recorded $0.2 million of pension expense for its defined benefit pension plans, compared to pension expense of $0.6 million in the third 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. These were partially offset by a net reduction in warranty expense of $1.7 million, from $2.1 million in the prior year s third fiscal quarter to $0.4 million for the current fiscal quarter. The prior year warranty expense was impacted by a specific quality campaign in the Company s domestic land-based transmission business.Gross profit as a percentage of sales decreased nearly 270 basis points to 25.1% of sales, compared to 27.8% of sales for the same period last year. Profitability for fiscal 2010 s first nine months was significantly impacted by lower volumes, unfavorable product mix, higher pension expenses and unfavorable plant absorption, partially offset by lower warranty expense. 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 nine months of fiscal 2009, the Company recorded $0.6 million of pension expense for its defined benefit pension plans, compared to pension expense of $1.8 million in the first nine months of fiscal 2010, for a net year over year increase in pension expense of $1.2 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. These were partially offset by a net reduction in warranty expense of $1.4 million, from $4.2 million in the prior fiscal year s first nine months to $2.8 million for the current fiscal year s first nine months. The prior year warranty expense was impacted by a specific quality campaign in the Company s domestic land-based transmission business.
Interest expense of $1.8 million for the first nine months was flat versus last fiscal year s first nine months. For the first nine months of fiscal 2009, the interest rate on the Company s revolving credit facility was in the range of 1.67% to 4.00%, whereas for the first nine months of fiscal 2010 the rate was 4.0%. The average balance of the Company s revolving credit facility decreased by $8.1 million, or over 34%, and the total interest on the revolver decreased nearly 11% to $0.5 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 $1.1 million. The net remaining increase in interest of $0.1 million was primarily driven by higher interest expense at the Company s Swiss manufacturing operation, as the result of a prepayment penalty for the early extinguishment of nearly $2 million of debt.
Net property, plant and equipment (PP&E) decreased $4.7 million versus June 30, 2009. This includes the addition of $2.8 million in capital expenditures, primarily at the Company s domestic and Belgian manufacturing operations, which was offset by depreciation of $6.7 million. The net remaining decrease is due to foreign currency translation effects. As a result of current external business factors, the Company expects to invest between $4 and $7 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 decreased $3.7 million to $104.1 million as March 26, 2010 compared to June 30, 2009. Retained earnings decreased by $3.8 million. The net decrease in retained earnings included $1.4 million in net losses reported year-to-date and $2.4 million in dividend payments. Net unfavorable foreign currency translation of $1.2 million was reported. The remaining movement of $1.4 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 March 26, 2010, and a maximum total funded debt to EBITDA ratio of 3.0 at March 26, 2010. As of March 26, 2010, the Company was in compliance with these covenants with a four quarter EBITDA total of $14,750,000 and a funded debt to EBITDA ratio of 2.38. The minimum net worth covenant fluctuates based upon actual earnings and is subject to adjustment for certain pension accounting adjustments to equity. As of March 26, 2010 the minimum equity requirement was $101,122,000 compared to an actual result of $137,282,000 after all required adjustments. The outstanding balance of $9,250,000 and $22,450,000 at March 26, 2010 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 March 26, 2010 and June 30, 2009, respectively.
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