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Twin Disc Inc. Reports Operating Results (10-Q)

February 09, 2011 | About:

Twin Disc Inc. (NASDAQ:TWIN) filed Quarterly Report for the period ended 2011-02-09.

Twin Disc Inc. has a market cap of $359.6 million; its shares were traded at around $33.37 with a P/E ratio of 34.5 and P/S ratio of 1.6. The dividend yield of Twin Disc Inc. stocks is 0.9%. Twin Disc Inc. had an annual average earning growth of 17.9% over the past 10 years.Hedge Fund Gurus that owns TWIN: Jim Simons of Renaissance Technologies LLC. Mutual Fund and Other Gurus that owns TWIN: Mario Gabelli of GAMCO Investors.

Highlight of Business Operations:

As of December 31, 2010, the Company had net working capital of $102.6 million, which represents an increase of $18.5 million, or 21.9%, from the net working capital of $84.1 million as of June 30, 2010. The primary driver of the net increase in net working capital was a $14.8 million, or 20.4%, increase in inventories.

Net inventory increased by $14.8 million versus June 30, 2010 to $87.6 million. The impact of foreign currency translation was to increase net inventory by $4.8 million versus June 30, 2010. After adjusting for the impact of foreign currency translation, the net increase of $9.9 million primarily came at the Company s domestic manufacturing and Canadian distribution operations and was driven by increased production volume and order activity due to the increase in overall demand for the Company s oil and gas related products. On a consolidated basis, as of December 31, 2010, the Company s backlog of orders to be shipped over the next six months approximates $118.8 million, compared to $84.4 million at June 30, 2010 and $70.0 million at December 25, 2009. The majority of the increase is being experienced at the Company s domestic manufacturing location.

Net property, plant and equipment (PP&E) increased $0.9 million versus June 30, 2010. This includes the addition of $2.9 million in capital expenditures, primarily at the Company s Racine-based manufacturing operation, which was more than offset by depreciation of $4.2 million. The net remaining increase is due to foreign currency translation effects. In total, the Company expects to invest between $14 and $16 million in capital assets in fiscal 2011. 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. In fiscal 2010, the Company spent $4.5 million for capital expenditures, down from $8.9 million and $15.0 million in fiscal years 2009 and 2008, respectively. The Company s capital program is focused on modernizing key core manufacturing, assembly and testing processes at its facilities around the world.

Total equity increased $17.5 million, or 20%, to $106.8 million as of December 31, 2010. Retained earnings increased by $5.1 million. The net increase in retained earnings included $6.7 million in net earnings for the first fiscal half offset by $1.6 million in dividend payments. Net favorable foreign currency translation of $10.2 million was reported. The remaining movement of $1.1 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 December 31, 2010, and a maximum total funded debt to EBITDA ratio of 3.0 at December 31, 2010. As of December 31, 2010, the Company was in compliance with these covenants with a four quarter EBITDA total of $26,498,000 and a funded debt to EBITDA ratio of 1.23. The minimum net worth covenant fluctuates based upon actual earnings and is subject to adjustment for certain pension accounting adjustments to equity. As of December 31, 2010, the minimum equity requirement was $104,178,000 (after a $34,000,000 pension adjustment) compared to an actual result of $139,966,000 after all required adjustments. The outstanding balance of $10,525,000 and $9,000,000 at December 31, 2010 and June 30, 2010, 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 December 31, 2010 and June 30, 2010.

On April 10, 2006, the Company entered into a Note Agreement (the “Note Agreement”) with The Prudential Insurance Company of America and certain other entities (collectively, “Purchasers”). Pursuant to the Note Agreement, Purchasers acquired, in the aggregate, $25,000,000 in 6.05% Senior Notes due April 10, 2016 (the “Notes”). The Notes mature and become due and payable in full on April 10, 2016 (the “Payment Date”). Prior to the Payment Date, the Company is obligated to make quarterly payments of interest during the term of the Notes, plus prepayments of principal of $3,571,429 on April 10 of each year from 2010 to 2015, inclusive. The outstanding balance was $21,428,571 at December 31, 2010 and June 30, 2010. Of the outstanding balance, $3,571,000 was classified as a current maturity of long-term debt at December 31, 2010 and June 30, 2010. The remaining $17,857,142 is classified as long-term debt. The Company also has the option of making additional prepayments subject to certain limitations, including the payment of a Yield-Maintenance Amount as defined in the Note Agreement. In addition, the Company will be required to make an offer to purchase the Notes upon a Change of Control, and any such offer must include the payment of a Yield-Maintenance Amount. The Note Agreement includes certain financial covenants which are identical to those associated with the revolving loan agreement discussed above. The Note Agreement also includes certain restrictive covenants that limit, among other things, the incurrence of additional indebtedness and the disposition of assets outside the ordinary course of business. The Note Agreement provides that it shall automatically include any covenants or events of default not previously included in the Note Agreement to the extent such covenants or events of default are granted to any other lender of an amount in excess of $1,000,000. Following an Event of Default, each Purchaser may accelerate all amounts outstanding under the Notes held by such party.

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