Twin Disc, Inc.

Apr 21, 2009

Twin Disc, Inc. Announces Fiscal 2009 Third Quarter Financial Results

RACINE, Wisc., Apr 21, 2009 (BUSINESS WIRE) -- Twin Disc, Inc. (NASDAQ: TWIN) today reported financial results for the fiscal 2009 third quarter and nine months ended March 27, 2009.

Sales for the fiscal 2009 third quarter were $69,292,000, compared to $85,838,000 for the fiscal 2008 third quarter. Year-to-date, sales were $223,562,000 compared to $241,345,000 for the fiscal 2008 nine months. The decline in sales for the fiscal 2009 third quarter was primarily due to lower sales of products to customers in the mega yacht, oil and gas, and industrial markets. This was partially offset by higher sales to customers in the commercial marine, land-based military and airport rescue fire fighting (ARFF) markets. For the fiscal 2009 third quarter, foreign currency translations negatively impacted sales by $2,906,000.

Gross margin, as a percentage of fiscal 2009 third-quarter sales, was 27.6 percent, compared to 31.0 percent in last year's comparable period. Year-to-date, gross profit, as a percentage of sales, was 27.8 percent down from 31.4 percent for the fiscal 2008 nine months. Gross margin for fiscal 2009's third quarter was negatively impacted by lower sales volumes, unfavorable product mix, increased warranty and pension expenses and the impact of foreign currency translations.

For the 2009 third quarter, marketing, engineering and administrative (ME&A) expenses, as a percentage of sales, were 21.0 percent, compared to 17.4 percent for the fiscal 2008 third quarter. For the fiscal 2009 third quarter, stock based compensation expense increased $2,028,000 versus the third quarter of fiscal 2008 as the prior year figure included a $2,238,000 benefit related to the reversal of stock based compensation liabilities due to the decline in the Company's stock price in the third quarter of fiscal 2008. The current period increase was partially offset by a reduction of $1,508,000 in accrued bonus compensation and $824,000 for foreign currency translations. Year-to-date, ME&A expenses, as a percentage of sales, were 21.4 percent, compared to 19.5 percent for the fiscal 2008 first nine months. Increased expenditures related to the implementation of the Company's new global ERP system and severance costs taken in the second fiscal quarter, and higher pension expenses were partially offset by lower bonus expense and favorable foreign currency translation.

Year-to-date, the effective tax rate of 29.2 percent improved over the prior year rate of 33.3 percent due primarily to a 5.9 percent reduction in the Italian corporate tax rate effective with the start of fiscal 2009, a shift in earnings to lower tax subsidiaries, the impact of foreign tax credits on the domestic tax rate and provision to return adjustments recorded in the third quarter based on changes in estimates. The effective tax rate for the fiscal 2009 third quarter of 11.8 percent also compares favorably to the prior year rate of 25.4 percent as the items noted above primarily impacted the third quarter. The prior year rate benefited from an adjustment to the Italian deferred tax balance related to the announced rate reduction.

Net earnings for the fiscal 2009 third quarter were $2,850,000, or $0.26 per diluted share, compared with $7,929,000, or $0.70 per diluted share, for the fiscal 2008 third quarter. Year-to-date, earnings were $8,748,000, or $0.78 per diluted share, compared to $17,243,000, or $1.51 per diluted share for the fiscal 2008 nine months.

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was $6,292,000 for the fiscal 2009 third quarter, compared to $13,271,000 for the fiscal 2008 third quarter. For the fiscal 2009 nine months, EBITDA was $21,532,000, compared to $33,680,000 for the fiscal 2008 comparable period.

Commenting on the results, Michael E. Batten, Chairman and Chief Executive Officer, said: "Going into the third quarter, we knew that Twin Disc was not immune from the challenges facing the global economy and while we saw signs of softening in certain markets as early as the first quarter, our overall business remained firm. However, beginning in February and accelerating during the remainder of the third quarter, we experienced significant slowdown in volumes and orders throughout certain markets such as the mega yacht and industrial markets that we had not experienced during the fiscal 2009 first half. As the slowdown developed in these markets, we began the process of aligning our global cost structure with perceived business levels, which included slowing production primarily at our European operations, which are closely tied to the mega yacht marine markets and adjusting our inventory and employee levels at our subsidiaries. We will continue to take the appropriate actions to manage our cost structure and maintain a level of profitability that we feel the Company can achieve despite slowing sales.

"Our diverse and niche market focus has helped somewhat insulate Twin Disc from the impacts of the global slowdown as certain of our markets experienced growth during the third quarter. Sales to military and commercial marine customers were up during the quarter, and while orders have slowed, they have not experienced, nor do we anticipate them to experience, the accelerated level of decline that we saw in the mega yacht marine markets. Demand for ARFF vehicles has remained good and we continue to benefit from strong global demand and market share gains our largest customer in the ARFF market is making. Our military business, both for land-based transmissions and marine propulsion systems, continues to perform to our expectations and we expect this to carry on for the foreseeable future.

"Most importantly, we continue to plan for the future. We are optimistic that once the global economy stabilizes we will have many competitive and financial advantages to offer both our existing customers and new customers. Specifically, we have developed three new products that will be introduced throughout fiscal 2010. These products include: a hybrid-ready transmission that helps lower the environmental and noise pollution boats emit when they are operating at low RPM as they enter and leave a port; a joystick control system that will complement our existing QuickShift(R) transmission technology; and a new 7500 series transmission specifically designed for use in the oil and gas market for pressure pumping applications. The 7500 series transmission, once available, will be the first transmission ever designed specifically for pressure pumping and we believe the market opportunity is significantly larger than the market for our successful 8500 series transmission."

Christopher J. Eperjesy, Vice President - Finance, Chief Financial Officer and Treasurer, stated: "Our balance sheet and overall liquidity remain strong. Initiatives to improve working capital are still in their infancy and we are optimistic that these initiatives will begin to take hold in the coming quarters. Working capital at March 27, 2009 was $108,620,000, compared to $106,107,000 at June 30, 2008 and $105,573,000 at March 28, 2008. We expect inventory levels to stabilize and eventually decline as we slow production at our European and domestic operations. At March 27, 2009, the Company had cash of $12,303,000, compared to $14,447,000 at fiscal year end. Total debt, at March 27, 2009, was $58,008,000, compared to $49,957,000 at June 30, 2008 and $57,353,000 at March 28, 2008. We continue to have availability under our $35 million revolver, which expires in October 2010. As of March 2009, the interest rate on the Company's revolver was 1.75 percent. Total debt-to-total capital was 33.2 percent at March 27, 2009."

Mr. Batten continued, "Our six-month backlog at March 27, 2009 was $81,529,000 compared to $120,774,000 at June 30, 2008, and $125,685,000 at March 28, 2008. While expected to be down, the acceleration of the decline in our backlog during the last two months of the third quarter was disappointing. Although it is difficult to predict the extent of the downturn's impact on our business, we remain committed to servicing our niche and global markets with exceptional products and services and we are confident in Twin Disc's long-term business opportunities," concluded Mr. Batten.

Twin Disc will be hosting a conference call today (April 21, 2009) to discuss these results and to answer questions at 2:00 p.m. ET. To participate in the conference call, please dial 800-762-8779 five to 10 minutes before the call is scheduled to begin. A replay will be available from 5:00 p.m. April 21, 2009 until midnight April 28, 2009. The number to hear the teleconference replay is 800-406-7325. The access code for the replay is 4055769.

The conference call will also be broadcast live over the Internet. To listen to the call via the Internet, access Twin Disc's website at http://www.twindisc.com/companyinvestor.aspx and follow the instructions at the web cast link. The archived web cast will be available shortly after the call on the Company's website.

About Twin Disc, Inc.
Twin Disc, Inc. designs, manufactures and sells marine and heavy-duty off-highway power transmission equipment. Products offered include: marine transmissions, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and control systems. The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government and industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network.

Forward-Looking Statements
This press release may contain statements that are forward looking as defined by the Securities and Exchange Commission in its rules, regulations and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors including those identified in the Company's most recent periodic report and other filings with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved.

*Non-GAAP Financial Disclosures
Financial information excluding the impact of foreign currency exchange rate changes and the impact of acquisitions in this press release are not measures that are defined in U.S. Generally Accepted Accounting Principles ("GAAP"). These items are measures that management believes are important to adjust for in order to have a meaningful comparison to prior and future periods and to provide a basis for future projections and for estimating our earnings growth prospects. Non-GAAP measures are used by management as a performance measure to judge profitability of our business absent the impact of foreign currency exchange rate changes and acquisitions. Management analyzes the company's business performance and trends excluding these amounts. These measures, as well as EBITDA, provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures.

Definition - Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
The sum of, net earnings and adding back provision for income taxes, interest expense, depreciation and amortization expenses: this is a financial measure of the profit generated excluding the above mentioned items.

--Financial Results Follow--

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per-share data, unaudited)

Three Months Ended

Nine Months Ended

March 27,

2009

March 28,

2008

March 27,

2009

March 28,

2008

Net sales $ 69,292 $ 85,838 $ 223,562 $ 241,345
Cost of goods sold 50,14159,211161,386165,522
Gross profit 19,151 26,627 62,176 75,823

Marketing, engineering and administrative expenses

14,517

14,969

47,843

47,041

Interest expense 526 757 1,837 2,325
Other expense, net 1,04919437368

Earnings before income taxes and minority interest

3,059

10,707

12,459

26,089

Income taxes 362 2,719 3,639 8,686
Minority interest 153(59)(72)(160)
Net earnings $ 2,850 $ 7,929 $ 8,748 $ 17,243
Earnings per share:
Basic $ 0.26 $ 0.71 $ 0.79 $ 1.52
Diluted $ 0.26 $ 0.70 $ 0.78 $ 1.51
Average shares outstanding:
Basic 11,006 11,198 11,127 11,318
Diluted 11,041 11,310 11,197 11,447
Dividends per share $ 0.070 $ 0.070 $ 0.210 $ 0.195
RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA

(In thousands, unaudited)

Three Months Ended

Nine Months Ended

March 27,

2009

March 28,

2008

March 27,

2009

March 28,

2008

Net earnings $ 2,850 $ 7,929 $ 8,748 $ 17,243
Income taxes 362 2,719 3,639 8,686
Interest expense 526 757 1,837 2,325
Depreciation and amortization 2,5541,8667,3085,426

Earnings before interest, taxes, depreciation and amortization

$

6,292

$

13,271

$

21,532

$

33,680

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
March 27,June 30,
20092008
ASSETS
Current assets:
Cash $ 12,303 $ 14,447
Trade accounts receivable, net 55,102 67,611
Inventories, net 97,906 97,691
Deferred income taxes 6,265 6,297
Other 8,7809,649
Total current assets 180,356 195,695
Property, plant and equipment, net 63,548 67,855
Goodwill, net 16,651 18,479
Deferred income taxes 5,045 5,733
Intangible assets, net 7,366 9,589
Other assets 6,0397,277
$279,005$304,628
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities on long-term debt $ 2,313 $ 1,730
Accounts payable 31,808 37,919
Accrued liabilities 37,61549,939
Total current liabilities 71,736 89,588
Long-term debt 55,695 48,227
Accrued retirement benefits 32,713 34,325
Other long-term liabilities 1,2242,163
161,368 174,303
Minority interest 677 679
Shareholders' equity:
Common stock 14,225 14,693
Retained earnings 148,776 142,361
Accumulated other comprehensive (loss) income (15,785)2,446
147,216 159,500
Less treasury stock, at cost 30,25629,854
Total shareholders' equity 116,960129,646
$279,005$304,628
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

Nine Months Ended

March 27,

2009

March 28,

2008

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,748 $ 17,243

Adjustments to reconcile net earnings to cash provided by operating activities:

Depreciation and amortization 7,308 5,426
Other non-cash changes, net 417 2,391

Net change in working capital, excluding cash and debt, and other

(16,225

)

(13,908

)

Net cash provided by operating activities 24811,152
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (6,631 ) (10,605 )
Proceeds from sale of fixed assets 56 263
Other, net 1,111(337)
Net cash used by investing activities (5,464)(10,679)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable, net 898 (98 )
Proceeds from long-term debt 7,939 12,880
Proceeds from exercise of stock options 110 133
Purchase of treasury stock (1,813 ) (15,643 )
Dividends paid (2,333 ) (2,220 )
Other, net -19
Net cash provided (used) by financing activities 4,801(4,929)
Effect of exchange rate changes on cash (1,729)1,888
Net change in cash (2,144 ) (2,568 )
Cash Balance:
Beginning of period 14,44719,508
End of period $12,303$16,940

SOURCE: Twin Disc, Inc.

Twin Disc, Inc.
Christopher J. Eperjesy, 262-638-4343

Copyright Business Wire 2009