Twin Disc, Inc.

Aug 3, 2010

Twin Disc, Inc. Announces Financial Results for Fiscal 2010 Fourth Quarter and Full Year

RACINE, Wis., Aug 03, 2010 (BUSINESS WIRE) -- Twin Disc, Inc. (NASDAQ: TWIN) today reported financial results for the fiscal 2010 fourth quarter and fiscal year ended June 30, 2010.

Sales for the fiscal 2010 fourth quarter were $64,314,000, compared to $72,056,000 for the fiscal 2009 fourth quarter and $60,977,000 for the fiscal 2010 third quarter. Sales for fiscal 2010 were $227,534,000, compared to $295,618,000 last fiscal year. Sales continue to show sequential quarterly improvements, as a result of strengthening demand from customers in the oil and gas market and stable demand from the airport, rescue and fire fighting (ARFF), land- and marine-based military, and Asian-Pacific marine markets. These market improvements continue to be offset by weakness in the Company's mega yacht and European markets.

Gross profit, as a percentage of fiscal 2010 fourth-quarter sales, was 30.2 percent, compared to 26.7 percent in the fiscal 2009 fourth quarter and 27.1 percent in the fiscal 2010 third quarter. The continued quarterly improvement, both sequentially and year-over-year, in the Company's gross margin is the result of restructuring activities the Company initiated last fiscal year, increased sales volumes compared to the third fiscal quarter and the continued improvement in the mix of business. Fiscal 2010 gross profit, as a percentage of sales, was 26.6 percent, compared to 27.6 percent in fiscal 2009.

For the fiscal 2010 fourth quarter, marketing, engineering and administrative (ME&A) expenses, as a percentage of sales, were 22.8 percent, compared to 17.5 percent for the fiscal 2009 fourth quarter. ME&A expenses increased $2,031,000 versus the same period last fiscal year. The table below summarizes significant changes in certain ME&A expenses for the quarter:

Three Months Ended Increase/
$ thousands - (Income)/Expense June 30, 2010 June 30, 2009 (Decrease)
Stock-Based Compensation $ 122 $ (1,106) $ 1,228
Pension 611 (735) 1,346
$ 2,574
Foreign Exchange Translation, net (109)
$ 2,465
All other, net (434)
$ 2,031

As a percentage of sales, ME&A expenses for fiscal 2010 were 25.0 percent, compared to 20.5 percent for fiscal 2009. ME&A expenses decreased $3,584,000 versus last fiscal year. The table below summarizes significant changes in certain ME&A expenses for the fiscal year:

Year Ended Increase/
$ thousands - (Income)/Expense June 30, 2010 June 30, 2009 (Decrease)
Stock-Based Compensation $ 505 $ (581) $ 1,086
Pension 2,044 413 1,631
Severance - 1,308 (1,308)
Domestic/Corporate IT Expenses 4,847 5,740 (893)
$ 516
Foreign Exchange Translation, net 924
$ 1,440
All other, net (5,024)
$ (3,584)

The net remaining decrease in ME&A expenses for the year of $5,024,000 primarily relates to the global cost reduction initiatives implemented by the Company at the end of fiscal 2009. As announced in June 2009, the actions included a reduction of annual base salaries of the Company's salaried employees including all executive officers, removal of the fiscal 2010 bonus/incentive plan, changes to several benefit programs, an across-the-board reduction of marketing, advertising, travel and entertainment expenses, and staff reductions and layoffs.

For fiscal 2010, the Company recorded a $494,000 charge related to prior years' pre-pension/restructuring plans at the Company's Belgium operation, compared to fiscal 2009's restructuring expense of $1,188,000 related to the Company's fiscal 2009 restructuring plan, primarily at its domestic operations. The fiscal 2010 charge relates primarily to a change in legislation governing Belgian pre-pension schemes.

The Company's tax rate for the 2010 fourth quarter was 54.4 percent compared to 46.9 percent in the prior year's fourth quarter. For 2010, the effective tax rate was 57.6 percent, compared to 34.7 percent last fiscal year. The increased rate for 2010 was primarily due to the impact of permanent deferred items, which remained relatively constant with the prior quarter and prior year, but had a greater impact on the tax rate due to the low base of earnings. In addition, the prior fiscal year included a 3.0 percentage point benefit (rate reduction) related to an increase in foreign tax credits, which resulted in the relatively low rate for fiscal 2009.

Net earnings for the fiscal 2010 fourth quarter were $2,040,000, or $0.18 per diluted share, compared to $2,754,000, or $0.25 per diluted share, for the fiscal 2009 fourth quarter. For fiscal 2010, net earnings were $597,000, or $0.05 per diluted share, compared to $11,502,000, or $1.03 per diluted share last fiscal year.

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was $7,426,000 for the fiscal 2010 fourth quarter, compared to $8,488,000 for the fiscal 2009 fourth quarter. For fiscal 2010, EBITDA was $13,688,000, compared to $30,020,000 last fiscal year.

Commenting on the results, Michael E. Batten, Chairman and Chief Executive Officer, said: "We are pleased with many aspects of our fiscal 2010 fourth-quarter and full-year financial and operating results. Quarterly sales, margins, profitability and backlog all grew sequentially throughout our fiscal year. Most of this improvement was the direct result of higher sales for our 8500 series transmission to oil and gas customers and we expect this increased level of activity to continue throughout the new fiscal year. The diversity of our end markets, geography and business mix has helped insulate our financial results from continued weakness in the pleasure craft market and weakness from customers in Europe. Our business strategy continues to focus on products, end markets and geographies that are demonstrating growing business and economic characteristics. Key to executing this strategy are the talents and dedication of our employees around the world."

Christopher J. Eperjesy, Vice President - Finance, Chief Financial Officer and Treasurer, stated: "Throughout the year we worked on improving our cost management and working capital efficiencies and we are pleased with our accomplishments. Our balance sheet improved significantly during the year as we increased our cash position 43.4 percent, reduced debt by 38.7 percent and lowered working capital 18.8 percent. For fiscal 2010, we generated $35,116,000 in cash from operating activities, up from $11,606,000 last fiscal year. This positive cash flow and the improvements in working capital allowed us to lower our total debt by $19,638,000 to $31,131,000 at June 30, 2010 from $50,769,000 at June 30, 2009. As we look to fiscal 2011, we will continue to focus on improving working capital efficiencies and further strengthening our balance sheet."

Mr. Batten continued: "Our six-month backlog at June 30, 2010 was $84,419,000 compared to $60,583,000 at June 30, 2009 and $72,786,000 at March 26, 2010. The improvement in backlog is a result of increased orders by oil and gas customers for our 8500 transmission as stable oil and gas prices have driven demand for new high-horsepower rigs. With oil and gas prices remaining firm, we are optimistic demand for our transmissions will continue. In addition, we continue to work on the development of our 7500 series transmission and expect to start production in the second half of fiscal 2011.

"We expect increasing demand from oil and gas customers, stable demand from airport, rescue and fire fighting customers, land-based legacy military customers, and Asian marine customers, to continue to offset weakness in our industrial, pleasure craft and European markets. For fiscal 2011 and beyond, we will remain diligent in managing our costs, working capital and supply chain, developing new products, providing outstanding customer service and penetrating global markets. In total, we are encouraged by our marketing activities and bookings; and are optimistic about the new fiscal year achieving higher sales, net income and earnings per share."

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 2:00 p.m. Eastern Time on Tuesday, August 3, 2010. To participate in the conference call, please dial 888-846-5003 five to 10 minutes before the call is scheduled to begin. A replay will be available from 5:00 p.m. August 3, 2010 until midnight August 10, 2010. The number to hear the teleconference replay is 877-870-5176. The access code for the replay is 4333082.

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.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS)

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

Three Months Ended Year Ended
June 30,

2010

June 30,

2009

June 30,

2010

June 30,

2009

Net sales $64,314 $72,056 $227,534 $295,618
Cost of goods sold 44,887 52,789 167,069 214,175
Gross profit 19,427 19,267 60,465 81,443

Marketing, engineering and administrative expenses

14,658 12,627 56,886 60,470
Restructuring of operations 494 1,188 494 1,188
Earnings from operations 4,275 5,452 3,085 19,785
Other income (expense):
Interest income 45 54 84 207
Interest expense (461) (650) (2,282) (2,487)
Other income, net 638 730 835 540
222 134 (1,363) (1,740)

Earnings before income taxes and noncontrolling interest

4,497 5,586 1,722 18,045
Income taxes 2,446 2,618 992 6,257
Net earnings 2,051 2,968 730 11,788

Less: Net earnings attributable to noncontrolling interest, net of tax

(11) (214) (133) (286)
Net earnings attributable to Twin Disc $2,040 $2,754 $597 $11,502
Earnings per share data:

Basic earnings per share attributable to Twin Disc common shareholders

$0.18

$0.25

$0.05

$1.04

Diluted earnings per share attributable to Twin Disc common shareholders

$0.18

$0.25

$0.05

$1.03

Weighted average shares outstanding data:
Basic shares outstanding 11,066 11,006 11,063 11,097
Diluted shares outstanding 11,173 11,117 11,159 11,194
Dividends per share $0.07 $0.07 $0.28 $0.28
Comprehensive loss:
Net earnings $2,051 $2,968 $730 $11,788

Adjustment for amortization of net actuarial loss and prior service cost, net of tax

(7,819)

(19,320)

(6,414)

(17,908)

Foreign currency translation adjustment (8,158) 9,116 (9,650) (10,458)
Comprehensive loss (13,926) (7,236) (15,334) (16,578)

Comprehensive income attributable to noncontrolling interest

(11)

(214)

(133)

(286)

Comprehensive loss attributable to Twin Disc

($13,937)

($7,450)

($15,467)

($16,864)

RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA

(In thousands; unaudited)

Three Months Ended

Year Ended

June 30,

2010

June 30,

2009

June 30,

2010

June 30,

2009

Net earnings attributable to Twin Disc $ 2,040 $ 2,754 $ 597 $ 11,502
Interest expense 461 650 2,282 2,487
Income taxes 2,446 2,618 992 6,257
Depreciation and amortization 2,479 2,466 9,817 9,774

Earnings before interest, taxes, depreciation and amortization

$ 7,426 $ 8,488 $ 13,688 $ 30,020
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
June 30, June 30,
2010 2009
ASSETS
Current assets:
Cash $ 19,022 $ 13,266
Trade accounts receivable, net 43,014 53,367
Inventories, net 72,799 92,331
Deferred income taxes 6,014 6,280
Other 6,601 8,677
Total current assets 147,450 173,921
Property, plant and equipment, net 58,243 65,799
Goodwill, net 16,440 17,509
Deferred income taxes 20,115 14,386
Intangible assets, net 6,268 7,855
Other assets 6,626 6,095
TOTAL ASSETS $ 255,142 $ 285,565
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 3,920 $ 4,421
Accounts payable 23,842 24,864
Accrued liabilities 35,545 40,967
Total current liabilities 63,307 70,252
Long-term debt 27,211 46,348
Accrued retirement benefits 72,833 60,241
Other long-term liabilities 2,472 899
Total liabilities 165,823 177,740
Equity:

Twin Disc Shareholders' Equity:

Common shares authorized: 30,000,000; issued: 13,099,468; no par value

10,667

13,205

Retained earnings 147,438 149,974
Accumulated other comprehensive loss (42,048) (25,935)
116,057 137,244

Less treasury stock, at cost (1,901,242 and 2,070,124 shares, respectively)

27,597

30,256

Total Twin Disc shareholders' equity

88,460

106,988

Noncontrolling interest 859 837
Total equity 89,319 107,825
TOTAL LIABILITIES AND EQUITY $ 255,142 $ 285,565
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

Year Ended
June 30,

2010

June 30,

2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 730 $ 11,788

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

Depreciation and amortization 9,817 9,774
Loss on sale of plant assets 261 17
Restructuring of operations 494 1,188
Stock compensation expense (34) (2,481)
Provision for deferred income taxes 161 730

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

23,687

(9,410)

Net cash provided by operating activities 35,116 11,606
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of plant assets 148 20
Acquisitions of plant assets (4,456) (8,895)
Other, net (293) 1,111
Net cash used by investing activities (4,601) (7,764)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 86 -
Payments of notes payable (690) (1,653)
(Payments) proceeds from long-term debt (18,950) 2,787
Proceeds from exercise of stock options 108 110
Acquisition of treasury stock - (1,813)
Dividends paid to shareholders (3,133) (3,105)
Dividends paid to noncontrolling interest (160) (143)
Other (449) (428)
Net cash used by financing activities (23,188) (4,245)
Effect of exchange rate changes on cash (1,571) (778)
Net change in cash and cash equivalents 5,756 (1,181)
Cash and cash equivalents:
Beginning of year 13,266 14,447
End of year $ 19,022 $ 13,266

SOURCE: Twin Disc, Inc.

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

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