Twin Disc, Inc. (NASDAQ: TWIN) today reported financial results forthe fiscal 2012 third quarter ended March 30, 2012. Sales for the fiscal 2012 third quarter improved to $95,490,000,from $76,471,000 for the same period last year. Year-to-date, saleswere $259,761,000, compared to $213,026,000 for the fiscal 2011nine months.
The improvement in sales was the result of strongdemand from customers in the oil and gas markets. Stable toslightly increased sales continued in a majority of the Company'sother markets, including aftermarket, industrial, airport rescueand fire fighting (ARFF), land- and marine-based military, andcommercial marine. Pleasure craft markets continue at depressedlevels largely impacting the Company's European operations. Gross margin for the fiscal 2012 third quarter was 34.6 percent,compared to 36.3 percent in the fiscal 2011 third quarter and 35.6percent in the fiscal 2012 second quarter.
The year-over-year andsequential decline in the fiscal 2012 third-quarter gross marginwas the result of a change in the mix of sales. Year-to-date, grossmargin was 36.0 percent, compared to 33.6 percent for the fiscal2011 nine month period. For the fiscal 2012 third quarter, marketing, engineering andadministrative (ME&A) expenses, as a percentage of sales, were18.6 percent, compared to 22.3 percent for the fiscal 2011 thirdquarter. ME&A expenses increased $692,000 versus the sameperiod last fiscal year.
Stock-based compensation expense decreased$1,366,000 versus the prior year's third fiscal quarter, primarilydriven by the decrease in the Company's stock price in the thirdquarter of fiscal 2012. The net increase in ME&A for the fiscal2012 third quarter primarily relates to research and developmentactivities, incremental resources to support growth andproductivity initiatives along with inflationary increases. Year-to-date, ME&A expenses, as a percentage of sales, were20.7 percent, compared to 23.7 percent for the fiscal 2011 firstnine months. For the fiscal 2012 nine-month period, ME&Aexpenses increased $3,282,000 versus the same period last fiscalyear. Stock based compensation expense decreased in the fiscal 2012nine months by $1,266,000.
Year-to-date, movements in foreignexchange rates increased ME&A expenses by $927,000 versus thecomparable period a year ago. The net remaining increase primarilyrelates to research and development activities, incrementalresources to support growth and productivity initiatives along withinflationary increases. Other expense of $71,000 for the quarter ended March 30, 2012improved from other expense of $193,000 for the comparable period ayear ago. Year-to-date, other income was $473,000, compared toother expense of $836,000 for the same period last year. Theimprovement for both the quarter and year-to-date is due primarilyto favorable foreign currency movements of the Euro, CanadianDollar and Swiss Franc.
The effective tax rate for the fiscal 2012 third quarter was 36.4percent, compared to the prior year's third quarter tax rate of55.1 percent. The effective tax rate for the first nine months offiscal 2012 was 36.0 percent, compared to 40.4 percent for the sameperiod last fiscal year. In the third quarter of fiscal 2011, therate was unfavorably impacted by the recording of a valuationallowance against the net deferred tax asset at a foreignjurisdiction, resulting in additional tax expense of approximately$2,400,000 in the prior year third quarter. The prior year ninemonth rate also included a $794,000 benefit due to a favorableadjustment to the deferred tax asset related to the pensionliability resulting from the increase in the estimated tax ratefrom 34% to 35%, along with the favorable impact of thereinstatement of the R&D credit, which was passed into lawduring the second quarter of fiscal 2011.
Net earnings attributable to Twin Disc for the fiscal 2012 thirdquarter were $9,393,000, or $0.81 per diluted share, compared to$4,548,000, or $0.40 per diluted share, for the fiscal 2011 thirdquarter. Year-to-date, net earnings attributable to Twin Disc were$24,831,000, or $2.15 per diluted share, compared to $11,238,000,or $0.98 per diluted share for the fiscal 2011 nine-month period. Earnings before interest, taxes, depreciation and amortization(EBITDA)* was $17,893,000 for the fiscal 2012 third quarter,compared to $12,906,000 for the fiscal 2011 third quarter. For thefiscal 2012 nine months, EBITDA was $48,009,000, compared to$27,178,000 for the fiscal 2011 comparable period.
Commenting on the results, Michael E. Batten, Chairman and ChiefExecutive Officer, said: "The fiscal 2012 third quarter wasone of the best overall quarters the Company has ever experiencedand was the best third quarter the Company has ever achieved. Ourhistoric success throughout the year has been driven by robustdemand for our oil and gas products; and with the exception of thepleasure craft market, shipments across all our end marketsincreased during the quarter. High oil prices and the resurgence ofdrilling in the Gulf Coast, have led to increases in commercialmarine activity.
The demand from airport rescue and fire fightingand legacy military customers remains steady, while there has beena pickup in demand from industrial customers." Christopher J. Eperjesy, Vice President - Finance, Chief FinancialOfficer and Treasurer, stated: "We anticipate working capitalimprovements to generate positive cash flow from operatingactivities in the coming quarters that we will use to pay downdebt. Total debt, net of cash, at March 30, 2012 was $27,480,000compared to $12,305,000 at March 25, 2011 and $9,532,000 at June30, 2011. During the quarter we continued our modernization andexpansion initiatives and invested $3,667,000.
Year-to-date, wehave invested $10,560,000 in facility upgrades. Shareholders'equity increased to $156,226,000 at March 30, 2012 compared to$137,085,000 at June 30, 2011 and $115,215,000 at March 25,2011." Mr. Batten continued: "Our six-month backlog at March 30, 2012was $131,375,000, compared to $148,549,000 at December 30, 2011 and$140,239,000 at March 25, 2011. The sequential and year-over-yeardecline in the backlog is primarily a result of moderating futuredemand from oil and gas customers, as well as a continuingimprovement to the Company's past due backlog (which decreased 26percent from the prior quarter end and 20 percent since the startof the fiscal year).
We remain optimistic about the long-termpotential from the oil and gas market, but over the past two monthswe have experienced a decline in orders from the historically highlevels we have been experiencing in fiscal 2012. Our oil and gascustomers have responded to the decline in natural gas prices byslowing orders for capital expenditures related to hydraulicfracturing and pressure pumping due to the effects of a mild winterand a slower than expected US economy, which have led to anoversupply of natural gas. "With one quarter remaining in fiscal 2012, we are confidentwe will achieve many financial and operating milestones for theyear. As we look to fiscal 2013, we expect it to be another goodyear but down from the record levels we have experienced in fiscal2012.
While changes in the oil and gas landscape have caused ournear-term outlook to be cautious, Twin Disc has never been astronger company. We continue to improve our product portfolio,strengthen our relationships with our customers, vendors, andstrategic partners, and remain optimistic of our long-termpotential." Twin Disc will be hosting a conference call to discuss theseresults and to answer questions at 11:00 a.m. Eastern Time onTuesday, April 24, 2012. To participate in the conference call,please dial 877-941-2068 five to ten minutes before the call isscheduled to begin. A replay will be available from 2:00 p.m.
April24, 2012 until midnight May 1, 2012. The number to hear theteleconference replay is 877-870-5176. The access code for thereplay is 4526698. The conference call will also be broadcast live over the Internet.To listen to the call via the Internet, access Twin Disc's websiteat ir.twindisc.com/index.cfm and follow the instructions at the web cast link.
The archived webcast will be available shortly after the call on the Company'swebsite About Twin Disc, Inc. Twin Disc, Inc. designs, manufactures and sells marine andheavy-duty off-highway power transmission equipment. Productsoffered include: marine transmissions, surface drives, propellersand boat management systems, as well as power-shift transmissions,hydraulic torque converters, power take-offs, industrial clutchesand control systems.
The Company sells its products to customersprimarily in the pleasure craft, commercial and military marinemarkets, as well as in the energy and natural resources, governmentand industrial markets. The Company's worldwide sales to bothdomestic and foreign customers are transacted through a directsales force and a distributor network. Forward-Looking Statements This press release may contain statements that are forward lookingas defined by the Securities and Exchange Commission in its rules,regulations and releases. The Company intends that suchforward-looking statements be subject to the safe harbors createdthereby. All forward-looking statements are based on currentexpectations regarding important risk factors including thoseidentified in the Company's most recent periodic report and otherfilings with the Securities and Exchange Commission.
Accordingly,actual results may differ materially from those expressed in theforward-looking statements, and the making of such statementsshould not be regarded as a representation by the Company or anyother person that the results expressed therein will be achieved. *Non-GAAP Financial Disclosures Financial information excluding the impact of foreign currencyexchange rate changes and the impact of acquisitions, if any, inthis press release are not measures that are defined in U.S.Generally Accepted Accounting Principles ("GAAP"). Theseitems are measures that management believes are important to adjustfor in order to have a meaningful comparison to prior and futureperiods and to provide a basis for future projections and forestimating our earnings growth prospects. Non-GAAP measures areused by management as a performance measure to judge profitabilityof our business absent the impact of foreign currency exchange ratechanges and acquisitions.
Management analyzes the company'sbusiness performance and trends excluding these amounts. Thesemeasures, as well as EBITDA, provide a more consistent view ofperformance than the closest GAAP equivalent for management andinvestors. Management compensates for this by using these measuresin combination with the GAAP measures. The presentation of thenon-GAAP measures in this press release are made alongside the mostdirectly comparable GAAP measures. Definition — Earnings Before Interest, Taxes, Depreciationand Amortization (EBITDA) The sum of, net earnings and adding back provision for incometaxes, interest expense, depreciation and amortization expenses:this is a financial measure of the profit generated excluding theabove mentioned items.
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