Twin Disc, Inc. Announces Fiscal 2013 Third Quarter Financial Results

  Twin Disc, Inc. Announces Fiscal 2013 Third Quarter Financial Results

  *Sales and Earnings Decline due to Continued Weakness in North American
                             Pressure Pumping Sector
                   *Increasing Demand from Customers in Asia
  *Balance Sheet Remains Strong

Business Wire

RACINE, Wis. -- April 23, 2013

Twin Disc, Inc. (NASDAQ: TWIN) today reported financial results for the fiscal
2013 third quarter ended March 29, 2013.

Sales for the fiscal 2013 third quarter were $68,232,000, down from the third
quarter record of $95,490,000 for the same period last year. Year-to-date,
sales were $209,351,000, compared to the record $259,761,000 for the fiscal
2012 nine months. The forecasted decrease in sales was primarily the result of
lower demand from customers in the pressure pumping sector of the North
American oil and gas market and softness in sales to European customers.
Offsetting weakness in these markets was higher demand from customers in the
North American and Asian commercial marine markets. Sales to customers serving
the global mega yacht market remained at historic lows in the quarter, while
demand remained steady for equipment used in the airport rescue and fire
fighting (ARFF), and military markets.

Gross margin for the fiscal 2013 third quarter was 25.9 percent, compared to
34.6 percent in the fiscal 2012 third quarter and 30.8 percent in the fiscal
2013 second quarter. The anticipated year-over-year decline in the fiscal 2013
third quarter gross margin was the result of lower sales volumes and a less
profitable mix of business. Year-to-date, gross margin was 28.4 percent,
compared to 36.0 percent for the fiscal 2012 nine months.

For the fiscal 2013 third quarter, marketing, engineering and administrative
(ME&A) expenses, as a percentage of sales, were 25.5 percent, compared to 18.6
percent for the fiscal 2012 third quarter. ME&A expenses decreased $341,000
versus the fiscal 2012 third quarter. The impact of the increase in the
Company’s stock price from $17.06 at the end of the fiscal second quarter to
$24.62 at the end of the fiscal third quarter was to increase sequential stock
based compensation expense by $816,000. The table below summarizes significant
changes in certain ME&A expenses for the quarter:

                          Three Months Ended    
                           March 29,   March 30,   Increase/
(In thousands)                       
                           2013        2012        (Decrease)
Stock-Based Compensation   $  1,488    $  (385)    $  1,873
Incentive/Bonus Expense       74          1,129      (1,055)
                                                   $  818
Foreign Exchange Translation, Net                    (36)
                                                   $  782
All Other, Net                                       (1,123)
                                                   $  (341)
                                                      

The year-over-year net remaining decrease in ME&A expenses of $1,123,000 for
the quarter primarily relates to efforts to control global ME&A expenses in
light of the current softness in demand experienced in certain of the
Company’s markets.

Year-to-date, ME&A expenses, as a percentage of sales, were 24.3 percent,
compared to 20.7 percent for the fiscal 2012 first nine months. For the fiscal
2013 nine-month period, ME&A expenses decreased $2,957,000 versus the same
period last fiscal year. The table below summarizes significant changes in
certain ME&A expenses for the fiscal year:

                          Nine Months Ended     
                           March 29,   March 30,   Increase/
(In thousands)                       
                           2013        2012        (Decrease)
Stock-Based Compensation   $  2,412    $  2,022    $  390
Incentive/Bonus Expense       203         3,128      (2,925)
                                                   $  (2,535)
Foreign Exchange Translation, Net                    (805)
                                                   $  (3,340)
All Other, Net                                       383
                                                   $  (2,957)
                                                      

The net remaining year-to-date increase in ME&A expenses for the year
primarily relates to increased research and development activities, wage
inflation and additional headcount in the first half of the fiscal year offset
by global reductions in ME&A expenses in the third fiscal quarter.

The third fiscal quarter tax expense on break-even, pre-tax results primarily
relates to a true-up of foreign tax credits ($651,000) following final
settlement of an IRS audit and the completion of the fiscal 2012 tax return
within the quarter. The year-to-date effective tax rate is impacted by the
non-deductible losses in jurisdictions with full valuation allowances.
Adjusting for this impact, the fiscal 2013 year-to-date effective tax rate
would have been 37.3 percent, which was also impacted by the adjustment to
foreign tax credits within the quarter.

The Company reported a net loss attributable to Twin Disc for the fiscal 2013
third quarter of $757,000, or $0.07 per share, compared to net earnings of
$9,984,000, or $0.86 per diluted share, for the fiscal 2012 third quarter.
Year-to-date, net earnings attributable to Twin Disc were $3,835,000, or $0.34
per diluted share, compared to $25,480,000, or $2.20 per diluted share for the
fiscal 2012 nine months.

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was
$2,929,000 for the fiscal 2013 third quarter, compared to $17,893,000 for the
fiscal 2012 third quarter. For the fiscal 2013 first nine months, EBITDA was
$16,413,000, compared to $48,009,000 for the fiscal 2012 comparable period.

Commenting on the results, Michael E. Batten, Chairman and Chief Executive
Officer, said: “Our financial results continue to be impacted by the
previously forecasted decline in market activity in North America for our
pressure pumping transmissions. Also impacting our results is a difficult
operating environment in Europe. Amplifying the decline in sales and
profitability were the record financial results we achieved last fiscal year
as demand was at historic highs in several of our key markets. This
demonstrates the cyclicality of our end markets. As we have learned from
previous cycles, these markets do come back and our strategy is to plan
proactively to take full advantage of an inevitable rebound. In addition, we
are looking at markets where demand remains strong as evidenced by increasing
sales and orders in Asia for pressure pumping transmissions and commercial
marine products. The diversity of our geographies and end markets is helping
us achieve financial results that compare favorably to previous trough
periods.”

Christopher J. Eperjesy, Vice President - Finance, Chief Financial Officer and
Treasurer, stated: “We continue to invest in inventory to support the growth
in demand we are experiencing from customers in Asia for commercial marine and
pressure pumping products. With this said, we are managing our inventory
levels to reflect overall market demand and expect inventory levels to decline
sequentially. Our balance sheet and liquidity remain strong. At March 29,
2013, we had total cash of $17,161,000, compared to cash of $15,701,000 at
June 30, 2012. Total debt net of cash, was $17,541,000 at March 29, 2013,
compared to $16,444,000 at June 30, 2012, and $27,480,000 at March 30, 2012.
Capital expenditures through the first nine months of fiscal 2013 were
$5,118,000 and we anticipate investing slightly less than the $10,000,000 in
capital expenditures we budgeted for this fiscal year.”

Mr. Batten continued: “Our six-month backlog at March 29, 2013 was $64,879,000
compared to $68,230,000 at December 28, 2012 and $131,375,000 at March 30,
2012. Our backlog is in the process of bottoming and reflects continued
weakness in demand from the North American oil and gas market and a depressed
European market. However, we are seeing initial and encouraging indications
that demand and orders are improving in Asia and North America. We continue to
manage the business conservatively. Maintaining a strong balance sheet with
ample liquidity provides us the flexibility to manage the business through the
softness we are experiencing in several markets and take advantage of
opportunities as they occur. We are well positioned to capitalize on the
long-term trends of our markets and remain committed to investing in product
development, our distribution network, and our global manufacturing
operations.”

Twin Disc will be hosting a conference call to discuss these results and to
answer questions at 11:00 a.m. Eastern Time on Tuesday, April 23, 2013. To
participate in the conference call, please dial 877-941-4774 five to 10
minutes before the call is scheduled to begin. A replay will be available from
2:00 p.m. April 23, 2013 until midnight April 30, 2013. The number to hear the
teleconference replay is 877-870-5176. The access code for the replay is
4613292.

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://ir.twindisc.com/index.cfm 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, if any, 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 AND

COMPREHENSIVE (LOSS) INCOME

(In thousands, except per-share data; unaudited)
                                                                
                                 Three Months Ended      Nine Months Ended
                                 March 29,   March 30,   March 29,   March 30,

                                 2013        2012(*)     2013        2012(*)
Net sales                        $  68,232   $  95,490   $ 209,351   $ 259,761
Cost of goods sold                 50,558     62,434    149,949    166,375
Gross profit                        17,674      33,056     59,402      93,386
                                                                     
Marketing, engineering and         17,405     17,746    50,795     53,752
administrative expenses
Earnings from operations            269         15,310     8,607       39,634
                                                                       
Interest expense                    366         389        1,001       1,129
Other (income) expense, net        (129)      71        (24)       (473)
                                                                       
Earnings before income taxes                                        
and noncontrolling interest
                                    32          14,850     7,630       38,978
Income taxes                       640        4,821     3,552      13,390
                                                                     
Net (loss) earnings                 (608)       10,029     4,078       25,588
Less: Net earnings
attributable to noncontrolling     (149)      (45)      (243)      (108)
interest, net of tax
Net (loss) earnings              $  (757)    $  9,984    $ 3,835     $ 25,480
attributable to Twin Disc
                                                                     
(Loss) earnings per share
data:
Basic (loss) earnings per
share attributable to Twin       $  (0.07)   $  0.87     $ 0.34      $ 2.23
Disc common shareholders
Diluted (loss) earnings per
share attributable to Twin       $  (0.07)   $  0.86     $ 0.34      $ 2.20
Disc common shareholders
                                                                     
Weighted average shares
outstanding data:
Basic shares outstanding            11,243      11,426     11,327      11,410
Diluted shares outstanding          11,243      11,572     11,400      11,555
                                                                     
Dividends per share              $  0.09     $  0.09     $ 0.27      $ 0.25
                                                                     
Comprehensive (loss) income:
Net (loss) earnings              $  (608)    $  10,029   $ 4,078     $ 25,588
Other comprehensive (loss)
income: Foreign currency            (874)       2,241     2,520       (6,292)
translation adjustment
Benefit plan adjustments, net      676        418       1,996      1,303
Comprehensive (loss) income         (806)       12,688     8,594       20,599
Comprehensive income
attributable to noncontrolling     (149)      (45)     (243)      (108)
interest
                                                                       
Comprehensive (loss) income                                     
attributable to Twin Disc
                                 $  (955)    $  12,643   $ 8,351     $ 20,491
                                                                       

(*) Includes revisions to correct previously reported amounts. The Company’s
review of its reserve for uncertain tax positions identified errors that
affected prior periods. The effect of the errors was not material to any
previously issued financial statements, however, the cumulative effect of
correcting the errors in the current year would have been material to fiscal
year 2013. Therefore, the Company revised its prior period financial
statements. As part of this revision, the Company recorded other previously
disclosed out-of-period adjustments, which were immaterial, in the periods in
which the errors originated. The aggregate impact was to increase net earnings
for the three months ended March 30, 2012 by $591,000 and increase net
earnings for the nine months ended March 30, 2012 by $649,000.

RECONCILIATION OF CONSOLIDATED NET (LOSS) EARNINGS TO EBITDA

(In thousands; unaudited)
                                Three Months Ended     Nine Months Ended
                                 March 29,   March 30,   March 29,   March 30,
                                                                  
                                 2013        2012(*)     2013        2012(*)
Net (loss) earnings              $  (757)    $  9,984    $  3,835    $  25,480
attributable to Twin Disc
Interest expense                    366         389         1,001       1,129
Income taxes                        640         4,821       3,552       13,390
Depreciation and amortization      2,680      2,699      8,025      8,010
Earnings before interest,
taxes, depreciation and          $  2,929    $  17,893   $  16,413   $  48,009
amortization
                                                                        

(*) Includes revisions to previously reported amounts.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
                                                                 
                                                       March 29,    June 30,
                                                       2013         2012(*)
ASSETS
Current assets:
Cash                                                   $ 17,161     $ 15,701
Trade accounts receivable, net                           44,204       63,438
Inventories, net                                         113,009      103,178
Deferred income taxes                                    4,797        3,745
Other                                                   10,949      11,099
                                                                    
Total current assets                                     190,120      197,161
                                                                    
Property, plant and equipment, net                       64,299       66,356
Goodwill, net                                            13,312       13,116
Deferred income taxes                                    12,753       14,335
Intangible assets, net                                   4,643        4,996
Other assets                                            10,002      7,868
                                                                    
TOTAL ASSETS                                           $ 295,129    $ 303,832
                                                                    
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current maturities of        $ 3,693      $ 3,744
long-term debt
Accounts payable                                         21,165       23,550
Accrued liabilities                                     32,462      39,331
                                                                    
Total current liabilities                                57,320       66,625
                                                                    
Long-term debt                                           31,009       28,401
Accrued retirement benefits                              59,717       64,009
Deferred income taxes                                    3,767        3,340
Other long-term liabilities                             3,485       4,948
                                                                    
Total liabilities                                        155,298      167,323
                                                                    
                                                                    
Twin Disc shareholders’ equity:
Common shares authorized: 30,000,000;
Issued: 13,099,468; no par value                         12,401       12,759
Retained earnings                                        185,074      184,306
Accumulated other comprehensive loss                    (30,244)    (34,797)
                                                                    
                                                         167,231      162,268
                                                                      
Less treasury stock, at cost (1,855,984 and             28,423      26,781
1,794,981 shares, respectively)
                                                                    
Total Twin Disc shareholders' equity                    138,808     135,487
                                                                    
Noncontrolling interest                                 1,023       1,022
Total equity                                            139,831     136,509
                                                                    
TOTAL LIABILITIES AND EQUITY                           $ 295,129    $ 303,832
                                                                    

(*) Includes revisions to correct previously reported amounts resulting in an
increase of $777,000 to Other long-term liabilities, with an offsetting
adjustment to Retained earnings.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)
                                                     Nine Months Ended
                                                      March 29,    March 30,
                                                                 
                                                      2013         2012(*)
                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                          $ 4,078      $ 25,588
Adjustments to reconcile to net earnings to cash
provided (used) by operating activities:
Depreciation and amortization                           8,025        8,010
Other non-cash changes, net                             1,679        4,557
Net change in working capital, excluding cash and      (2,980 )    (41,964 )
debt, and other
Net cash provided (used) by operating activities       10,802     (3,809  )
                                                                   
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets                            (5,118 )     (10,560 )
Proceeds from sale of fixed assets                      181          95
Other, net                                             (232   )    (293    )
Net cash used by investing activities                  (5,169 )    (10,758 )
                                                                   
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable                             38           -
Principal payments of notes payable                     (96    )     (109    )
Proceeds from long-term debt                            2,605        15,543
Proceeds from exercise of stock options                 189          169
Dividends paid to shareholders                          (3,067 )     (2,857  )
Dividends paid to noncontrolling interest               (205   )     (130    )
Purchase of treasury stock                              (3,069 )     -
Excess tax benefits from stock compensation             1,276        535
Other                                                  (1,698 )    (185    )
Net cash (used) provided by financing activities       (4,027 )    12,966  
                                                                   
Effect of exchange rate changes on cash                (146   )    (938    )
                                                                   
Net change in cash                                      1,460        (2,539  )
                                                                   
Cash:
Beginning of period                                    15,701     20,167  
                                                                   
End of period                                         $ 17,161    $ 17,628  

(*) Includes corrections to previously reported amounts, resulting in a
reclassification within Net cash used by operating activities.

Contact:

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