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

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

  *Sales and Earnings Decline due to Continued Weakness in North American
    Pressure Pumping Sector
  *China Expands to 10% of Sales
  *Company Opens India Manufacturing Facility
  *Balance Sheet Remains Strong
  *Backlog Shows First Improvement in Seven Quarters

Business Wire

RACINE, Wis. -- July 30, 2013

Twin Disc, Inc. (NASDAQ: TWIN) today reported financial results for the fiscal
2013 fourth quarter ended June 30, 2013.

Sales for the fiscal 2013 fourth quarter were $75,931,000, down from
$96,109,000 for the same period last year. For fiscal 2013, sales were
$285,282,000, compared to the record $355,870,000 for fiscal 2012. The
anticipated 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 throughout the fiscal year, while demand
remained steady for equipment used in the airport rescue and fire fighting
(ARFF), and military markets.

Gross margin for the fiscal 2013 fourth quarter was 27.2 percent, compared to
29.4 percent in the fiscal 2012 fourth quarter and 25.9 percent in the fiscal
2013 third quarter. The anticipated year-over-year decline in the fiscal 2013
fourth quarter gross margin was the result of lower sales volumes and a less
profitable mix of business. For fiscal 2013, gross margin was 28.1 percent,
compared to 34.2 percent for fiscal 2012.

For the fiscal 2013 fourth quarter, marketing, engineering and administrative
(ME&A) expenses, as a percentage of sales, were 22.5 percent, compared to 20.1
percent for the fiscal 2012 fourth quarter. ME&A expenses decreased $1,940,000
versus the fiscal 2012 fourth quarter. The table below summarizes significant
changes in certain ME&A expenses for the quarter:

                                               
                           Three Months Ended
(In thousands)             June 30,  June 30,    Increase/
                           2013       2012        (Decrease)
Stock-Based Compensation   $   270    $ (380  )   $ 650
Incentive/Bonus Expense        290      1,885      (1,595 )
                                                  $ (945   )
Foreign Exchange Translation, Net                  (107   )
                                                  $ (1,052 )
All Other, Net                                     (1,183 )
                                                  $ (2,235 )
                                                           

The year-over-year net remaining decrease in ME&A expenses of $1,183,000 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.

For fiscal 2013, ME&A expenses, as a percentage of sales, were 23.8 percent,
compared to 20.5 percent for fiscal 2012. For fiscal 2013, ME&A expenses
decreased $4,897,000 versus the prior fiscal year. The table below summarizes
significant changes in certain ME&A expenses for the fiscal year:

                                              
                           Year Ended
                           June 30,   June 30,   Increase/
(In thousands)                      
                           2013       2012       (Decrease)
Stock-Based Compensation   $  2,681   $  1,642   $ 1,039
Incentive/Bonus Expense       493        5,013    (4,520 )
                                                 $ (3,481 )
Foreign Exchange Translation, Net                 (913   )
                                                 $ (4,394 )
All Other, Net                                    (798   )
                                                 $ (5,192 )
                                                 
                                                 

The year-over-year net remaining decrease in ME&A expenses of $798,000 for the
year 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.

In connection with preparing its financial statements for fiscal 2013, the
Company recorded an impairment of $1,405,000, or $0.12 per diluted share,
which represents the remaining intangibles and fixed assets of an Italian
distribution entity for which the Company expects to terminate the
distribution agreement. In the prior year, the Company took an impairment
charge of $3,670,000, or $0.32 per diluted share, for the write-down of
goodwill at an Italian manufacturing operation due to softness in the Italian
mega yacht market.

The Company also recorded a $708,000, or $0.06 per diluted share,
restructuring charge in the fiscal 2013 fourth quarter, representing the
minimum legal indemnity for a targeted workforce reduction at the Company’s
Belgian operation, along with the cost associated with the elimination of a
corporate officer position. With negotiations on the Belgian restructuring
completed in July, the Company will record an additional restructuring charge
of approximately $1,077,000 in the fiscal 2014 first quarter.

The effective tax rate for the twelve months of fiscal 2013 was 54.0 percent,
which is significantly higher than the prior year rate of 39.8 percent. Both
years were impacted by non-deductible losses in certain foreign jurisdictions
that are subject to a valuation allowance, as well as non-deductible
impairment charges. Adjusting for these non-deductible losses, the fiscal 2013
rate would have been 35.0 percent compared to 33.3 percent for fiscal 2012.
The effective rate for the fiscal 2013 fourth quarter was 89.2 percent
compared to 76.6 percent for the same period last fiscal year. Adjusting both
for non-deductible losses results in rates of 30.0 percent for the fiscal 2013
fourth quarter and 37.8 percent for the fiscal 2012 fourth quarter. The fiscal
2013 fourth quarter rate was favorably impacted by a favorable change in
Italian tax law of $379,000.

The Company reported net income attributable to Twin Disc for the fiscal 2013
fourth quarter of $47,000, or $0.00 per diluted share, compared to net
earnings of $1,263,000, or $0.11 per diluted share, for the fiscal 2012 fourth
quarter. For fiscal 2013, net earnings attributable to Twin Disc were
$3,882,000, or $0.34 per diluted share, compared to $26,743,000, or $2.31 per
diluted share for fiscal 2012.

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was
$4,729,000 for the fiscal 2013 fourth quarter, compared to $8,780,000 for the
fiscal 2012 fourth quarter. For fiscal 2013, EBITDA was $21,141,000, compared
to $56,789,000 for fiscal 2012.

Commenting on the results, Michael E. Batten, Chairman and Chief Executive
Officer, said: “On many levels, fiscal 2013 was a transitional year for the
Company as we continued to build a solid foundation to support our long-term
growth strategies. A key component of our strategic plan has been to enhance
Twin Disc’s position as a global company. For the sixth consecutive year, the
majority of our sales have been to customers outside the U.S. We remain
committed to marketing the Twin Disc brand internationally with an expanding
focus on emerging markets. As a result, China now represents 10 percent of
overall sales and has become the second largest market for sales after the
U.S.

“In addition to diversifying our sales geographically, during fiscal 2013 we
expanded our manufacturing footprint with the commissioning of a facility near
Chennai, India, after several years of developing a high-quality, low-cost
supply chain. The 35,000 square foot facility provides light machining and
assembly of industrial products that initially will be shipped to customers
around the world. While we invest in emerging economies, we are looking at
ways to improve the performance of our European operations and, during the
quarter, took an impairment charge at one of our Italian subsidiaries and
restructured our Belgian operation. As we mentioned earlier in this release,
we will record an additional restructuring charge in the fiscal 2014 first
quarter as a result of further actions to improve profitability at this
facility.”

Christopher J. Eperjesy, Vice President - Finance, Chief Financial Officer and
Treasurer, stated: “Our balance sheet improved in the fourth quarter, as total
debt net of cash, was $6,429,000 at June 30, 2013, compared to $16,444,000 at
June 30, 2012, and $17,541,000 at March 29, 2013. Positive changes in working
capital, as a result of reductions in our receivable balance and inventory,
allowed the Company to generate $24,476,000 of cash from operations. At June
30, 2013, we had total cash of $20,724,000, compared to cash of $15,701,000 at
June 30, 2012. Capital expenditures for fiscal 2013 were $6,582,000 and we
anticipate investing approximately $15,000,000 in capital expenditures for
fiscal 2014 as we continue to upgrade our facilities.”

Mr. Batten continued: “Our six-month backlog at June 30, 2013 was $66,765,000
compared to $64,879,000 at March 29, 2013 and $98,746,000 at June 30, 2012.
The $1,886,000 sequential increase in the backlog represents the first
increase in seven quarters. While we are optimistic our backlog has bottomed,
we do not anticipate the improvement to be similar to the past recovery, which
was driven by rapid demand for oil and gas pressure pumping transmissions in
North America. The fiscal 2014 first half will be influenced by similar
dynamics that affected our business this past year – global demand from
commercial marine customers and international oil and gas opportunities,
offset by weak European and global mega yacht markets. We are cautiously
optimistic demand from the North American oil and gas market will begin to
improve in the fiscal 2014 second half. Coming off another record sales year,
Asia continues to be a major growth region for the Company. In particular, the
long-term outlook for the Chinese commercial marine and pressure pumping
transmission markets continues to be strong. I am proud of our team’s success
executing our global growth initiatives and I am confident we have created the
correct strategies that will capitalize on long-term opportunities to increase
sales and improve profitability.”

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, July 30, 2013. To
participate in the conference call, please dial 877-941-1428 five to 10
minutes before the call is scheduled to begin. A replay will be available from
2:00 p.m. July 30, 2013 until midnight August 6, 2013. The number to hear the
teleconference replay is 877-870-5176. The access code for the replay is
4630318.

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

                        Three Months Ended        Twelve Months Ended
                          June 30,    June 30,      June 30,     June 30,

                          2013         2012(*)       2013          2012(*)
Net sales                 $ 75,931     $ 96,109      $ 285,282     $ 355,870
Cost of goods sold         55,308     67,863      205,257     234,238 
Gross profit                20,623       28,246        80,025        121,632
                                                                   
Marketing,
engineering and             17,104       19,339        67,899        73,091
administrative
expenses
Impairment charge           1,405        3,670         1,405         3,670
Restructuring of           708        -           708         -       
operations
Earnings from               1,406        5,237         10,013        44,871
operations
Interest expense            434          346           1,435         1,475
Other income, net          (636   )    (887    )    (659    )    (1,360  )
Earnings before                                                   
income taxes and
noncontrolling              1,608        5,778         9,237         44,756
interest
Income taxes               1,435      4,425       4,986       17,815  
                                                                   
Net earnings                173          1,353         4,251         26,941
Less: Net earnings
attributable to
noncontrolling             (126   )    (90     )    (369    )    (198    )
interest, net of tax
Net earnings
attributable to Twin      $ 47        $ 1,263      $ 3,882      $ 26,743  
Disc
                                                                   
Earnings per share
data:
Basic earnings per
share attributable
                          $ 0.00       $ 0.11        $ 0.34        $ 2.34
to Twin Disc common
shareholders
Diluted earnings per
share attributable
                          $ 0.00       $ 0.11        $ 0.34        $ 2.31
to Twin Disc common
shareholders
                                                                   
Weighted average
shares outstanding
data:
Basic shares                11,236       11,384        11,304        11,410
outstanding
Diluted shares              11,311       11,534        11,377        11,556
outstanding
                                                                   
Dividends per share       $ 0.09       $ 0.09        $ 0.36        $ 0.34
                                                                   
Comprehensive income
(loss):
Net earnings              $ 173        $ 1,353       $ 4,251       $ 26,941
Other comprehensive
(loss) income:
Foreign currency
translation                 (2,073 )     (5,446  )     447           (11,738 )
adjustment
Benefit plan               6,326      (12,993 )    8,322       (11,690 )
adjustments, net
Comprehensive income        4,426        (17,086 )     13,020        3,513
(loss)
Comprehensive income
attributable to            (126   )    (90     )   (369    )    (198    )
noncontrolling
interest
Comprehensive income                                         
(loss) attributable                                                        
to Twin Disc              $ 4,300      $ (17,176 )   $ 12,651      $ 3,315
                                                                             

(*) Includes revisions to correct previously reported amounts. As previously
reported, 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 decrease
net earnings for the three months ended June 30, 2012 by $18,000 and increase
net earnings for the twelve months ended June 30, 2012 by $631,000.


RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA

(In thousands; unaudited)

                                    Three Months Ended   Twelve Months Ended
                                     June 30,   June 30,   June 30,   June 30,
                                                                   
                                     2013       2012(*)    2013       2012(*)
Net earnings attributable to Twin    $  47      $  1,263   $ 3,882    $ 26,743
Disc
Interest expense                        434        346       1,435      1,475
Income taxes                            1,435      4,425     4,986      17,815
Depreciation and amortization          2,813     2,746    10,838    10,756
Earnings before interest, taxes,
                                     $  4,729   $  8,780   $ 21,141   $ 56,789
depreciation and amortization
                                                                      

(*) Includes revisions to previously reported amounts.


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
                                                                
                                                     June 30,      June 30,
                                                     2013          2012(*)
ASSETS
Current assets:
Cash                                                 $ 20,724      $ 15,701
Trade accounts receivable, net                         46,331        63,438
Inventories, net                                       102,774       103,178
Deferred income taxes                                  4,176         3,745
Other                                                 10,472      11,099  
                                                                   
Total current assets                                   184,477       197,161
                                                                   
Property, plant and equipment, net                     62,315        66,356
Goodwill, net                                          13,232        13,116
Deferred income taxes                                  7,975         14,335
Intangible assets, net                                 3,149         4,996
Other assets                                          10,676      7,868   
                                                                   
TOTAL ASSETS                                         $ 281,824    $ 303,832 
                                                                   
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current maturities of      $ 3,681       $ 3,744
long-term debt
Accounts payable                                       20,651        23,550
Accrued liabilities                                   36,064      39,331  
                                                                   
Total current liabilities                              60,396        66,625
                                                                   
Long-term debt                                         23,472        28,401
Accrued retirement benefits                            48,290        64,009
Deferred income taxes                                  2,398         3,340
Other long-term liabilities                           3,706       4,948   
                                                                   
Total liabilities                                      138,262       167,323
                                                                   
                                                                   
Twin Disc shareholders’ equity:
Common shares authorized: 30,000,000;
Issued: 13,099,468; no par value                       13,183        12,759
Retained earnings                                      184,110       184,306
Accumulated other comprehensive loss                  (25,899 )    (34,797 )
                                                                   
                                                       171,394       162,268
Less treasury stock, at cost
                                                      28,890      26,781  
(1,886,516 and 1,794,981 shares, respectively)
                                                                   
Total Twin Disc shareholders' equity                  142,504     135,487 
                                                                   
Noncontrolling interest                               1,058       1,022   
Total equity                                          143,562     136,509 
                                                                   
TOTAL LIABILITIES AND EQUITY                         $ 281,824    $ 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)
                                                          Twelve Months Ended
                                                           June 30,   June 30,
                                                                    
                                                           2013       2012(*)
                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                               $ 4,251    $ 26,941
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization                              10,838     10,756
Loss on sale of plant assets                               287        315
Impairment charge                                          1,405      3,670
Stock compensation expense                                 615        1,642
Restructuring of operations                                708        295
Provision for deferred income taxes                        (38)       7,486
Net change in working capital, excluding cash and debt,    6,410      (36,661)
and other
Net cash provided by operating activities                  24,476     14,444
                                                                      
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of plant assets                         315        116
Acquisitions of plant assets                               (6,582)    (13,733)
Other, net                                                 (231)      (293)
Net cash used by investing activities                      (6,498)    (13,910)
                                                                      
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable                                32         3
Payments of notes payable                                  (96)       (145)
(Payments of) proceeds from long-term debt                 (4,932)    2,590
Proceeds from exercise of stock options                    189        169
Acquisition of treasury stock                              (3,069)    (2,425)
Dividends paid to shareholders                             (4,079)    (3,886)
Dividends paid to noncontrolling interest                  (204)      (131)
Excess tax benefits from stock compensation                1,451      535
Other                                                      (1,699)    (184)
Net cash used by financing activities                      (12,407)   (3,474)
                                                                      
Effect of exchange rate changes on cash                    (548)      (1,526)
                                                                      
Net change in cash                                         5,023      (4,466)
                                                                      
Cash:
Beginning of period                                        15,701     20,167
                                                                      
End of period                                              $ 20,724   $ 15,701
                                                                      

(*) 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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