Twin Disc, Inc. Announces Fiscal 2014 First Quarter Financial Results

  Twin Disc, Inc. Announces Fiscal 2014 First Quarter Financial Results

  *First Quarter Sales Declined Slightly Compared to 2013 First Quarter
  *Sales to Asia Continued at Record Levels
  *Six-Month Backlog at September 27, 2013 was $58,053,000

Business Wire

RACINE, Wis. -- October 22, 2013

Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the
fiscal 2014 first quarter ended September 27, 2013.

Sales for the first three months of fiscal 2014, declined to $66,426,000, from
$68,793,000 for the same period last year. The decrease in sales resulted from
a lower level of business in both North America and Europe. Offsetting this
were higher shipments to customers in our Asian markets. Sales to customers
serving the global mega yacht market remained at historical lows in the
quarter, while demand remained steady for equipment used in the industrial,
and airport rescue and fire fighting (ARFF) markets.

Gross margin for the fiscal 2014 first quarter was 31.1 percent, compared to
28.2 percent in the fiscal 2013 first quarter. The increase in fiscal 2014
first quarter gross margin was the result of a more profitable mix of
business, primarily driven by increased shipments of pressure-pumping
transmissions to China.

For the fiscal 2014 first quarter, marketing, engineering and administrative
(ME&A) expenses, as a percentage of sales, were 23.4 percent, compared to 24.2
percent for the fiscal 2013 first quarter. ME&A expenses decreased $1,103,000
versus the same period last fiscal year. The decrease in ME&A expenses for the
quarter relates to lower stock based and incentive compensation expenses, and
controlled spending in the Company's global operations.

The Company recorded a restructuring charge of $1,094,000, or $0.10 per
diluted share, in the fiscal 2014 first quarter representing the incremental
cost above the minimum legal indemnity for a targeted workforce reduction at
the Company's Belgian operation, following finalization of negotiations with
the local labor union. The minimum legal indemnity of $708,000 was recorded in
the fourth quarter of fiscal 2013, upon announcement of the intended
restructuring action.

The effective tax rate for the first quarter of fiscal 2014 was 64.4 percent,
which is significantly higher than the prior year rate of 46.4 percent. Both
years were significantly impacted by non-deductible losses in certain foreign
jurisdictions that are subject to a full valuation allowance. Adjusting for
these non-deductible losses, the fiscal 2014 rate would have been 39.7 percent
compared to 36.9 percent for the fiscal 2013 first quarter. The increase in
the fiscal 2014 rate was primarily driven by adjustments to tax on foreign
earnings (Canada and Italy) recorded in the quarter.

Net earnings attributable to Twin Disc for the fiscal 2014 first quarter were
$1,277,000, or $0.11 per diluted share, compared to earnings of $1,231,000, or
$0.11 per diluted share, for the fiscal 2013 first quarter. Net earnings for
the first quarter of fiscal 2014 includes out-of-period adjustments related to
the correction of errors deemed immaterial to all periods impacted, which have
the effect of increasing net earnings $69,000 ($437,000 pre-tax).

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was
$6,606,000 for the fiscal 2014 first quarter, compared to $5,266,000 for the
fiscal 2013 first quarter.

Commenting on the results, Michael E. Batten, Chairman and Chief Executive
Officer, said: “Our financial results remain under pressure due to a
challenging North American pressure-pumping market. Demand in this market
remains weak, however we are optimistic about this market’s medium- and
long-term growth prospects as well as significant pressure-pumping
opportunities in Asia and potential in Latin America. Our growing
international footprint plays an important role in diversifying sales and
allows us to respond more quickly to faster growing markets. While sales were
down in North America and Europe, we experienced double digit increases in
shipments to customers in the Asia-Pacific region. As we have previously
communicated, we are improving the cost structure of our European operations
and during the fiscal 2014 first quarter we recorded an additional
restructuring charge as a result of actions announced in the fiscal 2013
fourth quarter to increase profitability at our Belgian facility.”

Christopher J. Eperjesy, Vice President - Finance, Chief Financial Officer and
Treasurer, stated: “Our balance sheet continues to be an asset and provides us
with the financial flexibility to withstand near-term volatility in our
financial results, while allowing us to invest in our business and take
advantage of long-term opportunities. During the quarter we generated free
cash flow of $8,856,000 and ended the quarter with total debt, net of cash, of
$773,000, compared to $6,429,000 at June 30, 2013. Capital expenditures during
the fiscal 2014 first quarter were $866,000 and we anticipate investing
$10,000,000 to $15,000,000 in capital expenditures for fiscal 2014 as we
continue to upgrade our facilities.”

Mr. Batten continued: “Our six-month backlog at September 27, 2013 was
$58,053,000 compared to $66,765,000 at June 30, 2013 and $82,434,000 at
September 28, 2012. The six-month backlog reflects continued weakness in
demand from the North American oil and gas market, which we anticipate will
continue for the balance of fiscal 2014. We are obviously disappointed in the
time it has taken the North American pressure-pumping market to rebound and
the impact this is having on our near-term financial results. However, lead
times for all of our forward production marine and industrial transmission
units are now within a six-month window, so that we are able to react to any
increase in demand and still have a positive impact on our second half of the
year. Globally the commercial marine market remains robust and we expect
another strong year from customers in this market. Other markets, including
ARFF and North American industrial markets are expected to remain stable,
while European and mega-yacht markets will remain depressed. The Company
continues to be well-positioned to grow as key end markets recover. We remain
focused on providing innovative and differentiating product and market
development projects that will enhance our revenue and earnings prospects in
the future.”

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, October 22, 2013. To
participate in the conference call, please dial 877-941-1427 five to ten
minutes before the call is scheduled to begin. A replay will be available from
2:00 p.m. October 22, 2013 until midnight October 29, 2013. The number to hear
the teleconference replay is 877-870-5176. The access code for the replay is
4644540.

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 COMPREHENSIVE INCOME
(In thousands, except per-share data; unaudited)
                                         
                                             Three Months Ended
                                             September 27,    September 28,
                                             2013                2012
Net sales                                    $  66,426           $  68,793
Cost of goods sold                             45,759            49,377  
Gross profit                                    20,667              19,416
                                                                            
Marketing, engineering and                      15,517              16,620
administrative expenses
Restructuring of operations                    1,094             -       
Earnings from operations                        4,056               2,796
                                                                            
Interest expense                                254                 306
Other (income) expense, net                    (34     )          127     
Earnings before income taxes and                3,836               2,363
noncontrolling interest
Income taxes                                   2,472             1,097   
                                                                 
Net earnings                                    1,364               1,266
Less: Net earnings attributable to             (87     )          (35     )
noncontrolling interest, net of tax
Net earnings attributable to Twin Disc       $  1,277           $  1,231   
                                                                 
Earnings per share:
Basic earnings per share attributable        $  0.11             $  0.11
to Twin Disc common shareholders
Diluted earnings per share
attributable to Twin Disc common             $  0.11             $  0.11
shareholders
                                                                 
Weighted average shares outstanding:
Basic                                           11,234              11,368
Diluted                                         11,240              11,446
                                                                            
Dividends per share                          $  0.09             $  0.09
                                                                 
Net earnings                                 $  1,364            $  1,266
                                                                 
Other comprehensive income:
Foreign currency translation                    1,880               1,264
adjustment
Benefit plan adjustments, net                  450               668     
Comprehensive income                            3,694               3,198
Comprehensive income attributable to           (87     )          (35     )
noncontrolling interest
Comprehensive income attributable to         $  3,607           $  3,163   
Twin Disc
                                                                            


RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA
(In thousands; unaudited)

                                          Three Months Ended
                                             September 27,    September 28,
                                             2013                2012
Net earnings attributable to Twin Disc       $    1,277          $    1,231
Interest expense                                  254                 306
Income taxes                                      2,472               1,097
Depreciation and amortization                    2,603              2,632
Earnings before interest, taxes,             $    6,606          $    5,266
depreciation and amortization
                                                                 


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
                                                            
                                               September 27,       June 30,
                                               2013                2013
ASSETS
Current assets:
Cash                                           $  24,062           $ 20,724
Trade accounts receivable, net                    37,471             46,331
Inventories, net                                  103,106            102,774
Deferred income taxes                             5,366              5,280
Other                                            11,807           13,363  
                                                                   
Total current assets                              181,812            188,472
                                                                   
Property, plant and equipment, net                61,106             62,315
Goodwill                                          13,319             13,232
Deferred income taxes                             5,111              7,614
Intangible assets, net                            3,079              3,149
Other assets                                     8,729            10,676  
                                                                   
TOTAL ASSETS                                   $  273,156         $ 285,458 
                                                                   
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current              $  3,664            $ 3,681
maturities of long-term debt
Accounts payable                                  17,344             20,651
Accrued liabilities                              33,342           39,171  
                                                                   
Total current liabilities                         54,350             63,503
                                                                   
Long-term debt                                    21,171             23,472
Accrued retirement benefits                       46,987             48,290
Deferred income taxes                             2,723              2,925
Other long-term liabilities                      3,542            3,706   
                                                                   
Total liabilities                                 128,773            141,896
                                                                   
Twin Disc shareholders’ equity:
Common shares authorized: 30,000,000;             11,159             13,183
Issued: 13,099,468; no par value
Retained earnings                                 184,372            184,110
Accumulated other comprehensive loss             (23,523  )        (25,899 )
                                                                   
                                                  172,008            171,394
Less treasury stock, at cost
(1,843,949 and 1,886,516 shares,               28,238           28,890  
respectively)
                                                                   
Total Twin Disc shareholders' equity             143,770          142,504 
                                                                   
Noncontrolling interest                          613              1,058   
Total equity                                     144,383          143,562 
                                                                   
TOTAL LIABILITIES AND EQUITY                   $  273,156         $ 285,458 
                                                                   


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
                                                          
                                                                 
                                             Three Months Ended
                                             September 27,       September 28,
                                             2013                2012
                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                 $  1,364            $  1,266
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization                   2,603               2,632
Restructuring of operations                     1,094               -
Other non-cash changes, net                     2,323               2,223
Net change in working capital,                 2,338             (4,039  )
excluding cash and debt, and other
Net cash provided by operating                 9,722             2,082   
activities
                                                                 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets                    (866    )           (1,337  )
Proceeds from sale of fixed assets              -                   31
Other, net                                     -                 (293    )
Net cash used by investing activities          (866    )          (1,599  )
                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes payable             (14     )           (88     )
(Payments of) proceeds from long-term           (2,305  )           6,935
debt
Proceeds from exercise of stock                 -                   129
options
Dividends paid to shareholders                  (1,015  )           (1,026  )
Dividends paid to noncontrolling                (486    )           (204    )
interest
Excess tax benefits from stock                  435                 1,316
compensation
Payments of withholding taxes on stock         (2,126  )          (1,700  )
compensation
Net cash (used) provided by financing          (5,511  )          5,362   
activities
                                                                 
Effect of exchange rate changes on             (7      )          (53     )
cash
                                                                 
Net change in cash and cash                     3,338               5,792
equivalents
                                                                 
Cash and cash equivalents:
Beginning of period                            20,724            15,701  
                                                                 
End of period                                $  24,062          $  21,493  

Contact:

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