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

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

  *Demand from Customers in Asia Continues at Record Levels
  *Challenges in some North American and most European Markets Persist
  *Improving Outlook for North American Oil and Gas
  *Net Cash at March 28, 2014 was $1,313,000
  *Six-Month Backlog at March 28, 2014 up slightly to $57,599,000

Business Wire

RACINE, Wis. -- April 29, 2014

Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the
fiscal 2014 third quarter ended March 28, 2014.

Sales for the fiscal 2014 third quarter declined to $60,705,000, from
$68,232,000 for the same period last year. Year-to-date, sales were
$190,343,000, compared to $209,351,000 for the fiscal 2013 nine months. The
decrease in sales resulted from lower levels of business in both North
American and European markets and continued weakness in the global mega yacht
market. Offsetting this were higher shipments to customers in Asian markets.
In addition, global demand for commercial marine transmission systems remains
strong but less than the record levels experienced in fiscal 2013.

Commenting on the results, John H. Batten, President and Chief Executive
Officer, said: “The challenges we have experienced throughout fiscal 2014
persisted during the third quarter. Specifically, lower levels of activity
from North American and European customers continued to influence our results.
Additionally, the severe winter weather throughout most of the U.S. and
Canada, while difficult to quantify, impacted the performance of our supply
chain causing some shipments to be delayed, and there was a general low level
of order activity for both new units and spares during the quarter. However,
we continued to experience favorable demand trends from customers in Asia for
both pressure pumping and commercial marine products as a result of overall
economic growth in the region and market share gains. Towards the end of the
quarter, demand for our pressure pumping transmission systems began increasing
in North America, and we are hopeful that these recent trends will continue as
the excess field inventory situation continues to improve.”

Gross margin for the fiscal 2014 third quarter was 27.4 percent, compared to
25.9 percent in the fiscal 2013 third quarter. The increase in fiscal 2014
third quarter gross margin was the result of a more profitable mix of
business. Year-to-date, gross margin was 29.3 percent, compared to 28.4
percent for the fiscal 2013 nine months.

For the fiscal 2014 third quarter, marketing, engineering and administrative
(ME&A) expenses, as a percentage of sales, were 27.8 percent, compared to 25.5
percent for the fiscal 2013 third quarter. ME&A expenses decreased $535,000
versus the same period last fiscal year. Year-to-date, ME&A expenses, as a
percentage of sales, were 26.0 percent, compared to 24.3 percent for the
fiscal 2013 nine months. For the fiscal 2014 nine month period, ME&A expenses
decreased $1,223,000 versus the same period last fiscal year. Stock based
compensation expense decreased $1,181,000 and $1,478,000 for the third fiscal
quarter and year-to-date, respectively, compared to the prior fiscal year. The
net decrease in ME&A expenses relates to a continued focus on controlled
spending at the Company’s European and North American operations and the noted
decrease in stock based compensation expense this fiscal year compared to
fiscal 2013 partially offset by increased spending in the Company’s growing
Asian operations and increased spending on corporate projects.

The fiscal 2014 third quarter tax benefit on near break-even, pre-tax results
was impacted by a reduced effective rate driven by a change in the
jurisdictional mix of earnings along with provision to return adjustments for
the federal and various state tax returns filed in the quarter. The fiscal
2013 third quarter tax expense was primarily impacted by foreign tax credits
following final settlement of an IRS audit and the completion of the fiscal
2012 federal tax return. The year-to-date effective tax rate for fiscal 2014
is 65.4 percent, which is significantly higher than the prior year rate of
46.6 percent. However, the effective rates in both years are impacted by the
non-deductibility of operating losses in a certain foreign jurisdiction that
is subject to a full valuation allowance. Adjusting both fiscal years for the
non-deductible losses, the fiscal 2014 year-to-date rate would have been 33.3
percent compared to 37.6 percent for the same period in fiscal 2013. The
fiscal 2014 rate was favorably impacted by a change in the jurisdictional mix
of earnings, along with favorable provision to return adjustments recorded in
the fiscal 2014 third quarter.

The net loss attributable to Twin Disc for the fiscal 2014 third quarter was
$393,000, or $0.03 per share, compared to a net loss of $757,000, or $0.07 per
share, for the fiscal 2013 third quarter. Year-to-date, net earnings
attributable to Twin Disc were $1,402,000, or $0.12 per diluted share,
compared to $3,835,000, or $0.34 per diluted share for the fiscal 2013 nine
months.

Earnings before interest, taxes, depreciation and amortization (EBITDA)* were
$2,381,000 for the fiscal 2014 third quarter, compared to $2,929,000 for the
fiscal 2013 third quarter. For the fiscal 2014 nine months, EBITDA was
$13,012,000, compared to $16,413,000 for the fiscal 2013 comparable period.

Christopher J. Eperjesy, Vice President — Finance, Chief Financial Officer and
Treasurer, stated: “Our balance sheet remains strong as we continue to focus
our capital allocation on growth producing initiatives. At March 28, 2014 we
had total debt of $25,047,000 and cash of $26,360,000. Working capital at
March 28, 2014 was $127,470,000 compared to $124,969,000 at June 30, 2013.
Working capital should improve during the fiscal 2014 fourth quarter as we
anticipate inventory levels to decline from the third quarter level.
Year-to-date, we have invested $5,183,000 in capital expenditures as we focus
on modernizing core manufacturing, assembly and testing processes, and
investing in machinery and equipment that improves productivity and the cost
competitiveness of the Company.”

Mr. Batten concluded: “Our six-month backlog at March 28, 2014 was
$57,599,000, compared to $56,161,000 at December 27, 2013 and $64,879,000 at
March 29, 2013. The six-month backlog reflects an improvement in demand from
the North American oil and gas market. We are cautiously optimistic current
demand trends and order inquiries from North American pressure pumping
customers may reflect the beginning of a recovery in this market and we
anticipate the fourth quarter will show sequential improvements in sales and
profitability. With transmission systems dedicated to mid to high horsepower
pressure pumping applications and extremely competitive lead times, we are
positioned for growth as this market recovers. In addition, our global market
share within our other major categories continues to increase as we invest in
new product development, customer service capabilities, and our international
operations. We are capitalizing on the long-term trends of our markets and
committed to creating value for our customers, employees and shareholders.”

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 29, 2014. To
participate in the conference call, please dial 877-941-2068 five to ten
minutes before the call is scheduled to begin. A replay will be available from
2:00 p.m. April 29, 2014 until midnight May 6, 2014. The number to hear the
teleconference replay is 877-870-5176. The access code for the replay is
4678880.

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       Nine Months Ended
                           March 28,   March 29,    March 28,    March 29,

                           2014         2013         2014          2013
Net sales                  $ 60,705     $ 68,232     $ 190,343     $ 209,351
Cost of goods sold          44,095     50,558     134,522     149,949 
Gross profit                 16,610       17,674       55,821        59,402
                                                                   
Marketing, engineering
and
administrative expenses      16,870       17,405       49,572        50,795
Restructuring of            -          -          1,094       -       
operations
(Loss) earnings from         (260   )     269          5,155         8,607
operations
                                                                             
Interest expense             220          366          697           1,001
Other expense (income),     68         (129   )    (85     )    (24     )
net
                                                                             
(Loss) earnings before                                           
income
taxes and                   (548   )     32           4,543         7,630
noncontrolling interest
Income taxes                (188   )    640        2,973       3,552   
                                                                   
Net (loss) earnings          (360   )     (608   )     1,570         4,078
Less: Net earnings
attributable to
noncontrolling interest,    (33    )    (149   )    (168    )    (243    )
net of tax
Net (loss) earnings
attributable to Twin       $ (393   )   $ (757   )   $ 1,402      $ 3,835   
Disc
                                                                   
(Loss) earnings per
share data:
Basic (loss) earnings
per share attributable     $ (0.03  )   $ (0.07  )   $ 0.12        $ 0.34
to Twin Disc common
shareholders
Diluted (loss) earnings
per share attributable     $ (0.03  )   $ (0.07  )   $ 0.12        $ 0.34
to Twin Disc common
shareholders
                                                                   
Weighted average shares
outstanding data:
Basic shares outstanding     11,265       11,243       11,256        11,327
Diluted shares               11,265       11,243       11,262        11,400
outstanding
                                                                   
Dividends per share        $ 0.09       $ 0.09       $ 0.27        $ 0.27
                                                                   
Comprehensive income
(loss):
Net (loss) earnings        $ (360   )   $ (608   )   $ 1,570       $ 4,078
Other comprehensive
income (loss):
Foreign currency             1,054        (874   )     4,053         2,520
translation adjustment
Benefit plan                528        676        1,506       1,996   
adjustments, net
Comprehensive income         1,222        (806   )     7,129         8,594
(loss)
Comprehensive income
attributable to             (33    )    (149   )   (168    )    (243    )
noncontrolling interest
Comprehensive income                                         
(loss) attributable to                                                     
Twin Disc                 $ 1,189      $ (955   )   $ 6,961       $ 8,351
                                                                             


RECONCILIATION OF CONSOLIDATED NET (LOSS) EARNINGS TO EBITDA

(In thousands; unaudited)

                                Three Months Ended     Nine Months Ended
                                 March 28,   March 29,   March 28,   March 29,
                                                                  
                                 2014        2013        2014        2013
Net (loss) earnings              $ (393  )   $ (757  )   $  1,402    $  3,835
attributable to Twin Disc
Interest expense                   220         366          697         1,001
Income taxes                       (188  )     640          2,973       3,552
Depreciation and amortization     2,742     2,680      7,940      8,025
Earnings before interest,
taxes,                           $ 2,381    $ 2,929    $  13,012   $  16,413
depreciation and amortization
                                                                     


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts; unaudited)
                                                                
                                                     March 28,     June 30,
                                                     2014          2013
ASSETS
Current assets:
Cash                                                 $ 26,360      $ 20,724
Trade accounts receivable, net                         33,489        46,331
Inventories, net                                       105,131       102,774
Deferred income taxes                                  5,221         5,280
Other                                                 13,055      13,363  
                                                                   
Total current assets                                   183,256       188,472
                                                                   
Property, plant and equipment, net                     60,986        62,315
Goodwill, net                                          13,526        13,232
Deferred income taxes                                  6,322         7,614
Intangible assets, net                                 2,947         3,149
Other assets                                          8,891       10,676  
                                                                   
TOTAL ASSETS                                         $ 275,928    $ 285,458 
                                                                   
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current maturities of      $ 3,625       $ 3,681
long-term debt
Accounts payable                                       19,665        20,651
Accrued liabilities                                   32,496      39,171  
                                                                   
Total current liabilities                              55,786        63,503
                                                                   
Long-term debt                                         21,422        23,472
Accrued retirement benefits                            45,803        48,290
Deferred income taxes                                  2,589         2,925
Other long-term liabilities                           3,881       3,706   
                                                                   
Total liabilities                                      129,481       141,896
                                                                   
                                                                   
Twin Disc shareholders’ equity:                                     
Common shares authorized: 30,000,000;
Issued: 13,099,468; no par value                     11,676        13,183
Retained earnings                                      182,467       184,110
Accumulated other comprehensive loss                  (20,256 )    (25,899 )
                                                                   
                                                       173,887       171,394
Less treasury stock, at cost                          28,095      28,890  
(1,834,595 and 1,886,516 shares, respectively)
                                                                   
Total Twin Disc shareholders' equity                  145,792     142,504 
                                                                   
Noncontrolling interest                               655         1,058   
Total equity                                          146,447     143,562 
                                                                   
TOTAL LIABILITIES AND EQUITY                         $ 275,928    $ 285,458 
                                                                             


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

                                                    Nine Months Ended
                                                     March 28,    March 29,
                                                     2014          2013
                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                         $ 1,570       $ 4,078
Adjustments to reconcile to net earnings to cash
provided
by operating activities:
Depreciation and amortization                          7,940         8,025
Restructuring of operations                            1,094         -
Other non-cash changes, net                            441           1,679
Net change in working capital, excluding cash         6,742       (2,980  )
Net cash provided by operating activities             17,787      10,802  
                                                                   
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets                           (5,183  )     (5,118  )
Proceeds from sale of fixed assets                     121           181
Other, net                                            (244    )    (232    )
Net cash used by investing activities                 (5,306  )    (5,169  )
                                                                   
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable                            -             38
Payments of notes payable                              (59     )     (96     )
Payments of long-term debt                             -             (95     )
Borrowings under revolving loan agreement              48,550        65,200
Repayments under revolving loan agreement              (50,600 )     (62,500 )
Proceeds from exercise of stock options                -             189
Dividends paid to shareholders                         (3,045  )     (3,066  )
Acquisition of Treasury stock                          -             (3,069  )
Dividends paid to noncontrolling interest              (487    )     (204    )
Excess tax benefits from stock compensation            524           1,276
Payments of withholding taxes on stock                (2,170  )    (1,700  )
compensation
Net cash used by financing activities                 (7,287  )    (4,027  )
                                                                   
Effect of exchange rate changes on cash               442         (146    )
                                                                   
Net change in cash                                     5,636         1,460
                                                                   
Cash:
Beginning of period                                   20,724      15,701  
                                                                   
End of period                                        $ 26,360     $ 17,161  

Contact:

Twin Disc, Inc.
Christopher J. Eperjesy, 262-638-4343
 
Press spacebar to pause and continue. Press esc to stop.