Twin Disc, Inc.

Jan 28, 2014

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

RACINE, Wis.--(BUSINESS WIRE)-- Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the fiscal 2014 second quarter ended December 27, 2013.

Sales for the fiscal 2014 second quarter, declined to $63,212,000, from $72,325,000 for the same period last year. Year-to-date, sales were $129,638,000, compared to $141,118,000 for the fiscal 2013 first half. 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 the Company's 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.

Commenting on the results, John H. Batten, President and Chief Executive Officer, said: "Unfavorable trends in the North American pressure-pumping market continue to weigh on our financial results. We anticipate this market will remain weak for the next several quarters as fracking operators have improved the efficiency of managing their fleets, which has delayed the product ordering cycle. To help insulate our business from product and geographic downturns, we have focused our efforts on improving our product and geographic diversity. Commercial marine and oil and gas sales to customers in Asia remain strong and we continue to set record sales for the region. We remain focused on business strategies that diversify sales, improve profitability, invest in our facilities and continue new product development, while conservatively managing our balance sheet."

Gross margin for the fiscal 2014 second quarter was 29.3 percent, compared to 30.8 percent in the fiscal 2013 second quarter. The decrease in fiscal 2014 second quarter gross margin was the result of lower sales volumes and a less profitable mix of business. Year-to-date, gross margin was 30.2 percent, compared to 29.6 percent for the fiscal 2013 first half.

For the fiscal 2014 second quarter, marketing, engineering and administrative (ME&A) expenses, as a percentage of sales, were 27.2 percent, compared to 23.2 percent for the fiscal 2013 second quarter. ME&A expenses increased $415,000 versus the same period last fiscal year. Year-to-date, ME&A expenses, as a percentage of sales, were 25.2 percent, compared to 23.7 percent for the fiscal 2013 first six months. For the fiscal 2014 first half, ME&A expenses decreased $688,000 versus the same period last fiscal year. The Company continues to focus on controlled spending at its global operations.

The effective tax rate for the second quarter of fiscal 2014 is 54.9 percent, which is significantly higher than the prior year rate of 34.7 percent. However, the effective rates are inflated due to the non-deductibility of operating losses in a certain jurisdiction that is subject to a full valuation allowance. Adjusting for these non-deductible losses, the second quarter fiscal 2014 rate would have been approximately 29.8 percent, which is essentially in line with the adjusted fiscal 2013 rate of 31.2 percent. The effective rate for the first half of fiscal 2014 is 62.1 percent, which is significantly higher than the prior year rate of 38.3 percent. Adjusting both for the non-deductible losses, the first half fiscal 2014 rate would have been approximately 37.0 percent compared to 33.1 percent for fiscal 2013. The fiscal 2014 rate is somewhat higher due to discrete items recorded in the first quarter related to adjustments to tax on foreign earnings.

Net earnings attributable to Twin Disc for the fiscal 2014 second quarter were $518,000, or $0.05 per diluted share, compared to earnings of $3,360,000, or $0.29 per diluted share, for the fiscal 2013 second quarter. Year-to-date, net earnings attributable to Twin Disc were $1,795,000, or $0.16 per diluted share, compared to $4,591,000, or $0.40 per diluted share for the fiscal 2013 first half.

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was $4,025,000 for the fiscal 2014 second quarter, compared to $8,217,000 for the fiscal 2013 second quarter. For the fiscal 2014 first half, EBITDA was $10,631,000, compared to $13,483,000 for the fiscal 2013 comparable period.

Christopher J. Eperjesy, Vice President — Finance, Chief Financial Officer and Treasurer, stated: "We ended the fiscal 2014 second quarter with net cash of $6,059,000 as a result of positive changes in working capital we have achieved throughout fiscal 2014 and reductions to our debt outstanding. At December 27, 2013 we had total debt of $21,065,000 compared to cash and cash equivalents of $27,124,000. We generated free cash flow of $7,757,000 in the fiscal 2014 second quarter and $16,613,000 through the first six months of fiscal 2014. We believe the best uses of capital are to fund growth initiatives and invest in our operations. Year-to-date, we have invested $3,004,000 in capital expenditures 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 concluded: "Our six-month backlog at December 27, 2013 was $56,161,000, compared to $58,053,000 at September 27, 2013 and $68,230,000 at December 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. Demand from customers in Asia and for our commercial marine products will help offset the continued weakness of the North American pressure-pumping market, but we anticipate our results for the fiscal 2014 second half will be similar to our first half results. While our near-term results will be challenging, we remain excited about our long-term opportunities."

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 3:00 p.m. Eastern Time on Tuesday, January 28, 2014. To participate in the conference call, please dial 877-941-8416 five to ten minutes before the call is scheduled to begin. A replay will be available from 6:00 p.m. January 28, 2014 until midnight February 4, 2014. The number to hear the teleconference replay is 877-870-5176. The access code for the replay is 4662760.

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

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

 
        Three Months Ended     Six Months Ended

27-Dec

2013

  28-Dec

2012

27-Dec

2013

 

28-Dec

2012

Net sales $ 63,212 $ 72,325 $ 129,638 $ 141,118
Cost of goods sold   44,668     50,014     90,427     99,391  
Gross profit 18,544 22,311 39,211 41,727
 

Marketing, engineering and administrative expenses

17,185 16,770 32,702 33,390
Restructuring of operations   -     -     1,094     -  
Earnings from operations 1,359 5,541 5,415 8,337
 
Interest expense 223 329 477 635
Other (income) expense, net   (119 )   (22 )   (153 )   105  

Earnings before income taxes and noncontrolling interest

 

1,255

 

5,234

 

5,091

 

7,597

Income taxes   689     1,815     3,161     2,912  
 
Net earnings 566 3,419 1,930 4,685

Less: Net earnings attributable to noncontrolling interest, net of tax

  (48 )   (59 )   (135 )   (94 )
Net earnings attributable to Twin Disc $ 518   $ 3,360   $ 1,795   $ 4,591  
 
Earnings per share data:

Basic earnings per share attributable to Twin Disc common shareholders

$

0.05

$

0.30

$

0.16

$

0.41

Diluted earnings per share attributable to Twin Disc common shareholders

$

0.05

$

0.29

$

0.16

$

0.40

 
Weighted average shares outstanding data:
Basic shares outstanding 11,264 11,366 11,251 11,368
Diluted shares outstanding 11,270 11,434 11,257 11,441
 
Dividends per share $ 0.09 $ 0.09 $ 0.18 $ 0.18
 
Comprehensive income:
Net earnings $ 566 $ 3,419 $ 1,930 $ 4,685
Other comprehensive income:
Foreign currency translation adjustment 1,119 2,130 2,999 3,394

Benefit plan adjustments, net

  528     652     978     1,320  
Comprehensive income 2,213 6,201 5,907 9,399

Comprehensive income attributable to noncontrolling interest

 

(48

)

 

(59

)

 

 

(135

)

 

(94

)

Comprehensive income attributable to Twin Disc

 

$

 

2,165

 

 

$

 

6,142

 

 

$

 

5,772

 

 

$

 

9,305

 
 
 
 
RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA

(In thousands; unaudited)

 
       

Three Months Ended

   

Six Months Ended

27-Dec

2013

  28-Dec

2012

27-Dec

2013

  28-Dec

2012

Net earnings attributable to Twin Disc $ 518 $ 3,360 $ 1,795 $ 4,591
Interest expense 223 329 477 635
Income taxes 689 1,815 3,161 2,912
Depreciation and amortization   2,595   2,713   5,198   5,345
Earnings before interest, taxes,

depreciation and amortization

$ 4,025 $ 8,217 $ 10,631 $ 13,483
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts; unaudited)
           
December 27, June 30,
2013 2013
ASSETS
Current assets:
Cash $ 27,124 $ 20,724
Trade accounts receivable, net 34,907 46,331
Inventories, net 102,590 102,774
Deferred income taxes 5,283 5,280
Other   11,183     13,363  
 
Total current assets 181,087 188,472
 
Property, plant and equipment, net 61,100 62,315
Goodwill 13,438 13,232
Deferred income taxes 6,782 7,614
Intangible assets, net 3,028 3,149
Other assets   9,094     10,676  
 
TOTAL ASSETS $ 274,529   $ 285,458  
 
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 3,643 $ 3,681
Accounts payable 19,890 20,651
Accrued liabilities   34,188     39,171  
 
Total current liabilities 57,721 63,503
 
Long-term debt 17,422 23,472
Accrued retirement benefits 46,865 48,290
Deferred income taxes 2,666 2,925
Other long-term liabilities   3,923     3,706  
 
Total liabilities 128,597 141,896
 
 
Twin Disc shareholders' equity:
Common shares authorized: 30,000,000;
Issued: 13,099,468; no par value 11,368 13,183
Retained earnings 183,874 184,110
Accumulated other comprehensive loss   (21,882 )   (25,899 )
 
173,360 171,394
Less treasury stock, at cost
(1,834,595 and 1,886,516 shares, respectively)   28,095     28,890  
 
Total Twin Disc shareholders' equity   145,265     142,504  
 
Noncontrolling interest   667     1,058  
Total equity   145,932     143,562  
 
TOTAL LIABILITIES AND EQUITY $ 274,529   $ 285,458  
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 
        Six Months Ended

December 27,
2013

   

December 28,
2012

 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,930 $ 4,685

Adjustments to reconcile to net earnings to cash provided
by operating activities:

Depreciation and amortization 5,198 5,345
Restructuring of operations 1,094 -
Other non-cash changes, net (18 ) 1,599
Net change in working capital, excluding cash   11,413     463  
Net cash provided by operating activities   19,617     12,092  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of fixed assets (3,004 ) (3,529 )
Proceeds from sale of fixed assets 46 35
Other, net   (244 )   (293 )
Net cash used by investing activities   (3,202 )   (3,787 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes payable (39 ) (51 )
(Payments of) proceeds from long-term debt (6,052 ) 1,892
Proceeds from exercise of stock options - 189
Dividends paid to shareholders (2,031 ) (2,055 )
Acquisition of treasury stock - (3,069 )
Dividends paid to noncontrolling interest (486 ) (204 )
Excess tax benefits from stock compensation 524 1,276
Payments of withholding taxes on stock compensation   (2,170 )   (1,700 )
Net cash used by financing activities   (10,254 )   (3,722 )
 
Effect of exchange rate changes on cash   239     286  
 
Net change in cash 6,400 4,869
 
Cash:
Beginning of period   20,724     15,701  
 
End of period $ 27,124   $ 20,570  
 

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

Source: Twin Disc, Inc.

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