• Net Earnings for Fiscal 2015 Increased 207% to $11,173,000 on
Relatively Flat Sales
• Management Cautious for Fiscal 2016 as Slowdown in Pressure Pumping
Sector Continues
• $3,282,000 Restructuring Charge in the Fourth Quarter at Domestic
Operations
• Balance Sheet Remains Strong with $9,134,000 in Net Cash at June 30,
2015
Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results
for the fiscal 2015 fourth quarter ended June 30, 2015.
Sales for the fiscal 2015 fourth quarter were $67,334,000, compared to
$73,566,000 for the same period last year. For fiscal 2015, sales were
$265,790,000, compared to $263,909,000 for fiscal 2014. The decline in
fourth quarter sales was due to lower shipments of land-based
transmission systems for the North American oil and gas market, as well
as weaker demand in Asia for commercial marine and oilfield
transmissions. The decline in Asia is reflective of general economic
conditions in the region, along with timing of oilfield related projects
in China. Currency translations also had an unfavorable impact on sales
totaling $4,043,000 and $8,898,000 for the fiscal 2015 fourth quarter
and full year, respectively. Adjusting for constant currency, fiscal
2015 fourth quarter sales declined 3.0 percent, while full year sales
increased 4.1 percent compared to the corresponding periods last fiscal
year.
Commenting on the results, John H. Batten, President and Chief Executive
Officer, said: “Trends in our markets were strong for most of the year,
but during the second half we began facing an increasing number of
headwinds such as volatile foreign exchange rates, challenging end
markets, and the impact of global oil prices. For the year, we were able
to achieve earnings growth of over 200% on less than a 1% improvement in
annual sales as a more profitable mix of sales favorably impacted
margins and we were able to leverage marketing, engineering and
administrative (ME&A) expenses. We quickly responded and made the
necessary adjustments to our business as a result of sustained lower oil
prices and slower economic growth in several of our regions. As a
result, we proactively restructured our North American operations to
lower costs and to improve efficiencies. We continue to watch our end
markets closely and to look at additional ways to lower expenses and to
expand revenues.”
Gross margin for the fiscal 2015 fourth quarter was 29.0 percent,
compared to 29.2 percent in the fiscal 2014 fourth quarter. The slight
decrease in fiscal 2015 fourth quarter gross margin was the result of a
less profitable mix of business, partially offset by lower warranty
expense. For fiscal 2015, gross margin was 31.2 percent, compared to
29.3 percent for fiscal 2014.
For the fiscal 2015 fourth quarter, ME&A expenses, as a percentage of
sales, were 24.0 percent compared to 24.2 percent for the fiscal 2014
fourth quarter. ME&A expenses decreased $1,656,000, or 9.3 percent, in
the fourth quarter versus the same period last fiscal year. For fiscal
2015, ME&A expenses, as a percentage of sales, were 24.2 percent,
compared to 25.5 percent for fiscal 2014. For fiscal 2015, ME&A expenses
decreased $3,142,000, or 4.7 percent, versus fiscal 2014. The reduction
compared to the prior year, despite a significant increase in global
bonus expense ($1,148,000 in the fourth quarter and $3,110,000 for the
full year) is reflective of currency movements ($1,042,000 in the fourth
quarter and $2,416,000 for the full year), one-time prior year items
related to professional services and adjustment of the cash surrender
value of life insurance policies, reduced bad debt expense, lower
pension expense and aggressive cost containment measures.
The effective tax rate for fiscal 2015 was 28.4 percent, significantly
lower than the prior year rate of 52.2 percent. However, the effective
rates are impacted by the operating results of a certain foreign
jurisdiction that is subject to a full valuation allowance. Adjusting
fiscal 2015 for the results of this jurisdiction, the full year
effective rate would have been 30.9 percent, which is slightly lower
than the adjusted fiscal 2014 effective rate of 32.7 percent. The
current year rate is lower due to jurisdictional earnings mix, discrete
items related to foreign earnings, and the reinstatement of the R&D
credit for calendar 2015. The effective tax rate for the fiscal 2015
fourth quarter includes favorable discrete items, the impact of which
are magnified due to the near breakeven pre-tax results.
Net earnings attributable to Twin Disc for the fiscal 2015 fourth
quarter were $437,000, or $0.04 per diluted share, compared to net
earnings of $2,324,000, or $0.21 per diluted share, for the fiscal 2014
fourth quarter. For fiscal 2015, net earnings attributable to Twin Disc
were $11,173,000, or $0.99 per diluted share, compared to $3,644,000, or
$0.32 per diluted share for fiscal 2014.
Earnings before interest, taxes, depreciation and amortization (EBITDA)*
were $2,556,000 for the fiscal 2015 fourth quarter, compared to
$6,532,000 for the fiscal 2014 fourth quarter. For fiscal 2015, EBITDA
was $26,455,000, compared to $19,463,000 for fiscal 2014.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer,
Corporate Controller, Treasurer and Secretary, stated: “Our balance
sheet remains strong and we have excellent liquidity. The Company
generated $17,060,000 in cash from operations during the year, which was
used to fund capital expenditure programs, reduce debt, and proactively
contribute to our domestic defined benefit plan. At June 30, 2015 we had
total debt of $13,802,000 and cash of $22,936,000. The effect of
exchange rate changes reduced our cash balance by $2,847,000 for the
year ended June 30, 2015. We have worked hard over the past several
years to reduce our investments in inventories and become more efficient
in our capital management. As a result, inventories at June 30, 2015
declined 17.8 percent to $80,241,000. Working capital was $112,776,000
at June 30, 2015, compared to $123,117,000 at June 30, 2014. For fiscal
2015, we invested $9,049,000 in capital expenditures and expect to
invest approximately $10,000,000 in capital expenditures for fiscal
2016. The Company’s strong balance sheet and access to capital continues
to provide significant financial flexibility to support our long-term
growth initiatives, including potential acquisitions.”
Mr. Batten concluded: “Our six-month backlog at June 30, 2015 was
$34,397,000 compared to $47,828,000 at March 27, 2015 and $66,102,000 at
June 30, 2014. Market conditions deteriorated in the fourth quarter and
impacted our backlog as a result of weaker economic growth in Asia and
lower oil prices. An unfavorable currency impact contributed to the
reduction in backlog versus June 30, 2014 ($2,050,000). We are
proactively adjusting expenses and implementing strategies to further
diversify our business to offset the impact oil and gas prices have on
demand from customers in our end markets. Our geographic and product
diversity, along with our experienced management team and strong balance
sheet are significant assets to the company as we navigate this
challenging period. We remain optimistic in our business and the
long-term opportunities of our markets, and we are working on strategies
to grow market share, to diversify further our business, and to increase
sales.”
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, August 4,
2015. To participate in the conference call, please dial 800-210-9006
five to ten minutes before the call is scheduled to begin. A replay will
be available from 2:00 p.m. August 4, 2015 until midnight August 11,
2015. The number to hear the teleconference replay is 877-870-5176. The
access code for the replay is 7116356.
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
|
|
Twelve Months Ended
|
|
|
|
June 30, 2015
|
|
June 30, 2014
|
|
June 30, 2015
|
|
June 30, 2014
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
67,334
|
|
|
$
|
73,566
|
|
|
$
|
265,790
|
|
|
$
|
263,909
|
|
Cost of goods sold
|
|
|
|
47,800
|
|
|
|
52,051
|
|
|
|
182,758
|
|
|
|
186,655
|
|
Gross profit
|
|
|
|
19,534
|
|
|
|
21,515
|
|
|
|
83,032
|
|
|
|
77,254
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, engineering and administrative expenses
|
|
|
|
16,178
|
|
|
|
17,834
|
|
|
|
64,264
|
|
|
|
67,406
|
|
Restructuring of operations
|
|
|
|
3,282
|
|
|
|
(133
|
)
|
|
|
3,282
|
|
|
|
961
|
|
Earnings from operations
|
|
|
|
74
|
|
|
|
3,814
|
|
|
|
15,486
|
|
|
|
8,887
|
|
Interest expense
|
|
|
|
170
|
|
|
|
238
|
|
|
|
606
|
|
|
|
936
|
|
Other expense (income), net
|
|
|
|
1
|
|
|
|
(59
|
)
|
|
|
(1,020
|
)
|
|
|
(145
|
)
|
(Loss) earnings before income taxes and noncontrolling interest
|
|
|
|
(97
|
)
|
|
|
3,635
|
|
|
|
15,900
|
|
|
|
8,096
|
|
Income taxes
|
|
|
|
(573
|
)
|
|
|
1,253
|
|
|
|
4,515
|
|
|
|
4,226
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
476
|
|
|
|
2,382
|
|
|
|
11,385
|
|
|
|
3,870
|
|
Less: Net earnings attributable to noncontrolling interest, net of
tax
|
|
|
|
(39
|
)
|
|
|
(58
|
)
|
|
|
(212
|
)
|
|
|
(226
|
)
|
Net earnings attributable to Twin Disc
|
|
|
$
|
437
|
|
|
$
|
2,324
|
|
|
$
|
11,173
|
|
|
$
|
3,644
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data:
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Twin Disc common
shareholders
|
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.99
|
|
|
$
|
0.32
|
|
Diluted earnings per share attributable to Twin Disc common
shareholders
|
|
|
$
|
0.04
|
|
|
$
|
0.21
|
|
|
$
|
0.99
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding data:
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
|
11,267
|
|
|
|
11,264
|
|
|
|
11,273
|
|
|
|
11,258
|
|
Diluted shares outstanding
|
|
|
|
11,270
|
|
|
|
11,271
|
|
|
|
11,277
|
|
|
|
11,264
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.36
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
$
|
476
|
|
|
$
|
2,382
|
|
|
$
|
11,385
|
|
|
$
|
3,870
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
(931
|
)
|
|
|
(293
|
)
|
|
|
(15,693
|
)
|
|
|
3,760
|
|
Benefit plan adjustments, net
|
|
|
|
(4,844
|
)
|
|
|
4,620
|
|
|
|
(3,299
|
)
|
|
|
6,126
|
|
Comprehensive (loss) income
|
|
|
|
(5,299
|
)
|
|
|
6,709
|
|
|
|
(7,607
|
)
|
|
|
13,756
|
|
Comprehensive earnings attributable to noncontrolling interest
|
|
|
|
(46
|
)
|
|
|
(58
|
)
|
|
|
(132
|
)
|
|
|
(156
|
)
|
Comprehensive (loss) income attributable to Twin Disc
|
|
|
$
|
(5,345
|
)
|
|
$
|
6,651
|
|
|
$
|
(7,739
|
)
|
|
$
|
13,600
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA
|
(In thousands; unaudited)
|
|
|
|
|
Three Months Ended
|
|
Twelve Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Net earnings attributable to Twin Disc
|
|
|
$
|
437
|
|
|
$
|
2,324
|
|
$
|
11,173
|
|
$
|
3,644
|
Interest expense
|
|
|
|
170
|
|
|
|
238
|
|
|
606
|
|
|
936
|
Income taxes
|
|
|
|
(573
|
)
|
|
|
1,253
|
|
|
4,515
|
|
|
4,226
|
Depreciation and amortization
|
|
|
|
2,522
|
|
|
|
2,717
|
|
|
10,161
|
|
|
10,657
|
Earnings before interest, taxes, depreciation and amortization
|
|
|
$
|
2,556
|
|
|
$
|
6,532
|
|
$
|
26,455
|
|
$
|
19,463
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(In thousands; unaudited)
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2015
|
|
2014
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
|
$
|
22,936
|
|
|
$
|
24,757
|
|
Trade accounts receivable, net
|
|
|
|
43,883
|
|
|
|
40,219
|
|
Inventories, net
|
|
|
|
80,241
|
|
|
|
97,579
|
|
Deferred income taxes
|
|
|
|
4,863
|
|
|
|
4,779
|
|
Other
|
|
|
|
17,907
|
|
|
|
12,763
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
169,830
|
|
|
|
180,097
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
56,427
|
|
|
|
60,267
|
|
Goodwill, net
|
|
|
|
12,789
|
|
|
|
13,463
|
|
Deferred income taxes
|
|
|
|
4,878
|
|
|
|
2,556
|
|
Intangible assets, net
|
|
|
|
2,186
|
|
|
|
2,797
|
|
Other assets
|
|
|
|
3,752
|
|
|
|
7,805
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
$
|
249,862
|
|
|
$
|
266,985
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Short-term borrowings and current maturities of long-term debt
|
|
|
$
|
3,571
|
|
|
$
|
3,604
|
|
Accounts payable
|
|
|
|
20,729
|
|
|
|
22,111
|
|
Accrued liabilities
|
|
|
|
32,754
|
|
|
|
31,265
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
57,054
|
|
|
|
56,980
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
10,231
|
|
|
|
14,800
|
|
Accrued retirement benefits
|
|
|
|
37,736
|
|
|
|
37,006
|
|
Deferred income taxes
|
|
|
|
1,093
|
|
|
|
1,778
|
|
Other long-term liabilities
|
|
|
|
2,955
|
|
|
|
4,110
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
109,069
|
|
|
|
114,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twin Disc shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common shares authorized: 30,000,000;
|
|
|
|
|
|
|
|
|
|
Issued: 13,099,468; no par value
|
|
|
|
12,259
|
|
|
|
11,973
|
|
Retained earnings
|
|
|
|
190,807
|
|
|
|
183,695
|
|
Accumulated other comprehensive loss
|
|
|
|
(34,855
|
)
|
|
|
(15,943
|
)
|
|
|
|
|
|
|
|
|
|
|
168,211
|
|
|
|
179,725
|
|
Less treasury stock, at cost (1,832,121 and 1,837,595 shares,
respectively)
|
|
|
|
28,057
|
|
|
|
28,141
|
|
|
|
|
|
|
|
Total Twin Disc shareholders' equity
|
|
|
|
140,154
|
|
|
|
151,584
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
|
639
|
|
|
|
727
|
|
Total equity
|
|
|
|
140,793
|
|
|
|
152,311
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
|
$
|
249,862
|
|
|
$
|
266,985
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In thousands; unaudited)
|
|
|
|
|
Twelve Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2015
|
|
2014
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net earnings
|
|
|
$
|
11,385
|
|
|
$
|
3,870
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
10,161
|
|
|
|
10,657
|
|
Loss on sale of plant assets
|
|
|
|
215
|
|
|
|
26
|
|
Stock compensation expense
|
|
|
|
696
|
|
|
|
1,184
|
|
Restructuring of operations
|
|
|
|
3,282
|
|
|
|
961
|
|
Provision for deferred income taxes
|
|
|
|
(281
|
)
|
|
|
634
|
|
Net change in working capital, excluding cash and debt, and other
|
|
|
|
(8,398
|
)
|
|
|
8,417
|
|
Net cash provided by operating activities
|
|
|
|
17,060
|
|
|
|
25,749
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Acquisition of fixed assets
|
|
|
|
(9,049
|
)
|
|
|
(7,245
|
)
|
Proceeds from sale of fixed assets
|
|
|
|
279
|
|
|
|
103
|
|
Other, net
|
|
|
|
1,934
|
|
|
|
34
|
|
Net cash used by investing activities
|
|
|
|
(6,836
|
)
|
|
|
(7,108
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Payments of notes payable
|
|
|
|
(3,600
|
)
|
|
|
(3,651
|
)
|
Borrowings under revolving loan agreement
|
|
|
|
83,681
|
|
|
|
70,443
|
|
Repayments under revolving loan agreement
|
|
|
|
(84,674
|
)
|
|
|
(75,544
|
)
|
Proceeds from exercise of stock options
|
|
|
|
15
|
|
|
|
-
|
|
Dividends paid to shareholders
|
|
|
|
(4,061
|
)
|
|
|
(4,059
|
)
|
Dividends paid to noncontrolling interest
|
|
|
|
(220
|
)
|
|
|
(487
|
)
|
Excess tax benefits from stock compensation
|
|
|
|
(26
|
)
|
|
|
524
|
|
Payments of withholding taxes on stock compensation
|
|
|
|
(313
|
)
|
|
|
(2,169
|
)
|
Net cash used by financing activities
|
|
|
|
(9,198
|
)
|
|
|
(14,943
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
(2,847
|
)
|
|
|
335
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
|
(1,821
|
)
|
|
|
4,033
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
Beginning of period
|
|
|
|
24,757
|
|
|
|
20,724
|
|
|
|
|
|
|
|
End of period
|
|
|
$
|
22,936
|
|
|
$
|
24,757
|
|
|
|
|
|
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20150804005338/en/
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