Twin Disc, Inc. Announces Fiscal 2016 First Quarter Financial Results
• First Quarter Results Impacted by Challenging Global Oil and Gas
Markets
• Company Continues Cost Saving and Capital Allocation Initiatives
• Balance Sheet Remains Strong with $8,769,000 in Net Cash at September
25, 2015
Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results
for the fiscal 2016 first quarter ended September 25, 2015.
Sales for the first three months of fiscal 2016 were $37,373,000,
compared to $64,824,000 for the same period last year. The significant
decline in fiscal 2016 sales is the result of reduced demand for the
Company’s oil and gas related products in both North America and Asia
driven by the global decline in oil and natural gas prices, along with
softening demand in Asia for the Company’s commercial marine products.
Demand from customers in Europe remains weak, while overall demand in
North America remains stable for the Company’s commercial marine and
industrial products. Currency had an unfavorable impact on fiscal 2016
first quarter sales compared to the prior year totaling $4,496,000 due
to the strengthening of the U.S. dollar against the euro and Asian
currencies. Adjusting for constant currency, fiscal 2016 first quarter
sales declined 35.4 percent compared to the prior year.
John Batten, President and Chief Executive Officer, stated: “Sustained
lower oil and gas prices have severely impacted demand for our oil and
gas pressure-pumping transmission systems. We took initial actions
during the fourth quarter of fiscal 2015 to lower costs and to improve
efficiencies, but demand continued to erode in the first quarter. As a
result, we will be taking additional actions throughout the year to
reduce costs and adjust for challenging global market conditions within
our oil and gas, and pleasure craft markets. We remain dedicated to
these markets and will continue to invest in our leading product
portfolio and service organization. Twin Disc has experienced many
industry cycles since the company was founded in 1918. Strategies to
adjust our business for challenging market conditions are difficult and
are not taken lightly, but are necessary to manage through the cyclical
nature of our markets and position the Company for long-term success.”
Gross profit for the fiscal 2016 first quarter was 21.9 percent,
compared to 34.5 percent in the fiscal 2015 first quarter. The decrease
in fiscal 2016 first quarter gross profit was the result of lower
volumes, a less profitable product mix, an unfavorable currency impact,
and reduced absorption primarily at the Company’s U.S. manufacturing
operation.
For the fiscal 2016 first quarter, marketing, engineering and
administrative (ME&A) expenses declined $670,000 primarily due to
currency movements, reduced bonus expense, and general cost containment
measures, partially offset by increases related to stock compensation
expense, increased pension expense, and corporate development activities.
The Company sold the assets and distribution rights of its’ distribution
entity covering the southeast U.S. territory for approximately
$4,100,000, resulting in a net operating gain of $500,000.
The fiscal 2016 first quarter effective tax rate was 34.1 percent,
compared to the fiscal 2015 first quarter rate of 39.0 percent. Both
periods were impacted by non-deductible operating losses in a foreign
jurisdiction that is subject to a full valuation allowance. Adjusting
both periods for the non-deductible losses, the fiscal 2016 first
quarter rate would have been 35.2%, compared to 36.3% for the fiscal
2015 first quarter. The reduction in the fiscal 2016 effective tax rate
was primarily a function of jurisdictional mix.
Net loss attributable to Twin Disc for the fiscal 2016 first quarter was
($4,323,000), or ($0.39) per share, compared to earnings of $4,043,000,
or $0.36 per share, for the fiscal 2015 first quarter.
Earnings (loss) before interest, taxes, depreciation and amortization
(EBITDA)* was ($4,219,000) for the fiscal 2016 first quarter, compared
to $9,364,000 for the fiscal 2015 first quarter.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer,
Treasurer and Secretary stated: “Our balance sheet is strong and
provides the Company with significant flexibility as we navigate through
this difficult period and execute cost savings initiatives. At September
25, 2015 the Company had cash of $23,036,000, compared to $22,936,000 at
June 30, 2015. Total debt was $14,267,000, compared to $13,802,000 at
June 30, 2015. To become more efficient in our capital management, we
continue to reduce inventory levels, which declined 20.9 percent from
the year ago period and 4.0 percent sequentially. Working capital at
September 25, 2015 was $97,475,000, compared to $112,776,000 at June 30,
2015. We are evaluating additional opportunities to focus Twin Disc’s
resources and capital on core manufacturing and product development
activities. Capital expenditures during the fiscal 2016 first quarter
were $1,403,000 compared with $2,175,000 for the same period last year.
We will proactively manage our balance sheet through the year to control
expenses, reduce liabilities, and increase liquidity.”
Mr. Batten continued: “Our six-month backlog at September 25, 2015 was
$37,526,000 compared to $34,397,000 at June 30, 2015, and was
$63,979,000 at September 26, 2014. We expect difficult market conditions
within the oil and gas, and pleasure craft marine markets to continue
throughout the year and we are adjusting our business to meet these
expectations. In addition, we are unlocking value of select distribution
companies to reduce the capital intensity of these operations, while
using proceeds to enhance our liquidity and invest in new technologies
and product line enhancements. We are implementing strategies to manage
the business through this sustained downturn, in addition to the actions
we have already taken. We will be targeting additional actions in our
second fiscal quarter to achieve annualized savings of $4,000,000. We
will also continue to evaluate our global manufacturing capacity for
reorganization opportunities in light of current and forecasted market
demand. We will use this period to enhance our cost structure, adjust
how we allocate capital and invest in our product lines. There are
significant opportunities in the markets in which we compete, and I am
confident we will emerge from this challenging period a stronger
company.”
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 27,
2015. To participate in the conference call, please dial 888-329-8862
five to 10 minutes before the call is scheduled to begin. A replay will
be available from 2:00 p.m. October 27, 2015 until midnight November 3,
2015. The number to hear the teleconference replay is 877-870-5176. The
access code for the replay is 9945345.
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
|
|
|
September 25,
2015
|
|
September 26,
2014
|
Net sales
|
|
$
|
37,373
|
|
|
$
|
64,824
|
|
Cost of goods sold
|
|
|
29,183
|
|
|
|
42,435
|
|
Gross profit
|
|
|
8,190
|
|
|
|
22,389
|
|
Marketing, engineering and administrative expenses
|
|
|
15,240
|
|
|
|
15,910
|
|
Other operating income
|
|
|
(500
|
)
|
|
|
0
|
|
(Loss) earnings from operations
|
|
|
(6,550
|
)
|
|
|
6,479
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
91
|
|
|
|
164
|
|
Other income, net
|
|
|
(158
|
)
|
|
|
(340
|
)
|
(Loss) earnings before income taxes and non-controlling interest
|
|
|
(6,483
|
)
|
|
|
6,655
|
|
Income taxes
|
|
|
(2,208
|
)
|
|
|
2,593
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(4,275
|
)
|
|
|
4,062
|
|
Less: Net earnings attributable to non-controlling interest, net
of tax
|
|
|
(48
|
)
|
|
|
(19
|
)
|
Net (loss) earnings attributable to Twin Disc
|
|
$
|
(4,323
|
)
|
|
$
|
4,043
|
|
|
|
|
|
|
(Loss) earnings per share:
|
|
|
|
|
Basic (loss) earnings per share attributable to Twin Disc common
shareholders
|
|
$
|
(0.39
|
)
|
|
$
|
0.36
|
|
Diluted (loss) earnings per share attributable to Twin Disc common
shareholders
|
|
$
|
(0.39
|
)
|
|
$
|
0.36
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
Basic
|
|
|
11,313
|
|
|
|
11,270
|
|
Diluted
|
|
|
11,313
|
|
|
|
11,276
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
|
|
|
|
Comprehensive (loss) income:
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(4,275
|
)
|
|
$
|
4,062
|
|
Other comprehensive income:
|
|
|
|
|
Benefit plan adjustments, net
|
|
|
739
|
|
|
|
488
|
|
Foreign currency translation adjustment
|
|
|
(1,805
|
)
|
|
|
(4,328
|
)
|
Comprehensive (loss) income
|
|
|
(5,341
|
)
|
|
|
222
|
|
Comprehensive income attributable to non-controlling interest
|
|
|
(29
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income attributable to Twin Disc
|
|
$
|
(5,370
|
)
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CONSOLIDATED NET (LOSS) EARNINGS TO EBITDA
(In thousands; unaudited)
|
|
|
|
|
|
Three Months Ended
|
|
|
September 25,
2015
|
|
September 26,
2014
|
Net (loss) earnings attributable to Twin Disc
|
|
$
|
(4,323
|
)
|
|
$
|
4,043
|
Interest expense
|
|
|
91
|
|
|
|
164
|
Income taxes
|
|
|
(2,208
|
)
|
|
|
2,593
|
Depreciation and amortization
|
|
|
2,221
|
|
|
|
2,564
|
(Loss) earnings before interest, taxes, depreciation and
amortization
|
|
$
|
(4,219
|
)
|
|
$
|
9,364
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(In thousands; unaudited)
|
|
|
|
|
|
|
|
September 25,
|
|
June 30,
|
|
|
2015
|
|
2015
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash
|
|
$
|
23,036
|
|
|
$
|
22,936
|
|
Trade accounts receivable, net
|
|
|
31,290
|
|
|
|
43,883
|
|
Inventories, net
|
|
|
77,047
|
|
|
|
80,241
|
|
Deferred income taxes
|
|
|
3,776
|
|
|
|
4,863
|
|
Other
|
|
|
13,261
|
|
|
|
17,907
|
|
Total current assets
|
|
|
148,410
|
|
|
|
169,830
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
55,366
|
|
|
|
56,427
|
|
Goodwill, net
|
|
|
12,779
|
|
|
|
12,789
|
|
Deferred income taxes
|
|
|
12,931
|
|
|
|
4,878
|
|
Intangible assets, net
|
|
|
2,169
|
|
|
|
2,186
|
|
Other assets
|
|
|
4,137
|
|
|
|
3,752
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
235,792
|
|
|
$
|
249,862
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Short-term borrowings and current maturities of long-term debt
|
|
$
|
3,571
|
|
|
$
|
3,571
|
|
Accounts payable
|
|
|
18,418
|
|
|
|
20,729
|
|
Accrued liabilities
|
|
|
28,946
|
|
|
|
32,754
|
|
Total current liabilities
|
|
|
50,935
|
|
|
|
57,054
|
|
|
|
|
|
|
Long-term debt
|
|
|
10,696
|
|
|
|
10,231
|
|
Accrued retirement benefits
|
|
|
37,157
|
|
|
|
38,362
|
|
Deferred income taxes
|
|
|
1,052
|
|
|
|
1,093
|
|
Other long-term liabilities
|
|
|
2,222
|
|
|
|
2,955
|
|
|
|
|
|
|
Total liabilities
|
|
|
102,062
|
|
|
|
109,695
|
|
|
|
|
|
|
Twin Disc shareholders’ equity: Common shares authorized:
30,000,000; Issued: 13,099,468; no par value
|
|
|
11,517
|
|
|
|
12,259
|
|
Retained earnings
|
|
|
185,465
|
|
|
|
190,807
|
|
Accumulated other comprehensive loss
|
|
|
(36,529
|
)
|
|
|
(35,481
|
)
|
|
|
|
|
|
|
|
|
160,453
|
|
|
|
167,585
|
|
Less treasury stock, at cost (1,776,074 and 1,832,121 shares,
respectively)
|
|
|
27,200
|
|
|
|
28,057
|
|
|
|
|
|
|
Total Twin Disc shareholders' equity
|
|
|
133,253
|
|
|
|
139,528
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
477
|
|
|
|
639
|
|
Total equity
|
|
|
133,730
|
|
|
|
140,167
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
235,792
|
|
|
$
|
249,862
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 25,
2015
|
|
September 26,
2014
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(4,275
|
)
|
|
$
|
4,062
|
|
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
|
2,221
|
|
|
|
2,564
|
|
Other non-cash changes, net
|
|
|
(6,628
|
)
|
|
|
962
|
|
Net change in operating assets and liabilities
|
|
|
6,310
|
|
|
|
(7,209
|
)
|
Net cash (used) provided by operating activities
|
|
|
(2,372
|
)
|
|
|
379
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Acquisitions of fixed assets
|
|
|
(1,403
|
)
|
|
|
(2,175
|
)
|
Proceeds from sale of business
|
|
|
3,378
|
|
|
|
-
|
|
Proceeds from life insurance policy
|
|
|
1,907
|
|
|
|
-
|
|
Proceeds from sale of fixed assets
|
|
|
201
|
|
|
|
89
|
|
Other, net
|
|
|
(185
|
)
|
|
|
(166
|
)
|
Net cash provided (used) by investing activities
|
|
|
3,898
|
|
|
|
(2,252
|
)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Payments of notes payable
|
|
|
-
|
|
|
|
(29
|
)
|
Borrowings under revolving loan agreement
|
|
|
22,780
|
|
|
|
21,750
|
|
Repayments under revolving loan agreement
|
|
|
(22,315
|
)
|
|
|
(16,550
|
)
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
15
|
|
Dividends paid to shareholders
|
|
|
(1,019
|
)
|
|
|
(1,015
|
)
|
Dividends paid to non-controlling interest
|
|
|
(192
|
)
|
|
|
(219
|
)
|
Excess tax (shortfall) benefits from stock compensation
|
|
|
52
|
|
|
|
(31
|
)
|
Payments of withholding taxes on stock compensation
|
|
|
(190
|
)
|
|
|
(314
|
)
|
Net cash (used) provided by financing activities
|
|
|
(884
|
)
|
|
|
3,607
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(542
|
)
|
|
|
(791
|
)
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
100
|
|
|
|
943
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
Beginning of period
|
|
|
22,936
|
|
|
|
24,757
|
|
|
|
|
|
|
End of period
|
|
$
|
23,036
|
|
|
$
|
25,700
|
|
View source version on businesswire.com: http://www.businesswire.com/news/home/20151027005325/en/ Copyright Business Wire 2015
Source: Business Wire
(October 27, 2015 - 8:00 AM EDT)
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