August 18, 2016 - 8:01 AM EDT
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Twin Disc, Inc. Announces Fiscal 2016 Fourth Quarter Financial Results

  • Generated $8.7 Million in Operating Cash Flow in Fourth Quarter
  • Fourth Quarter Gross Profit Percent Highest of the Year
  • Strong Reduction in Debt as a result of Significant Operating Cash Flow
  • Global Oil and Gas and Asia Commercial Marine Markets Remain Challenging

RACINE, Wis., Aug. 18, 2016 (GLOBE NEWSWIRE) -- Twin Disc, Inc. (NASDAQ:TWIN), today reported financial results for the fiscal 2016 fourth quarter ended June 30, 2016. 

Sales for the fiscal 2016 fourth quarter were $42,646,000, compared to $67,334,000 for the same period last year.  For fiscal 2016, sales were $166,282,000, compared to $265,790,000 for fiscal 2015.  The sales decline for both the fiscal 2016 fourth quarter and full year 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 production, along with softening demand in Asia for the Company’s commercial marine products.  Demand from customers in Europe remained weak, while overall demand in North America was relatively stable for the Company’s commercial marine and non-oil and gas industrial products.  Currency had an unfavorable impact on fiscal 2016 sales compared to 2015 totaling $7,877,000 for the full fiscal year, due to the strengthening of the U.S. dollar against the Euro and Asian currencies.   

Commenting on the results, John H. Batten, President and Chief Executive Officer, said: “Fiscal 2016 was a very challenging year.  The decline in oil prices and subsequent collapse of North American oil production severely impacted demand for our oil and gas transmissions used in pressure-pumping applications.  The impacts of lower oil prices spread to other markets as we experienced weaker demand from international customers, as well as lower demand from commercial marine customers that manufacture offshore crew boats.  We responded to this difficult cycle by restructuring our operations, implementing cost reduction initiatives, and lowering fixed costs.  As a result of these actions, we have eliminated more than $7,500,000 of costs from our operations.  We continue to watch our markets closely, and evaluate our manufacturing costs and global footprint to align our cost structure with future volumes, while maintaining our ability to execute and to succeed when our markets eventually come back.”

Gross margin for the fiscal 2016 fourth quarter was 26.2 percent, the highest level of the fiscal year, compared to 29.0 percent for the same period last year.  Gross profit for fiscal 2016’s fourth quarter was unfavorably impacted by reduced volumes and a less profitable product mix driven by lower sales of the Company’s oil and gas transmission products.  These unfavorable items were partially offset by improved efficiencies and a global reduction in fixed manufacturing costs.  For fiscal 2016, gross margin was 24.4 percent, compared to 31.2 percent for fiscal 2015. 

For the fiscal 2016 fourth quarter marketing, engineering and administrative (ME&A) expenses declined $2,970,000 to $13,208,000, compared to $16,178,000 for the fiscal 2015 fourth quarter.  The 18.4 percent decline in ME&A expenses in the quarter was primarily due to headcount reductions, the elimination of the bonus for fiscal 2016, currency movements and general cost containment measures, partially offset by increases related to pension expense.  For fiscal 2016, ME&A expenses decreased $7,151,000, or 11.1 percent, to $57,113,000, compared to $64,264,000 for fiscal 2015.

During fiscal 2016, the Company recorded restructuring charges of $921,000, compared to $3,282,000 recorded last fiscal year.  The actions taken in fiscal 2016 are expected to generate over $4,500,000 in annualized savings through reductions in the base salaries of the Company’s corporate officers, the elimination of salaried positions, reductions in base salaries and wages of salaried and hourly employees at the Company’s headquarters and domestic manufacturing facilities, temporary layoffs at its Racine operation and headcount reductions at certain foreign subsidiaries.

As previously disclosed, the Company sold the assets and distribution rights of its distribution entity covering the southeast U.S. territory during the fiscal 2016 first quarter for approximately $4,100,000, resulting in a net operating gain of $445,000. 

Due to the sustained decline in the Company’s operating results throughout fiscal 2016 and the uncertain recovery of the markets served, the Company recorded a $7,602,000 non-cash goodwill impairment charge in the fiscal 2016 fourth quarter related to the domestic industrial business and the European propulsion business.

The effective tax rate for the twelve months of fiscal 2016 was 48.6%, which is significantly higher than the prior year rate of 28.4%. During fiscal 2016, the Company recorded the favorable impact of $2,400,000 of foreign tax credits associated with the repatriation of cash from certain foreign entities.  Adjusting for this non-recurring tax benefit, the fiscal 2016 effective tax rate would have been 39.1%.  The fiscal 2015 rate was favorably impacted by a change in the jurisdictional mix of earnings, along with favorable discrete items related to foreign earnings, and the reinstatement of the research and development credit for calendar 2015.

Net loss attributable to Twin Disc for the fiscal 2016 fourth quarter was ($5,517,000), or ($0.49) per share, compared with earnings attributable to Twin Disc of $437,000, or $0.04 per diluted share, for the fiscal 2015 fourth quarter.  For fiscal 2016, the net loss attributable to Twin Disc was ($13,104,000), or ($1.17) per share, compared to earnings of $11,173,000, or $0.99 per diluted share for fiscal 2015. 

Adjusted net loss for the fiscal 2016 fourth quarter and twelve-month period was ($183,000), or ($0.01) per share, and ($7,554,000), or ($0.68) per share, respectively.  Adjusted net income for the fiscal 2015 fourth quarter and twelve-month period was $2,511,000, or $0.22 per share, and $13,247,000, or $1.17 per share, respectively. 

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)* were ($7,564,000) for the fiscal 2016 fourth quarter, compared to $2,556,000 for the fiscal 2015 fourth quarter.  For fiscal 2016, EBITDA was ($16,113,000), compared to $26,455,000 for fiscal 2015.  Fiscal 2016 EBITDA includes charges for goodwill impairment ($7,602,000) and restructuring ($921,000), while the fiscal 2015 EBITDA includes a restructuring charge ($3,282,000). 

Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “Throughout the recent downturn we have strengthened our balance sheet by reducing working capital levels, which has resulted in strong operating cash flows and lower debt.  As a result, we have the highest fiscal year ending net cash position in the history of the Company.  We generated $8,726,000 million of operating cash flow during the fourth quarter, which helped increase our cash position to $18,273,000 at June 30, 2016.  In addition, during the quarter we made the last payment under our Senior Notes leaving the Company with its revolving Credit Agreement, which had a balance of $8,501,000 and $12,058,000 of availability at June 30, 2016.  Our balance sheet and access to capital is strong and provides us with significant flexibility to withstand the downturn in our markets, while making targeted investments in our business to strengthen our organization.” 

Mr. Batten concluded: “Our six-month backlog at June 30, 2016 was $35,709,000 compared to $39,952,000 at March 25, 2016 and $34,397,000 at June 30, 2015.  As a result of weaker global economic growth and lower oil production, the conditions of many of our markets remained challenging and impacted our six-month backlog.  We remain optimistic in our long-term market opportunities but expect difficult conditions will remain over the next several quarters.  We continue to focus on optimizing our cost structure to respond to the prolonged downturn in our markets, while investing in our business and products to expand our offerings and to grow our market share.  In addition, we are aggressively pursuing new markets, customers and applications for existing products, and have successfully released several new products, with additional releases scheduled in the coming months.”

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on Thursday, August 18, 2016. To participate in the conference call, please dial 888-359-3627 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:00 p.m. August 18, 2016 until midnight August 25, 2016. The number to hear the teleconference replay is 877-870-5176. The access code for the replay is 4454159. 

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 webcast 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 asset impairments, restructuring charges, 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 Twelve Months Ended
   June 30,
   June 30,
   June 30,
   June 30,
 
   2016   2015   2016   2015 
                 
Net sales $42,646  $67,334  $166,282  $265,790 
Cost of goods sold  31,465   47,800   125,687   182,758 
Gross profit  11,181   19,534   40,595   83,032 
                 
Marketing, engineering and                
administrative expenses  13,208   16,178   57,113   64,264 
Restructuring of operations  134   3,282   921   3,282 
Goodwill impairment charge  7,602   -   7,602   - 
Other operating (income)  -   -   (445)  - 
(Loss) earnings from operations  (9,763

)

  74

   (24,596

)

  15,486

 
       
Interest expense  70   170   426   606 
Other (income) expense, net  13   1   273   (1,020)
                 
(Loss) earnings before income                
taxes and non-controlling interest  (9,846)  (97)  (25,295)  15,900 
Income tax (benefit) expense  (4,328)  (573)  (12,282)  4,515 
                 
Net (loss) earnings  (5,518)  476   (13,013)  11,385 
Less: Net loss (earnings) attributable to      
non-controlling interest, net of tax  1   (39)  (91)  (212)
Net (loss) earnings attributable to Twin Disc $(5,517) $437  $(13,104) $11,173 
                 
(Loss) earnings per share data:                
Basic (loss) earnings per share attributable                
to Twin Disc common shareholders $ (0.49) $0.04  $(1.17) $0.99 
Diluted (loss) earnings per share attributable                
to Twin Disc common shareholders $(0.49) $0.04  $ (1.17) $0.99 
       
Weighted average shares outstanding data:      
Basic shares outstanding  11,207   11,268   11,203   11,273 
Diluted shares outstanding  11,207   11,270   11,203   11,277 
       
Dividends per share $-  $0.09  $0.18  $0.36 
       
Comprehensive income (loss):      
Net (loss) earnings $(5,518) $476  $(13,013) $11,385 
Other comprehensive (loss) income:      
Benefit plan adjustments, net  (9,295)  (7,044)  (7,080)  (5,499)
Foreign currency translation adjustment  623   643   (1,557)  (14,119)
Comprehensive loss  (14,190)  (5,925)  (21,650)  (8,233)
Less: Comprehensive income attributable to                
noncontrolling interest  (33)  (45)  (114)  (132)
                 
Comprehensive loss attributable to                
Twin Disc $(14,223) $(5,970) $(21,764) $(8,365)
                 


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
    
  June 30, June 30,
  2016
 2015
ASSETS        
Current assets:        
Cash $18,273  $22,936 
Trade accounts receivable, net  25,363   43,883 
Inventories  66,569   80,241 
Deferred income taxes  -   4,863 
Other  14,830   17,907 
    
Total current assets  125,035   169,830 
    
Property, plant and equipment, net  51,665   56,427 
Goodwill, net  5,120   12,789 
Deferred income taxes  25,870   4,878 
Intangible assets, net  2,164   2,186 
Other assets  4,068   3,752 
    
TOTAL ASSETS $213,922  $249,862 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Short-term borrowings and current maturities of long-term debt $-  $3,571 
Accounts payable  14,716   20,729 
Accrued liabilities  21,415   32,754 
    
Total current liabilities  36,131   57,054 
    
Long-term debt  8,501   10,231 
Accrued retirement benefits  48,705   38,362 
Deferred income taxes  827   1,093 
Other long-term liabilities  2,705   2,955 
         
Total liabilities  96,869   109,695 
         
Twin Disc shareholders’ equity:        
Preferred shares authorized: 200,000; issued: none; no par value  -   - 
Common shares authorized: 30,000,000;        
Issued: 13,099,468; no par value  11,761   12,259 
Retained earnings  175,662   190,807 
Accumulated other comprehensive loss  (44,143)  (35,481)
   143,280   167,585 
Less treasury stock, at cost        
(1,749,294 and 1,832,121 shares, respectively)  26,790   28,057 
         
Total Twin Disc shareholders' equity  116,490   139,528 
         
Noncontrolling interest  563   639 
Total equity  117,053   140,167 
         
TOTAL LIABILITIES AND EQUITY $213,922  $249,862 
         


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited) 
  Twelve Months Ended
  June 30, June 30,
  2016 2015
         
Cash flows from operating activities:        
Net (loss) earnings $(13,013) $11,385 
Adjustments to reconcile net (loss) earnings to cash        
provided by operating activities:        
Depreciation and amortization  8,847   10,161 
Impairment charge  7,602   - 
Stock compensation expense  1,295   696 
Restructuring of operations  354   3,282 
Provision for deferred income taxes  (12,203)  (442)
Other, net  74   215 
Net change in operating assets and liabilities  10,435   (8,237)
Net cash provided by operating activities  3,391   17,060 
         
Cash flows from investing activities:        
Proceeds from sale of business  3,500   - 
Proceeds from life insurance policy  2,002   - 
Proceeds from sale of plant assets  124   279 
Capital expenditures  (4,214)  (9,049)
Other, net  (270)  1,934 
         
Net cash provided (used) by investing activities  1,142   (6,836)
         
Cash flows from financing activities:        
Payments of senior notes  (3,571)  (3,600)
Borrowings under revolving loan agreement  89,473   83,681 
Repayments under revolving loan agreement  (91,203)  (84,674)
Proceeds from exercise of stock options  12   15 
Dividends paid to shareholders  (2,041)  (4,061)
Dividends paid to non-controlling interest  (192)  (220)
Excess tax benefits (shortfall) from stock compensation  (349)  (26)
Payments of withholding taxes on compensation  (190)  (313)
Net cash used by financing activities  (8,061)  (9,198)
         
Effect of exchange rate changes on cash  (1,135)  (2,847)
         
Net change in cash  (4,663)  (1,821)
         
Cash:        
Beginning of period  22,936   24,757 
         
End of period $18,273  $22,936 
         


RECONCILIATION OF CONSOLIDATED NET (LOSS) EARNINGS TO EBITDA
(In thousands; unaudited)
    
  Three Months EndedTwelve Months Ended
  June 30,
 June 30,
 June 30,
 June 30,
 
  2016 2015 2016 2015 
Net (loss) earnings attributable to Twin Disc $(5,517) $437  $(13,104) $11,173 
Interest expense  70   170   426   606 
Income taxes  (4,328)  (573)  (12,282)  4,515 
Depreciation and amortization  2,211   2,522   8,847   10,161 
Earnings (loss) before interest, taxes,                
depreciation and amortization $(7,564) $2,556  $(16,113) $26,455 
                 


RECONCILIATION OF GAAP TO NON-GAAP MEASURES
ADJUSTED NET (LOSS) INCOME CALCULATIONS
(In thousands; unaudited)
    
  Three Months EndedTwelve Months Ended
  June 30, June 30, June 30, June 30,
  2016 2015 2016 2015
Net (loss) earnings attributable to Twin Disc $(5,517) $437  $(13,104) $11,173 
Adjustment:                
Other operating income  -   -   (445)  - 
Income tax on other operating income  -   -   164   - 
Restructuring expenses  134   3,282   921   3,282 
Income tax on restructuring expenses  (49)  (1,208)  (339)  (1,208)
Goodwill impairment charge  7,602   -   7,602   - 
Income tax on goodwill impairment charge  (2,353)  -   (2,353)  - 
Adjusted net (loss) earnings attributable to Twin Disc $(183) $2,511  $(7,554) $13,247 
                 
Net (loss) earnings per share attributable to common                
stockholders, as reported $(0.49) $0.04  $(1.17) $0.99 
Adjustment:                
Other operating income  -   -   (0.04)  - 
Income tax on other operating income  -   -   0.01   - 
Restructuring expenses  0.01   0.29   0.08   0.29 
Income tax on restructuring expenses  -   (0.11)  (0.03)  (0.11)
Goodwill impairment charge  0.68   -   0.68   - 
Income tax on goodwill impairment charge  (0.21)  -   (0.21)  - 
Adjusted net (loss) earnings per share attributable to                
common stockholders $(0.01) $0.22  $(0.68) $1.17 
                 
Contact: Jeffrey S. Knutson
(262) 638-4242

Source: GlobeNewswire (August 18, 2016 - 8:01 AM EDT)

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