Good day and welcome to the Twin Disc, Inc. Fourth Quarter Fiscal 2014 Financial Results Conference Call. Today’s presentation is being recorded. At this time, I would like to turn the call over to Mr. Stan Berger of SM Berger. Please go ahead, sir.

Thank you. On behalf of the management of Twin Disc, we are extremely pleased that you have taken the time to participate in our call and thank you for joining us to discuss the company’s 2014 fourth quarter and full year financial results and business outlook. Before I introduce management, I would like to remind everyone that certain statements made during the course of this conference call, especially those that state management’s intentions, hopes, beliefs, expectations or predictions for the future are forward-looking statements. It is important to remember that the company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s annual report on Form 10-K, copies of which may be obtained by contacting either the company or the SEC. By now, you should have received a copy of the news release, which was issued this morning before the market opened. If you have not received the copy, please call Annette Mianecki, at 262-638-4000 and she will send the copy to you. Hosting the call today are John Batten, Twin Disc’s Chief Executive Officer, President and Chief Operating Officer; and Chris Eperjesy, the company's Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I will turn the call over to John Batten. John?

Thank you, Stan and good morning everyone. Welcome to our fiscal 2014 fourth quarter conference call. As usual, we will begin with the short summary statement and then Chris and I will be happy to take your questions. Looking at our fourth quarter results, sales for the 2014 fiscal fourth quarter were 73.6 million, down 3% from 75.9 million for the same period a year ago, but up 21% from the fiscal third quarter. The sequential improvement over the third quarter was driven largely by the increase in shipments in the Asian and North American oil and gas markets. For the full fiscal year, fiscal 2014 sales were 262.9 million, down 7.5% from the year ago. Looking at our broader product market, this decrease in sales in parts is being attributed to a slide follow-off and record levels and some of our commercial marine markets, primarily in the lower horsepower range. However crew boat demand in Asia and the U.S. Gulf Coast remained strong for a high horsepower marine transmission. Sales for our propulsion products also suffered during the fiscal year as many of the global controllable projects had fallen behind schedules. And what should surprise known the global pleasure craft market continue to struggle. Although, we did see some pockets of promise in the Australia in that ag market and the North American customs boat fish market where builders used our Express Joystick System and CAT360 [for certain] control system differentiation against the competition. While our marine shipments were lower than a year ago levels demand remains high at the offshore oil and gas markets, especially in the U.S. Gulf Coast and Southeast Asia and the second half of the year shipments were stronger than in the first half of the year. Sales into our industrial markets declined when…

(Operator Instructions). And we will go to Josh Chan of Baird. Please go ahead, sir.

Hi, good morning John and Chris.

Good morning, Josh.

Good morning, Josh.

Good morning. Just one asked more about the excess inventory comment that you just made there. I think there is been some recent comments about part capacity being brought back. Just wondering what you're hearing on industry capacity and how broad based over demand that you're seeing across oil and gas customer base?

What did you, I didn't, Josh did you say part capacity?

Part capacity going back. And then what do you think about industry over capacity at the moment?

I will speak for what we are seeing not necessarily what everyone else is seeing. What we are seeing is that some of the smaller independent operators and builders in the industry seem to have worked through their excess inventory faster than maybe some of the larger players and so they are ones that have been placing orders on us sooner. And that’s kind of what needs us to believe is it was a bit of still unbalance some of the larger players still have excess inventory, but we are seeing particularly in higher horse power from the smaller independent that’s where we are beginning to see, that’s where we saw the demand push, at the end of the third quarter with new orders and that continued through the fourth quarter.

Okay. Do you have any sense in terms of how long it would take the larger players to sort of work through their relatively higher inventory?

I am sensing that it’s maybe this quarter, but I would say certainly within the calendar year. I mean I know that the larger players have been some new spreads but I think as a percentage of their overall fleet, it’s smaller as a percentage of their fleet versus the smaller independence if that makes sense

Right…

Seem to be having the impact, the independence are at this point.

Okay. And then you talked about the moderate pace of recovery and that certainly makes sense. I appreciate the color there. Your backlog this quarter did improve at a pretty healthy rate and so in fact pretty similar the rate of improvement that you have seen at the beginning of the last cycle. So I am wondering are there any other sources of strength that you are seeing in terms of your backlog or are you perhaps being a little bit conservative in terms of what to expect in terms of demand.

Of course we are probably being a little bit conservative. Certainly the biggest improvement in this quarter was oil and gas, but I would say in general how we feel about the rest of the businesses in the backlog we are feeling pretty good, specifically because the second half of the year for both marine and industrial, the fire transmission is stronger than the first half. So, there is definitely (inaudible) systems in oil and gas specifically North America and then as far as the shipment in the orders in the second half of the year for marine and industrial than in the first half. So, management here, we're feeling a lot better today than we were a year ago on the conference call as that what's the fiscal year ahead of us was going to present.

Okay, great. That's encouraging. And then if I can ask about the deployment about the CapEx, pretty sizable ramps. So I'm wondering what do you expect to work on next year in terms of capital spending wise.

Well it continues with targeted machine tools, that we just couldn't get in this year and again it had do with years and housing. To be honest, we didn't get a lot done in our European operations and Canada, the last four months for the year for obvious reasons. So, we have some PP&E to do there as well and we are that we have a plant fairly large one that started this year on improvements on both the corporate facilities here. So those are the big ones. But we also had some machine tools going in into India and upgrading and new service facilities going in, in Asia and outfitting (inaudible). It kind of covers everything, but a lot of it has to do with make up on what did happen in Europe in fiscal ‘14.

Okay, great. Thanks for your time and good luck in the next year.

Thanks Josh.

Thanks

And ladies and gentlemen, we do have one question remaining in the queue. (Operator Instructions). And Ryan Cassil of Global Hunter Securities will have our next question.

Hey guys, good morning.

Good morning.

Thanks for taking my question. Just question on orders, if my quick math is right, your orders were above 30% and you had some weakness I guess in commercial as expected. Would you mind just breaking out the transmission related order growth that some of you guys want to break out?

We don’t typically disclose the order activity, and I noticed in your early report that you guys tried to calculate it. That’s us to do with the information we do disclose because we have only reported six months backlog and there could be things that growth in the beyond six months backlog. But to John’s comments earlier, the majority of the growth in our backlog, more than the majority of our growth in the backlog came from oil and gas sector with the marine market which had fiscal 2013 was a record year, despite the Pleasure craft market being down, actually the backlog did come down a little bit in the quarter.

Okay.

And again the mix, what was different than any quarter this year or last year was the waiting towards North America as the end market for oil and gas.

Okay. That’s good color. And I know you talked about shortening lead times and last quarter you talked about increasing inventory to try to take advantage of the shortening lead times but has that actually -- have they actually become shorter than you had expected and are you positioning yourself to take advantage of that?

The answer to last question is yes. But, are they shorter than we anticipated, the answer to that is no, but I will say modify that we’ve held -- we’re now going through a quarter of bump up in production in oil and gas, and we're holding the lead time. And we’ve made that a priority here, the transmissions are produced here and seen. But we're going to do whatever we can which is prudent and possible to maintain those lead times as long as we can. So, if we have a steady state increase in demand, I think we can continue to hold these types of lead times, despite back in 2010 and 2011 just little everything out of the window because everyone was ordering at once and there was a rush of spare parts at aftermarket as well. But if we can -- if the market comes back consistently and the growth is consistent, then we’re going to do whatever we can to hold these lead times.

Okay. Yes, I know you talked about a more gradual ramp. Is it fair to think about the shipments you had in the transmission side kind of a base here in Q4 and then going forward we should see gains on top of that as this cycle plays out?

That is the indication that we’re having. We’re just beginning to start a ramp up and improvement. Now having said that, it may not be a nice move, Ryan, going up, but I definitely see the trend at least for the next six to eight quarters of an overall improving market in oil and gas, particularly in North America. So the second quarter maybe slightly lower than the first quarter or the third quarter maybe lower than the second quarter, but we definitely see the trends that fiscal ‘15 should be better -- will be better than fiscal ‘14.

Okay. And then as we ramp the transmission orders and this has been a pretty strong margin or at least a great incremental margin business in the pat. Is there anything changed from a margin perspective or what is the kind of the expectations there as we ramp?

We are expecting to hold the same margins within a point here or there that we have in the last ramp up.

Okay. And then for a commercial marine, do you had a tough compare this year what are your expectations for ’15, is that kind of a flat to slightly growing market or…

I would say certainly flat to growing, there are some markets that are particularly in some of the Asian economies or Asian countries and South America, there is always politics involved with elections and there is certainly others. So we are expecting some of that to move past this early this fiscal year. So there should be improvement and one of the markets I am thinking about in particularly with Indonesia with the (inaudible) that should have a turn backwards in fiscal ‘14 but we see that improvement as we are heading into 2015. So there are some of our lower horse power markets that hopefully will bounce back and we are optimistic it flat to growing is what we will see in commercial marine.

Okay. And then it’s a pleasure to you ask it’s been a challenging perhaps couple of years I heard you’ve mention something like a sport fishing win could you just talk about what you are seeing in Pleasure myriad and does that even classify as are you putting that in the…

Sure. Overall I think the Pleasure craft market is still down almost to where it was when it dropped. We are seeing our improvement really are in applications with our joystick systems where we can differentiate ourselves and then take market share from the competition and the few that I have mentioned one is in Australia in the overall yacht market the Australian market is gravitated towards the Joystick technology and are demanding yachts with that in it. But when here in the U.S. was directly related to our partnership with Caterpillar and the EJS and also the CAT360 precision control system, which they have been pushing heavily through their dealer network in some of the customers and some of the production that I mentioned Viking is one. So, that is when the market shift wind for us. So, there are why the market is down. I do believe the Pleasure craft sales are going to increase in fiscal 15 and it's primarily driven by those two areas. What's happening in Australia and what's happening on from the Mid-Atlantic region down through the carrier lines in the sportfish market for. I think we'll see some growing production of marine transmission and in our both range in between also (inaudible) all should see an increase in the Pleasure craft market this year.

Okay, that's great to hear. Alright. Thanks guys. I'll jump back in queue.

Thanks Ryan.

(Operator Instructions). And no one is queued up at this time. So, I'll turn the call back to John Batten for any additional or closing remarks.

Thank you Lia. Thank you for joining our conference call today. We appreciate your continuing interest in Twin Disc and hopefully have answered all of your questions. If not, please feel free to call Chris and myself. We look forward to speaking with you again in October following the close of our close of our fiscal first quarter for 2015. Lia, now I’ll turn the call back to you.

Thank you for your participation and this concludes today's conference.