twin20230930_10q.htm
0000100378 TWIN DISC INC false --06-30 Q1 2024 200,000 200,000 0 0 0 0 30,000,000 30,000,000 14,632,802 14,632,802 0 0 674,354 814,734 5 9 0 0 2 3 3 0 1 3 3 3 3 3 2018 2019 2020 2021 2022 2023 2019 3 5 0 0 2.1 9.7 13,000 These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note G, "Pension and Other Postretirement Benefit Plans" for further details). 00001003782023-07-012023-09-29 xbrli:shares 00001003782023-10-25 thunderdome:item iso4217:USD 00001003782023-09-29 00001003782023-06-30 iso4217:USDxbrli:shares 00001003782023-07-012023-09-30 00001003782022-07-012022-09-30 0000100378twin:ServiceExcludingBoatManagementSystemProductLineMember2023-07-012023-09-30 0000100378twin:ServiceExcludingBoatManagementSystemProductLineMember2022-07-012022-09-30 0000100378twin:BoatManagementSystemProductLineMember2023-07-012023-09-30 0000100378twin:BoatManagementSystemProductLineMember2022-07-012022-09-30 0000100378twin:BoatManagementSystemProductLineMember2023-07-012023-09-29 0000100378twin:BoatManagementSystemProductLineMember2022-07-012022-09-30 00001003782022-06-30 00001003782022-09-30 utr:Y 0000100378us-gaap:BuildingAndBuildingImprovementsMembersrt:MinimumMember2023-06-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember2022-07-01 0000100378twin:BoatManagementSystemProductLineMember2023-07-012023-09-29 0000100378twin:BoatManagementSystemProductLineMembercountry:US2023-07-012023-09-29 xbrli:pure 0000100378us-gaap:OperatingSegmentsMembertwin:ManufacturingSegmentMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:ManufacturingSegmentMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:DistributionSegmentMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:DistributionSegmentMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMembertwin:ManufacturingSegmentMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMembertwin:ManufacturingSegmentMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMembertwin:DistributionSegmentMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMembertwin:DistributionSegmentMember2022-07-012022-09-30 0000100378us-gaap:CorporateNonSegmentMember2023-07-012023-09-29 0000100378us-gaap:CorporateNonSegmentMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:ManufacturingSegmentMember2023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:ManufacturingSegmentMember2023-06-30 0000100378us-gaap:OperatingSegmentsMembertwin:DistributionSegmentMember2023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:DistributionSegmentMember2023-06-30 0000100378us-gaap:CorporateNonSegmentMember2023-09-29 0000100378us-gaap:CorporateNonSegmentMember2023-06-30 0000100378us-gaap:OperatingSegmentsMembertwin:IndustrialMembertwin:ManufacturingSegmentMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:IndustrialMembertwin:DistributionSegmentMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMembertwin:IndustrialMember2023-07-012023-09-29 0000100378twin:IndustrialMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:LandBasedTransmissionsMembertwin:ManufacturingSegmentMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:LandBasedTransmissionsMembertwin:DistributionSegmentMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMembertwin:LandBasedTransmissionsMember2023-07-012023-09-29 0000100378twin:LandBasedTransmissionsMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:MarineAndPropulsionSystemsMembertwin:ManufacturingSegmentMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:MarineAndPropulsionSystemsMembertwin:DistributionSegmentMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMembertwin:MarineAndPropulsionSystemsMember2023-07-012023-09-29 0000100378twin:MarineAndPropulsionSystemsMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:OtherMembertwin:ManufacturingSegmentMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:OtherMembertwin:DistributionSegmentMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMembertwin:OtherMember2023-07-012023-09-29 0000100378twin:OtherMember2023-07-012023-09-29 0000100378us-gaap:IntersegmentEliminationMember2023-07-012023-09-29 0000100378us-gaap:OperatingSegmentsMembertwin:IndustrialMembertwin:ManufacturingSegmentMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:IndustrialMembertwin:DistributionSegmentMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMembertwin:IndustrialMember2022-07-012022-09-30 0000100378twin:IndustrialMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:LandBasedTransmissionsMembertwin:ManufacturingSegmentMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:LandBasedTransmissionsMembertwin:DistributionSegmentMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMembertwin:LandBasedTransmissionsMember2022-07-012022-09-30 0000100378twin:LandBasedTransmissionsMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:MarineAndPropulsionSystemsMembertwin:ManufacturingSegmentMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:MarineAndPropulsionSystemsMembertwin:DistributionSegmentMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMembertwin:MarineAndPropulsionSystemsMember2022-07-012022-09-30 0000100378twin:MarineAndPropulsionSystemsMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:OtherMembertwin:ManufacturingSegmentMember2022-07-012022-09-30 0000100378us-gaap:OperatingSegmentsMembertwin:OtherMembertwin:DistributionSegmentMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMembertwin:OtherMember2022-07-012022-09-30 0000100378twin:OtherMember2022-07-012022-09-30 0000100378us-gaap:IntersegmentEliminationMember2022-07-012022-09-30 0000100378twin:PerformanceStockAwardsMember2023-07-012023-09-29 0000100378twin:PerformanceStockAwardsMember2022-07-012022-09-30 0000100378twin:PerformanceStockAwardsMember2023-09-29 0000100378twin:PerformanceStockAwardsMember2023-06-30 0000100378twin:PerformanceStockAwardsMember2022-09-30 0000100378twin:PerformanceStockUnitAwardsMember2022-07-012022-09-30 0000100378twin:PerformanceStockUnitAwardsMember2023-07-012023-09-29 0000100378twin:PerformanceStockUnitAwardsMember2023-09-29 0000100378twin:PerformanceStockUnitAwardsMember2022-09-30 0000100378us-gaap:RestrictedStockMembersrt:MinimumMember2023-07-012023-09-29 0000100378us-gaap:RestrictedStockMembersrt:MaximumMember2023-07-012023-09-29 0000100378us-gaap:RestrictedStockMember2023-07-012023-09-29 0000100378us-gaap:RestrictedStockMember2022-07-012022-09-30 0000100378us-gaap:RestrictedStockMember2023-09-29 0000100378us-gaap:RestrictedStockMember2022-09-30 0000100378us-gaap:RestrictedStockUnitsRSUMember2023-07-012023-09-29 0000100378us-gaap:RestrictedStockUnitsRSUMember2022-07-012022-09-30 0000100378us-gaap:RestrictedStockUnitsRSUMember2023-09-29 0000100378us-gaap:RestrictedStockUnitsRSUMember2022-09-30 0000100378us-gaap:PensionPlansDefinedBenefitMember2023-07-012023-09-29 0000100378us-gaap:PensionPlansDefinedBenefitMember2022-07-012022-09-30 0000100378us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2023-07-012023-09-29 0000100378us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember2022-07-012022-09-30 0000100378us-gaap:PensionPlansDefinedBenefitMember2023-09-29 0000100378us-gaap:ForeignCountryMember2023-07-012023-09-29 0000100378us-gaap:ForeignCountryMember2022-07-012022-09-30 0000100378us-gaap:DomesticCountryMember2023-07-012023-09-29 0000100378us-gaap:DomesticCountryMember2022-07-012022-09-30 0000100378us-gaap:ForeignCountryMemberus-gaap:TaxAndCustomsAdministrationNetherlandsMember2023-07-012023-09-29 0000100378us-gaap:CustomerRelationshipsMember2023-06-30 0000100378us-gaap:TechnologyBasedIntangibleAssetsMember2023-06-30 0000100378us-gaap:TradeNamesMember2023-06-30 0000100378us-gaap:OtherIntangibleAssetsMember2023-06-30 0000100378us-gaap:CustomerRelationshipsMember2023-07-012023-09-29 0000100378us-gaap:TechnologyBasedIntangibleAssetsMember2023-07-012023-09-29 0000100378us-gaap:TradeNamesMember2023-07-012023-09-29 0000100378us-gaap:OtherIntangibleAssetsMember2023-07-012023-09-29 0000100378us-gaap:CustomerRelationshipsMember2023-09-29 0000100378us-gaap:TechnologyBasedIntangibleAssetsMember2023-09-29 0000100378us-gaap:TradeNamesMember2023-09-29 0000100378us-gaap:OtherIntangibleAssetsMember2023-09-29 0000100378twin:RevolvingLoanMember2023-09-29 0000100378twin:RevolvingLoanMember2023-06-30 0000100378twin:TermLoanMember2023-09-29 0000100378twin:TermLoanMember2023-06-30 0000100378twin:OtherLongtermDebtMember2023-09-29 0000100378twin:OtherLongtermDebtMember2023-06-30 0000100378us-gaap:RevolvingCreditFacilityMembertwin:The2018CreditAgreementMembertwin:BMOMember2018-06-29 0000100378twin:The2018CreditAgreementMembertwin:BMOMembertwin:TermLoanMember2019-03-04 0000100378twin:The2018CreditAgreementMembertwin:BMOMembertwin:TermLoanMember2019-03-042019-03-04 0000100378us-gaap:RevolvingCreditFacilityMembertwin:TheNinthAmendmentMembertwin:BMOMember2023-09-29 0000100378us-gaap:RevolvingCreditFacilityMembertwin:The2018CreditAgreementMembertwin:BMOMembersrt:MaximumMember2023-09-29 0000100378us-gaap:RevolvingCreditFacilityMembertwin:The2018CreditAgreementMembertwin:BMOMembersrt:MinimumMembertwin:LondonInterbankOfferedRateLibor1Member2022-06-302022-06-30 0000100378us-gaap:RevolvingCreditFacilityMembertwin:TheNinthAmendmentMembertwin:BMOMembersrt:MaximumMembertwin:LondonInterbankOfferedRateLibor1Member2022-06-302022-06-30 0000100378twin:TheNinthAmendmentMembertwin:BMOMembertwin:TermLoanMembersrt:MinimumMembertwin:LondonInterbankOfferedRateLibor1Member2022-06-302022-06-30 0000100378twin:TheNinthAmendmentMembertwin:BMOMembertwin:TermLoanMembersrt:MaximumMembertwin:LondonInterbankOfferedRateLibor1Member2022-06-302022-06-30 0000100378twin:TheNinthAmendmentMembertwin:BMOMembertwin:UnusedRevolvingCreditCommitmentMembersrt:MinimumMembertwin:LondonInterbankOfferedRateLibor1Member2022-06-302022-06-30 0000100378twin:TheNinthAmendmentMembertwin:BMOMembertwin:UnusedRevolvingCreditCommitmentMembersrt:MaximumMembertwin:LondonInterbankOfferedRateLibor1Member2022-06-302022-06-30 0000100378us-gaap:RevolvingCreditFacilityMembertwin:TheNinthAmendmentMembertwin:BMOMembersrt:MaximumMember2023-09-29 0000100378twin:TheNinthAmendmentMembertwin:BMOMembertwin:TermLoanMember2023-09-29 0000100378twin:The2018CreditAgreementMembertwin:BMOMember2020-07-22 0000100378twin:The2018CreditAgreementMembertwin:BMOMember2023-09-29 0000100378srt:MinimumMember2018-07-012019-06-30 0000100378srt:MaximumMember2018-07-012019-06-30 0000100378srt:MinimumMember2019-06-30 0000100378srt:MaximumMember2019-06-30 0000100378twin:The2018CreditAgreementMembertwin:BMOMembertwin:TermLoanMember2023-07-012023-09-29 0000100378us-gaap:RevolvingCreditFacilityMembertwin:The2018CreditAgreementMembertwin:BMOMember2023-07-012023-09-29 0000100378us-gaap:RevolvingCreditFacilityMembertwin:The2018CreditAgreementMembertwin:BMOMember2023-09-29 0000100378twin:BankOfMontrealMemberus-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2018-06-29 0000100378twin:BankOfMontrealMemberus-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-09-29 0000100378us-gaap:CommonStockMember2023-06-30 0000100378us-gaap:RetainedEarningsMember2023-06-30 0000100378us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-30 0000100378us-gaap:TreasuryStockCommonMember2023-06-30 0000100378us-gaap:NoncontrollingInterestMember2023-06-30 0000100378us-gaap:RetainedEarningsMember2023-07-012023-09-29 0000100378us-gaap:NoncontrollingInterestMember2023-07-012023-09-29 0000100378us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-07-012023-09-29 0000100378us-gaap:CommonStockMember2023-07-012023-09-29 0000100378us-gaap:TreasuryStockCommonMember2023-07-012023-09-29 0000100378us-gaap:CommonStockMember2023-09-29 0000100378us-gaap:RetainedEarningsMember2023-09-29 0000100378us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-29 0000100378us-gaap:TreasuryStockCommonMember2023-09-29 0000100378us-gaap:NoncontrollingInterestMember2023-09-29 0000100378us-gaap:CommonStockMember2022-06-30 0000100378us-gaap:RetainedEarningsMember2022-06-30 0000100378us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-30 0000100378us-gaap:TreasuryStockCommonMember2022-06-30 0000100378us-gaap:NoncontrollingInterestMember2022-06-30 0000100378us-gaap:RetainedEarningsMember2022-07-012022-09-30 0000100378us-gaap:NoncontrollingInterestMember2022-07-012022-09-30 0000100378us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-30 0000100378us-gaap:CommonStockMember2022-07-012022-09-30 0000100378us-gaap:TreasuryStockCommonMember2022-07-012022-09-30 0000100378us-gaap:CommonStockMember2022-09-30 0000100378us-gaap:RetainedEarningsMember2022-09-30 0000100378us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-30 0000100378us-gaap:TreasuryStockCommonMember2022-09-30 0000100378us-gaap:NoncontrollingInterestMember2022-09-30 0000100378us-gaap:AccumulatedTranslationAdjustmentMember2023-06-30 0000100378us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2023-06-30 0000100378us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-06-30 0000100378twin:AccumulatedGainLossNetNetInvestmentHedgeMember2023-06-30 0000100378us-gaap:AccumulatedTranslationAdjustmentMember2023-07-012023-09-29 0000100378us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2023-07-012023-09-29 0000100378us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-07-012023-09-29 0000100378twin:AccumulatedGainLossNetNetInvestmentHedgeMember2023-07-012023-09-29 0000100378us-gaap:AccumulatedTranslationAdjustmentMember2023-09-29 0000100378us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2023-09-29 0000100378us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2023-09-29 0000100378twin:AccumulatedGainLossNetNetInvestmentHedgeMember2023-09-29 0000100378us-gaap:AccumulatedTranslationAdjustmentMember2022-06-30 0000100378us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2022-06-30 0000100378us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-06-30 0000100378twin:AccumulatedGainLossNetNetInvestmentHedgeMember2022-06-30 0000100378us-gaap:AccumulatedTranslationAdjustmentMember2022-07-012022-09-30 0000100378us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2022-07-012022-09-30 0000100378us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-07-012022-09-30 0000100378twin:AccumulatedGainLossNetNetInvestmentHedgeMember2022-07-012022-09-30 0000100378us-gaap:AccumulatedTranslationAdjustmentMember2022-09-30 0000100378us-gaap:AccumulatedDefinedBenefitPlansAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember2022-09-30 0000100378us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2022-09-30 0000100378twin:AccumulatedGainLossNetNetInvestmentHedgeMember2022-09-30 0000100378us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2023-07-012023-09-29 0000100378us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-07-012022-09-30 0000100378us-gaap:EmployeeSeveranceMember2022-01-012022-03-25 0000100378twin:PropertyPlantAndEquipmentReclassifiedToAssetsHeldForSaleMember2022-07-012022-09-30 0000100378twin:PropellerMachiningPlantAndOfficeInSwitzerlandMember2022-10-012022-12-30 0000100378us-gaap:PerformanceSharesMember2023-07-012023-09-29 0000100378twin:PsuaAwardMember2023-07-012023-09-29 0000100378us-gaap:RestrictedStockMember2023-07-012023-09-29 0000100378us-gaap:RestrictedStockUnitsRSUMember2023-07-012023-09-29 0000100378us-gaap:PerformanceSharesMember2022-07-012022-09-30 0000100378us-gaap:RestrictedStockMember2022-07-012022-09-30 0000100378us-gaap:RestrictedStockUnitsRSUMember2022-07-012022-09-30 0000100378twin:PropertyPlantAndEquipmentNetMember2023-09-29 0000100378twin:PropertyPlantAndEquipmentNetMember2023-06-30 0000100378us-gaap:AccruedLiabilitiesMember2023-09-29 0000100378us-gaap:AccruedLiabilitiesMember2023-06-30 0000100378twin:LeaseObligationMember2023-09-29 0000100378twin:LeaseObligationMember2023-06-30 0000100378us-gaap:OtherNoncurrentLiabilitiesMember2023-09-29 0000100378us-gaap:OtherNoncurrentLiabilitiesMember2023-06-30 0000100378us-gaap:InterestRateSwapMember2023-09-29 0000100378twin:BankOfMontrealMemberus-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-06-30 iso4217:EUR 0000100378twin:EuroDenominatedRevolvingLoanMemberus-gaap:NetInvestmentHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-06-30 0000100378twin:EuroDenominatedRevolvingLoanMemberus-gaap:NetInvestmentHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-07-012023-09-29 0000100378twin:EuroDenominatedRevolvingLoanMemberus-gaap:NetInvestmentHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2022-07-012023-06-30 0000100378us-gaap:AccountsPayableAndAccruedLiabilitiesMemberus-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-09-29 0000100378us-gaap:AccountsPayableAndAccruedLiabilitiesMemberus-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-06-30 0000100378us-gaap:OtherNoncurrentLiabilitiesMemberus-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-09-29 0000100378us-gaap:OtherNoncurrentLiabilitiesMemberus-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMember2023-06-30 0000100378us-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestExpenseMember2023-07-012023-09-29 0000100378us-gaap:InterestRateSwapMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestExpenseMember2022-07-012022-09-30 0000100378us-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertwin:UnrealizedGainLossOnHedgesMember2023-07-012023-09-29 0000100378us-gaap:InterestRateSwapMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertwin:UnrealizedGainLossOnHedgesMember2022-07-012022-09-30 0000100378twin:EuroDenominatedRevolvingLoanMemberus-gaap:NetInvestmentHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertwin:UnrealizedGainLossOnHedgesMember2023-07-012023-09-29 0000100378twin:EuroDenominatedRevolvingLoanMemberus-gaap:NetInvestmentHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMembertwin:UnrealizedGainLossOnHedgesMember2022-07-012022-09-30 0000100378srt:ScenarioPreviouslyReportedMember2022-07-012022-09-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember2022-07-012022-09-30 0000100378srt:ScenarioPreviouslyReportedMember2022-09-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember2022-09-30 0000100378srt:ScenarioPreviouslyReportedMember2022-06-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember2022-06-30 0000100378srt:ScenarioPreviouslyReportedMemberus-gaap:RetainedEarningsMember2022-06-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMemberus-gaap:RetainedEarningsMember2022-06-30 0000100378srt:ScenarioPreviouslyReportedMemberus-gaap:RetainedEarningsMember2022-07-012022-09-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMemberus-gaap:RetainedEarningsMember2022-07-012022-09-30 0000100378srt:ScenarioPreviouslyReportedMemberus-gaap:RetainedEarningsMember2022-09-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMemberus-gaap:RetainedEarningsMember2022-09-30 0000100378srt:ScenarioPreviouslyReportedMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-30 0000100378srt:ScenarioPreviouslyReportedMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-30 0000100378srt:ScenarioPreviouslyReportedMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-30 0000100378srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-30
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION         

WASHINGTON, D.C. 20549

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 29, 2023

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-7635

 

 

TWIN DISC, INCORPORATED

(Exact name of registrant as specified in its charter)

 

Wisconsin

39-0667110

(State or other jurisdiction of

(I.R.S. Employer

Incorporation or organization)

Identification No.)

 

222 East Erie Street, Suite 400, Milwaukee, Wisconsin 53202

(Address of principal executive offices)

 

(262) 638-4000

(Registrant's telephone number, including area code)

 

1328 Racine Street, Racine, Wisconsin 53403

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock (No Par Value)

TWIN

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑                  No ☐         

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).               Yes ☑                 No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐Accelerated Filer
Non-accelerated filer ☐Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                   No ☑         

 

At October 25, 2023, the registrant had 13,960,861 shares of its common stock outstanding.

 

 

 

 

Part I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

 

 
  September 29, 2023  June 30, 2023 

ASSETS

        

Current assets:

        

Cash

 $20,428  $13,263 

Trade accounts receivable, net

  39,756   54,760 

Inventories

  126,236   131,930 

Assets held for sale

  4,559   2,968 

Prepaid expenses

  9,466   8,459 

Other

  8,763   8,326 

Total current assets

  209,208   219,706 
         

Property, plant and equipment, net

  40,065   38,650 

Right-of-use assets operating leases

  12,093   13,133 

Intangible assets, net

  11,517   12,637 

Deferred income taxes

  2,204   2,244 

Other assets

  2,894   2,811 
         

Total assets

 $277,981  $289,181 
         

LIABILITIES AND EQUITY

        

Current liabilities:

        

Current maturities of long-term debt

 $2,002  $2,010 

Accounts payable

  29,584   36,499 

Accrued liabilities

  60,632   61,586 

Total current liabilities

  92,218   100,095 
         

Long-term debt

  19,655   16,617 

Lease obligations

  9,896   10,811 

Accrued retirement benefits

  7,138   7,608 

Deferred income taxes

  3,150   3,280 

Other long-term liabilities

  5,749   5,253 

Total liabilities

  137,806   143,664 
         

Twin Disc shareholders' equity:

        

Preferred shares authorized: 200,000; issued: none; no par value

  -   - 

Common shares authorized: 30,000,000; issued: 14,632,802; no par value

  39,439   42,855 

Retained earnings

  119,126   120,299 

Accumulated other comprehensive loss

  (8,621)  (5,570)
   149,944   157,584 

Less treasury stock, at cost (674,354 and 814,734 shares, respectively)

  10,343   12,491 
         

Total Twin Disc shareholders' equity

  139,601   145,093 
         

Noncontrolling interest

  574   424 

Total equity

  140,175   145,517 
         

Total liabilities and equity

 $277,981  $289,181 

 

The notes to condensed consolidated financial statements are an integral part of these statements.

 

2

  

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 
  

For the Quarter-Ended

 
      

As Adjusted

 
  September 29, 2023  September 30, 2022 
       

Net sales

 $63,554  $55,913 

Cost of goods sold

  43,818   42,616 

Cost of goods sold - Sale of boat management system product line and related inventory

  3,099   - 

Gross profit

  16,637   13,297 
         

Marketing, engineering and administrative expenses

  16,917   15,090 

Loss from operations

  (280)  (1,793)
         

Other Income (expense):

        

Interest expense

  (394)  (566)

Other income, net

  137   347 
   (257)  (219)

Loss before income taxes and noncontrolling interest

  (537)  (2,012)
         

Income tax expense

  546   (688)

Net loss

  (1,083)  (1,324)

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

  (90)  (98)

Net loss attributable to Twin Disc

 $(1,173) $(1,422)
         

Loss per share data:

        

Basic loss per share attributable to Twin Disc common shareholders

 $(0.09) $(0.11)

Diluted loss per share attributable to Twin Disc common shareholders

 $(0.09) $(0.11)
         

Weighted average shares outstanding data:

        

Basic shares outstanding

  13,527   13,407 

Diluted shares outstanding

  13,527   13,407 
         

Comprehensive income (loss)

        

Net loss

 $(1,083) $(1,324)

Benefit plan adjustments, net of income taxes of $5 and $9, respectively

  (171)  (89)

Foreign currency translation adjustment

  (3,036)  (6,290)

Unrealized loss on hedges, net of income taxes of $0 and 0, respectively

  216   793 

Comprehensive loss

  (4,074)  (6,910)

Less: Comprehensive income attributable to noncontrolling interest

  151   136 
       - 

Comprehensive loss attributable to Twin Disc

 $(4,225) $(7,046)

 

The notes to condensed consolidated financial statements are an integral part of these statements.

 

3

 

 

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

 
   

For the Quarters Ended

 
           

As Adjusted

 
    September 29, 2023     September 30, 2022  
                 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (1,083 )   $ (1,324 )

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

               

Depreciation and amortization

    2,488       2,140  

Gain on sale of assets

    (16 )     (42 )

Loss on sale of boat management product line and related inventory

    3,099       -  

Restructuring expenses

    (57 )     (68 )

Provision for deferred income taxes

    97       (1,623 )

Stock compensation expense and other non-cash changes, net

    1,140       864  

Net change in operating assets and liabilities

    4,134       (643 )
                 

Net cash provided (used) by operating activities

    9,802       (696 )
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Acquisition of property, plant, and equipment

    (3,690 )     (2,237 )

Proceeds from sale of fixed assets

    -       2  

Other, net

    45       534  
                 

Net cash used by investing activities

    (3,645 )     (1,701 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Borrowings under revolving loan arrangements

    27,184       20,221  

Repayments of revolving loan arrangements

    (23,423 )     (18,685 )

Repayments of other long-term debt

    (508 )     (519 )

Payments of finance lease obligations

    (847 )     (132 )

Payments of withholding taxes on stock compensation

    (1,763 )     (168 )
                 

Net cash provided by financing activities

    643       717  
                 

Effect of exchange rate changes on cash

    365       2,373  
                 

Net change in cash

    7,165       693  
                 

Cash:

               

Beginning of period

    13,263       12,521  
                 

End of period

  $ 20,428     $ 13,214  

 

The notes to condensed consolidated financial statements are an integral part of these statements.

 

4

 

TWIN DISC, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

A.

Basis of Presentation

 

The unaudited condensed consolidated financial statements have been prepared by Twin Disc, Incorporated (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include adjustments, consisting primarily of normal recurring items, necessary for a fair statement of results for each period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form 10-K for  June 30, 2023. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States.

 

The Company's reporting period ends on the last Friday of the quarterly calendar period.  The Company's fiscal year ends on  June 30, regardless of the day of the week on which  June 30 falls.

 

Change in Accounting Method

 

During the fourth quarter of fiscal year 2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for the Company’s pension and postretirement benefit plans (the “Accounting change”). Prior to the Accounting change, actuarial gains and losses were recognized as a component of Accumulated other comprehensive income (loss) upon annual remeasurement and were amortized into earnings in future periods when they exceeded the accounting corridor, a defined range within which amortization of net gains and losses is not required. Under the Accounting change, the accounting corridor of 10% of the greater of the projected benefit obligation and plan assets was modified to add full, immediate recognition above a second 20% threshold. Although the decision to make the Accounting change occurred in the fourth quarter of fiscal year 2023, the actual accounting method change was applied to all calculations for fiscal year end 2023, and retroactively applied to all other amounts presented in this Form 10-Q.

 

Under the new accounting method, actuarial gains and losses are recognized in net periodic benefit cost through a modified mark-to-market (expense) benefit upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. The method for recognizing prior service credits (charges) as a component of Accumulated other comprehensive income (loss) and amortized into earnings in future periods is not changing. With respect to the recognition of actuarial gains and losses, while the historical principle was acceptable, the Company believes the Accounting change is preferable as it better aligns with fair value principles by recognizing the effects of economic and interest rate changes in plan assets and liabilities in the year in which the gains and losses are incurred to the degree such accumulated gains and losses exceed the new 20% threshold in addition to amortizing the amounts between the 10% and 20% thresholds over time. The Accounting change has been applied retrospectively to prior years and amounts presented. As of July 1, 2022, the cumulative effect of the change resulted in $25.1 million decrease to retained earnings and a corresponding $25.1 million increase to Accumulated other comprehensive income (loss), both net of tax of $0 ($7.9 million in deferred tax asset offset by $7.9 million valuation allowance).

 

See Notes G, K, M and P for further information regarding the impact of the Accounting change on the Company’s current and prior consolidated financial statements.

 

Recently Adopted Accounting Standards

 

In March 2020 and January 2021, the FASB issued guidance (ASU 2020-04 and ASU 2021-01, respectively), intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments in this guidance are effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

5

 

In June 2016, the FASB issued updated guidance (ASU 2016-13) and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10 (collectively ASC 326). ASC 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The amendments in this guidance are effective for filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, and for smaller reporting companies for fiscal years beginning after December 15, 2022 (the Company’s fiscal 2024), with early adoption permitted for certain amendments. ASC 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

Special Note Regarding Smaller Reporting Company Status

 

Under SEC Release 33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company and accordingly, it has scaled some of its disclosures of financial and non-financial information in this quarterly report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.

 

 

B.

Inventories

 

The major classes of inventories were as follows:

 

   

September 29, 2023

   

June 30, 2023

 

Inventories:

               

Finished parts

  $ 63,087     $ 66,956  

Work in process

    22,008       23,374  

Raw materials

    41,141       41,600  
    $ 126,236     $ 131,930  

 

In the first quarter of fiscal year 2024, the Company entered into an agreement to sell most of its inventory for its boat management system product line located at one of its subsidiaries in Italy. The sale amount was below cost and resulted in the Company recognizing an inventory write-down of $2.1 million. The Company also evaluated its other boat management system inventory, not associated with the sale. This evaluation resulted in the Company recognizing an additional inventory write-down of $1.6 million for boat management system inventory located in the U.S.

 

 

C.

Warranty

 

The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers. However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends. While we believe the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires. The following is a listing of the activity in the warranty reserve for the quarters ended September 29, 2023 and September 30, 2022:

 

   

For the Quarter Ended

 
   

September 29, 2023

   

September 30, 2022

 

Reserve balance, beginning of period

  $ 3,476     $ 3,329  

Current period expense and adjustments

    1,516       908  

Payments or credits to customers

    (821 )     (366 )

Translation

    (11 )     (67 )

Reserve balance, end of period

  $ 4,160     $ 3,804  

 

6

 

The current portion of the warranty accrual ($3,409 and $3,331 as of September 29, 2023 and September 30, 2022, respectively) is reflected in accrued liabilities, while the long-term portion ($751 and $473 as of September 29, 2023 and September 30, 2022, respectively) is included in other long-term liabilities on the consolidated balance sheets.

 

 

D.

Contingencies

 

The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, is not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Company’s results of operations, financial position or cash flows.

 

 

E.

Business Segments

 

The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy-duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally 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.

 

The Company has two reportable segments: manufacturing and distribution.  These segment structures reflect the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices.  Management evaluates the performance of its segments based on net income.

 

Information about the Company’s segments is summarized as follows:

 

   

For the Quarter Ended

 
   

September 29, 2023

   

September 30, 2022

 

Net sales

               

Manufacturing segment sales

  $ 54,537     $ 48,997  

Distribution segment sales

    32,853       24,307  

Inter/Intra segment elimination – manufacturing

    (20,184 )     (13,643 )

Inter/Intra segment elimination – distribution

    (3,652 )     (3,748 )
    $ 63,554     $ 55,913  

Net (loss) income attributable to Twin Disc

               

Manufacturing segment net income

  $ 1,558     $ 2,402  

Distribution segment net income

    1,006       956  

Corporate and eliminations

    (3,737 )     (4,780 )
    $ (1,173 )   $ (1,422 )

 

 

 

September 29, 2023

   

June 30, 2023

 
Assets            

Manufacturing segment assets

  $ 374,546     $ 381,668  

Distribution segment assets

    64,812       69,213  

Corporate assets and elimination of intercompany assets

    (161,377 )     (161,700 )
    $ 277,981     $ 289,181  

 

Disaggregated revenue:

 

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended September 29, 2023 and September 30, 2022.

 

7

 

Net sales by product group for the quarter ended September 29, 2023 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 5,290     $ 1,028     $ (634 )   $ 5,684  

Land-based transmissions

    14,681       12,671       (8,774 )   $ 18,578  

Marine and propulsion systems

    34,566       16,320       (14,422 )   $ 36,464  

Other

    -       2,834       (6 )   $ 2,828  

Total

  $ 54,537     $ 32,853     $ (23,836 )   $ 63,554  

 

Net sales by product group for the quarter ended September 30, 2022 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 6,692     $ 1,048     $ (709 )   $ 7,031  

Land-based transmissions

    16,287       4,606       (4,956 )   $ 15,937  

Marine and propulsion systems

    25,816       14,544       (11,022 )   $ 29,338  

Other

    202       4,109       (704 )   $ 3,607  

Total

  $ 48,997     $ 24,307     $ (17,391 )   $ 55,913  

 

 

F.

Stock-Based Compensation

 

Performance Stock Awards (PSA)

 

During the first quarter of fiscal 2024 and 2023, the Company granted a target number of 119.3 and 112.4 PSAs, respectively, to various employees of the Company, including executive officers. The fiscal 2024 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 238.7.

 

The fiscal 2023 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2025. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 224.8.

 

There were 334.1 and 433.2 unvested PSAs outstanding at September 29, 2023 and September 30, 2022, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. Compensation expense of $53 and $230 was recognized for the quarters ended September 29, 2023 and September 30, 2022, respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at September 29, 2023 was $11.48. At September 29, 2023, the Company had $2,303 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2024 and 2023 awards. The total fair value of PSAs vested as of September 29, 2023 and September 30, 2022 was $0.

 

Performance Stock Unit Awards (PSUA)

 

The PSUAs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date. During the first quarter of fiscal 2024 and 2023, the Company granted a target number of 10.5 and 0 PSUAs, respectively, to various individuals in the Company. The fiscal 2024 PSUAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSUA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026. These PSUAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 20.9.

 

8

 

There were 10.5 and 0 unvested PSUAs outstanding at September 29, 2023 and September 30, 2022, respectively. The fair value of the PSUAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. Compensation expense of $7 and $0 was recognized for the quarters ended September 29, 2023 and September 30, 2022, respectively, related to PSUAs. The weighted average grant date fair value of the unvested awards at September 29, 2023 was $12.15. At September 29, 2023, the Company had $120 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2024 awards. The total fair value of PSUAs vested as of September 29, 2023 and September 30, 2022 was $0.

 

Restricted Stock Awards (RS)

 

The Company has unvested RS awards outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation expense over the vesting period, which is generally 1 to 3 years. During the first quarter of fiscal 2024 and 2023, the Company granted 81.5 and 129.4 service based restricted shares, respectively, to employees and non-employee directors. There were 260.2 and 356.3 unvested shares outstanding at September 29, 2023 and September 30, 2022, respectively. A total of 2.4 and 0 shares of restricted stock were forfeited during the three quarters ended September 29, 2023 and September 30, 2022, respectively. Compensation expense of $313 and $360 was recognized for the quarters ended September 29, 2023 and September 30, 2022, respectively. The total fair value of restricted stock grants vested as of September 29, 2023 and September 30, 2022 was $1,623 and $417, respectively. As of September 29, 2023, the Company had $1,727 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

 

Restricted Stock Unit Awards (RSU)

 

The RSUs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally three years from the date of grant or when performance conditions have been met. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. During the first quarter of fiscal 2024 and 2023, the Company granted 7.1 and 72.4 of employment based RSUs, respectively. There were 136.8 and 130.9 unvested RSUs outstanding at September 29, 2023 and September 30, 2022, respectively. Compensation expense of $121 and $69 was recognized for the quarters ended September 29, 2023 and September 30, 2022, respectively. The total fair value of restricted stock units vested as of September 29, 2023 and September 30, 2022 was $0 and $40, respectively. The weighted average grant date fair value of the unvested awards at September 29, 2023 was $10.97. As of September 29, 2023, the Company had $663 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

 

 

G.

Pension and Other Postretirement Benefit Plans

 

The Company has non-contributory, qualified defined benefit plans covering substantially all domestic employees hired prior to October 1, 2003 and certain foreign employees. Additionally, the Company provides healthcare and life insurance benefits for certain domestic retirees.

 

As discussed in Note A, during the fourth quarter of fiscal year 2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for its pension and postretirement benefit plans. Under the new method, actuarial gains and losses are recognized in net periodic benefit costs upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. These changes have been applied retrospectively to prior years presented below. See Notes A, K, M, and P for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements.

 

9

 

The components of the net periodic benefit cost for the defined benefit pension plans and the other postretirement benefit plan are as follows:

 

   

For the Quarter Ended

 
   

September 29, 2023

   

September 30, 2022

 

Pension Benefits:

               

Service cost

  $ 94     $ 101  

Prior service cost

    -       8  

Interest cost

    896       868  

Expected return on plan assets

    (1,048 )     (1,060 )

Amortization of transition obligation

    10       9  

Amortization of prior service cost

    9       9  

Amortization of actuarial net loss

    16       10  

Net periodic benefit cost

  $ (24 )   $ (55 )
                 

Postretirement Benefits:

               

Service cost

  $ 2     $ 2  

Interest cost

    48       53  

Amortization of prior service cost

    (22 )     (69 )

Amortization of actuarial net loss

    (155 )     (10 )

Net periodic benefit gain

  $ (127 )   $ (24 )

 

The service cost component is included in cost of goods sold and marketing, engineering and administrative expenses. All other components of net periodic benefit cost are included in other expense (income), net.

 

The Company expects to contribute approximately $645 to its pension plans in fiscal 2024. As of September 29 2023, $182 in contributions to the pension plans have been made.

 

The Company has reclassified ($171) (net of $5 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended September 29, 2023, and ($89) (net of $9 in taxes) during the quarter ended September 30, 2022. These reclassifications are included in the computation of net periodic benefit cost.

 

 

H.

Income Taxes

 

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated Annual Effective Tax Rate (AETR). Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. To calculate its AETR, an entity must estimate its ordinary income or loss and the related tax expense or benefit for its full fiscal year. In situations in which an entity is in a loss position and recognizes a full valuation allowance, the guidance in ASC 740-270-25-9 applies. Due to continued historical domestic losses and uncertain future domestic earnings, the Company continues to recognize a full domestic valuation allowance. Permanent differences continue to fluctuate and are significant compared to projected ordinary income. Therefore, per ASC guidance, the fully valued domestic entity was removed from the annualized effective rate calculation. Because of the full US valuation allowance, the US entity may only recognize tax expense / benefit recorded for ASC 740-10 adjustments.

 

For the three months ended September 29, 2023 and September 30, 2022 the Company’s effective income tax rate was (101.7)% and 26.3% respectively. Foreign earnings were $3,200 and ($2,080), respectively, with a related tax expense of $516 and ($702), respectively. Domestic losses were ($3,700) and ($542), respectively, with a related tax expense of $30 and $14, respectively. Due to the full US valuation allowance currently in place, no tax benefit can be recognized on the domestic losses. This inability to recognize a tax benefit for domestic purposes resulted in a consolidated tax expense of $546 and ($688) respectively, on a year-to-date loss of ($537) and ($2,012), respectively.

 

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. In addition, all other available positive and negative evidence is taken into consideration, including all new impacts of tax reform. The Company has evaluated the realizability of the net deferred tax assets related to its foreign operations and based on this evaluation management has concluded that no valuation allowances are required.

 

10

 

The Company has approximately $867 of unrecognized tax benefits, including interest and penalties, as of September 29, 2023, which, if recognized, would favorably impact the effective tax rate. There were no significant changes in the total unrecognized tax benefits due to the settlement of audits, the expiration of statutes of limitations or for other items during the quarter ended September 29, 2023. It appears possible that the amount of unrecognized tax benefits could change in the next twelve months due to on-going activity.

 

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination in foreign jurisdictions are 2018 through 2023. The tax year open to exam in the Netherlands is 2019. The tax years open to examination in the U.S. are for years subsequent to fiscal 2018. It is reasonably possible that other audit cycles will be completed during fiscal 2024.

 

 

I.

Intangible Assets

 

As of September 29, 2023, the following acquired intangible assets have definite useful lives and are subject to amortization:

 

   

Net Book Value Rollforward

   

Net Book Value By Asset Type

 
   

Gross Carrying

Amount

   

Accumulated

Amortization /

Impairment

   

Net Book

Value

   

Customer

Relationships

   

Technology

Know-how

   

Trade Name

   

Other

 

Balance at June 30, 2023

  $ 31,925     $ (19,288 )   $ 12,637     $ 6,553     $ 2,422     $ 668     $ 2,994  

Addition

    -       -       -       -       -       -       -  

Reduction

    (89 )     -       (89 )     -       -       -       (89 )

Amortization

    -       (819 )     (819 )     (312 )     (282 )     (39 )     (186 )

Translation adjustment

    (211 )     -       (212 )     (197 )     (110 )     22       73  

Balance at September 29, 2023

  $ 31,625     $ (20,107 )   $ 11,517     $ 6,044     $ 2,030     $ 651     $ 2,792  

 

Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accelerated, as appropriate, over the estimated useful lives of the assets.

 

The weighted average remaining useful life of the intangible assets included in the table above is approximately 5 years.

 

Intangible amortization expense was $819 and $698 for the quarters ended September 29, 2023, and September 30, 2022, respectively. Estimated intangible amortization expense for the remainder of fiscal 2024 and each of the next five fiscal years is as follows:

 

Fiscal Year

       

2024

  $ 2,517  

2025

    3,191  

2026

    2,247  

2027

    1,495  

2028

    1,346  

2029

    721  

Thereafter

    0  

 

11

  
 

J.

Long-term Debt

 

Long-term debt at September 29, 2023 and June 30, 2023 consisted of the following:

 

   

September 29, 2023

   

June 30, 2023

 

Credit Agreement Debt

               

Revolving loans (expire June 2025)

  $ 10,633     $ 7,094  

Term loan (due March 2026)

    11,000       11,500  

Other

    24       33  

Subtotal

    21,657       18,627  

Less: current maturities

    (2,002 )     (2,010 )

Total long-term debt

  $ 19,655     $ 16,617  

 

Credit Agreement Debt: On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $50.0 million (the “Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended the maturity date of the Term Loan to March 4, 2026, and require the Company to make principal installment payments on the Term Loan of $0.5 million per quarter. In addition, under subsequent amendments to the Credit Agreement, BMO’s Revolving Credit Commitment is currently $40.0 million. The Credit Agreement also allows the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $3.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement currently runs through June 30, 2025.

 

Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate (“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that are not timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Currently, the Applicable Margins are between 1.25% and 2.75% for Revolving Loans and Letters of Credit; 1.375% and 2.875% for Term Loans; and 0.10% and 0.15% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

 

The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. The Company’s Tangible Net Worth may not be less than $100 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

 

Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement.

 

The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. The Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.

         

12

 

Upon the occurrence of an Event of Default, BMO may take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company.

 

The Company remains in compliance with its liquidity and other covenants.

 

As of September 29, 2023, current maturities include $2,000 of term loan payments due within the coming year.

 

Other: Other long-term debt pertains mainly to a financing arrangement in Europe. These liabilities carry terms of three to five years and implied interest rates ranging from 7% to 25%. A total amount of $7 in principal was paid on these liabilities during the current fiscal year.

 

During the quarter ended September 29, 2023, the average interest rate was 6.73% on the Term Loan, and 5.47% on the Revolving Loans.

 

As of September 29, 2023, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $37,665, and the Company had approximately $27,032 of available borrowings. In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

 

The Company’s borrowings described above approximate fair value at September 29, 2023 and June 30, 2023. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.

 

The Company is party to an interest rate swap arrangement with Bank of Montreal, with an initial notional amount of $20,000 and a maturity date of March 4, 2026 to hedge the Term Loan. As of September 29, 2023, the notional amount was $11,000. This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging. This swap is included in the disclosures in Note O, Derivative Financial Instruments.

 

During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies. Effective upon the designation, all changes in the fair value of the euro revolver are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note O, Derivative Financial Instruments.

 

 

K.

Shareholders Equity

 

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of September 29, 2023 remain authorized for purchase.  The Company did not make any open market purchases of its shares during the quarters ended September 29, 2023 and September 30, 2022.

 

As of July 1, 2022, the cumulative effect of the Accounting change resulted in $25.1 million decrease to retained earnings and a corresponding $25.1 million increase to Accumulated other comprehensive income (loss), both net of tax of $0 ($7.9 million in deferred tax asset offset by $7.9 million valuation allowance).

 

See Notes A, G, M, and P for further information regarding the impact of the Accounting change on the Company’s prior year consolidated financial statements.

 

13

 

The following is a reconciliation of the Company’s equity balances for the first fiscal quarter of 2023 and 2022:

 

  

Twin Disc, Inc. Shareholders’ Equity

 
          

Accumulated

             
          

Other

      

Non-

     
  

Common

  

Retained

  

Comprehensive

  

Treasury

  

Controlling

  

Total

 
  

Stock

  

Earnings

  

Income (Loss)

  

Stock

  

Interest

  

Equity

 

Balance, June 30, 2023

 $42,855  $120,299  $(5,570) $(12,491) $424  $145,517 

Net (loss) income

      (1,173)          90   (1,083)

Translation adjustments

          (3,096)      60   (3,036)

Benefit plan adjustments, net of tax

          (171)          (171)

Unrealized loss on cash flow hedge, net of tax

          216           216 

Compensation expense

  494                   494 

Stock awards, net of tax

  (3,911)          2,148       (1,995)

Balance, September 29, 2023

 $39,439  $119,126  $(8,621) $(10,343) $574  $140,175 

 

  

Twin Disc, Inc. Shareholders’ Equity

 
          

Accumulated

             
          

Other

      

Non-

     
  

Common

  

Retained

  

Comprehensive

  

Treasury

  

Controlling

  

Total

 
  

Stock

  

Earnings

  

Income (Loss)

  

Stock

  

Interest

  

Equity

 

Balance, June 30, 2022

 $42,551  $109,919  $(6,974) $(14,720) $412  $131,188 

Net income

      (1,422)          98   (1,324)

Translation adjustments

          (6,328)      38   (6,290)

Benefit plan adjustments, net of tax

          (89)          (89)

Unrealized loss on cash flow hedge, net of tax

          793           793 

Compensation expense

  658                   658 

Stock awards, net of tax

  (1,924)          1,756       (168)

Balance, September 30, 2022

 $41,285  $108,497  $(12,598) $(12,964) $548  $124,768 

 

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended September 29, 2023 and September 30, 2022 are as follows:

 

  

Translation

  

Benefit Plan

  

Cash Flow

  

Net Investment

 
  

Adjustment

  

Adjustment

  

Hedges

  

Hedges

 

Balance, June 30, 2023

 $(1,582) $(5,948) $688  $1,272 

Translation adjustment during the quarter

  (3,096)  -   -   - 

Amounts reclassified from accumulated other comprehensive income

  -   (171)  (6)  222 

Net current period other comprehensive (loss) income

  (3,096)  (171)  (6)  222 

Balance, September 29, 2023

 $(4,678) $(6,119) $682  $1,494 

 

  

Translation

  

Benefit Plan

  

Cash Flow

  

Net Investment

 
  

Adjustment

  

Adjustment

  

Hedges

  

Hedges

 

Balance, June 30, 2022

 $(2,266) $(6,614) $356  $1,550 

Translation adjustment during the quarter

  (6,328)  -   -   - 

Amounts reclassified from accumulated other comprehensive income

  -   (89)  657   136 

Net current period other comprehensive (loss) income

  (6,328)  (89)  657   136 

Balance, September 30, 2022

 $(8,594) $(6,703) $1,013  $1,686 

 

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 29, 2023 are as follows:

 

  

Amount Reclassified

 
  

Quarter Ended

 
  

September 29, 2023

 

Changes in benefit plan items

    

Actuarial losses

 $(172)(a)

Transition asset and prior service benefit

  (4)(a)

Total amortization

  (176)

Income tax expense

  5 

Total reclassification net of tax

 $(171)

 

14

 

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 30, 2022 is as follows:

 

  

Amount Reclassified

 
  

Quarter Ended

 
  

September 30, 2022

 

Changes in benefit plan items

    

Actuarial losses

 $560(a)

Transition asset and prior service benefit

  (51)(a)

Mark-to-market adjustment

  (607)

Total amortization

  (98)

Income tax expense

  9 
Total reclassification net of tax $(89)

 

 

(a)

These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note G, "Pension and Other Postretirement Benefit Plans" for further details).

 

 

L.

Assets Held for Sale

 

To improve its fixed cost structure and monetize some of its under-utilized assets, the Company commenced the active marketing of several of its real estate properties. Such actions required the Company to reclassify these assets from Property, Plant and Equipment to Assets Held for Sale, at fair value less costs to sell, or net book value, whichever is lower. Fair value was determined using real estate broker estimates and would be classified as Level 3 in the fair value hierarchy. This assessment of fair value resulted in the Company recognizing a write-down of the carrying value of its former corporate headquarters by $4,267 in the fourth quarter of fiscal 2021.  The Company expects to complete the sale of its former corporate headquarters before the end of fiscal year 2024. 

 

In the first quarter of fiscal 2023, the Company commenced the active marketing of an additional real estate property located in Nivelles, Belgium.  This action required the Company to reclassify these assets from Property, Plant, and Equipment to Assets Held for Sale, at fair value less costs to sell or net book value, whichever is lower.  Fair value was determined using real estate broker estimates and would be classified as Level 3 in the fair value hierarchy.  The real estate property's fair value less costs to sell exceeded its net book value.  The Company reclassified the property's net book value of $2,801 from Property, Plant, and Equipment to Assets Held for Sale.

 

In the second quarter of fiscal 2023, the Company completed the sale of the real estate property located in Belgium and received $7,150 in proceeds, net of fees and recorded a gain of $4,161 in other operating income.

 

In the first quarter of fiscal 2024, the Company entered into an agreement to sell certain machinery assets, inventory, and legal relationships of its boat management systems product line. This action required the Company to reclassify these assets from Property, Plant and Equipment and Inventory to Assets Held for Sale, at fair value less costs to sell, or net book value, whichever is lower. The fair value of the machinery assets was determined using local internal specialists. The machinery assets’ fair value less costs to sell exceeded its net book value. The boat management systems inventory was valued at the lower of cost or net realizable value. Net realizable value was determined using the offer amount from the buyer less costs to sell. This assessment resulted in the Company recognizing a write-down of the carrying value of its boat management systems inventory of $2.1 million. The write-down was classified in the Condensed Consolidated Statement of Operations and Comprehensive loss as a component of cost of goods sold. The agreement closed October 30, 2023.

 

 

M.

Earnings Per Share

 

The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect.  Certain restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company and are therefore included in computing earnings per share pursuant to the two-class method. 

 

15

 

As discussed in Note A, during the fourth quarter of 2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for its pension plans. Under the new method, actuarial gains and losses are recognized in net periodic benefit costs upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. These changes have been applied retrospectively to prior years. See Notes A, G, K, and P for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements.

 

The components of basic and diluted earnings per share were as follows:

 

           

As Adjusted

 
    September 29, 2023    

September 30, 2022

 

Basic:

               

Net loss

  $ (1,083 )   $ (1,324 )

Less: Net earnings attributable to noncontrolling interest

    (90 )     (98 )

Less: Undistributed earnings attributable to unvested shares

    -       -  

Net loss attributable to Twin Disc

    (1,173 )     (1,422 )
                 

Weighted average shares outstanding - basic

    13,527       13,407  
                 

Basic Loss Per Share:

               

Net loss per share - basic

  $ (0.09 )   $ (0.11 )
                 

Diluted:

               

Net loss

  $ (1,083 )   $ (1,324 )

Less: Net earnings attributable to noncontrolling interest

    (90 )     (98 )

Less: Undistributed earnings attributable to unvested shares

    -       -  

Net loss attributable to Twin Disc

    (1,173 )     (1,422 )
                 

Weighted average shares outstanding - basic

    13,527       13,407  

Effect of dilutive stock awards

    -       -  

Weighted average shares outstanding - diluted

    13,527       13,407  
                 

Diluted Loss Per Share:

               

Net loss per share - diluted

  $ (0.09 )   $ (0.11 )

 

The following potential common shares were excluded from diluted EPS for the quarter ended September 29, 2023 because they were anti-dilutive: 265.0 related to the Company’s unvested PSAs, 5.2 related to the Company’s unvested PSUA awards, 108.5 related to the Company’s unvested RS awards, and 72.6 related to the Company’s unvested RSUs.

 

The following potential common shares were excluded from diluted EPS for the quarter ended September 30, 2022 because they were anti-dilutive: 320.8 related to the Company’s unvested PSAs, 181.2 related to the Company’s unvested RS awards, and 51.2 related to the Company’s unvested RSUs.

 

 

N.

Lease Liabilities

 

The Company leases certain office and warehouse space, as well as production and office equipment.

 

The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically do not provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current borrowing rate, the term of the lease, and the economic environments where the lease activity is concentrated. Some of the Company’s leases contain non-lease components (e.g., common area, other maintenance costs, etc.) that relate to the lease components of the agreement. Non-lease components and the lease components to which they relate are accounted for as a single lease component.

 

16

 

The following table provides a summary of leases recorded on the condensed consolidated balance sheet.

 

 

Balance Sheet Location

 

September 29, 2023

   

June 30, 2023

 

Lease Assets

                 

Operating lease right-of-use assets

Right-of-use assets operating leases

  $ 12,093     $ 13,133  

Finance lease right-of-use assets

Property, plant and equipment, net

    4,952     $ 4,427  
                   

Lease Liabilities

                 

Operating lease liabilities

Accrued liabilities

  $ 2,218     $ 2,343  

Operating lease liabilities

Lease obligations

    9,896     $ 10,811  

Finance lease liabilities

Accrued liabilities

    670     $ 643  

Finance lease liabilities

Other long-term liabilities

    4,556     $ 4,314  

 

The components of lease expense were as follows:

 

   

For the Quarter Ended

 
   

September 29, 2023

   

September 30, 2022

 

Finance lease cost:

               

Amortization of right-of-use assets

  $ 222     $ 155  

Interest on lease liabilities

    73       64  

Operating lease cost

    893       711  

Short-term lease cost

    3       13  

Variable lease cost

    100       40  

Total lease cost

    1,291       983  

Less: Sublease income

    (20 )     (17 )

Net lease cost

  $ 1,271     $ 966  

 

17

 

Other information related to leases was as follows:

 

   

For the Quarter Ended

 
   

September 29, 2023

   

September 30, 2022

 

Cash paid for amounts included in the measurement of lease liabilities:

               

Operating cash flows from operating leases

  $ 924     $ 748  

Operating cash flows from finance leases

    73       201  

Financing cash flows from finance leases

    847       132  

Right-of-use-assets obtained in exchange for lease obligations:

               

Operating leases

    15       528  

Finance leases

    484       51  

Weighted average remaining lease term (years):

         

Operating leases

    8.2       8.8  

Finance lease

    9.7       11.4  

Weighted average discount rate:

               

Operating leases

    7.6 %     7.2 %

Finance leases

    5.7 %     5.2 %

 

Approximate future minimum rental commitments under non-cancellable leases as of September 29, 2023 were as follows:         

 

   

Operating Leases

   

Finance Leases

 

2024

  $ 2,396     $ 740  

2025

    2,143       806  

2026

    1,672       744  

2027

    1,608       679  

2028

    1,587       619  

2029

    1,572       476  

Thereafter

    5,602       2,655  

Total future lease payments

    16,580       6,719  

Less: Amount representing interest

    (4,466 )     (1,493 )

Present value of future payments

  $ 12,114     $ 5,226  

 

 

O.

Derivative Financial Instruments

 

From time to time, the Company enters into derivative instruments to manage volatility arising from risks relating to interest rates and foreign currency exchange rates. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. The Company’s practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if it determines the underlying forecasted transaction is no longer probable of occurring.

 

The Company reports all derivative instruments on its condensed consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes.

 

Interest Rate Swap Contracts

 

The Company has one outstanding interest rate swap contract as of September 29, 2023, with a notional amount of $11,000. It has been designated as a cash flow hedge in accordance with ASC 815, Derivatives and Hedging.

 

18

 

The primary purpose of the Company’s cash flow hedging activities is to manage the potential changes in value associated with interest payments on the Company’s SOFR-based indebtedness. The Company records gains and losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive loss to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net earnings, at which time these gains and losses are recognized in interest expense on its condensed consolidated statements of operations and comprehensive (loss) income. Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows. These contracts generally have original maturities of greater than twelve months.

 

Net unrealized after-tax gains related to cash flow hedging activities that were included in accumulated other comprehensive loss were ($682) and ($688) as of September 29, 2023, and June 30, 2023, respectively. The unrealized amounts in accumulated other comprehensive loss will fluctuate based on changes in the fair value of open contracts during each reporting period.

 

The Company estimates that $284 of net unrealized losses related to cash flow hedging activities included in accumulated other comprehensive loss as of September 29, 2023 will be reclassified into earnings within the next twelve months.

 

Derivatives Designated as Net Investment Hedges

 

The Company is exposed to foreign currency exchange rate risk related to its investment in net assets in foreign countries. During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan, with a notional amount of €13,000, as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign subsidiaries. All changes in the fair value of the euro revolver were then recorded in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. Net unrealized after-tax income (loss) related to net investment hedging activities that were included in accumulated other comprehensive loss were ($1,494) and ($1,272) as of September 29, 2023 and June 30, 2023, respectively.

 

Fair Value of Derivative Instruments

 

The fair value of derivative instruments included in the condensed consolidated balance sheets were as follows:

 

 

Balance Sheet Location

 

September 29, 2023

   

June 30, 2023

 

Derivative designated as hedge:

                 

Interest rate swap

Other current assets

  $ 268     $ 292  

Interest rate swap

Other noncurrent assets

    205       187  

 

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive (loss) income for the quarters ended September 29, 2023 and September 30, 2022, respectively, was as follows:

 

 

Statement of Operations and Comprehensive

 

For the Quarter Ended

 
 

(Loss) Income Location

 

September 29, 2023

   

September 30, 2022

 

Derivative designated as hedge:

                 

Interest rate swap

Interest expense

  $ 71     $ 84  

Interest rate swap

Unrealized loss on hedges

    (6 )     349  

Net investment hedge

Unrealized loss on hedges

    222       444  

 

19

  
 

P.

IMPACT OF ACCOUNTING METHOD CHANGE

 

The following tables summarize the effects of the Accounting change described in Note A on the Company’s condensed consolidated statement of operations and comprehensive loss, statement of cash flows and statement of changes in equity for the quarter ended September 30, 2022 and condensed consolidated balance sheet as of September 30, 2022.  Certain prior year amounts pertaining to finance lease obligations have been reclassified for consistency with current year presentation.

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATION AND COMPREHENSIVE LOSS

 

   

September 30, 2022

 
   

As Computed

Under Previous

Method

   

Effect of

Accounting

Change

   

As Reported

Under New

Method

 
                         

Net sales

  $ 55,913     $ -     $ 55,913  

Cost of goods sold

    42,616       -       42,616  

Gross profit

    13,297       -       13,297  
                         

Marketing, engineering and administrative expenses

    15,090       -       15,090  

Loss from operations

    (1,793 )     -       (1,793 )
                         

Other Income (expense):

                       

Interest expense

    (566 )     -       (566 )

Other income, net

    (260 )     607       347  
      (826 )     607       (219 )

Income before income taxes and noncontrolling interest

    (2,619 )     607       (2,012 )
                         

Income tax expense

    (688 )     -       (688 )

Net loss

    (1,931 )     607       (1,324 )

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

    (98 )     -       (98 )

Net loss attributable to Twin Disc

  $ (2,029 )   $ 607     $ (1,422 )
                         

Loss per share data:

                       

Basic loss per share attributable to Twin Disc common shareholders

  $ (0.15 )   $ 0.04     $ (0.11 )

Diluted loss per share attributable to Twin Disc common shareholders

  $ (0.15 )   $ 0.04     $ (0.11 )
                         

Weighted average shares outstanding data:

                       

Basic shares outstanding

    13,407       -       13,407  

Diluted shares outstanding

    13,407       -       13,407  
                         

Comprehensive income (loss)

                       

Net loss

  $ (1,931 )   $ 607     $ (1,324 )

Benefit plan adjustments, net of income taxes of $9

    518       (607 )     (89 )

Foreign currency translation adjustment

    (6,290 )     -       (6,290 )

Unrealized loss on hedges, net of income taxes of $0, respectively

    793       -       793  

Comprehensive loss

    (6,910 )     -       (6,910 )

Less: Comprehensive income attributable to noncontrolling interest

    136       -       136  
                         

Comprehensive loss attributable to Twin Disc

  $ (7,046 )   $ -     $ (7,046 )

 

20

 

CONDENSED ONSOLIDATED CONDENSED BALANCE SHEET

 

   

September 30, 2022

 
   

As Computed

Under Previous

Method

   

Effect of

Accounting

Change

   

As Reported

Under New

Method

 

ASSETS

                       

Current assets:

                       

Cash

  $ 13,214     $ -     $ 13,214  

Trade accounts receivable, net

    40,007       -       40,007  

Inventories

    128,100       -       128,100  

Assets held for sale

    5,769       -       5,769  

Prepaid expenses

    8,207       -       8,207  

Other

    6,521       -       6,521  

Total current assets

    201,818       -       201,818  
                         

Property, plant and equipment, net

    38,989       -       38,989  

Right-of-use assets operating leases

    11,492       -       11,492  

Intangible assets, net

    11,560       -