2 0 2 1 A N N U A L R E P O R T
F I N A N C I A L H I G H L I G H T S
DRIVEN BY
FOCUS
Twin Disc puts horsepower to work with our innovative products, controls and
systems. We are driven to transform the global off-highway and marine markets with
our sustainable hybrid and electric powertrains. Throughout fiscal 2021, we focused
on investing in our operations, supporting new product development, modernizing our
business, and realigning our cost structure—positioning Twin Disc to grow profitably
and increase share as the markets recover.
2
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
Diluted (Loss) Income Per ShareNet Cash Provided (Used) by Operating Activities (in thousands)-6,000-4,000-2,00002,0004,0006,00010,0008,00020216,528 20186,511 2019(5,461)20209,118 0.83 (3.03)0.82 -3.5-2.0-2.5-3.0-1.5-1.0-0.500.51.020202018(2.24)20212019Capital Expenditures (in thousands)02,0004,0006,0008,00010,00012,0002018201920214,464 20206,328 10,699 11,979 Financial Highlights (in thousands)202120202019Net Sales$ 218,581 $ 246,838 $ 302,663 Net Income (Loss)(29,719)(39,817)10,673 Basic Income (Loss) Per Share (2.24)(3.03)0.84 Diluted Income (Loss) Per Share (2.24)(3.03)0.83 Dividends Per Share–––Average Basic Shares Outstanding13,246,501 13,153,330 12,571,013 Average Diluted Shares Outstanding13,246,501 13,153,330 12,681,574 Operating Results by Quarter1st Qtr2nd Qtr3rd Qtr4th QtrYear2021Net Sales $ 46,179 $ 48,557 $ 57,640 $ 66,205 $ 218,581 Gross Profit 9,703 8,877 13,962 18,315 50,857 Net (Loss) Income (3,979) (4,313) 94 (21,521) (29,719)Basic (Loss) Income Per Share (0.30) (0.33) 0.01 (1.62) (2.24)Diluted (Loss) Income Per Share (0.30) (0.33) 0.01 (1.62) (2.24)Dividends Per Share–––––Stock Price Range (High-Low)7.76 - 4.667.97 - 4.8710.35 - 7.3515.02 - 8.7915.02 - 4.662020Net Sales $ 59,290 $ 59,536 $ 68,636 $ 59,376 $ 246,838 Gross Profit 9,636 15,711 16,549 13,812 55,708 Net Loss (6,311) (6,516) (25,230) (1,760) (39,817)Basic Loss Per Share (0.48) (0.49) (1.92) (0.13) (3.03)Diluted Loss Per Share (0.48) (0.49) (1.92) (0.13) (3.03)Dividends Per Share–––––Stock Price Range (High-Low)15.18 - 9.6012.59 - 9.5011.61 - 6.068.35 - 4.8415.18 - 4.84 C E O L E T T E R
TO OUR
SHAREHOLDERS
The steps Twin Disc has taken in recent years to prepare for and, where possible, to
smooth the ups and downs of market cycles served us well in fiscal 2021. The year
started with almost zero visibility into our markets and only one clear goal: survival—for
our employees, our customers, our suppliers and our business. The summer of 2020 was
unchartered territory. Our team made the difficult decisions while working hard to keep
our employees and their families safe, to keep our facilities running, and to keep product
moving to our customers. By year-end, we saw improving markets and the opportunity
to shift our focus from surviving to thriving.
Solid fourth quarter sales growth and improving gross profit reflect our significant actions
to strengthen our balance sheet. Sales for the fiscal 2021 fourth quarter were $66.2 million,
compared to $59.4 million for the same period last year, and $57.6 million for the third
quarter. The 11.5% year-over-year increase in fourth quarter sales was primarily due to
improving demand in global oil and gas, industrial and marine markets.
“By year-end, we saw
“By year-end, we saw
improving markets and the
improving markets and the
opportunity to shift our focus
opportunity to shift our focus
from surviving to thriving.”
from surviving to thriving.”
John Batten Chief Executive Officer
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
3
C E O L E T T E R
For the fiscal 2021 full year, sales were $218.6 million, compared
to $246.8 million for fiscal 2020. The year-over-year decline was
primarily driven by the global economic impact of the COVID-19
pandemic—following on the heels of the U.S - China trade war and
the Russia—OPEC oil war. Still, our total six-month backlog is up 11%,
and Veth Propulsion has a strong backlog driven by robust orders
from North American and European marine customers.
and early December, creating a new home for make-to-order
assembly of our industrial/land-based products. Our confidence
is paying off: orders started strong and are now improving quarter
over quarter. This facility connects Twin Disc with global customers,
capable workers and clear opportunity. We have the acreage to triple
our footprint as volume grows and are staffing for the future, adding
sourcing and planning, engineering and sales capabilities.
We also saw the lowest net debt level in three years, resulting from
the forgiveness of our PPP loan, strong operating cash flow, and
our balance sheet focus. When the pandemic hit, we were already
working to reduce our costs and to restructure, so we could react
quickly. We also had to decide which strategies were too important
not to pursue.
Bringing Lufkin online. Despite market uncertainties, we brought our
55,000 square-foot facility in Lufkin, Texas, online in late November
Improving operations planning. Our sales and inventory operations
planning (SIOP) initiative is picking up steam. SIOP gathers inputs
from across Twin Disc to drive more efficient production and inventory
planning, improving working capital, margin and on-time delivery
performance. We used SIOP principles to organize our Lufkin facility
and to achieve inventory reductions elsewhere. We believe we are well-
positioned to further reduce inventories as fiscal 2022 progresses.
SIOP remains a top priority, strengthening our resilience for future
market cycles.
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T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
C E O L E T T E R
Reshaping our footprint. During the last 12 months, we’ve looked at
how we do business and what makes sense for the future. Modernizing
our 21st Street plant in Racine has created opportunities to streamline
our footprint, including selling our current corporate headquarters
facility. We’ve also announced re-structuring at our Belgium operations.
Total restructuring efforts are projected to save $2 million every year.
Leading in hybrid and electrification. This year we continued our
focus to lead hybridization and electrification in our global off-
highway markets. Suppliers and operators want better ways to
meet emissions standards, reduce noise, save fuel and increase
efficiency—and we want to be the best provider and most reliable
partner possible. Veth Propulsion gives us an edge in electrification,
with industry-leading technology known for innovation and reliability.
And Twin Disc’s expertise in drive train technology gives us an edge
in hybridization. The paradigm shift is real, and the opportunities
are exciting. We have completed projects like the Maid of the Mist
(see page 6) and many others underway in North America, Europe,
Asia and Australia, with more on the horizon.
Twin Disc is driven by our vision. We’re determined to strengthen
performance at both the top and the bottom of any market cycle, to
stay ahead of technology change, and to support our customers in
their success. Thank you for your continuing support, and for joining
Twin Disc in transforming the global off-highway and marine markets.
John H. Batten
Chief Executive Officer
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
5
DRIVEN BY
INNOVATION
“Veth was super helpful as we were going through the U.S. Coast Guard approval process for the electrical
package. They didn’t just say, ‘Here’s what we have. Good luck.’ They were very interested in making this work.”
Christopher M. Glynn President, Maid of the Mist Corp.
The ferries that carry tourists around Niagara Falls have integrated
Twin Disc technology to be-come the first zero-emission, all-electric
passenger vessels in North America.
view-obstructing exhaust stacks, or any noise to compete with the
falls. “And everyone has been impressed by the lack of vibration—
even the Coast Guard,” Glynn says.
Two Maid of the Mist catamarans each feature two VL-200 L-Drives
from Veth Propulsion by Twin Disc. These high-efficiency thrusters
are powered by hydroelectric energy stored in lithium-ion batteries
and sourced from Niagara Falls itself.
“It’s a great sustainability statement,” says Christopher M. Glynn,
president, Maid of the Mist Corp.
When the company decided to replace its two aging diesel vessels
with electric boats, Glynn says it was natural to include Twin Disc
components. “We had a longtime relationship, using Twin Disc parts
in our diesel engines,” he says.
The electric boats launched in October 2020, following a lengthy
safety review by the U.S. Coast Guard. The Veth L-Drives enable
the ferries to move upriver at a good pace without diesel fumes,
Maneuverability is outstanding, using the L-Drives’ 360-degree thrust
to give tourists panoramic views. “We can turn in our own length,
which is very helpful coming out of Horseshoe Falls,” Glynn says. He
adds that crew can “walk” the vessels laterally into the dock. “It’s more
delicate than with a traditional mono-hull—and it saves the paint!”
The vessels take about seven minutes to charge between trips. Each
Maid of the Mist ferry is rated for 600 passengers, and together the
two boats carry about 1.6 million people a year.
Glynn says Twin Disc’s responsiveness was important in taking the Maid
of the Mist into a new era. “The technology has been around for a period
of time, but not bundled together like we’re doing,” he said. “You want to
do your research up front and use good, established companies.”
6
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
DRIVEN BY
OUR CUSTOMERS
“We have a great team of people who act as if Veth Propulsion is their
own company—who want to work together for the customer.”
Marco Huisman Technical Director, Veth Propulsion
VL-700i-CR
Veth Propulsion by Twin Disc gives us an edge in electrification, with
industry-leading technology known for innovation and reliability.
And passion for working directly with the customer gives Veth
Propulsion an edge in the marketplace.
“We sit at the table with the boat builders and end customer and get
feedback and ideas,” says Technical Director Marco Huisman.
For example, when designers of superyachts sought very compact
propulsion with less noise and vibration, Veth worked with shipbuilding
researchers to change its thrusters accordingly. “That change
convinced major yacht builders to use the Integrated L-Drive, which
gives them new opportunities,” Huisman says.
Customer relationships were also a top priority as Veth Propulsion
joined Twin Disc. “We worked to show the owners and decision-
makers that we can maintain the service and pricing they expect,”
Huisman says. Veth’s responsiveness earned an increase in market
share in applications such as inland shipping, where deliveries and
service continued strong during the pandemic even as restrictions
made global travel difficult.
Despite the last year’s challenges, Veth Propulsion sees a strong
future as propulsion paradigms change. Says Huisman, “Interest
has been growing over the last two or three years in our Integrated
L-Drive. We’ve developed the right products to help the market
switch to electric propulsion.”
Having the right people also makes a difference, he says. “We have a
great team of people who act as if Veth is their own company—who
want to work together for the customer. Suppliers tell me you can
feel it’s different here.”
Customers notice the difference too, Huisman says. “A few days ago
a customer texted me, ‘What you did was awesome.’ I passed it
along to the people involved, and it’s inspiring everyone.”
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
7
DRIVEN BY
OUR PEOPLE
“We have a unique balance of long-term employees and newer talent, driven by a passion for continuous
improvement. They have a can-do attitude and keep us on track. Our people are the core of our success.”
Glenn Frettingham Managing Director, Twin Disc Pacific
Twin Disc Pacific’s phenomenal 36% increase in revenue over the
previous fiscal year grew out of innovative technology, long-term
marketing efforts, and exceptional support says Managing Director
Glenn Frettingham.
“Results have steadily increased over the last 10 years,” he says.
“Much of this year’s business was generated from our efforts over
the past three years.”
Twin Disc Pacific has served Australia, New Zealand and the Pacific
region for more than 50 years, with solutions for land-based equipment
and marine vessels from yachts to fast ferries. Before COVID-19, the
business had upgraded its Brisbane and Gold Coast locations and
launched restructure, talent development and succession plans. Both
paid off during the pandemic.
The new Gold Coast customer experience center gives owners and
designers an up-close look at products like the Express Joystick
System® (EJS). Two demo boats provide extra inspiration. That all
supported an increase this year in pleasure craft projects, a growth
market during the pandemic.
Growth also came from a significant territory expansion in Asia
as distributor for Seakeeper gyroscopic stabilizers. Frettingham
says there’s great synergy between Seakeeper and Twin Disc
products, both focused on making boat operation easier and more
comfortable. “Customers inquire about one, and become interested
in the benefits of the other,” he says.
The ability to deliver packaged solutions—for example, the Quickshift®
transmission plus EC300 controls and EJS—sets Twin Disc Pacific
apart. Says Frettingham, “We can connect the dots and offer a
complete solution.” He adds that the EJS has been particularly
successful. “A number of builders now use the EJS in complete
model ranges. That’s a real breakthrough. End users don’t need
to choose the option—it’s standard.”
The company’s people are an equally important differentiator. “We
have a unique balance of highly experienced long-term employees
and newer talent, driven by a passion for continuous improvement,”
Frettingham says. “They have a can-do attitude and keep us on track.
Our people are the core of our success.”
8
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
GUIDED BY
THE ESSENTIALS
DRIVEN BY
OUR VISION
Our goal is to use sustainable
FOCUSED ON
OUR MISSION
We design and deliver systems
hybrid and electric powertrains
that manage power in the global
to transform the global off-
off-highway markets, leveraging our
highway and marine markets.
engineering, manufacturing, and world-
wide support network capabilities.
UNITED BY
OUR VALUES
Customer Focus
Integrity
Accountability
Teamwork
Innovation
“Through living our values, we are committed to strengthening our culture through an inclusive, diverse
workplace by attracting, developing and retaining top talent and delivering on our commitments.”
Lori Bydalek Vice President of Human Resources, Twin Disc
As many of our employees transitioned back into the office, Twin
Disc revisited our vision, mission and values to ensure alignment
to our strategic plan and foster our global culture. The re-launch
helped reenergize employees coming out of the pandemic,
creating a rallying point.
value, employees feel comfortable trying new things, fostering a
continuous improvement mind-set. Says Bydalek, “That ties nicely
to another core value, accountability—creating a sense of urgency,
delivering on expected results and commitments, and ultimately
rewarding employees, customers and investors.”
“The essence of the vision and mission hasn’t changed,” says Vice
President of Human Resources Lori Bydalek. “Twin Disc remains
focused on new product development, including developing hybrid
and electrification products that offer flexibility and design for
sustainability and the environment.”
What’s new, Bydalek says, is the alignment and increased focus
on values. “To be successful long-term, Twin Disc needs to create
value for our shareholders and for society as a whole. Our values truly
serve as the foundation of our culture.”
Bydalek says it’s natural that customer focus is the first value—
”but understanding why it’s first, whether customers are internal
or external, is just as important.” And with innovation as a core
The refreshed vision, mission and values were launched at a
virtual global employee meeting and are now packaged with tools
that help bring them to life. They are also embedded in the global
performance management process.
“Through living our values, we are committed to strengthening our
culture through an inclusive, diverse workplace by attracting, developing
and retaining top talent and delivering on our commitments,” Bydalek
says. “Our teams have a map for success, today and down the road.”
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
9
C O R P O R AT E D ATA
Wholly Owned Subsidiaries
Twin Disc International S.P.R.L.,
Nivelles, Belgium
Twin Disc Srl, Decima, Italy
Rolla Sp Propellers SA,
Novazzano, Switzerland
Twin Disc (Pacific) Pty. Ltd.,
Brisbane, Queensland, Australia
Twin Disc (Far East) Pte. Ltd., Singapore
Twin Disc Power Transmission Private, Ltd.,
Chennai, India
Twin Disc Power Transmission (Shanghai) Co.
Ltd., Shanghai, China
Veth Propulsion B.V.,
Papendrecht, Netherlands
Twin Disc European Distribution S.P.R.L.,
Nivelles, Belgium
Sales Offices
Domestic
Racine, Wisconsin
Lufkin, Texas
Foreign
Nivelles, Belgium
Brisbane, Australia
Perth, Australia
Gold Coast, Australia
Singapore
Decima, Italy
Limite sull’Arno, Italy
Novazzano, Switzerland
Chennai, India
Coimbatore, India
Saitama, Japan
Shanghai, China
Guangzhou, China
Papendrecht, Netherlands
Manufacturing Licenses
Hitachi-Nico Transmission Co., Ltd.
Tokyo, Japan
Twin Disc Officers
John H. Batten
Chief Executive Officer
James E. Feiertag
President and Chief Operating Officer
Jeffrey S. Knutson
Vice President – Finance, Chief
Financial Officer, Treasurer and
Secretary
Partially Owned Subsidiaries
Twin Disc Nico Co. Ltd.
Manufacturing Facilities
Racine, Wisconsin
Sturtevant, Wisconsin
Lufkin, Texas
Nivelles, Belgium
Decima, Italy
Novazzano, Switzerland
Limite sull’Arno, Italy
Papendrecht, Netherlands
David W. Johnson
Chief Financial Officer
Johnson Outdoors, Inc.
Racine, Wisconsin
A global provider of outdoor recreation products
Michael C. Smiley
Former Chief Financial Officer
Zebra Technologies Corporation
Lincolnshire, Illinois
A global provider of asset management solutions
Harold M. Stratton II
Chairman of the Board and retired Chief
Executive Officer
Strattec Security Corporation
Milwaukee, Wisconsin
A manufacturer of security and access control products
for the global automotive industry
Annual Meeting
Twin Disc Corporate Offices
2:00 P.M., October 28, 2021
Shares Traded
NASDAQ: Symbol TWIN
Annual Report on Securities And Exchange
Commission Form 10-K Single copies of the
Company’s 2021 Annual Report on Securities
and Exchange Commission Form 10-K, including
exhibits, will be provided without charge to
shareholders after September 9, 2021, upon
written request directed to Secretary, Twin Disc,
Incorporated, 1328 Racine Street, Racine,
Wisconsin 53403.
Transfer Agent and Registrar
Computershare
462 S. 4th Street, Suite 100
Louisville, KY 40202
Toll-free: 877-498-8861
www.computershare.com/investor
Independent Accountants
RSM US LLP, Milwaukee, Wisconsin
Corporate Offices
Twin Disc, Incorporated
Racine, Wisconsin 53403
Telephone: (262) 638-4000
Twin Disc Board of Directors
David B. Rayburn
Chairman
Retired President and
Chief Executive Officer,
Modine Manufacturing Company
Racine, Wisconsin
A manufacturer of heat exchange equipment
John H. Batten
Chief Executive Officer
Twin Disc, Inc.
Racine, Wisconsin
Michael Doar
Chairman and Chief Executive Officer
Hurco Companies, Inc.
Indianapolis, Indiana
A global manufacturer of machine tools
Janet P. Giesselman
Retired President and General Manager
Dow Oil & Gas Company
Midland, Michigan
A business unit of Dow Chemical Company
10
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
√ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
For the Fiscal Year Ended June 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-7635
TWIN DISC, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Wisconsin
(State or Other Jurisdiction of Incorporation or Organization)
39-0667110
(I.R.S. Employer Identification Number)
1328 Racine Street, Racine, Wisconsin
(Address of Principal Executive Office)
53403
(Zip Code)
Registrant's Telephone Number, including area code:
(262) 638-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock (No Par Value)
Trading Symbol(s)
TWIN
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ √ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [ √ ]
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 [ ]
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
11
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 has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report [ √ ].
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [ √ ]
At December 25, 2020, the last business day of the registrant’s most recently completed second fiscal quarter,
the aggregate market value of the common stock held by non-affiliates of the registrant was $77,500,872.
Determination of stock ownership by affiliates was made solely for the purpose of responding to this requirement
and registrant is not bound by this determination for any other purpose.
At August 20, 2021, the registrant had 13,654,965 shares of its common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which will
be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report,
are incorporated by reference into Part III.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
12
TABLE OF CONTENTS
TWIN DISC, INC. - FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2021
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosure.
Information About Our Executive Officers.
Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Selected Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Quantitative and Qualitative Disclosure About Market Risk.
Financial Statements and Supplementary Data.
Change In and Disagreements With Accountants on Accounting and Financial
Disclosure.
Controls and Procedures.
Other Information.
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Certain Relationships and Related Transactions, Director Independence.
Principal Accounting Fees and Services.
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Exhibits, Financial Statement Schedules.
Exhibit Index.
Signatures.
14
15
20
20
20
20
21
22
23
23
33
33
34
34
35
35
36
36
36
36
37
84
85
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
13
PART I
Item 1. Business
Twin Disc, Incorporated (“Twin Disc”, or the “Company”) was incorporated under the laws of the state of
Wisconsin in 1918. Twin Disc designs, manufactures and sells marine and heavy duty off-highway power
transmission equipment. The Company has manufacturing locations in the United States, Belgium, Italy,
Switzerland and the Netherlands. In addition to these countries, it has distribution locations in Singapore, China,
Australia and Japan. Products offered 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 its products to customers primarily in the pleasure
craft, commercial and military marine markets, as well as in the energy and natural resources, government and
industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through
a direct sales force and a distributor network. The products described above have accounted for more than 90% of
revenues in each of the last three fiscal years.
Most of the Company's products are machined from cast iron, forgings, cast aluminum and bar steel which generally
are available from multiple sources and which are believed to be in adequate supply.
The Company has applied for patents in both the United States and certain foreign countries on inventions made in the
course of its development work for which commercial applications are considered probable. The Company regards its
patents collectively as important but does not consider its business dependent upon any one of such patents.
The business is not considered to be seasonal except to the extent that employee vacations and plant shutdowns,
particularly in Europe, occur mainly in the months of July and August, curtailing production during that period.
The Company's products receive direct widespread competition, including from divisions of other larger independent
manufacturers. The Company also competes for business with parts manufacturing divisions of some of its major
customers. The primary competitive factors for the Company’s products are design, technology, performance, price,
service and availability. The Company’s top ten customers accounted for approximately 48% and 51% of the Company's
consolidated net sales during the years ended June 30, 2021 and June 30, 2020, respectively. There were no customers
that accounted for 10% of consolidated net sales in fiscal 2021.
Unfilled open orders for the next six months of $70.3 million at June 30, 2021 compares to $66.6 million at June 30, 2020.
Since orders are subject to cancellation and rescheduling by the customer, the six-month order backlog is considered
more representative of operating conditions than total backlog. However, as procurement and manufacturing "lead
times" change, the backlog will increase or decrease, and thus it does not necessarily provide a valid indicator of the
shipping rate. Cancellations are generally the result of rescheduling activity and do not represent a material change
in backlog.
Management recognizes that there are attendant risks that foreign governments may place restrictions on dividend
payments and other movements of money, but these risks are considered low due to the relatively low investment
within individual countries that have currency movement restrictions. No material portion of the Company’s
business is subject to renegotiation of profits or termination of contracts at the election of the U.S. government.
Engineering and development costs include research and development expenses for new product development and
major improvements to existing products, and other costs for ongoing efforts to refine existing products. Research
and development costs charged to operations totaled $1.9 million and $1.8 million in fiscal 2021 and 2020,
respectively. Total engineering and development costs were $8.5 million and $11.0 million in fiscal 2021 and
2020, respectively.
Compliance with federal, state and local provisions regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, is not anticipated to have a material effect on capital
expenditures, earnings or the competitive position of the Company.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
14
The number of persons employed by the Company at June 30, 2021 and June 30, 2020 was 743 and 806,
respectively. The Company believes that its continued success is a direct result of its talent. As such, the Company
strives to be an employer of choice in every community in which it operates. It does this by fostering a fair,
respectful, inclusive and safe work environment and culture shaped with its core values of Customer Focus,
Integrity, Accountability, Teamwork, and Innovation.
A summary of financial data by segment, geographic area, and classes of products that accounted for more than
10% of consolidated sales revenues for the years ended June 30, 2021 and 2020 appears in Note J, Business
Segments and Foreign Operations, to the consolidated financial statements.
The Company’s internet website address is www.twindisc.com. The Company makes available free of charge
(other than an investor’s own internet access charges) through its website the Company’s Annual Report
on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those
reports, as soon as reasonably practicable after it electronically files such material with, or furnishes such
material to, the United States Securities and Exchange Commission. The SEC maintains an internet site
(www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers,
such as the Company, that file electronically with the SEC. In addition, the Company makes available, through
its website, important corporate governance materials. This information is also available from the Company upon
request. The Company is not including the information contained on or available through its website as a part of,
or incorporating such information by reference into, this Annual Report on Form 10-K.
Item 1A. Risk Factors
The Company’s business involves risk. The following information about these risks should be considered carefully
together with other information contained in this report. The risks described below are not the only risks the
Company faces. Additional risks not currently known, deemed immaterial or that could apply to any issuer may
also result in adverse results for the Company’s business.
As a global company, the Company is subject to currency fluctuations and any significant movement between the U.S.
dollar and the euro, in particular, could have an adverse effect on its profitability. Although the Company’s financial
results are reported in U.S. dollars, a significant portion of its sales and operating costs are realized in euros and other
foreign currencies. The Company’s profitability is affected by movements of the U.S. dollar against the euro and the other
currencies in which it generates revenues and incurs expenses. Significant long-term fluctuations in relative currency
values, in particular a significant change in the relative values of the U.S. dollar or euro, could have an adverse effect on
the Company’s profitability and financial condition. While the long-term impacts of the United Kingdom’s exit from the
European Union (commonly known as “Brexit”) remain uncertain, any resulting unfavorable currency impact to the euro
could have an adverse effect on the Company’s profitability and financial condition.
The Company continues to be adversely affected by the economic disruptions caused by the global coronavirus
pandemic. In March 2020, the World Health Organization (“WHO”) declared that a new strain of coronavirus that
originated in Wuhan, China, and has rapidly spread around the world (“COVID-19”) is a pandemic that poses
significant risk to the international community. This outbreak contributed to shelter-in-place policies, unexpected
factory closures, supply chain disruptions, and market volatility causing substantial declines in market capitalization,
and occurring in the midst of an already challenging economic environment in some of our markets, most notably
the oil and gas market. As a result of the outbreak, starting in March 2020 and intermittently through June 30, 2021,
the Company suspended or reduced its operations, in whole or in part, in many of its locations. The Company’s
businesses operate in market segments impacted by COVID-19. Operating during a global pandemic has exposed
the Company to a number of material risks, including diminished demand for our products and our customers’
products, suspensions in the operations of our and our suppliers’ manufacturing facilities, maintenance of
appropriate labor levels, our ability to ship products to our customers, interruptions in our supply chains and
distribution systems, access to capital and potential increases to the cost of capital, collection of trade receivables
in accordance with their terms and potential further impairment of long-lived assets; all of which, in the aggregate,
have had an adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The depth and duration of the pandemic remains unknown. Management continues to actively monitor the global
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
15
situation and its effect on financial condition, liquidity, operations, suppliers, industry and workforce. The
Company remains unable to estimate the full extent or nature of the impact of COVID-19 at this time.
Certain of the Company’s products are directly or indirectly used in oil exploration and oil drilling, and are thus
dependent upon the strength of those markets and oil prices. In recent years, the Company has seen significant
variations in the sales of its products that are used in oil and energy related markets. The variability in these markets
has been defined by the change in oil prices and the global demand for oil. Significant decreases in oil prices and
reduced demand for oil and capital investment in the oil and energy markets adversely affect the sales of these
products and the Company’s profitability. The cyclical nature of the global oil and gas market presents the ongoing
possibility of a severe cutback in demand, which would create a significant adverse effect on the sales of these
products and ultimately on the Company’s profitability.
Many of the Company’s product markets are cyclical in nature or are otherwise sensitive to volatile or variable
factors. A downturn or weakness in overall economic activity or fluctuations in those other factors could have
a material adverse effect on the Company’s overall financial performance. Historically, sales of many of the
products that the Company manufactures and sells have been subject to cyclical variations caused by changes in
general economic conditions and other factors. In particular, the Company sells its products to customers primarily
in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources,
government and industrial markets. The demand for the products may be impacted by the strength of the economy
generally, governmental spending and appropriations, including security and defense outlays, fuel prices, interest
rates, as well as many other factors. Adverse economic and other conditions may cause the Company's customers
to forego or otherwise postpone purchases in favor of repairing existing equipment.
In the event of an increase in the global demand for steel, the Company could be adversely affected if it
experiences shortages of raw castings and forgings used in the manufacturing of its products. With the continued
development of certain developing economies, in particular China and India, the global demand for steel has risen
significantly in recent years. The Company selects its suppliers based on a number of criteria, and the Company
expects that they will be able to support its needs. However, there can be no assurance that a significant increase
in demand, capacity constraints or other issues experienced by the Company’s suppliers will not result in shortages
or delays in their supply of raw materials to the Company. If the Company were to experience a significant or
prolonged shortage of critical components from any of its suppliers, particularly those who are sole sources, and
could not procure the components from other sources, the Company would be unable to meet its production
schedules for some of its key products and would miss product delivery dates which would adversely affect its
sales, profitability and relationships with its customers.
The Company continues to face the prospect of increasing commodity costs, including steel, other raw materials
and energy that could have an adverse effect on future profitability. In addition, developments in tariff
regulations in the U.S. and foreign jurisdictions have resulted in uncertainty regarding international trade
policies and future commodity prices, contributing to an increased risk of higher commodity costs that could have
an adverse impact on the Company’s profitability, financial condition and results of operations. The Company’s
profitability is dependent, in part, on commodity costs. To date, the Company has been successful with offsetting
the effects of increased commodity costs through cost reduction programs and pricing actions. However, if material
prices were to continue to increase at a rate that could not be recouped through product pricing, it could potentially
have an adverse effect on the Company’s future profitability.
The Company anticipates that additional tariffs or trade restrictions resulting from “trade wars” could result in an
increase in its cost of sales and there can be no assurance that the Company will be able to pass any of the increases
in raw material costs directly resulting from the tariff to its customers. Given that it procures many of the raw
materials that it uses to create its products directly or indirectly from outside of the United States, the imposition of
tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of such raw
materials, which could hurt its competitive position and adversely impact its business, financial condition and results
of operations. In addition, the Company sells a significant proportion of its products to customers outside of the
United States. Retaliatory actions by other countries could result in increases in the price of its products, which
could limit demand for such products, hurt its global competitive position and have a material adverse effect on the
Company’s business, financial condition and results of operations.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
16
If the Company were to lose business with any key customers, the Company’s business would be adversely
affected. Although there were no customers that accounted for 10% or more of consolidated net sales in fiscal 2021,
deterioration of a business relationship with one or more of the Company’s significant customers would cause its
sales and profitability to be adversely affected. Although the Company’s accounts receivable are dispersed among
a large customer base, a significant change in the liquidity or financial position of any one of its largest customers
could have a material adverse impact on the collectability of its accounts receivable and future operating results.
The termination of relationships with the Company’s suppliers, or the inability of such suppliers to perform,
could disrupt its business and have an adverse effect on its ability to manufacture and deliver products. The
Company relies on raw materials, component parts, and services supplied by outside third parties. If a supplier
of significant raw materials, component parts or services were to terminate its relationship with the Company, or
otherwise cease supplying raw materials, component parts, or services consistent with past practice, the Company’s
ability to meet its obligations to its customers may be affected. Such a disruption with respect to numerous
products, or with respect to a few significant products, could have an adverse effect on the Company’s profitability
and financial condition.
A significant design, manufacturing or supplier quality issue could result in recalls or other actions by the Company
that could adversely affect profitability. As a manufacturer of highly engineered products, the performance, reliability
and productivity of the Company’s products are some of its competitive advantages. While the Company prides itself on
putting in place procedures to ensure the quality and performance of its products and suppliers, a significant quality or
product issue, whether due to design, performance, manufacturing or supplier quality issue, could lead to warranty actions,
scrapping of raw materials, finished goods or returned products, the deterioration in a customer relationship, or other
action that could adversely affect warranty and quality costs, future sales and profitability.
The Company faces risks associated with its international sales and operations that could adversely affect its
business, results of operations or financial condition. Sales to customers outside the United States approximated
71% of the Company’s consolidated net sales for fiscal 2021. The Company has international manufacturing
operations in Belgium, Italy, the Netherlands and Switzerland. In addition, the Company has international
distribution operations in Singapore, China, Australia, Japan, Italy, Belgium, and India. The Company’s
international sales and operations are subject to a number of risks, including:
Þ currency exchange rate fluctuations
Þ export and import duties, changes to import and export regulations, and restrictions on the transfer
of funds, including dividends
Þ problems with the transportation or delivery of its products
Þ issues arising from cultural or language differences
Þ potential social and labor unrest as well as public health and political crises
Þ longer payment cycles and greater difficulty in collecting accounts receivables
Þ compliance with trade and other laws in a variety of jurisdictions
Þ changes in tax law
Þ compliance with the Foreign Corrupt Practices Act
These factors could adversely affect the Company’s business, results of operations or financial condition.
A material disruption at the Company’s manufacturing facility in Racine, Wisconsin could adversely affect its
ability to generate sales and meet customer demand. The majority of the Company’s manufacturing, based on
fiscal 2021 sales, came from its facility in Racine, Wisconsin. If operations at this facility were to be disrupted
as a result of significant equipment failures, natural disasters, power outages, fires, explosions, adverse weather
conditions, labor force disruptions or other reasons, the Company’s business and results of operations could be
adversely affected. Interruptions in production would increase costs and reduce sales. Any interruption in
production capability could require the Company to make substantial capital expenditures to remedy the situation,
which could negatively affect its profitability and financial condition. The Company maintains property damage
insurance which it believes to be adequate to provide for reconstruction of its facilities and equipment, as well as
business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by
an insured loss. However, any recovery under this insurance policy may not offset the lost sales or increased costs
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
17
that may be experienced during the disruption of operations. Lost sales may not be recoverable under the policy
and long-term business disruptions could result in a loss of customers. If this were to occur, future sales levels
and costs of doing business, and therefore profitability, could be adversely affected.
The Company entered into a new credit agreement in June 2018 and significantly increased its indebtedness.
The ability to service the requirements of the new debt depends on the ability to generate cash and/or refinance its
indebtedness as it becomes due, and depends on many factors, some of which are beyond the Company’s control.
The Company entered into a new credit agreement on June 29, 2018. The Company’s ability to make payments on its
indebtedness, including those under the new credit agreement, and to fund planned capital expenditures, research and
development efforts and other corporate expenses depends on the Company’s future operating performance and on
economic, financial, competitive, legislative, regulatory and other factors. Many of these factors are beyond its control.
The Company cannot assure that its business will generate sufficient cash flow from operations, or operating
improvements will be realized or that future borrowings will be available to it in an amount sufficient to enable it to
repay its indebtedness or to fund its other operating requirements. Significant delays in its planned capital expenditures
may materially and adversely affect the Company’s future revenue prospects.
Any failure to meet debt obligations and financial covenants, and maintain adequate asset-based borrowing
capacity could adversely affect the Company’s business and financial condition. The Company’s five-year
revolving credit facility entered into on June 29, 2018 is secured by certain personal property assets such as accounts
receivable, inventory, and machinery and equipment. Under this agreement, the Company’s borrowing capacity is
based on the eligible balances of these assets and it is required to maintain sufficient borrowing base at all times to
secure its outstanding borrowings. The Company is also required to comply with a minimum Debt to EBITDA ratio
and/or a minimum EBITDA. Based on results through the quarter ended December 25, 2020, the Company was
not in compliance with its minimum EBITDA financial covenant, and as a result has entered into a forbearance
agreement with its senior lender. The forbearance period ends on the earlier of September 30, 2021, or the date on
which an event of default occurs. While the Company has been able to collaborate closely with its senior lender and
has successfully negotiated reasonable terms with its bank during cyclical market periods, there can be no assurance
that the Company will be able to continue doing so, or achieve the planned results in future periods especially due to
the significant uncertainties flowing from the current economic environment. If the Company is not able to achieve
these objectives and to meet the required financial covenants under the agreements, the Company may require
further forbearance from its senior lender or be required to arrange alternative financing. Failure to obtain relief
from financial covenant violations or to obtain alternative financing, if necessary, would have a material adverse
impact on the Company.
As of June 30, 2021, the Company had a borrowing capacity that exceeded its outstanding loan balance (see Note
G, Debt, of the notes to the consolidated financial statements). Based on its annual financial plan, the Company
believes that it will generate sufficient cash flow levels throughout fiscal 2022 in order to maintain compliance with
this borrowing base and meet the minimum Debt to EBITDA ratio by December, 31, 2021, the first measurement
date after the forbearance period. However, as with all forward-looking information, there can be no assurance
that the Company will achieve the planned results in future periods.
While the Company has obtained forgiveness of its Paycheck Protection Program Loan (“PPP loan”), it remains
subject to audit under the program’s rules and any resulting adverse audit findings of non-compliance can
result in the repayment of a portion or all of the PPP loan. On April 17, 2020 the Company received proceeds of
$8.2 million from a loan under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),
which it has used to retain current employees, maintain payroll and make lease and utility payments. The Company
has accounted for the full proceeds as a loan. It obtained formal forgiveness of the full amount of the loan on June
16, 2021, and has accounted for the forgiveness as income from extinguishment of loan in its statement of
operations for the year ended June 30, 2021.
While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to
an audit by the Small Business Administration (“SBA”) for a period of six years after forgiveness. The audit is
intended to confirm the Company’s eligibility for the loan and the appropriateness of the loan obtained. The
Company is aware of the requirements of the PPP Loan and believes it is within the eligibility threshold and has
used the loan proceeds in accordance with PPP loan forgiveness requirements. It has retained all necessary
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
18
documentation in support of its eligibility, including gross receipts calculations, supporting payroll expenses and
related information. However, no assurance is provided that the Company will satisfy fully all the requirements of
an audit. If despite the Company’s actions and certification that it satisfied all eligibility requirements for the PPP
loan, it is later determined that it violated applicable laws or was otherwise ineligible to receive the PPP loan, it may
be required to repay the PPP loan in its entirety in a lump sum or be subject to additional penalties, which could
result in adverse publicity and damage to the Company’s reputation. If these events were to transpire, they could
have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company carries a significant amount of intangible assets, but it may never fully realize the full value of
these assets. The Company recorded significant non-cash goodwill impairment charges in fiscal 2020, as well as
in prior fiscal years. As part of the acquisition of Veth Propulsion in July 2018, the Company acquired goodwill
and intangible assets in the form of customer relationships, technology and knowhow and tradenames. In fiscal
2020, due to its assessment of the adverse economic consequences of the COVID-19 outbreak and the negative
trends in its markets as explained in Note D, Intangible Assets, the Company recorded significant impairment
charges in the amount of $27.6 million, writing off all the goodwill in its books, as well as writing down some
intangibles and other assets. In fiscal 2017 and 2016, when the Company’s markets were significantly adversely
affected by the global oil and gas decline, it recorded significant impairment charges related to two of its prior
acquisitions. Any deterioration in the industries or businesses of the Company may trigger future impairment
charges, which may have a material adverse effect to the Company’s financial results.
The Company may experience negative or unforeseen tax consequences. The Company reviews the probability
of the realization of its net deferred tax assets each period based on forecasts of taxable income in both the U.S.
and foreign jurisdictions. This review uses historical results, projected future operating results based upon approved
business plans, eligible carryforward periods, tax planning opportunities and other relevant considerations. Adverse
changes in the profitability and financial outlook in the U.S. or foreign jurisdictions may require the creation of a
valuation allowance to reduce the Company’s net deferred tax assets. Such changes could result in material non-
cash expenses in the period in which the changes are made and could have a material adverse impact on the
Company’s results of operations and financial condition. In fiscal 2021, the Company recorded a 100% allowance
on its domestic deferred tax assets, amounting to $24.4 million.
Taxing authority challenges and changes to tax laws may lead to tax payments exceeding current reserves.
The Company is subject to ongoing tax examinations in various jurisdictions. As a result, the Company may
record incremental tax expense based on expected outcomes of such matters. In addition, the Company may
adjust previously reported tax reserves based on expected results of these examinations. Such adjustments
could result in an increase or decrease to the Company’s effective tax rate.
The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in December 2017. The new law made numerous
changes to U.S. federal corporate tax law that the Company expects will impact its effective tax rate in future
periods. The changes included in the Tax Act are broad and complex. The final impact of the Tax Act may differ
from the Company’s current estimates, possibly materially, due to, among other things, changes in interpretations of
the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting
standards for U.S. federal income taxes or related interpretations in response to the Tax Act or any updates or
changes to estimates the Company has utilized to calculate the impact. Future changes in tax law in the United
States or the various jurisdictions in which the Company operates and income tax holidays could have a material
impact on the Company’s effective tax rate, foreign rate differential, future income tax expense and cash flows.
Security breaches and other disruptions could compromise the Company’s information system and expose the
Company to liabilities, which would cause its business and reputation to suffer. In the ordinary course of its
business, the Company collects and stores sensitive data, including its proprietary business information and that
of its customers, suppliers and business partners, as well as personally identifiable information of its customers
and employees, in its internal and external data centers, cloud services and on its networks. The secure processing,
maintenance and transmission of this information is critical to the Company’s operations and business strategy.
Despite the Company’s security measures, its information technology and infrastructure, and that of its partners,
may be vulnerable to malicious attacks or breaches due to employee error, malfeasance or other disruptions,
including as a result of rollouts of new systems. Any such breach or operational failure would compromise the
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
19
Company’s networks and/or that of its partners and the information stored there could be accessed, publicly
disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims
or proceedings and/or regulatory fines or penalties, including, among others, under the European Union’s newly
enacted General Data Privacy Regulation, disrupt the Company’s operations, damage its reputation and/or cause
a loss of confidence in the Company’s products and services, which could adversely affect its business, financial
condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Manufacturing Segment
The Company owns two manufacturing, assembly and office facilities in Racine, Wisconsin, U.S.A., one in
Nivelles, Belgium, two in Decima, Italy and one in Novazzano, Switzerland. The aggregate floor space of these
six plants approximates 763,000 square feet. One of the Racine facilities also serves as the Company's corporate
headquarters. The Company leases additional manufacturing, assembly and office facilities in, Sturtevant,
Wisconsin, Lufkin, Texas, Limite sull’Arno, Italy and Papendrecht, Netherlands .
Distribution Segment
The Company also has operations in the following locations, all of which are leased and are used for sales offices,
warehousing and light assembly or product service:
Brisbane, Queensland, Australia
Perth, Western Australia, Australia
Gold Coast, Queensland, Australia
Singapore
Shanghai, China
Guangzhou, China
Chennai, India
Coimbatore, India
Saitama City, Japan
The Company believes its properties are well maintained and adequate for its present and anticipated needs.
Item 3. Legal Proceedings
Twin Disc is a defendant in certain product liability or related claims of which the ultimate outcome and liability
to the Company, if any, are not presently determinable. Management believes that the final disposition of such
litigation will not have a material impact on the Company’s results of operations, financial position or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
20
Information About Our Executive Officers
Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered Item in Part I of
this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on
October 28, 2021.
Name
John H. Batten
James E. Feiertag
Jeffrey S. Knutson
Debbie A. Lange
Age
56
64
56
63
Position
Chief Executive Officer
President, Chief Operating Officer
Vice President – Finance, Chief Financial Officer, Treasurer and Secretary
Corporate Controller
Officers are elected annually by the Board of Directors at the Board meeting held in conjunction with each Annual
Meeting of the Shareholders. Each officer holds office until a successor is duly elected, or until he/she resigns or
is removed from office.
John H. Batten, Chief Executive Officer. Effective May 2019, Mr. Batten was named Chief Executive Officer.
Prior to that, Mr. Batten served as President and Chief Executive Officer since July 2013, President and Chief
Operations Officer since July 2008, Executive Vice President since October 2004, Vice President and General
Manager – Marine Products since October 2001 and Commercial Manager – Marine since 1998. Mr. Batten joined
Twin Disc in 1996 as an Application Engineer.
James E. Feiertag, President, Chief Operating Officer. Mr. Feiertag joined the company as President and Chief
Operating Officer effective May 1, 2019. Prior to his joining the company, Mr. Feiertag served as President and
CEO of Bemis Manufacturing Company beginning in 2014. Before his role at Bemis, Mr. Feiertag was employed
at Twin Disc from 2000 to 2014 in various roles, including Executive Vice President and Vice President,
Manufacturing. Prior to these roles at Twin Disc, Mr. Feiertag was the Vice President of Manufacturing for the
Drives and System Group of Rockwell Automation.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary. Mr. Knutson was
named Chief Financial Officer and Treasurer in June 2015. Mr. Knutson was named Vice President – Finance,
Interim Chief Financial Officer and Interim Treasurer in February 2015. Mr. Knutson was appointed Corporate
Secretary in June 2013, and was Corporate Controller from his appointment in October 2005 until August 2015. Mr.
Knutson joined the Company in February 2005 as Controller of North American Operations. Prior to joining Twin
Disc, Mr. Knutson held Operational Controller positions with Tower Automotive (since August 2002) and Rexnord
Corporation (since November 1998).
Debbie A. Lange, Corporate Controller. Ms. Lange was hired as Corporate Controller effective August 4, 2015.
Prior to joining the Company, Ms. Lange was the Director of Accounting Research & Special Projects at Sealed Air
Corporation (since 2011), a global manufacturer and provider of food packaging solutions, product packaging and
cleaning and hygiene solutions. Prior to her role at Sealed Air, Ms. Lange held the position of Director of Global
Accounting and Reporting at Diversey, Inc.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
21
PART II
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of
Equity Securities
The Company's common stock is traded on the NASDAQ Global Select Market under the symbol TWIN.
Quarter
Fiscal Year Ended
June 30, 2021
Low
High
Fiscal Year Ended
June 30, 2020
Low
High
First Quarter
$ 7.76
$ 4.66
$ 15.18
$ 9.60
Second Quarter
7.97
4.87
12.59
9.50
Third Quarter
10.35
7.35
11.61
6.06
Fourth Quarter
15.02
8.79
8.35
4.84
There were no dividend payments made in the fiscal years ended June 30, 2021 and 2020.
For information regarding the Company’s equity-based compensation plans, see the discussion under Item 12 of this
report. As of August 20, 2021, shareholders of record numbered 403.
Recent Sales of Unregistered Securities
On May 13, 2019, the Company issued 139,347 shares of its common stock, valued at $1,991 ($14.29 per share),
to settle its earn-out obligation under the June 13, 2018 Share Purchase Agreement entered into by Twin Disc NL
Holding B.V., a wholly-owned subsidiary of the Company, with Het Komt Vast Goed B.V., the prior parent of
Veth Propulsion Holding B.V. The shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933,
as amended, as the Share Purchase Agreement was a privately negotiated transaction that involved substantial due
diligence on the part of all parties, and the shares were issued to three entities related to Het Komt Vast Goed B.V.
Issuer Purchases of Equity Securities
Period
(a) Total
Number of
Shares
Purchased
(b) Average
Price Paid
per Share
(c) Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
(d) Maximum Number
of Shares that May Yet
Be Purchased Under
the Plans or Programs
March 27, 2021 – April 30, 2021
May 1, 2021 – May 28, 2021
May 29, 2021 - June 30, 2021
Total
0
0
0
0
NA
NA
NA
NA
0
0
0
0
315,000
315,000
315,000
315,000
On February 1, 2008, the Board of Directors authorized the purchase of up to 500,000 shares of Common Stock
at market values, of which 250,000 shares were purchased during fiscal 2009 and 125,000 shares were purchased
during fiscal 2012. On July 27, 2012, the Board of Directors authorized the purchase of an additional 375,000
shares of Common Stock at market values. This authorization has no expiration. During the second quarter of
fiscal 2013, the Company purchased 185,000 shares under this authorization. The Company did not make any
purchases during fiscal 2020 and 2021. As of June 30, 2021, 315,000 shares remain authorized for purchase.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
22
Item 6. Selected Financial Data
Financial Highlights
(in thousands, except per share amounts)
Statement of Operations Data:
Net sales
Net (loss) income
$
2021
218,581
(29,519)
$
2020
246,838
(39,571)
$
2019
302,663
10,796
$
2018
240,733
9,647
$
2017
168,182
(6,115)
Fiscal Years Ended June 30,
Net (loss) income attributable to Twin Disc
(29,719)
(39,817)
10,673
9,528
(6,294)
Basic (loss) income per share attributable to
Twin Disc common shareholders
Diluted (loss) income per share attributable to
Twin Disc common shareholders
Dividends per share
(3.03)
(3.03)
-
0.84
0.83
-
0.82
0.82
-
(0.56)
(0.56)
-
(2.24)
(2.24)
-
June 30,
Balance Sheet Data
Total assets
Total long-term debt
$
2021
275,413
32,085
$
2020
294,127
42,587
$
2019
346,870
42,491
$
2018
241,240
4,824
$
2017
210,898
6,323
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 based on its public float as of the last business day of the second quarter
of fiscal 2021. Accordingly, it has scaled some of its disclosures of financial and non-financial information in this
annual 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.
Note on Forward-Looking Statements
Statements in this report (including but not limited to certain statements in Items 1, 3 and 7) and in other Company
communications that are not historical facts are forward-looking statements, which are based on management’s
current expectations. These statements involve risks and uncertainties that could cause actual results to differ
materially from what appears here.
Forward-looking statements include the Company’s description of plans and objectives for future operations and
assumptions behind those plans. The words “anticipates,” “believes,” “intends,” “estimates,” and “expects,” or
similar anticipatory expressions, usually identify forward-looking statements. In addition, goals established by
the Company should not be viewed as guarantees or promises of future performance. There can be no assurance
the Company will be successful in achieving its goals.
In addition to the assumptions and information referred to specifically in the forward-looking statements, other
factors, including, but not limited to those factors discussed under Item 1A, Risk Factors, could cause actual results
to be materially different from what is presented in any forward-looking statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
23
Results of Operations
(In thousands)
Net sales
Cost of goods sold
Gross profit
% of
Sales
2021
$ 218,581
167,724
2020
$ 246,838
191,130
% of
Sales
50,857 23.3
55,708 22.6
M arketing, engineering and administrative expenses
Restructuring expenses
Goodwill and other asset impairment charge
Loss from operations
55,750 25.5
7,377 3.4
63,218 25.6
5,138 2.1
- - 27,603 11.2
$ (12,270) (5.6) $ (40,251) (16.3)
Fiscal 2021 Compared to Fiscal 2020
Net Sales
Net sales for fiscal 2021 decreased 11.4%, or $28.3 million, to $218.6 million from $246.8 million in fiscal 2020.
The Company experienced a broad-based softening in demand through the first three fiscal quarters across the
industrial and marine markets, due in large part to the continued impacts of the COVID-19 crisis on the Company’s
global markets. The weakness in the North American oil and gas market experienced throughout fiscal 2020
persisted through fiscal 2021, with some improvement in aftermarket activity in the fourth quarter of fiscal 2021.
The Company began to see a general market recovery trend starting at the end of the fiscal second quarter, which
continued through the fiscal fourth quarter. With a recovering global economy following a relaxation of COVID-19
restrictions, the Company has seen renewed demand for its products across all segments. With improving volume
levels through the year, the Company reported a fourth quarter favorable variance to the prior year of 11.5%, its first
favorable year-over-year variance since the third quarter of fiscal 2019. Currency translation had a favorable impact
on fiscal 2021 sales compared to the prior year totaling $11.6 million primarily due to the strengthening of the euro
and Australian dollar against the U.S. dollar.
Sales at our manufacturing segment decreased 15.8%, or $36.1 million, versus the same period last year. The
largest decline was seen at the Company’s North American manufacturing operation, the largest, which experienced
a 28.0% decline in sales compared to fiscal 2020. The primary driver for this decrease was a broad reduction in
demand created by the global economic impact of the COVID-19 pandemic. The Company’s Veth Propulsion
operation in the Netherlands experienced an 18.5% decrease in sales in fiscal 2021, also due to the global market
impacts of the COVID-19 pandemic. The Company’s Italian manufacturing operations reported a 16.6% increase in
sales from fiscal 2020, with foreign currency contributing half of that increase and a recovering European industrial
market in the second half of the fiscal year driving the remaining volume growth. Similarly, the Company’s Belgian
manufacturing operation saw a 12.2% increase in sales in fiscal 2021 on a favorable foreign exchange impact and
an economic recovery in the fourth fiscal quarter. The Company’s Swiss manufacturing operation, which supplies
customized propellers for the global mega yacht and patrol boat markets, experienced a 7.2% increase in sales,
primarily due to a favorable currency impact.
Sales at our distribution segment were up 4.6%, or $4.4 million, compared to fiscal 2020, with the entire increase coming
in the fourth fiscal quarter. The Company’s Asian distribution operation in Singapore, China and Japan experienced an
8.3% decrease in sales due to the weakened global demand resulting from COVID-19, partially offset by stable demand
for the Company’s oil and gas transmissions. The Company’s European distribution operation saw an increase of $0.4
million thanks to a positive currency impact of $1.3 million. The operational decline is the result of the impact of the
COVID-19 pandemic. The Company’s North American distribution operation saw an increase of 3.0% thanks to
improving market conditions in the fourth fiscal quarter driving additional demand. The Company’s distribution operation
in Australia, which provides boat accessories, propulsion and marine transmission systems primarily for the pleasure craft
market, saw sales increase sharply (52.8%), driven by a significant favorable currency impact (15.9%) and strong demand
for the Company’s product in the pleasure craft market.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
24
Net sales for the Company’s marine transmission, propulsion and boat management systems were down 16.6%
compared to the prior fiscal year. This decrease reflects a general weakening of the global economy primarily as
a result of the COVID-19 pandemic. While most marine markets were significantly impacted, the pleasure craft
market in Australia was an area of strength. In the off-highway transmission market, the year-over-year decrease
of 6.8% can also be attributed primarily to the global impact of the COVID-19 pandemic through the first three
quarters, while the year-over-year comparisons turned positive in the fourth quarter. Sale of the Company’s
pressure pumping transmission systems into China remained steady and consistent with the prior year. The decrease
experienced in the Company’s industrial products of 11.0% was also seen primarily in the first three quarters of
the fiscal year, brought on by a weakening global economy and the impacts of the COVID-19 pandemic. This
comparison also turned positive in the fourth fiscal quarter, as the global recovery started to gain traction.
Geographically, sales to the U.S. and Canada declined 23% in fiscal 2021 compared to fiscal 2020, representing
32% of consolidated sales for fiscal 2021 compared to 36% in fiscal 2020. The reduction is primarily due to the
impact of the COVID-19 pandemic. Sales into the Asia Pacific market actually increased 2% compared to fiscal
2020 and represented approximately 24% of sales in fiscal 2021, compared to 21% in fiscal 2020. The increase in
fiscal 2021 reflects a strong Australian pleasure craft market and consistent Chinese demand for the Company’s oil
and gas transmission. Sales into the European market declined approximately 11% from fiscal 2020 levels while
accounting for 37% of consolidated net sales in both fiscal 2021 and fiscal 2020. The decrease, similar to North
America, is primarily the result of the global economic impact of the COVID-19 pandemic. See Note J, Business
Segments and Foreign Operations, of the notes to the consolidated financial statements for more information on the
Company’s business segments and foreign operations.
Gross Profit
In fiscal 2021, gross profit decreased $4.9 million, or 8.7%, to $50.9 million on a sales decrease of $28.3 million.
Gross profit as a percentage of sales increased 70 basis points in fiscal 2021 to 23.3%, compared to 22.6% in fiscal
2020. The table below summarizes the gross profit trend by quarter for fiscal years 2021 and 2020:
Gross Profit:
($ millions)
2021
2020
% of Sales:
2021
2020
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Year
$9.7
$9.6
$8.9
$15.7
$14.0
$16.5
$18.3
$13.9
$50.9
$55.7
21.0%
16.3%
18.3%
26.4%
24.2%
24.1%
27.7%
23.3%
23.3%
22.6%
There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2021. Gross profit
for the year was primarily impacted by reduced volumes and a continued unfavorable product mix. This was driven
by the global economic impact of the COVID-19 pandemic and very limited sales of high-margin oil and gas
transmissions and parts. Margin was favorably impacted by the recording of a benefit related to the Employee
Retention Credit (“ERC”), a COVID-19 relief program of the U.S. government, totaling $2.4 million, split evenly
between the third and fourth quarters. The Company estimates the net unfavorable impact of reduced volumes on
gross margin in fiscal 2021 was approximately $6.5 million. The unfavorable shift in product mix, primarily related
to the reduced shipments of the Company’s high margin oil and gas transmission units and aftermarket products, had
an estimated unfavorable impact of $3.7 million.
Marketing, Engineering and Administrative (ME&A) Expenses
Marketing, engineering, and administrative (ME&A) expenses of $55.8 million were down $7.5 million, or 11.8%,
compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased slightly to 25.5% of sales
versus 25.6% of sales in fiscal 2020. The decrease in spending in fiscal 2021 compared to the prior year was driven
by reduced domestic salaries and benefits ($3.4 million), a reclassification of certain costs from ME&A to COGS
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
25
($2.4 million), lower amortization expense ($1.0 million), reduced marketing activities ($1.5 million) and a benefit
related to the domestic ERC ($1.2 million), reduced corporate travel ($0.9 million) and the impact of global expense
containment measures ($1.5 million). These decreases were partially offset by an increase in global bonus expense
($2.4 million) and an exchange driven increase ($2.0 million).
Restructuring of Operations
During the course of fiscal 2021, the Company incurred $7.4 million in restructuring charges. Included in this
amount is $2.3 million related to the provision for an announced restructuring program at the Company’s Belgian
operation resulting in the elimination of 23 positions. The action was taken to allow the Belgian operation to focus
resources on core manufacturing processes, while allowing for savings on the outsourcing of non-core processes.
The Company anticipates annual pre-tax savings upon completion of the restructuring of approximately $1.6
million. The Company also recorded a $4.3 million charge for the impairment of its corporate office building,
which is currently held for sale. The remaining $0.8 million of restructuring charges relates to productivity and
cost reduction actions at the Company’s domestic and European operations. The Company continues to focus on
actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.
Income from Extinguishment of Loan
During the fourth fiscal quarter, the Company received formal forgiveness of its PPP Loan in the amount of $8.2
million. The Company recorded $8.2 million in income from extinguishment of loan in its consolidated statement
of operations in fiscal 2021. See Note G, Debt, of the notes to the consolidated financial statements for additional
information on the PPP loan.
Interest Expense
Interest expense of $2.4 million for fiscal 2021 was $0.5 million higher than fiscal 2020 on a higher average interest
rate, partially offset by a lower average balance on the domestic revolver.
Other income (expense), net
In fiscal 2021, other expense, net, increased $1.8 million primarily due to the impact of currency movements related
to the euro and Asian currencies.
Income Taxes
The effective tax rate for fiscal 2021 is -200.0% compared to 9.5% for fiscal 2020. During the current fiscal year,
the Company received full forgiveness of its PPP loan which resulted in an increase to the effective tax rate of
17.5%. In the prior year, the Company’s management determined that the carrying value of certain goodwill and
intangibles exceeded the fair value and a $27.6 million impairment loss was calculated, which resulted in a decrease
to the prior year effective tax rate of 13.8%. During the current fiscal year, the Company was able to take advantage
of the newly enacted high tax exception regulations. The Company filed its federal tax return utilizing this
exception and had no global intangible low taxed income (“GILTI”) inclusion increasing the current rate by 12.4%.
Due to continued historical domestic losses and uncertain future domestic earnings, the Company recognized a full
domestic valuation allowance reducing the effective tax rate by 248.2%.
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. The Company has
evaluated the likelihood of whether the net domestic deferred tax assets would be realized and concluded that it is
more likely than not that all of deferred tax assets would not be realized. Management believes that it is more likely
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
26
than not that the results of future operations will not generate sufficient taxable income and foreign source income to
realize all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $24.4 million, included
in income tax expense (benefit) on the consolidated statement of operations, has been recorded for fiscal year 2021.
Order Rates
As of June 30, 2021, the Company’s backlog of orders scheduled for shipment during the next six months (six-
month backlog) was $70.3 million or approximately 6% higher than the six-month backlog of $66.6 million as of
June 30, 2020. The increased backlog is primarily attributable to the improvement in order rates through the second
half of the fiscal year, as the global economy began to recover from the COVID-19 pandemic.
Liquidity and Capital Resources
Fiscal Years 2021 and 2020
The net cash provided by operating activities in fiscal 2021 totaled $6.5 million, a decrease of $2.6 million from the
prior fiscal year. The positive operating cash flow was generated by continued progress in working capital reduction
efforts, which contributed $3.4 million during the year before considering the $3.2 million reclassification, net of the
$4.8 million impairment recorded to restructuring expenses, of the corporate office building as a current asset held
for sale as of June 30, 2021. The largest contributions came from inventory reduction ($5.6 million) and increased
trade payables ($5.3 million). These improvements were partially offset by an increase in trade receivables ($8.8
million) resulting from the increased sales volume in the fourth quarter of the current fiscal year.
The net cash used by investing activities for fiscal 2021 primarily represents capital spending activity totaling
$4.5 million, partially offset by the receipt of $1.5 million on the note receivable related to the sale of the assets of
a previously owned subsidiary of the Company in fiscal 2019. The capital spending amount reflects a $6.2 million
(58.3%) decrease in spending on capital projects compared to fiscal 2020. Given the extreme economic uncertainty
brought on by the COVID-19 pandemic, the Company limited fiscal 2021 capital spending to critical replacement
items and spending needed to bring the new Lufkin facility online.
The net cash used by financing activities relates primarily to payments of long-term debt ($3.9 million), along
with payments for withholding taxes on stock compensation ($0.2 million) and dividends paid to a non-controlling
interest ($0.2 million). During fiscal 2021, the Company did not purchase any shares as part of its Board-authorized
stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan.
Future Liquidity and Capital Resources
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”).
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.
On March 4, 2019, the Company entered into a second amendment (the “Second Amendment”) to the Credit
Agreement. The Second Amendment reduced the principal amount of the term loan commitment under the Credit
Agreement from $35.0 million to $20.0 million. In connection with the Second Amendment, the Company issued
an amended and restated term note in the amount of $20.0 million to the Bank, which amended the original $35.0
million note provided under the Credit Agreement.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
27
Prior to entering into the Second Amendment, the outstanding principal amount of the term loan (the “Term Loan”)
under the Credit Agreement was $10.8 million. On the date of the Second Amendment, the Bank made an additional
advance on the Term Loan to the Company in the amount of $9.2 million. The Second Amendment also extended
the maturity date of the Term Loan from January 2, 2020 to March 4, 2026, and added a requirement that the
Company make principal installments of $0.5 million per quarter starting with the quarter ending June 30, 2019.
The Second Amendment also reduced the applicable margin for purposes of determining the interest rate applicable
to the Term Loan. Previously, the applicable margin was 3.00%, which was added to the Monthly Reset LIBOR
Rate or the Adjusted LIBOR, as applicable. Under the Second Amendment, the applicable margin was between
1.375% and 2.375%, depending on the Company’s total funded debt to EBITDA ratio.
The Second Amendment also adjusted certain financial covenants made by the Company under the Credit Agreement.
Specifically, the Company covenanted (i) not to allow its total funded debt to EBITDA ratio to be greater than 3.00 to
1.00 (the cap had previously been 3.50 to 1.00 for quarters ending on or before September 30, 2019 and 3.25 to 1.00 for
quarters ending on or about December 31, 2019 through September 30, 2020), and (ii) that its tangible net worth will not
be less than $100.0 million plus 50% of net income for each fiscal year ending on and after June 30, 2019 for which net
income is a positive number (the $100.0 million figure had previously been $70.0 million).
On January 28, 2020, the Company entered into a third amendment (the “Third Amendment”) to the Credit
Agreement. The Third Amendment restated the financial covenant provisions related to the maximum allowable
ratio of total funded debt to EBITDA from 3.00 to 1.00 to 4.00 to 1.00 for the quarter ended December 27, 2019,
5.00 to 1.00 for the quarter ending March 27, 2020, 4.00 to 1.00 for the quarter ending June 30, 2020, 3.50 to 1.00
for the quarter ending September 25, 2020 and 3.00 to 1.00 for quarters ending on or after December 25, 2020. For
purposes of determining EBITDA, the Third Amendment added back extraordinary expenses (not to exceed $3.9
million) related to the previously reported isolated product performance issue on one of the Company’s oil and gas
transmission models at certain installations. Under the Third Amendment, the applicable margin for revolving loans,
letters of credit, and term loans was between 1.25% and 3.375%, depending on the Company’s total funded debt to
EBITDA ratio.
On April 17, 2020, the Company entered into a promissory note (the “PPP Note”) evidencing an unsecured loan in
the amount of $8.2 million (the “PPP Loan”) made to the Company under the PPP. The PPP was established under
the CARES Act and is a program under the U.S. SBA. The PPP Loan to the Company is administered by BMO.
The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal payments are
deferred until April 2022.
In connection with the PPP Loan, the Company entered into a fourth amendment to the Credit Agreement (the
“Fourth Amendment”) on April 17, 2020. The Fourth Amendment: (1) permits the Company to incur indebtedness
in the form of the PPP Loan notwithstanding the Credit Agreement’s restrictions limiting the Company’s ability
to incur indebtedness, and (2) provides that the PPP Loan (to the extent that the PPP Loan is forgiven) shall be
disregarded for purposes of calculating financial covenants in the Credit Agreement. Any unforgiven portion of
the PPP Loan and the interest thereon will not be disregarded for purposes of calculating the financial covenants.
On July 22, 2020, the Company entered into a fifth amendment (the “Fifth Amendment”) to the Credit Agreement
that amends the Credit Agreement dated as of June 29, 2018, as amended between the Company and BMO. The
Fifth Amendment reduced BMO’s Revolving Credit Commitment from $50.0 million to $45.0 million. The Fifth
Amendment also gives the Company the option to make interest-only payments on the Term Loan for quarterly
payments occurring on September 30, 2020 and December 31, 2020, and limits the Company’s Capital Expenditures
for the fiscal year ending June 30, 2021 to $10.0 million.
The Fifth Amendment provides the Company with relief from its Total Funded Debt to EBITDA ratio financial
covenant under the Credit Agreement through (and including) the earlier of June 30, 2021 or a date selected by
the Company. During the financial covenant relief period:
• The “Applicable Margin” to be applied to Revolving Loans, the Term Loan, and the Commitment/Facility
Fee will be increased to 3.25%, 3.875%, and 0.20%, respectively.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
28
• The Company may not make certain restricted payments (specifically, cash dividends, distributions,
purchases, redemptions or other acquisitions of or with respect to shares of its common stock or other
common equity interests).
• The Company must maintain liquidity (as defined in the Fifth Amendment) of at least $15.0 million.
• The Company must maintain minimum EBITDA of at least (1) $1.0 million for the fiscal quarter ending
June 30, 2020 and the two fiscal quarters ending on or about September 30, 2020; (2) $2.5 million for the
three fiscal quarters ending on or about December 31, 2020; (3) $6.0 million for the four fiscal quarters
ending on or about March 31, 2021; and (4) $10.0 million for the four fiscal quarters ending June 30, 2021.
For purposes of the minimum EBITDA financial covenant and the Total Funded Debt to EBITDA ratio, the Fifth
Amendment clarified that EBITDA shall exclude any gain that is realized on the forgiveness of the Small Business
Administration (“SBA”) Paycheck Protection Program (“PPP”) loan that the Company previously received.
The Fifth Amendment also changed the definition of “LIBOR” (used in calculating interest on Eurodollar Loans),
“Monthly Reset LIBOR Rate” (used in calculating interest on LIBOR Loans), and “LIBOR Quoted Rate” (used in
the definition of “Base Rate,” which is used in calculating interest on Letters of Credit that are drawn upon and not
timely reimbursed).
The Company 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. Under the Fifth Amendment, 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.
On January 27, 2021, the Company entered into a Forbearance Agreement and Amendment No. 6 to the Credit
Agreement (the “Forbearance Agreement”) that further amended the Credit Agreement.
The Company entered into the Forbearance Agreement because the Company was not in compliance with its
financial covenant to maintain a minimum EBITDA of at least $2.5 million for the three fiscal quarters ended as of
December 25, 2020. In the Forbearance Agreement, the Bank has agreed to forbear from exercising its rights and
remedies against the Company under the Credit Agreement with respect to the Company’s noncompliance with the
minimum EBITDA financial covenant during the period (the “Forbearance Period”) commencing January 27, 2021
and ending on the earlier of (i) September 30, 2021, and (ii) the date on which a default under the Forbearance
Agreement or Credit Agreement occurs. During the Forbearance Period, the Bank may continue to honor requests
of the Company for draws on the revolving note provided by the Bank under the Credit Agreement, except that the
revolving credit commitment is reduced from $45.0 million to $42.5 million during the Forbearance Period.
The Forbearance Agreement also added to the Company’s financial reporting requirements under the Credit
Agreement by requiring the Company to provide the Bank with monthly forecasts of the Company’s financial
statements, and monthly reports on the Company’s six-month backlog.
When the Forbearance Period ends on September 30, 2021, the Bank’s forbearance under the Forbearance
Agreement will cease, and, therefore, on December 31, 2021, the Company is subject to the Total Funded Debt to
EBITDA ratio financial covenant of 3.00 to 1.00. Further, upon an event of default and upon notice from the Bank,
the Company’s obligations under the Loan Documents would be accelerated and become due at the default rate, and
the Bank may exercise its rights and remedies under the Credit Agreement for any occurrence and continuation of
default under the Credit Agreement.
For the quarter ended June 30, 2021, as a result of the Forbearance Agreement, the Company was not required to
meet the minimum EBITDA financial covenant. The Company expects to be in compliance with the terms of the
Credit Agreement following the forbearance period, and therefore continues to classify its debt as long term.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
29
The Company remains in compliance with its liquidity and other financial covenants, and has agreed to provide
additional financial reports to BMO.
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.
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.
On March 3, 2021 the Company submitted its application for forgiveness of the PPP Loan. The application was
supported by documentation of qualified expenses and compliance of eligibility with the program. On June 16,
2021 the Company was notified by the SBA that the PPP loan was fully forgiven. The Company recorded the
forgiveness as income from extinguishment of loan. This is described further in Note G, Debt, of the notes to the
consolidated financial statements.
The Company’s balance sheet remains strong, there are no material off-balance-sheet arrangements, and it continues to
have sufficient liquidity for near-term needs. The Company had approximately $27.1 million of available borrowings
under the Credit Agreement as of June 30, 2021. The Company expects to continue to generate enough cash from
operations, as well as its credit facilities, to meet its operating and investing needs. As of June 30, 2021, the Company
also had cash of $12.3 million, primarily at its overseas operations. These funds, with some restrictions and tax
implications, are available for repatriation as deemed necessary by the Company. In fiscal 2022, the Company
expects to contribute $0.7 million to its defined benefit pension plans, the minimum contribution required.
Net working capital increased $6.2 million, or 5.7%, during fiscal 2021 and the current ratio (calculated as total
current assets divided by total current liabilities) decreased from 2.6 at June 30, 2020 to 2.4 at June 30, 2021. The
increase in net working capital was primarily the result of the reclassification of the assets currently held for sale
($9.5 million) from long term assets to current assets. Excluding this one-off movement, working capital decreased
by $3.4 million. This reduction was the result of a focused inventory reduction effort ($5.6 million), increased trade
payables ($5.3 million) and accrued expenses ($9.2 million), partially offset by a volume driven increase to trade
receivables ($8.8 million) and a reclassification of a component of short term debt back to long term ($2.7 million).
The Company expects capital expenditures to be approximately $10 million - $12 million in fiscal 2022. These
anticipated expenditures reflect the Company’s plans to invest in modern equipment to drive efficiencies, quality
improvements and cost reductions.
Management believes that available cash, the BMO credit facility, cash generated from future operations, and potential
access to debt markets will be adequate to fund the Company’s capital requirements for the foreseeable future.
Off Balance Sheet Arrangements and Contractual Obligations
The Company had no material off-balance sheet arrangements as of June 30, 2021 and 2020.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
30
Other Matters
Critical Accounting Policies and Estimates
The preparation of this Annual Report requires management’s judgment to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be
no assurance that actual results will not differ from those estimates.
The Company’s significant accounting policies are described in Note A, Significant Accounting Policies, of the
notes to the consolidated financial statements. Not all of these significant accounting policies require management
to make difficult, subjective, or complex judgments or estimates. However, the policies management considers most
critical to understanding and evaluating its reported financial results are the following:
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and adjusts credit limits based on payment
history and the customer’s credit-worthiness as determined by review of current credit information. The Company
continuously monitors collections and payments from its customers and maintains a provision for estimated credit
losses based upon its historical experience and any specific customer-collection issues. In addition, senior
management reviews the accounts receivable aging on a monthly basis to determine if any receivable balances
may be uncollectible. Although the Company’s accounts receivable are dispersed among a large customer base,
a significant change in the liquidity or financial position of any one of its largest customers could have a material
adverse impact on the collectability of its accounts receivable and future operating results.
Inventory
Inventories are valued at the lower of cost or net realizable value. Cost has been determined by the last-in, first-out
(LIFO) method for the majority of the inventories located in the United States, and by the first-in, first-out (FIFO)
method for all other inventories. Management specifically identifies obsolete products and analyzes historical
usage, forecasted production based on future orders, demand forecasts, and economic trends when evaluating the
adequacy of the reserve for excess and obsolete inventory. The adjustments to the reserve are estimates that could
vary significantly, either favorably or unfavorably, from the actual requirements if future economic conditions,
customer demand or competitive conditions differ from expectations.
Assets Held for Sale
Assets that will be recovered principally through sale rather than in its continuing use in operations are reclassified
out of property, plant and equipment and into assets held for sale if all of the following criteria are met: (a)
management, having the authority to approve the action, commits to a plan to sell the asset(s); (b) the asset is
available for immediate sale in its present condition subject only to terms that are usual and customary for sales
of such assets; (c) an active program to locate a buyer, and other actions required to complete the plan to sell the
asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is expected to qualify for
recognition as a completed sale within a year; (e) the asset is being actively marketed for sale at a price that is
reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or that plan will be withdrawn.
Assets Held for Sale are carried at fair value less costs to sell, or net book value, whichever is lower. The Company
ceases to record depreciation expense at the time of designation as held for sale.
Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully recoverable. For property, plant and equipment and other long-
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
31
lived assets, including intangible assets, the Company performs undiscounted operating cash flow analyses to determine
if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair
value. Fair value is primarily determined using discounted cash flow analyses; however, other methods may be used to
substantiate the discounted cash flow analyses, including third party valuations when necessary.
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
extent of the market affected by the failure and the expense involved in satisfactorily addressing the situation.
The warranty reserve is established based on the Company’s 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 the Company
believes that 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.
Pension and Other Postretirement Benefit Plans
The Company provides a wide range of benefits to employees and retired employees, including pensions and
postretirement health care coverage. Plan assets and obligations are recorded annually based on the Company’s
measurement date utilizing various actuarial assumptions such as discount rates, expected return on plan assets,
compensation increases, retirement and mortality tables, and health care cost trend rates as of that date. The
approach used to determine the annual assumptions are as follows:
• Discount Rate – based on the Willis Towers Watson BOND:Link model at June 30, 2021 as applied to the
expected payouts from the pension plans. This yield curve is made up of Corporate Bonds rated AA or better.
• Expected Return on Plan Assets – based on the expected long-term average rate of return on assets in the
pension funds, which is reflective of the current and projected asset mix of the funds and considers historical
returns earned on the funds.
• Compensation Increase – reflect the long-term actual experience, the near-term outlook and assumed inflation.
• Retirement and Mortality Rates – based upon the Society of Actuaries PRI-2012 base tables for annuitants and
non-annuitants, adjusted for generational mortality improvement based on the Society of Actuaries modified
MP-2020 projection scale.
• Health Care Cost Trend Rates – developed based upon historical cost data, near-term outlook and an
assessment of likely long-term trends.
Measurements of net periodic benefit cost are based on the assumptions used for the previous year-end
measurements of assets and obligations. The Company reviews its actuarial assumptions on an annual basis and
makes modifications to the assumptions when appropriate. The effects of the modifications are recorded currently
or amortized over future periods. Based on information provided by its independent actuaries and other relevant
sources, the Company believes that the assumptions used are reasonable; however, changes in these assumptions
could impact the Company’s financial position, results of operations or cash flows.
Income Taxes and Valuation Allowances
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. 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. Based on the above criteria the Company has determined
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
32
that a full valuation allowance is appropriate as relates to its domestic operations. A full domestic valuation allowance of
$24.4 million has been recognized in fiscal 2021. The recognition of a valuation allowance does not affect the availability
of the tax credits as the Company realizes earnings.
Recently Issued Accounting Standards
See Note A, Significant Accounting Policies, of the notes to the consolidated financial statements for a discussion of
recently issued accounting standards.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The Company is electing not to provide this disclosure due to its status as a Smaller Reporting Company.
Item 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements and Financial Statement Schedule.
Sales and Earnings by Quarter - Unaudited (in thousands, except per share amounts)
2021
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
Year
Net sales
Gross profit
Restructuring expenses
Net (loss) income
Net (loss) income attributable to Twin Disc
Basic (loss) income per share
attributable to Twin Disc common
shareholders
Diluted (loss) income per share
attributable to Twin Disc common
shareholders
Dividends per share
2020
$ 46,179 $ 48,557 $ 57,640 $ 66,205 $ 218,581
9,703 8,877 13,962 18,315 50,857
405 120 251 6,601 7,377
(3,937) (4,280) 166 (21,468) (29,519)
(3,979) (4,313) 94 (21,521) (29,719)
(0.30) (0.33) 0.01 (1.62) (2.24)
(0.30) (0.33) 0.01 (1.62) (2.24)
-
-
-
-
-
Net sales
Gross profit
Restructuring expenses
Goodwill and other asset impairment charge -
Net loss
$ 59,290 $ 59,536 $ 68,636 $ 59,376 $ 246,838
9,636 15,711 16,549 13,812 55,708
121 4,248 532 237 5,138
27,603
(6,293) (6,466) (25,176) (1,636) (39,571)
27,603 -
-
Net loss attributable to Twin Disc
Basic loss per share
attributable to Twin Disc common
shareholders
Diluted loss per share
attributable to Twin Disc common
shareholders
Dividends per share
(6,311) (6,516) (25,230) (1,760) (39,817)
(0.48) (0.49) (1.92) (0.13) (3.03)
(0.48) (0.49) (1.92) (0.13) (3.03)
-
-
-
-
-
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
33
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Conclusion Regarding Disclosure Controls and Procedures
As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period
covered by this report and under the supervision and with the participation of management, including the Chief
Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures. Based on such evaluation, which includes the circumstances
around a misstatement as described below, the Chief Executive Officer and Chief Financial Officer have concluded
that such disclosure controls and procedures were not effective as of June 30, 2021 to provide reasonable assurance
that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the
Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive and principal financial officers, as appropriate, to allow
timely decisions regarding disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company’s internal control over financial reporting
includes those policies and procedures that:
1. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the Company,
2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company, and
3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on financial statements.
Management has identified a material weakness in internal controls over financial reporting due to a misstatement
in income taxes. The misstatement related to a deficiency in the company’s review controls over significant,
infrequent transactions that did not detect an error in the recording of a valuation allowance on deferred income tax
assets. Specifically, the misstatement was attributed to the presentation of the tax effects of a pension plan and the
adjusting journal entry to income tax expense. Due to the isolated, non-recurring nature of this transaction,
management had not anticipated the complexity of this process. This misstatement resulted in the Company filing
a Form 8-K/A on August 23, 2021, amending its previously released financial results for the quarter and year ended
June 30, 2021. The amendment was filed to disclose that final income tax expense adjustments related to the
domestic deferred tax asset valuation allowance have been recorded by the Company, which resulted in increasing
the amount of net loss for the year ended June 30, 2021 by $8.8 million. This had the effect of increasing the net
loss of -$20.9 million to -$29.7 million for the year ended June 30, 2021. While this late adjustment is a non-cash
adjustment, the Company has concluded that it constitutes a material weakness in its internal controls over financial
reporting due to the deficiency in certain review controls described above.
To remediate the material weakness, the Company has taken steps to enhance the controls within the tax reporting
process, including improving the review precision of adjusting journal entries and to proactively reach out to outside
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
34
consultants on technical and complex one-off issues such as these, should the need arise. To allow for adequate
time to manage the recording and reviewing of infrequent and complex transactions, the Company also intends to
postpone the earnings release date to a date closer to the filing of the Company’s Form 10-K or Form 10-Q. The
Company believes that these steps will mitigate the occurrence of similar events in the future.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies and
procedures included in such controls may deteriorate.
The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based
upon the framework (2013 edition) in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based upon such evaluation, due to the
circumstance around a misstatement as described above, the Company’s management concluded that its internal
control over financial reporting was not effective as of June 30, 2021.
RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over
financial reporting as of June 30, 2021, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of fiscal 2021, there have not been any changes in the Company’s internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting. The Company intends to complete the remediation of the material weakness
described within fiscal 2022.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
For information with respect to the executive officers of the Registrant, see "Information About Our Executive
Officers" at the end of Part I of this report.
For information with respect to the Directors of the Registrant, see "Election of Directors" in the Proxy Statement for
the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference.
For information with respect to the Company’s Code of Ethics, see "Guidelines for Business Conduct and Ethics”
in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated
into this report by reference. The Company’s Code of Ethics, entitled, “Guidelines for Business Conduct and
Ethics,” is included on the Company’s website, www.twindisc.com. If the Company makes any substantive
amendment to the Code of Ethics, or grants a waiver from a provision of the Code of Ethics for its Chief Executive
Officer, Chief Financial Officer or Chief Accounting Officer (or any person performing similar functions), it intends
to disclose the nature of such amendment on its website within four business days of the amendment or waiver in
lieu of filing a Form 8-K with the SEC.
For information with respect to procedures by which shareholders may recommend nominees to the Company’s Board of
Directors, see “Director Committee Functions: Nominating and Governance Committee” in the Proxy Statement for the
Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into this report by reference. There
were no changes to these procedures since the Company’s last disclosure relating to these procedures.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
35
For information with respect to the Audit Committee Financial Expert, see “Director Committee Functions: Audit
Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is
incorporated into this report by reference.
For information with respect to the Audit Committee Disclosure, see “Director Committee Functions: Audit
Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is
incorporated into this report by reference.
For information with respect to the Audit Committee Membership, see “Director Committee Functions: Committee
Membership” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is
incorporated into this report by reference.
Item 11. Executive Compensation
The information set forth under the captions "Executive Compensation" and "Director Compensation” in the
Proxy Statement for the Annual Meeting of Shareholders to be held on October 28, 2021, is incorporated into this
report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For information regarding security ownership of certain beneficial owners and management, see the Proxy
Statement for the Annual Meeting of Shareholders to be held on October 28, 2021 under the captions "Principal
Shareholders” and “Directors and Executive Officers" and incorporated into this report by reference.
For information regarding securities authorized for issuance under equity compensation plans of the Company,
see “Equity Compensation Plan Information” in the Proxy Statement for the Annual Meeting of Shareholders
to be held on October 28, 2021, which is incorporated into this report by reference.
There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a
change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions, Director Independence
For information with respect to transactions with related persons and policies for the review, approval or ratification
of such transactions, see “Corporate Governance – Review, Approval or Ratification of Transactions with Related
Persons” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is
incorporated into this report by reference.
For information with respect to director independence, see “Corporate Governance – Board Independence” in the
Proxy Statement for the Annual Meeting of Shareholders to be held October 28, 2021, which is incorporated into
this report by reference.
Item 14. Principal Accounting Fees and Services
The Company incorporates by reference the information contained in the Proxy Statement for the Annual Meeting
of Shareholders to be held October 28, 2021 under the headings “Fees to Independent Registered Public Accounting
Firm” and “Pre-approval Policies and Procedures.”
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
36
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements and Financial Statement Schedule, the Report of Independent
Registered Public Accounting Firm and the Consolidated Financial Statements, all of which are incorporated by
reference.
(a)(2) Consolidated Financial Statement Schedule
See Index to Consolidated Financial Statements and Financial Statement Schedule, and the Consolidated Financial
Statement Schedule, all of which are incorporated by reference.
(a)(3) Exhibits. See Exhibit Index included as the last page of this form, which is incorporated by reference.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Loss for the years
ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended June 30, 2021 and 2020
Consolidated Statements of Changes in Equity for the years ended June 30, 2021 and 2020
Notes to Consolidated Financial Statements
INDEX TO FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
Page
39-42
43
44
45
46
47-79
80
Schedules, other than those listed, are omitted for the reason that they are inapplicable, are not required, or the
information required is shown in the financial statements or the related notes.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
38
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Twin Disc, Incorporated:
Opinion on the Internal Control Over Financial Reporting
We have audited Twin Disc, Incorporated's (the Company) internal control over financial reporting as of June 30,
2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the
material weakness described below on the achievement of the objectives of the control criteria, the Company has
not maintained effective internal control over financial reporting as of June 30, 2021, based on criteria established
in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements of the Company and our report dated September 2, 2021
expressed an unqualified opinion.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis. The following material weakness has been identified
and included in management's assessment. The misstatement related to a deficiency in the company’s review
controls over significant, infrequent transactions that did not detect an error in the recording of a valuation
allowance on deferred income tax assets. This material weakness was considered in determining the nature, timing
and extent of audit tests applied in our audit of the 2021 financial statements, and this report does not affect our
report dated September 2, 2021 on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting in the accompanying
Management’s Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
39
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ RSM US LLP
Milwaukee, Wisconsin
September 2, 2021
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
40
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Twin Disc, Incorporated:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Twin Disc, Incorporated (the Company) as of
June 30, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in equity
and cash flows for each of the two years in the period ended June 30, 2021, and the related notes to the consolidated
financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the
results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2021, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013, and our report dated September 2, 2021 expressed an opinion
that the Company had not maintained effective internal control over financial reporting as of June 30, 2021, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Deferred Tax Asset Valuation Allowance
As described in Note N to the consolidated financial statements the Company’s gross deferred tax asset and
valuation allowance was approximately $31,004,000 and $24,420,000, respectively, as of June 30, 2021. The
Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events
that have been recognized in the Company’s financial statements. Valuation allowances are provided for deferred
tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets.
In evaluating the realizability of deferred tax assets in future periods, the available positive and negative evidence,
including projected future taxable income exclusive of reversing temporary differences, history of book losses, tax
planning strategies, and results of recent operations, are considered.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
41
We identified management’s determination of the value of deferred tax assets as a critical audit matter as there is
significant judgment required by management to conclude that it is more likely than not that these deferred tax
assets will be realized in future periods. In addition, the auditing of these elements involved complex and subjective
auditor judgment, including the need to involve personnel with specialized skill and knowledge.
Our audit procedures to evaluate management’s determination that sufficient taxable income will not be generated
to realize deferred tax assets included the following, among others:
• We evaluated the design and operating effectiveness of internal controls over income taxes, specifically,
those controls over the evaluation of the realizability of deferred tax assets.
• We evaluated the reasonableness of management’s estimates in regards to the ability to generate future
taxable income and utilize the deferred tax assets by evaluating: (i) the forecast of future taxable income,
including testing of management’s forecasts against the Company’s historical performance, and (ii) testing
management’s assessment of the timing of future reversals of temporary differences.
• We utilized personnel with specialized knowledge and skill in income taxes and accounting for income
taxes under ASC 740 to assist in the evaluation of management’s assessment of positive and negative
evidence and their conclusion that it is more likely than not that the Company will not realize the benefit
of its deferred tax assets.
/s/ RSM US LLP
We have served as the Company's auditor since 2017.
Milwaukee, Wisconsin
September 2, 2021
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
42
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2021 and 2020
(In thousands, except share amounts)
ASSETS
Current assets:
Cash
Trade accounts receivable, net
Inventories
Assets held for sale
Prepaid expenses
Other
Total current assets
Property, plant and equipment, net
Right-of-use assets operating leases
Intangible assets, net
Deferred income taxes
Other assets
2021
2020
$
12,340
39,491
114,967
9,539
5,704
9,926
$
10,688
30,682
120,607
-
5,269
6,739
191,967
173,985
45,463
14,736
17,480
2,511
3,256
58,284
14,448
18,973
24,445
3,992
Total assets
$
275,413
$
294,127
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Lease obligations
Accrued retirement benefits
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note O)
Equity:
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
Retained earnings
Accumulated other comprehensive loss
Less treasury stock, at cost (984,139 and 1,226,809 shares, respectively)
Total Twin Disc shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
2,000
31,011
45,549
$
4,691
25,663
36,380
78,560
66,734
30,085
12,887
11,176
5,045
7,000
37,896
12,738
27,938
5,501
3,362
144,753
154,169
-
40,972
126,936
(22,615)
145,293
15,083
-
42,756
156,655
(41,226)
158,185
18,796
130,210
139,389
450
569
130,660
139,958
$
275,413
$
294,127
The notes to consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
43
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the years ended June 30, 2021 and 2020
(In thousands, except per share amounts)
Net sales
Cost of goods sold
Gross profit
Marketing, engineering and administrative expenses
Restructuring expenses
Goodwill and other asset impairment charge
Loss from operations
Other income (expense):
Interest expense
Income from extinguishment of loan
Other (expense) income, net
Loss before income taxes and noncontrolling interest
Income tax expense (benefit)
Net loss
2021
2020
$
218,581
167,724
$
246,838
191,130
50,857
55,750
7,377
-
(12,270)
(2,358)
8,200
(3,411)
2,431
(9,839)
19,680
55,708
63,218
5,138
27,603
(40,251)
(1,860)
-
(1,629)
(3,489)
(43,740)
(4,169)
(29,519)
(39,571)
Less: Net earnings attributable to noncontrolling interest, net of tax
(200)
(246)
Net loss attributable to Twin Disc
$
(29,719)
$
(39,817)
Loss per share data:
Basic loss per share attributable to Twin Disc common shareholders
Diluted loss per share attributable to Twin Disc common shareholders
$
$
(2.24)
(2.24)
$
$
(3.03)
(3.03)
Weighted average shares outstanding data:
Basic shares outstanding
Dilutive stock awards
Diluted shares outstanding
Comprehensive loss
13,247
-
13,247
13,153
-
13,153
Net loss
Foreign currency translation adjustment
Benefit plan adjustments, net of income taxes of $3,791 and ($530), respectively
Unrealized gain (loss) on hedges, net of income taxes of $235 and ($185), respectively
Comprehensive loss
Less: Comprehensive income attributable to noncontrolling interest
$
(29,519)
5,639
12,113
760
(11,007)
(101)
$
(39,571)
(966)
(1,675)
(595)
(42,807)
(266)
Comprehensive loss attributable to Twin Disc
$
(11,108)
$
(43,073)
The notes to consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
44
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2021 and 2020
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization
Income from extinguishment of loan
Restructuring of operations
Stock compensation expense
Provision for deferred income taxes
Goodwill and other asset impairment charge
Other, net
Changes in operating assets and liabilities
Trade accounts receivable
Inventories
Other assets
Accounts payable
Accrued liabilities
Accrued/prepaid retirement benefits
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds on note receivable
Proceeds from sale of plant assets
Proceeds from life insurance policy
Other, net
Net cash used by investing activities
Cash flows from financing activities:
Borrowings under long-term debt agreement
Borrowings under revolving loan agreement
Repayments under revolving loan agreement
Repayments of long-term borrowings
Payments of withholding taxes on stock compensation
Dividends paid to noncontrolling interest
2021
2020
$ (29,519)
$ (39,571)
11,243
(8,200)
6,619
2,154
17,655
-
798
(7,810)
9,063
(5,007)
4,606
7,058
(2,132)
6,528
(4,464)
1,500
102
253
(133)
(2,742)
-
76,335
(78,370)
(1,838)
(224)
(220)
11,925
-
2,269
1,158
(8,072)
27,603
258
13,132
6,775
2,246
(3,342)
(5,807)
544
9,118
(10,699)
500
137
102
(159)
(10,119)
8,200
99,262
(105,065)
(2,241)
(913)
(298)
Net cash used by financing activities
(4,317)
(1,055)
Effect of exchange rate changes on cash
2,183
382
Net change in cash
Cash:
Beginning of year
End of year
Supplemental cash flow information:
Cash paid during the year for:
Interest
Income taxes
1,652
(1,674)
10,688
12,362
$ 12,340
$ 10,688
$
2,366
3,257
$
1,861
3,481
The notes to consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
45
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended June 30, 2021 and 2020
(In thousands)
Twin Disc, Inc. Shareholders’ Equity
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Treasury Controlling
Stock
Interest
Total
Equity
Balance at June 30, 2019
$ 45,047 $ 196,472 $ (37,971) $ (21,332) $ 602 $ 182,818
Net (loss) income
Translation adjustments
Benefit plan adjustments, net of tax
Unrealized loss on hedges, net of tax
Cash dividends
Compensation expense
Shares (acquired) issued, net
(39,817)
(985)
(1,675)
(595)
1,158
(3,449)
2,536
246 (39,571)
19 (966)
(1,675)
(595)
(298) (298)
1,158
(913)
Balance at June 30, 2020
42,756 156,655 (41,226) (18,796) 569 139,958
Net (loss) income
Translation adjustments
Benefit plan adjustments, net of tax
Unrealized gain on hedges, net of tax
Cash dividends
Compensation expense
Shares (acquired) issued, net
(29,719)
5,738
12,113
760
2,154
(3,938)
3,713
200 (29,519)
(99) 5,639
12,113
760
(220) (220)
2,154
(225)
Balance at June 30, 2021
$ 40,972 $ 126,936 $ (22,615) $ (15,083) $ 450 $ 130,660
The notes to consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
46
TWIN DISC, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA)
A. SIGNIFICANT ACCOUNTING POLICIES
COVID-19
Throughout this report, references made to “COVID-19” pertain to the global pandemic declared by the World
Health Organization (“WHO”) in March 2020. This pandemic caused shelter-in-place policies, unexpected factory
closures, supply chain disruptions, and market volatilities across the globe. These drastic actions resulted in an
unprecedented global recession, causing substantial declines in countries’ gross domestic output around the world.
The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. The depth and duration
of the pandemic remains unknown. Despite the availability of vaccines, recent surges in the infection rate and the
detection of new variants of the virus have reinforced the general consensus that the containment of COVID-19
remains a challenge. Management is actively monitoring the global situation and its effect on its financial condition,
liquidity, operations, suppliers, industry, and workforce.
Significant Accounting Policies
The following is a summary of the significant accounting policies followed in the preparation of these financial
statements:
Consolidation Principles–The consolidated financial statements include the accounts of Twin Disc, Incorporated
and its wholly-owned domestic and foreign subsidiaries. In fiscal 2021 and 2020, certain subsidiaries changed their
reporting periods to conform to the Company’s fiscal year end. The impact of aligning to the corporate reporting
period is not material to the consolidated results. All significant intercompany transactions have been eliminated.
Management Estimates–The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates.
Translation of Foreign Currencies–The financial statements of the Company’s non-U.S. subsidiaries are translated
using the current exchange rate for assets and liabilities and the weighted-average exchange rate for the year for
revenues and expenses. The resulting translation adjustments are recorded as a component of accumulated other
comprehensive loss, which is included in equity. Gains and losses from foreign currency transactions are included
in earnings. Included in other (expense) income are foreign currency transaction losses of ($2,108) and ($570) in
fiscal 2021 and 2020, respectively.
Cash–The Company considers all highly liquid investments with original maturities of three months or less to be
cash equivalent. Under the Company’s cash management system, cash balances at certain banks are funded when
checks are presented for payment. To the extent that checks issued, but not yet presented for payment, exceed the
balance on hand at the specific bank against which they were written, the amount of those un-presented checks is
included in accounts payable.
Accounts Receivable–These represent trade accounts receivable and are stated net of an allowance for doubtful
accounts of $1,870 and $1,740 at June 30, 2021 and 2020, respectively. The Company records an allowance for
doubtful accounts for certain customers where a risk of default has been specifically identified as well as provisions
determined on a general basis when it is believed that some default is probable and estimable. The assessment of
likelihood of customer default is based on a variety of factors, including the length of time the receivables are past
due, the historical collection experience and existing economic conditions. Various factors may adversely impact
its customer’s ability to access sufficient liquidity and capital to fund their operations and render the Company’s
estimation of customer defaults inherently uncertain. While the Company believes current allowances for doubtful
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
47
accounts are adequate, it is possible that these factors may cause higher levels of customer defaults and bad debt
expense in future periods.
Fair Value of Financial Instruments–The carrying amount reported in the consolidated balance sheets for cash,
trade accounts receivable and accounts payable approximate fair value because of the immediate short-term maturity
of these financial instruments. If measured at fair value, cash would be classified as Level 1 and all other items
listed above would be classified as Level 2 in the fair value hierarchy, as defined in Note M, Pension and Other
Postretirement Benefit Plans. The Company’s borrowings under the revolving loan agreement, which is classified
as long-term debt and consists of loans that are routinely borrowed and repaid throughout the year, approximate fair
value at June 30, 2021. The Company’s term loan borrowing, which is LIBOR-based, approximates fair value at
June 30, 2021. If measured at fair value in the financial statements, long-term debt (including any current portion)
would be classified as Level 2 in the fair value hierarchy.
Derivative Financial Instruments–The Company has written policies and procedures that place all financial
instruments under the direction of the Company’s corporate treasury department and restrict all derivative
transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is
prohibited. The Company uses derivative financial instruments to manage certain financial risks. The Company
enters into forward contracts to reduce the earnings and cash flow impact of non-functional currency denominated
receivables and payables. The Company uses interest rate swap contracts to reduce the exposure to variability in
interest rates on floating debt borrowings. The Company designates certain financial instruments as cash flow
hedges for accounting purposes. The Company designates certain financial instruments as net investment hedges
to reduce the exposure in its foreign currency denominated net investments in wholly-owned subsidiaries. See
Note R, Derivative Financial Instruments, for additional information.
Inventories–Inventories are valued at the lower of cost or net realizable value. Cost has been determined by the
last-in, first-out (LIFO) method for the majority of inventories located in the United States, and by the first-in,
first-out (FIFO) method for all other inventories. Management specifically identifies obsolete products and analyzes
historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among
others, when evaluating the adequacy of the reserve for excess and obsolete inventory.
Assets Held for Sale–Assets that will be recovered principally through sale rather than in its continuing use in
operations are reclassified out of property, plant and equipment and into assets held for sale if all of the following
criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset(s);
(b) the asset is available for immediate sale in its present condition subject only to terms that are usual and
customary for sales of such assets; (c) an active program to locate a buyer, and other actions required to complete
the plan to sell the asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is
expected to qualify for recognition as a completed sale within a year; (e) the asset is being actively marketed for
sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan
indicate that it is unlikely that significant changes to the plan will be made or that plan will be withdrawn.
Assets Held for Sale are carried at fair value less costs to sell, or net book value, whichever is lower. The Company
ceases to record depreciation expense at the time of designation as held for sale. During fiscal 2021, the Company
classified certain properties as held for sale and recorded impairment charges of $4,267. See Note P, Restructuring
of Operations and Income from Extinguishment of Loan, for additional information.
Property, Plant and Equipment and Depreciation–Assets are stated at cost. Expenditures for maintenance, repairs and
minor renewals are charged against earnings as incurred. Expenditures for major renewals and betterments are capitalized
and depreciated. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. The
lives assigned to buildings and related improvements range from 10 to 40 years, and the lives assigned to machinery and
equipment range from 5 to 15 years. Upon disposal of property, plant and equipment, the cost of the asset and the related
accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Fully
depreciated assets are not removed from the accounts until physically disposed.
Right of Use Lease Assets–In accordance with ASC 842, the Company’s leases, with lease periods longer than
twelve months, are recorded on the consolidated balance sheets. These leases primarily consist of office and
warehouse facilities, as well as production and office equipment.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
48
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 lease period, and the economic environments where the lease activity
is concentrated.
During fiscal 2021, the Company elected to more closely align with ASC 842 by presenting operating lease right-
of-use assets and finance lease right-of-use assets on separate lines on the consolidated balance sheets, as well as
to present operating lease liabilities and finance lease liabilities on separate lines on the consolidated balance sheets.
For comparative purposes, the Company restated certain amounts previously reported on the consolidated balance
sheet as of June 30, 2020. The following table presents the effect of those changes:
June 30, 2020
As Reported
Impact
June 30, 2020
Restated
Property, plant and equipment, net
Right-of-use assets operating leases
$
72,732
-
$
(14,448)
14,448
$
58,284
14,448
Lease obligations
Other long-term liabilities
$
13,495
2,605
$
(757)
757
$
12,738
3,362
Impairment of Long-lived Assets–The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
For property, plant and equipment and other long-lived assets, including intangible assets, the Company performs
undiscounted operating cash flow analyses to determine if an impairment exists. If an impairment is determined
to exist, any related impairment loss is calculated based on fair value. Fair value is primarily determined using
discounted cash flow analyses; however, other methods may be used to determine the fair value, including third
party valuations when necessary.
Intangible Assets–Intangible assets primarily consist of customer relationships, technology and know-how, and
tradenames, all of which are definite-lived. They were initially valued at fair value at acquisition, and are amortized
over their respective useful lives on the basis of straight line or accelerated, as appropriate.
Income Taxes–The Company recognizes deferred tax assets and liabilities for the expected future income tax
consequences of events that have been recognized in the Company’s financial statements. Under this method,
deferred tax assets and liabilities are determined based on the temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which
temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where
it is considered more likely than not that the Company will not realize the benefit of such assets. The Company
evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the
extent a position is more likely than not to be sustained upon examination by the taxing authority.
Revenue Recognition–Revenue from contracts with customers is recognized using a five-step model consisting of
the following:
1.
2.
identify the contract with a customer; The Company’s customers consist of distributors and direct end-
users. With regard to distributors, the Company generally has written distribution agreements which
describe the terms of the distribution arrangement, such as the product range, the sales territory, product
pricing, sales support, payment and returns policy, etc. Customer contracts are generally in the form of
acknowledged purchase orders. Services to be rendered, as part of the delivery of those products, are also
generally specified. Such services include installation reviews and technical commissioning.
identify the performance obligations in the contract; The Company’s performance obligations primarily
consist of product delivery and certain service obligations such as technical commissioning, repair services,
installation reviews, and shift development.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
49
3. determine the transaction price; The Company considers the invoice as the transaction price.
allocate the transaction price to the performance obligations in the contract; The Company determined
that the most relevant allocation method for its service obligations is to apply the expected cost plus
appropriate margin. This is the Company’s practice of billing for repairs, overhaul, and other product
service related time incurred by its technicians.
4. recognize revenue; Revenue is recognized as each performance obligation is satisfied which is typically
when the Company transfers control of a good or service to a customer, which can occur over time or at
a point in time. For technical commissioning, repairs, installation review, and shift development services,
revenue is recognized upon completion of the service. The amount of revenue recognized is based on
the consideration to which the Company expects to be entitled in exchange for those goods or services,
including the expected value of variable consideration. The customer’s ability and intent to pay the
transaction price is assessed in determining whether a contract exists with the customer. If collectability of
substantially all of the consideration in a contract is not probable, consideration received is not recognized
as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to
transfer additional goods or services to the customer or collectability becomes probable.
Goods sold to third party distributors are subject to an annual return policy, for which a provision is made at the time
of shipment based upon historical experience. Goods sold under bill and hold arrangements are recorded as revenue
when control has been transferred to the customer and when the reason for the arrangement is substantive, when the
product is identified as the customer’s asset, when the product is ready for delivery to the customer, and when the
Company cannot use the product or redirect the product to another customer.
Shipping and Handling Fees and Costs–The Company records revenue from shipping and handling costs in net
sales. The cost associated with shipping and handling of products is reflected in cost of goods sold.
Recently Adopted Accounting Standards
a.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance (ASU
2018-13) as part of the disclosure framework project, which focuses on improving the effectiveness of
disclosures in the notes to the financial statements. The amendments in this update modify the disclosure
requirements on fair value measurements in ASC 820, Fair Value Measurement. The Company adopted
this guidance effective July 1, 2020. The adoption of this guidance did not have a material impact on the
Company’s financial statements and disclosures.
b.
In August 2018, the FASB issued updated guidance (ASU 2018-14) intended to modify the disclosure
requirements for employers that sponsor defined benefit pension or postretirement plans. The Company
adopted this guidance effective July 1, 2020. The adoption of this guidance did not have a material impact
on the Company’s financial statements and disclosures.
New Accounting Releases
a.
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 Company is currently
evaluating the potential impact of this guidance on the Company’s disclosures.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
50
b.
c.
In December 2019, the FASB issued guidance (ASU 2019-12) intended to simplify the accounting for income
taxes. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020 (the Company’s fiscal 2022), with early adoption permitted. The
Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.
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 Company
is working with its lender and currently evaluating the potential impact of this guidance on the Company’s
financial statements and disclosures.
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 based on its public float as of the last business day of the second quarter
of fiscal 2021. Accordingly, it has scaled some of its disclosures of financial and non-financial information in this
annual 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 at June 30 were as follows:
Finished parts
Work in process
Raw materials
2021
2020
$ 59,761
17,908
37,298
$ 114,967
$ 62,394
17,844
40,369
$ 120,607
Inventories stated on a LIFO basis represent approximately 45% and 50% of total inventories at June 30, 2021 and
2020, respectively. The approximate current cost of the LIFO inventories exceeded the LIFO cost by $25,969 and
$27,225 at June 30, 2021 and 2020, respectively. Inventories were reduced during 2021, resulting in a liquidation
of a LIFO inventory layer that was carried at a lower cost prevailing from a prior year, as compared with current
costs in the current year (“LIFO decrement”). A LIFO decrement results in the erosion of layers created in earlier
years, and, therefore, a LIFO layer is not created for years that have decrements. For the year ended June 30, 2021,
the effect of this LIFO decrement decreased cost of goods sold by $1,105. There was no LIFO decrement for the
year ended June 20, 2020.
The Company had reserves for inventory obsolescence of $10,279 and $9,863 at June 30, 2021 and 2020,
respectively.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
51
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 were as follows:
Land
Buildings
Machinery and equipment
2021
2020
$ 3,858
30,317
150,872
$ 6,589
48,168
146,841
185,047
201,598
Less: accumulated depreciation
(139,584)
(143,314)
$ 45,463
$ 58,284
Included in the above amounts are finance lease right-of-use assets of $5,244 and $959 for the years ended June 30,
2021 and 2020, respectively.
Depreciation expense for the years ended June 30, 2021 and 2020 was $7,853 and $7,394, respectively.
D. INTANGIBLE ASSETS
At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization:
Net Book Value Rollforward
Net Book Value By Asset Type
Balance at June 30, 2019
Addition
Amortization
Impairment
Translation adjustment
Balance at June 30, 2020
Addition
Amortization
Translation adjustment
Balance at June 30, 2021
Gross Carrying
Amount
$ 39,587
92
-
-
(434)
39,245
833
-
1,064
$
41,142
Accumulated
Amortization /
Impairment
Net Book
Value
Customer
Relationships
Technology
Know-how
Trade Name
Other
(1,306)
$ (14,434) $ 25,153
- 92
(4,532) (4,532)
(1,306)
- (434)
18,973
833
(3,390) (3,390)
- 1,064
17,480
$
(20,272)
-
$
(23,662)
-
-
$
$
$
$
7,025
-
2,733
-
14,843
-
552
92
(3,003) (1,139) (232) (158)
(226)
(286) (102) (33) (13)
247
833
(1,880) (1,226) (184) (100)
78 14
647
994
$
$
10,321
325
$
4,883
11,554
-
1,388
-
5,784
-
$
(1,080)
1,282
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 7 years.
Intangible amortization expense for the years ended June 30, 2021 and 2020 was $3,390 and $4,532, respectively.
Estimated intangible amortization expense for each of the next five fiscal years is as follows:
Fiscal Year
2022
2023
2024
2025
2026
Thereafter
$ 3,316
3,144
2,988
2,817
1,427
3,788
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
52
Goodwill and Other Intangibles Impairment Charge in Fiscal 2020
Prior to the third quarter of fiscal 2020, the Company carried goodwill in the amount $25,380. As a result of the
economic disruptions and unprecedented market volatilities and uncertainties driven by the COVID-19 outbreak,
the Company experienced significant supply chain disruptions and a slowdown in the demand for its products.
The Company believed that the negative economic impacts of the COVID-19 outbreak was a triggering event in the
third quarter of fiscal 2020 that required it to perform an interim goodwill impairment test as of the quarter ended
March 27, 2020.
The Company completed its assessment for goodwill impairment as of March 27, 2020 with the assistance of a third
party expert, using updated inputs, such as updated cash flow projections and an appropriate risk-based, company
specific weighted average discount rate of 13.0%. The assessment resulted in the full impairment of goodwill, which
pertained to the European Propulsion and European Industrial reporting units, in the amount of $25,380.
As a result of the full impairment of goodwill, the balance of goodwill at June 30, 2021 and June 30, 2020 was zero.
There will no longer be a need for future goodwill impairment tests unless the Company acquires new goodwill in
the future through a business combination.
As a consequence of these macroeconomic developments, market insights and expectations, and the occurrence of
a triggering event in the quarter, the Company also performed an assessment of its intangibles and other long-lived
assets. The Company performed an undiscounted operating cash flow analysis as of March 27, 2020, as well as the
review of other assets in service and their remaining useful lives. It was determined that an impairment charge
pertaining to certain tradenames, licenses and other assets was required, in the amount of $2,223.
The total non-cash impairment charge of $27,603 in fiscal year 2020, as described above, was a non-cash charge and
is reported on the goodwill and other asset impairment charge line in the consolidated statement of operations within
the manufacturing segment. The tax impact of this charge was to increase the income tax expense (benefit) by $1,199.
The changes in the carrying amount of goodwill are summarized as follows:
Net Book Value Rollforward
Net Book Value By
Reporting Unit
Gross Carrying
Amount
Accumulated
Impairment
Net Book
Value
European
Propulsion
European
Industrial
$ 39,776
$ (13,822) $ 25,954
$ 23,371
$ 2,583
-
(574)
39,202
-
$ 39,202
(25,380) (25,380)
(574)
-
(39,202) -
-
-
$ (39,202) $ -
(22,822)
(549)
-
-
(2,558)
(25)
-
-
$ - $ -
Balance at June 30, 2019
Impairment
Translation adjustment
Balance at June 30, 2020
Translation adjustment
Balance at June 30, 2021
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
53
E. ACCRUED LIABILITIES
Accrued liabilities at June 30 were as follows:
Customer deposits
Salaries and wages
Warranty
Distributor rebates
Retirement benefits
Other
2021
2020
$
$
13,124
10,022
3,448
3,190
1,769
13,996
11,541
5,116
3,520
3,769
3,559
8,875
$ 45,549 $ 36,380
The increase in accrued salaries and wages as of June 30, 2021 is due to an accrual for bonus as well as timing of the
payments in the payroll cycle.
F. WARRANTY
The Company warrants all assembled products, parts (except component products or parts on which written
warranties are issued by the respective manufacturers thereof and are furnished to the original customer, as to which
the Company makes no warranty and assumes no liability) and service against defective materials or workmanship.
Such warranty generally extends from periods ranging from 12 months to 24 months. 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 the Company’s 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 the Company believes that 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 during the
years ended June 30:
2021
2020
Reserve balance, July 1
Current period expense and adjustments
Payments or credits to customers
Translation adjustment
Reserve balance, June 30
$ 4,460
3,590
(3,742)
61
$ 4,369
$ 3,736
10,369
(9,629)
(16)
$ 4,460
Included in current period expense and adjustments in the year ended June 30, 2020 is a non-recurring warranty charge in
the amount of $6,233 to accrue for estimated costs to resolve a unique product performance issue at certain installations.
The current portion of the warranty accrual ($3,448 and $3,520 for fiscal 2021 and 2020, respectively) is reflected
in accrued liabilities, while the long-term portion ($921 and $940 for fiscal 2021 and 2020, respectively) is included
in other long-term liabilities on the consolidated balance sheets.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
54
G. DEBT
Long-term debt consisted of the following at June 30:
Credit Agreement Debt
Revolving loans (expire June 2023)
Term loan (due March 2026)
PPP loan
Other
Subtotal
Less: current maturities
Total long-term debt
2021
2020
$
15,415
16,500
-
170
32,085
$
16,641
17,500
8,200
246
42,587
(2,000)
30,085
$
(4,691)
37,896
$
Credit Agreement Debt:
On June 29, 2018, the Company entered into a new 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 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 $35,000 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, $50,000 (the “Revolving Credit Commitment”).
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.
On July 2, 2018, in connection with the acquisition of Veth Propulsion, the Company drew a total of $60,729 of additional
borrowings on the Credit Agreement, consisting of a $35,000 Term Loan payable and revolver borrowings of $25,729.
The new borrowing was used to pay the cash consideration at closing of $58,862, and to pay off the loan owed to the prior
parent of Veth Propulsion in the amount of $1,865.
On September 25, 2018, the Company used the proceeds of a stock offering (see Note I, Shareholders’ Equity) of
$32,210 to partially pay down the Term Loan and Revolving Loans.
On March 4, 2019, the Company entered into a second amendment (the “Second Amendment”) to the Credit
Agreement. The Second Amendment reduced the principal amount of the Term Loan commitment under the Credit
Agreement from $35,000 to $20,000. In connection with the Second Amendment, the Company issued an amended
and restated term note in the amount of $20,000 to BMO, which amended the original $35,000 note provided under
the Credit Agreement.
Prior to entering into the Second Amendment, the outstanding principal amount of the Term Loan under the Credit
Agreement was $10,849. On the date of the Second Amendment, the BMO made an additional advance on the
Term Loan to the Company in the amount of $9,151. The Second Amendment also extended the maturity date of
the Term Loan from January 2, 2020 to March 4, 2026, and added a requirement that the Company make principal
installments of $500 per quarter starting with the quarter ending June 30, 2019.
The Second Amendment also reduced the applicable margin for purposes of determining the interest rate applicable
to the Term Loan. Previously, the applicable margin was 3.00%, which was added to the Monthly Reset LIBOR
Rate or the Adjusted LIBOR, as applicable. Under the Second Amendment, the applicable margin is between
1.375% and 2.375%, depending on the Company’s total funded debt to EBITDA ratio.
The Second Amendment also adjusts certain financial covenants made by the Company under the Credit Agreement.
Specifically, the Company has covenanted (i) not to allow its total funded debt to EBITDA ratio to be greater than
3.00 to 1.00 (the cap had previously been 3.50 to 1.00 for quarters ending on or before September 30, 2019 and 3.25
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
55
to 1.00 for quarters ending on or about December 31, 2019 through September 30, 2020), and (ii) that its tangible
net worth will not be less than $100,000 plus 50% of net income for each fiscal year ending on and after June 30,
2019 for which net income is a positive number (the $100,000 figure had previously been $70,000).
On January 28, 2020, the Company entered into a third amendment (the “Third Amendment”). The Third Amendment
restated the financial covenant provisions related to the maximum allowable ratio of total funded debt to EBITDA from
3.00 to 1.00 to 4.00 to 1.00 for the quarter ended December 27, 2019, 5.00 to 1.00 for the quarter ending March 27, 2020,
4.00 to 1.00 for the quarter ending June 30, 2020, 3.50 to 1.00 for the quarter ending September 25, 2020 and 3.00 to 1.00
for quarters ending on or after December 25, 2020. For purposes of determining EBITDA, the Third Amendment added
back extraordinary expenses (not to exceed $3,900 million) related to the previously reported isolated product
performance issue on one of the Company’s oil and gas transmission models at certain installations. Under the Third
Amendment, the applicable margin for revolving loans, letters of credit, and term loans was between 1.25% and 3.375%,
depending on the Company’s total funded debt to EBITDA ratio.
On April 17, 2020, in connection with a loan obtained under the Payment Protection Plan (the “PPP Loan”) as
described below, the Company entered into a fourth amendment (the “Fourth Amendment”). The Fourth
Amendment: (1) permitted the Company to incur indebtedness in the form of the PPP Loan notwithstanding the
Credit Agreement’s restrictions limiting the Company’s ability to incur indebtedness, and (2) provides that the PPP
Loan (to the extent that the Loan is forgiven) shall be disregarded for purposes of calculating financial covenants in
the Credit Agreement (the “Covenants”). Any unforgiven portion of the Loan and the interest thereon will not be
disregarded for purposes of calculating the Covenants.
On July 22, 2020, the Company entered into a fifth amendment (the "Fifth Amendment"), which was effective
June 30, 2020. Under this amendment, (a) the Revolving Loan availability was reduced from $50,000 to $45,000,
(b) the quarterly payments occurring on September 30, 2020 and December 31, 2020 are changed to be interest-only
payments at the Company's option, and (c) the applicable margin on the Term Loan was increased from 3.375% to
3.875%. As a result of this amendment, $1,000 of principal payments originally due in fiscal 2021 have been
deferred to fiscal 2026.
In addition, the Company was given financial covenant relief for the quarters ended June 30, 2020 through June 30,
2021. During this period, in lieu of the Total Funded Debt to EBITDA ratio financial covenant, the Company is
required to maintain a minimum cumulative EBITDA, as follows: (1) $1,000 for the fiscal quarter ended June 30,
2020 and the two fiscal quarters ending September 25, 2020; (2) $2,500 for the three fiscal quarters ending
December 25, 2020; (3) $6,000 for the four fiscal quarters ending March 26, 2021; and (4) $10,000 for the four
fiscal quarters ending June 30, 2021.
The Company 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. Under the Fifth Amendment, 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.
On January 27, 2021, the Company and BMO entered into a forbearance agreement and amendment to the Credit
Agreement (the “Forbearance Agreement”). Under this agreement, BMO agreed to forbear from exercising its
rights and remedies against the Company with respect to its noncompliance with the minimum EBITDA financial
covenant, for the period beginning with the date of the amendment through September 30, 2021. After this date,
the forbearance period ends and, therefore, on December 31, 2021, the Company is subject to a total funded debt
to EBITDA ratio of 3.00 to 1.00. During the forbearance period, revolving credit commitment is reduced from
$45,000 to $42,500.
For the quarter ended June 30, 2021, as a result of the Forbearance Agreement, the Company was not required
to meet the minimum EBITDA financial covenant. The Company expects to be in compliance with the terms
of the Credit Agreement following the forbearance period, and therefore continues to classify its debt as long term.
The Company is also required to maintain a minimum liquidity level, and abide by certain cash dividend and capital
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
56
expenditure restrictions. The Company remains in compliance with its liquidity and other financial covenants, and
has agreed to provide additional financial reports to BMO.
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.
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 letter of credit obligations in an amount equal to 105% of the aggregate letter of credit 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.
In addition to the monthly interest payments and any mandatory principal payments required by the Credit
Agreement (if applicable), the Company is responsible for paying a quarterly Revolving Credit Commitment Fee
and quarterly Letter of Credit Fees. The Revolving Credit Commitment Fee is paid at an annual rate equal to the
Applicable Margin on the average daily unused portion of the Revolving Credit Commitment. The Letter of Credit
Fee is paid at the Applicable Margin for Revolving Loans that are Eurodollar Loans on the daily average face
amount of Letters of Credit outstanding during the preceding calendar quarter. The Company may prepay the
Loans (or any one of the Loans), subject to certain limitations.
The PPP Loan:
On April 17, 2020, the Company entered into a promissory note (the “PPP Loan”) evidencing an unsecured loan
in the amount of $8,200 made to the Company under the Payment Protection Plan ("PPP"). The PPP is a liquidity
facility program established by the U.S. government as part of the CARES Act in response to the negative economic
impact of the COVID-19 outbreak. The PPP Loan is funded by the Small Business Administration (“SBA”) and
administered by BMO. The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly
principal and interest payments were deferred until April 2022.
The PPP Loan is a forgivable loan to the extent proceeds are used to cover qualified documented payroll, mortgage
interest, rent, and utility costs over a 24-week measurement period (as amended) following loan funding. For the
loan to be forgiven, the Company was required to formally apply for forgiveness, and potentially, could be required
to pass an audit that it met the eligibility qualifications of the loan.
In accounting for the terms of the PPP Loan, the Company is guided by ASC 470 Debt, and ASC 450-30 Gain
contingency. Accordingly, it recorded the proceeds of the PPP Loan of $8,200 as debt and it will derecognize the liability
when the loan is paid off or it has obtained forgiveness. The Company believes that the possibility of loan forgiveness is
to be regarded as a contingent gain and therefore did not recognize the gain (and derecognize the loan) until all uncertainty
was removed (i.e. all conditions for forgiveness are met). The Company applied for forgiveness, and on June 16, 2021, it
was notified by BMO that the SBA remitted funds to BMO to repay the PPP Loan in full, evidencing that the PPP Loan
was fully forgiven. The Company removed the balance of the PPP Loan from its consolidated balance sheet and recorded
$8,200 in income from extinguishment of loan in its consolidated statement of operations in fiscal 2021.
While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit
by the SBA for a period of six years after forgiveness. The audit is intended to confirm the Company’s eligibility for the
loan and the appropriateness of the loan obtained. In accordance with ASC 450 Contingencies, the Company assessed the
probability of failing the audit and being required to repay all or any portion of the PPP Loan. The Company is aware
of the requirements and has retained all necessary documentation in support of its eligibility, including gross receipts
calculations, supporting payroll expenses and related information. The Company believes that it has materially complied
with all the requirements of the PPP and reasonably assured it would satisfy the requirements of an audit.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
57
Other:
Other long-term debt pertains mainly to a financing arrangement in Europe. During fiscal 2019, the Company
entered into sale leaseback agreements with a leasing company covering various company vehicles. Under the terms
of the agreements, the Company received $329 in cash proceeds and agreed to lease back those same vehicles under
various terms, ranging from 3 to 5 years. Under ASC 842, Leases, these agreements are required to be accounted
for as financing transactions. Consequently, the Company recorded long-term liabilities for the proceeds received,
and they are reduced as lease payments are made. These liabilities carry implied interest rates ranging from 7% to
25%. A total amount of $91 in principal was paid on these liabilities during the current fiscal year.
During fiscal year 2021, the average interest rate was 4.01% on the Term Loan, and 4.25% on the Revolving Loans.
As of June 30, 2021, the Company’s borrowing capacity under the terms of the Credit Agreement was
approximately $43,795 and the Company had approximately $27,085 of available borrowings.
The Company’s borrowings described above approximates fair value at June 30, 2021 and June 30, 2020. 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 outstanding notional
amount of $15,500 as of June 30, 2021, and maturing on March 2026. 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 R,
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 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 R, Derivative Financial Instruments.
The aggregate scheduled maturities of outstanding long-term debt obligations in subsequent years are as follows:
Fiscal Year
2022
2023
2024
2025
2026
Thereafter
$ 2,084
17,461
2,015
2,000
8,500
25
$ 32,085
Other lines of credit:
The Company has established unsecured lines of credit, which may be withdrawn at the option of the banks. Under
these arrangements, the Company has unused and available credit lines of $1,535 with a weighted average interest
rate of 5.6% as of June 30, 2021, and $943 with a weighted average interest rate of 5.6% as of June 30, 2020.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
58
H. LEASE OBLIGATIONS
The following table provides a summary of leases recorded on the consolidated balance sheet at June 30.
Balance Sheet Location
2021
2020
Lease Assets
Operating lease right-of-use assets Right-of-use assets operating leases
Finance lease right-of-use assets
Property, plant and equipment, net
$
14,736
5,244
$
14,448
959
Lease Liabilities
Operating lease liabilities
Operating lease liabilities
Finance lease liabilities
Finance lease liabilities
Accrued liabilities
Lease obligations
Accrued liabilities
Other long-term liabilities
$
1,870
12,887
541
4,836
$
1,724
12,738
233
757
The components of lease expense for the years ended June 30 were as follows:
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Less: Sublease income
Net lease cost
2021
2020
$
580
273
2,795
24
159
$
188
56
3,137
64
58
3,831
(154)
3,503
(212)
$
3,677
$
3,291
Other information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use-assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Weighted average remaining lease term (years):
Operating leases
Finance lease
Weighted average discount rate:
Operating leases
Finance leases
2021
2020
$
3,022
480
273
$
3,141
167
56
1,481
4,814
9.8
12.0
7.2%
5.2%
2,757
592
10.7
4.0
7.4%
6.2%
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
59
Approximate future minimum rental commitments under non-cancellable leases as of June 30, 2021 were as follows:
2022
2023
2024
2025
2026
Thereafter
$
Operating Leases Finance Leases
805
$
796
752
507
434
3,879
2,898
2,600
2,256
1,663
1,575
9,989
Total future lease payments
Less: Amount representing interest
20,981
(6,224)
7,173
(1,796)
Present value of future payments
$
14,757
$
5,377
I. SHAREHOLDERS' EQUITY
The total number of shares of common stock outstanding at June 30, 2021 and 2020 was 13,648,663 and
13,405,993, respectively. At June 30, 2021 and 2020, treasury stock consisted of 984,139 and 1,226,809 shares of
common stock, respectively. The Company issued 249,480 and 186,226 shares of treasury stock in fiscal 2021 and
2020, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded
forfeitures of 6,809 and 20,511 shares of previously issued restricted stock in fiscal 2021 and 2020, respectively.
The difference between the cost of treasury shares and the option price is recorded in common stock.
Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open
market purchases of its common stock. The Company did not make any open market purchases during the two most
recent fiscal years. As of June 30, 2021 and 2020, 315,000 shares remain authorized for purchase.
Cash dividends per share were $0.00 in both fiscal 2021 and 2020.
The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued. The
Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock.
The components of accumulated other comprehensive loss included in equity as of June 30, 2021 and 2020 are as follows:
2020
Translation adjustments
$ 3,454
Net loss on cash flow hedge derivatives, net of income taxes of $211 and $341, respectively (678) (1,104)
-
Net gain on net investment hedge derivatives, net of income taxes of $103 and $0, respectively 334
(31,463) (43,576)
Benefit plan adjustments, net of income taxes of $9,537 and $13,316 respectively
$ (22,615) $ (41,226)
Accumulated other comprehensive loss
2021
$ 9,192
A reconciliation for the changes in accumulated other comprehensive loss, net of tax, by component for the years
ended June 30, 2021 and June 30, 2020 is as follows:
Balance at June 30, 2020
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Cash Flow Net Investment
Benefit Plan
Adjustment
Translation
Adjustment
$ 3,454
5,738
Hedges
$ (43,576) $ (1,104) $ -
426
334
9,783
- -
- 2,330
Hedges
Net current period other comprehensive income
Balance at June 30, 2021
5,738
$ 9,192
12,113
334
426
$ (31,463) $ (678) $ 334
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
60
Balance at June 30, 2019
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive loss
Balance at June 30, 2020
Cash Flow
Hedges
Benefit Plan
Adjustment
Translation
Adjustment
$ 4,439
$ (41,901) $ (509)
(985) (3,792) (595)
-
(985) (1,675) (595)
$ (43,576) $ (1,104)
$ 3,454
- 2,117
A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended
June 30, 2021 is as follows:
Amortization of benefit plan items
Actuarial losses
Transition asset and prior service benefit
Total before tax benefit
Tax benefit
Total reclassification net of tax
Amount
Reclassified
$ (3,246)
187
(3,059)
729
$ (2,330)
A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended
June 30, 2020 is as follows:
Amortization of benefit plan items
Actuarial losses
Transition asset and prior service benefit
Total before tax benefit
Tax benefit
Total reclassification net of tax
Amount
Reclassified
$ (2,982)
195
(2,787)
670
$ (2,117)
J. BUSINESS SEGMENTS AND FOREIGN OPERATIONS
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, energy and natural
resources, government, and industrial markets.
Net sales by product group is summarized as follows:
Industrial
Land-based transmissions
Marine and propulsion systems
Other
Total
2021
2020
$ 23,454
$ 26,343
58,421
62,697
127,243
152,501
9,463
5,297
$ 218,581
$ 246,838
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
61
Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction
and oil and gas markets. The land based transmission products include applications for oil field and natural gas,
military and airport rescue and fire fighting. The marine and propulsion systems include marine transmission,
azimuth drives, controls, surface drives, propellers and boat management systems for the global commercial marine,
pleasure craft and patrol boat markets. Other includes non-Twin Disc manufactured product sold through Company-
owned distribution entities.
The Company has two reportable segments: manufacturing and distribution. Its segment structure reflects 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 earnings.
Information about the Company's segments, before intercompany eliminations, is summarized as follows:
2021
Net Sales
Intra-segment sales
Inter-segment sales
Interest income
Interest expense
Income taxes
Depreciation and amortization
Net income attributable to Twin Disc
Assets
Expenditures for segment assets
2020
Net Sales
Intra-segment sales
Inter-segment sales
Interest income
Interest expense
Income taxes
Depreciation and amortization
Net (loss) income attributable to Twin Disc
Assets
Expenditures for segment assets
Manufacturing
Distribution
Total
$
191,510
9,436
44,575
172
2,449
(980)
10,455
11,016
364,379
3,500
$
100,221
14,746
4,393
17
1
189
412
105
46,956
188
$
291,731
24,182
48,968
189
2,450
(791)
10,867
11,121
411,335
3,688
Manufacturing
Distribution
Total
$
227,565
14,230
43,854
346
2,128
(2,027)
11,151
(31,603)
365,417
9,615
$
95,824
12,889
5,578
22
-
268
379
553
43,118
734
$
323,389
27,119
49,432
368
2,128
(1,759)
11,530
(31,050)
408,535
10,349
The following is a reconciliation of reportable segment net sales and net income (loss) to the Company’s
consolidated totals:
Net sales:
Total net sales from reportable segments
Elimination of inter-company sales
Total consolidated net sales
2021
2020
$
291,731
(73,150)
$
323,389
(76,551)
$
218,581
$
246,838
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
62
Net income (loss) attributable to Twin Disc:
Total net income (loss) from reportable segments
Other adjustments and corporate expenses
$
11,121
(40,840)
$
(31,050)
(8,767)
Total consolidated net loss attributable to Twin Disc
$
(29,719)
$
(39,817)
Corporate expenses pertain to certain costs that are not allocated to the reportable segments, primarily consisting
of unallocated corporate overhead costs, including administrative functions and global functional expenses.
Other significant items:
2021
Interest income
Interest expense
Income taxes
Depreciation and amortization
Assets
Expenditures for segment assets
2020
Interest income
Interest expense
Income taxes
Depreciation and amortization
Assets
Expenditures for segment assets
Segment
Totals
Consolidated
Adjustments
Totals
$
189
2,450
(791)
10,867
411,335
3,688
$
(170)
(92)
20,471
376
(135,922)
776
$
19
2,358
19,680
11,243
275,413
4,464
$
368
2,128
(1,759)
11,530
408,535
10,349
$
(290)
(268)
(2,410)
395
(114,408)
350
$
78
1,860
(4,169)
11,925
294,127
10,699
All adjustments represent inter-company eliminations and corporate amounts.
Geographic information about the Company is summarized as follows:
Net sales
United States
Netherlands
China
Australia
Italy
Austria
Other countries
Total
2021
2020
$
64,344
33,026
25,790
17,963
16,041
7,798
53,619
$
83,771
39,501
26,354
12,438
11,802
12,552
60,420
$
218,581
$
246,838
Net sales by geographic region are based on product shipment destination.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
63
Long-lived assets primarily pertain to property, plant and equipment and exclude goodwill, other intangibles,
and deferred income taxes. They are summarized as follows:
Long-lived assets
United States
Netherlands
Belgium
Italy
Switzerland
Other countries
Total
2021
$
34,629
12,447
8,575
1,525
503
5,776
2020
$
41,996
12,659
8,363
1,697
6,804
5,205
$
63,455
$
76,724
There were no customers that accounted for 10% of consolidated net sales in fiscal 2021. The Company had one
distributor customer, primarily of its manufacturing segment, that accounted for 10% of total Company sales for
fiscal 2020.
Disaggregated revenue:
The following tables present details deemed most relevant to the users of the financial statements for the years ended
June 30, 2021 and June 30, 2020.
Net sales by product group for the year ended June 30, 2021 is summarized as follows:
Industrial
Land-based transmissions
Marine and propulsion systems
Other
Manufacturing
$
22,621
52,441
116,371
77
Distribution
5,494
$
26,003
59,276
9,448
Elimination of
Intercompany Sales
(4,661)
$
(20,023)
(48,404)
(62)
Total
$
23,454
58,421
127,243
9,463
Total
$
191,510
$
100,221
$
(73,150)
$
218,581
Net sales by product group for the year ended June 30, 2020 is summarized as follows:
Industrial
Land-based transmissions
Marine and propulsion systems
Other
Manufacturing
$
24,143
63,523
139,833
66
Distribution
5,634
$
25,699
59,212
5,279
Elimination of
Intercompany Sales
(3,434)
$
(26,525)
(46,544)
(48)
Total
$
26,343
62,697
152,501
5,297
Total
$
227,565
$
95,824
$
(76,551)
$
246,838
K. STOCK-BASED COMPENSATION
In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee
Directors (the “2020 Directors' Plan”). The 2020 Directors' Plan retains the features of the 2010 Directors' Plan,
as well as allows non-employee Directors to elect to receive all or a portion of their base cash retainer in the form
of restricted stock. Benefits under the 2020 Directors’ Plan may be granted, awarded or paid in any one or a
combination of stock options, restricted stock awards, or cash-settled restricted stock units. There is reserved for
issuance under the 2020 Directors’ Plan an aggregate of 750,000 shares of the Company's common stock, which
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
64
may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of
both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.
In fiscal 2019, the Company adopted the Twin Disc, Incorporated 2018 Long-Term Incentive Plan (the “2018 LTI
Plan”). Benefits under the 2018 LTI Plan may be granted, awarded or paid in any one or a combination of stock
options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units,
performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent
awards. There is reserved for issuance under the Plan an aggregate of 850,000 shares of the Company’s common
stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a
combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits
and similar changes.
In fiscal 2011, the Company adopted the Twin Disc, Incorporated 2010 Stock Incentive Plan for Non-Employee
Directors (the “2010 Directors’ Plan”), a plan to grant non-employee directors equity-based awards up to 250,000
shares of common stock, and the Twin Disc, Incorporated 2010 Long-Term Incentive Compensation Plan (the “2010
Employee Incentive Plan”), a plan under which officers and key employees may be granted equity-based awards up
to 650,000 shares of common stock. Equity-based awards granted under these plans include performance shares and
restricted stock.
Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are
issued at the target level of performance):
2020 Directors' Plan
2018 LTI Plan
Performance Stock Awards (“PSA”)
2020
2021
666,913
-
103,289 492,591
In fiscal 2021 and 2020, the Company granted a target number of 265,256 and 131,688 PSAs, respectively, to
various employees of the Company, including executive officers.
The PSAs granted in fiscal 2021 will vest if the Company achieves performance-based target objectives relating
to average return on invested capital, average annual sales and average free cash flow (as defined in the PSA Grant
Agreement), in the cumulative three fiscal year period ending June 30, 2023. These PSAs are subject to adjustment
if the Company’s return on invested capital, net sales, and free cash flow for the period 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 397,884. Based upon actual results to date, the Company is currently accruing
compensation expense for these PSAs.
The PSAs granted in fiscal 2020 will vest if the Company achieves performance-based target objectives relating to
average return on invested capital, average annual sales and average annual Earnings Per Share (“EPS”) (as defined
in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2022. These PSAs are
subject to adjustment if the Company’s return on invested capital, net sales, and EPS for the period 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 184,766. Based upon actual results to date, the Company is not currently accruing
compensation expense for these PSAs.
There were 388,433 and 167,848 unvested PSAs outstanding at June 30, 2021 and 2020, 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. The compensation expense (benefit) for the year ended June 30, 2021 and 2020, related PSAs,
was $491 and ($368), respectively. The tax benefit (expense) from compensation expense (benefit) for the year
ended June 30, 2021 and 2020, related PSAs, was $116 and ($87), respectively. The weighted average grant date
fair value of the unvested awards at June 30, 2021 was $7.50. At June 30, 2021, the Company had $2,432 of
unrecognized compensation expense related to the unvested shares that would vest if the specified target objective
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
65
was achieved for the fiscal 2021 and 2020 awards. The total fair value of performance stock awards vested in fiscal
2021 and fiscal 2020 was $0 and $167, respectively.
Restricted Stock Awards (“RS”)
The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value
of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years. During
fiscal 2021 and 2020, the Company granted 251,804 and 180,379 service based restricted shares, respectively, to
employees and non-employee directors in each year. A total of 6,809 and 20,511 shares of restricted stock were
forfeited during fiscal 2021 and 2020, respectively. There were 379,095 and 231,379 unvested shares outstanding
at June 30, 2021 and 2020, respectively. Compensation expense of $1,335 and $1,200 was recognized during the
year ended June 30, 2021 and 2020, respectively, related to these service-based awards. The tax benefit from
compensation expense for the year ended June 30, 2021 and 2020, related to these service-based awards, was $315
and $283, respectively. The total fair value of restricted stock grants vested in fiscal 2021 and 2020 was $533 and
$1,241, respectively. As of June 30, 2021, the Company had $1,333 of unrecognized compensation expense related
to restricted stock which will be recognized over the next three years.
Restricted Stock Unit Awards (“RSU”)
Under the 2018 Long Term Incentive Plan, the Company has been authorized to issue RSUs. The RSUs entitle the
employee to shares of common stock of the Company if the employee remains employed by the Company through
a specified date, generally three years from the date of grant. The fair value of the RSUs (on the date of grant) is recorded
as compensation expense over the vesting period. There were 34,822 and 37,950 unvested RSUs outstanding at June 30,
2021 and June 30, 2020, respectively. Compensation expense of $328 and $326 was recognized during the year ended
June 30, 2021 and 2020, respectively. The tax benefit from compensation expense for the year ended June 30, 2021 and
2020, related to these service-based awards, was $78 and $77, respectively. The weighted average grant date fair value
of the unvested awards at June 30, 2021 was $25.79. As of June 30, 2021, the Company had $25 of unrecognized
compensation expense related to RSUs which will be recognized over the next year.
L. ENGINEERING AND DEVELOPMENT COSTS
Engineering and development costs include research and development expenses for new products, development and
major improvements to existing products, and other costs for ongoing efforts to refine existing products. Research
and development costs charged to operations totaled $1,867 and $1,820 in fiscal 2021 and 2020, respectively.
Total engineering and development costs were $8,535 and $10,998 in fiscal 2021 and 2020, respectively.
M. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic
employees hired prior to October 1, 2003, and certain foreign employees. Domestic plan benefits are based on years
of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and
on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company
froze future accruals under domestic defined benefit pension plans. The Company's funding policy for the plans
covering domestic employees is to contribute an actuarially determined amount which falls between the minimum
required contribution and maximum amount that can be deducted for federal income tax purposes.
In addition, the Company has unfunded, non-qualified retirement plans for certain management employees and
Directors. In the case of management employees, benefits are based on an annual credit to a bookkeeping account,
intended to restore the benefits that would have been earned under the qualified plans, but for the earnings
limitations under the Internal Revenue Code. In the case of Directors, benefits are based on years of service on
the Board. All benefits vest upon retirement from the Company.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
66
In addition to providing pension benefits, the Company provides other postretirement benefits, including healthcare
and life insurance benefits for certain domestic retirees. All employees retiring after December 31, 1992, and
electing to continue healthcare coverage through the Company's group plan, are required to pay 100% of the
premium cost.
The measurement date for the Company’s pension and postretirement benefit plans in fiscal 2021 and 2020 was June 30.
Obligations and Funded Status
The following table sets forth the Company's defined benefit pension plans’ and other postretirement benefit plans’
funded status and the amounts recognized in the Company's balance sheets and statement of operations and
comprehensive loss as of June 30:
Change in benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Prior service cost
Actuarial (gain) loss
Contributions by plan participants
Benefits paid
Pension
Benefits
Other
Postretirement
Benefits
2021
2020
2021
2020
$ 105,520
608
2,516
65
(1,577)
114
(8,546)
$ 107,322
653
3,305
-
3,161
93
(9,014)
$ 7,059
16
154
-
(395)
269
(1,001)
$ 7,451
17
219
-
211
352
(1,191)
Benefit obligation, end of year
$ 98,700
$ 105,520
$ 6,102
$ 7,059
Change in plan assets:
Fair value of assets, beginning of year
Actual return on plan assets
Employer contribution
Contributions by plan participants
Benefits paid
$
83,284
15,325
2,253
114
(8,546)
$
87,291
3,541
1,373
93
(9,014)
-
$
-
732
269
(1,001)
-
$
-
839
352
(1,191)
Fair value of assets, end of year
$
92,430
$
83,284
$
-
$
-
Funded status
$
(6,270)
$
(22,236)
$
(6,102)
$
(7,059)
Amounts recognized in the balance sheet consist of:
Other assets - noncurrent
Accrued liabilities - current
Accrued retirement benefits - noncurrent
$
60
(423)
(5,907)
-
$
(276)
(21,960)
-
$
(833)
(5,269)
-
$
(1,081)
(5,978)
Net amount recognized
$
(6,270)
$
(22,236)
$
(6,102)
$
(7,059)
Amounts recognized in accumulated other comprehensive loss consist of (net of tax):
158
Net transition obligation
104
Prior service cost
43,548
Actuarial net loss
43,810
Net amount recognized
133
94
31,563
31,790
$
$
$
$
$
-
(487)
160
(327)
$
-
$
(697)
463
(234)
$
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
67
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net
periodic benefit cost during the next fiscal year for the qualified defined benefit and other postretirement benefit
plans are as follows:
Net transition obligation
Prior service cost
Actuarial net loss
Net amount to be recognized
Pension
Benefits
$
37
44
2,254
2,335
$
Other
Postretirement
Benefits
-
$
(275)
-
(275)
$
The accumulated benefit obligation for all defined benefit pension plans was approximately $98,700 and $105,520
at June 30, 2021 and 2020, respectively.
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected and accumulated benefit obligation
Fair value of plan assets
Components of Net Periodic Benefit Cost:
Service cost
Interest cost
Prior service cost
Expected return on plan assets
Amortization of transition obligation
Amortization of prior service cost
Amortization of actuarial net loss
Net periodic benefit cost
Service cost
Interest cost
Amortization of prior service cost
Net periodic benefit cost
June 30
2021
$
53,780
47,450
2020
$
105,520
83,284
Pension Benefits
2021
2020
$
615
2,516
65
(4,552)
40
47
3,246
$
648
3,304
-
(4,894)
35
45
2,982
$
1,977
$
2,120
Other Postretirement Benefits
2021
$
16
154
(274)
2020
$
17
219
(274)
$
(104)
$
(38)
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
68
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal
2021 (Pre-tax):
Net loss
Amortization of transition asset
Amortization of prior service (cost) benefit
Amortization of net loss
Total recognized in other comprehensive income
Net periodic benefit cost (benefit)
Total recognized in net periodic benefit cost and other
comprehensive income
Pension
$
(12,464)
(40)
(43)
(3,246)
(15,793)
1,977
Other
Postretirement
Benefits
$
(397)
-
275
-
(122)
(104)
$
(13,816)
$
(226)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal
2020 (Pre-tax):
Net loss
Amortization of transition asset
Amortization of prior service (cost) benefit
Amortization of net loss
Total recognized in other comprehensive income
Net periodic benefit cost (benefit)
Total recognized in net periodic benefit cost and other
comprehensive income
Pension
$
4,770
(35)
(45)
(2,978)
Other
Postretirement
Benefits
211
$
-
275
-
1,712
2,120
486
(38)
$
3,832
$
448
Additional Information
Assumptions
Pension Benefits
Other
Postretirement Benefits
2021
2.63%
5.69%
2020
2.49%
5.89%
2021
2.47%
2020
2.37%
Pension Benefits
Other
Postretirement Benefits
Weighted average assumptions used to
determine benefit obligations at June 30
Discount rate
Expected return on plan assets
Weighted average assumptions used to
determine net periodic benefit costs for
years ended June 30
Discount rate
Expected return on plan assets
2021
2.49%
5.89%
2020
3.22%
6.04%
2021
2.37%
2020
3.15%
The assumed weighted-average healthcare cost trend rate was 6.00% in 2021, grading down to 5% in 2025. A 1%
increase in the assumed health care cost trend would increase the accumulated postretirement benefit obligation by
approximately $81 and the service and interest cost by approximately $2. A 1% decrease in the assumed health care
cost trend would decrease the accumulated postretirement benefit obligation by approximately $71 and the service
and interest cost by approximately $2.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
69
Plan Assets
The Company’s Benefits Committee (“Committee”), a non-board management committee, oversees investment matters
related to the Company’s funded benefit plans. The Committee works with external actuaries and investment consultants
on an ongoing basis to establish and monitor investment strategies and target asset allocations. The overall objective of
the Committee’s investment strategy is to earn a rate of return over time to satisfy the benefit obligations of the pension
plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension plans. The
Committee has established an Investment Policy Statement which provides written documentation of the Company’s
expectations regarding its investment programs for the pension plans, establishes objectives and guidelines for the
investment of the plan assets consistent with the Company’s financial and benefit-related goals, and outlines criteria and
procedures for the ongoing evaluation of the investment program. The Company employs a total return on investment
approach whereby a mix of investments among several asset classes are used to maximize long-term return of plan assets
while avoiding excessive risk. Investment risk is measured and monitored on an ongoing basis through quarterly
investment portfolio reviews, and annual liability measurements.
The Company’s pension plan weighted-average asset allocations at June 30, 2021 and 2020 by asset category were
as follows:
Asset Category
Equity securities
Debt securities
Real estate
Target
Allocation
51%
40%
9%
100%
June 30
2021
53%
38%
9%
100%
2020
47%
44%
9%
100%
Due to market conditions and other factors, actual asset allocation may vary from the target allocation outlined above.
The U.S. pension plans held 98,211 shares of Company stock with a fair market value of $1,398 (1.5% of total plan assets)
at June 30, 2021 and 98,211 shares with a fair market value of $544 (0.7% of total plan assets) at June 30, 2020.
The U.S. plans have a long-term return assumption of 5.90%. This rate was derived based upon historical
experience and forward-looking return expectations for major asset class categories. The weighted average long-
term return across all plans is 5.69%.
Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The inputs used to measure fair value are
classified into the following hierarchy:
Level I
Level II Unadjusted quoted prices in active markets for similar instruments, or
Unadjusted quoted prices in active markets for identical instruments
Unadjusted quoted prices for identical or similar instruments in markets that are not active, or
Other inputs that are observable in the market or can be corroborated by observable market
data
Level III Use of one or more significant unobservable inputs
The following table presents plan assets using the fair value hierarchy as of June 30, 2021:
Cash and cash equivalents
Equity securities:
Company common stock (a)
Common stock (a)
Mutual funds (b)
Annuity contracts (c)
Total
Total
$
1,043
Level I
$
1,043
Level II
$
-
Level III
$
-
1,398
18,201
9,366
6,646
1,398
18,201
9,366
-
-
-
-
-
-
-
-
6,646
$
36,654
$
30,008
$
-
$
6,646
Investments Measured at Net Asset Value (d)
55,776
Total
$
92,430
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
70
The following table presents plan assets using the fair value hierarchy as of June 30, 2020:
Cash and cash equivalents
Equity securities:
Company common stock (a)
Common stock (a)
Mutual funds (b)
Annuity contracts (c)
Total
Total
Level I
$
920
$
920
Level II
$
-
Level III
$
-
544
14,551
7,916
6,095
544
14,551
7,916
-
-
-
-
-
-
-
-
6,095
$
30,026
$
23,931
$
-
$
6,095
Investments Measured at Net Asset Value (d)
53,258
Total
$
83,284
(a) Common stock is valued at the closing price reported on the active market on which the individual securities are
traded. These securities include U.S. equity securities invested in companies that are traded on exchanges inside the
U.S. and international equity securities invested in companies that are traded on exchanges outside the U.S.
(b) Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Company’s
funded benefit plans are open-end mutual funds that are registered with the Securities Exchange Commission.
These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual
funds held by the Company’s funded benefit plans are deemed to be actively traded.
(c) Annuity contracts represent contractual agreements in which payments are made to an insurance company,
which agrees to pay out an income or lump sum amount at a later date. Annuity contracts are valued at fair value
using the net present value of future cash flows.
(d) In accordance with ASC 820-10, certain investments that were measured at net asset value per share (or its
equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at the end of the year.
The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan
assets that calculate fair value based on NAV per share practical expedient as of June 30, 2021 and June 30, 2020:
Fixed income funds
International equity securities
Real estate
Hedged equity mutual funds
Total
2021
$
31,627
4,282
7,747
12,120
2020
$
33,032
2,840
7,186
10,200
$
55,776
$
53,258
The following tables present a reconciliation of the fair value measurements using significant unobservable inputs
(Level III) as of June 30, 2021 and 2020:
Beginning balance
Actual return on plan assets:
Relating to assets still held at reporting date
Purchases, sales and settlements, net
2021
$
6,095
2020
$
6,171
600
(49)
75
(151)
Ending balance
$
6,646
$
6,095
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
71
Cash Flows
Contributions
The Company expects to contribute $733 to its defined benefit pension plans in fiscal 2021.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
2022
2023
2024
2025
2026
Years 2027 - 2031
Pension
Benefits
Other
Postretirement
Benefits
$
8,535
7,794
7,433
7,095
6,865
31,435
$
843
769
693
608
544
2,042
The Company does not expect to make any Part D reimbursements for the periods presented.
The Company sponsors defined contribution plans covering substantially all domestic employees and certain foreign
employees. These plans provide for employer contributions based primarily on employee participation. The total
expense under the plans was $2,162 and $1,949 in fiscal 2021 and 2020, respectively.
N. INCOME TAXES
United States and foreign (loss) income before income taxes and minority interest were as follows:
United States
Foreign
2021
2020
$
(15,925)
6,086
$
(29,332)
(14,408)
$
(9,839)
$
(43,740)
The provision (benefit) for income taxes is comprised of the following:
Currently payable:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2021
2020
$
28
49
1,948
$
(149)
30
4,022
2,025
15,554
2,341
(240)
17,655
3,903
(5,673)
(860)
(1,539)
(8,072)
$
19,680
$
(4,169)
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
72
The components of the net deferred tax asset as of June 30 are summarized in the table below.
2021
2020
Deferred tax assets:
Retirement plans and employee benefits
Foreign tax credit carryforwards
Federal tax credits
State net operating loss and other state credit carryforwards
Federal net operating loss
Inventory
Reserves
Foreign NOL carryforwards
Accruals
Right of use assets - operating leases
Disallowed interest
Disallowed PPP expenses
Other assets
$
4,584
7,609
1,801
2,208
6,506
-
1,670
66
871
3,674
982
-
1,033
Valuation allowance
Deferred tax liabilities:
Inventory
Property, plant and equipment
Intangibles
Long term operating lease obligations
Other liabilities
31,004
(24,420)
6,584
480
1,852
2,982
3,622
182
9,118
$
7,934
7,429
1,585
1,696
1,607
205
1,056
555
823
3,920
418
1,320
832
29,380
-
29,380
-
3,231
3,306
3,855
44
10,436
Total net deferred tax (liabilities) assets
$
(2,534)
$
18,944
At June 30, 2021 the Company has net operating loss carryforwards (“NOLs”) of approximately $30,980 and $31,181 for federal
and state income tax purposes which will expire at various dates from fiscal year 2023 – 2041. Federal NOLs were generated
subsequent to fiscal 2019 and have an indefinite carryover period. The Company has federal and state tax credit carryforwards
of approximately $9,780 and $1,037, respectively, which will expire at various dates from fiscal 2026 – 2041.
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. The Company has
evaluated the likelihood of whether the net deferred tax assets would be realized and concluded that it is more likely
than not that all of deferred tax assets would not be realized. Management believes that it is more likely than not
that the results of future operations will not generate sufficient taxable income and foreign source income to realize
all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $24,420 has been recorded for
fiscal year 2021.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
73
Following is a reconciliation of the applicable U.S. federal income taxes to the actual income taxes reflected in the
statements of operations:
U.S. federal income tax at 21%
Increases (reductions) in tax resulting from:
Foreign tax items
State taxes
Change in prior year estimate
Nondeductible PPP loan expenses
Research and development tax credits
Goodwill impairment
Unrecognized tax benefits
Stock compensation
Rate changes
Deferred tax basis adjustments
GILTI inclusion
Valuation allowance
Other, net
2021
2020
$
(2,066)
$
(9,185)
552
(440)
(1,138)
(1,722)
(336)
-
59
252
18
42
-
24,420
39
236
(716)
(213)
-
(412)
4,814
9
(93)
237
(138)
1,220
-
72
$
19,680
$
(4,169)
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the Internal Revenue Code. The
Tax Act is generally applicable for tax years beginning after December 31, 2017, which is the Company’s fiscal year
2018. However, several provisions of the Tax Act have differing effective dates, meaning these provisions did not impact
the Company’s financial statements until fiscal year 2019. The provisions impacting the Company’s fiscal year 2019
financial statements include the global intangible low taxed income (“GILTI”) income and foreign-derived intangible
income (“FDII”) deduction and limitations on the deductibility of executive compensation.
Changes in the tax treatment of certain items have been reflected during the current quarter, chief among them the
impact on the effective tax rate related to the non-taxable treatment of $8,200 of forgiven PPP loans included in net
loss, as well as the impact of deferred employer Social Security tax payments.
Executive Compensation Limitations: The Tax Act substantially modifies the limitation on corporate deductibility of
executive compensation under Section 162(m) of the Code. Section 162(m) limits the deduction for compensation paid
by a publicly held corporation to certain of its executive employees to $1,000 per year. The Tax Act has amended the
definition of “covered employee” to correspond to the general SEC reporting requirements for named executive officers.
These are the corporation’s principal executive officer, principal financial officer, and the next three highest-paid executive
officers. Most significantly, the Tax Act has eliminated the exemptions for commissions and performance-based
compensation. This did not have an impact on the Company’s effective tax rate in fiscal year 2021 and 2020.
Global Intangible Low Taxed Income (“GILTI”): The Tax Act changed the foreign source income calculations
and related foreign tax credit amounts. The GILTI require 10% domestic shareholders (“U.S. Shareholders”) of
controlled foreign corporations (“CFC’s”) to include in gross income annually the U.S. Shareholders’ pro rata share
of GILTI for the year. The High Tax Exception (“HTE") rules were finalized and applicable for the Company
during fiscal year 2021. Accordingly, the Company may exclude from the GILTI inclusion tested income from
tested units with an effective tax rate greater than 18.9%. The Company was able to take advantage of this high tax
exception, which resulted in zero GILTI inclusion in the Company’s effective tax rate for fiscal year 2021. In fiscal
year 2020, the GILTI inclusion was $1,220.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
74
Foreign Derived Intangible Income (“FDII”): The Tax Act provides companies with a new permanent deduction.
An incentive for C corporations to generate revenue from serving foreign markets, the provision applies a
preferential tax rate to eligible income. The new tax law assumes a fixed rate of return on a corporation’s tangible
assets. Any remaining income is deemed to be generated by intangible assets. This did not have an impact on the
Company’s effective tax rate in fiscal year 2021 and 2020.
The Company has not provided additional U.S. income taxes on cumulative earnings of its consolidated foreign
subsidiaries that are considered to be reinvested indefinitely. The Company reaffirms its position that the earnings
of those subsidiaries remain permanently invested and has no plans to repatriate funds from any permanently
reinvested subsidiaries to the U.S. for the foreseeable future. These earnings relate to ongoing operations and were
approximately $10,871 and $1,729 at June 30, 2021 and June 30, 2020, respectively. Such earnings could become
taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company’s
intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax
effective through the utilization of foreign tax credits.
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 are 2017 through 2021 for our major operations in
Belgium, Japan, Netherlands, Singapore and Australia. The tax years open to examination in the U.S. are for years
subsequent to fiscal 2017.
The Company has approximately $778 and $918 of unrecognized tax benefits as of June 30, 2021 and June 30,
2020, respectively, which, if recognized, would impact the effective tax rate. During the fiscal year the amount of
unrecognized tax benefits decreased primarily due to settlements with tax authorities. No material changes are
expected to the reserve during the next 12 months. The Company’s policy is to accrue interest and penalties related
to unrecognized tax benefits in income tax expense.
Below is a reconciliation of beginning and ending amount of unrecognized tax benefits as of June 30:
Unrecognized tax benefits, beginning of year
Additions based on tax positions related to the prior year
Additions based on tax positions related to the current year
Reductions based on tax positions related to the prior year
Subtractions due to statutes closing
Settlements with taxing authorities
2021
$
918
-
2020
$
938
17
66
(21)
-
(185)
87
(19)
(105)
-
Unrecognized tax benefits, end of year
$
778
$
918
Substantially all of the Company’s unrecognized tax benefits as of June 30, 3021, if recognized, would affect the
effective tax rate. As of June 30, 2021 and 2020, the amounts accrued for interest and penalties totaled $141 and
$185, respectively, and are not included in the reconciliation above.
O. CONTINGENCIES
The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, are 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, either individually or in the aggregate.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
75
P. RESTRUCTURING OF OPERATIONS AND INCOME FROM EXTINGUISHMENT OF LOAN
Restructuring expenses
The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends
in certain of the Company’s markets since the fourth quarter of fiscal 2015. These programs primarily involved the
reduction of workforce in several of the Company’s manufacturing locations, under a combination of voluntary
and involuntary programs. During the fourth quarter of fiscal 2021, the Company undertook a series of steps to
accelerate its focus on its core competencies, improve its fixed cost structure, and monetize some of its under-
utilized assets.
With regard to its Belgian operations, on June 30, 2021, the Company announced a new phase in its restructuring
plans. Under this plan, the Belgian operation’s workforce will be reduced by 23 employees. This reduction in force
resulted in an accrual of $2,200, pertaining to the Company’s current estimate for the payment of severance benefits,
which is expected to be completed by December 2022. The accrual will be adjusted as negotiations with the union
representing certain of the affected employees commence and progress. The action was taken to allow the Belgian
operation to focus resources on core manufacturing processes, while allowing for savings on the outsourcing of non-
core processes. The Company anticipates annual pre-tax savings upon completion of the restructuring of
approximately $1,600.
Total restructuring charges relating to streamlining operations amounted to $3,110 and $1,953 in fiscal 2021 and
2020, respectively. Restructuring activities since June 2015 have resulted in the elimination of 252 full-time
employees in the manufacturing segment. Accumulated costs to date under these programs within the
manufacturing segment through June 30, 2021 were $15,515.
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 three of its real estate properties, namely, its corporate headquarters in Racine, its propeller
machining plant and office in Switzerland, and a spare warehouse in Italy during the fourth quarter of fiscal 2021.
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 corporate headquarters by $4,267.
On August 17, 2021, the Company signed an agreement to sell the propeller machining plant and office in
Switzerland and received 600 Swiss francs as partial proceeds.
The following is a roll-forward of restructuring activity:
Accrued restructuring liability, June 30, 2019
Additions
Payments and adjustments
Accrued restructuring liability, June 30, 2020
Additions
Payments and adjustments
Accrued restructuring liability, June 30, 2021
-
$
5,138
(5,054)
84
7,377
(5,109)
2,352
$
Income from extinguishment of loan
As discussed in Note G, Debt, on June 16, 2021, the Company received formal forgiveness of its PPP Loan in the
amount of $8,200. In accordance with ASC 470 Debt and ASC 450-30 Gain contingency, the Company recorded
$8,200 in income from extinguishment of loan in its condensed consolidated statement of operations in fiscal 2021.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
76
Q. 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. Restricted stock award recipients
under the 2010 LTI Plan 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.
The components of basic and diluted earnings per share were as follows:
Basic:
Net loss
Less: Net earnings attributable to noncontrolling interest
Less: Undistributed earnings attributable to unvested shares
Net loss available to Twin Disc shareholders
2021
2020
$
$
(29,519)
(200)
-
(29,719)
(39,571)
(246)
-
(39,817)
Weighted average shares outstanding - basic
13,247
13,153
Basic Loss Per Share:
Net loss per share - basic
Diluted:
Net loss
Less: Net earnings attributable to noncontrolling interest
Less: Undistributed earnings attributable to unvested shares
Net loss available to Twin Disc shareholders
Weighted average shares outstanding - basic
Effect of dilutive stock awards
Weighted average shares outstanding - diluted
Diluted Loss Per Share:
Net loss per share - diluted
$
(2.24)
$
(3.03)
$
$
(29,519)
(200)
-
(29,719)
13,247
-
13,247
(39,571)
(246)
-
(39,817)
13,153
-
13,153
$
(2.24)
$
(3.03)
The following potential common shares were excluded from diluted EPS for the year ended June 30, 2021 as the
Company reported a net loss: 388,433 related to the Company’s unvested PSAs, 379,095 related to the Company’s
unvested RS awards, and 34,822 related to the Company’s unvested RSUs.
The following potential common shares were excluded from diluted EPS for the year ended June 30, 2020 as the
Company reported a net loss: 167,848 related to the Company’s unvested PSAs, 231,379 related to the Company’s
unvested RS awards, and 37,950 related to the Company’s unvested RSUs.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
77
R. DERIVATIVE FINANCIAL INSTRUMENTS
The Company reports all derivative instruments on its consolidated balance sheets at fair value and establishes
criteria for designation and effectiveness of transactions entered into for hedging purposes.
As a global organization, the Company faces exposure to market risks, such as fluctuations in foreign currency
exchange rates, interest rates and commodity prices. To manage the volatility relating to these exposures, the
Company enters into various derivative instruments from time to time under its risk management policies. The
Company designates derivative instruments as hedges on a transaction basis to support hedge accounting. The
changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair
value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing
effectiveness of its hedging relationships in accordance with its policy. 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.
Interest Rate Swaps Designated as Cash Flow Hedges
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 LIBOR-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 consolidated statements of operations
and comprehensive loss. 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 losses related to cash flow hedging activities that were included in accumulated other
comprehensive loss were $678 and $1,104 for the years ended June 30, 2021 and 2020, 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 $346 of net unrealized losses related to cash flow hedging activities included in
accumulated other comprehensive loss will be reclassified into earnings within the next twelve months.
Derivatives Designated as Net Investment Hedges
The Company is exposed to foreign currency exchange risk related to its investment in net assets in foreign
countries. As discussed in Note G, Debt, 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 fair value
of the euro revolver were then reported in accumulated other comprehensive loss along with the foreign currency
translation adjustments on those foreign investments. Net unrealized after-tax income related to net investment
hedging activities that were included in accumulated other comprehensive loss were $334 and $0 for the years
ended June 30, 2021 and 2020, respectively.
Foreign Currency Forward Contracts Not Designated as Hedges
The Company primarily enters into forward exchange contracts to reduce the earnings and cash flow impact of non-
functional currency denominated receivables and payables. These contracts are highly effective in hedging the cash
flows attributable to changes in currency exchange rates. Gains and losses resulting from these contracts offset the
foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward
exchange contracts generally coincide with the settlement dates of the related transactions. Gains and losses on
these contracts are recorded in other expense, net in the consolidated statement of operations and comprehensive
loss as the changes in the fair value of the contracts are recognized and generally offset the gains and losses on the
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
78
hedged items in the same period. The primary currency to which the Company was exposed in fiscal 2021 and 2020
was the euro. At June 30, 2021 and 2020, there were no significant forward exchange contracts outstanding.
Other Derivative Instruments
The Company does not utilize commodity price hedges to manage commodity price risk exposure. Likewise, the
Company does not hedge the translation exposure represented by the net assets of its foreign subsidiaries.
Fair Value of Derivative Instruments
The Company’s interest rate swaps and foreign currency forward contracts are recorded at fair value on the
consolidated balance sheets using a discounted cash flow analysis that incorporates observable market inputs. These
market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained
from pricing data quoted by various banks, third-party sources and foreign currency dealers involving identical or
comparable instruments (Level 2).
Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings
on some of the Company’s counterparties may change during the term of the financial instruments. The Company
closely monitors its counterparties’ credit ratings and, if necessary, will make any appropriate changes to its
financial instruments. The fair value generally reflects the estimated amounts that the Company would receive
or pay to terminate the contracts at the reporting date.
As discussed in Note G, Debt, the Company's euro denominated Revolving Loan approximates fair value at June 30,
2021 and June 30, 2020. If measured at fair value in the financial statements, it would be classified as Level 2 in the
fair value hierarchy.
The fair value of derivative instruments included in the consolidated balance sheets at June 30 were as follows:
Derivatives designated as hedges:
Interest rate swaps
Interest rate swaps
Accrued liabilities
Other long-term liabilities
$
346
542
$
392
1,052
Balance Sheet Location
2021
2020
The impact of the Company’s derivative instruments on the consolidated statement of operations and comprehensive
loss for the years ended June 30 was as follows:
Derivatives designated as hedges:
Interest rate swap
Interest rate swap
Net investment hedge
Derivatives not designated as hedges:
Foreign currency forward contracts
Statement of Comprehensive
Loss Location
2021
2020
Interest expense
Unrealized gain (loss) on hedges
Unrealized gain (loss) on hedges
$
399
425
335
$
171
(595)
-
Other income (expense), net
$
(15)
$
(9)
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
79
TWIN DISC, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 2021 and 2020 (in thousands)
Balance at
Charged to
Beginning
Costs and
of Period
Expenses
Adjustments
(1)
Balance at
End of
Period
Description
2021:
Allowance for losses on
accounts receivable
$ 1,740 $ 346 $ 216 $ 1,870
Reserve for inventory
obsolescence
$ 9,863 $ 1,178 $ 762 $ 10,279
Deferred tax valuation
allowance
$ -
$ 24,420 $ -
$ 24,420
2020:
Allowance for losses on
accounts receivable
$ 1,582 $ 399 $ 241 $ 1,740
Reserve for inventory
obsolescence
$ 10,463 $ 1,532 $ 2,132 $ 9,863
(1) Activity primarily represents amounts written-off during the year, along with other adjustments (primarily
foreign currency translation adjustments).
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
80
Included
Herewith
Included
Herewith
X
EXHIBIT INDEX
Exhibit
Description
TWIN DISC, INCORPORATED
10-K for Year Ended June 30, 2021
3a)
3b)
3b)
Restated Articles of Incorporation of Twin Disc, Incorporated
(Incorporated by reference to Exhibit 3.1 of the Company's Form 8-K
dated December 6, 2007). File No. 001-07635.
Articles of Amendment to the Restated Articles of Incorporation of
Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of
the Company's Form 8-K dated October 29, 2020). File No. 001-07635.
Restated Bylaws of Twin Disc, Incorporated, as amended through
October 29, 2020 (Incorporated by reference to Exhibit 3.2 of the
Company's Form 8-K dated October 29, 2020). File No. 001-07635.
Exhibit 10 Material Contracts
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
Director Tenure and Retirement Policy
The 2020 Stock Incentive Plan for Non-Employee Directors
(Incorporated by reference to Appendix A of the Proxy Statement for
the Annual Meeting of Shareholders held on October 29, 2020). File
No. 001-07635.
The Twin Disc, Incorporated 2018 Long-Term Incentive
Compensation Plan (Incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K dated August 6, 2018). File No. 001-07635.
The Twin Disc, Incorporated 2021 Long-Term Incentive
Compensation Plan (Incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K dated August 10, 2021). File No. 001-07635.
Form of Restricted Stock Award Grant Agreement for restricted stock
grants on May 1, 2019 (Incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K dated May 3, 2019). File No. 001-07635.
Form of Performance Stock Award Grant Agreement for award of
performance shares on May 1, 2019 (Incorporated by reference to
Exhibit 10.2 of the Company’s Form 8-K dated May 3, 2019). File
No. 001-07635.
Form of Performance Stock Award Grant Agreement for award of
performance shares on August 1, 2019 (Incorporated by reference to
Exhibit 10.1 of the Company’s Form 8-K dated August 7, 2019). File
No. 001-07635.
Form of Restricted Stock Award Grant Agreement for restricted stock
grants on August 1, 2019 (Incorporated by reference to Exhibit 10.2 of
the Company’s Form 8-K dated August 7, 2019). File No. 001-07635.
Form of Performance Stock Award Grant Agreement for award of
performance shares on October 31, 2019 (Incorporated by reference
to Exhibit 10.1 of the Company’s Form 8-K dated November 5,
2019). File No. 001-07635.
Form of Restricted Stock Award Grant Agreement for restricted
stock grants on October 31, 2019 (Incorporated by reference to
Exhibit 10.2 of the Company’s Form 8-K dated November 5, 2019).
File No. 001-07635.
Form of Performance Stock Award Grant Agreement for award of
performance shares on August 6, 2020 (Incorporated by reference to
Exhibit 10.1 of the Company’s Form 8-K dated August 12, 2020).
File No. 001-07635.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
81
l)
m)
n)
o)
p)
q)
r)
s)
t)
u)
v)
w)
x)
y)
Form of Restricted Stock Award Grant Agreement for restricted stock
grants on August 6, 2020 (Incorporated by reference to Exhibit 10.2 of
the Company’s Form 8-K dated August 12, 2020). File No. 001-07635.
Form of Performance Stock Award Grant Agreement for award of
performance shares on August 4, 2021 (Incorporated by reference to
Exhibit 10.2 of the Company’s Form 8-K dated August 10, 2021).
File No. 001-07635.
Form of Restricted Stock Unit Grant Agreement for restricted stock
units granted on August 4, 2021 (Incorporated by reference to
Exhibit 10.3 of the Company’s Form 8-K dated August 10, 2021).
File No. 001-07635.
Twin Disc, Incorporated Supplemental Executive Retirement Plan,
amended and restated as of July 29, 2010 (Incorporated by reference
to Exhibit 10.4 of the Company’s Form 8-K dated August 4, 2010).
File No. 001-07635.
Forms of Change in Control Severance Agreements (Incorporated by
reference to Exhibits 10.4, 10.5 and 10.6 of the Company’s Form 8-
K dated August 6, 2018). File No. 001-07635.
Form of Indemnity Agreement (Incorporated by reference to Exhibit
10.5 of the Company’s Form 8-K dated August 2, 2005). File No.
001-07635.
Credit Agreement Between Twin Disc, Incorporated and BMO
Harris Bank, dated June 29, 2018 (Incorporated by reference to
Exhibit 10.1 of the Company’s Form 8-K dated July 3, 2018). File
No. 001-07635.
Amendment and Assignment of Revolving Loan Note between Bank
of Montreal and BMO Harris Bank, N.A., dated June 29, 2018.
(Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-
K dated July 3, 2018). File No. 001-07635.
Assignment of and Amendment to Security Agreement By and
Among Bank of Montreal, BMO Harris Bank, N.A., and Twin Disc,
Incorporated, dated June 29, 2018. (Incorporated by reference to
Exhibit 10.3 of the Company’s Form 8-K dated July 3, 2018). File
No. 001-07635.
Assignment of and Amendment to IP Security Agreement By and
Among Bank of Montreal, BMO Harris Bank, N.A., and Twin Disc,
Incorporated, dated June 29, 2018. (Incorporated by reference to
Exhibit 10.4 of the Company’s Form 8-K dated July 3, 2018). File
No. 001-07635.
Assignment of and Amendment to Pledge Agreement By and Among
Bank of Montreal, BMO Harris Bank, N.A., Twin Disc,
Incorporated, and Mill-Log Equipment Co., Inc., dated June 29,
2018. (Incorporated by reference to Exhibit 10.5 of the Company’s
Form 8-K dated July 3, 2018). File No. 001-07635.
Assignment of and Amendment to the Guaranty Agreement By and
Among Bank of Montreal, BMO Harris Bank, N.A., and Mill-Log
Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference
to Exhibit 10.6 of the Company’s Form 8-K dated July 3, 2018). File
No. 001-07635.
Assignment of and Amendment to Guarantor Security Agreement By
and Among Bank of Montreal, BMO Harris Bank, N.A., and Mill-
Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by
reference to Exhibit 10.7 of the Company’s Form 8-K dated July 3,
2018). File No. 001-07635.
Assignment of and Amendment to Negative Pledge Agreement By
and Among Twin Disc, Incorporated, Bank of Montreal, and BMO
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
82
z)
aa)
bb)
cc)
dd)
ee)
ff)
gg)
hh)
ii)
jj)
kk)
ll)
Harris Bank N.A., dated June 29, 2018. (Incorporated by reference to
Exhibit 10.8 of the Company’s Form 8-K dated July 3, 2018). File
No. 001-07635.
Collateral Assignment of Rights under Purchase Agreement from
Twin Disc, Incorporated and Twin Disc NL Holding B.V. in favor of
BMO Harris Bank N.A., dated July 2, 2018. (Incorporated by
reference to Exhibit 10.9 of the Company’s Form 8-K dated July 3,
2018). File No. 001-07635.
First Amendment to June 29, 2018 Credit Agreement between Twin
Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by
reference to Exhibit 1.2 of the Company’s Form 8-K dated
September 21, 2018). File No. 001-07635.
Amendment No. 2 to June 29, 2018 Credit Agreement between Twin
Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by
reference to Exhibit 1.1 of the Company’s Form 8-K dated March 6,
2019). File No. 001-07635.
Amended and Restated Term Note between Twin Disc, Incorporated
and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of
the Company’s Form 8-K dated March 6, 2019). File No. 001-07635.
Amendment No. 3 to June 29, 2018 Credit Agreement between Twin
Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by
reference to Exhibit 1.1 of the Company’s Form 8-K dated January
30, 2020). File No. 001-07635.
Promissory Note dated April 17, 2020, entered into by Twin Disc,
Incorporated, as borrower, for the benefit of BMO Harris Bank,
N.A., as lender (Incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K dated April 21, 2020). File No. 001-07635.
Amendment No. 4 to June 29, 2018 Credit Agreement between Twin
Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by
reference to Exhibit 1.2 of the Company’s Form 8-K dated April 21,
2020). File No. 001-07635.
Amendment No. 5 to June 29, 2018 Credit Agreement between Twin
Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by
reference to Exhibit 1.1 of the Company’s Form 8-K dated July 28,
2020). File No. 001-07635.
Forbearance Agreement and Amendment No. 6 to June 29, 2018
Credit Agreement between Twin Disc, Incorporated and BMO Harris
Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the
Company’s Form 8-K dated January 29, 2021). File No. 001-07635.
Second Amended and Restated Revolving Note between Twin Disc,
Incorporated and BMO Harris Bank, N.A. (Incorporated by reference
to Exhibit 1.2 of the Company’s Form 8-K dated July 28, 2020). File
No. 001-07635.
Form of Deposit Account Control Agreement between Twin Disc,
Incorporated and BMO Harris Bank, N.A. (Incorporated by reference
to Exhibit 1.3 of the Company’s Form 8-K dated July 28, 2020). File
No. 001-07635.
ISDA Master Agreement and Schedule, dated April 11, 2019,
between Twin Disc, Incorporated and Bank of Montreal
(Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-
K dated April 26, 2019). File No. 001-07635.
Confirmation of swap transaction, dated April 22, 2019, from Bank
of Montreal to Twin Disc, Incorporated (Incorporated by reference to
Exhibit 10.2 of the Company’s Form 8-K dated April 26, 2019). File
No. 001-07635.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
83
Exhibit
21
23a
24
31a
31b
32a
32b
Description
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification
Certification
Certification pursuant to 18 U.S.C. Section 1350
Certification pursuant to 18 U.S.C. Section 1350
Herewith
X
X
X
X
X
X
X
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document, filed herewith
XBRL Schema Document, filed herewith
XBRL Calculation Linkbase Document, filed herewith
XBRL Definition Linkbase Document, filed herewith
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TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
September 2, 2021
TWIN DISC, INCORPORATED
By: /s/ JOHN H. BATTEN
John H. Batten
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
September 2, 2021
September 2, 2021
September 2, 2021
September 2, 2021
September 2, 2021
By: /s/ DAVID B. RAYBURN
David B. Rayburn
Chairman of the Board
By: /s/ JOHN H. BATTEN
John H. Batten
Chief Executive Officer
By: /s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary
By: /s/ DEBBIE A. LANGE
Debbie A. Lange
Corporate Controller (Chief Accounting Officer)
Michael Doar, Director
Janet P. Giesselman, Director
David W. Johnson, Director
Michael C. Smiley, Director
Harold M. Stratton II, Director
By: /s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary (Attorney in Fact)
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
85
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Twin Disc, Incorporated, the registrant (a Wisconsin Corporation) owns directly or indirectly 100% of the following
subsidiaries:
1. Twin Disc International, S.P.R.L. (a Belgian corporation)
2. Twin Disc Srl (an Italian corporation)
3. Rolla Sp Propellers SA (a Swiss corporation)
4. Twin Disc (Pacific) Pty. Ltd. (an Australian corporation)
5. Twin Disc (Far East) Ltd. (a Delaware corporation operating in Singapore and Hong Kong)
6. Twin Disc (Far East) Pte. Ltd. (a Singapore corporation)
7. Twin Disc Japan (a Japanese corporation)
8. Twin Disc Power Transmission Private, Ltd. (an Indian limited liability corporation)
9. Twin Disc Power Transmission (Shanghai) Co. Ltd. (a Chinese corporation)
10. Twin Disc Netherlands Holdings B.V. (a Netherlands corporation)
11. Twin Disc NL Holding B.V. (a Netherlands corporation)
12. Veth Propulsion Holding B.V. (a Netherlands corporation)
13. Veth Propulsion B.V. (a Netherlands corporation)
14. Twin Disc European Distribution S.P.R.L (a Belgian corporation)
Twin Disc, Incorporated also owns 66% of Twin Disc Nico Co. LTD. (a Japanese corporation).
The registrant has neither a parent nor any other subsidiaries. All of the above subsidiaries are included in the
consolidated financial statements.
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
86
EXHIBIT 23a
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-228245 and 333-249730 on
Form S-8 and No. 333-227130 on Form S-3) of Twin Disc, Incorporated of our reports dated September 2, 2021,
relating to the consolidated financial statements, the financial statement schedule and the effectiveness of internal
control over financial reporting of Twin Disc, Incorporated, appearing in this Annual Report on Form 10-K of Twin
Disc, Incorporated for the year ended June 30, 2021.
Our report dated September 2, 2021, on the effectiveness of internal control over financial reporting as of June 30,
2021, expressed an opinion that Twin Disc, Incorporated had not maintained effective internal control over financial
reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
/s/ RSM US LLP
Milwaukee, Wisconsin
September 2, 2021
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
87
.
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of Twin Disc, Incorporated hereby severally constitute John H. Batten and Jeffrey S.
Knutson, and each of them singly, true and lawful attorneys with full power to them, and each of them, singly,
to sign for us and in our names as directors the Form 10-K Annual Report for the fiscal year ended June 30, 2021
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, and generally do all such things in our
names and behalf as directors to enable Twin Disc, Incorporated to comply with the provisions of the Securities
and Exchange Act of 1934 and all requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures so they may be signed by our attorneys, or either of them, as set forth below.
/s/ MICHAEL DOAR
Michael Doar, Director
/s/ JANET P. GIESSELMAN
Janet P. Giesselman, Director
/s/ DAVID W. JOHNSON
David W. Johnson, Director
/s/ DAVID B. RAYBURN
David B. Rayburn, Director
/s/ MICHAEL C. SMILEY
Michael C. Smiley, Director
/s/ HAROLD M. STRATTON II
Harold M. Stratton II, Director
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August 5, 2021
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
88
EXHIBIT 31a
CERTIFICATIONS
I, John H. Batten, certify that:
1.
I have reviewed this annual report on Form 10-K of Twin Disc, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: September 2, 2021
By: /s/ JOHN H. BATTEN
John H. Batten
Chief Executive Officer
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
89
EXHIBIT 31b
CERTIFICATIONS
I, Jeffrey S. Knutson, certify that:
1.
I have reviewed this annual report on Form 10-K of Twin Disc, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: September 2, 2021
/s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
90
EXHIBIT 32a
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Twin Disc, Incorporated (the “Company”) on Form 10-K for the
fiscal year ending June 30, 2021, as filed with the Securities and Exchange Commission as of the date hereof (the
“Report”), I, John H. Batten, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
the Report fully complies with Section 13(a) of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: September 2, 2021
By: /s/ JOHN H. BATTEN
John H. Batten
Chief Executive Officer
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
91
EXHIBIT 32b
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Twin Disc, Incorporated (the “Company”) on Form 10-K for the
fiscal year ending June 30, 2021, as filed with the Securities and Exchange Commission as of the date hereof (the
“Report”), I, Jeffrey S. Knutson, Vice President - Finance, Chief Financial Officer, Treasurer and Secretary of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:
(1)
(2)
the Report fully complies with Section 13(a) of the Securities Exchange Act of 1934, and
the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: September 2, 2021
By: /s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
TWIN DISC, INCORPORATED 2021 ANNUAL REPORT
92
5 - Y E A R F I N A N C I A L S U M M A R Y
(Dollar amounts in thousands, except per share statistics)
Statements of Operations and Comprehensive
(Loss) Income
Net sales
Cost and expenses, including marketing, engineering
and administrative
(Loss) income from operations
Other income (expense)
(Loss) income before income taxes and
noncontrolling interest
Income taxes
Noncontrolling interest
Net (loss) income attributable to Twin Disc
Balance Sheet
Assets
Cash
Accounts receivable, net
Inventories
Other current assets
Total current assets
Intangibles, goodwill and other assets
Property, plant and equipment, net
Total assets
Liabilities and Equity
Current liabilities
Long-term debt
Deferred liabilities
Total equity
Noncontrolling interest
Total liabilities and equity
Comparative Financial Information
Per share statistics
Basic (loss) income
Diluted (loss) income
Dividends
Total equity
Return on equity
Return on assets
Return on sales
Average basic shares outstanding
Average diluted shares outstanding
Number of shareholder accounts
Number of employees
Additions to property, plant and equipment
Depreciation
Net working capital
2021
2020
2019
2018
2017
$ 218,581
230,851
$ 246,838
287,089
$ 302,663
284,165
$ 240,733
224,585
$ 168,182
177,160
(12,270)
2,431
(9,839)
19,680
(200)
(29,719)
(40,251)
(3,489)
(43,740)
(4,169)
(246)
(39,817)
18,498
(3,991)
14,507
3,711
(123)
10,673
16,148
(1,728)
14,420
4,773
(119)
9,528
(8,978)
(551)
(9,529)
(3,414)
(179)
(6,294)
$ 12,340
39,491
114,967
25,169
191,967
23,247
60,199
275,413
$ 78,560
30,085
36,108
130,210
450
275,413
$ (2.24)
$ (2.24)
–
9.83
-22.8%
-10.8%
-13.6%
13,246,501
13,246,501
403
743
$ 4,464
7,853
113,407
$ 10,688
30,682
120,607
12,008
173,985
47,410
72,732
294,127
$ 66,734
37,896
49,539
139,389
569
294,127
$ (3.03)
(3.03)
–
10.60
-28.6%
-13.5%
-16.1%
13,153,330
13,153,330
405
806
$ 10,699
7,394
107,251
$ 12,362
44,013
125,893
20,101
202,369
73,243
71,258
346,870
$ 73,077
40,491
50,484
182,216
602
346,870
$ 0.84
0.83
–
14.49
5.9%
3.1%
3.5%
12,571,013
12,681,574
415
873
$ 11,979
6,682
129,292
$ 15,171
45,422
84,001
14,675
159,269
26,504
55,467
241,240
$ 62,344
4,824
30,456
142,997
619
241,240
$ 0.82
0.82
–
12.66
6.7%
3.9%
4.0%
11,294,914
11,395,072
435
696
$ 6,328
6,315
96,925
$ 16,367
31,392
66,193
15,482
129,434
33,252
48,212
210,898
$ 44,523
6,323
36,485
122,921
646
210,898
$ (0.56)
(0.56)
–
10.94
-5.1%
-3.0%
-3.7%
11,239,474
11,239,474
484
672
$ 3,133
6,849
84,911
T W I N D I S C, I N C. 2021 A N N UA L R E P O RT
93
1328 Racine Street, Racine, Wisconsin 53403 USA
twindisc.com