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T W I N D I S C , I N C O R P O R A T E D
ENER GI ZE D
A N N U A L R E P O R T 2 0 2 3
TWIN DISC, INCORPORATED • MILWAUKEE, WISCONSIN, USA • 262-638-4000 • TWINDISC.COM
©2023 TWIN DISC, INCORPORATED
2023
TO OUR SHAREHOLDERS
A Letter from John H. Batten, President and Chief Executive Officer
Around the world, fiscal 2023 was another year marked by
lingering uncertainty and unusual challenges. Headlines
featuring recessionary economic forecasts, the Russia-
Ukraine conflict, growing geopolitical tensions with
China, rising interest rates, and persistent inflation
painted a tough year for people and for business. Despite
these macroeconomic and geopolitical factors, Twin
Disc continued to execute our strategic playbook, made
progress on achieving our medium-term targets, and
is building from an even stronger foundation starting in
fiscal 2024.
The significant opportunity that sustainable hybrid and
electric equipment presents for each of the product
groups and end markets we serve is a key part of why
we are so excited. As such, it seems fitting to frame this
letter in terms of how energized we are as an organization.
ENERGIZING INNOVATION
Throughout our 105-year history, one thing has remained
constant: our unwavering dedication to innovation.
Embracing the realm of hybrid, electric, and renewables
presents an exciting and profitable opportunity to grow
sales and increase margins into the future. Twin Disc’s
pioneering efforts pave the way for a leadership role in
shaping the future of hybrid and electric solutions. Moving
forward, our role will be to provide tailored solutions to a
growing customer base.
ENERGIZING RELATIONSHIPS
Streamlined operations, a customer-centric approach,
and the “Fast. Focused. Friendly.” campaign have had a
profound impact that extends beyond our geographic
strategy. At Twin Disc, we take pride in delivering what we
like to call the “Lufkin Experience”, ensuring rapid, friendly
service and unmatched efficiency for our land-based
power transmission customers.
Our decision to relocate the Arneson business to Italy
has proven to be highly advantageous for our marine
customers, further aligning our operations with their
needs. We expect further improvements in Italy, creating
value for our organization, customers, and, by extension,
our shareholders.
In May 2023, we proudly announced an exciting milestone
for our Aftermarket Parts facility in Sturtevant, Wisconsin.
Within four years of opening, the center has generated
over $150 million in cumulative revenue. With only 15 staff
members, the team efficiently serves customers in North
America, Latin America, Europe, Australia, Singapore,
and China. This success has led to a model for deploying
similar hubs in other global markets to reduce costs and
enhance customer satisfaction.
Additionally, the Aftermarket Parts team’s proactive
approach to sourcing new partnerships has helped address
shortages, benefiting the overall customer experience.
ENERGIZING COMMUNICATIONS
Communication has changed considerably since Twin Disc
began doing business in 1918. Today’s customer seeks
engagement on their terms via their preferred medium.
We strive to meet our customers where they are and
recognize the crucial role of digital and social media.
Our Sales, Marketing, and IT teams work hand-in-hand
to adopt cutting-edge technology and best-in-class
techniques for reaching current customers and new
prospects. We are using innovative digital content and
leveraging the capabilities of SALESFORCE.COM to create
an interactive journey allowing engagement with our
brands and converting casual visitors into qualified leads.
While traditional marketing remains important, our focus
on digital and social media content enhances interest in
and awareness of our brands.
5-YEAR FINANCIAL SUMMARY
Statements of Operations and Comprehensive Income (Loss)
2023
2022*
2021*
2020*
2019*
Net Sales
$
276,960
$
242,913
$
218,581
$ 246,838
$ 302,663
Cost and expenses, including marketing, engineering and administrative
260,900
231,877
Income (loss) from operations
Other (expense) income
Income (loss) before income taxes and noncontrolling interest
Income taxes
Noncontrolling interest
Net income (loss) attributable to Twin Disc
16,060
(1,595)
14,465
3,788
(297)
10,380
11,036
1,565
12,601
1,823
(311)
10,467
230,851
(12,270)
5,142
(7,128)
19,680
(200)
287,089
284,165
(40,251)
(1,039)
(41,290)
(4,169)
(246)
18,498
(1,919)
16,579
3,711
(123)
(27,008)
(37,367)
12,745
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 income (loss)
Diluted income (loss)
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
$
13,263
$
12,521
$
12,340
$
10,688
$
12,362
54,760
131,930
19,753
219,706
17,692
51,783
289,181
45,452
127,109
19,370
204,452
17,771
54,300
276,523
39,491
114,967
25,169
191,967
23,247
60,199
30,682
44,013
120,607
125,893
12,008
20,101
173,985
202,369
47,410
72,732
73,243
71,258
275,413
294,127
346,870
$
100,095
$
81,078
$
78,560
$
66,734
$
73,077
16,617
5,253
145,093
424
289,181
0.77
0.75
0
10.80
7.1%
3.5%
3.7%
34,543
29,714
130,776
412
276,523
30,085
36,108
37,896
49,539
130,210
139,389
450
569
40,491
50,484
182,216
602
275,413
294,127
346,870
$
0.78
0.78
0
9.79
8.0%
3.8%
4.3%
$
(2.04)
(2.04)
0
9.83
-20.7%
-9.8%
-12.4%
$
(2.84)
$
(2.84)
0
10.60
-26.8%
-12.7%
-15.1%
1.01
1.01
0
14.49
7.0%
3.7%
4.2%
13,467,590
13,352,509
13,246,501
13,153,330
12,571,013
13,810,124
13,381,771
13,246,501
13,153,330
12,681,574
335
739
7,918
5,807
119,611
$
340
761
4,729
6,374
123,374
403
743
405
806
415
873
$
4,464
$
10,699
$
11,979
7,853
113,407
7,394
107,251
6,682
129,292
$
$
Cover: The Twin Disc team surrounds one of our hybrid-ready transmissions at the International Workboat Show in New Orleans, Louisiana.
Above: The entrance to Twin Disc’s new corporate headquarters in the Historic Third Ward in Milwaukee, Wisconsin.
* As adjusted
(Dollars amounts in thousands, except per share statistics and shares outstanding)
1
WE PUT HORSEPOWER TO WORK®
2023 ANNUAL REPORT
TWIN DISC, INCORPORATED IS AN INTERNATIONAL MANUFACTURER AND DISTRIBUTOR OF HEAVY-DUTY OFF-HIGHWAY POWER TRANSMISSION EQUIPMENT. ENERGIZING ENGAGEMENT
Looking ahead to secure Twin Disc’s future growth,
succession planning and a skilled workforce are of
utmost importance. Our “lead-by-example” focus engages
employees while ensuring accountability at all levels.
Aligned with our commitment to enhance employee
skills, we recently established an engineering office to
serve as a hub for fostering innovation and collaboration.
It will allow us to stay ahead of the curve in the ever-
evolving hybrid and electric space. Actions like this keep
us at the forefront of technology and ensure our team is
equipped to address the challenges and opportunities of
today and tomorrow.
We also established a DE&I counsel to help our workers
feel safe, respected, and connected. There were many
successful events this year. A company favorite was
our Women’s History Month celebration where women
from across our global team shared their perspective on
working at Twin Disc.
ENERGIZING DEVELOPMENT
Twin Disc prioritizes employee satisfaction and
engagement to stand out and address talent shortages.
We strive to be an employer of choice, resulting in low
turnover and long-tenured staff. This year we celebrated
Dan Tennessen’s remarkable 51st year at Twin Disc.
In parallel, Twin Disc expanded our internal mentorship
program. This program links aspiring talent with a
member of the leadership team. By formalizing a
mentorship program, we can encourage regular
check-ins, facilitate accelerated development, and
better steward our culture.
Furthermore, our tuition reimbursement program
encourages workers to pursue skills training and formal
education, preparing them for future opportunities with
Twin Disc.
ENERGIZING SAFETY
Our dedication to employee well-being extends beyond
professional growth. We consistently challenge ourselves
to provide a culture of well-being that will yield longer,
healthier lives for our workforce. This begins in our
manufacturing and warehouse facilities, where we
emphasize safety through the proper use of personal
protective equipment and utilize process engineering to
minimize fatigue and potential for injury. We also host
special events to recognize and reward individual and
team compliance.
ENERGIZING VALUE
Twin Disc exited the year stronger than we started
with sequential sales and earnings per share growth
in every quarter. Equally important is the positive
operating and free cash flow generation in fiscal 2023.
Our strong balance sheet gives us confidence in the
face of macroeconomic and geopolitical uncertainty
and positions us to deploy capital as opportunities
present themselves.
In addition to expanding our business geographically and
realizing the benefits of our strategic global footprint
rationalization, the team also made progress securing
multiple sources for key components that were in short
supply and causing significant delays. By remaining
focused on and executing our strategic playbook, Twin
Disc was able to overcome significant headwinds and
permanently improve our operations. This includes
accelerating shipments and clearing most of our past-due
backlog. Furthermore, our integrated system offerings
continue to gain traction, opening the door to larger
projects and creating enhanced value-add opportunities
when compared to the sale of individual parts.
ENERGIZING OUR OUTLOOK
After overcoming the challenges of fiscal 2023, we
remain optimistic on the go-forward opportunity for
Twin Disc. Creating value for our stakeholders, including
investors, customers, employees, and the community
through existing and innovative technologies remains at
the core of what energizes us. We appreciate your trust
and support as we continue to find better ways to put
horsepower to work.
John H. Batten, President and Chief Executive Officer
2023 ANNUAL REPORT
2
SINCE 1918, TWIN DISC HAS BEEN PUTTING HORSEPOWER TO WORK.
Today we continue energizing our performance on land and on water,
creating value for our shareholders, customers, partners, employees,
and the communities we serve. Over 100 years of innovation and care
go into every power transmission system we sell. From our humble
beginnings manufacturing a revolutionary new clutch for tractors to
leading today’s innovation in the hybrid and electric space across off-
highway and marine applications, Twin Disc is energized for the future.
Financial Highlights (in thousands, except per share statistics)
2023
2022*
2021*
Net Sales
Net Income (Loss)
Basic Income (Loss) Per Share
Diluted Income (Loss) Per Share
Dividends Per Share
Average Basic Shares Outstanding
Average Diluted Shares Outstanding
*As adjusted
$276,960
$242,913
$218,581
10,380
10,467
(29,008)
0.77
0.75
—
13,468
13,810
0.78
0.78
—
13,353
13,382
(2.04)
(2.04)
—
13,247
13,247
Operation results by quarter
1ST QTR
2ND QTR
3RD QTR
4TH QTR
YEAR
2023
Net Sales
Gross Profit
Net (Loss) Income Per Share
Basic (Loss) Income Per Share
Diluted (Loss) Income Per Share
Dividends Per Share
$55,913
$63,351
$73,772
$83,923
$276,960
13,297
17,023
19,265
24,747
74,332
(2,029)
(0.15)
(0.15)
—
1,139
0.08
0.08
—
2,674
8,596
10,380
0.20
0.20
—
0.64
0.62
—
0.77
0.75
—
Stock Price Range (High–Low)
13.78 – 7.98 13.23 – 9.01
11.60 – 9.00 12.98 – 8.97 13.78 – 7.98
2022 (as adjusted)
Net Sales
Gross Profit
$47,761
$59,889
$59,289
$75,974
$242,913
13,447
13,482
17,691
24,192
68,812
Originally Stated Net Income (Loss)
1,920
(3,836)
2,231
7,779
8,095
Adjusted Net Income (Loss) Due to
Accounting Method Change
2,513
(3,243)
2,824
8,372
10,467
Average Basic Shares Outstanding
13,283
13,296
13,397
13,399
13,353
Average Diluted Shares Outstanding
13,350
13,296
13,457
13,456
13,382
Basic Income (Loss) Per Share
Diluted Income (Loss) Per Share
Adjusted Basic Income (Loss) Per Share
Adjusted Income Diluted (Loss) Per Share
Dividends Per Share
0.14
0.14
0.19
0.19
—
(0.29)
(0.29)
(0.24)
(0.24)
—
0.17
0.17
0.21
0.21
—
0.58
0.58
0.62
0.62
—
0.61
0.60
0.78
0.78
—
Net Cash Provided (Used) by
Operating Activities (in thousands)
25,000
25,000
25,000
20,000
20,000
20,000
15,000
15,000
15,000
10,000
10,000
10,000
5,000
5,000
5,000
0
0
0
-5,000
-5,000
-10,000
-5,000
-10,000
-10,000
22,898
22,898
22,898
9,118
9,118
9,118
2020
2020
6,528
6,528
6,528
2021
2021
2021
2020
2023
2023
2023
2022
2022
2022
(8,313)
(8,313)
(8,313)
Capital Expenditures (in thousands)
10,000
10,000
10,000
8,000
8,000
8,000
6,000
6,000
6,000
4,000
4,000
4,000
2,000
2,000
2,000
0
0
0
10,699
10,699
10,699
7,918
7,918
7,918
4,729
4,729
4,729
4,464
4,464
4,464
2023
2023
2022
2022
2021
2021
2020
2020
2023
2022
2021
2020
1.0
1.0
Diluted (Loss) Income Per Share
0.75
0.75
0.75
2023
2023
0.78
0.78
0.78
2022*
2022*
2021*
2021*
2020*
2020*
2023
2022*
2021*
2020*
(2.04)
(2.04)
(2.04)
(2.84)
(2.84)
(2.84)
1.0
0.5
0.5
0.5
-0.5
-0.5
-0.5
-1.0
-1.0
-1.0
0
0
0
-1.5
-1.5
-1.5
-2.0
-2.0
-2.0
-2.5
-2.5
-2.5
-3.0
-3.0
-3.0
Stock Price Range (High–Low)
16.20 – 9.40 14.01 – 9.56 18.20 – 10.45 17.77 – 8.35 18.20 – 8.35
*As adjusted
Right inset: Longtime customer OTAM equips their 80’ yachts with Arneson ASD15 surface drives and Rolla six-blade surface-piercing propellers.
Right: Belgium’s new gear grinding machine and drilling machine increase efficiency and productivity. Far right: The Arneson-equipped 93’ Filippetti
yacht uses Twin Disc bow and stern thrusters, trim tabs and MasterTrim.
3
WE PUT HORSEPOWER TO WORK®
TWIN DISC, INCORPORATED IS AN INTERNATIONAL MANUFACTURER AND DISTRIBUTOR OF HEAVY-DUTY OFF-HIGHWAY POWER TRANSMISSION EQUIPMENT. ENERGIZING THE
GLOBAL MARKET
All around the world, Twin Disc teams energized our performance in 2023
Arneson, the world’s leading brand in surface drives for
commercial, government and pleasure applications, found
a new home in 2023 as Twin Disc migrated its business
from the United States to Italy to bring it closer to major
customers, such as Filippetti Yachts.
In addition to the orders for Arneson Surface Drives,
Italy saw an increase in a variety of equipment and
repair parts for use on land and on water, as well as Veth
Propulsion systems.
Our world tour starts at Twin Disc SPRL in Belgium, which
increased efficiency and reduced manpower by upgrading
equipment in 2023, including a new gear grinding machine
and inspection equipment. The gear grinding machine
increased operator efficiency by 100%, improving both
productivity and workplace safety. This was particularly
true for deburring operations, which traditionally require an
intensive, manual process. Similarly, inspection times have
been reduced from hours to minutes with reliable results.
Across all Twin Disc facilities, maintaining a balance of new
and experienced labor is critical for ongoing operations.
In Belgium, the labor pool is being nurtured through a
relationship with local schools specializing in machining
and manufacturing to identify up-and-coming talent.
Coupled with the visibility our brand maintains in the local
labor market, team building on a managerial level, and high
retention rates, Belgium is focused on making the facility
an even better place to work.
Quality products and loyal employees are only part of
the picture, however. Supply chain issues impacted
manufacturers throughout 2023, and Twin Disc Belgium
was no exception. In response, the plant added a
multi-lingual team member in purchasing to improve
relationships with local suppliers. The team also forecasts
product needs 12 months out to keep material inventories
in line with upcoming demand.
2023 ANNUAL REPORT
4
BELGIUMITALY Twin Disc Power Transmission Pvt Ltd in Chennai, India
has contributed to worldwide operations via engineering,
sourcing, and marketing. In 2023, the Indian subsidiary
provided nearly 1,000 parts for Twin Disc’s operations
in the U.S., Belgium, and Italy. The Indian engineers
supported U.S. product engineers for marine, land-based,
and Veth Propulsion lines, creating numerous drawings
and animations for digital end-user manuals.
Amid ongoing global labor shortages, the Indian operation
attracts and retains dedicated workers in a robust
economy. With active global trade and defense backing
from India’s Prime Minister, the country is poised to
become the world’s fifth-largest economy, boasting a
business-friendly climate and stability; hence Twin Disc
found India appealing for continued investment in 2023.
Twin Disc (Far East) PTE Ltd. in Singapore aids Asian
distribution across both established and developing
nations. Twin Disc Far East responds to the array of
Asian cultures by aligning with Twin Disc’s customer-
centric approach.
In recent years, Singapore has expanded its offerings
to encompass land-based products, transitioning from
its previous marine-centric lineup. This strategic shift
has played a pivotal role in establishing Twin Disc as a
leader in the Asian fracking market. Twin Disc Far East
is becoming a center of excellence through foresight,
adapting to hybrid and electric technology, and
valuing people.
Twin Disc (Pacific) Pty. Ltd., thrived in 2023, by engaging
in vital ventures like collaborations with Riviera, Maritimo,
Fleming, and the significant Maggie Cat Passenger Ferry
commercial project.
On land, Twin Disc Pacific refocused on agriculture
markets in Australia, engaging customers at Agquip
and Riverina Field Days, two of the country’s largest
agriculture and farming expos. Twin Disc power take-
off and Scania engine combinations, which are sold and
serviced locally, power essential irrigation systems for
local customers.
In 2023, a customer shared that a Twin Disc PTO, installed
in 2012, ran for nearly 25,000 hours without interruption.
This remarkable achievement highlights how Twin Disc
reassures large-scale operators, preventing breakdowns
that could heavily impact yields.
Above: Staff at our Chennai location; an employee at Twin Disc Far East in Singapore assembling a 4001 transmission; Nick Rowe from Cleveland Agriculture
in Australia next to Twin Disc’s 25,000-hour continuously running PTO; at Rolla in Switzerland, an employee fine-tuning a six-blade propeller.
Inset: Australia’s Maggie Cat passenger ferry is equipped with Twin Disc MGX-6620SC QuickShift® transmissions and EC300 electronic controls at three stations.
5
WE PUT HORSEPOWER TO WORK®
INDIASINGAPOREAUSTRALIA APPLYING OUR LEARNINGS: ON WATER
In 2023, Twin Disc participated in two exciting hybrid and electric
partnerships, one on water and one on land. As with all developing
technologies, our test lab played a critical role in the success of
these projects.
M/Y KENSHŌ
In 2023, the first superyacht with Twin Disc’s
Veth Propulsion L-Drives, Kenshō, won the Boat
World Superyacht Award. Born from a pencil
sketch, the vessel blends luxury home features with
modern yacht design for a distinctive experience.
Twin Disc collaborated with Admiral, part of The
Italian Sea Group, on Kenshō’s propulsion.
The dual L-Drives propel the ship to 15.4 knots in
top-class comfort. Integrated thrusters are ideally
suited for green propulsion, enabling the designer
and naval architect to maximize onboard space,
increase comfort, and reduce noise.
While Kenshō led the way for the integrated
L-Drives optimized for superyachts, there are
currently 11 vessels under construction – five in
Italy, five in the Netherlands, and one in Germany –
equipped with the Veth Propulsion system.
2023 ANNUAL REPORT
6
NETHERLANDS Twin Disc, Lufkin, Texas had a monumental 2023. First, we
launched our “Fast. Focused. Friendly.” campaign, which was
featured at our booth at ConExpo/ConAgg and via print and
digital promotions. The campaign promotes superior service,
efficient delivery times, and an outstanding customer service
experience. The message is clear – people make a difference
and Twin Disc Lufkin continues to uphold the standards that
our customers have come to expect for over 100 years.
Additionally, safety and continuous improvement are
hallmarks of the Lufkin facility, which achieved over 730
days without a lost time incident. Lufkin expanded staffing
to include in-house engineering, IT, and purchasing, leading
to greater operational autonomy. They also launched full
production of the hydraulic power take-offs as our last main
industrial product migrated from Racine.
Southeast Wisconsin, where Twin Disc started over a
century ago, is the last tour stop. A major 2023 highlight
was moving corporate HQ to Milwaukee, reducing our office
space from over 60,000 to 9,100 square feet. This was
part of the footprint optimization plan aimed at managing
costs. The new space fosters a productive, collaborative
environment with ergonomic spaces, advanced tech
meeting rooms, high ceilings, natural light, and city views.
While HQ moved, Racine remains crucial for Twin Disc
operations. At our 21st Street site, our motivated staff
upholds our standard of excellence while propelling
engineering, manufacturing, and testing forward. The
facility embraces worker insights to improve safety while
utilizing lean manufacturing principles and meticulous daily
management practices to improve operations. We have
made a concerted effort to optimize our shop floor layout to
integrate additional capital equipment, and our procurement
team employs agile strategies to refine forecasts and
explore alternative sourcing to address supply chain hurdles.
The Racine Team also collaborates with local schools to
introduce students to manufacturing careers in an effort to
expand the talent pool and keep Twin Disc top of mind.
Our Aftermarket Parts facility in Sturtevant, Wisconsin,
achieved remarkable growth, surpassing $150 million in
cumulative revenue in four years. It is efficiently designed,
optimizing space and centralizing small parts for quick
picking. In addition to direct shipping, workers create kits to
simplify ordering for customers around the world. Like other
Twin Disc sites, Aftermarket Parts values people. A talent
pipeline ensures steady hires, and our 51-year veteran is a
testament to retention.
ENERGIZED FOR THE LONG HAUL
Around the world, Twin Disc achieved positive outcomes
in 2023. Despite regional differences, common success
factors prevailed. Locations embraced shared values:
customer focus, integrity, accountability, and teamwork. They
prioritized top talent retention and safety. Innovative sourcing
countered supply chain challenges. Teams showed passion in
adapting to customer needs and tech advancements. These
factors combined to create value, benefiting internal teams,
customers, shareholders, and communities.
As hybrid and electric technology advances, Twin Disc’s
success will build on the progress made in 2023. Our
engineers and product specialists are attuned to our
customers’ needs today while developing ideas for the future,
building our brand as a trusted voice in the marketplace.
Above: “Fast. Focused. Friendly.” at our Lufkin, Texas location; our factory manager and assembly supervisor uphold safety standards at 21st Street in Racine;
employees at Aftermarket assemble kits for shipping. Inset: Twin Disc’s 51-year employee, Dan Tennessen. Background, right: e-Frac test bench.
7
WE PUT HORSEPOWER TO WORK®
USA APPLYING OUR LEARNINGS: ON LAND
Utilizing electric fracturing fleets, or e-Frac, involves replacing diesel
power at well sites with electricity sourced from either reservoir
natural gas or a power grid. This cost-effective option harnesses well
gas for productive purposes instead of flaring, thereby reducing fuel
costs and the environmental impact of hydrocarbon extraction.
ELECTRIC FRACTURING
Twin Disc’s TA90-7601 e-Frac system consists of
a constant-speed electric motor coupled to the
transmission, eliminating the need for variable
frequency drives and specialized repairs. This
configuration allows for a hydraulic synchronous start
for effortless power-up and the hydrostatic creep
mode provides smooth and safe hydraulic line test.
In conjunction with Sewart Supply, Twin Disc began field
testing the TA90-7601 e-Frac system in 2023, revealing
substantial benefits for end-users. E-Frac reduces
maintenance costs associated with oil changes,
inspections, and mid-life engine work. Additionally,
since turbines operate on well gas, fuel is only needed
at start-up, cutting diesel fuel use by up to 80-90%.
This setup also reduces on-site personnel, noise, and
nitrous oxide emissions, thereby improving site safety.
Compared to traditional fracturing fleets, the TA90-7601
system can reduce operating footprint by up to 40%.
With results in cost reductions, safety enhancements,
and operating footprints showing great promise, Twin
Disc’s e-Frac system can yield a return on investment
within a few years.
2023 ANNUAL REPORT
8
CORPORATE DATA
Annual Meeting
von Briesen & Roper, s.c.
411 East Wisconsin Avenue, Suite 1000
Milwaukee, Wisconsin 53202
2:00 P.M., October 26, 2023
Shares Traded
NASDAQ: Symbol TWIN
Annual Report on Securities and
Exchange Commission Form 10-K
Single copies of the Company’s 2023
Annual Report on Securities and
Exchange Commission Form 10-K,
including exhibits, will be provided
without charge to shareholders after
September 8, 2023, upon written
request directed to Secretary,
Twin Disc, Incorporated, 222 East
Erie Street, Suite 400, Milwaukee,
Wisconsin 53202.
Transfer Agent & 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, WI
Corporate Offices
Twin Disc, Incorporated
Milwaukee, WI 53202
Telephone: (262) 638-4000
Wholly-Owned Subsidiaries
Twin Disc International S.P.R.L.,
Nivelles, Belgium
Twin Disc Srl, Decima, Italy
Rolla Sp Propellers SARL,
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
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
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 Board of Directors
Michael C. Smiley,
Chairman of the Board
Former Chief Financial Officer,
Zebra Technologies Corporation,
Lincolnshire, IL
A global provider of asset management solutions
John H. Batten
President and Chief Executive Officer,
Twin Disc, Incorporated,
Milwaukee, WI
Michael Doar
Executive Chairman of the Board and
retired Chief Executive Officer,
Hurco Companies, Inc.,
Indianapolis, IN
A global manufacturer of machine tools
Janet P. Giesselman
Chairman of the Board of Ag
Growth International;
Retired President and General
Manager, Dow Oil & Gas Company,
Midland, MI
A business unit of Dow Chemical Company
David W. Johnson
Chief Financial Officer,
Johnson Outdoors, Inc.,
Racine, WI
A global provider of outdoor recreation products
Juliann Larimer
Chair of the Board and retired President
and Chief Executive Officer,
Peak Technologies,
Milwaukee, WI
A provider of end-to-end mobility and digital
supply chain solutions for performance-driven
organizations
Kevin M. Olsen
President and Chief Executive Officer,
Dorman Products,
Colmar, PA
A supplier of replacement parts for global
automotive aftermarket industry
Twin Disc Officers
John H. Batten
President and Chief Executive Officer
Jeffrey S. Knutson
Vice President – Finance, Chief Financial
Officer, Treasurer and Secretary
9
WE PUT HORSEPOWER TO WORK®
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10K
√ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2023
Or
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 17635
TWIN DISC, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Wisconsin
(State or Other Jurisdiction of Incorporation or Organization)
390667110
(I.R.S. Employer Identification Number)
222 East Erie Street, Suite 400, Milwaukee, Wisconsin
(Address of Principal Executive Office)
53202
(Zip Code)
Registrant’s Telephone Number, including area code:
(262) 638-4000
1328 Racine Street, Racine, Wisconsin
(Former Name or Former Address, if Changed Since Last Report)
53403
(Zip Code)
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 [ ]
10
2023 ANNUAL REPORT Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to
be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files)
Yes [√ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ √ ]
Non-accelerated Filer [ ] Smaller reporting company [ √ ] Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act [ ].
Indicate by check mark whether the registrant 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 [ √ ].
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial
statements of the registrant included in the filing reflect the correction of an error to previously issued financial
statements [ ].
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery
period pursuant to §240.10D-1(b) [ ].
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [ √ ]
At December 30, 2022, the last business day of the registrant’s most recently completed second fiscal
quarter, the aggregate market value of the common stock held by nonaffiliates of the registrant was $105,859,813.
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 23, 2023, the registrant had 13,962,628 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 26, 2023, 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.
11
WE PUT HORSEPOWER TO WORK®
TABLE OF CONTENTS
TWIN DISC, INC. - FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2023
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.
Reserved.
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.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
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.
Item 9C.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Exhibits, Financial Statement Schedules.
Exhibit Index.
Signatures.
13
14
18
19
19
19
19
20
20
20
28
28
28
28
29
29
29
30
30
30
30
30
75
79
12
2023 ANNUAL REPORT 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 offhighway 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
47% and 50% of the Company’s consolidated net sales during the years ended June 30, 2023 and June 30, 2022,
respectively. Included in the Company’s top ten customers, there was one customer, an authorized distributor of the
Company, that accounted for 10% of consolidated net sales in fiscal year 2023.
Unfilled open orders for the next six months of $119.2 million at June 30, 2023 compares to $101.2 million at
June 30, 2022. Since orders are subject to cancellation and rescheduling by the customer, the sixmonth 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 total 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 $2.5 million and $1.6 million in fiscal 2023 and
2022, respectively. Total engineering and development costs were $8.7 million and $8.8 million in fiscal 2023 and
2022, 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.
13
WE PUT HORSEPOWER TO WORK® The number of persons employed by the Company at June 30, 2023 and June 30, 2022 was 739 and 761,
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, 2023 and 2022 appears in Note J, Business
Segments and Foreign Operations, to the consolidated financial statements.
The Company’s 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 to, this Annual Report on Form 10-K.
Item 1A. Risk Factors
The Company’s business involves various risk factors. 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 a significant movement between the
U.S. dollar and the euro exchange rate, 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 exchange rate between
the U.S. dollar and 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, 2023, the Company suspended or reduced its operations, in whole or in part, in several 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. Management continues to monitor the global 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.
14
2023 ANNUAL REPORT 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
unpredictable 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 advancement 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 or cost
reductions, 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 would be able to pass any of the
increases in raw material costs directly resulting from additional tariffs 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.
If the Company were to lose business with any key customers, the Company’s business would be adversely
affected. Although there was only one customer that accounted for 10% or more of consolidated net sales in
fiscal 2023, 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.
15
WE PUT HORSEPOWER TO WORK® 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 implementing 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
65% of the Company’s consolidated net sales for fiscal 2023. 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:
⇒ currency exchange rate fluctuations
⇒ export and import duties, changes to import and export regulations, and restrictions on the transfer of
funds, including dividends
issues arising from cultural or language differences
⇒ problems with the transportation or delivery of its products
⇒
⇒ potential social and labor unrest as well as public health and political crises
⇒
⇒ compliance with trade and other laws in a variety of jurisdictions
⇒ changes in tax law
⇒ compliance with the Foreign Corrupt Practices Act
longer payment cycles and greater difficulty in collecting accounts receivables
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 2023 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 is adequate to reconstruct 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 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.
16
2023 ANNUAL REPORT The ability to service the requirements of 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 credit agreement on June 29, 2018. The Company’s ability to make
payments on its indebtedness, including those under the 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 be certain 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 three-year
revolving credit facility expiring June 2025 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 asset levels at all times to
secure its outstanding borrowings. The Company is also required to comply with a total funded debt to EBITDA
ratio, a minimum fixed charge coverage ratio, and a minimum tangible net worth. If the Company does not meet
these financial covenants as specified under the agreement, the Company may require forbearance or relief from its
financial covenant violations 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, 2023, 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 2024 to meet the required financial
covenants under the agreements. 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 employees, maintain payroll and make lease and utility payments. The Company
accounted for the full proceeds as a loan. It obtained formal forgiveness of the full amount of the loan on June 16,
2021, and 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 PPP loan and the appropriateness of the PPP loan
forgiveness. 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 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.
17
WE PUT HORSEPOWER TO WORK® 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,
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 non-cash 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, totaling $15.9 million. At June 30, 2023
and 2022, the allowance totaled $22.3 million and $23.1 million, respectively.
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.
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
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 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.
18
2023 ANNUAL REPORT Item 2. Properties
The Company leases a facility in Milwaukee, Wisconsin, U.S.A., which serves as its corporate headquarters.
Manufacturing Segment
The Company owns two manufacturing, assembly and office facilities in Racine, Wisconsin, U.S.A., and one in
Decima, Italy. The aggregate floor space of these three plants approximates 580,000 square feet. One of the Racine
facilities is classified as an asset held for sale. The Company leases additional manufacturing, assembly and office
facilities in, Sturtevant, Wisconsin; Lufkin, Texas; Limite sull’Arno, Italy; Papendrecht, Netherlands; Nivelles,
Belgium; Novazzano, Switzerland; and Decima, Italy.
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.
Information About Our Executive Officers
Pursuant to General Instruction G(3) of Form 10K, 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 26, 2023.
Name
John H. Batten
Jeffrey S. Knutson
Age
58
58
Position
President and Chief Executive Officer
Vice President – Finance, Chief Financial Officer, Treasurer and Secretary
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, President and Chief Executive Officer. Effective October 2022, Mr. Batten was renamed President
and Chief Executive Officer. Prior to that, Mr. Batten served as Chief Executive Officer since May 2019, 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.
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).
19
WE PUT HORSEPOWER TO WORK® 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.
There were no dividend payments made in the fiscal years ended June 30, 2023 and 2022.
For information regarding the Company’s equity-based compensation plans, see the discussion under Item 12 of
this report. As of August 4, 2023, shareholders of record numbered 331.
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
April 1, 2023 – April 28, 2023
April 29, 2023 – May 26, 2023
May 2, 2023 - June 30, 2023
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 2022 and 2023. As of June 30, 2023, 315,000 shares remain authorized for purchase.
Item 6. Reserved
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 2023. 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.
20
2023 ANNUAL REPORT Note on Forward-Looking Statements
This report contains statements (including but not limited to certain statements in Items 1, 3, and 7) that are
forward-looking as defined by the Securities and Exchange Commission in its rules, regulations and releases.
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. These statements are based on
management’s current expectations that are based on assumptions that are subject to risks and uncertainties.
Actual results may vary because of variations between these assumptions and actual performance. 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.
The Company intends that such forward-looking statements qualify for the safe harbors from liability established
by the Private Securities Litigation Reform Act of 1995. 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. Accordingly, the making of such statements should not be regarded as a representation
by the Company or any other person that the results expressed therein will be achieved. The Company assumes no
obligation, and disclaims any obligation, to publicly update or revise any forward-looking statements to reflect
subsequent events, new information, or otherwise.
Fiscal 2023 Compared to Fiscal 2022
Net Sales
Net sales for fiscal 2023 increased 14.0%, or $34.1 million, to $277.0 million from $242.9 million in fiscal 2022.
The Company continued to experience growing demand across most of the markets served, following the
unfavorable impact of the COVID-19 crisis on the Company’s global markets in fiscal 2020 and 2021. While
market demand was strong through the year, supply chain challenges again limited the Company’s ability to deliver
product during the fiscal year. The Company noted improving supply chain performance through the year,
delivering sequential revenue improvements through the four quarters of fiscal 2023. Currency translation had an
unfavorable impact on fiscal 2023 sales compared to the prior year totaling $11.5 million, primarily due to the
weakening of the euro and Australian dollar against the U.S. dollar.
Sales for our manufacturing segment increased 12.2%, or $26.6 million, versus the same period last year. The
largest improvement was seen at the Company’s Veth propulsion operation in the Netherlands, which experienced a
17.1% increase in sales compared to fiscal 2022 despite a $3.2 million unfavorable currency translation impact. The
primary driver for this increase was growing demand for the Company’s innovative propulsion solutions around
the globe, partially offset by supply chain challenges limiting shipments. The Company’s domestic manufacturing
operation experienced a 9.6% increase in sales in fiscal 2023, driven by continued strong demand across the
product portfolio, with particular strength in demand for oil and gas related products for both new construction and
rebuilds. The Company’s Italian manufacturing operations reported a 14.4% increase in sales from fiscal 2022,
despite an unfavorable currency translation impact, thanks to recovering European markets following the negative
impact of the COVID-19 pandemic. The Company’s Belgian manufacturing operation saw a 12.3% increase in
sales from fiscal 2022 despite an unfavorable foreign exchange impact, with strength in the global marine markets
it serves. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global
mega yacht and patrol boat markets, experienced a 16.4% increase in sales compared to fiscal 2022, primarily due
to a recovering European marine market.
Sales for our distribution segment were up 14.3%, or $15.2 million, compared to fiscal 2022, with improving
global demand and product delivery from the manufacturing operations. The Company’s Asian distribution
operation in Singapore, China and Japan experienced a 7.4% increase in sales due to the recovering global demand
following the impacts of COVID-19 and continued strength in Chinese demand for oil and gas related products.
The Company’s European distribution operation saw a slight increase in sales of 2.1%, as improving demand was
offset by an unfavorable currency translation impact and supply chain challenges limiting shipment of goods from
the production operations. The Company’s North American distribution operation experienced significant revenue
growth of 35.7% as supply chain challenges eased somewhat, allowing for a catch-up in deliveries against a strong
demand backdrop. The Company’s distribution operation in Australia, which provides boat accessories, propulsion
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WE PUT HORSEPOWER TO WORK® and marine transmission systems primarily for the pleasure craft market, saw a 14.4% sales increase, driven by
strong demand for the Company’s product in the pleasure craft market.
Net sales for the Company’s marine transmission, propulsion and boat management systems were up 17.2% in
fiscal 2023 compared to the prior fiscal year. This increase reflects a general strengthening of the global economy
following the negative impact of the COVID-19 pandemic in fiscal 2022, continued global growth of the Veth
product and a general easing of supply chain constraints during the second half of the fiscal year. In the
off-highway transmission market, the year-over-year increase of 12.5% can also be attributed primarily to the
global recovery following the impact of the COVID-19 pandemic, with particular strength in North American
aftermarket product sales for the oil and gas industry. Sale of the Company’s pressure pumping transmission
systems into China also remains strong. The decrease experienced in the Company’s industrial products of 7.2%
was a function of a stronger fiscal 2022 driven by the catch-up in demand after a pause during the COVID-19
pandemic, along with a softening in order rates during the second half of the fiscal year.
Geographically, sales to the U.S. and Canada improved 22% in fiscal 2023 compared to fiscal 2022, representing
38% of consolidated sales for fiscal 2023 compared to 36% in fiscal 2022. The increase is primarily due to the
continuing economic recovery following the COVID-19 pandemic, with strong demand experienced across the
markets served by the Company. Sales into the Asia Pacific market improved 13% compared to fiscal 2022 and
represented approximately 23% of sales in fiscal 2023, compared to 23% in fiscal 2022. The increase in fiscal 2023
reflects a continued strong Australian pleasure craft market, continued demand for the Company’s oil and gas
transmissions by the Chinese market and a general economic recovery following the COVID-19 pandemic. Sales
into the European market improved approximately 11% from fiscal 2022 levels while accounting for 30% of
consolidated net sales in fiscal 2023 compared to 31% of net sales in fiscal 2022. The region enjoyed strong
demand across the end markets served, limited somewhat by supply chain challenges, but overcoming an unfavorable
currency exchange impact. 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 2023, gross profit improved $5.5 million, or 8.0%, to $74.3 million on a sales increase of $34.0 million.
Gross profit as a percentage of sales decreased 150 basis points in fiscal 2023 to 26.8%, compared to 28.3% in
fiscal 2022.
There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2023. Gross profit
for the year was primarily impacted by improved volumes (approximately $9.6 million) and a more favorable
product mix (approximately $1.5 million). This was driven by the global economic recovery that started in
fiscal 2021 following the impact of the COVID-19 pandemic and an increase in the sales of high-margin oil and
gas transmissions and parts. The Company experienced a negative impact to margins from inflationary cost
pressures, primarily through the first three quarters of the fiscal year ($3.7 million). In addition, the prior year result
included the net favorable impact on margins from the recording of benefits related to COVID-19 relief
programs of the U.S. and the Netherlands, totaling $2.0 million.
Marketing, Engineering and Administrative (ME&A) Expenses
Marketing, engineering, and administrative (ME&A) expenses of $62.2 million were up $2.2 million, or 3.6%, in
fiscal 2023 compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased to 22.5% of
sales versus 24.7% of sales in fiscal 2022. The increase in ME&A spending in fiscal 2023 compared to the prior
year was driven by the incremental impact of prior year COVID subsidies ($2.1 million), increased professional
fees ($0.7 million), increased salaries and benefits ($0.8 million), increased marketing activities ($0.9 million),
higher travel expense ($0.7 million) and increased stock-based compensation ($0.6 million). These increases were
partially offset by a reduction in the global bonus expense ($2.0 million) and a currency exchange driven decrease
($1.6 million).
22
2023 ANNUAL REPORT Restructuring of Operations
During the course of fiscal 2023 and fiscal 2022 the Company incurred $0.2 million and $1.0 million in
restructuring charges, respectively. These charges relate to a continued restructuring program at the Company’s
Belgian operation to focus resources on core manufacturing process, while allowing for savings on the outsourcing
of non-core processes.
Interest Expense
Interest expense of $2.3 million for fiscal 2023 was $0.2 million higher than fiscal 2022 due to an increased
average interest rate, partially offset by a lower average balance on the domestic revolver.
Other Income, Net
In fiscal 2023, other income, net, of $0.7 million declined by $3.0 million from the prior fiscal year other income,
net, of $3.7 million. This change is primarily due to the impact of currency movements related to the euro.
Income Taxes
The effective tax rate for fiscal 2023 is 26.2% compared to 14.5% for fiscal 2022.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred
tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax
provision in the period of change. In determining whether a valuation allowance is required, the Company takes
into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods,
and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. In fiscal
2021, the Company 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 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 $15.9 million, was included in income tax expense (benefit) on the consolidated statement of operations, for
fiscal year 2021. In fiscal year 2023 and 2022, the valuation allowance was $22.3 million and $23.1 million,
respectively.
Order Rates
As of June 30, 2023, the Company’s backlog of orders scheduled for shipment during the next six months (six-
month backlog) was $119.2 million or approximately 18% higher than the six-month backlog of $101.2 million as
of June 30, 2022. The increased backlog is primarily attributable to the improvement in order rates throughout the
fiscal year resulting from the global economic recovery following the negative impact of the COVID-19 pandemic.
Liquidity and Capital Resources
Fiscal Years 2023 and 2022
The net cash provided by operating activities in fiscal 2023 totaled $22.9 million, an improvement of $31.2
million from the prior fiscal year cash used by operating activities of $8.3 million. The positive operating cash flow
was created primarily by a strong earnings result and volume driven increases in current liabilities, only
partially offset by an increase to trade receivables and a well-controlled inventory increase despite the volume
gains. The Company has begun to make progress on its inventory reduction initiatives, driving a $4.9 million
decrease during the second half of fiscal 2023.
The net cash used by investing activities for fiscal 2023 primarily represents capital spending of $7.9 million, par-
tially offset by the sales of fixed assets totaling $7.2 million. The capital spending amount reflects a return to some-
what normalized capital spending levels, somewhat hampered by extended lead times on equipment resulting from
global supply chain challenges.
23
WE PUT HORSEPOWER TO WORK® The net cash used by financing activities relates primarily to repayments of long-term debt ($18.2 million), along
with payments for withholding taxes on stock compensation ($0.5 million), payments on finance lease obligations
($0.6 million) and dividends paid to a non-controlling interest ($0.2 million). During fiscal 2023, 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”), subject to a Borrowing Base based on Eligible Inventory and Eligible
Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended
the maturity date of the Term Loan to March 4, 2026, and require the Company to make principal installment
payments on the Term Loan of $0.5 million per quarter. In addition, under subsequent amendments to the Credit
Agreement, BMO’s Revolving Credit Commitment is currently $40.0 million. The Credit Agreement also allows
the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by
BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on
its common stock in excess of $3.0 million in any fiscal year. The term of the Revolving Loans under the Credit
Agreement currently runs through June 30, 2025.
Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate
(“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,”
which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which
accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that are not
timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays
a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin.
Currently, the Applicable Margins are between 1.25% and 2.75% for Revolving Loans and Letters of Credit;
1.375% and 2.875% for Term Loans; and .10% and .15% for the Unused Revolving Credit Commitment (each
depending on the Company’s Total Funded Debt to EBITDA ratio).
The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the
Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge
Coverage Ratio may not be less than 1.10 to 1.00. The Company’s Tangible Net Worth may not be less than $100
million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.
Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property,
including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has
also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain
foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement
for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various
amendment and assignment agreements that consent to the assignment of certain agreements previously entered
into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company
also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank
of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as
permitted by the Credit Agreement and the Negative Pledge Agreement.
The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s
security interest in deposit accounts the Company maintains with the Bank. The Bank may not provide a notice of
exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence
or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence
or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a
Default or an Event of Default under the Credit Agreement.
24
2023 ANNUAL REPORT
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, the
Bank may take the three actions listed above without notice to the Company.
The Company’s balance sheet remains strong, there are no material off-balance-sheet arrangements, and it
continues to have sufficient liquidity for its near-term needs. The Company had approximately $33.0 million
of available borrowings under the Credit Agreement as of June 30, 2023. 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, 2023, the Company also had cash of $13.3 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 2024, the Company expects to contribute $0.6 million to its defined benefit pension plans, the minimum
contribution required.
Net working capital decreased $3.8 million, or 3.0%, during fiscal 2023 and the current ratio (calculated as total
current assets divided by total current liabilities) decreased from 2.5 at June 30, 2022 to 2.2 at June 30, 2023.
The decrease in net working capital was primarily the result of an increase to trade payables ($8.0 million) and
accrued liabilities ($11.0 million) resulting from growing demand and supply chain imbalances. Offsetting these
movement were increases to trade receivables ($9.3 million - due to increased sales volume in the fourth quarter)
and inventory ($4.8 million).
The Company expects capital expenditures to be approximately $9 million - $11 million in fiscal 2024. 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 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.
Contractual Obligations
The Company’s significant contractual obligations as of June 30, 2023 are discussed in Note H “Lease
Obligations” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2023 Annual Report on
Form 10-K. There are no material undisclosed guarantees. As of June 30, 2023, the Company had no additional
material purchase obligations other than those created in the ordinary course of business related to inventory
and property, plant and equipment, which generally have terms of less than 90 days. The Company also has
long-term obligations related to its postretirement plans which are discussed in detail in Note M “Pension and
Other Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this
2023 Annual Report on Form 10-K. Postretirement medical claims are paid by the Company as they are submitted,
and they are anticipated to be $0.7 million in fiscal 2024 based on actuarial estimates; however, these amounts can
vary significantly from year to year because the Company is self-insured. In fiscal 2024, the Company expects to
contribute $0.6 million to its defined benefit pension plans, the minimum contribution required.
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:
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WE PUT HORSEPOWER TO WORK®
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 (or lower of cost or market where appropriate).
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. When triggering events are identified,
the Company performs undiscounted operating cash flow analyses to determine if an impairment exists for
property, plant and equipment and other long-lived assets, including intangible assets. 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.
26
2023 ANNUAL REPORT
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, 2023 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-2021 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.
In the fourth quarter of fiscal year 2023, the Company voluntarily changed its method of accounting for
recognizing actuarial gains and losses for its defined benefit pension and postretirement benefit plans. Under the
accounting method change, accumulated actuarial gains and losses as determined upon the annual remeasurement
of projected benefit obligation and plan assets are recognized sooner in earnings through net periodic benefit cost
within Other Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income (Loss).
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 considers 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 that a full valuation allowance is appropriate as relates to its domestic operations. A full
domestic valuation allowance of $22.3 million has been recognized at June 30, 2023. The recognition of a
valuation allowance does not affect the availability of the tax credits as the Company realizes earnings.
27
WE PUT HORSEPOWER TO WORK® 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
See Consolidated Financial Statements and Financial Statement Schedule.
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, the Chief Executive Officer
and Chief Financial Officer have concluded that such disclosure controls and procedures are effective 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.
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.
28
2023 ANNUAL REPORT 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, the Company’s
management concluded that its internal control over financial reporting was effective as of June 30, 2023.
RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over
financial reporting as of June 30, 2023, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
During the fourth quarter of fiscal 2023, 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.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 26, 2023, 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 26, 2023, which is incorporated
into this report by reference. The Company’s Code of 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 26, 2023, 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.
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 26, 2023, 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 26, 2023, 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 26, 2023, which
is incorporated into this report by reference.
29
WE PUT HORSEPOWER TO WORK® For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, see “Delinquent
Section 16(a) Reports” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 26,
2023, 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 26, 2023, 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 26, 2023 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 26, 2023, 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 26, 2023,
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 26, 2023, 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 26, 2023 under the headings “Fees to Independent Registered Public
Accounting Firm” and “Pre-approval Policies and Procedures.”
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.
30
2023 ANNUAL REPORT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm, RSM US LLP,
Milwaukee, Wisconsin, PCAOB ID #49
Consolidated Balance Sheets as of June 30, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Income for the years
ended June 30, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022
Consolidated Statements of Changes in Equity for the years ended June 30, 2023 and 2022
Notes to Consolidated Financial Statements
INDEX TO FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
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.
Page
32-34
35
36
37
38
39-73
74
31
WE PUT HORSEPOWER TO WORK® Report of Independent Registered Public Accounting Firm
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, 2023, 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, the Company maintained, in all
material respects, effective internal control over financial reporting as of June 30, 2023, 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 8, 2023
expressed an unqualified opinion.
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.
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 8, 2023
32
2023 ANNUAL REPORT
Report of Independent Registered Public Accounting Firm
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, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss),
changes in equity and cash flows for each of the two years in the period ended June 30, 2023, and the related notes
to the consolidated financial statements (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, 2023 and
2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023,
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, 2023, 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 8, 2023, expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company has elected to change its method of
accounting for actuarial gains and losses related to its pension and other postretirement benefit plans during the
year ended June 30, 2023. The Company adopted this change on a retrospective basis.
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 audit 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.
33
WE PUT HORSEPOWER TO WORK®
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 $28,151,000 and $22,345,000, respectively, as of June 30, 2023. 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.
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 regard 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 Accounting Standards Codification (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 8, 2023
34
2023 ANNUAL REPORT
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2023 and 2022
(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
Total assets
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
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 (814,734 and 960,459 shares, respectively)
Total Twin Disc shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$
$
$
2023
As Adjusted
2022
$
$
$
13,263
54,760
131,930
2,968
8,459
8,326
219,706
38,650
13,133
12,637
2,244
2,811
289,181
2,010
36,499
61,586
100,095
16,617
10,811
7,608
3,280
5,253
143,664
—
42,855
120,299
(5,570)
157,584
12,491
145,093
424
145,517
12,521
45,452
127,109
2,968
7,756
8,646
204,452
41,615
12,685
13,010
2,178
2,583
276,523
2,000
28,536
50,542
81,078
35,543
10,575
9,974
3,802
5,363
145,335
—
42,551
109,919
(6,974)
145,496
14,720
130,776
412
131,188
$
289,181
$
276,523
The notes to consolidated financial statements are an integral part of these statements.
35
WE PUT HORSEPOWER TO WORK® TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the years ended June 30, 2023 and 2022
(In thousands, except per share amounts)
Net sales
Cost of goods sold
Gross profit
Marketing, engineering and administrative expenses
Restructuring expenses
Other operating income
Income from operations
Other income (expense):
Interest expense
Other income, net
Income before income taxes and noncontrolling interest
Income tax expense
Net income
Less: Net earnings attributable to noncontrolling interest, net of tax
Net income attributable to Twin Disc
Income per share data:
Basic income per share attributable to Twin Disc common shareholders
Diluted income per share attributable to Twin Disc common shareholders
Weighted average shares outstanding data:
Basic shares outstanding
Diluted shares outstanding
Comprehensive income (loss)
Net income
Benefit plan adjustmentws, net of income taxes of $21 and $7, respectively
Foreign currency translation adjustment
Unrealized gain (loss) on hedges, net of income taxes of $0 and $235, respectively
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interest
$
$
$
$
$
2023
276,960
202,628
74,332
As Adjusted
2022
$
242,913
174,101
68,812
62,243
177
(4,148)
16,060
(2,253)
658
(1,595)
14,465
3,788
10,677
(297)
10,380
0.77
0.75
13,468
13,811
10,677
667
634
54
12,032
248
60,085
973
(3,282)
11,036
(2,128)
3,693
1,565
12,601
1,823
10,778
(311)
10,467
0.78
0.78
13,353
13,382
10,778
(2,635)
(11,593)
2,250
(1,200)
176
$
$
$
$
Comprehensive income (loss) attributable to Twin Disc
$
11,783
$
(1,376)
The notes to consolidated financial statements are an integral part of these statements.
36
2023 ANNUAL REPORT
TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2023 and 2022
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2023
As Adjusted
2022
$
10,677
$
10,778
Depreciation and amortization
Gain on sale of assets
Restructuring expenses
Provision for deferred income taxes
Stock compensation expense
Other, net
Changes in operating assets and liabilities
Trade accounts receivable
Inventories
Other assets
Accounts payable
Accrued liabilities
Accrued retirement benefits
Net cash provided (used) by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment
Proceeds from sale of fixed assets
Proceeds on note receivable
Other, net
Net cash (used) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolvong loan arrangements
Repayments of revolving loan arrangements
Repayments of other long-term debt
Payments of finance lease obligations
Dividends paid to noncontrolling interest
Payments of withholding taxes on stock compensation
Net cash (used) provided by financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash:
Beginning of period
End of period
Supplemental cash flow information:
Cash paid during the year for:
Interest
Income taxes
9,359
(4,264)
137
(634)
2,996
201
(8,393)
(2,750)
476
7,136
9,785
(1,828)
22,898
(7,918)
7,177
—
333
(408)
81,620
(97,774)
(2,037)
(621)
(236)
(463)
(19,511)
(2,237)
742
12,521
13,263
2,162
3,592
$
$
9,547
(3,126)
(1,328)
(849)
2,428
201
(8,405)
(18,552)
(3,080)
(638)
8,581
(3,870)
(8,313)
(4,729)
9,455
500
675
5,901
104,473
(95,704)
(3,081)
(933)
(214)
(486)
4,055
(1,462)
181
12,340
12,521
2,254
3,190
$
$
The notes to consolidated financial statements are an integral part of these statements.
37
WE PUT HORSEPOWER TO WORK® TWIN DISC, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended June 30, 2023 and 2022
(In thousands)
Twin Disc, Inc. Shareholders’ Equity
Balance at June 30, 2021 (As Adjusted)
$
Net income
Translation adjustments
Benefit plan adjustments, net of tax
Unrealized loss on hedges, net of tax
Cash dividends
Compensation expense
Stock awards, net of tax
Accumulated
Other
Comprehensive
Income (Loss)
$
4,869
Treasury
Stock
$ (15,083)
Non-
controlling
Interest
$
450
Total
Equity
$ 130,660
Common
Stock
40,972
Retained
Earnings
99,452
$
10,467
(11,458)
(2,635)
2,250
2,428
(849)
363
311
(135)
(214)
10,778
(11,593)
(2,635)
2,250
(214)
2,428
(486)
Balance at June 30, 2022 (As Adjusted)
42,551
109,919
(6,974)
(14,720)
412
131,188
Net income
Translation adjustments
Benefit plan adjustments, net of tax
Unrealized loss on hedges, net of tax
Cash dividends
Compensation expense
Stock awards, net of tax
2,996
(2,692)
10,380
683
667
54
297
(49)
(236)
10,677
634
667
54
(236)
2,996
(463)
2,229
Balance at June 30, 2023
$
42,855
$ 120,299
$
(5,570)
$ (12,491)
$
424
$ 145,517
The notes to consolidated financial statements are an integral part of these statements.
38
2023 ANNUAL REPORT TWIN DISC, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA)
A. SIGNIFICANT ACCOUNTING POLICIES
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. All significant intercompany transactions have been
eliminated.
Basis of Presentations--The prior period financial information in the Company’s consolidated financial statements
reflects the retrospective effects from the fourth quarter 2023 change in accounting method related to the
recognition of actuarial gains and losses for pension plans as discussed below.
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 trans-
lated 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 income (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 gain (losses) of ($373)
and $714 in fiscal 2023 and 2022, 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. The Company maintains cash in bank accounts in excess of insured limits. The
Company has not experienced any losses and does not believe that significant credit risk exists as a result of this
practice.
Accounts Receivable--These represent trade accounts receivable and are stated net of an allowance for doubtful
accounts of $1,221 and $1,741 at June 30, 2023 and 2022, 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
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, 2023. The Company’s term loan borrowing, which is SOFR-based,
approximates fair value at June 30, 2023. 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.
39
WE PUT HORSEPOWER TO WORK® 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 (or lower of cost or market where
appropriate). 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 2022, the
Company classified as and sold certain assets held for sale and recorded a net gain of $2,939. During fiscal 2023,
the Company classified as and sold certain assets held for sale and recorded a net gain of $4,161. 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 straightline 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.
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.
40
2023 ANNUAL REPORT
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.
When triggering events are identified, the Company performs undiscounted operating cash flow analyses to
determine if an impairment exists for property, plant and equipment and other long-lived assets, including
intangible assets. 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.
Pension and Other Postretirement Benefits 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.
Change in Accounting Method
During the fourth quarter of fiscal year 2023, the Company changed its accounting method related to the
recognition of actuarial gains and losses for the Company’s pension and postretirement benefit plans (the
“Accounting change”). Prior to the Accounting change, actuarial gains and losses were recognized as a component
of Accumulated other comprehensive income (loss) income upon annual remeasurement and were amortized into
earnings in future periods when they exceeded the accounting corridor, a defined range within which amortization
of net gains and losses is not required. Under the Accounting change, the accounting corridor of 10% of the greater
of the projected benefit obligation and plan assets was modified to add full, immediate recognition above a second
20% threshold. Although the decision to make the Accounting change occurred in the fourth quarter of fiscal year
2023, the actual accounting method change was applied to all calculations for fiscal year end 2023, and
retroactively applied to all other fiscal years presented in this Form 10-K.
Under the new accounting method, actuarial gains and losses are recognized in net periodic benefit cost through a
Modified mark-to-market (“MMTM”) (expense) benefit upon annual remeasurement in the fourth quarter, or on an
interim basis as triggering events warrant remeasurement. The method for recognizing prior service credits
(charges) as a component of Accumulated other comprehensive income (loss) and amortized into earnings in future
periods is not changing. With respect to the recognition of actuarial gains and losses, while the historical
principle was acceptable, the Company believes the Accounting change is preferable as it better aligns with fair
value principles by recognizing the effects of economic and interest rate changes in plan assets and liabilities in
the year in which the gains and losses are incurred to the degree such accumulated gains and losses exceed the
new 20% threshold in addition to amortizing the amounts between the 10% and 20% thresholds over time. The
Accounting change has been applied retrospectively to prior years presented. As of July 1, 2022, the cumulative
effect of the change resulted in $25.1 million decrease to retained earnings and a corresponding $25.1 million
increase to Accumulated other comprehensive income (loss), both net of tax of $0 ($7.9 million in deferred tax
asset offset by $7.9 million valuation allowance).
See Notes M and S for further information regarding the impact of the Accounting change on the Company’s
current and prior consolidated financial statements.
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.
41
WE PUT HORSEPOWER TO WORK® 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.
3. Determine the transaction price; The Company considers the invoice as the transaction price.
4. 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.
5. 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
In March 2022 and January 2021, the FASB issued guidance (ASU 2022-04 and ASU 2023-01, respectively),
intended to provide optional expedients and exceptions for applying generally accepted accounting principles to
contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank
Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments in this
guidance are effective beginning on March 12, 2020, and the Company may elect to apply the amendments
prospectively through December 31, 2022. The adoption of this guidance did not have a material impact on the
Company’s financial statements.
New Accounting Releases
In June 2016, the FASB issued updated guidance (ASU 2016-13) and also issued subsequent amendments to the
initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10 (collectively ASC 326). ASC
326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.
This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking
information to calculate credit loss estimates. The amendments in this guidance are effective for filers, excluding
smaller reporting companies, for fiscal years beginning after December 15, 2019, and for smaller reporting
companies for fiscal years beginning after December 15, 2022 (the Company’s fiscal 2024), with early
adoption permitted for certain amendments. ASC 326 must be adopted by applying a cumulative effect adjustment
to retained earnings. The adoption of this guidance is not expected to have a material impact on the Company’s
financial statements.
42
2023 ANNUAL REPORT 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 2023. 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 progress
Raw materials
2023
66,956
23,374
41,600
131,930
$
$
2022
65,789
19,801
41,519
127,109
$
$
Inventories stated on a LIFO basis represent approximately 33% and 44% of total inventories at June 30, 2023 and
2022, respectively. The approximate current cost of the LIFO inventories exceeded the LIFO cost by $30,646 and
$27,797 at June 30, 2023 and 2022, respectively. LIFO inventories were reduced during 2023, 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, 2023, the effect of this LIFO decrement decreased cost of goods sold by $3,865. There was no
LIFO decrement for the year ended June 30, 2022.
The Company had reserves for inventory obsolescence of $12,858 and $11,557 at June 30, 2023 and 2022,
respectively.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 were as follows:
Land
Buildings
Machinery and equipment
Less: accumulated depreciation
2023
2,148
26,349
148,088
176,585
(137,935)
38,650
$
$
2022
2,163
31,935
146,054
180,152
(138,537)
41,615
$
$
Included in the above amounts are finance lease right-of-use assets of $4,427 and $4,805 for the years ended June
30, 2023 and 2022, respectively.
Depreciation expense for the years ended June 30, 2023 and 2022 was $6,400 and $6,374, respectively.
43
WE PUT HORSEPOWER TO WORK®
D. INTANGIBLE ASSETS
At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization:
Balance at June 30, 2021
Addition
Amortization
Translation adjustment
Balance at June 30, 2022
Addition
Reduction
Amortization
Translation adjustment
Balance at June 30, 2023
Gross
Carrying
Amount
41,142
421
—
(1,718)
39,845
2,204
(10,506)
—
382
31,925
$
$
$
$
Accumulated
Amortization/
Impairment
(23,662)
—
(3,173)
—
(26,835)
—
10,506
(2,959)
—
(19,288)
Net
Book
Value
$ 17,480
421
(3,173)
(1,718)
13,010
2,204
—
(2,959)
382
$ 12,637
Customer
Relationship
10,321
—
(1,605)
(1,080)
7,636
—
(1,340)
257
6,553
$
$
Technology
Know-how
4,883
—
(1,163)
(482)
3,238
—
(1,202)
386
2,422
$
$
Trade
Name
1,282
—
(174)
(136)
972
—
(39)
(265)
668
$
$
$
Other
994
421
(231)
(20)
1,164
2,204
(378)
4
$ 2,994
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
6 years.
Intangible amortization expense for the years ended June 30, 2023 and 2022 was $2,959 and $3,173, respectively.
Estimated intangible amortization expense for each of the next five fiscal years is as follows:
Fiscal Year
2024
2025
2026
2027
2028
Thereafter
3,268
3,112
2,208
1,526
1,422
1,101
The changes in the carrying amount of goodwill (impairment charges) are summarized as follows:
Balance at June 30, 2021
Translation adjustment
Balance at June 30, 2022
Translation adjustment
Balance at June 30, 2023
Net Book Value Rollforward
Net Book Value By Reporting Unit
Gross
Carrying
Amount
$ 39,202 $
—
39,202
—
$ 39,202 $
Accumulated
Impairment
(39,202) $
—
(39,202)
—
(39,202) $
Net
Book
Value
—
—
—
—
—
European
Propulsion
European
Industrial
$
$
— $
—
—
—
— $
—
—
—
—
—
44
2023 ANNUAL REPORT
E. ACCRUED LIABILITIES
Accrued liabilities at June 30 were as follows:
Customer deposits
Salaries and wages
Warranty
Distributor rebates
Retirement benefits
Other
F. WARRANTY
2023
2022
$
$
22,937
10,102
2,970
3,620
1,693
20,264
61,586
$
$
17,151
11,272
2,724
2,627
1,738
15,030
50,542
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:
Reserve balance, July 1
Current period expense and adjustments
Payments or credits to customers
Translation adjustment
Reserve balance, June 30
2023
3,329
2,451
(2,268)
(36)
3,476
$
$
2022
4,369
1,570
(2,501)
(109)
3,329
$
$
The current portion of the warranty accrual ($2,970 and $2,724 for fiscal 2023 and 2022, respectively) is reflected
in accrued liabilities, while the long-term portion ($506 and $605 for fiscal 2023 and 2022, respectively) is
included in other long-term liabilities on the consolidated balance sheets.
G. DEBT
Long-term debt consisted of the following at June 30:
Credit Agreement Debt
Revolving loans (expire June 2025)
Term loan (due March 2026)
Other
Subtotal
Less: current maturities
Total long-term debt
2023
2022
$
$
7,094
11,500
33
18,627
(2,010)
16,617
$
$
22,968
13,500
75
36,543
(2,000)
34,543
45
WE PUT HORSEPOWER TO WORK®
Credit Agreement Debt:
On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris
Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between
the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan
(the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,”
and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term
Loan to the Company in a principal amount not to exceed $35.0 million and the Company may, from time to time
prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $50.0 million
(the “Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible
Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended
the maturity date of the Term Loan to March 4, 2026, and require the Company to make principal installment
payments on the Term Loan of $0.5 million per quarter. In addition, under subsequent amendments to the Credit
Agreement, BMO’s Revolving Credit Commitment is currently $40.0 million. The Credit Agreement also allows
the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by
BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on
its common stock in excess of $3.0 million in any fiscal year. The term of the Revolving Loans under the Credit
Agreement currently runs through June 30, 2025.
Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate
(“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,”
which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which
accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that are not
timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays
a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin.
Currently, the Applicable Margins are between 1.25% and 2.75% for Revolving Loans and Letters of Credit;
1.375% and 2.875% for Term Loans; and 0.10% and 0.15% for the Unused Revolving Credit Commitment (each
depending on the Company’s Total Funded Debt to EBITDA ratio).
The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the
Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge
Coverage Ratio may not be less than 1.10 to 1.00. The Company’s Tangible Net Worth may not be less than $100
million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.
Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property,
including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has
also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain
foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement
for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various
amendment and assignment agreements that consent to the assignment of certain agreements previously entered
into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company
also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank
of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as
permitted by the Credit Agreement and the Negative Pledge Agreement.
The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s
security interest in deposit accounts the Company maintains with the Bank. The Bank may not provide a notice of
exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence
or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence
or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a
Default or an Event of Default under the Credit Agreement.
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.
46
2023 ANNUAL REPORT
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 derecognized the
liability when the loan was forgiven. The Company believed that the possibility of loan forgiveness was 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 PPP loan and the appropriateness of the PPP loan forgiveness. 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.
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 $37 in principal was paid on these liabilities during the current fiscal year.
During fiscal year 2023, the average interest rate was 5.72% on the Term Loan, and 4.64% on the Revolving Loans.
As of June 30, 2023, the Company’s borrowing capacity under the terms of the Credit Agreement was
approximately $44,056 and the Company had approximately $32,906 of available borrowings.
The Company’s borrowings described above approximates fair value at June 30, 2023 and June 30, 2022. 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 $11,500 as of June 30, 2023, 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.
47
WE PUT HORSEPOWER TO WORK® During the fourth quarter of fiscal 2022, 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 Revolving Loan are
reported in accumulated other comprehensive income (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:
2024
2025
2026
2027
2028
Thereafter
$
$
2,010
9,094
7,500
—
—
23
18,627
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 $1,057 with a weighted average interest
rate of 5.1% as of June 30, 2023, and $1,049 with a weighted average interest rate of 5.7% as of June 30, 2022.
H. LEASE OBLIGATIONS
The following table provides a summary of leases recorded on the consolidated balance sheet at June 30.
Balance Sheet Location
2023
2022
Lease Assets
Operating lease right-of-use assets
Finance lease right-of-use assets
Right-of-use assets operating leases
Property, plant and equipment, net
Lease Liabilities
Operating lease liabilities
Operating lease liabilities
Finance lease liabilities
Finance lease liabilities
Accrued liabilities
Lease obligations
Accrued liabilities
Other long-term liabilities
The components of lease expense for the years ended June 30 were as follows:
Finance lease cost:
Amortization of right-to-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
$
$
$
$
$
$
13,133
4,427
2,343
10,811
643
4,314
12,685
4,805
2,127
10,575
576
4,440
2023
2022
664
267
3,127
19
302
4,379
(72)
4,307
$
$
650
277
2,908
98
173
4,106
(75)
4,031
48
2023 ANNUAL REPORT
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 leases
Weighted average discount rate:
Operating leases
Finance leases
$
2023
2022
$
3,282
267
621
2,917
522
8.8
11.3
7.2%
5.2%
3,050
277
933
1,192
406
8.7
11.3
7.1%
5.1%
Approximate future minimum rental commitments under non-cancellable leases as of June 30, 2023 were as follows:
2024
2025
2026
2027
2028
Thereafter
Total future lease payments
Less: Amount representing interest
Present value of future payments
I. SHAREHOLDERS’ EQUITY
Operating Leases
2,789
1,889
1,662
1,616
1,614
7,140
16,710
(3,556)
13,154
$
$
Finance Leases
936
695
627
559
505
3,113
6,435
(1,478)
4,957
$
$
The total number of shares of common stock outstanding at June 30, 2023 and 2022 was 13,818,068 and
13,672,343, respectively. At June 30, 2023 and 2022, treasury stock consisted of 814,734 and 960,459 shares of
common stock, respectively. The Company issued 145,725 and 53,490 shares of treasury stock in fiscal 2023 and
2022, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded
forfeitures of 0 and 29,810 shares of previously issued restricted stock in fiscal 2023 and 2022, 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, 2023 and 2022, 315,000 shares remain authorized for purchase.
Cash dividends per share were $0.00 in both fiscal 2023 and 2022.
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, 2023 and 2022 are
as follows:
Translation adjustments
Benefit plan adjustments, net of income taxes of ($133) and ($112), respectively
Net loss on cash flow hedge derivatives, net of income taxes of ($210)
Net gain on net investment hedge derivatives, net of income taxes of
$103 and $103, respectively
Accumulated other comprehensive loss
2023
(1,582)
(5,948)
688
1,272
(5,570)
$
$
2022
(2,266)
(6,614)
356
1,550
(6,974)
$
$
49
WE PUT HORSEPOWER TO WORK®
A reconciliation for the changes in accumulated other comprehensive loss, net of tax, by component for the years
ended June 30, 2023 and June 30, 2022 is as follows:
Balance at June 30, 2022
Other comprehensive loss before reclassifications
Plan merger remeasurement adjustment
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Balance at June 30, 2023
Balance at June 30, 2021
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Balance at June 30, 2022
Translation
Adjustment
(2,266)
684
—
—
684
(1,582)
Benefit Plan
Adjustment
(6,614)
—
(1,115)
1,781
666
(5,948)
$
$
Translation
Adjustment
9,192
(11,458)
—
(11,458)
(2,266)
Benefit Plan
Adjustment
(3,979)
(1,835)
(800)
(2,635)
(6,614)
$
$
$
$
$
$
Cash
Flow
Hedges
356
332
—
—
332
688
Cash
Flow
Hedges
(678)
1,034
—
1,034
356
$
$
$
$
Net
Investment
Hedges
1,550
(278)
—
—
(278)
1,272
Net
Investment
Hedges
334
1,216
—
1,216
1,550
$
$
$
$
A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended
June 30, 2023 is as follows:
Changes in benefit plan items
Actuarial income
Transition asset and prior service benefit
Plan merger remeasurement adjustment
Mark-to-market adjustment
Translation
Total amortization
Income taxes
Total changes, net of tax
Amount
Reclassified
$
$
16
336
(1,115)
2,430
6
1,673
108
1,781
A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended
June 30, 2022 is as follows:
Changes in benefit plan items
Actuarial loss
Transition asset and prior service benefit
Total before tax benefit
Tax benefit
Total reclassification net of tax
Amount
Reclassified
$
$
(3)
(312)
(315)
(485)
(800)
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.
50
2023 ANNUAL REPORT Net sales by product group is summarized as follows:
Industrial
Land-based transmissions
Marine and propulsion systems
Other
Total
2023
29,775
73,048
147,825
26,312
276,960
$
$
2022
32,100
64,904
125,446
20,463
242,913
$
$
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 firefighting. 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:
2023
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
2022
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
$
$
Manufacturing
Distribution
Total
244,090 $
9,258
60,858
879
3,297
2,722
8,572
22,964
381,668
5,336
121,964 $
12,779
6,199
256
3
1,585
295
6,839
69,213
374
366,054
22,037
67,057
1,135
3,300
4,307
8,867
29,803
450,881
5,710
Manufacturing
Distribution
Total
217,488 $
4,218
60,220
423
2,734
795
8,912
24,826
364,174
(8,112)
106,731 $
12,987
3,880
269
1
1,177
293
3,238
50,958
386
324,219
17,205
64,100
692
2,735
1,972
9,205
28,064
415,132
(7,726)
51
WE PUT HORSEPOWER TO WORK®
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
Net income attributable to Twin Disc:
Total net income from reportable segments
Other adjustments and corporate expenses
Total consolidated net income attributable to Twin Disc
2023
366,054
(89,094)
276,960
29,803
(19,423)
10,380
$
$
$
$
2022
324,219
(81,305)
242,913
28,064
(17,597)
10,467
$
$
$
$
Corporate expenses pertain to certain costs that are not allocated to the reportable segments, primarily consisting of
corporate overhead costs, including administrative functions and global functional expenses.
Other significant items:
2023
Interest income
Interest expense
Income taxes
Depreciation and amortization
Assets
Expenditures for segment assets
2022
Interest income
Interest expense
Income taxes
Depreciation and amortization
Assets
Expenditures for segment assets
Segment
Totals
Adjustments
Consolidated
Totals
$
$
1,135 $
3,300
4,307
8,867
450,881
5,710
(1,102) $
(1,048)
(519)
491
(161,700)
2,208
692 $
2,735
1,972
9,205
415,132
(7,726)
(664) $
(607)
(148)
342
(138,609)
12,455
33
2,253
3,788
9,359
289,181
7,918
28
2,128
1,823
9,547
276,523
4,729
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
Other countries
Total
2023
98,108
33,845
29,996
22,339
19,671
73,002
276,960
$
$
2022
81,454
28,099
26,870
18,404
16,577
71,510
242,913
$
$
Net sales by geographic region are based on product shipment destination.
52
2023 ANNUAL REPORT
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
2023
2022
$
$
31,628
10,396
6,160
1,372
619
4,419
54,594
$
$
32,293
10,471
6,760
1,244
923
5,191
56,883
There was one customer, an authorized distributor of the Company, that accounted for 10% of consolidated net
sales in fiscal year 2023 and 2022.
Disaggregated revenue:
The following tables present details deemed most relevant to the users of the financial statements for the years
ended June 30, 2023 and June 30, 2022.
Net sales by product group for the year ended June 30, 2023 is summarized as follows:
Industrial
Land-based transmissions
Marine and propulsion systems
Other
Total
Manufacturing
Distribution
$
$
28,445 $
69,411
136,993
9,242
244,090 $
6,162 $
29,787
67,033
18,982
121,964 $
Elimination of
Intercompany Sales
(4,832)
(26,150)
(56,200)
(1,912)
(89,094)
Total
$ 29,775
73,048
147,825
26,312
$ 276,960
Net sales by product group for the year ended June 30, 2022 is summarized as follows:
Industrial
Land-based transmissions
Marine and propulsion systems
Other
Total
K. STOCK-BASED COMPENSATION
Manufacturing
Distribution
$
$
30,769 $
65,332
112,149
9,238
217,488 $
5,506 $
30,177
56,909
14,139
106,731 $
Elimination of
Intercompany Sales
(4,175)
(30,605)
(43,612)
(2,914)
(81,305)
Total
$ 32,100
64,904
125,446
20,463
$ 242,913
In fiscal 2022, the Company adopted the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI
Plan”). Benefits under the 2021 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 715,000 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.
53
WE PUT HORSEPOWER TO WORK® In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee
Directors (the “2020 Directors’ Plan”) a plan to grant non-employee directors’ equity-based awards. 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. Under the 2020 Directors’ Plan, non-employee directors may
elect to receive all or a portion of their base cash retainer in the form of restricted stock. There is reserved for
issuance under the 2020 Directors’ Plan an aggregate of 750,000 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 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.
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
2021 LTI Plan
Performance Stock Awards (“PSA”)
2023
560,531
233,270
2022
612,981
551,901
In fiscal 2023 and 2022, the Company granted a target number of 118,131 and 103,575 PSAs, respectively, to
various employees of the Company, including executive officers.
The PSAs granted in fiscal 2023 will vest if the Company achieves performance-based target objectives relating
to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the
cumulative three fiscal year period ending June 30, 2025. These PSAs are subject to adjustment if the Company’s
return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the
maximum number of performance shares that can be awarded if the target objective is exceeded is 234,166. Based
upon actual results to date, the Company is currently accruing compensation expense for these PSAs.
The PSAs granted in fiscal 2022 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”) or average
free cashflow (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June
30, 2024. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS
or average free cashflow 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 146,562. Based upon actual
results to date, the Company is currently accruing compensation expense for these PSAs.
There were 437,862 and 320,779 unvested PSAs outstanding at June 30, 2023 and 2022, respectively. The fair
value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to
ultimately vest. The compensation expense for the year ended June 30, 2023 and 2022, related PSAs, was $1,218
and $883, respectively. The tax expense from compensation expense for the year ended June 30, 2023 and 2022,
related to PSAs, was $286 and $207, respectively. The weighted average grant date fair value of the unvested
awards at June 30, 2023 was $8.55. At June 30, 2023, the Company had $1,160 of unrecognized compensation
expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal
2023 and 2022 awards. The total fair value of performance stock awards vested in fiscal 2023 and fiscal 2022 was
$2,423.
54
2023 ANNUAL REPORT 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 2023 and 2022, the Company granted 179,959 and 57,204 service-based restricted shares, respectively,
to employees and non-employee directors in each year. A total of 0 and 29,810 shares of restricted stock were
forfeited during fiscal 2023 and 2022, respectively. There were 308,564 and 272,438 unvested shares outstanding
at June 30, 2023 and 2022, respectively. Compensation expense of $1,317 and $1,223 was recognized during
the year ended June 30, 2023 and 2022, respectively, related to these service-based awards. The tax benefit from
compensation expense for the year ended June 30, 2023 and 2022, related to these service-based awards, was $309
and $287, respectively. The total fair value of restricted stock grants vested in fiscal 2023 and 2022 was $1,699 and
$1,711, respectively. As of June 30, 2023, the Company had $1,072 of unrecognized compensation expense related
to restricted stock which will be recognized over the next three years.
Restricted Stock Unit Awards (“RSU”)
In fiscal 2023 and 2022, the Company granted 72,376 and 67,427 RSUs, respectively, to various employees of the
Company, including executive officers.
The RSUs granted in fiscal 2022 will vest if the employee remains employed by the Company through a specified
date 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.
The RSUs granted in fiscal 2023 will vest if the employee remains employed by the Company through June 30,
2025 and if the Company achieves performance-based target objectives relating to average return on invested
capital and cumulative EBITDA (as defined in the RSU Grant Agreement), in the cumulative three fiscal year
period ending June 30, 2025. These RSUs are subject to adjustment if the Company’s return on invested capital and
cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of shares that
can be earned if the target objective is exceeded is 144,752. Based upon actual results to date, the Company is
currently accruing compensation expense for these RSUs.
There were 130,163 and 62,119 unvested RSUs outstanding at June 30, 2023 and June 30, 2022, respectively.
Compensation expense of $461 and $321 was recognized during the year ended June 30, 2023 and 2022,
respectively. The tax benefit from compensation expense for the year ended June 30, 2023 and 2022, related to
these service-based awards, was $108 and $75, respectively. The weighted average grant date fair value of the
unvested awards at June 30, 2023 was $10.92. As of June 30, 2023, the Company had $704 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 $2,458 and $1,576 in fiscal 2023 and 2022, respectively. Total
engineering and development costs were $8,741 and $8,808 in fiscal 2023 and 2022, respectively, and are primarily
recorded within Marketing, engineering and administration expenses on the consolidated statements of operations
and comprehensive income (loss).
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. To reduce administration costs, in
December 2022, the Company merged its domestic hourly and salaried defined benefit pension plans into a single
plan. Due to the merger, an interim remeasurement was required which resulted in a net measurement loss (gain
on liability offset by loss on assets) which increased the net liability from an expected amount of $1.5 million to a
measured amount of $2.6 million. Lower future administrative costs are expected to be favorable to the net
55
WE PUT HORSEPOWER TO WORK® liability in subsequent measurements. 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.
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 2023 and 2022 was
June 30.
As discussed in Note A, during the fourth quarter of fiscal year 2023, the Company changed its accounting method
related to the recognition of actuarial gains and losses for its pension and postretirement benefit plans. Under the
new method, actuarial gains and losses are recognized in net periodic benefit costs upon annual remeasurement in
the fourth quarter, or on an interim basis as triggering events warrant remeasurement. These changes have been
applied retrospectively to prior years presented below. See Notes A and S for further information regarding the
impact of the change in accounting principle on the Company’s consolidated financial statements.
The (income) cost to the Company of its retirement benefit plans is shown in the following table:
Components of net periodic benefit
(income) 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
Mark-to-market effect
Other
Net periodic benefit (income) cost
Year Ended June 30
Pension Benefits
2023
2022
Other Postretirement Benefits
2023
2022
$
$
338 $
3,570
20
(4,240)
38
(100)
2,451
(2,428)
—
(351) $
511
2,473
40
(5,057)
48
(85)
2,375
(2,372)
(6)
(2,073)
$
$
10 $
213
—
—
—
(275)
(39)
—
—
(91) $
14
140
—
—
—
(274)
—
—
—
(120)
56
2023 ANNUAL REPORT 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 income (loss) as of June 30:
Pension Benefits
2023
2022
Other Postretirement Benefits
2023
2022
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
Benefit obligation, end of year
Change in plan assets:
Fair value of assets, beginning of year
Actual return on plan assets
Employer contribution
Contributions by plan participants
Benefits paid
Fair value of assets, end of year
Funded status
$
$
$
$
$
79,549
340
3,564
20
(3,440)
112
(7,993)
72,152
73,338
1,142
739
112
(7,993)
67,338
(4,814)
$
$
$
$
$
98,700
507
2,472
40
(14,253)
105
(8,022)
79,549
92,430
(11,884)
709
105
(8,022)
73,338
(6,211)
Amounts recognized in the balance sheet consist of:
$
Other assets – noncurrent
Accrued liabilities – current
Accrued retirement benefits – noncurrent
Net amount recognized
$
28
(218)
(4,624)
(4,814)
$
$
—
(271)
(5,940)
(6,211)
Amounts recognized in accumulated other comprehensive loss consists of (net of tax):
Net transition obligation
Prior service (benefit) cost
Actuarial net loss (income)
Net amount recognized
$
$
83
(42)
7,064
7,105
$
$
102
9
7,341
7,452
$
$
$
$
$
$
$
$
$
4,785
10
213
—
(633)
—
(690)
3,685
$
$
— $
—
690
—
(690)
— $
6,102
14
140
—
(786)
203
(888)
4,785
—
—
686
203
(889)
—
3,685
$
(4,785)
— $
(701)
(2,984)
(3,685)
$
—
(751)
(4,034)
(4,785)
— $
(67)
(1,090)
(1,157)
$
—
(278)
(560)
(838)
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 (benefit)
Actuarial net loss (income)
Net amount to be recognized
Pension Benefits
38
35
59
132
$
$
$
$
Other
Postretirement
Benefits
—
(88)
(620)
(708)
The accumulated benefit obligation for all defined benefit pension plans was approximately $72,152 and $79,549 at
June 30, 2023 and 2022, respectively.
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WE PUT HORSEPOWER TO WORK®
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 (Income) 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 (income) cost
Service cost
Interest cost
Amortization of prior service cost
Net periodic benefit (income) cost
June 30
2023
67,809
62,876
$
2022
79,549
73,338
Pension Benefits
2023
2022
338
3,570
20
(4,240)
38
(100)
23
(351)
$
$
511
2,473
40
(5,057)
48
(85)
(3)
(2,073)
Other Postretirement Benefits
2023
2022
10
213
(314)
(91)
$
$
14
140
(274)
(120)
$
$
$
$
$
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal
2023 (Pre-tax):
Net income
Amortization of transition asset
Amortization of prior service cost
Amortization of net (income) loss
Total recognized in other comprehensive income
Net periodic benefit (income) cost
Total recognized in net periodic benefit (income) cost and
other comprehensive income
Pension
Benefits
Other
Postretirement
Benefits
$
$
(307)
(38)
99
(23)
(269)
(351)
$
(620)
$
(633)
—
275
39
(319)
299
(20)
58
2023 ANNUAL REPORT
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for
Fiscal 2022 (Pre-tax):
Net loss (income)
Amortization of transition asset
Amortization of prior service cost
Amortization of net loss
Total recognized in other comprehensive loss (income)
Net periodic benefit (income) cost
Total recognized in net periodic benefit (income) cost and other
comprehensive loss (income)
Pension
Postretirement
Benefits
$
$
$
2,860
(48)
85
3
2,900
(2,071)
829
$
(785)
—
275
—
(510)
(120)
(630)
Additional Information
Assumptions
Weighted average assumptions used to
determine benefit obligations at June 30
Discount rate
Expected return on plan assets
Pension Benefits
Other Postretirement Benefits
2023
2022
2023
2022
5.29%
6.65%
4.61%
6.13%
5.74%
4.83%
Pension Benefits
Other Postretirement Benefits
2023
2022
2023
2022
Weighted average assumptions used to determine
net periodic benefit costs for years ended June 30
Discount rate
Expected return on plan assets
5.02%
6.42%
2.59%
5.50%
4.83%
2.47%
The assumed weighted-average healthcare cost trend rate was 5.75% in 2023, grading down to 5.00% in 2025.
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.
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WE PUT HORSEPOWER TO WORK®
The Company’s pension plan weighted-average asset allocations at June 30, 2023 and 2022 by asset category were
as follows:
Asset Category
Equity securities
Debt securities
Real estate
Allocation
43%
50%
7%
100%
2023
40%
49%
11%
100%
2022
40%
49%
11%
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 $1,106 (1.6% of
total plan assets) at June 30, 2023 and 98,211 shares with a fair market value of $890 (1.3% of total plan assets) at
June 30, 2022.
The U.S. plans have a long-term return assumption of 7.0%. This rate was derived based upon historical
experience and forward-looking return expectations for major asset class categories.
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, 2023:
Total
Level I
Level II
Level III
Cash and cash equivalents
Equity securities:
Company common stock (a)
Common stock (a)
Mutual funds (b)
Annuity contracts (c)
Total
Investments Measured at Net Asset Value (d)
Total
$
$
858 $
858
$
1,106
9,590
3,112
6,688
21,354 $
45,984
67,338
1,106
9,590
3,112
—
14,666
$
— $
—
—
—
—
— $
—
—
—
—
6,688
6,688
The following table presents plan assets using the fair value hierarchy as of June 30, 2022:
Total
Level I
Level II
Level III
Cash and cash equivalents
Equity securities:
Company common stock (a)
Common stock (a)
Mutual funds (b)
Annuity contracts (c)
Total
Investments Measured at Net Asset Value (d)
Total
$
$
865 $
865
$
890
10,612
4,720
6,302
23,389 $
49,949
73,338
890
10,612
4,720
—
17,087
$
— $
—
—
—
—
— $
—
—
—
—
6,302
6,302
(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.
60
2023 ANNUAL REPORT
(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, 2023 and June 30, 2022:
Fixed income funds
International equity securities
Real estate
Hedged equity mutual funds
Total
2023
29,057
2,251
6,315
8,361
45,984
$
$
2022
31,763
2,198
7,074
8,914
49,949
$
$
The following tables present a reconciliation of the fair value measurements using significant unobservable inputs
(Level III) as of June 30, 2023 and 2022:
Beginning balance
Actual return on plan assets:
Relating to assets still held at reporting data
Purchases, sales and settlements, net
Ending balance
2023
2022
$
$
6,302
184
203
6,688
$
$
6,646
(452)
108
6,302
Cash Flows
Contributions
The Company expects to contribute $590 to its defined benefit pension plans in fiscal 2024.
The Company expects to contribute $721 to its other postretirement benefit plans in fiscal 2024.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
$
$
Pension
Benefits
7,756
7,075
6,852
6,740
6,695
32,554
Other
Postretirement
Benefits
721
519
467
431
396
1,407
2023
2024
2025
2026
2027
Years 2028–2031
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WE PUT HORSEPOWER TO WORK®
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 $2,260 and $2,245 in fiscal 2023 and 2022, respectively.
N. INCOME TAXES
United States and foreign (loss) income before income taxes and minority interest were as follows:
United States
Foreign
The provision (benefit) for income taxes is comprised of the following:
Currently payable:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2023
683
13,782
14,465
2023
72
(5)
4,355
4,422
$
$
$
$
— $
(47)
(587)
(634)
3,788
$
2022
1,215
11,386
12,601
2022
(164)
(2)
2,838
2,672
—
62
(911)
(849)
1,823
$
$
$
$
$
$
62
2023 ANNUAL REPORT
The components of the net deferred tax asset as of June 30 are summarized in the table below.
Deferred tax assets:
Retirement plans and employee benefits
Foreign tax credits and carryforwards
Federal tax credits, net of ASU 2013-11
State net operating loss and other state credit carryforwards, net of ASU 2013-11
Federal net operating loss
Reserves
R&E Capitalization
Accruals
Right of use assets – operating leases
Disallowed interest
Capital loss carryforward
Translation adjustment
Other assets
Valuation allowance
Deferred tax liabilities:
Inventory
Property, plant and equipment
Intangibles
Long term operating lease obligations
Hedge
Other liabilities
Total deferred tax liabilities
2023
2022
$
$
4,234
7,983
1,724
2,143
4,489
774
588
936
3,501
1,062
108
494
115
28,151
(22,345)
5,806
96
850
1,561
3,427
435
473
6,842
(1,036)
$
$
4,787
7,822
1,597
2,179
5,492
1,119
—
703
3,381
980
108
661
119
28,948
(23,097)
5,851
285
1,155
2,012
3,352
422
250
7,475
(1,624)
At June 30, 2023 the Company has net operating loss carryforwards (“NOLs”) of approximately $21,378 and
$29,598 for federal and state income tax purposes which will expire at various dates from fiscal year 2024–2043.
Federal NOLs of $21,378 were generated subsequent to fiscal 2019 and have an indefinite carryover period. The
Company has federal and state tax credit carryforwards of approximately $10,057 and $1,032, respectively, which
will expire at various dates from fiscal 2027 – 2043.
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 $22,345 and $23,097
have been recorded for fiscal year 2023 and 2022, respectively.
63
WE PUT HORSEPOWER TO WORK®
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 rate differences
U.S. inclusion of foreign tax items
Foreign permanent differences
Foreign prior period adjustments
Foreign other
State taxes
Change in prior year estimate
Research and development tax credits
Unrecognized tax benefits
Stock compensation
Rate changes
Deferred tax basis adjustments
Executive compensation
GILTI inclusion
Valuation allowance
Other, net
2023
$
3,038
$
2022
2,648
739
67
20
166
(90)
69
(113)
(127)
64
(13)
(39)
41
219
97
(426)
75
3,788
$
438
12
(578)
(465)
18
46
372
(10)
(152)
(46)
121
(54)
42
920
(1,539)
50
1,823
$
Executive Compensation Limitations: IRC 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 definition of “covered
employee” includes the Company’s named executive officers. These are the corporation’s principal executive
officer, principal financial officer, and the next three highest-paid executive officers. Prior exemptions for
commissions and performance-based compensation were eliminated under the Tax Cuts and Jobs Act (the
“TCJA”). This item had an impact on the Company’s effective tax rate in fiscal years 2023 and 2022 of $219 and
$42 respectively.
Global Intangible Low Taxed Income (“GILTI”): The GILTI requires 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 impact to the
company’s financial statements in fiscal years 2023 and 2022 was $97 and $920 respectively.
Foreign Derived Intangible Income (“FDII”): The TCJA 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 2023 and 2022.
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 $24,612 and $14,175 at June 30, 2023 and June 30, 2022, 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 2018 through 2023 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 2018.
64
2023 ANNUAL REPORT
The Company has approximately $774 and $716 of unrecognized tax benefits as of June 30, 2023 and June 30,
2022 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
Unrecognized tax benefits, end of year
2023
2022
716
22
36
—
774
$
$
778
—
3
(65)
716
$
$
Substantially all of the Company’s unrecognized tax benefits as of June 30, 3023, if recognized, would affect the
effective tax rate. As of June 30, 2023 and 2022, the amounts accrued for interest and penalties totaled $52 and
$38, 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.
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 was reduced by 18 employees. This reduction in
workforce resulted in an accrual of $2,200, pertaining to the Company’s estimate for the payment of severance
benefits, which was substantially completed at June 2023. 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.
In the second quarter of fiscal 2022, the Company and the union representing certain of the employees affected
by the restructuring of the Belgian operation came to an agreement on a final settlement amount of $3,200. The
Company recorded the additional $973 in restructuring charges during the second quarter of fiscal 2022.
Total restructuring charges relating to streamlining operations amounted to $177 and $973 in fiscal 2023 and 2022,
respectively. Restructuring activities since June 2015 have resulted in the elimination of 258 full-time employees
in the manufacturing segment. Accumulated costs to date under these programs within the manufacturing segment
through June 30, 2023 were $17,352.
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WE PUT HORSEPOWER TO WORK®
The following is a roll-forward of restructuring activity:
Accrued restructuring liability, June 30,2021
Additions
Payments and adjustments
Accrued restructuring liability, June 30, 2022
Additions
Payments and adjustments
Accrued restructuring liability, June 30, 2023
Assets held for sale
$
$
2,352
973
(2301)
1,024
177
(1,119)
82
To improve its fixed cost structure and monetize some of its under-utilized assets, the Company commenced the
active marketing of several of its real estate properties, 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 in the fourth quarter of fiscal 2021.
In the first quarter of fiscal 2022, the Company completed the sale of its propeller machining plant and office in
Switzerland and received $9,138 in proceeds, net of fees and local taxes and recorded a gain of $2,939 in other
operating income. In the fourth quarter of fiscal 2022, the Company completed the sale of its spare warehouse in
Italy and received net proceeds of approximately $305.
In the first quarter of fiscal 2023, the Company commenced the active marketing of an additional real estate
property located in Nivelles, Belgium. This action required the Company to reclassify these assets from Property,
Plant, and Equipment to Assets Held for Sale, at fair value less costs to sell or net book value, whichever is lower.
Fair value was determined using real estate broker estimates and would be classified as Level 3 in the fair value
hierarchy. The real estate property’s fair value less costs to sell exceeded its net book value. The Company
reclassified the property’s net book value of $2,801 from Property, Plant, and Equipment to Assets Held for Sale.
In the second quarter of fiscal 2023, the Company completed the sale of the real estate property located in Belgium
and received $7,150 in proceeds, net of fees and recorded a gain of $4,161 in other operating income.
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.
66
2023 ANNUAL REPORT
The components of basic and diluted earnings per share were as follows:
Basic:
Net income
Less: Net earnings attributable to noncontrolling interest
Less: Undistributed earnings attributable to unvested shares
Net income attributable to Twin Disc
Weighted average shares outstanding – basic
Basic Loss Per Share:
Net income per share – basic
Diluted:
Net income
Less: Net earnings attributable to noncontrolling interest
Less: Undistributed earnings attributable to unvested shares
Net income attributable to Twin Disc
Weighted average shares outstanding – basic
Effect of dilutive stock awards
Weighted average shares outstanding – diluted
Diluted Loss Per Share:
Net income per share – diluted
$
$
$
2023
2022
$
$
$
10,677
(297)
—
10,380
13,468
0.77
10,677
(297)
—
10,380
13,468
343
13,811
10,778
(311)
—
10,467
13,353
0.78
10,778
(311)
—
10,467
13,353
29
13,382
$
0.75
$
0.78
As discussed in Note A, during the fourth quarter of 2023, the Company changed its accounting method related to
the recognition of actuarial gains and losses for its pension plans. Under the new method, actuarial gains and
losses are recognized in net periodic benefit costs upon annual remeasurement in the fourth quarter, or on an
interim basis as triggering events warrant remeasurement. These changes have been applied retrospectively to prior
years. See Notes A, M and S for further information regarding the impact of the change in accounting principle on
the Company’s consolidated financial statements.
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 SOFR-based indebtedness. The Company records gains and
losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive loss
to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net
earnings, at which time these gains and losses are recognized in interest expense on its consolidated statements of
operations and comprehensive income (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.
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Net unrealized after-tax losses related to cash flow hedging activities that were included in accumulated other
comprehensive loss were ($688) and ($356) for the years ended June 30, 2023 and 2022, 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 ($293) 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 €13,500, 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 ($1,272) and ($1,550) for the
years ended June 30, 2023 and 2022, 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 income (loss) as the changes in the fair value of the contracts are recognized and generally
offset the gains and losses on the hedged items in the same period. The primary currency to which the Company
was exposed in fiscal 2023 and 2022 was the euro. At June 30, 2023 and 2022, 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, 2023 and June 30, 2022. If measured at fair value in the financial statements, it would be classified as Level 2
in the fair value hierarchy.
68
2023 ANNUAL REPORT 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
Balance Sheet Location
2023
2022
Other current assets
Other noncurrent assets
$
292
187
$
68
77
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
Statement of Comprehensive
Income (Loss) Location
2023
2022
Interest expense
Unrealized gain on hedges
Unrealized (loss) gain on hedges
$
$
311
332
(278)
362
1,034
1,216
S. 2022 IMPACT OF ACCOUNTING METHOD CHANGE
The following tables summarize the effects of the Accounting change described in Note A on the Company’s
consolidated statement of operations and comprehensive income (loss), statement of cash flows and statement of
changes in equity for the year ended June 30, 2022 and consolidated condensed balance sheet as of June 30, 2022.
See next page.
69
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CONSOLIDATED STATEMENT OF OPERATION AND COMPREHENSIVE INCOME (LOSS)
As Computed
Under Previous
Method
June 30, 2022
Effect of
Accounting
Change
As Reported
Under New
Method
Net sales
Cost of goods sold
Gross profit
Marketing, engineering and administrative expenses
Restructuring expenses
Other operating income
Income from operations
Other income (expense):
Interest expense
Other income, net
Income before income taxes and noncontrolling interest
Income tax expense
Net income
Less: Net earnings attributable to noncontrolling interest, net of tax
Net income attributable to Twin Disc
$
$
Income per share data:
$
Basic income per share attributable to Twin Disc common shareholders
Diluted income per share attributable to Twin Disc common shareholders $
Weighted average shares outstanding data:
Basic shares outstanding
Diluted shares outstanding
Comprehensive income (loss):
Net income
Benefit plan adjustments, net of income taxes of $21 and $7, respectively
Foreign currency translation adjustment
Unrealized gain (loss) on hedges, net of income taxes
of $0 and $235, respectively
$
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interest
$
242,913
174,101
68,812
— $
—
—
60,085
973
(3,282)
11,036
(2,128)
1,321
(807)
10,229
1,823
8,406
(311)
8,095
0.61
0.60
13,353
13,382
8,406
(263)
(11,593)
2,250
(1,200)
176
$
$
$
$
—
—
—
—
—
2,372
2,372
2,372
—
2,372
—
2,372
0.17
0.18
—
—
2,372
(2,372)
—
—
—
—
$
$
$
$
242,913
174,101
68,812
60,085
973
(3,282)
11,036
(2,128)
3,693
1,565
12,601
1,823
10,778
(311)
10,467
0.78
0.78
13,353
13,382
10,778
(2,635)
(11,593)
2,250
(1,200)
176
Comprehensive income (loss) attributable to Twin Disc
$
(1,376)
$
— $
(1,376)
70
2023 ANNUAL REPORT CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
Current assets
Cash
Trade accounts, receivable
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
Total assets
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
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 (814,734 and 960,459 shares, respectively)
Total Twin Disc shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
As Computed
Under Previous
Method
June 30, 2022
Effect of
Accounting
Change
As Reported
Under New
Method
$
$
$
$
12,521
45,452
127,109
2,968
7,756
8,646
204,452
41,615
12,685
13,010
2,178
2,583
— $
—
—
—
—
—
—
—
—
—
—
12,521
45,452
127,109
2,968
7,756
8,646
204,452
41,615
12,685
13,010
2,178
2,583
276,523
$
— $
276,523
$
2,000
28,536
50,542
81,078
35,543
10,575
9,974
3,802
5,363
145,335
—
42,551
135,031
(32,086)
145,496
14,720
130,776
412
131,188
— $
—
—
—
—
—
—
—
—
—
—
—
(25,112)
25,112
—
—
—
—
—
2,000
28,536
50,542
81,078
35,543
10,575
9,974
3,802
5,363
145,335
—
42,551
109,919
(6,974)
145,496
14,720
130,776
412
131,188
$
276,523
$
— $
276,523
71
WE PUT HORSEPOWER TO WORK® CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Gain on sale of assets
Restructuring expenses
Provision for deferred income taxes
Stock compensation expense
Other, net
Changes in operating assets and liabilities
Trade accounts receivable
Inventories
Other assets
Accounts payable
Accrued liabilities
Accrued retirement benefits
Net cash provided (used) by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment
Proceeds from sale of fixed assets
Proceeds on note receivable
Other, net
Net cash (used) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving loan arrangements
Repayments of revolving loan arrangements
Repayments of other long-term debt
Payments of finance lease obligations
Dividends paid to noncontrolling interest
Payments of withholding taxes on stock compensation
Net cash (used) provided by financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash:
Beginning of period
End of period
As Computed
Under Previous
Method
June 30, 2022
Effect of
Accounting
Change
As Reported
Under New
Method
$
8,406
$
2,372
$
10,778
9,547
(3,126)
(1,328)
(849)
2,428
201
(8,405)
(18,552)
(3,080)
(638)
8,581
(1,497)
(8,312)
(4,729)
500
9,455
675
5,901
104,473
(95,704)
(3,081)
(933)
(214)
(487)
4,054
(1,462)
181
12,340
—
—
—
—
—
—
—
—
(1)
—
—
(2,372)
9,547
(3,126)
(1,328)
(849)
2,428
201
(8,405)
(18,552)
(3,081)
(638)
8,581
(3,869)
(1)
(8,313)
—
8,955
(8,955)
—
—
—
—
—
—
—
1
1
—
—
—
(4,729)
9,455
500
675
5,901
104,473
(95,704)
(3,081)
(933)
(214)
(486)
4,055
(1,462)
181
12,340
$
12,521
$
— $
12,521
72
2023 ANNUAL REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained earnings
Balance at June 30, 2021
Net income
Balance at June 30, 2022
Accumulated other comprehensive income
Balance at June 30, 2021
Translation adjustments
Benefit plan adjustments, net of tax
Unrealized loss on hedges, net of tax
June 30, 2022
As Computed
Under Previous
Method
Effect of
Accounting
Change
As Reported Under
New Method
126,936
8,095
(27,484)
2,372
99,452
10,467
$
135,031 $
(25,112) $
109,919
(22,615)
(11,458)
(263)
2,250
27,484
—
(2,372)
—
4,869
(11,458)
(2,635)
2,250
(6,974)
Balance at June 30, 2022
$
(32,086) $
25,112 $
T. SUBSEQUENT EVENT
In the first quarter of fiscal year 2024, the Company entered into an agreement to sell certain assets, liabilities,
and legal relationships of its boat management business unit in Italy, Twin Disc Srl. The agreement is expected
to close in the Company’s second quarter of fiscal year 2024. The impact of the sale is not material to the
financial statements.
73
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 2023 and 2022 (in thousands)
Description
2023:
Allowance for losses on accounts receivable $
$
Reserve for inventory obsolescence
$
Deferred tax valuation allowance
2022:
Allowance for losses on accounts receivable $
$
Reserve for inventory obsolescence
$
Deferred tax valuation allowance
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Adjustments(1)
Balance at
End of Period
1,741 $
11,557 $
23,097 $
1,870 $
10,279 $
15,921 $
140
1,740
—
255
2,246
—
$
$
$
$
$
$
660 $
439 $
752 $
384 $
968 $
(7,176) $
1,221
12,858
22,345
1,741
11,557
23,097
(1) Activity primarily represents amounts written-off during the year, along with other adjustments
(primarily foreign currency translation adjustments).
74
2023 ANNUAL REPORT
EXHIBIT INDEX
TWIN DISC, INCORPORATED
10-K for Year Ended June 30, 2023
Exhibit
Description
3a)
3b)
3c)
Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by
reference to Exhibit 3.1 of the Company’s Form 8K 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 8K
dated October 29, 2020). File No. 001-07635.
Restated Bylaws of Twin Disc, Incorporated, as amended through October 29, 2021
(Incorporated by reference to Exhibit 3.2 of the Company’s Form 8K dated October
29, 2020). File No. 001-07635.
Exhibit 10 Material Contracts
Included
Herewith
Included
Herewith
Director Tenure and Retirement Policy (Incorporated by reference to Exhibit 10.A
of the Company’s Form 10-K dated September 2, 2021). File No. 001-07635.
The Twin Disc, Incorporated 2021 Long-Term Incentive Compensation Plan
(Incorporated by reference to Appendix A of the Proxy Statement for the Annual
Meeting of Shareholders held on October 28, 2021). File No. 001-07635.
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.
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.
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.
Form of Restricted Stock Grant Agreement for restricted stock grants on August 3,
2022 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated
August 8, 2022). File No. 001-07635.
Form of Restricted Stock Unit Grant Agreement for restricted stock units granted on
August 3, 2022 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K
dated August 8, 2022). File No. 001-07635.
Form of Performance Stock Award Grant Agreement for award of performance shares
on August 3, 2022 (Incorporated by reference to Exhibit 10.3 of the Company’s Form
8-K dated August 8, 2022). File No. 001-07635.
Form of Restricted Stock Grant Agreement for restricted stock grants on August 3,
2023 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated
August 9, 2023). File No. 001-07635.
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
75
WE PUT HORSEPOWER TO WORK®
m)
n)
o)
p)
q)
r)
s)
t)
u)
v)
w)
x)
y)
z)
aa)
Form of Performance Stock Award Grant Agreement for award of performance shares
on August 3, 2023 (Incorporated by reference to Exhibit 10.2 of the Company’s Form
8-K dated August 9, 2023). File No. 001-07635.
Amendment to Restricted Stock Unit Grant Agreement for restricted stock units
granted on August 3, 2023 (Incorporated by reference to Exhibit 10.3 of the
Company’s Form 8-K dated August 9, 2023). 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.
Form of Change in Control Severance Agreements (Incorporated by reference to
Exhibit 10.4 of the Company’s Form 8-K dated August 3, 2022). 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 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.
76
2023 ANNUAL REPORT
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, 2021, 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.
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.
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.
First Amended and Restated Forbearance Agreement and Amendment No. 7 to
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 October
5, 2021). File No. 001-07635.
Second Amended and Restated Forbearance Agreement and Amendment No. 8 to
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 4,
2022). File No. 001-07635.
Third 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 March 4, 2022). File No. 001-07635.
Amendment No. 9 to 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 6, 2022). 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.
Commercial Offer to Purchase, dated March 10, 2022, between Twin Disc,
Incorporated and J. Jeffers & Co., LLC (Incorporated by reference to Exhibit 1.1 of
the Company’s Form 8-K dated March 15, 2022). File No. 001-07635.
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77
WE PUT HORSEPOWER TO WORK®
Exhibit
Description
Herewith
21
23a
24
31a
31b
32a
32b
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
X
X
X
X
X
X
X
101.INS
Inline XBRL Instance Document, filed herewith
101.SCH
Inline XBRL Schema Document, filed herewith
101.CAL
Inline XBRL Calculation Linkbase Document, filed herewith
101.DEF
Inline XBRL Definition Linkbase Document, filed herewith
101.LAB
Inline XBRL Label Linkbase Document, filed herewith
101.PRE
Inline XBRL Presentation Linkbase, filed herewith
104
Cover Page Interactive Data File (embedded within the
Inline XBRL and contained in Exhibit 101)
78
2023 ANNUAL REPORT
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 8, 2023
TWIN DISC, INCORPORATED
By: /s/ JOHN H. BATTEN
John H. Batten
President and 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.
By: /s/ MICHAEL C. SMILEY
Michael C. Smiley
Chairman of the Board
By: /s/ JOHN H. BATTEN
John H. Batten
President and Chief Executive Officer
By: /s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary
Michael Doar, Director
Janet P. Giesselman, Director
David W. Johnson, Director
Juliann Larimer, Director
Kevin M. Olsen, Director
By: /s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary (Attorney in Fact)
September 8, 2023
September 8, 2023
September 8, 2023
September 8, 2023
79
WE PUT HORSEPOWER TO WORK® 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 SARL (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)
15. Twin Disc New Zealand Limited (a New Zealand 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.
80
2023 ANNUAL REPORT EXHIBIT 23a
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Nos. 333-260800, 333-228245 and
333-249730 on Form S-8) of Twin Disc Incorporated of our reports dated September 8, 2023, 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, 2023.
/s/ RSM US LLP
Milwaukee, Wisconsin
September 8, 2023
81
WE PUT HORSEPOWER TO WORK® 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, 2023
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 con-
firming 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/ JULIANN LARIMER
Juliann Larimer, Director
/s/ KEVIN M. OLSEN
Kevin M. Olsen, Director
/s/ MICHAEL C. SMILEY
Michael C. Smiley, Director
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
August 3, 2023
82
2023 ANNUAL REPORT 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 8, 2023
By: /s/ JOHN H. BATTEN
John H. Batten
President and Chief Executive Officer
83
WE PUT HORSEPOWER TO WORK® 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 8, 2023
/s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
84
2023 ANNUAL REPORT 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, 2023, as filed with the Securities and Exchange Commission as of the date hereof
(the “Report”), I, John H. Batten, President and 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 8, 2023
By: /s/ JOHN H. BATTEN
John H. Batten
President and Chief Executive Officer
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, 2023, 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 8, 2023
By: /s/ JEFFREY S. KNUTSON
Jeffrey S. Knutson
Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary
85
WE PUT HORSEPOWER TO WORK® TO OUR SHAREHOLDERS
A Letter from John H. Batten, President and Chief Executive Officer
Around the world, fiscal 2023 was another year marked by
lingering uncertainty and unusual challenges. Headlines
featuring recessionary economic forecasts, the Russia-
Ukraine conflict, growing geopolitical tensions with
China, rising interest rates, and persistent inflation
painted a tough year for people and for business. Despite
these macroeconomic and geopolitical factors, Twin
Disc continued to execute our strategic playbook, made
progress on achieving our medium-term targets, and
is building from an even stronger foundation starting in
fiscal 2024.
The significant opportunity that sustainable hybrid and
electric equipment presents for each of the product
groups and end markets we serve is a key part of why
we are so excited. As such, it seems fitting to frame this
letter in terms of how energized we are as an organization.
ENERGIZING INNOVATION
Throughout our 105-year history, one thing has remained
constant: our unwavering dedication to innovation.
Embracing the realm of hybrid, electric, and renewables
presents an exciting and profitable opportunity to grow
sales and increase margins into the future. Twin Disc’s
pioneering efforts pave the way for a leadership role in
shaping the future of hybrid and electric solutions. Moving
forward, our role will be to provide tailored solutions to a
growing customer base.
ENERGIZING RELATIONSHIPS
Streamlined operations, a customer-centric approach,
and the “Fast. Focused. Friendly.” campaign have had a
profound impact that extends beyond our geographic
strategy. At Twin Disc, we take pride in delivering what we
like to call the “Lufkin Experience”, ensuring rapid, friendly
service and unmatched efficiency for our land-based
power transmission customers.
Our decision to relocate the Arneson business to Italy
has proven to be highly advantageous for our marine
customers, further aligning our operations with their
needs. We expect further improvements in Italy, creating
value for our organization, customers, and, by extension,
our shareholders.
In May 2023, we proudly announced an exciting milestone
for our Aftermarket Parts facility in Sturtevant, Wisconsin.
Within four years of opening, the center has generated
over $150 million in cumulative revenue. With only 15 staff
members, the team efficiently serves customers in North
America, Latin America, Europe, Australia, Singapore,
and China. This success has led to a model for deploying
similar hubs in other global markets to reduce costs and
enhance customer satisfaction.
Additionally, the Aftermarket Parts team’s proactive
approach to sourcing new partnerships has helped address
shortages, benefiting the overall customer experience.
ENERGIZING COMMUNICATIONS
Communication has changed considerably since Twin Disc
began doing business in 1918. Today’s customer seeks
engagement on their terms via their preferred medium.
We strive to meet our customers where they are and
recognize the crucial role of digital and social media.
Our Sales, Marketing, and IT teams work hand-in-hand
to adopt cutting-edge technology and best-in-class
techniques for reaching current customers and new
prospects. We are using innovative digital content and
leveraging the capabilities of SALESFORCE.COM to create
an interactive journey allowing engagement with our
brands and converting casual visitors into qualified leads.
While traditional marketing remains important, our focus
on digital and social media content enhances interest in
and awareness of our brands.
5-YEAR FINANCIAL SUMMARY
Statements of Operations and Comprehensive Income (Loss)
2023
2022*
2021*
2020*
2019*
Net Sales
$
276,960
$
242,913
$
218,581
$ 246,838
$ 302,663
Cost and expenses, including marketing, engineering and administrative
260,900
231,877
Income (loss) from operations
Other (expense) income
Income (loss) before income taxes and noncontrolling interest
Income taxes
Noncontrolling interest
Net income (loss) attributable to Twin Disc
16,060
(1,595)
14,465
3,788
(297)
10,380
11,036
1,565
12,601
1,823
(311)
10,467
230,851
(12,270)
5,142
(7,128)
19,680
(200)
287,089
284,165
(40,251)
(1,039)
(41,290)
(4,169)
(246)
18,498
(1,919)
16,579
3,711
(123)
(27,008)
(37,367)
12,745
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 income (loss)
Diluted income (loss)
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
$
13,263
$
12,521
$
12,340
$
10,688
$
12,362
54,760
131,930
19,753
219,706
17,692
51,783
289,181
45,452
127,109
19,370
204,452
17,771
54,300
276,523
39,491
114,967
25,169
191,967
23,247
60,199
30,682
44,013
120,607
125,893
12,008
20,101
173,985
202,369
47,410
72,732
73,243
71,258
275,413
294,127
346,870
$
100,095
$
81,078
$
78,560
$
66,734
$
73,077
16,617
5,253
145,093
424
289,181
0.77
0.75
0
10.80
7.1%
3.5%
3.7%
34,543
29,714
130,776
412
276,523
30,085
36,108
37,896
49,539
130,210
139,389
450
569
40,491
50,484
182,216
602
275,413
294,127
346,870
$
0.78
0.78
0
9.79
8.0%
3.8%
4.3%
$
(2.04)
(2.04)
0
9.83
-20.7%
-9.8%
-12.4%
$
(2.84)
$
(2.84)
0
10.60
-26.8%
-12.7%
-15.1%
1.01
1.01
0
14.49
7.0%
3.7%
4.2%
13,467,590
13,352,509
13,246,501
13,153,330
12,571,013
13,810,124
13,381,771
13,246,501
13,153,330
12,681,574
335
739
7,918
5,807
119,611
$
340
761
4,729
6,374
123,374
403
743
405
806
415
873
$
4,464
$
10,699
$
11,979
7,853
113,407
7,394
107,251
6,682
129,292
$
$
Cover: The Twin Disc team surrounds one of our hybrid-ready transmissions at the International Workboat Show in New Orleans, Louisiana.
Above: The entrance to Twin Disc’s new corporate headquarters in the Historic Third Ward in Milwaukee, Wisconsin.
* As adjusted
(Dollars amounts in thousands, except per share statistics and shares outstanding)
1
WE PUT HORSEPOWER TO WORK®
2023 ANNUAL REPORT
TWIN DISC, INCORPORATED IS AN INTERNATIONAL MANUFACTURER AND DISTRIBUTOR OF HEAVY-DUTY OFF-HIGHWAY POWER TRANSMISSION EQUIPMENT. USA • AUSTRALIA • BELGIUM • CHINA • INDIA • ITALY • JAPAN • NETHERLANDS • SINGAPORE • SWITZERLAND
TWINDISC.COM
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T W I N D I S C , I N C O R P O R A T E D
ENER GI ZE D
A N N U A L R E P O R T 2 0 2 3
TWIN DISC, INCORPORATED • MILWAUKEE, WISCONSIN, USA • 262-638-4000 • TWINDISC.COM
©2023 TWIN DISC, INCORPORATED
2023