Company Quick10K Filing
Twin Disc
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 13 $189
10-Q 2020-02-04 Quarter: 2019-12-27
10-Q 2019-11-05 Quarter: 2019-09-27
10-K 2019-08-29 Annual: 2019-06-30
10-Q 2019-05-07 Quarter: 2019-03-29
10-Q 2019-02-05 Quarter: 2018-12-28
10-Q 2018-11-06 Quarter: 2018-09-28
10-K 2018-08-27 Annual: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-30
10-Q 2018-02-06 Quarter: 2017-12-29
10-Q 2017-11-01 Quarter: 2017-09-29
10-K 2017-08-31 Annual: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-Q 2017-02-07 Quarter: 2016-12-30
10-Q 2016-11-09 Quarter: 2016-09-30
10-K 2016-09-13 Annual: 2016-06-30
10-Q 2016-05-04 Quarter: 2016-03-25
10-Q 2016-02-03 Quarter: 2015-12-25
10-Q 2015-11-04 Quarter: 2015-09-25
10-K 2015-09-14 Annual: 2015-09-14
10-Q 2015-05-04 Quarter: 2015-05-04
10-Q 2015-02-04 Quarter: 2015-02-04
10-Q 2014-11-05 Quarter: 2014-11-05
10-K 2014-09-15 Annual: 2014-09-15
10-Q 2014-06-20 Quarter: 2014-06-20
10-Q 2014-02-05 Quarter: 2014-02-05
10-K 2013-09-13 Annual: 2013-09-13
10-Q 2013-05-08 Quarter: 2013-05-08
10-Q 2013-02-06 Quarter: 2013-02-06
10-Q 2012-11-07 Quarter: 2012-11-07
10-K 2012-09-13 Annual: 2012-09-13
10-Q 2012-05-09 Quarter: 2012-05-09
10-Q 2012-02-08 Quarter: 2012-02-06
10-Q 2011-11-09 Quarter: 2011-11-09
10-K 2011-09-13 Annual: 2011-09-13
10-Q 2011-05-04 Quarter: 2011-05-04
10-Q 2011-02-09 Quarter: 2011-02-09
10-Q 2010-11-03 Quarter: 2010-11-03
10-K 2010-09-13 Annual: 2010-09-13
10-Q 2010-05-05 Quarter: 2010-05-05
10-Q 2010-02-03 Quarter: 2010-02-03
8-K 2020-01-31 Earnings, Regulation FD, Exhibits
8-K 2020-01-28 Enter Agreement, Exhibits
8-K 2019-11-04 Regulation FD, Exhibits
8-K 2019-11-01 Earnings, Regulation FD, Exhibits
8-K 2019-10-31 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-08-09 Earnings, Regulation FD, Exhibits
8-K 2019-08-01 Officers, Exhibits
8-K 2019-05-07 Regulation FD, Exhibits
8-K 2019-05-06 Earnings, Regulation FD, Exhibits
8-K 2019-05-01 Officers, Amend Bylaw, Exhibits
8-K 2019-04-22 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-04 Enter Agreement, Exhibits
8-K 2019-02-01 Earnings, Regulation FD, Exhibits
8-K 2018-11-05 Regulation FD, Exhibits
8-K 2018-10-29 Earnings, Officers, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K 2018-10-16 Regulation FD, Exhibits
8-K 2018-09-25 Other Events, Exhibits
8-K 2018-09-20 Enter Agreement, Other Events, Exhibits
8-K 2018-09-17 Regulation FD, Other Events, Exhibits
8-K 2018-08-28 Officers, Exhibits
8-K 2018-08-06 Earnings, Regulation FD, Exhibits
8-K 2018-08-01 Officers, Exhibits
8-K 2018-07-02 Regulation FD, Exhibits
8-K 2018-06-29 Enter Agreement, M&A, Exhibits
8-K 2018-06-13 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-07 Earnings, Regulation FD, Exhibits
8-K 2018-03-16 Officers
8-K 2018-02-02 Earnings, Regulation FD, Exhibits
8-K 2018-02-01 Officers
TWIN 2019-12-27
Part I. Financial Information
Item 1. Financial Statements
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 5. Other Information
Item 6. Exhibits
EX-31.A ex_170675.htm
EX-31.B ex_170676.htm
EX-32.A ex_170677.htm
EX-32.B ex_170678.htm

Twin Disc Earnings 2019-12-27

TWIN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
GEOS 214 196 26 91 26 -9 -3 198 29% -59.1 -5%
MXWL 209 162 86 77 3 -45 -37 199 4% -5.4 -28%
GHM 205 145 47 83 19 -3 1 191 24% 347.1 -2%
LIQT 196 36 12 23 4 -2 -1 182 17% -186.6 -5%
LCUT 194 823 560 730 257 -0 48 184 35% 3.8 -0%
TWIN 189 347 164 303 90 11 26 219 30% 8.5 3%
CIX 189 171 15 122 38 16 25 147 31% 6.0 9%
EML 160 185 85 240 58 12 21 169 24% 8.0 7%
ULBI 137 142 36 90 26 24 8 145 29% 17.3 17%
XONE 126 74 18 41 25 -7 -2 120 59% -67.2 -9%

10-Q 1 twin20191231_10q.htm FORM 10-Q twin20191231_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended December 27, 2019

 

Commission File Number 1-7635

 

 

TWIN DISC, INCORPORATED

(Exact name of registrant as specified in its charter)

 

Wisconsin

39-0667110

(State or other jurisdiction of

(I.R.S. Employer

Incorporation or organization)

Identification No.)

   

1328 Racine Street, Racine, Wisconsin 53403

(Address of principal executive offices)

 

(262) 638-4000

(Registrant's telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock (No Par Value)

TWIN

The NASDAQ Stock Market LLC

 

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

  Yes  ☑      No  ☐   

   

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

 

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

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

 

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

 

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

  Yes  ☐      No  ☑  

 

At January 30, 2020, the registrant had 13,405,993 shares of its common stock outstanding.

 

 

 

 

Part I.

FINANCIAL INFORMATION

 

Item 1.     Financial Statements

 

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

 

   

December 27, 2019

   

June 30, 2019

 
                 

ASSETS

               

Current assets:

               

Cash

  $ 14,836     $ 12,362  

Trade accounts receivable, net

    33,302       44,013  

Inventories

    134,658       125,893  

Prepaid expenses

    5,522       11,681  

Other

    7,544       8,420  

Total current assets

    195,862       202,369  
                 

Property, plant and equipment, net

    73,768       71,258  

Goodwill, net

    25,561       25,954  

Intangible assets, net

    22,625       25,353  

Deferred income taxes

    21,459       18,178  

Other assets

    4,006       3,758  
                 

Total assets

  $ 343,281     $ 346,870  
                 

LIABILITIES AND EQUITY

               

Current liabilities:

               

Current maturities of long-term debt

  $ 2,000     $ 2,000  

Accounts payable

    26,259       31,468  

Accrued liabilities

    47,730       41,646  

Total current liabilities

    75,989       75,114  
                 

Long-term debt

    50,512       40,491  

Lease obligations

    13,850       12,646  

Accrued retirement benefits

    24,607       25,878  

Deferred income taxes

    6,744       7,429  

Other long-term liabilities

    2,094       2,494  
                 

Total liabilities

    173,796       164,052  
                 

Commitments and contingencies (Note D)

               
                 

Equity:

               

Twin Disc shareholders' equity:

               

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

    -       -  

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

    42,305       45,047  

Retained earnings

    183,645       196,472  

Accumulated other comprehensive loss

    (38,230 )     (37,971 )
      187,720       203,548  

Less treasury stock, at cost (1,226,809 and 1,392,524 shares, respectively)

    18,796       21,332  
                 

Total Twin Disc shareholders' equity

    168,924       182,216  
                 

Noncontrolling interest

    561       602  
                 

Total equity

    169,485       182,818  
                 

Total liabilities and equity

  $ 343,281     $ 346,870  

 

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

 

2

 

 

 

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

   

December 27, 2019

   

December 28, 2018

 
                                 

Net sales

  $ 59,536     $ 78,107     $ 118,826     $ 152,796  

Cost of goods sold

    43,825       52,019       93,479       102,723  

Gross profit

    15,711       26,088       25,347       50,073  
                                 

Marketing, engineering and administrative expenses

    16,413       18,909       32,759       37,894  

Restructuring expenses

    4,248       434       4,369       607  

(Loss) income from operations

    (4,950 )     6,745       (11,781 )     11,572  
                                 

Interest expense

    447       417       836       1,134  

Other expense (income), net

    29       798       720       1,118  
      476       1,215       1,556       2,252  
                                 

(Loss) income before income taxes and noncontrolling interest

    (5,426 )     5,530       (13,337 )     9,320  

Income tax expense (benefit)

    1,040       1,451       (578 )     2,338  
                                 

Net (loss) income

    (6,466 )     4,079       (12,759 )     6,982  

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

    (50 )     (6 )     (68 )     (47 )
                                 

Net (loss) income attributable to Twin Disc

  $ (6,516 )   $ 4,073     $ (12,827 )   $ 6,935  
                                 

(Loss) income per share data:

                               

Basic (loss) income per share attributable to Twin Disc common shareholders

  $ (0.49 )   $ 0.31     $ (0.98 )   $ 0.56  

Diluted (loss) income per share attributable to Twin Disc common shareholders

  $ (0.49 )   $ 0.31     $ (0.98 )   $ 0.56  
                                 

Weighted average shares outstanding data:

                               

Basic shares outstanding

    13,164       12,909       13,135       12,233  

Diluted shares outstanding

    13,164       12,997       13,135       12,304  
                                 

Comprehensive (loss) income

                               

Net (loss) income

  $ (6,466 )   $ 4,079     $ (12,759 )   $ 6,982  

Benefit plan adjustments, net of income taxes of $169, $146, $338 and $292, respectively

    548       478       1,105       949  

Foreign currency translation adjustment

    1,647       (1,786 )     (1,349 )     (2,347 )

Unrealized income on cash flow hedge, net of income taxes of ($45), $0, ($1) and $0, respectively

    146       -       3       -  

Comprehensive (loss) income

    (4,125 )     2,771       (13,000 )     5,584  

Less: Comprehensive (income) loss attributable to noncontrolling interest

    (50 )     7       (86 )     (9 )
                                 

Comprehensive (loss) income attributable to Twin Disc

  $ (4,175 )   $ 2,778     $ (13,086 )   $ 5,575  

 

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

 

3

 

 

 

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

 
                 

Cash flows from operating activities:

               
                 

Net (loss) income

  $ (12,759 )   $ 6,982  

Adjustments to reconcile net (loss) income to net cash provided (used) by operating activities, net of acquired assets:

               

Depreciation and amortization

    5,926       4,510  

Restructuring expenses

    3,844       -  

Provision for deferred income taxes

    (3,901 )     2,555  

Stock compensation expense and other non-cash changes, net

    774       1,506  
   Amortization of inventory fair value step-up     -       2,173  

Net change in operating assets and liabilities

    6,232       (21,505 )
                 

Net cash provided (used) by operating activities

    116       (3,779 )
                 

Cash flows from investing activities:

               
                 

Acquisitions of fixed assets

    (6,860 )     (6,676 )

Proceeds from sale of fixed assets

    55       63  

Other, net

    (129 )     (129 )

Acquisition of Veth Propulsion, less cash acquired

    -       (59,651 )
                 

Net cash used by investing activities

    (6,934 )     (66,393 )
                 

Cash flows from financing activities:

               
                 

Borrowings under revolving loan arrangement

    58,993       93,675  

Repayments of revolver loans

    (48,130 )     (62,326 )

Repayments of long term debt

    (603 )     (24,230 )

Dividends paid to noncontrolling interest

    (127 )     (115 )

Payments of withholding taxes on stock compensation

    (913 )     (926 )

Proceeds from issuance of common stock, net

    -       32,210  

Proceeds from exercise of stock options

    -       36  

Borrowings under term debt arrangement

    -       35,000  
                 

Net cash provided by financing activities

    9,220       73,324  
                 

Effect of exchange rate changes on cash

    72       219  
                 

Net change in cash

    2,474       3,371  
                 

Cash:

               

Beginning of period

    12,362       15,171  
                 

End of period

  $ 14,836     $ 18,542  

 

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

 

4

 

 

TWIN DISC, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

A.

Basis of Presentation

 

The unaudited condensed consolidated financial statements have been prepared by Twin Disc, Incorporated (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include adjustments, consisting primarily of normal recurring items, necessary for a fair statement of results for each period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form 10-K for June 30, 2019. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

 

The consolidated financial statements and information presented herein include the financial results of Veth Propulsion Holding BV (“Veth Propulsion”), the acquisition of which was completed on July 2, 2018. The financial results included in this Form 10-Q related to the acquisition method of accounting for the Veth Propulsion acquisition have been finalized and completed.

 

Recently Adopted Accounting Standards

 

In June 2018, the FASB issued guidance (ASU 2018-07) intended to simplify the accounting for share based payments granted to nonemployees. Under the amendments in this guidance, payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company adopted this guidance effective July 1, 2019. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

 

New Accounting Releases

 

In August 2018, the FASB issued updated guidance (ASU 2018-13) as part of the disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (the Company’s fiscal 2021), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.

 

In August 2018, the FASB issued updated guidance (ASU 2018-14) intended to modify the disclosure requirements for employers that sponsor defined benefit pension or postretirement plans. The amendments in this guidance are effective for fiscal years ending after December 15, 2020 (the Company’s fiscal 2021), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.

 

In December 2019, the FASB issued guidance (ASU 2019-12) intended to simplify the accounting for income taxes. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 (the Company’s fiscal 2022), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.

 

Special Note Regarding Smaller Reporting Company Status

 

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

 

5

 

 

 

B.

Inventories

 

The major classes of inventories were as follows:

 

   

December 27, 2019

   

June 30, 2019

 

Inventories:

               

Finished parts

  $ 68,315     $ 57,682  

Work in process

    22,222       23,812  

Raw materials

    44,121       44,399  
    $ 134,658     $ 125,893  

 

 

C.

Warranty

 

The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers. However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends. While we believe the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires. The following is a listing of the activity in the warranty reserve for the quarters ended December 27, 2019 and December 28, 2018:

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

   

December 27, 2019

   

December 28, 2018

 

Reserve balance, beginning of period

  $ 7,107     $ 4,667     $ 3,736     $ 4,407  

Current period expense and adjustments

    681       128       6,129       1,414  

Payments or credits to customers

    (2,035 )     (926 )     (4,067 )     (1,946 )

Translation

    22       (26 )     (23 )     (32 )

Reserve balance, end of period

  $ 5,775     $ 3,843     $ 5,775     $ 3,843  

 

Included in the current fiscal half expense is a non-recurring warranty charge in the amount of $3,889, to accrue for estimated costs to resolve a unique product performance issue at certain installations.

 

The current portion of the warranty accrual ($4,856 and $3,309 as of December 27, 2019 and December 28, 2018, respectively) is reflected in accrued liabilities, while the long-term portion ($919 and $534 as of December 27, 2019 and December 28, 2018, respectively) is included in other long-term liabilities on the consolidated balance sheets.

 

 

D.

Contingencies

 

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

 

 

E.

Business Segments

 

The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy-duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government and industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network.

 

6

 

 

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 income.

 

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

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

   

December 27, 2019

   

December 28, 2018

 

Net sales

                               

Manufacturing segment sales

  $ 57,173     $ 70,986     $ 111,734     $ 139,899  

Distribution segment sales

    22,025       27,090       44,452       50,010  

Inter/Intra segment elimination – manufacturing

    (15,105 )     (14,931 )     (28,935 )     (29,681 )

Inter/Intra segment elimination – distribution

    (4,557 )     (5,038 )     (8,425 )     (7,432 )
    $ 59,536     $ 78,107     $ 118,826     $ 152,796  

Net (loss) income attributable to Twin Disc

                               

Manufacturing segment net (loss) income

  $ (2,936 )   $ 7,924     $ (7,791 )   $ 15,159  

Distribution segment net income

    842       569       1,934       1,434  

Corporate and eliminations

    (4,422 )     (4,420 )     (6,970 )     (9,658 )
    $ (6,516 )   $ 4,073     $ (12,827 )   $ 6,935  

 

   

December 27, 2019

   

June 30, 2019

   
Assets                  

Manufacturing segment assets

  $ 380,275     $ 384,612    

Distribution segment assets

    51,277       46,076    

Corporate assets and elimination of intercompany assets

    (88,271 )     (83,818 )  
    $ 343,281     $ 346,870    

 

Disaggregated revenue:

 

The following table presents details deemed most relevant to the users of the financial statements for the quarters and two quarters ended December 27, 2019 and December 28, 2018.

 

Net sales by product group for the quarter ended December 27, 2019 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 5,892     $ 1,484     $ (751 )   $ 6,625  

Land-based transmissions

    16,559       6,238       (7,492 )     15,305  

Marine and propulsion systems

    34,700       13,418       (11,419 )     36,699  

Other

    22       885       -       907  

Total

  $ 57,173     $ 22,025     $ (19,662 )   $ 59,536  

 

Net sales by product group for the quarter ended December 28, 2018 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 8,253     $ 2,580     $ (1,717 )   $ 9,116  

Land-based transmissions

    30,309       6,846       (7,377 )     29,778  

Marine and propulsion systems

    32,412       16,307       (10,863 )     37,856  

Other

    12       1,357       (12 )     1,357  

Total

  $ 70,986     $ 27,090     $ (19,969 )   $ 78,107  

 

Net sales by product group for the two quarters ended December 27, 2019 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 12,700     $ 2,952     $ (1,564 )   $ 14,088  

Land-based transmissions

    33,973       11,718       (14,867 )     30,824  

Marine and propulsion systems

    65,020       27,628       (20,928 )     71,720  

Other

    41       2,154       (1 )     2,194  

Total

  $ 111,734     $ 44,452     $ (37,360 )   $ 118,826  

 

Net sales by product group for the two quarters ended December 28, 2018 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 14,734     $ 3,977     $ (2,549 )   $ 16,162  

Land-based transmissions

    59,742       12,456       (12,784 )     59,414  

Marine and propulsion systems

    65,388       30,464       (21,721 )     74,131  

Other

    35       3,113       (59 )     3,089  

Total

  $ 139,899     $ 50,010     $ (37,113 )   $ 152,796  

 

7

 

 

 

F.

Stock-Based Compensation

 

Performance Stock Awards (“PSA”)

 

During the first half of fiscal 2020 and 2019, the Company granted a target number of 131.7 and 42.3 PSAs, respectively, to various employees of the Company, including executive officers. The fiscal 2020 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual Earnings Per Share (“EPS”) (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2022. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 184.8. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

 

The fiscal 2019 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual EPS (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2021. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 67.0. Based upon actual results to date, the Company is currently accruing compensation expense for the average annual sales component for these PSAs. The Company is not accruing compensation expense for the average return on invested capital and average annual EPS components for these PSAs.

 

There were 214.0 and 188.0 unvested PSAs outstanding at December 27, 2019 and December 28, 2018, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. Compensation expense of ($52) and $242 was recognized for the quarters ended December 27, 2019 and December 28, 2018, respectively, related to PSAs. Compensation expense of $20 and $788 was recognized for the two quarters ended December 27, 2019 and December 28, 2018, respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at December 27, 2019 was $15.24. At December 27, 2019, the Company had $2,355 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2020, 2019 and 2018 awards. The total fair value of PSAs vested as of December 27, 2019 and December 28, 2018 was $0.

 

Restricted Stock Awards (“RS”)

 

The Company has unvested RS awards outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation expense over the vesting period, which is generally 1 to 3 years. During the first half of fiscal 2020 and 2019, the Company granted 180.4 and 35.6 service based restricted shares, respectively, to employees and non-employee directors. There were 231.4 and 185.3 unvested shares outstanding at December 27, 2019 and December 28, 2018, respectively. A total of 20.5 and 2.8 shares of restricted stock were forfeited during the two quarters ended December 27, 2019 and December 28, 2018, respectively. Compensation expense of $218 and $266 was recognized for the quarters ended December 27, 2019 and December 28, 2018, respectively. Compensation expense of $524 and $516 was recognized for the two quarters ended December 27, 2019 and December 28, 2018, respectively. The total fair value of restricted stock grants vested as of December 27, 2019 and December 28, 2018 was $1,241 and $2,102, respectively. As of December 27, 2019, the Company had $1,982 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

 

Restricted Stock Unit Awards (“RSU”)

 

Under the 2018 Long Term Incentive Plan, the Company has been authorized to issue RSUs. The RSUs entitle the employee to shares of common stock of the Company if the employee remains employed by the Company through a specified date, generally three years from the date of grant. During the first half of fiscal 2019, the Company granted 38.0 RSUs to various employees of the Company, including executive officers. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. There were 38.0 unvested RSUs outstanding at December 27, 2019 and at December 28, 2018. Compensation expense of $81 and $82 was recognized for the quarters ended December 27, 2019 and December 28, 2018, respectively. Compensation expense of $163 and $136 was recognized for the two quarters ended December 27, 2019 and December 28, 2018, respectively. The weighted average grant date fair value of the unvested awards at December 27, 2019 was $25.77. As of December 27, 2019, the Company had $516 of unrecognized compensation expense related to restricted stock which will be recognized over the next two years.

 

8

 

 

 

G.

Pension and Other Postretirement Benefit Plans

 

The Company has non-contributory, qualified defined benefit plans covering substantially all domestic employees hired prior to October 1, 2003 and certain foreign employees. Additionally, the Company provides health care and life insurance benefits for certain domestic retirees. The components of the net periodic benefit cost for the defined benefit pension plans and the other postretirement benefit plan are as follows:

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

    December 28, 2018     December 27, 2019     December 28, 2018  

Pension Benefits:

                               

Service cost

  $ 194     $ 251     $ 406     $ 497  

Interest cost

    889       1,083       1,794       2,175  

Expected return on plan assets

    (1,240 )     (1,333 )     (2,488 )     (2,664 )

Amortization of transition obligation

    9       9       17       17  

Amortization of prior service cost

    (4 )     1       (7 )     2  

Amortization of actuarial net loss

    784       678       1,568       1,355  

Net periodic benefit cost

  $ 632     $ 689     $ 1,290     $ 1,382  
                                 

Postretirement Benefits:

                               

Service cost

  $ 4     $ 5     $ 9     $ 9  

Interest cost

    55       76       110       152  

Amortization of prior service cost

    (69 )     -       (138 )     -  

Amortization of actuarial net loss

    -       (69 )     -       (137 )

Net periodic benefit (gain) cost

  $ (10 )   $ 12     $ (19 )   $ 24  

 

The Company expects to contribute approximately $1,936 to its pension plans in fiscal 2020. As of December 27, 2019, the amount of $785 in contributions has been made.

 

The Company has reclassified $548 (net of $169 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended December 27, 2019, and $478 (net of $146 in taxes) during the quarter ended December 28, 2018. The Company has reclassified $1,105 (net of $338 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the two quarters ended December 27, 2019, and $949 (net of $292 in taxes) during the two quarters ended December 28, 2018. These reclassifications are included in the computation of net periodic benefit cost.

 

 

H.

Income Taxes

 

For the two quarters ended December 27, 2019 and December 28, 2018, the Company’s effective income tax rate was 4.3% and 25.1% respectively. Under the Tax Cuts and Jobs Act, a company is prohibited from recognizing certain foreign global intangible low taxed income (“GILTI”) deductions and credits when in a domestic loss position, but is required to include the foreign GILTI income inclusions. In the prior year, the Company recognized domestic income and recognized a net benefit of GILTI income inclusions and deductions which resulted in a net benefit of 0.67%. In the current year, the benefit generated from domestic losses was reduced by the required GILTI foreign income inclusions and no GILTI deductions. The $9,385 GILTI inclusion decreased the rate by 18.55%. Income generated in foreign jurisdictions and other tax preference items also impacted the rate.

 

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

 

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.

 

9

 

 

The Company has approximately $1,158 of unrecognized tax benefits, including related interest and penalties, as of December 27, 2019, which, if recognized, would favorably impact the effective tax rate. There was no significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of statutes of limitations or for other items during the quarter ended December 27, 2019. It appears possible that the amount of unrecognized tax benefits could change in the next twelve months due to on-going audit activity.

 

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination in foreign jurisdictions are 2013 through 2019. The tax year open to exam in the Netherlands is 2019. The tax years open to examination in the U.S. are for years subsequent to fiscal 2015. The state of Wisconsin income tax audit remains ongoing for the fiscal years 2011 through 2013. It is reasonably possible that other audit cycles will be completed during fiscal 2020.

 

 

I.

Goodwill and Other Intangibles

 

Goodwill represents the amount of the consideration transferred in excess of the net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed.

 

The Company reviews goodwill for impairment on a reporting unit basis annually as of the first day of the Company’s fourth fiscal quarter, and whenever events or changes in circumstances (“triggering events”) indicate that the carrying value of goodwill may not be recoverable.

 

The fair value of reporting units is primarily driven by projected growth rates and operating results under the income approach using a discounted cash flow model, which applies an appropriate market-participant discount rate, and consideration of other market approach data from guideline public companies. If declining actual operating results or future operating results become indicative that the fair value of the Company’s reporting units has declined below their carrying values, an interim goodwill impairment test may need to be performed and may result in a non-cash goodwill impairment charge.

 

During the first half of fiscal 2020, the Company determined that there were no triggering events to warrant an interim goodwill impairment test. As of December 27, 2019, goodwill in the amounts of $23,013 and $2,548 is carried in the European Propulsion and European Industrial reporting units, respectively.

 

As of December 27, 2019, changes in the carrying amount of goodwill is summarized as follows:

 

   

Net Book Value Rollforward

   

By Reporting Unit

 
   

Gross Carrying

Amount

   

Accumulated

Amortization /

Impairment

   

Net Book

Value

   

European

Propulsion

   

European

Industrial

 

Balance at June 30, 2019

  $ 39,776     $ (13,822 )   $ 25,954     $ 23,371     $ 2,583  

Translation adjustment

    (393 )     -       (393 )     (358 )     (35 )

Balance at December 27, 2019

  $ 39,383     $ (13,822 )   $ 25,561     $ 23,013     $ 2,548  

 

As of December 27, 2019, the following acquired intangible assets have definite useful lives and are subject to amortization:

 

   

Net Book Value Rollforward

   

Net Book Value By Asset Type

 
   

Gross Carrying

Amount

   

Accumulated

Amortization /

Impairment

   

Net Book

Value

   

Customer

Relationships

   

Technology

Know-how

   

Trade Name

   

Other

 

Balance at June 30, 2019

  $ 39,587     $ (14,434 )   $ 25,153     $ 14,843     $ 7,025     $ 2,733     $ 552  

Additions

    53       -       53       -       -       -       53  

Amortization

    -       (2,272 )     (2,272 )     (1,500 )     (569 )     (126 )     (77 )

Translation adjustment

    (509 )     -       (509 )     (334 )     (127 )     (44 )     (4 )

Balance at December 27, 2019

  $ 39,131     $ (16,706 )   $ 22,425     $ 13,009     $ 6,329     $ 2,563     $ 524  

 

Other intangibles consist of certain proprietary technology, computer software, patents and licensing agreements. 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 9 years.

 

10

 

 

Intangible amortization expense was $1,143 and $583 for the quarters ended December 27, 2019, and December 28, 2018, respectively. Intangible amortization expense was $2,272 and $1,249 for the two quarters ended December 27, 2019, and December 28, 2018, respectively. Estimated intangible amortization expense for the remainder of fiscal 2020 and each of the next five fiscal years is as follows:

 

Fiscal Year

       

2020

  $ 2,297  

2021

    3,305  

2022

    3,120  

2023

    2,960  

2024

    2,748  

2025

    2,562  

 

The gross carrying amount of the Company’s intangible assets that have indefinite lives and are not subject to amortization as of December 27, 2019 and June 30, 2019 was $200 and $200, respectively. These assets are comprised of acquired trade names.

 

 

J.

Long-term Debt

 

The Company’s long-term debt represents borrowings made under the credit agreement, as amended, which it entered into with BMO Harris Bank N.A, on June 29, 2018 (“Credit Agreement”). The borrowings consist of a term loan component (“Term Loan”) with an interest rate based on LIBOR plus an applicable margin, requiring quarterly principal payments of $500 and maturing on March 4, 2026, and a revolving loan component (“Revolving Loans”) with a maximum facility of $50,000. The borrowings are subject to financial covenants, such as maintaining a maximum allowable ratio of total funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined in the Credit Agreement, and are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment and intellectual property.

 

On January 28, 2020, an amendment to the Credit Agreement was finalized to increase such maximum allowable ratio from 3.00 to 1.00 to 4.00 to 1.00 for the quarter ended December 27, 2019, 5.00 to 1.00 for the quarter ending March 27, 2020, 4.00 to 1.00 for the quarter ending June 30, 2020, 3.50 to 1.00 for the quarter ending September 25, 2020 and 3.00 to 1.00 for quarters ending on or after December 25, 2020. The amendment also increased interest rate margins at the higher debt ratio levels. All other terms of the Credit Agreement were substantially unchanged. Prior to the amendment, as of the December 27, 2019 balance sheet date, the Company’s total funded debt to EBITDA ratio was greater than 3.00 to 1.00. The classification of the debt on the condensed consolidated balance sheet for the quarter ended December 27, 2019 reflects this subsequent amendment.

 

The Credit Agreement, including its amendments, is more fully described in the Company’s Annual Report filed on Form 10-K for June 30, 2019, as well as in Item 2 of this quarterly report.

 

Long-term debt at December 27, 2019 and June 30, 2019 consisted of the following:

 

   

December 27, 2019

   

June 30, 2019

 

Borrowings under the Credit Agreement

               

Revolving loans

  $ 33,229     $ 22,666  

Term loan (due March 2026)

    19,000       19,500  

Other

    283       325  

Subtotal

    52,512       42,491  

Less: current maturities

    (2,000 )     (2,000 )

Total long-term debt

  $ 50,512     $ 40,491  

 

During the two quarters ended December 27, 2019, the average interest rate was 3.58% on the Term Loan, and 2.48% on the Revolving Loans.

 

Other long-term debt pertains mainly to a financing arrangement in Europe. These liabilities carry terms of three to five years and implied interest rates ranging from 7% to 25%. A total amount of $36 in principal was paid on these liabilities during the current fiscal year.

 

As of December 27, 2019, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $41,699, and the Company had approximately $8,470 of available borrowings. In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

 

The Company’s borrowings described above approximate fair value at December 27, 2019 and June 30, 2019. 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.

 

11

 

 

On April 22, 2019, the Company entered into an interest rate swap arrangement with Bank of Montreal, with an initial notional amount of $20,000 and a maturity date of March 4, 2026 to hedge the Term Loan. The notional amount decreases as the Term Loan balance decreases due to repayments of principal. As of December 27, 2019, the notional amount was $19,000. This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging. This swap is included in the disclosures in Note O, Derivative Financial Instruments.

 

 

K.

Shareholders’ Equity

 

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of December 27, 2019 remain authorized for purchase.  The Company did not make any open market purchases of its shares during the quarters ended December 27, 2019 and December 28, 2018.

 

The following is a reconciliation of the Company’s equity balances for the first two fiscal quarters of 2020 and 2019:

 

       
   

Twin Disc, Inc. Shareholders’ Equity

 
                   

Accumulated

                         
                   

Other

           

Non-

         
   

Common

   

Retained

   

Comprehensive

   

Treasury

   

Controlling

   

Total

 
   

Stock

   

Earnings

   

Income (Loss)

   

Stock

   

Interest

   

Equity

 

Balance, June 30, 2019

  $ 45,047     $ 196,472     $ (37,971 )   $ (21,332 )   $ 602     $ 182,818  

Net (loss) income

            (6,311 )                     18       (6,293 )

Translation adjustments

                    (3,014 )             18       (2,996 )

Benefit plan adjustments, net of tax

                    557                       557  

Unrealized loss on cash flow hedge, net of tax

                    (143 )                     (143 )

Cash dividends

                                    (127 )     (127 )

Compensation expense

    459                                       459  

Shares (acquired) issued, net

    (2,324 )                     1,412               (912 )

Balance, September 27, 2019

    43,182       190,161       (40,571 )     (19,920 )     511       173,363  

Net (loss) income

            (6,516 )                     50       (6,466 )

Translation adjustments

                    1,647               -       1,647  

Benefit plan adjustments, net of tax

                    548                       548  

Unrealized income on cash flow hedge, net of tax

                    146                       146  

Cash dividends

                                            -  

Compensation expense

    248                                       248  

Shares (acquired) issued, net

    (1,125 )                     1,124               (1 )

Balance, December 27, 2019

  $ 42,305     $ 183,645     $ (38,230 )   $ (18,796 )   $ 561     $ 169,485  

 

12

 

 

   

Twin Disc, Inc. Shareholders’ Equity

 
                   

Accumulated

                         
                   

Other

           

Non-

         
   

Common

   

Retained

   

Comprehensive

   

Treasury

   

Controlling

   

Total

 
   

Stock

   

Earnings

   

Income (Loss)

   

Stock

   

Interest

   

Equity

 

Balance, June 30, 2018

  $ 11,570     $ 178,896     $ (23,792 )   $ (23,677 )   $ 619     $ 143,616  

Net income

            2,862                       41       2,903  

Translation adjustments

                    (536 )             (25 )     (561 )

Benefit plan adjustments, net of tax

                    471                       471  

Release stranded tax effects

            6,903       (6,903 )                     -  

Cash dividends

                                    (115 )     (115 )

Compensation expense

    850                                       850  

Common stock issued, net

    32,210                                       32,210  

Shares acquired, net

    (586 )                     (328 )             (914 )

Balance, September 28, 2018

    44,044       188,661       (30,760 )     (24,005 )     520       178,460  

Net income

            4,073                       6       4,079  

Translation adjustments

                    (1,773 )             (13 )     (1,786 )

Benefit plan adjustments, net of tax

                    478                       478  

Cash dividends

                                            -  

Compensation expense

    590                                       590  

Shares (acquired) issued, net

    (497 )                     520               23  

Balance, December 28, 2018

  $ 44,137     $ 192,734     $ (32,055 )   $ (23,485 )   $ 513     $ 181,844  

 

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended September 27, and December 27, 2019, and September 28, and December 28, 2018 are as follows:

 

   

Translation

   

Benefit Plan

   

Cash Flow

 
   

Adjustment

   

Adjustment

   

Hedges

 

Balance at June 30, 2019

  $ 4,439     $ (41,901 )   $ (509 )

Translation adjustment during the quarter

    (3,014 )     -       -  

Amounts reclassified from accumulated other comprehensive income

    -       557       (143 )

Net current period other comprehensive (loss) income

    (3,014 )     557       (143 )

Balance at September 27, 2019

    1,425       (41,344 )     (652 )

Translation adjustment during the quarter

    1,647       -       -  

Amounts reclassified from accumulated other comprehensive income

    -       548       146  

Net current period other comprehensive income

    1,647       548       146  

Balance at December 27, 2019

  $ 3,072     $ (40,796 )   $ (506 )

 

   

Translation

   

Benefit Plan

 
   

Adjustment

   

Adjustment

 

Balance at June 30, 2018

  $ 7,085     $ (30,877 )

Translation adjustment during the quarter

    (536 )     -  

Release stranded tax effects

    -       (6,903 )

Amounts reclassified from accumulated other comprehensive income

    -       471  

Net current period other comprehensive loss

    (536 )     (6,432 )

Balance at September 28, 2018

    6,549       (37,309 )

Translation adjustment during the quarter

    (1,773 )     -  

Amounts reclassified from accumulated other comprehensive income

    -       478  

Net current period other comprehensive (loss) income

    (1,773 )     478  

Balance at December 28, 2018

  $ 4,776     $ (36,831 )

 

13

 

 

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter and two quarters ended December 27, 2019 are as follows:

 

   

Amount Reclassified

   

Amount Reclassified

 
   

Quarter Ended

   

Two Quarters Ended

 
   

December 27, 2019

   

December 27, 2019

 

Changes in benefit plan items

               

Actuarial losses

  $ 781   (a)   $ 1,571   (a)

Transition asset and prior service benefit

    (64 ) (a)     (128 ) (a)

Total amortization

    717       1,443  

Income taxes

    169       338  

Total reclassification net of tax

  $ 548     $ 1,105  

 

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter and two quarters ended December 28, 2018 is as follows:

 

   

Amount Reclassified

   

Amount Reclassified

 
   

Quarter Ended

   

Two Quarters Ended

 
   

December 28, 2018

   

December 28, 2018

 

Changes in benefit plan items

               

Actuarial losses

  $ 614  (a)   $ 1,222  (a)

Transition asset and prior service benefit

    10  (a)     19  (a)

Total amortization

    624       1,241  

Income taxes

    146       292  

Total reclassification net of tax

  $ 478     $ 949  

 

 

(a)

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

 

 

L.

Restructuring of Operations

 

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. In its European operations, the Company also implemented actions to reorganize for productivity.

 

These actions resulted in restructuring charges of $1,063 and $1,184 in the quarter and two quarters ended December 27, 2019, respectively, and restructuring charges of $434 and $607 for the quarter and two quarters ended December 28, 2018, respectively.

 

Restructuring activities since June 2015 have resulted in the elimination of 203 full-time employees in the manufacturing segment. Accumulated costs to date under these programs within the manufacturing segment through December 27, 2019 were $11,636.

 

During the second quarter of fiscal 2020, a marine propulsion development program, for which the Company had provided development and production services, was terminated. The cost of exiting the contract consisted of a noncash write-off of assets and liabilities relating to the program amounting to $2,185, and a cash settlement to satisfy supplier commitments associated with the program amounting to $1,000. The Company has classified the total contract exit cost of $3,185 as a restructuring charge, within the manufacturing segment, in the quarter ended December 27, 2019.

 

 

 

14

 

 

The following is a roll-forward of restructuring activity:

 

Accrued restructuring liability, June 30, 2019

  $ -  
Additions related to workforce reduction     1,184  

Additions related to program termination

    3,185  

Payments, adjustments and write-offs during the year

    (2,710 )

Accrued restructuring liability, December 27, 2019

  $ 1,659  

 

 

M.

Earnings Per Share

 

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

 

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

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

   

December 27, 2019

   

December 28, 2018

 

Basic:

                               

Net (loss) income

  $ (6,466 )   $ 4,079     $ (12,759 )   $ 6,982  

Less: Net earnings attributable to noncontrolling interest

    (50 )     (6 )     (68 )     (47 )

Less: Undistributed earnings attributable to unvested shares

    -       (53 )     -       (105 )

Net (loss) income available to Twin Disc shareholders

    (6,516 )     4,020       (12,827 )     6,830  
                                 

Weighted average shares outstanding - basic

    13,164       12,909       13,135       12,233  
                                 

Basic (Loss) Income Per Share:

                               

Net (loss) income per share - basic

  $ (0.49 )   $ 0.31     $ (0.98 )   $ 0.56  
                                 

Diluted:

                               

Net (loss) income

  $ (6,466 )   $ 4,079     $ (12,759 )   $ 6,982  

Less: Net earnings attributable to noncontrolling interest

    (50 )     (6 )     (68 )     (47 )

Less: Undistributed earnings attributable to unvested shares

    -       (53 )     -       (105 )

Net (loss) income available to Twin Disc shareholders

    (6,516 )     4,020       (12,827 )     6,830  
                                 

Weighted average shares outstanding - basic

    13,164       12,909       13,135       12,233  

Effect of dilutive stock awards

    -       88       -       71  

Weighted average shares outstanding - diluted

    13,164       12,997       13,135       12,304  
                                 

Diluted (Loss) Income Per Share:

                               

Net (loss) income per share - diluted

  $ (0.49 )   $ 0.31     $ (0.98 )   $ 0.56  

 

The following potential common shares were excluded from diluted EPS for the quarter and two quarters ended December 27, 2019 as the Company reported a net loss: 214.0 related to the Company’s unvested PSAs, 231.4 related to the Company’s unvested RS awards, and 38.0 related to the Company’s unvested RSUs.

 

The following potential common shares were excluded from diluted EPS for the quarter and two quarters ended December 28, 2018 because they were anti-dilutive: 134.4 related to the Company’s unvested PSAs, 185.3 related to the Company’s unvested RS awards, 33.6 and 16.6, respectively, related to the Company’s unvested RSUs, and 3.4 related to outstanding stock options.

 

 

N.

Lease Liabilities

 

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

 

The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically do not provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current borrowing rate, the term of the lease, and the economic environments where the lease activity is concentrated.

 

15

 

 

The components of lease expense were as follows:

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

   

December 27, 2019

   

December 28, 2018

 

Finance lease cost:

                               

Amortization of right-of-use assets

  $ 43     $ 1     $ 79     $ 1  

Interest on lease liabilities

    13       -       25       -  

Operating lease cost

    815       850       1,596       1,730  

Short-term lease cost

    9       12       26       22  

Variable lease cost

    8       (3 )     24       5  

Total lease cost

    888       860       1,750       1,758  

Less: Sublease income

    (54 )     (1 )     (107 )     (17 )

Net lease cost

  $ 834     $ 859     $ 1,643     $ 1,741  

 

Other information related to leases was as follows:

 

   

For the Quarter Ended

   

For the Two Quarters Ended

 
   

December 27, 2019

   

December 28, 2018

   

December 27, 2019

   

December 28, 2018

 

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

                               

Operating cash flows from operating leases

  $ 805     $ 850     $ 1,584     $ 1,725  

Operating cash flows from finance leases

    38       1       68       2  

Financing cash flows from finance leases

    13       -       25       -  

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

                               

Operating leases

    2,073       125       2,424       12,252  

Finance leases

    53       -       277       -  

Weighted average remaining lease term (years):

                               

Operating leases

                    11.0       11.2  

Finance lease

                    4.4       3.5  

Weighted average discount rate:

                               

Operating leases

                    7.4 %     7.7 %

Finance leases

                    6.9 %     4.0 %

 

Approximate future minimum rental commitments under non-cancellable leases as of December 27, 2019 were as follows:

 

   

Operating Leases

   

Finance Leases

 

2020

  $ 1,553     $ 103  

2021

    2,598       206  

2022

    2,096       206  

2023

    1,965       198  

2024

    1,792       166  

Thereafter