Company Quick10K Filing
Twin Disc
Price11.38 EPS0
Shares13 P/E96
MCap149 P/FCF-742
Net Debt33 EBIT4
TEV182 TEV/EBIT42
TTM 2019-09-27, in MM, except price, ratios
10-Q 2020-03-27 Filed 2020-05-05
10-Q 2019-12-27 Filed 2020-02-04
10-Q 2019-09-27 Filed 2019-11-05
10-K 2019-06-30 Filed 2019-08-29
10-Q 2019-03-29 Filed 2019-05-07
10-Q 2018-12-28 Filed 2019-02-05
10-Q 2018-09-28 Filed 2018-11-06
10-K 2018-06-30 Filed 2018-08-27
10-Q 2018-03-30 Filed 2018-05-08
10-Q 2017-12-29 Filed 2018-02-06
10-Q 2017-09-29 Filed 2017-11-01
10-K 2017-06-30 Filed 2017-08-31
10-Q 2017-03-31 Filed 2017-05-10
10-Q 2016-12-30 Filed 2017-02-07
10-Q 2016-09-30 Filed 2016-11-09
10-K 2016-06-30 Filed 2016-09-13
10-Q 2016-03-25 Filed 2016-05-04
10-Q 2015-12-25 Filed 2016-02-03
10-Q 2015-09-25 Filed 2015-11-04
10-K 2015-09-14 Filed 2015-09-14
10-Q 2015-05-04 Filed 2015-05-04
10-Q 2015-02-04 Filed 2015-02-04
10-Q 2014-11-05 Filed 2014-11-05
10-K 2014-09-15 Filed 2014-09-15
10-Q 2014-06-20 Filed 2014-06-20
10-Q 2014-02-05 Filed 2014-02-05
10-K 2013-09-13 Filed 2013-09-13
10-Q 2013-05-08 Filed 2013-05-08
10-Q 2013-02-06 Filed 2013-02-06
10-Q 2012-11-07 Filed 2012-11-07
10-K 2012-09-13 Filed 2012-09-13
10-Q 2012-05-09 Filed 2012-05-09
10-Q 2012-02-06 Filed 2012-02-08
10-Q 2011-11-09 Filed 2011-11-09
10-K 2011-09-13 Filed 2011-09-13
10-Q 2011-05-04 Filed 2011-05-04
10-Q 2011-02-09 Filed 2011-02-09
10-Q 2010-11-03 Filed 2010-11-03
10-K 2010-09-13 Filed 2010-09-13
10-Q 2010-05-05 Filed 2010-05-05
10-Q 2010-02-03 Filed 2010-02-03
8-K 2020-05-01
8-K 2020-04-17
8-K 2020-01-31
8-K 2020-01-28
8-K 2019-11-04
8-K 2019-11-01
8-K 2019-10-31
8-K 2019-08-09
8-K 2019-08-01
8-K 2019-05-07
8-K 2019-05-06
8-K 2019-05-01
8-K 2019-04-22
8-K 2019-03-04
8-K 2019-02-01
8-K 2018-11-05
8-K 2018-10-29
8-K 2018-10-16
8-K 2018-09-25
8-K 2018-09-20
8-K 2018-09-17
8-K 2018-08-28
8-K 2018-08-06
8-K 2018-08-01
8-K 2018-07-02
8-K 2018-06-29
8-K 2018-06-13
8-K 2018-05-07
8-K 2018-03-16
8-K 2018-02-02
8-K 2018-02-01

TWIN 10Q Quarterly Report

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_183604.htm
EX-31.B ex_183605.htm
EX-32.A ex_183606.htm
EX-32.B ex_183607.htm

Twin Disc Earnings 2020-03-27

Balance SheetIncome StatementCash Flow
3552842131427102012201420172020
Assets, Equity
806244268-102012201420172020
Rev, G Profit, Net Income
653913-13-39-652012201420172020
Ops, Inv, Fin

10-Q 1 twin20200331_10q.htm FORM 10-Q twin20200331_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 March 27, 2020

 

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 April 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)

 

   

March 27, 2020

   

June 30, 2019

 
                 

ASSETS

               

Current assets:

               

Cash

  $ 8,434     $ 12,362  

Trade accounts receivable, net

    31,514       44,013  

Inventories

    127,615       125,893  

Prepaid expenses

    6,681       11,681  

Other

    8,128       8,420  

Total current assets

    182,372       202,369  
                 

Property, plant and equipment, net

    72,863       71,258  

Goodwill, net

    -       25,954  

Intangible assets, net

    19,925       25,353  

Deferred income taxes

    22,848       18,178  

Other assets

    3,152       3,758  
                 

Total assets

  $ 301,160     $ 346,870  
                 

LIABILITIES AND EQUITY

               

Current liabilities:

               

Current maturities of long-term debt

  $ 2,000     $ 2,000  

Accounts payable

    27,909       31,468  

Accrued liabilities

    42,160       41,646  

Total current liabilities

    72,069       75,114  
                 

Long-term debt

    40,874       40,491  

Lease obligations

    13,340       12,646  

Accrued retirement benefits

    22,502       25,878  

Deferred income taxes

    5,780       7,429  

Other long-term liabilities

    2,560       2,494  
                 

Total liabilities

    157,125       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

    42,286       45,047  

Retained earnings

    158,415       196,472  

Accumulated other comprehensive loss

    (38,476 )     (37,971 )
      162,225       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

    143,429       182,216  
                 

Noncontrolling interest

    606       602  
                 

Total equity

    144,035       182,818  
                 

Total liabilities and equity

  $ 301,160     $ 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 Three Quarters Ended

 
   

March 27, 2020

   

March 29, 2019

   

March 27, 2020

   

March 29, 2019

 
                                 

Net sales

  $ 68,636     $ 77,420     $ 187,462     $ 230,216  

Cost of goods sold

    52,087       54,303       145,566       157,026  

Gross profit

    16,549       23,117       41,896       73,190  
                                 

Marketing, engineering and administrative expenses

    15,349       17,375       48,106       55,269  

Restructuring expenses

    532       131       4,902       738  

Goodwill and other impairment charge

    27,603       -       27,603       -  

Other operating income

    -       (1,357 )     -       (1,357 )

(Loss) income from operations

    (26,935 )     6,968       (38,715 )     18,540  
                                 

Interest expense

    488       449       1,324       1,583  

Other expense (income), net

    898       490       1,618       1,608  
      1,386       939       2,942       3,191  
                                 

(Loss) income before income taxes and noncontrolling interest

    (28,321 )     6,029       (41,657 )     15,349  

Income tax (benefit) expense

    (3,145 )     1,442       (3,722 )     3,780  
                                 
Net (loss) income     (25,176 )     4,587       (37,935 )     11,569  

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

    (54 )     (27 )     (122 )     (75 )
                                 
Net (loss) income attributable to Twin Disc   $ (25,230 )   $ 4,560     $ (38,057 )   11,494  
                                 
(Loss) income per share data:                                
Basic (loss) income per share attributable to Twin Disc common shareholders   $ (1.92 )   $ 0.35     $ (2.89 )   $ 0.91  
Diluted (loss) income per share attributable to Twin Disc common shareholders   $ (1.92 )   $ 0.34     $ (2.89 )   $ 0.90  
                                 
Weighted average shares outstanding data:                                
Basic shares outstanding     13,175       12,914       13,147       12,437  
Diluted shares outstanding     13,175       13,146       13,147       12,652  
                                 
Comprehensive (loss) income                                
Net (loss) income   $ (25,176 )   $ 4,587     $ (37,935 )   $ 11,569  
Benefit plan adjustments, net of income taxes of $490, $146, $828 and $437, respectively     1,593       478       2,698       1,427  
Foreign currency translation adjustment     (1,266 )     (869 )     (2,615 )     (3,217 )
Unrealized loss on cash flow hedge, net of income taxes of $178, $0, $177 and $0, respectively     (582 )     -       (579 )     -  
Comprehensive (loss) income     (25,431 )     4,196       (38,431 )     9,779  

Less: Comprehensive income attributable to noncontrolling interest

    (46 )     (44 )     (132 )     (52 )
                                 

Comprehensive (loss) income attributable to Twin Disc

  $ (25,477 )   4,152     $ (38,563 )    $ 9,727  

 

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 Three Quarters Ended

 
   

March 27, 2020

   

March 29, 2019

 
                 

Cash flows from operating activities:

               
                 

Net (loss) income

  $ (37,935 )   $ 11,569  

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

               

Depreciation and amortization

    8,917       6,974  

Restructuring expenses

    2,556       28  

Goodwill and other impairment charge

    27,603       -  

Provision for deferred income taxes

    (6,225 )     1,158  

Stock compensation expense and other non-cash changes, net

    859       2,123  

Amortization of inventory fair value step-up

    -       3,223  

Gain on sale of Mill Log

    -       (865 )

Gain on contingent consideration of Veth Propulsion acquisition

    -       (492 )

Net change in operating assets and liabilities

    9,556       (35,876 )
                 

Net cash provided (used) by operating activities

    5,331       (12,158 )
                 

Cash flows from investing activities:

               
                 

Acquisitions of fixed assets

    (9,155 )     (8,911 )

Proceeds from sale of fixed assets

    109       145  

Other, net

    (27 )     (229 )

Proceeds from sale of Mill Log, net of costs to sell

    -       5,158  

Acquisition of Veth Propulsion, less cash acquired

    -       (60,195 )
                 

Net cash used by investing activities

    (9,073 )     (64,032 )
                 

Cash flows from financing activities:

               
                 

Borrowings under revolving loan arrangement

    78,597       123,904  

Repayments of revolver loans

    (76,805 )     (99,156 )

Repayments of long term debt

    (1,164 )     (23,872 )

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

    -       44,151  
                 

Net cash (used) provided by financing activities

    (412 )     76,232  
                 

Effect of exchange rate changes on cash

    226       544  
                 

Net change in cash

    (3,928 )     586  
                 

Cash:

               

Beginning of period

    12,362       15,171  
                 

End of period

  $ 8,434     15,757  

 

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.

 

Recent events

 

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 outbreak’) is a pandemic that poses significant risk to the international community. This outbreak has 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. This market has been experiencing an unprecedented drop in prices, steeper than it historically has been, primarily driven by an oversupply occurring around the world, from both the Organization of Petroleum Exporting (“OPEC”) and non-OPEC countries. The occurrence of the COVID-19 outbreak drastically impacts the demand side of that market, as economic contractions and social distancing restrictions will likely curtail consumer behaviors, further exacerbating its dismal prospects.

 

As a result of the COVID-19 outbreak, the Company’s operations have decreased, starting on or around mid-March 2020, on a staggered basis, to curtail the spread of the virus and in compliance with regulatory authorities. The Company’s plants and offices around the world have been subject to intermittent shutdowns, impacting the timeliness of supply chain arrangements and product shipments. The operational impacts of decreased Company activity, such as the inability to ship products on time due to supply chain disruptions, occurred during a one to two week period out of the fiscal quarter that consisted of thirteen weeks, and are included in these financial results.

 

Aside from operational impacts and its results on our operations during the quarter, the occurrence of the COVID-19 outbreak also necessitated a rigorous assessment of the Company’s entire balance sheet. 

 

As described further in Note I, Goodwill and Other Intangibles, the Company recorded significant non-cash impairment charges during the quarter. While the Company continues to have a positive outlook of its operations in Europe, both in the European Propulsion and European Industrial reporting units, and remains committed to supporting those operations, the adverse economic effects of the COVID-19 outbreak are not fully known. However, there is consensus that the impact will be adverse. Hence, management has modeled those expectations from industry and subject matter experts and determined that prudence in the face of uncertainty warrants a robust scenario modeling approach. This approach was deployed in the Company’s goodwill and long-lived asset impairment analyses. In assessing the current environment, management expects that a contraction of the global economy, as is predicted by many experts, would reduce or shift the demand for its products in the near term. For example, the Company expects that the demand for certain of the reporting units’ end-market products, such as passenger leisure cruise vessels, passenger ferries, and other commercial vessels that operate based on general economic activities, will likely be adversely impacted as social restrictions are put in place by governments to curb the outbreak. As a consequence of these macroeconomic developments, market insights and expectations, the Company has recorded asset impairment charges in the quarter, primarily consisting of goodwill and other intangibles, in the amount of $27,603.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. The depth and duration of the pandemic is unknown. Management is actively monitoring the global situation and its effect on its financial condition, liquidity, operations, suppliers, industry, and workforce. This is discussed further in Item 2, Management’s Discussion and Analysis, of this report.

 

 

5

 

Recently Adopted Accounting Standards

 

In June 2018, the Financial Accounting Standards Board (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.

 

In March 2020, the FASB issued guidance (ASU 2020-04), intended to provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments in this guidance are effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.

 

Special Note Regarding Smaller Reporting Company Status

 

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

 

 

B.

Inventories

 

The major classes of inventories were as follows:

 

   

March 27, 2020

   

June 30, 2019

 

Inventories:

               

Finished parts

  $ 64,066     $ 57,682  

Work in process

    22,024       23,812  

Raw materials

    41,525       44,399  
    $ 127,615     $ 125,893  

 

6

 

 

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 March 27, 2020 and March 29, 2019:

 

   

For the Quarter Ended

   

For the Three Quarters Ended

 
   

March 27, 2020

   

March 29, 2019

   

March 27, 2020

   

March 29, 2019

 

Reserve balance, beginning of period

  $ 5,775     $ 3,843     $ 3,736     $ 4,407  

Current period expense and adjustments

    3,127       670       9,255       2,084  

Payments or credits to customers

    (2,973 )     (742 )     (7,039 )     (2,688 )

Translation

    (9 )      (21 )     (32 )      (53 )

Reserve balance, end of period

  $ 5,920     $ 3,750     $ 5,920     $ 3,750  

 

Included in expense in the quarter and three quarters ending March 27, 2020 is a non-recurring warranty charge in the amount of $2,234 and $6,123, respectively, to accrue for estimated costs to resolve a unique product performance issue at certain installations.

 

The current portion of the warranty accrual ($5,053 and $2,983 as of March 27, 2020 and March 29, 2019, respectively) is reflected in accrued liabilities, while the long-term portion ($867 and $767 as of March 27, 2020 and March 29, 2019, respectively) is included in other long-term liabilities on the consolidated balance sheets.

 

 

D.

Contingencies

 

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

 

 

E.

Business Segments

 

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

 

The Company has two reportable segments: manufacturing and distribution. 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 Three Quarters Ended

 
   

March 27, 2020

    March 29, 2019    

March 27, 2020

   

March 29, 2019

 

Net sales

                               

Manufacturing segment sales

  $ 58,877     $ 71,374     $ 170,611     $ 211,273  

Distribution segment sales

    28,387       27,547       72,839       77,557  

Inter/Intra segment elimination – manufacturing

    (13,993 )     (16,272 )     (42,928 )     (45,953 )

Inter/Intra segment elimination – distribution

    (4,635 )      (5,229 )      (13,060 )      (12,661 )
    $ 68,636     $ 77,420     $ 187,462     $ 230,216  

Net (loss) income attributable to Twin Disc

                               

Manufacturing segment net (loss) income

  $ (26,859 )   $ 6,350     $ (34,650 )   $ 21,509  

Distribution segment net income

    991       (498 )     2,925       935  

Corporate and eliminations

    638        (1,292 )      (6,332 )      (10,950 )
    $ (25,230 )   $ 4,560     $ (38,057 )   $ 11,494  

 

Assets

 

March 27, 2020

    June 30, 2019  

Manufacturing segment assets

  $ 365,884     $ 384,612  

Distribution segment assets

    47,334       46,076  

Corporate assets and elimination of intercompany assets

    (112,058 )      (83,818 )
    $ 301,160     $ 346,870  

 

7

 

Disaggregated revenue:

 

The following table presents details deemed most relevant to the users of the financial statements for the quarters and three quarters ended March 27, 2020 and March 29, 2019.

 

Net sales by product group for the quarter ended March 27, 2020 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 5,709     $ 1,760     $ (619 )   $ 6,850  

Land-based transmissions

    15,185       9,051       (6,599 )     17,637  

Marine and propulsion systems

    37,968       15,817       (11,409 )     42,376  

Other

    15       1,759       (1 )     1,773  

Total

  $ 58,877     $ 28,387     $ (18,628 )   $ 68,636  

 

Net sales by product group for the quarter ended March 29, 2019 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 8,149     $ 2,457     $ (1,070 )   $ 9,536  

Land-based transmissions

    27,133       8,309       (8,538 )     26,904  

Marine and propulsion systems

    36,076       15,573       (11,908 )     39,741  

Other

    16       1,208       15       1,239  

Total

  $ 71,374     $ 27,547     $ (21,501 )   $ 77,420  

 

Net sales by product group for the three quarters ended March 27, 2020 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 18,409     $ 4,712     $ (2,183 )   $ 20,938  

Land-based transmissions

    49,159       20,769       (21,466 )     48,462  

Marine and propulsion systems

    102,988       43,445       (32,337 )     114,096  

Other

    55       3,913       (2 )     3,966  

Total

  $ 170,611     $ 72,839     $ (55,988 )   $ 187,462  

 

Net sales by product group for the three quarters ended March 29, 2019 is summarized as follows:

 

                   

Elimination of

         
   

Manufacturing

   

Distribution

   

Intercompany Sales

   

Total

 

Industrial

  $ 22,883     $ 6,434     $ (3,619 )   $ 25,698  

Land-based transmissions

    86,876       20,765       (21,322 )     86,319  

Marine and propulsion systems

    101,464       46,037       (33,629 )     113,872  

Other

    50       4,321       (44 )     4,327  

Total

  $ 211,273     $ 77,557     $ (58,614 )   $ 230,216  

 

 

F.

Stock-Based Compensation

 

Performance Stock Awards (“PSA”)

 

During the first three quarters 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 not 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 not currently accruing compensation expense for these PSAs.

 

8

 

There were 214.0 and 188.0 unvested PSAs outstanding at March 27, 2020 and March 29, 2019, 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 (benefit) expense of ($439) and $240 was recognized for the quarters ended March 27, 2020 and March 29, 2019, respectively, related to PSAs. Compensation (benefit) expense of ($419) and $1,028 was recognized for the three quarters ended March 27, 2020 and March 29, 2019, respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at March 27, 2020 was $15.24. At March 27, 2020, the Company had $2,794 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 March 27, 2020 and March 29, 2019 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 three quarters 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 184.3 unvested shares outstanding at March 27, 2020 and March 29, 2019, respectively. A total of 20.5 and 3.8 shares of restricted stock were forfeited during the three quarters ended March 27, 2020 and March 29, 2019, respectively. Compensation expense of $338 and $280 was recognized for the quarters ended March 27, 2020 and March 29, 2019, respectively. Compensation expense of $862 and $796 was recognized for the three quarters ended March 27, 2020 and March 29, 2019, respectively. The total fair value of restricted stock grants vested as of March 27, 2020 and March 29, 2019 was $1,241 and $2,102, respectively. As of March 27, 2020, the Company had $1,644 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 three quarters 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 March 27, 2020 and at March 29, 2019. Compensation expense of $82 and $81 was recognized for the quarters ended March 27, 2020 and March 29, 2019, respectively. Compensation expense of $245 and $217 was recognized for the three quarters ended March 27, 2020 and March 29, 2019, respectively. The weighted average grant date fair value of the unvested awards at March 27, 2020 was $25.77. As of March 27, 2020, the Company had $435 of unrecognized compensation expense related to restricted stock which will be recognized over the next two years.

 

9

 

 

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 Three Quarters Ended

 
   

March 27, 2020

   

March 29, 2019

   

March 27, 2020

    March 29, 2019  

Pension Benefits:

                               

Service cost

  $ 205     $ 242     $ 612     $ 739  

Interest cost

    909       1,095       2,703       3,270  

Expected return on plan assets

    (1,245 )     (1,329 )     (3,733 )     (3,992 )

Amortization of transition obligation

    9       9       26       26  

Amortization of prior service cost

    (4 )     1       (11 )     3  

Amortization of actuarial net loss

    673        678       2,241        2,033  

Net periodic benefit cost

  $ 547     $ 696     $ 1,838     $ 2,079  
                                 

Postretirement Benefits:

                               

Service cost

  $ 4     $ 5     $ 13     $ 14  

Interest cost

    55       76       164       228  

Amortization of prior service cost

    (69 )     -       (206 )     -  

Amortization of actuarial net loss

    -        (69 )     -        (206 )

Net periodic benefit (gain) cost

  $ (10 )   $ 12     $ (29 )   $ 36  

 

The Company expects to contribute approximately $1,936 to its pension plans in fiscal 2020. As of March 27, 2020, the amount of $1,134 in contributions has been made.

 

The Company has reclassified $1,593 (net of $490 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended March 27, 2020, and $478 (net of $146 in taxes) during the quarter ended March 29, 2019. The Company has reclassified $2,698 (net of $828 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the three quarters ended March 27, 2020, and $1,427 (net of $437 in taxes) during the three quarters ended March 29, 2019. These reclassifications are included in the computation of net periodic benefit cost.

 

 

H.

Income Taxes

 

For the three quarters ended March 27, 2020 and March 29, 2019, the Company’s effective income tax rate was 8.9% and 24.6%, respectively. Under the Tax Cuts and Jobs Act (“the Tax 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 $5,310 GILTI inclusion decreased the rate by 2.66%. The Company determined that the carrying value of certain goodwill and intangibles exceeded the fair value and a $27,603 impairment charge was calculated which resulted in a decrease to the effective tax rate of 13.79%. Income generated in foreign jurisdictions and other tax preference items also impacted the rate.

 

As discussed in Note A, Basis of Presentation, the spread of the COVID-19 outbreak has caused significant volatility and uncertainty in U.S. and international markets. On March 27, 2020, the U.S. government signed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act includes many measures to assist companies, including temporary changes to income and non-income-based tax laws, some of which were enacted under the Tax Act in 2017. In addition, governments around the world are considering various forms of assistance. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such it is uncertain as to the full magnitude that the COVID-19 outbreak will have on the Company’s financial condition, liquidity, future results of operations, and income tax obligations. 

 

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.

 

10

 

The Company has approximately $1,121 of unrecognized tax benefits, including related interest and penalties, as of March 27, 2020, 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 March 27, 2020. 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 2016. 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, which occurs on March 30, 2020 this year, and whenever events or changes in circumstances (“triggering events”) indicate that the carrying value of goodwill may not be recoverable. 

 

A significant amount of judgment is involved in determining if a triggering event has occurred. Such indicators may include, among others: a significant decline in expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements.

 

The Company believes that the economic disruptions and unprecedented market volatilities and uncertainties resulting from the COVID-19 outbreak is a triggering event in the current fiscal quarter. Consequently, it performed an interim goodwill impairment test as of the end of its current quarter, March 27, 2020.

 

Subsequent to the adoption of ASU 2017-04, goodwill impairment charges are recorded using a simplified one-step approach. The fair value of a reporting unit, as defined, is compared to the carrying value of the reporting unit, including goodwill. The fair value is primarily determined using discounted cash flow analyses which is driven by projected growth rates, and which applies an appropriate market-participant discount rate; the fair value determined is also compared to the value obtained using a market approach from guideline public company multiples. If the carrying amount exceeds the fair value, that difference is recognized as an impairment loss.

 

The European Propulsion reporting unit, which carried goodwill in the amount of $22,822, has heretofore been experiencing positive operating results. The Company continues to have a positive outlook of its operations and remains committed to supporting it. However, the onset of the COVID-19 outbreak and its uncertainties, as described in Note A, Basis of Presentation, requires the Company to approach the goodwill impairment analysis differently this year; that past performance is no longer necessarily a good predictor of the future in a COVID-19 environment. To incorporate uncertainties in its analysis, upon the advice of an expert third party valuation firm which the Company consulted with, the Company applied a scenario modeling analysis for its goodwill impairment test this year. It is deemed to be the most prudent and a more robust approach in the face of uncertainty. Each scenario is then weighted with management’s expectations of potential outcomes, to arrive at a reasonable conclusion of the fair value of the reporting unit. This is the approach deployed by the Company in this year’s goodwill and long-lived asset impairment analyses.

 

In assessing the current environment, management is informed that there is consensus among industry experts that the impacts from the outbreak will be severe and adverse, and that a general contraction in the macroeconomic environment is expected. The magnitude and duration is unknown. Management expects that a contraction of the global economy would reduce or shift the demand for its products in the near term. For example, the reporting unit expects that the demand for certain of its end-market products, such as passenger leisure cruise vessels, passenger ferries, and other commercial vessels that operate based on general economic activities, will likely be adversely impacted as social restrictions are put in place by governments to curb the outbreak. Based on additional market insights and expectations of industry and subject matter experts, which also includes the negative impacts of the historic and unprecedented free fall drop in the global price of oil, the Company believes that future cash flow projections of this reporting unit will fall short of its previous projections, which included synergies that are now less likely to be realized in the face of a COVID-19 environment.

 

The European Industrial reporting unit which carried goodwill in the amount of $2,558 is also challenged with the same macroeconomic conditions and market contraction.

 

The Company completed its interim assessment for goodwill impairment as of March 27, 2020 with the assistance of the aforementioned third party expert, using updated inputs, including an appropriate risk-based, company specific weighted average discount rate of 13.0%. The assessment resulted in the full impairment of the European Propulsion and European Industrial reporting units, in the amount of $25,380.

 

As a result of the full impairment of goodwill, the balance of goodwill at March 27, 2020 is zero. There will no longer be a need for future goodwill impairment tests.

 

As a consequence of these macroeconomic developments, market insights and expectations, and the occurrence of a triggering event in the quarter, the Company also performed an assessment of its intangibles and other long-lived assets. The Company performed an undiscounted operating cash flow analysis as of March 27, 2020, as well as the review of other assets in service and their remaining useful lives. It was determined that an impairment charge pertaining to certain tradenames, licenses and other assets was required, in the amount of $2,223.

 

The total non-cash impairment charge of $27,603, as described above, is a non-cash charge and is reported on the goodwill and other impairment charge line in the condensed consolidated statement of operations within the manufacturing segment. The tax impact of this charge is to increase the income tax (benefit) by $1,275.

11

 

As of March 27, 2020, changes in the carrying amount of goodwill is summarized as follows:

 

   

Net Book Value Rollforward

   

By Reporting Unit

 
   

Gross Carrying Amount

   

Accumulated Impairment

   

Net Book Value

   

European Propulsion

   

European Industrial

 

Balance at June 30, 2019

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

Impairment

    -       (25,380 )     (25,380 )     (22,822 )     (2,558 )

Translation adjustment

    (574 )     -       (574 )     (549 )     (25 )

Balance at March 27, 2020

  $ 39,202     $ (39,202 )   $ -     $ -     $ -  

 

As of March 27, 2020, 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

    78       -       78       -       -       -       78  

Amortization

    -       (3,420 )     (3,420 )     (2,252 )     (854 )     (190 )     (124 )

Impairment

    -       (1,306 )     (1,306 )     -       -       (1,080 )     (226 )

Translation adjustment

    (580 )     -       (580 )     (381 )     (150 )     (44 )     (5 )

Balance at March 27, 2020

  $ 39,085     $ (19,160 )   $ 19,925     $ 12,210     $ 6,021     $ 1,419     $ 275  

 

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 9 years.

 

Intangible amortization expense was $1,148 and $746 for the quarters ended March 27, 2020, and March 29, 2019, respectively. Intangible amortization expense was $3,420 and $1,995 for the three quarters ended March 27, 2020, and March 29, 2019, 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   $ 1,112  

2021

    3,153  

2022

    2,969  

2023

    2,809  

2024

    2,641  

2025

    2,473  

 

The gross carrying amount of the Company’s intangible assets that have indefinite lives and are not subject to amortization as of March 27, 2020 and June 30, 2019 was $0 and $200, respectively. These assets were comprised of acquired trade names. As discussed above, an impairment charge was recorded on these assets during the quarter ended March 27, 2020.

 

 

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 subsequent amendments, and are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment and intellectual property.

 

12

 

On January 28, 2020, an amendment to the Credit Agreement was executed 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.

 

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 March 27, 2020 and June 30, 2019 consisted of the following:

 

   

March 27, 2020

   

June 30, 2019

 

Borrowings under the Credit Agreement

               

Revolving loans

  $ 24,110     $ 22,666  

Term loan (due March 2026)

    18,500       19,500  
Other     264        325  
Subtotal     42,874       42,491  
Less: current maturities     (2,000 )      (2,000 )
Total long-term debt   $ 40,874     $ 40,491  

 

During the three quarters ended March 27, 2020, the average interest rate was 3.67% on the Term Loan, and 2.62% 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 $54 in principal was paid on these liabilities during the current fiscal year.

 

As of March 27, 2020, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $42,427, and the Company had approximately $18,317 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 March 27, 2020 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.

 

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 March 27, 2020, the notional amount was $18,500. 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 March 27, 2020 remain authorized for purchase. The Company did not make any open market purchases of its shares during the quarters ended March 27, 2020 and March 29, 2019.

 

13

 

The following is a reconciliation of the Company’s equity balances for the first three 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  

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  

Net (loss) income

            (25,230 )                     54       (25,176 )

Translation adjustments

                    (1,257 )             (9 )     (1,266 )

Benefit plan adjustments, net of tax

                    1,593                       1,593  

Unrealized loss on cash flow hedge, net of tax

                    (582 )                     (582 )

Compensation expense

    (19 )                                     (19 )

Balance, March 27, 2020

  $ 42,286     $ 158,415     $ (38,476 )   $ (18,796 )   $ 606     $ 144,035  

 

 

   

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

            2,861                       41       2,902  

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       188,660       (30,760 )     (24,005 )     520       178,459  

Net income

            4,073                       6       4,079  

Translation adjustments

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

Benefit plan adjustments, net of tax

                    478                       478  

Compensation expense

    590                                       590  

Shares (acquired) issued, net

    (497 )                     520               23  

Balance, December 28, 2018

    44,137       192,733       (32,055 )     (23,485 )     513       181,843  

Net income

            4,560                       27       4,587  

Translation adjustments

                    (885 )             16       (869 )

Benefit plan adjustments, net of tax

                    478                       478  

Compensation expense

    603                                       603  

Shares issued (acquired), net

    15                       (15 )             -  

Balance, March 29, 2019

  $ 44,755     $ 197,293     $ (32,462 )   $ (23,500 )   $ 556     $ 186,642  

 

14

 

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended September 27, 2019, December 27, 2019, and March 27, 2020, and September 28, 2018, December 28, 2018 and March 29, 2019 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 adjustment during the quarter

    (1,257 )     -       -  

Amounts reclassified from accumulated other comprehensive income

    -       1,593       (582 )

Net current period other comprehensive (loss) income

    (1,257 )     1,593       (582 )

Balance at March 27, 2020

  $ 1,815     $ (39,203 )   $ (1,088 )

 

   

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 )

Translation adjustment during the quarter

    (885 )     -  

Amounts reclassified from accumulated other comprehensive income

    -       478  

Net current period other comprehensive (loss) income

    (885 )     478  

Balance at March 29, 2019

  $ 3,891     $ (36,353 )

 

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter and three quarters ended March 27, 2020 are as follows:

 

   

Amount Reclassified

     

Amount Reclassified

   
   

Quarter Ended

     

Three Quarters Ended

   
   

March 27, 2020

      March 27, 2020    
Changes in benefit plan items                    
Actuarial losses   $ 670  

(a)

  $ 2,240  

(a)

Transition asset and prior service benefit     (64 )

(a)

    (191 )

(a)

Total amortization     606         2,049    
Other benfefit plan adjustments     (1,477 )       (1,477 )  
Income taxes     490          828    
Total reclassification net of tax   $ 1,593       $ 2,698    

 

15

 

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter and three quarters ended March 29, 2019 is as follows:

 

   

Amount Reclassified

     

Amount Reclassified

   
   

Quarter Ended

     

Three Quarters Ended

   
   

March 29, 2019

      March 29, 2019    
Changes in benefit plan items                    
Actuarial losses   $ 614  

(a)

  $ 1,835  

(a)

Transition asset and prior service benefit     10  

(a)

    29  

(a)

Total amortization     624         1,864    
Income taxes     146          437    
Total reclassification net of tax   $ 478       $ 1,427    

 

 

(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 and Other Operating Income

 

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 $532 and $1,717 in the quarter and three quarters ended March 27, 2020, respectively, and restructuring charges of $131 and $738 for the quarter and three quarters ended March 29, 2019, 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 March 27, 2020 were $12,169.

 

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 three quarters ended March 27, 2020.

 

During the third quarter of fiscal 2019, and as previously reported in our prior year financial statements, the Company reported other operating income resulting from the sale of its distribution business in the northwestern U.S. and western Canada territories (the “Mill Log business”) at a pre-tax gain of $865, and the remeasurement of a contingent consideration related to the acquisition of Veth Propulsion, in the amount of $492. The note received from the buyer of the Mill Log business in the original amount of $2,500 was due on March 4, 2020. As of March 27, 2020, the Company has agreed to a revised payment schedule after collecting $500, and is carrying the balance of $2,000 in other current assets.

 

The following is a roll-forward of restructuring activity:

 

Accrued restructuring liability, June 30, 2019

  $ -  

Additions related to workforce reduction and reorganization programs

    1,717  

Additions related to contract termination

    3,185  

Payments, adjustments and write-offs during the year

    (4,531 )

Accrued restructuring liability, March 27, 2020

  $ 371  

 

 

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. 

 

16

 

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

 

   

For the Quarter Ended

   

For the Three Quarters Ended

 
   

March 27, 2020

   

March 29, 2019

   

March 27, 2020

   

March 29, 2019

 

Basic:

                               

Net (loss) income