What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-09-02 compared with 2020-08-26 · 6 added, 1362 removed, 10 unchanged (99% of the section changed)

3 unchanged sentences

Restructuring expenses

Net (loss) income

Net (loss) income attributable to Twin Disc

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

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

Dividends per share

Restructuring expenses

Goodwill and other asset impairment charge

3 unchanged sentences

Dividends per share

Restructuring expenses

Net income (loss)

Net income (loss) attributable to Twin Disc

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

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

Dividends per share

Change in and Disagreements with Accountants on Accounting and Financial Disclosure

Controls and Procedures

Conclusi on Regarding Dis closure Controls and Procedures

As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report and under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures.

Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company,

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework (2013 edition) in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based upon such evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of June 30, 2020.

RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of June 30, 2020, as stated in their report which appears herein.

Changes in Internal Contro l Over Financial Reporting

During the fourth quarter of fiscal 2020, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other Information

Not applicable.

Directors , Executive Officers and Corporate Governance

For information with respect to the executive officers of the Registrant, see "Information About Our Executive Officers" at the end of Part I of this report.

For information with respect to the Directors of the Registrant, see "Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

For information with respect to the Company’s Code of Ethics, see "Guidelines for Business Conduct and Ethics” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

The Company’s Code of Ethics, entitled, “Guidelines for Business Conduct and Ethics,” is included on the Company’s website, www.twindisc.com.

If the Company makes any substantive amendment to the Code of Ethics, or grants a waiver from a provision of the Code of Ethics for its Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer (or any person performing similar functions), it intends to disclose the nature of such amendment on its website within four business days of the amendment or waiver in lieu of filing a Form 8-K with the SEC.

For information with respect to procedures by which shareholders may recommend nominees to the Company’s Board of Directors, see “Director Committee Functions:

Nominating and Governance Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

There were no changes to these procedures since the Company’s last disclosure relating to these procedures.

For information with respect to the Audit Committee Financial Expert, see “Director Committee Functions:

Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

For information with respect to the Audit Committee Disclosure, see “Director Committee Functions:

Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

For information with respect to the Audit Committee Membership, see “Director Committee Functions:

Committee Membership” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

Executive Compensation

The information set forth under the captions "Executive Compensation" and "Director Compensation” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 29, 2020, is incorporated into this report by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

For information regarding security ownership of certain beneficial owners and management, see the Proxy Statement for the Annual Meeting of Shareholders to be held on October 29, 2020 under the captions "Principal Shareholders” and “Directors and Executive Officers" and incorporated into this report by reference.

For information regarding securities authorized for issuance under equity compensation plans of the Company, see “Equity Compensation Plan Information” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 29, 2020, which is incorporated into this report by reference.

There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.

Certain Relationships and Related Transactions , Director Independence

For information with respect to transactions with related persons and policies for the review, approval or ratification of such transactions, see “Corporate Governance – Review, Approval or Ratification of Transactions with Related Persons” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

For information with respect to director independence, see “Corporate Governance – Board Independence” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020, which is incorporated into this report by reference.

Principal Accounting Fees and Services

The Company incorporates by reference the information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held October 29, 2020 under the headings “Fees to Independent Registered Public Accounting Firm” and “Pre-approval Policies and Procedures.”

Exhibits, Financial Statement Schedules

(a)(1) Consolidated Financial Statements

See Index to Consolidated Financial Statements and Financial Statement Schedule, the Report of Independent Registered Public Accounting Firm and the Consolidated Financial Statements, all of which are incorporated by reference.

(a)(2) Consolidated Financial Statement Schedule

See Index to Consolidated Financial Statements and Financial Statement Schedule, and the Consolidated Financial Statement Schedule, all of which are incorporated by reference.

(a)(3) Exhibits.

See Exhibit Index included as the last page of this form, which is incorporated by reference.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of June 30, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019

Consolidated Statements of Changes in Equity for the years ended June 30, 2020 and 2019

Notes to Consolidated Financial Statements

INDEX TO FINANCIAL STATEMENT SCHEDULE

Schedule II - Valuation and Qualifying Accounts

Schedules, other than those listed, are omitted for the reason that they are inapplicable, are not required, or the information required is shown in the financial statements or the related notes.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Twin Disc, Incorporated:

Opinion on the Internal Control Over Financial Reporting

We have audited Twin Disc, Incorporated’s (the Company) internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated August 26, 2020 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting in Item 9A .

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Milwaukee, Wisconsin

August 26, 2020

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Twin Disc, Incorporated:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Twin Disc, Incorporated (the Company) as of June 30, 2020 and 2019, the related consolidated statements of operations and comprehensive (loss) income, changes in equity and cash flows for each of the two years in the period ended June 30, 2020, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated August 26, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company's auditor since 2018.

Milwaukee, Wisconsin

August 26, 2020

TWIN DISC, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2020 and 2019

(In thousands, except share amounts)

Current assets:

Accounts receivable, net

Prepaid expenses

Total current assets

Property, plant and equipment, net

Goodwill, net

Deferred income taxes

Intangible assets, net

LIABILITIES AND EQUITY

Current liabilities:

Short-term borrowings and current maturities of long-term debt

Accounts payable

Accrued liabilities

Total current liabilities

Long-term debt

Lease obligations

Accrued retirement benefits

Deferred income taxes

Other long-term liabilities

Total liabilities

Commitments and contingencies (Note P)

Twin Disc shareholders' equity:

Preferred shares authorized:

Common shares authorized:

Retained earnings

Accumulated other comprehensive loss

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

Total Twin Disc shareholders' equity

Noncontrolling interest

Total liabilities and equity

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

TWIN DISC, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

For the years ended June 30, 2020 and 2019

(In thousands, except per share amounts)

Cost of goods sold

Marketing, engineering and administrative expenses

Restructuring expenses

Goodwill and other asset impairment charge

Other operating income

(Loss) income from operations

Other income (expense):

Interest income

Interest expense

Other income (expense), net

(Loss) income before income taxes and noncontrolling interest

Income tax (benefit) expense

Net (loss) income

Net earnings attributable to noncontrolling interest, net of tax

Net (loss) income attributable to Twin Disc

(Loss) income per share data:

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

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

Weighted average shares outstanding data:

Basic shares outstanding

Dilutive stock awards

Diluted shares outstanding

Comprehensive (loss) income:

Net (loss) income

Foreign currency translation adjustment

Benefit plan adjustments, net of income taxes of ($530) and ($1,242), respectively

Unrealized loss on cash flow hedge, net of income taxes of $185 and $156

Comprehensive (loss) income

Comprehensive income attributable to noncontrolling interest

Comprehensive (loss) income attributable to Twin Disc

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

TWIN DISC, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30, 2020 and 2019

(In thousands)

Cash flows from operating activities:

Net (loss) income

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

Depreciation and amortization

Goodwill and other asset impairment charge

Restructuring of operations

Stock compensation expense

Provision for deferred income taxes

Amortizations of inventory fair value step-up

Gain on contingent consideration of Veth Propulsion acquisition

Gain on sale of Mill Log Business

Changes in operating assets and liabilities

Trade accounts receivable

Accounts payable

Accrued liabilities

Accrued/prepaid retirement benefits

Net cash provided (used) by operating activities

Cash flows from investing activities, net of acquired business:

Capital expenditures

Proceeds from sale of Mill Log business

Proceeds from sale of plant assets

Proceeds from life insurance policy

Acquisition of Veth Propulsion, less cash acquired

Net cash used by investing activities

Cash flows from financing activities:

Borrowings under long-term debt agreement

Borrowings under revolving loan agreement

Repayments under revolving loan agreement

Repayments of long-term borrowings

Payments of withholding taxes on stock compensation

Dividends paid to noncontrolling interest

Proceeds from issuance of common stock, net

Proceeds from exercise of stock options

Net cash (used) provided by financing activities

Effect of exchange rate changes on cash

Net change in cash

Beginning of year

Supplemental cash flow information:

Cash paid during the year for:

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

TWIN DISC, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the years ended June 30, 2020 and 2019

(In thousands)

Twin Disc, Inc.

Shareholders’ Equity

Comprehensive

Income (Loss)

Balance at June 30, 2018

Translation adjustments

Benefit plan adjustments, net of tax

Unrealized loss on cash flow hedge, net of tax

Release stranded tax effects

Cash dividends

Compensation expense

Shares issued, net

Balance at June 30, 2019

Net (loss) income

Translation adjustments

Benefit plan adjustments, net of tax

Unrealized loss on cash flow hedge, net of tax

Cash dividends

Compensation expense

Shares (acquired) issued, net

Balance at June 30, 2020

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

TWIN DISC, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA)

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements and information presented herein include the financial results of Veth Propulsion Holding B.V.

(“Veth Propulsion”), the acquisition of which was completed on July 2, 2018.

The financial results included in this Form 10-K related to the acquisition method of accounting for the Veth Propulsion acquisition have been finalized and completed.

Recent Event s

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 contributed to shelter-in-place policies, unexpected factory closures, supply chain disruptions, and market volatility causing substantial declines in market capitalization, and occurring in the midst of an already challenging economic environment in some of our markets, most notably the oil and gas market.

As a result of the COVID-19 outbreak, the Company’s operations have decreased, starting on or around mid-March 2020 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 throughout the fourth quarter of fiscal 2020, impacting the timeliness of supply chain arrangements and the Company’s ability to deliver products to its customers.

The COVID-19 outbreak exacerbates an already depressed global oil and gas market, which has recently been severely damaged by unprecedented drastic declines in the price of oil.

The consensus of experts is that the price of oil was driven down by an oversupply in the global market, and aggravated by the price war among members of OPEC and non-OPEC producer nations.

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.

The accounting policies described below were applied in the context of these recent events.

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.

Significant Accounting Policies

The following is a summary of the significant accounting policies followed in the preparation of these financial statements:

Consolidation Principles --The consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly-owned domestic and foreign subsidiaries.

In fiscal 2020, certain subsidiaries changed their reporting periods to conform to the Company’s fiscal year end.

The impact of aligning to the corporate reporting period is not material to the consolidated results.

All significant intercompany transactions have been eliminated.

Management Estimates-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual amounts could differ from those estimates.

Translation of Foreign Currencies --The financial statements of the Company’s non-U.S.

subsidiaries are translated using the current exchange rate for assets and liabilities and the weighted-average exchange rate for the year for revenues and expenses.

The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss, which is included in equity.

Gains and losses from foreign currency transactions are included in earnings.

Included in other income (expense) are foreign currency transaction losses of ($570) and ($681) in fiscal 2020 and 2019, respectively.

Cash --The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalent.

Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.

To the extent that checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the amount of those un-presented checks is included in accounts payable.

Accounts Receivable --These represent trade accounts receivable and are stated net of an allowance for doubtful accounts of $1,740 and $1,582 at June 30, 2020 and 2019, respectively.

The Company records an allowance for doubtful accounts for certain customers where a risk of default has been specifically identified as well as provisions determined on a general basis when it is believed that some default is probable and estimable.

The assessment of likelihood of customer default is based on a variety of factors, including the length of time the receivables are past due, the historical collection experience and existing economic conditions.

Various factors may adversely impact its customer’s ability to access sufficient liquidity and capital to fund their operations and render the Company’s estimation of customer defaults inherently uncertain.

While the Company believes current allowances for doubtful accounts are adequate, it is possible that these factors may cause higher levels of customer defaults and bad debt expense in future periods.

Fair Value of Financial Instruments --The carrying amount reported in the consolidated balance sheets for cash, trade accounts receivable and accounts payable approximate fair value because of the immediate short-term maturity of these financial instruments .

If measured at fair value, cash would be classified as Level 1 and all other items listed above would be classified as Level 2 in the fair value hierarchy, as defined in Note N, Pension and Other Postretirement Benefit Plans.

The Company’s borrowings under the revolving loan agreement, which is classified as long-term debt and consists of loans that are routinely borrowed and repaid throughout the year, approximate fair value at June 30, 2020.

The Company’s term loan borrowing, which is LIBOR-based, approximates fair value at June 30, 2020.

If measured at fair value in the financial statements, long-term debt (including any current portion) would be classified as Level 2 in the fair value hierarchy.

Derivative Financial Instruments - - The Company has written policies and procedures that place all financial instruments under the direction of the Company’s corporate treasury department and restrict all derivative transactions to those intended for hedging purposes.

The use of financial instruments for trading purposes is prohibited.

The Company uses derivative financial instruments to manage certain financial risks.

The Company enters into forward contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables.

The Company uses interest rate swap contracts to reduce the exposure to variability in interest rates on floating debt borrowings.

The Company designates certain financial instruments as cash flow hedges for accounting purposes.

See Note S, Derivative Financial Instruments, for additional information.

Inventories --Inventories are valued at the lower of cost or net realizable value.

Cost has been determined by the last-in, first-out (LIFO) method for the majority of inventories located in the United States, and by the first-in, first-out (FIFO) method for all other inventories.

Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among others, when evaluating the adequacy of the reserve for excess and obsolete inventory.

Property, Plant and Equipment and Depreciation --Assets are stated at cost.

Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred.

Expenditures for major renewals and betterments are capitalized and depreciated.

Depreciation is provided on the straight-line method over the estimated useful lives of the assets.

The lives assigned to buildings and related improvements range from 10 to 40 years, and the lives assigned to machinery and equipment range from 5 to 15 years.

Upon disposal of property, plant and equipment, the cost of the asset and the related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings.

Fully depreciated assets are not removed from the accounts until physically disposed.

Impairment of Long-lived Assets --The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

For property, plant and equipment and other long-lived assets, excluding indefinite-lived intangible assets, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists.

If an impairment is determined to exist, any related impairment loss is calculated based on fair value.

Fair value is primarily determined using discounted cash flow analyses;

however, other methods may be used to determine the fair value, including third party valuations when necessary.

Goodwill and Other Intangibles --Goodwill and other indefinite-lived intangible assets, primarily tradenames, are tested for impairment at least annually during the Company’s fourth fiscal quarter and more frequently if an event occurs which indicates the asset may be impaired.

If applicable, goodwill and other indefinite-lived intangible assets not subject to amortization have been assigned to reporting units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit.

A significant amount of judgment is involved in determining if an indicator of impairment 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.

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 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 Company conducted interim qualitative assessments throughout the year.

In the third quarter of fiscal 2020, the Company believed that the economic disruptions and unprecedented market volatilities and uncertainties resulting from the COVID-19 outbreak was a triggering event for the reporting units which contained goodwill.

Consequently, it performed an interim goodwill impairment test as of March 27, 2020 using updated inputs, including appropriate risk-based, country and company specific weighted average discount rates for the Company’s reporting units.

As a result of that test, the Company recorded a goodwill impairment charge of $25,380, which fully removed goodwill from its balance sheet.

See Note E, Goodwill and Other Intangibles, for additional information.

The fair value of the Company’s other intangible assets with indefinite lives, primarily tradenames, is estimated using the relief-from-royalty method, which requires assumptions related to projected revenues;

assumed royalty rates that could be payable if the Company did not own the asset;

and a discount rate.

Long-lived assets, including intangible assets, are assessed for impairment qualitatively on a quarterly basis.

In the third quarter of fiscal 2020, upon management’s determination that adverse macroeconomic developments as a result of the COVID-19 outbreak has given rise to a triggering event for all of the Company’s assets groups, the Company performed a Step 1 assessment, or a recoverability test of its intangibles and other long-lived assets using 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.

As a result of that assessment, the Company recorded an impairment charge of $2,223.

See Note E, Goodwill and Other Intangibles, for more information.

For the fourth quarter of fiscal 2020, the Company performed a qualitative assessment and concluded that an impairment test was not necessary.

Changes in circumstances, existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of goodwill and other indefinite-lived intangibles, could result in an impairment charge in the future.

The Company will continue to monitor all significant estimates and impairment indicators, and will perform interim impairment reviews as necessary.

Any cost incurred to extend or renew the term of an indefinite lived intangible asset are expensed as incurred.

Income Taxes --The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements.

Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which temporary differences are expected to reverse.

Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets.

The Company evaluates its uncertain tax positions as new information becomes available.

Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority.

Revenue Recognition --Revenue from contracts with customers is recognized using a five-step model consisting of the following:

(1) identify the contract with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when (or as) the Company satisfies a performance obligation.

Performance obligations are satisfied when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time.

The amount of revenue recognized is based on the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration.

The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer.

If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable.

Goods sold to third party distributors are subject to an annual return policy, for which a provision is made at the time of shipment based upon historical experience.

Shipping and Handling Fees and Costs --The Company records revenue from shipping and handling costs in net sales.

The cost associated with shipping and handling of products is reflected in cost of goods sold.

Recently Adopted Accounting Standards

In 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 June 2016, the FASB issued updated guidance (ASU 2016-13) and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326).

Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates.

The amendments in this guidance are effective for fiscal years beginning after December 15, 2019 (the Company’s fiscal 2021), with early adoption permitted for certain amendments.

Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings.

The Company does not expect adoption of the new guidance to have a significant impact on its financial statements.

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 based on its public float as of the last business day of the second quarter of fiscal 2020.

Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report.

The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.

ACQUISITION OF VETH PROPULSION HOLDING B .

On July 2, 2018, the Company completed the acquisition of 100% of the outstanding common stock of Veth Propulsion.

Veth Propulsion is a global manufacturer of highly-engineered primary and auxiliary propulsions and propulsion machinery for maritime vessels, including rudder propellers, bow thrusters, generator sets and engine service and repair, based in the Netherlands.

These products are complementary to and expand the Company’s product offerings in the marine and propulsion markets.

Prior to the acquisition, the Company was a distributor of Veth Propulsion products in North America and Asia.

This acquisition was pursuant to a Share Purchase Agreement (“Purchase Agreement”) entered into by Twin Disc NL Holding B.V., a wholly-owned subsidiary of the Company, with Het Komt Vast Goed B.V., the prior parent of Veth Propulsion, on June 13, 2018.

Veth Propulsion is reported as part of the Company’s manufacturing segment.

Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $59,407 in cash, and $1,991 in shares of common stock on May 13, 2019, which represents the fair value of 139,347 shares.

The shares of stock were issued in settlement of the earn-out, a contingent consideration, after Veth Propulsion demonstrated that it achieved the profitability target (earnings before interest, tax, depreciation and amortization or “EBITDA”) under the terms of the Purchase Agreement.

The difference between the fair value at settlement date of $1,991, and the initial fair value assigned to the earn-out at acquisition date of $2,921 was recognized in the income statement.

See Note Q, Restructuring of Operations and Other Operating Income.

The maximum earn-out at acquisition was $3,300.

The fair value at acquisition was determined by using a discounted probability weighted approach.

The total consideration transferred at acquisition date was:

Cash, paid at closing and after agreed-upon working capital adjustments

Fair value of contingent consideration at acquisition date

Fair value of assets acquired and liabilities assumed at acquisition date:

Cash, including restricted cash

Accounts receivable and other current assets

Property, plant and equipment

Intangibles (a)

Accounts payable and accrued liabilities

Deferred tax liability

Total net assets acquired

Total consideration

Intangibles consist of customer relationships, technology and know-how and tradenames, with estimated useful lives 12 years, 7 years, and 10 years, respectively, and weighted average remaining useful life of approximately 9 years.

The amounts acquired are presented in Note E, Goodwill and Other Intangibles.

The Company is not able to deduct any of the goodwill for tax purposes.

The Company financed the payment of the cash consideration through borrowings under a new credit agreement entered into on June 29, 2018 with BMO Harris Bank N.A.

(the “Credit Agreement”).

The Credit Agreement is further discussed in Note H, Debt.

The major classes of inventories at June 30 were as follows:

Finished parts

Work in process

Raw materials

Inventories stated on a LIFO basis represent approximately 50% and 52% of total inventories at June 30, 2020 and 2019, respectively.

The approximate current cost of the LIFO inventories exceeded the LIFO cost by $27,225 and $25,709 at June 30, 2020 and 2019, respectively.

The Company had reserves for inventory obsolescence of $9,863 and $10,463 at June 30, 2020 and 2019, respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at June 30 were as follows:

Machinery and equipment

accumulated depreciation

Depreciation expense for the years ended June 30, 2020 and 2019 was $7,394 and $6,682, respectively.

GOODWILL AND OTHER INTANGIBLES

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.

If the Company’s market capitalization falls below the Company’s carrying value for a sustained period of time or if such a decline becomes indicative that the fair value of the Company’s reporting units has declined to below their carrying values, an interim goodwill impairment test may need to be performed and may result in a non-cash goodwill impairment charge.

On July 2, 2018, as described in Note B, Acquisition of Veth Propulsion Holding B.V., the Company acquired goodwill in the amount of $23,999 and intangible assets in the amount of $26,500 consisting of customer relationships, technology and know-how, and trade names as part of the acquisition of Veth Propulsion.

As of June 30, 2019, these amounts were final.

Veth Propulsion is reported as part of the Company’s manufacturing segment and European Propulsion reporting unit.

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 was a triggering event in the third quarter of fiscal 2020.

Consequently, it performed an interim goodwill impairment test as of the quarter ended 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, had 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 and Significant Accounting Policies, required 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, 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 was then weighted with management’s expectations of potential outcomes, to arrive at a reasonable conclusion of the fair value of the reporting unit.

This was 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 by governments remain in place or tighten 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 June 30, 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 consolidated statement of operations within the manufacturing segment.

The tax impact of this charge is to increase the income tax (benefit) by $1,199.

The changes in the carrying amount of goodwill are summarized as follows:

Net Book Value Rollforward

Net Book Value By

Reporting Unit

Gross Carrying Amount

Accumulated Impairment

European Industrial

Balance at June 30, 2018

Translation adjustment

Balance at June 30, 2019

Translation adjustment

Balance at June 30, 2020

Other Intangibles

At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization:

Net Book Value Rollforward

Net Book Value By Asset Type

Gross Carrying Amount

Amortization / Impairment

Customer Relationships

Technology Know-how

Balance at June 30, 2018

Translation adjustment

Balance at June 30, 2019

Translation adjustment

Balance at June 30, 2020

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 8 years.

Intangible amortization expense for the years ended June 30, 2020 and 2019 was $4,532 and $2,653, respectively.

Estimated intangible amortization expense for each of the next five fiscal years is as follows:

ACCRUED LIABILITIES

Accrued liabilities at June 30 were as follows:

Customer deposits

Salaries and wages

Distributor rebates

Retirement benefits

The Company warrants all assembled products, parts (except component products or parts on which written warranties are issued by the respective manufacturers thereof and are furnished to the original customer, as to which the Company makes no warranty and assumes no liability) and service against defective materials or workmanship.

Such warranty generally extends from periods ranging from 12 months to 24 months.

The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers.

However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation.

The warranty reserve is established based on the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.

When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends.

While the Company believes that the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires.

The following is a listing of the activity in the warranty reserve during the years ended June 30:

Reserve balance, July 1

Current period expense and adjustments

Payments or credits to customers

Translation adjustment

Reserve balance, June 30

Included in expense in the year ending June 30, 2020 is a non-recurring warranty charge in the amount of $6,233, to accrue for estimated costs to resolve a unique product performance issue at certain installations.

The current portion of the warranty accrual ($3,520 and $3,034 for fiscal 2020 and 2019, respectively) is reflected in accrued liabilities, while the long-term portion ($940 and $702 for fiscal 2020 and 2019, respectively) is included in other long-term liabilities on the consolidated balance sheets.

Long-term debt consisted of the following at June 30:

Credit Agreement Debt

Revolving loans (expire June 2023)

Term loan (due March 2026)

current maturities

Total long-term debt

Credit Agreement Debt :

On June 29, 2018, the Company entered into a new credit agreement (the “Credit Agreement”) with BMO Harris Bank N.A.

(“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”).

Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $35,000 and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $50,000 (the “Revolving Credit Commitment”).

The Credit Agreement also allows the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans.

On July 2, 2018, in connection with the acquisition of Veth Propulsion, as described in Note B, Acquisition of Veth Propulsion Holding B.V., the Company drew a total of $60,729 of additional borrowings on the Credit Agreement, consisting of a $35,000 Term Loan payable and revolver borrowings of $25,729.

The new borrowing was used to pay the cash consideration at closing of $58,862, and to pay off the loan owed to the prior parent of Veth Propulsion in the amount of $1,865.

On September 25, 2018, the Company used the proceeds of a stock offering (see Note J, Shareholders’ Equity) of $32,210 to partially pay down the Term Loan and Revolving Loans.

On March 4, 2019, the Company entered into a second amendment (the “Second Amendment”) to the Credit Agreement.

The Second Amendment reduced the principal amount of the Term Loan commitment under the Credit Agreement from $35,000 to $20,000.

In connection with the Second Amendment, the Company issued an amended and restated term note in the amount of $20,000 to BMO, which amended the original $35,000 note provided under the Credit Agreement.

Prior to entering into the Second Amendment, the outstanding principal amount of the Term Loan under the Credit Agreement was $10,849.

On the date of the Second Amendment, the BMO made an additional advance on the Term Loan to the Company in the amount of $9,151.

The Second Amendment also extended the maturity date of the Term Loan from January 2, 2020 to March 4, 2026, and added a requirement that the Company make principal installments of $500 per quarter starting with the quarter ending June 30, 2019.

The Second Amendment also reduced the applicable margin for purposes of determining the interest rate applicable to the Term Loan.

Previously, the applicable margin was 3.00%, which was added to the Monthly Reset LIBOR Rate or the Adjusted LIBOR, as applicable.

Under the Second Amendment, the applicable margin is between 1.375% and 2.375%, depending on the Company’s total funded debt to EBITDA ratio.

The Second Amendment also adjusts certain financial covenants made by the Company under the Credit Agreement.

Specifically, the Company has covenanted (i) not to allow its total funded debt to EBITDA ratio to be greater than 3.00 to 1.00 (the cap had previously been 3.50 to 1.00 for quarters ending on or before September 30, 2019 and 3.25 to 1.00 for quarters ending on or about December 31, 2019 through September 30, 2020), and (ii) that its tangible net worth will not be less than $100,000 plus 50% of net income for each fiscal year ending on and after June 30, 2019 for which net income is a positive number (the $100,000 figure had previously been $70,000).

On January 28, 2020, the Company entered into a third amendment (the “Third Amendment”).

The Third Amendment restated the financial covenant provisions related to the maximum allowable ratio of total funded debt to EBITDA from 3.00 to 1.00 to 4.00 to 1.00 for the quarter ended December 27, 2019, 5.00 to 1.00 for the quarter ending March 27, 2020, 4.00 to 1.00 for the quarter ending June 30, 2020, 3.50 to 1.00 for the quarter ending September 25, 2020 and 3.00 to 1.00 for quarters ending on or after December 25, 2020.

For purposes of determining EBITDA, the Third Amendment added back extraordinary expenses (not to exceed $3,900 million) related to the previously reported isolated product performance issue on one of the Company’s oil and gas transmission models at certain installations.

Under the Third Amendment, the applicable margin for revolving loans, letters of credit, and term loans was between 1.25% and 3.375%, depending on the Company’s total funded debt to EBITDA ratio.

On April 17, 2020, in connection with a loan obtained under the Payment Protection Plan (the “PPP Loan”) as described below, the Company entered into a fourth amendment (the “Fourth Amendment”).

The Fourth Amendment:

(1) permitted the Company to incur indebtedness in the form of the PPP Loan notwithstanding the Credit Agreement’s restrictions limiting the Company’s ability to incur indebtedness, and (2) provides that the PPP Loan (to the extent that the Loan is forgiven) shall be disregarded for purposes of calculating financial covenants in the Credit Agreement (the “Covenants”).

Any unforgiven portion of the Loan and the interest thereon will not be disregarded for purposes of calculating the Covenants.

On July 22, 2020, the Company entered into a fifth amendment (the "Fifth Amendment"), which is effective June 30, 2020.

Under this amendment, (a) the Revolving Loan availability was reduced from $50,000 to $45,000, (b) the quarterly payments occurring on September 30, 2020 and December 31, 2020 are changed to be interest-only payments at the Company's option, and (c) the applicable margin on the Term Loan was increased from 3.375% to 3.875%.

As a result of this amendment, $1,000 of principal payments originally due in fiscal 2021 have been deferred to fiscal 2026.

In addition, the Company was given financial covenant relief for the quarters ended June 30, 2020 through June 30, 2021.

During this period, in lieu of the Total Funded Debt to EBITDA ratio financial covenant, the Company is required to maintain a minimum cumulative EBITDA, as follows:

(1) $1,000 for the fiscal quarter ended June 30, 2020 and the two fiscal quarters ending September 25, 2020;

(2) $2,500 for the three fiscal quarters ending December 25, 2020;

(3) $6,000 for the four fiscal quarters ending March 26, 2021;

and (4) $10,000 for the four fiscal quarters ending June 30, 2021.

The Company also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank.

Under the Fifth Amendment, the Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.

The Company is also required to maintain a minimum liquidity level, and abide by certain cash dividend and capital expenditure restrictions.

Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property.

The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries.

The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion.

Upon the occurrence of an event of default, BMO may take the following actions upon written notice to the Company:

(1) terminate its remaining obligations under the Credit Agreement;

(2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable;

and (3) demand the Company to immediately cash collateralize letter of credit obligations in an amount equal to 105% of the aggregate letter of credit obligations or a greater amount if BMO determines a greater amount is necessary.

If such event of default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company.

In addition to the monthly interest payments and any mandatory principal payments required by the Credit Agreement (if applicable), the Company is responsible for paying a quarterly Revolving Credit Commitment Fee and quarterly Letter of Credit Fees.

The Revolving Credit Commitment Fee is paid at an annual rate equal to the Applicable Margin on the average daily unused portion of the Revolving Credit Commitment.

The Letter of Credit Fee is paid at the Applicable Margin for Revolving Loans that are Eurodollar Loans on the daily average face amount of Letters of Credit outstanding during the preceding calendar quarter.

The Company may prepay the Loans (or any one of the Loans), subject to certain limitations.

The PPP Loa n :

On April 17, 2020, the Company entered into a promissory note (the “PPP Note”) evidencing an unsecured loan in the amount of $8,200 made to the Company under the Payment Protection Plan ("PPP").

The PPP is a liquidity facility program established by the U.S.

government as part of the CARES Act in response to the negative economic impact of the COVID-19 outbreak.

The PPP Loan to the Company is being administered by BMO.

The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum.

Monthly principal and interest payments are deferred for six months.

Beginning November 17, 2020, seven months from the date of the PPP Note, the Company is required to make monthly payments of principal and interest.

The PPP Loan is a forgivable loan to the extent proceeds are used to cover qualified documented payroll, mortgage interest, rent, and utility costs over a 24-week measurement period (as amended) following loan funding.

For the loan to be forgiven, the Company is required to formally apply for forgiveness, and potentially, required to pass an audit that it met the eligibility qualifications of the loan.

Within 150 days from the application, the Company will be notified whether or not the loan is forgiven.

In accounting for the terms of the PPP Loan, the Company is guided by ASC 470 Debt , and ASC 450-30 Gain contingency .

Accordingly, it recorded the proceeds of the PPP Loan of $8,200 as debt and it will derecognize the liability when the loan is paid off or it believes forgiveness is reasonably certain.

The Company believes that the possibility of loan forgiveness is to be regarded as a contingent gain and therefore will not recognize the gain (and derecognize the loan) until all uncertainty is removed (i.e.

all conditions for forgiveness are met).

Other long-term debt pertains mainly to a financing arrangement in Europe.

During fiscal 2019, the Company entered into sale leaseback agreements with a leasing company covering various Company vehicles.

Under the terms of the agreements, the Company received $329 in cash proceeds and agreed to lease back those same vehicles under various terms, ranging from 3 to 5 years.

Under ASC 842, Leases, these agreements are required to be accounted for as financing transactions.

Consequently, the Company recorded long-term liabilities for the proceeds received, and they are reduced as lease payments are made.

These liabilities carry implied interest rates ranging from 7% to 25%.

A total amount of $74 in principal was paid on these liabilities during the current fiscal year.

During fiscal year 2020, the average interest rate was 3.64% on the Term Loan, and 2.72% on the Revolving Loans.

As of June 30, 2020, the Company’s borrowing capacity under the terms of the Credit Agreement was approximately $43,681 and the Company had approximately $27,040 of available borrowings.

The Company’s borrowings described above approximates fair value at June 30, 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.

The Term Loan is covered by an interest rate swap arrangement with Bank of Montreal, with an outstanding notional amount of $17,500 and a maturity date of March 4, 2026.

This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging.

This swap is included in the disclosures in Note S, Derivative Financial Instruments.

The aggregate scheduled maturities of outstanding long-term debt obligations in subsequent years are as follows:

Other lines of credit :

The Company has established unsecured lines of credit, which may be withdrawn at the option of the banks.

Under these arrangements, the Company has unused and available credit lines of $943 with a weighted average interest rate of 5.6% as of June 30, 2020, and $952 with a weighted average interest rate of 5.0% as of June 30, 2019.

LEASE OBLIGATIONS

In accordance with ASC 842, Leases, the Company’s leases with terms longer than twelve months are recorded on the consolidated balance sheets.

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.

The components of lease expense for the years ended June 30 were as follows:

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Operating lease cost

Short-term lease cost

Variable lease cost

Total lease cost

Sublease income

Net lease cost

Other information related to leases was as follows:

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

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

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

Operating leases

Finance leases

Weighted average remaining lease term (years):

Operating leases

Finance lease

Weighted average discount rate:

Operating leases

Finance leases

Approximate future minimum rental commitments under non-cancellable leases as of June 30, 2020 were as follows:

Operating Leases

Finance Leases

Total future lease payments

Amount representing interest

Present value of future payments

The following table provides a summary of leases recorded on the consolidated balance sheet at June 30.

Balance Sheet Location

Operating lease right-of-use assets

Property, plant and equipment, net

Finance lease right-of-use assets

Property, plant and equipment, net

Lease Liabilities

Operating lease liabilities

Accrued liabilities

Operating lease liabilities

Lease obligations

Finance lease liabilities

Accrued liabilities

Finance lease liabilities

Lease obligations

Subsequent Event:

On July 31, 2020, the Company finalized an agreement to lease a manufacturing, assembly and office facility in Lufkin, Texas.

The lease was entered into with the local government as part of the city’s economic development program.

The new lease has an initial term of 15 years and a base rent of $427 per year.

The Company will record $4,500 in finance lease right-of-use assets and $4,500 in finance lease liabilities.

In addition to the lease, the Company has certain leasehold improvements which were made to the facility amounting to $1,041.

SHAREHOLDERS' EQUITY

The Company completed the sale of 1,533,334 shares of its common stock through a registered offering which closed on September 25, 2018, at a price to the public of $22.50 per share.

The net proceeds received by the Company and after underwriting expenses of $2,070 and offering expenses of $220, were $32,210 and were recorded as common shares as of June 30, 2020.

The proceeds were used to partially pay down the Term Loan and Revolving Loans (see Note H, Debt).

The total number of shares of common stock outstanding at June 30, 2020 and 2019 was 13,405,993 and 13,240,278, respectively.

At June 30, 2020 and 2019, treasury stock consisted of 1,226,809 and 1,392,524 shares of common stock, respectively.

The Company issued 186,226 and 157,043 shares of treasury stock in fiscal 2020 and 2019, respectively, to fulfill its obligations under the stock option plans and restricted stock and performance share award grants, as well as the contingent consideration related to the acquisition of Veth Propulsion Holding B.V.

The Company also recorded forfeitures of 20,511 and 3,784 shares of previously issued restricted stock in fiscal 2020 and 2019, respectively.

The difference between the cost of treasury shares and the option price is recorded in common stock.

Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open market purchases of its common stock.

The Company did not make any open market purchases during the two most recent fiscal years.

As of June 30, 2020 and 2019, 315,000 shares remain authorized for purchase.

Cash dividends per share were $0.00 in both fiscal 2020 and 2019.

The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued.

The Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock.

The components of accumulated other comprehensive loss included in equity as of June 30, 2020 and 2019 are as follows:

Translation adjustments

Net loss on cash flow hedge derivatives, net of income taxes of $341 and $156, respectively

Benefit plan adjustments, net of income taxes of $13,316 and $12,707 respectively

Accumulated other comprehensive loss

A reconciliation for the changes in accumulated other comprehensive income (loss), net of tax, by component for the years ended June 30, 2020 and June 30, 2019 is as follows:

Balance at June 30, 2019

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive loss

Balance at June 30, 2020

Balance at June 30, 2018

Other comprehensive loss before reclassifications

Release stranded tax effects

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive loss

Balance at June 30, 2019

A reconciliation for the reclassifications out of accumulated other comprehensive income (loss), net of tax for the year ended June 30, 2020 is as follows:

Amortization of benefit plan items

Actuarial losses

Transition asset and prior service benefit

Total before tax benefit

Total reclassification net of tax

A reconciliation for the reclassifications out of accumulated other comprehensive income (loss), net of tax for the year ended June 30, 2019 is as follows:

Amortization of benefit plan items

Actuarial losses

Transition asset and prior service benefit

Total before tax benefit

Total reclassification net of tax

BUSINESS SEGMENTS AND FOREIGN OPERATIONS

The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment.

Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems.

The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, energy and natural resources, government, and industrial markets.

Net sales by product group is summarized as follows:

Land-based transmissions

Marine and propulsion systems

Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets.

The land based transmission products include applications for oilfield and natural gas, military and airport rescue and fire fighting.

The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, propellers and boat management systems for the global commercial marine, pleasure craft and patrol boat markets.

Other includes non-Twin Disc manufactured product sold through Company-owned distribution entities.

The Company has two reportable segments:

manufacturing and distribution.

Its segment structure reflects the way management makes operating decisions and manages the growth and profitability of the business.

It also corresponds with management’s approach of allocating resources and assessing the performance of its segments.

The accounting practices of the segments are the same as those described in the summary of significant accounting policies.

Transfers among segments are at established inter-company selling prices.

Management evaluates the performance of its segments based on net earnings.

Information about the Company's segments, before intercompany eliminations, is summarized as follows:

Manufacturing

Intra-segment sales

Inter-segment sales

Interest income

Interest expense

Depreciation and amortization

Net (loss) income attributable to Twin Disc

Expenditures for segment assets

Manufacturing

Intra-segment sales

Inter-segment sales

Interest income

Interest expense

Depreciation and amortization

Net income attributable to Twin Disc

Expenditures for segment assets

The following is a reconciliation of reportable segment net sales and net (loss) income to the Company’s consolidated totals:

Total net sales from reportable segments

Elimination of inter-company sales

Total consolidated net sales

Net (loss) income attributable to Twin Disc:

Total net (loss) income from reportable segments

Other adjustments and corporate expenses

Total consolidated net (loss) income attributable to Twin Disc

Corporate expenses pertain to certain costs that are not allocated to the reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions and global functional expenses.

Other significant items:

Interest income

Interest expense

Depreciation and amortization

Expenditures for segment assets

Interest income

Interest expense

Depreciation and amortization

Expenditures for segment assets

All adjustments represent inter-company eliminations and corporate amounts.

Geographic information about the Company is summarized as follows:

United States

Other countries

Net sales by geographic region are based on product shipment destination.

Long-lived assets primarily pertain to property, plant and equipment and exclude goodwill, other intangibles, and deferred income taxes.

They are summarized as follows:

Long-lived assets

United States

Other countries

The Company has one distributor customer, primarily of its manufacturing segment, that accounted for 10% of total Company sales for fiscal 2020.

There were no customers that accounted for 10% of consolidated net sales in fiscal 2019.

Disaggregated revenue:

The following tables present details deemed most relevant to the users of the financial statements for the years ended June 30, 2020 and June 30, 2019.

Net sales by product group for the year ended June 30, 2020 is summarized as follows:

Manufacturing

Elimination of

Intercompany Sales

Land-based transmissions

Marine and propulsion systems

Net sales by product group for the year ended June 30, 2019 is summarized as follows:

Manufacturing

Elimination of

Intercompany Sales

Land-based transmissions

Marine and propulsion systems

STOCK -BASED COMPENSATION

In fiscal 2019, the Company adopted the Twin Disc, Incorporated 2018 Long-Term Incentive Plan (the “2018 LTI Plan”).

Benefits under the 2018 LTI Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards.

There is reserved for issuance under the Plan an aggregate of 850,000 shares of the Company’s common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both.

The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.

In fiscal 2011, the Company adopted the Twin Disc, Incorporated 2010 Stock Incentive Plan for Non-Employee Directors (the “2010 Directors’ Plan”), a plan to grant non-employee directors equity-based awards up to 250,000 shares of common stock, and the Twin Disc, Incorporated 2010 Long-Term Incentive Compensation Plan (the “2010 Employee Incentive Plan”), a plan under which officers and key employees may be granted equity-based awards up to 650,000 shares of common stock.

Equity-based awards granted under these plans include performance shares and restricted stock.

Shares available for future awards as of June 30 were as follows:

2018 LTI Plan

2010 Directors' Plan

Performance Stock Awards (“PSA”)

In fiscal 2020 and 2019, the Company granted a target number of 131,688 and 50,004 PSAs, respectively, to various employees of the Company, including executive officers.

The PSAs granted in fiscal 2020 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual Earnings Per Share (“EPS”) (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2022.

These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 184,766.

Based upon actual results to date, the Company is not currently accruing compensation expense for these PSAs.

The PSAs granted in fiscal 2019 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, 2021.

Based upon actual results to date, the Company is not currently accruing compensation expense for these PSAs.

There were 167,848 and 96,124 unvested PSAs outstanding at June 30, 2020 and 2019, respectively.

A total of 13,844 and 0 shares of performance stock awards were forfeited during fiscal 2020 and 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.

The compensation (benefit) expense for the year ended June 30, 2020 and 2019, related PSAs, was ($368) and $1,196, respectively.

The tax (expense) benefit from compensation (benefit) expense for the year ended June 30, 2020 and 2019, related PSAs, was ($87) and $278, respectively.

The weighted average grant date fair value of the unvested awards at June 30, 2020 was $14.78.

At June 30, 2020, the Company had $2,480 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2020 and 2019 awards.

The total fair value of performance stock awards vested in fiscal 2020 was $167.

The total fair value of performance stock awards vested in fiscal 2019 was $1,228.

Restricted Stock Awards (“RS”)

The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled.

The fair value of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years.

During fiscal 2020 and 2019, the Company granted 180,379 and 43,305 service based restricted shares, respectively, to employees and non-employee directors in each year.

A total of 20,511 and 3,784 shares of restricted stock were forfeited during fiscal 2020 and 2019, respectively.

There were 231,379 and 172,637 unvested shares outstanding at June 30, 2020 and 2019, respectively.

Compensation expense of $1,200 and $1,096 was recognized during the year ended June 30, 2020 and 2019, respectively, related to these service-based awards.

The tax benefit from compensation expense for the year ended June 30, 2020 and 2019 related to these service-based awards, was $283 and $255, respectively.

The total fair value of restricted stock grants vested in fiscal 2020 and 2019 was $1,241 and $2,391, respectively.

As of June 30, 2020, the Company had $1,307 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards (“RS U ”)

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 fiscal 2019, the Company granted 37,950 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 37,950 unvested RSUs outstanding at June 30, 2020 and June 30, 2019.

Compensation expense of $326 and $299 was recognized during the year ended June 30, 2020 and 2019, respectively.

The tax benefit from compensation expense for the year ended June 30, 2020 and 2019, related to these service-based awards, was $77 and $69, respectively.

The weighted average grant date fair value of the unvested awards at June 30, 2020 was $25.77.

As of June 30, 2020, the Company had $353 of unrecognized compensation expense related to RSUs which will be recognized over the next two years.

Stock Options

The 2010 Directors’ Plan may grant options to purchase shares of common stock, at the discretion of the Board of Directors, to non-employee directors who are elected or reelected to the board, or who continue to serve on the board.

Such options carry an exercise price equal to the fair market value of the Company’s common stock as of the date of grant, vest immediately, and expire ten years after the date of grant.

Options granted under the 2018 Employee Incentive Plan are determined to be non-qualified or incentive stock options as of the date of grant, and may carry a vesting schedule.

For options under the 2018 Employee Incentive Plan that are intended to qualify as incentive stock options, if the optionee owns more than 10% of the total combined voting power of the Company’s stock, the price will not be less than 110% of the grant date fair market value and the options expire five years after the date of grant.

There were no incentive options granted to a greater than 10% shareholder during the years presented.

There were no options outstanding under the 2010 Directors’ Plan and the 2018 Employee Incentive Plan as of June 30, 2020 and 2019.

ENGINEERING AND DEVELOPMENT COSTS

Engineering and development costs include research and development expenses for new products, development and major improvements to existing products, and other costs for ongoing efforts to refine existing products.

Research and development costs charged to operations totaled $1,820 and $2,385 in fiscal 2020 and 2019, respectively.

Total engineering and development costs were $10,998 and $12,594 in fiscal 2020 and 2019, respectively.

P ENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic employees hired prior to October 1, 2003, and certain foreign employees.

Domestic plan benefits are based on years of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company froze future accruals under domestic defined benefit pension plans.

The Company's funding policy for the plans covering domestic employees is to contribute an actuarially determined amount which falls between the minimum required contribution and maximum amount that can be deducted for federal income tax purposes.

In addition, the Company has unfunded, non-qualified retirement plans for certain management employees and Directors.

In the case of management employees, benefits are based on an annual credit to a bookkeeping account, intended to restore the benefits that would have been earned under the qualified plans, but for the earnings limitations under the Internal Revenue Code.

In the case of Directors, benefits are based on years of service on the Board.

All benefits vest upon retirement from the Company.

In addition to providing pension benefits, the Company provides other postretirement benefits, including healthcare and life insurance benefits for certain domestic retirees.

All employees retiring after December 31, 1992, and electing to continue healthcare coverage through the Company's group plan, are required to pay 100% of the premium cost.

The measurement date for the Company’s pension and postretirement benefit plans in fiscal 2020 and 2019 was June 30.

Obligations and Funded Status

The following table sets forth the Company's defined benefit pension plans’ and other postretirement benefit plans’ funded status and the amounts recognized in the Company's balance sheets and statement of operations and comprehensive (loss) income as of June 30:

Postretirement

Change in benefit obligation:

Benefit obligation, beginning of year

Interest cost

Actuarial loss

Contributions by plan participants

Benefits paid

Benefit obligation, end of year

Change in plan assets:

Fair value of assets, beginning of year

Actual return on plan assets

Employer contribution

Contributions by plan participants

Benefits paid

Fair value of assets, end of year

Funded status

Amounts recognized in the balance sheet consist of:

Other assets - noncurrent

Accrued liabilities - current

Accrued retirement benefits - noncurrent

Net amount recognized

Amounts recognized in accumulated other comprehensive loss consist of (net of tax):

Net transition obligation

Prior service cost

Actuarial net loss

Net amount recognized

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year for the qualified defined benefit and other postretirement benefit plans are as follows:

Postretirement

Net transition obligation

Prior service cost

Actuarial net loss

Net amount to be recognized

The accumulated benefit obligation for all defined benefit pension plans was approximately $105,520 and $107,322 at June 30, 2020 and 2019, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets :

Projected and accumulated benefit obligation

Fair value of plan assets

Components of Net Periodic Benefit Cost :

Pension Benefits

Interest cost

Expected return on plan assets

Amortization of transition obligation

Amortization of prior service cost

Amortization of actuarial net loss

Net periodic benefit cost

What changed 10-K

Item 8. Financial Statements and Supplementary Data