What changed in this filing

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Item 9A. Controls and Procedures

2022-09-08 compared with 2021-09-02 · 295 added, 265 removed, 1566 unchanged (26% of the section changed)

1 unchanged sentence

Conclusion Regarding Disclosure Controls and Procedures

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

Based on such evaluation, which includes the circumstances around a misstatement as described below, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were not effective as of June 30, 2021 to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

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. 

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

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

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

Management has identified a material weakness in internal controls over financial reporting due to a misstatement in income taxes. 

The misstatement related to a deficiency in the company’s review controls over significant, infrequent transactions that did not detect an error in the recording of a valuation allowance on deferred income tax assets. 

Specifically, the misstatement was attributed to the presentation of the tax effects of a pension plan and the adjusting journal entry to income tax expense. 

Due to the isolated, non-recurring nature of this transaction, management had not anticipated the complexity of this process. 

This misstatement resulted in the Company filing a Form 8-K/A on August 23, 2021, amending its previously released financial results for the quarter and year ended June 30, 2021. 

The amendment was filed to disclose that final income tax expense adjustments related to the domestic deferred tax asset valuation allowance have been recorded by the Company, which resulted in increasing the amount of net loss for the year ended June 30, 2021 by $8.8 million. 

This had the effect of increasing the net loss of -$20.9 million to -$29.7 million for the year ended June 30, 2021. 

While this late adjustment is a non-cash adjustment, the Company has concluded that it constitutes a material weakness in its internal controls over financial reporting due to the deficiency in certain review controls described above.

To remediate the material weakness, the Company has taken steps to enhance the controls within the tax reporting process, including improving the review precision of adjusting journal entries and to proactively reach out to outside consultants on technical and complex one-off issues such as these, should the need arise. 

To allow for adequate time to manage the recording and reviewing of infrequent and complex transactions, the Company also intends to postpone the earnings release date to a date closer to the filing of the Company’s Form 10-K or Form 10-Q.

The Company believes that these steps will mitigate the occurrence of similar events in the future.

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

1 unchanged sentence

The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework (2013 edition) in Internal Control –

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon such evaluation, due to the circumstance around a misstatement as described above, the Company’s management concluded that its internal control over financial reporting was not effective as of June 30, 2021.

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, 2022.

RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of June 30, 2022, as stated in their report which appears herein.

1 unchanged sentence

During the fourth quarter of fiscal 2022, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company intends to complete the remediation of the material weakness described within fiscal 2022.

Other Information

Not applicable.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Directors, Executive Officers and Corporate Governance

19 unchanged sentences

in the Proxy Statement for the Annual Meeting of Shareholders to be held October 27, 2022, which is incorporated into this report by reference.

For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, see “Delinquent Section 16(a) Reports”

in the Proxy Statement for the Annual Meeting of Shareholders to be held October 27, 2022, which is incorporated into this report by reference.

Executive Compensation

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm, RSM US LLP , Milwaukee, Wisconsin , PCAOB ID # 49

Consolidated Balance Sheets as of June 30, 2022 and 2021

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Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control —

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated September 8, 2022 expressed an unqualified opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management's assessment.

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021 financial statements, and this report does not affect our report dated September 2, 2021 on those financial statements.

Basis for Opinion

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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, 2022, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated September 2, 2021 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of June 30, 2021, based on criteria established in 

Internal Control —

Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated September 8, 2022 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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Deferred Tax Asset Valuation Allowance

As described in Note N to the consolidated financial statements the Company’s gross deferred tax asset and valuation allowance was approximately $31,004,000 and $24,420,000, respectively, as of June 30, 2021.

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

As described in Note N to the consolidated financial statements the Company’s gross deferred tax asset and valuation allowance was approximately $28,526,000 and $23,097,000, respectively, as of June 30, 2022.

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

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

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$ 275,413  

$ 294,127  

LIABILITIES AND EQUITY

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11,176  

27,938  

Deferred income taxes

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145,293  

Less treasury stock, at cost ( 984,139 and 1,226,809 shares, respectively)

Less treasury stock, at cost ( 960,459  and 984,139  shares, respectively)

14,720  

9 unchanged sentences

$ 275,413  

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

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

TWIN DISC, INCORPORATED AND SUBSIDIARIES

13 unchanged sentences

Restructuring expenses

Goodwill and other asset impairment charge

Other operating income

( 3,282 )  

Loss from operations

Income (loss) from operations

11,036  

3 unchanged sentences

Income from extinguishment of loan

Other (expense) income, net

( 3,411 )  

Loss before income taxes and noncontrolling interest

Other income (expense), net

( 807 )  

Income tax expense (benefit)

Income (loss) before income taxes and noncontrolling interest

10,229  

Income tax expense

19,680  

Net income (loss)

Net earnings attributable to noncontrolling interest, net of tax

( 311 )  

Net loss attributable to Twin Disc

Net income (loss) attributable to Twin Disc

$ 8,095  

Loss per share data:

Income (loss) per share data:

Basic loss per share attributable to Twin Disc common shareholders

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Comprehensive loss

Net income (loss)

$ 8,406  

Foreign currency translation adjustment

( 11,593 )  

Benefit plan adjustments, net of income taxes of $ 7 and $ 3,791 , respectively

( 263 )  

Unrealized gain (loss) on hedges, net of income taxes of $235 and ($185) , respectively

Comprehensive loss

12,113  

Comprehensive income attributable to noncontrolling interest

Unrealized gain on hedges, net of income taxes of $ 0 and 235 , respectively

Comprehensive loss

( 1,200 )  

Comprehensive income (loss) attributable to noncontrolling interest

Comprehensive loss attributable to Twin Disc

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Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss)

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

Depreciation and amortization

Gain on sale of assets

Income from extinguishment of loan

2 unchanged sentences

Provision for deferred income taxes

Goodwill and other asset impairment charge

Changes in operating assets and liabilities

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Accrued liabilities

Accrued/prepaid retirement benefits

Net cash provided by operating activities

Accrued retirement benefits

Net cash (used) provided by operating activities

Cash flows from investing activities:

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Proceeds from life insurance policy

Net cash used by investing activities

Net cash provided (used) by investing activities

Cash flows from financing activities:

Borrowings under long-term debt agreement

Borrowings under revolving loan agreement

1 unchanged sentence

Repayments of long-term borrowings

Payments of finance lease obligations

Payments of withholding taxes on stock compensation

Dividends paid to noncontrolling interest

Net cash used by financing activities

Net cash provided (used) by financing activities

Effect of exchange rate changes on cash

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Balance at June 30, 2021

Net (loss) income

Translation adjustments

Benefit plan adjustments, net of tax

Unrealized gain on hedges, net of tax

Unrealized loss on hedges, net of tax

Cash dividends

6 unchanged sentences

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

 SIGNIFICANT ACCOUNTING POLICIES

Throughout this report, references made to “COVID- 19”

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

In fiscal 2021 and 2020, certain subsidiaries changed their reporting periods to conform to the Company’s fiscal year end.

In fiscal 2021, 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.

6 unchanged sentences

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

Included in other (expense) income are foreign currency transaction losses of ($ 2,108 ) and ($ 570 ) in fiscal 2021 and 2020, respectively.

Included in other (expense) income are foreign currency transaction gain (losses) of $ 714 and ($ 2,108 ) in fiscal 2022 and 2021, respectively.

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

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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, 2022.

The Company’s term loan borrowing, which is LIBOR-based, approximates fair value at June 30, 2021.

The Company’s term loan borrowing, which is SOFR-based, approximates fair value at June 30, 2022.

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.

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

Assets Held for Sale-- Assets that will be recovered principally through sale rather than in its continuing use in operations are reclassified out of property, plant and equipment and into assets held for sale if all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset(s);

(a) management, having the authority to approve the action, commits to a plan to sell the asset(s);

(b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

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During fiscal 2021, the Company classified certain properties as held for sale and recorded impairment charges of $ 4,267 .

During fiscal 2022, the Company sold certain assets held for sale and record a net gain of $ 2,939 .

See Note P, Restructuring of Operations and Income from Extinguishment of Loan, for additional information.

6 unchanged sentences

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

Right of Use Lease Assets-- In accordance with ASC 842, the Company’s leases, with lease periods longer than twelve months, are recorded on the consolidated balance sheets.

Right of Use Lease Assets ‑‑In accordance with ASC 842, the Company’s leases, with lease periods longer than twelve months, are recorded on the consolidated balance sheets.

These leases primarily consist of office and warehouse facilities, as well as production and office equipment.

2 unchanged sentences

As its lease agreements typically do not provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement.

In determining the incremental borrowing rate, the Company considers its current borrowing rate, the lease period, and the economic environments where the lease activity is concentrated.                                             

During fiscal 2021, the Company elected to more closely align with ASC 842 by presenting operating lease right-of-use assets and finance lease right-of-use assets on separate lines on the consolidated balance sheets, as well as to present operating lease liabilities and finance lease liabilities on separate lines on the consolidated balance sheets.

For comparative purposes, the Company restated certain amounts previously reported on the consolidated balance sheet as of June 30, 2020.

The following table presents the effect of those changes:         

June 30, 2020

Property, plant and equipment, net

$ 72,732  

$ ( 14,448 )  

$ 58,284  

Right-of-use assets operating leases

14,448  

Lease obligations

$ 13,495  

$ ( 757 )  

$ 12,738  

Other long-term liabilities

In determining the incremental borrowing rate, the Company considers its current borrowing rate, the lease period, and the economic environments where the lease activity is concentrated.  

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.

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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.

 INVENTORIES

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

10 unchanged sentences

$ 114,967  

Inventories stated on a LIFO basis represent approximately 45 % and 50 % of total inventories at June 30, 2021 and 2020, respectively. 

The approximate current cost of the LIFO inventories exceeded the LIFO cost by $ 25,969 and $ 27,225 at June 30, 2021 and 2020, respectively. 

Inventories stated on a LIFO basis represent approximately 44 % and 45 % of total inventories at June 30, 2022 and 2021, respectively.

The approximate current cost of the LIFO inventories exceeded the LIFO cost by $ 27,797 and $ 25,969 at June 30, 2022 and 2021, respectively.

Inventories were reduced during 2021, resulting in a liquidation of a LIFO inventory layer that was carried at a lower cost prevailing from a prior year, as compared with current costs in the current year (“LIFO decrement”).

A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. For the year ended June 30, 2021, the effect of this LIFO decrement decreased cost of goods sold by $ 1,105 . There was no LIFO decrement for the year ended June 20, 2020.

A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements.

There was no LIFO decrement for the year ended June 30, 2022.

For the year ended June 30, 2021, the effect of this LIFO decrement decreased cost of goods sold by $ 1,105 .

The Company had reserves for inventory obsolescence of $ 11,557 and $ 10,279 at June 30, 2022 and 2021, respectively.

 PROPERTY, PLANT AND EQUIPMENT

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

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Depreciation expense for the years ended June 30, 2022 and 2021 was $ 6,374 and $ 7,853 , respectively.

 INTANGIBLE ASSETS

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

Net Book Value Rollforward

Net Book Value By Asset Type

Gross Carrying

Gross Carrying Amount

Accumulated Amortization / Impairment

Relationships

Net Book Value

Customer Relationships

Technology Know-how

Balance at June 30, 2020

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( 184 )  

( 1,306 )  

( 1,080 )  

Translation adjustment

Balance at June 30, 2021

41,142  

3 unchanged sentences

( 3,173 )  

Balance at June 30, 2020

( 3,173 )  

2 unchanged sentences

( 174 )  

Translation adjustment

( 1,718 )  

3 unchanged sentences

( 136 )  

Translation adjustment

Balance at June 30, 2022

10 unchanged sentences

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

$ 3,316  

Goodwill and Other Intangibles Impairment Charge in Fiscal 2020

Prior to the third quarter of fiscal 2020, the Company carried goodwill in the amount $ 25,380 .

As a result of the economic disruptions and unprecedented market volatilities and uncertainties driven by the COVID- 19 outbreak, the Company experienced significant supply chain disruptions and a slowdown in the demand for its products.

The Company believed that the negative economic impacts of the COVID- 19 outbreak was a triggering event in the third quarter of fiscal 2020 that required it to perform an interim goodwill impairment test as of the quarter ended March 27, 2020.

The Company completed its assessment for goodwill impairment as of March 27, 2020 with the assistance of a third party expert, using updated inputs, such as updated cash flow projections and an appropriate risk-based, company specific weighted average discount rate of 13.0 %.

The assessment resulted in the full impairment of goodwill, which pertained to the European Propulsion and European Industrial reporting units, in the amount of $ 25,380 .

As a result of the full impairment of goodwill, the balance of goodwill at June 30, 2021 and June 30, 2020 was zero .

There will no longer be a need for future goodwill impairment tests unless the Company acquires new goodwill in the future through a business combination.

As a consequence of these macroeconomic developments, market insights and expectations, and the occurrence of a triggering event in the quarter, the Company also performed an assessment of its intangibles and other long-lived assets.

The Company performed an undiscounted operating cash flow analysis as of March 27, 2020, as well as the review of other assets in service and their remaining useful lives.

It was determined that an impairment charge pertaining to certain tradenames, licenses and other assets was required, in the amount of $ 2,223 .

The total non-cash impairment charge of $ 27,603 in fiscal year 2020, as described above, was a non-cash charge and is reported on the goodwill and other asset impairment charge line in the consolidated statement of operations within the manufacturing segment.

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

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

The changes in the carrying amount of goodwill (impairment charges) are summarized as follows:

Net Book Value Rollforward

Net Book Value By

Reporting Unit

Gross Carrying

Net Book Value By Reporting Unit

Gross Carrying Amount

Accumulated Impairment

Net Book Value

European Propulsion

European Industrial

Balance at June 30, 2020

1 unchanged sentence

$ ( 39,202 )  

$ 25,954  

$ 23,371  

$ 2,583  

( 25,380 )  

( 22,822 )  

Translation adjustment

( 574 )  

( 549 )  

Balance at June 30, 2021

5 unchanged sentences

$ ( 39,202 )  

 ACCRUED LIABILITIES

Accrued liabilities at June 30 were as follows:

4 unchanged sentences

11,272  

10,022  

Distributor rebates

3 unchanged sentences

$ 50,542  

The increase in accrued salaries and wages as of June 30, 2021 is due to an accrual for bonus as well as timing of the payments in the payroll cycle.

 WARRANTY

$ 45,549  

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.

10 unchanged sentences

Current period expense and adjustments

10,369  

Payments or credits to customers

1 unchanged sentence

Translation adjustment

( 109 )  

Reserve balance, June 30

1 unchanged sentence

$ 4,369  

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

The current portion of the warranty accrual ($ 3,448 and $ 3,520 for fiscal 2021 and 2020, respectively) is reflected in accrued liabilities, while the long-term portion ($ 921 and $ 940 for fiscal 2021  and 2020, respectively) is included in other long-term liabilities on the consolidated balance sheets.

The current portion of the warranty accrual ($ 2,724 and $ 3,448 for fiscal 2022 and 2021, respectively) is reflected in accrued liabilities, while the long-term portion ($ 605 and $ 921 for fiscal 2022 and 2021, respectively) is included in other long-term liabilities on the consolidated balance sheets.

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

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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”

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

(“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan”

and, collectively, the “Revolving Loans,”

and, together with the Term Loan, the “Loans”).

Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $ 35,000 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”).

Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $ 35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $ 50.0 million (the “Revolving Credit Commitment”).

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

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

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

On September 25, 2018, the Company used the proceeds of a stock offering (see Note I, Shareholders’

Equity) of $ 32,210 to partially pay down the Term Loan and Revolving Loans.

Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $ 3.0 million in any fiscal year.

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

The Second Amendment reduced the principal amount of the Term Loan commitment under the Credit Agreement from $35,000 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 reduced the principal amount of the term loan commitment under the Credit Agreement from $ 35.0 million to $ 20.0 million.

In connection with the Second Amendment, the Company issued an amended and restated term note in the amount of $ 20.0 million to the Bank, which amended the original $ 35.0 million note provided under the Credit Agreement.

Prior to entering into the Second Amendment, the outstanding principal amount of the term loan (the “Term Loan”) under the Credit Agreement was $ 10.8 million.

On the date of the Second Amendment, the Bank made an additional advance on the Term Loan to the Company in the amount of $ 9.2 million.

The Second Amendment also extended the maturity date of the Term Loan from January 2, 2020 to March 4, 2026, and added a requirement that the Company make principal installments of $ 0.5 million per quarter starting with the quarter ending June 30, 2019.

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

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

Under the Second Amendment, the applicable margin 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”).

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

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

Specifically, the Company covenanted (i) not to allow its total funded debt to EBITDA ratio to be greater than 3.00 to 1.00 (the cap had previously been 3.50 to 1.00 for quarters ending on or before September 30, 2019 and 3.25 to 1.00 for quarters ending on or about December 31, 2019 through September 30, 2020), and (ii) that its tangible net worth will not be less than $ 100.0 million plus 50% of net income for each fiscal year ending on and after June 30, 2019 for which net income is a positive number (the $ 100.0 million figure had previously been $ 70.0 million). 

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

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

1 unchanged sentence

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

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

The Fourth Amendment:

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

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

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

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

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

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

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

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

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

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

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

On July 22, 2020, the Company entered into a fifth amendment (the “Fifth Amendment”) to the Credit Agreement that amends the Credit Agreement dated as of June 29, 2018, as amended, between the Company and BMO.

The Fifth Amendment reduced BMO’s Revolving Credit Commitment from $ 50.0 million to $ 45.0 million.

The Fifth Amendment also gives the Company the option to make interest-only payments on the Term Loan for quarterly payments occurring on September 30, 2020 and December 31, 2020, and limits the Company’s Capital Expenditures for the fiscal year ending June 30, 2021 to $ 10.0 million.

The Fifth Amendment provides the Company with relief from its Total Funded Debt to EBITDA ratio financial covenant under the Credit Agreement through (and including) the earlier of June 30, 2021 or a date selected by the Company.

During the financial covenant relief period:

The “Applicable Margin” to be applied to Revolving Loans, the Term Loan, and the Commitment/Facility Fee will be increased to 3.25 %, 3.875 %, and 0.20 %, respectively.

The Company may not make certain restricted payments (specifically, cash dividends, distributions, purchases, redemptions or other acquisitions of or with respect to shares of its common stock or other common equity interests).

The Company must maintain liquidity (as defined in the Fifth Amendment) of at least $ 15.0 million.

The Company must maintain minimum EBITDA of at least ( 1 ) $ 1.0 million for the fiscal quarter ending June 30, 2020 and the two fiscal quarters ending on or about September 30, 2020;

( 2 ) $ 2.5 million for the three fiscal quarters ending on or about December 31, 2020;

( 3 ) $ 6.0 million for the four fiscal quarters ending on or about March 31, 2021;

and ( 4 ) $ 10.0 million for the four fiscal quarters ending June 30, 2021.

For purposes of the minimum EBITDA covenant and the Total Funded Debt to EBITDA ratio, the Fifth Amendment clarified that EBITDA shall exclude any gain that is realized on the forgiveness of the Small Business Administration Paycheck Protection Program loan that the Company previously received.

The Fifth Amendment also changed the definition of “LIBOR”

(used in calculating interest on Eurodollar Loans), “Monthly Reset LIBOR Rate”

(used in calculating interest on LIBOR Loans), and “LIBOR Quoted Rate”

(used in the definition of “Base Rate,”

which is used in calculating interest on Letters of Credit that are drawn upon and not timely reimbursed).

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

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

On January 27, 2021, the Company and BMO entered into a forbearance agreement and amendment to the Credit Agreement (the “Forbearance Agreement”).

Under this agreement, BMO agreed to forbear from exercising its rights and remedies against the Company with respect to its noncompliance with the minimum EBITDA financial covenant, for the period beginning with the date of the amendment through September 30, 2021.

After this date, the forbearance period ends and, therefore, on December 31, 2021, the Company is subject to a total funded debt to EBITDA ratio of 3.00 to 1.00.

During the forbearance period, revolving credit commitment is reduced from $ 45,000 to $ 42,500 .

For the quarter ended June 30, 2021, as a result of the Forbearance Agreement, the Company was not required to meet the minimum EBITDA financial covenant.

The Company expects to be in compliance with the terms of the Credit Agreement following the forbearance period, and therefore continues to classify its debt as long term.

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

The Company remains in compliance with its liquidity and other financial covenants, and has agreed to provide additional financial reports to BMO.

On January 27, 2021, the Company entered into a Forbearance Agreement and Amendment No.

6 to the Credit Agreement (the “Forbearance Agreement”) that further amended the Credit Agreement.

The Company entered into the Forbearance Agreement because the Company was not in compliance with its financial covenant to maintain a minimum EBITDA of at least $ 2.5 million for the three fiscal quarters ended as of December 25, 2020.

In the Forbearance Agreement, the Bank has agreed to forbear from exercising its rights and remedies against the Company under the Credit Agreement with respect to the Company’s noncompliance with the minimum EBITDA covenant during the period (the “Forbearance Period”) commencing January 27, 2021 and ending on the earlier of (i) September 30, 2021, and (ii) the date on which a default under the Forbearance Agreement or Credit Agreement occurs.

During the Forbearance Period, the Bank may continue to honor requests of the Company for draws on the revolving note provided by the Bank under the Credit Agreement, except that the revolving credit commitment is reduced from $ 45.0 million to $ 42.5 million during the Forbearance Period.

The Forbearance Agreement also added to the Company’s financial reporting requirements under the Credit Agreement by requiring the Company to provide the Bank with monthly forecasts of the Company’s financial statements, and monthly reports on the Company’s six -month backlog.

On September 30, 2021, the Company entered into a First Amended and Restated Forbearance Agreement and Amendment No.

7 to Credit Agreement (the “Amended and Restated Forbearance Agreement”) that amends the Credit Agreement dated as of June 29, 2018, as amended between the Company and the Bank.

The Amended and Restated Forbearance Agreement extended the Forbearance Period through February 28, 2022, or if earlier, through the date on which a default under the Amended and Restated Forbearance Agreement or Credit Agreement occurs.

During the extended Forbearance Period, the Bank will continue to forbear from exercising its rights and remedies against the Company under the Credit Agreement with respect to the Company’s noncompliance with its minimum EBITDA covenants.

The Amended and Restated Forbearance Agreement also made certain adjustments to the Credit Agreement, including:

Permitting the Company to sell its manufacturing facility in Novazzano, Switzerland for a gross sales price of approximately $ 10 million, resulting in Net Cash Proceeds of approximately $ 8.7 million (the “Rolla Disposition”).

Requiring the Company to promptly repatriate approximately $ 7 million of the Net Cash Proceeds from the Rolla Disposition (the “Rolla Repatriation”), and to apply $ 1 million of such Net Cash Proceeds to the Term Loan and the remainder to the revolving Loans under the Credit Agreement.

Upon completion of the Rolla Repatriation:

( 1 ) reducing the portion of the Borrowing Base that is based on Eligible Inventory from the lesser of $ 35 million or 50 % of the value of Eligible Inventory to the lesser of $ 30 million or 50 % of the value of Eligible Inventory;

and ( 2 ) reducing the Revolving Credit Commitment from a maximum of $ 42.5 million to a maximum of $ 40 million.

On February 28, 2022, the Company entered into a Second Amended and Restated Forbearance Agreement and Amendment No.

8 to Credit Agreement (the “Second Amended and Restated Forbearance Agreement”) that amended the Credit Agreement dated as of June 29, 2018, as amended between the Company and the Bank.

The Second Amended and Restated Forbearance Agreement extended the Forbearance Period through June 30, 2022, or if earlier, through the date on which a default under the Amended and Restated Forbearance Agreement or Credit Agreement occurs.

During the extended Forbearance Period, the Bank continued to forbear from exercising its rights and remedies against the Company under the Credit Agreement with respect to the Company’s noncompliance with its minimum EBITDA covenants.

The Second Amended and Restated Forbearance Agreement also made certain adjustments to the Credit Agreement, including:

Reduced the portion of the Borrowing Base that is based on Eligible Inventory from the lesser of $ 35,000,000 or 50 % of the value of Eligible Inventory to the lesser of $ 30,000,000 or 50 % of the value of Eligible Inventory.

This change was already in effect under the terms of the Amended and Restated Forbearance Agreement, due to the Company’s previously reported sale of its manufacturing facility in Novazzano, Switzerland for a gross sales price of approximately $ 10,000,000 , resulting in Net Cash Proceeds (as defined in the Amended and Restated Forbearance Agreement) of approximately $ 8,700,000 (the “Rolla Disposition”) and repatriation of approximately $ 7,000,000 of those Net Cash Proceeds (the “Rolla Repatriation”).

Reduced the Revolving Credit Commitment from a maximum of $ 42,500,000 to a maximum of $ 40,000,000 .

This change was also already in effect under the terms of the Amended and Restated Forbearance Agreement due to the Rolla Disposition and Rolla Repatriation.

The Company also executed a Third Amended and Restated Revolving Note with the Bank, reflecting the maximum Revolving Credit Commitment of $ 40,000,000 .

On June 30, 2022, the Company entered into Amendment No.

9 to Credit Agreement (the “Ninth Amendment”) that amends and extends the Credit Agreement dated as of June 29, 2018, as amended (the “Credit Agreement”) between the Company and BMO.

Pursuant to the Credit Agreement, as in effect prior to the Ninth Amendment, the Bank made a Term Loan to the Company in the principal amount of $ 20,000,000 , 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 and subject to a Borrowing Base, $ 40,000,000 (the “Revolving Credit Commitment”).

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

The Ninth Amendment extended the Credit Agreement through June 30, 2025.

Prior to the Ninth Amendment, the Credit Agreement was scheduled to terminate as of June 30, 2023.

The Ninth Amendment also formally terminated the January 27, 2021 Forbearance Agreement, which had been entered into because the Company had not been in compliance with a requirement to maintain a minimum EBITDA of $ 2,500,000 for the three fiscal quarters ended as of December 25, 2020.

The Bank also waived the Company’s compliance with the minimum EBITDA requirements under the Credit Agreement and any Event of Default associated with the Company’s noncompliance with the minimum EBITDA requirements.

The Ninth Amendment also replaced LIBOR-based interest rates with different benchmark rates based on the secured overnight financing rate (“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”).

Loans under the Credit Agreement are designated either as “SOFR Loans,”

which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,”

which accrue interest at the EURIBO Rate plus an Applicable Margin.

Amounts drawn on a Letter of Credit that are not timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin.

The Company also pays a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin.

The Ninth Amendment also reduced the Applicable Margins from the rates that had been in effect during the period of the Forbearance Agreement.

During the period covered by the Forbearance Agreement, the Applicable Margins for Revolving Loans, Term Loans, and the Unused Revolving Credit Commitment were 3.25 %, 3.875 %, and .

20 %, respectively.

Under the Ninth Amendment, the Applicable Margins are between 1.25 % and 2.75 % for Revolving Loans and Letters of Credit;

1.375 % and 2.875 % for Term Loans;

15 % for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Ninth Amendment also revised the Company’s financial covenants under the Credit Agreement.

The Company’s Total Funded Debt to EBITDA ratio (for which the Bank provided relief during period covered by the Forbearance Agreement) may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00.

The Company’s Tangible Net Worth may not be less than $ 100,000,000 plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

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

1 unchanged sentence

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

To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement.

The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement.

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

1 unchanged sentence

( 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.

and ( 3 ) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105 % of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary.

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

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

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

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

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

The PPP Loan:

9 unchanged sentences

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

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

all conditions for forgiveness are met).

The Company applied for forgiveness, and on June 16, 2021, it was notified by BMO that the SBA remitted funds to BMO to repay the PPP Loan in full, evidencing that the PPP Loan was fully forgiven.

1 unchanged sentence

While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the SBA for a period of six years after forgiveness.

The audit is intended to confirm the Company’s eligibility for the loan and the appropriateness of the loan obtained.

The audit is intended to confirm the Company’s eligibility for the PPP loan and the appropriateness of the PPP loan forgiveness.

In accordance with ASC 450 Contingencies , the Company assessed the probability of failing the audit and being required to repay all or any portion of the PPP Loan.

16 unchanged sentences

During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies.

Effective upon the designation, all changes in fair value of the euro revolver are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments.

Effective upon the designation, all changes in fair value of the euro Revolving Loan are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments.

This net investment hedge is included in the disclosures in Note R, Derivative Financial Instruments.

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 Under these arrangements, the Company has unused and available credit lines of $ 1,049 with a weighted average interest rate of 5.7 % as of June 30, 2022, and $ 1,535 with a weighted average interest rate of 5.6 % as of June 30, 2021.

 LEASE OBLIGATIONS

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

2 unchanged sentences

Right-of-use assets operating leases

$ 12,685  

$ 14,736  

Finance lease right-of-use assets

3 unchanged sentences

Accrued liabilities

$ 2,127  

$ 1,870  

Operating lease liabilities

Lease obligations

10,575  

12,887  

Finance lease liabilities

11 unchanged sentences

Sublease income

( 75 )  

Net lease cost

$ 4,031  

$ 3,677  

Other information related to leases was as follows:

1 unchanged sentence

Operating cash flows from operating leases

$ 3,050  

$ 3,022  

Operating cash flows from finance leases

12 unchanged sentences

Finance Leases

$ 2,941  

Total future lease payments

17,134  

Amount representing interest

( 4,432 )  

Present value of future payments

 SHAREHOLDERS' EQUITY

$ 12,702  

$ 5,016  

SHAREHOLDERS' EQUITY

The total number of shares of common stock outstanding at June 30, 2022 and 2021 was 13,672,343 and 13,648,663 , respectively.

13 unchanged sentences

$ 9,192  

Net loss on cash flow hedge derivatives, net of income taxes of $211 and $341 , respectively

( 678 )  

Net gain on net investment hedge derivatives, net of income taxes of $103 and $0 , respectively

Benefit plan adjustments, net of income taxes of $ 9,452 and $ 9,537 respectively

( 31,726 )  

Net loss on cash flow hedge derivatives, net of income taxes of $ 34 and $ 211 , respectively

Net gain on net investment hedge derivatives, net of income taxes of $ 388 and $ 103 , respectively

Accumulated other comprehensive loss

7 unchanged sentences

Other comprehensive loss before reclassifications

( 11,458 )  

( 1,835 )  

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

( 11,458 )  

( 263 )  

Balance at June 30, 2022

2 unchanged sentences

$ 1,550  

Net Investment

Balance at June 30, 2020

1 unchanged sentence

$ ( 43,576 )  

Other comprehensive loss before reclassifications

$ ( 1,104 )  

( 3,792 )  

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive loss

1 unchanged sentence

12,113  

( 1,675 )  

Balance at June 30, 2021

1 unchanged sentence

$ ( 31,463 )  

$ ( 678 )  

A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended June 30, 2022 is as follows:

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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.

12 unchanged sentences

$ 242,913  

$ 218,581  

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

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

The land-based transmission products include applications for oil field and natural gas, military and airport rescue and firefighting.

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

20 unchanged sentences

Interest expense

( 980 )  

Depreciation and amortization

10,455  

10,867  

Net income attributable to Twin Disc

5 unchanged sentences

Expenditures for segment assets

( 8,112 )  

Manufacturing

5 unchanged sentences

24,182  

27,119  

Inter-segment sales

12 unchanged sentences

46,956  

Expenditures for segment assets

411,335  

Expenditures for segment assets

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

10 unchanged sentences

$ 25,692  

$ 11,121  

Other adjustments and corporate expenses

( 17,598 )  

Total consolidated net loss attributable to Twin Disc

Total consolidated net loss attributable to Twin Disc

$ 8,095  

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.

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

Other significant items:         

4 unchanged sentences

( 148 )  

20,471  

19,680  

Depreciation and amortization

2 unchanged sentences

276,523  

Expenditures for segment assets

( 7,726 )  

12,455  

Expenditures for segment assets

Interest income

4 unchanged sentences

20,471  

19,680  

Depreciation and amortization

5 unchanged sentences

Expenditures for segment assets

10,349  

10,699  

All adjustments represent inter-company eliminations and corporate amounts.

11 unchanged sentences

16,041  

12,552  

Other countries

15 unchanged sentences

$ 63,455  

There was one customer, an authorized distributor of the Company, that accounted for 10 % of consolidated net sales in fiscal year 2022.

There were no customers that accounted for 10% of consolidated net sales in fiscal 2021.

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

Disaggregated revenue:

23 unchanged sentences

$ 106,731  

$ ( 81,305 )  

$ 242,913  

Net sales by product group for the year ended June 30, 2021 is summarized as follows:

22 unchanged sentences

STOCK-BASED COMPENSATION

In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”).

The 2020 Directors' Plan retains the features of the 2010 Directors' Plan, as well as allows non-employee Directors to elect to receive all or a portion of their base cash retainer in the form of restricted stock.

In fiscal 2022, the Company adopted the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”).

Benefits under the 2021 LTI Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards.

There is reserved for issuance under the Plan an aggregate of 715,000 shares of the Company’s common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both.

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

In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”) a plan to grant non-employee directors equity-based awards.

Benefits under the 2020 Directors’

Plan may be granted, awarded or paid in any one or a combination of stock options, restricted stock awards, or cash-settled restricted stock units.

Under the 2020 Directors’

Plan, non-employee directors may elect to receive all or a portion of their base cash retainer in the form of restricted stock.

There is reserved for issuance under the 2020 Directors’

5 unchanged sentences

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

In fiscal 2011, the Company adopted the Twin Disc, Incorporated 2010 Stock Incentive Plan for Non-Employee Directors (the “2010 Directors’

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

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

Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are issued at the target level of performance):

1 unchanged sentence

612,981  

2018 LTI Plan

666,913  

2021 LTI Plan

551,901  

1 unchanged sentence

In fiscal 2022 and 2021, the Company granted a target number of 103,575 and 265,256 PSAs, respectively, to various employees of the Company, including executive officers.

The PSAs granted in fiscal 2022 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual earnings per share (“EPS”) or average free cashflow (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2024.

These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS or average free cashflow for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 146,562 .

Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

The PSAs granted in fiscal 2021 will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average free cash flow (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2023.

1 unchanged sentence

Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

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

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

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

There were 320,779 and 388,433 unvested PSAs outstanding at June 30, 2022 and 2021, respectively.

The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest.

The compensation expense (benefit) for the year ended June 30, 2021 and 2020, related PSAs, was $ 491 and ($ 368 ), respectively.

The tax benefit (expense) from compensation expense (benefit) for the year ended June 30, 2021 and 2020, related PSAs, was $ 116 and ($ 87 ), respectively.

The compensation expense for the year ended June 30, 2022 and 2021, related PSAs, was $ 883 and $ 491 , respectively.

The tax expense from compensation expense for the year ended June 30, 2022 and 2021, related PSAs, was $ 207 and $ 116 , respectively.

The weighted average grant date fair value of the unvested awards at June 30, 2022 was $ 8.37 .

At June 30, 2022, the Company had $ 1,322 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2022 and 2021 awards.

The total fair value of performance stock awards vested in fiscal 2021 and fiscal 2020 was $ 0 and $ 167 , respectively.

The total fair value of performance stock awards vested in fiscal 2022 and fiscal 2021 was $ 0 .

Restricted Stock Awards ( “

9 unchanged sentences

Restricted Stock Unit Awards ( “

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.

23 unchanged sentences

and other postretirement benefit plans’

funded status and the amounts recognized in the Company's balance sheets and statement of operations and comprehensive loss as of June 30:

funded status and the amounts recognized in the Company's balance sheets and statement of operations and comprehensive loss as of June 30:

Postretirement

10 unchanged sentences

( 1,577 )  

( 786 )  

Contributions by plan participants

14 unchanged sentences

( 11,884 )  

15,325  

Employer contribution

32 unchanged sentences

31,563  

( 560 )  

Net amount recognized

9 unchanged sentences

$ 2,555  

The accumulated benefit obligation for all defined benefit pension plans was approximately $ 98,700 and $ 105,520 at June 30, 2021 and 2020, respectively.

The accumulated benefit obligation for all defined benefit pension plans was approximately $ 79,549  and $ 98,700  at June 30, 2022 and 2021, respectively.

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

13 unchanged sentences

Amortization of prior service cost

( 85 )  

Amortization of actuarial net loss

1 unchanged sentence

$ 1,977  

$ 2,120  

What changed 10-K

Item 9A. Controls and Procedures