10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION     

WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 28, 2018

Commission File Number 1-7635

TWIN DISC, INCORPORATED

(Exact name of registrant as specified in its charter)

Wisconsin	39-0667110
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

1328 Racine Street, Racine, Wisconsin 53403

(Address of principal executive offices)

(262) 638-4000

(Registrant's telephone number, including area code)

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

Yes √           No      

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes √           No      

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

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

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

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

Yes               No √ 

At November 2, 2018, the registrant had 13,087,512 shares of its common stock outstanding.

Part I.     FINANCIAL INFORMATION

Item 1.     Financial Statements

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

	September 28, 2018			June 30, 2018
ASSETS
Current assets:
Cash	$	16,557		$	15,171
Trade accounts receivable, net		45,887			45,422
Inventories		123,439			84,001
Prepaid expenses		7,287			8,423
Other		9,228			6,252
Total current assets		202,398			159,269
Property, plant and equipment, net		68,302			55,467
Deferred income taxes		13,838			18,056
Goodwill, net		27,265			2,692
Intangible assets, net		24,786			1,906
Other assets		4,168			3,850
Total assets	$	340,757		$	241,240
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	31,735		$	29,368
Accrued liabilities		46,327			32,976
Total current liabilities		78,062			62,344
Long-term debt		37,446			4,824
Lease obligations		17,070			6,527
Accrued retirement benefits		19,985			21,068
Deferred income taxes		7,969			1,203
Other long-term liabilities		1,765			1,658
Total liabilities		162,297			97,624
Commitments and contingencies (Note F)
Equity:
Twin Disc shareholders' equity:
Preferred shares authorized: 200,000; issued: none; no par value		-			-
Common shares authorized: 30,000,000; issued: 14,632,802 and 13,099,468, respectively; no par value		44,044			11,570
Retained earnings		188,661			178,896
Accumulated other comprehensive loss		(30,760	)		(23,792	)
		201,945			166,674
Less treasury stock, at cost (1,567,274 and 1,545,783 shares, respectively)		24,005			23,677
Total Twin Disc shareholders' equity		177,940			142,997
Noncontrolling interest		520			619
Total equity		178,460			143,616
Total liabilities and equity	$	340,757		$	241,240

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

2

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Net sales	$	74,689		$	45,064
Cost of goods sold		50,704			31,072
Gross profit		23,985			13,992
Marketing, engineering and administrative expenses		18,986			13,394
Restructuring expenses		173			1,218
Income (loss) from operations		4,826			(620	)
Interest expense		717			64
Other expense (income), net		319			569
		1,036			633
Income (loss) before income taxes and noncontrolling interest		3,790			(1,253	)
Income tax expense (benefit)		887			(4,658	)
Net income		2,903			3,405
Less: Net earnings attributable to noncontrolling interest, net of tax		(41	)		(13	)
Net income attributable to Twin Disc	$	2,862		$	3,392
Income per share data:
Basic income per share attributable to Twin Disc common shareholders	$	0.24		$	0.29
Diluted income per share attributable to Twin Disc common shareholders	$	0.24		$	0.29
Weighted average shares outstanding data:
Basic shares outstanding		11,722			11,256
Diluted shares outstanding		11,799			11,259
Comprehensive income:
Net income	$	2,903		$	3,405
Benefit plan adjustments, net of income taxes of $146 and $278, respectively		471			474
Foreign currency translation adjustment		(561	)		2,541
Comprehensive income		2,813			6,420
Less: Comprehensive income attributable to noncontrolling interest		(16	)		(7	)
Comprehensive income attributable to Twin Disc	$	2,797		$	6,413

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

3

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Cash flows from operating activities:
Net income	$	2,903		$	3,405
Adjustments to reconcile net income to net cash provided (used) by operating activities, net of acquired assets:
Depreciation and amortization		2,349			1,644
Amortization of inventory fair value step-up		1,171			-
Restructuring expenses		(2	)		190
Provision for deferred income taxes		3,460			(4,842	)
Stock compensation expense and other non-cash changes, net		892			500
Net change in operating assets and liabilities		(9,951	)		(2,328	)
Net cash provided (used) by operating activities		822			(1,431	)
Cash flows from investing activities:
Acquisition of Veth Propulsion, less cash acquired		(59,649	)		-
Acquisitions of fixed assets		(3,556	)		(1,467	)
Proceeds from sale of fixed assets		30			17
Other, net		(129	)		(129	)
Net cash used by investing activities		(63,304	)		(1,579	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		32,210			-
Borrowings under long-term debt agreement		35,000			-
Borrowings under revolving loan agreement		67,103			16,155
Proceeds from exercise of stock options		12			-
Repayments under revolving loan agreement		(45,231	)		(14,236	)
Repayments of long-term borrowings		(24,234	)		-
Dividends paid to noncontrolling interest		(115	)		(172	)
Payments of withholding taxes on stock compensation		(926	)		(213	)
Net cash provided by financing activities		63,819			1,534
Effect of exchange rate changes on cash		49			570
Net change in cash		1,386			(906	)
Cash:
Beginning of period		15,171			16,367
End of period	$	16,557		$	15,461

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

4

TWIN DISC, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

A. Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by Twin Disc, Incorporated (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments, consisting only of normal recurring items, necessary for a fair statement of results for each period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form 10-K for June 30, 2018. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

The unaudited condensed consolidated financial statements and information included in this Quarterly Report on Form 10-Q (“Form 10-Q”) includes the financial results of Veth Propulsion Holding BV (“Veth Propulsion”) for the period beginning July 2, 2018 through September 28, 2018. The financial results included in this Form 10-Q related to the acquisition method of accounting for the Veth Propulsion acquisition are subject to change as the acquisition method accounting is not yet finalized and dependent upon the finalization of management’s review of certain independent valuations and studies that are still in process. See Note B, “Acquisition of Veth Propulsion Holding BV” for further information about the acquisition and related transactions and the acquisition accounting.

Recently Adopted Accounting Standards

a.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance (ASU 2014-09) on revenue from contracts with customers. This revenue recognition guidance supersedes existing guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of control over promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. The Company adopted this guidance effective July 1, 2018, using the modified retrospective method and applied the cumulative effect to its retained earnings balance as of that date. Prior periods presented were not retrospectively adjusted for this change. The Company has applied the new revenue recognition standard only to contracts that were not completed as of July 1, 2018.

The Company determined that deferral of revenue is appropriate for certain agreements where the performance of services after product delivery is required. Such services primarily pertain to technical commissioning services by its distribution entities in its marine business, whereby the Company’s technicians calibrate the controls and transmission to ensure proper performance for the customer’s specific application. This service helps identify issues with the ship's design or performance that need to be remediated by the ship builder or other component suppliers prior to the ship being officially accepted into service by the ship buyer. The cumulative effect adjustment of adopting the new standard is not significant to the Company’s results of operations and financial condition.

b.

In February 2016, the FASB issued guidance (ASU 2016-02) which replaces the existing guidance for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company elected to early adopt the standard effective July 1, 2018 concurrent with the adoption of ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements, which required the Company to restate each prior reporting period presented.

For operating leases in which the Company is a lessee, the Company concluded that all existing operating leases under the old guidance continue to be classified as operating leases under the new guidance, and all existing capital leases under the old guidance are classified as finance leases under the new guidance. The Company excluded any lease contracts with terms of twelve months or less as of the adoption date. The Company has lease agreements with lease and non-lease components, which are generally accounted for as separate lease components. The Company accounts for short-term leases on a straight-line basis over the lease term.

5

The following table presents the effect of the adoption of ASU 2016-02 on the Company’s condensed consolidated balance sheet as of June 30, 2018:

	June 30, 2018		Adoption		June 30, 2018
	As Reported		Impact		Restated
Property, plant and equipment, net	$	48,940	$	6,527	$	55,467
Lease obligations		-		6,527		6,527

	The adoption of ASU 2014-09 and ASU 2016-02 did not have an impact on the Company’s condensed consolidated statement of operations and comprehensive income or condensed consolidated statement of cash flows for the quarter ended September 29, 2017.
c.	In March 2017, the FASB issued guidance (ASU 2017-07) intended to improve the presentation of net periodic pension cost and net periodic postretirement cost. This guidance requires that an employer report the service costs component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of income from operations. The Company adopted this guidance effective July 1, 2018 on a retrospective basis, which resulted in the reclassification of certain amounts from cost of goods sold and marketing, engineering and administrative expenses to other expense (income), net in the condensed consolidated statements of operations and comprehensive income. As a result, prior period amounts impacted have been revised accordingly.
	The following table presents the effect of the adoption of ASU 2017-07 on the Company’s condensed consolidated statements of operations and comprehensive income for the quarter ended September 29, 2017:

	September 29, 2017			Adoption			September 29, 2017
	As Reported			Impact			Restated
Cost of goods sold	$	31,169		$	(97	)	$	31,072
Gross profit		13,895			97			13,992
Marketing, engineering and administrative expenses		13,668			(274	)		13,394
Income (loss) from operations		(991	)		371			(620	)
Other expense (income), net		198			371			569

d. In February 2018, the FASB issued guidance (ASU 2018-02) intended to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act by allowing a reclassification from accumulated other comprehensive income to retained earnings. The Company elected to early adopt this guidance effective July 1, 2018 by making a reclassification of $6,903 from accumulated other comprehensive loss to retained earnings.

e. In October 2016, the FASB issued updated guidance (ASU 2016-16) that changes the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. The Company adopted this guidance effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

f. In August 2016, the FASB issued updated guidance (ASU 2016-15) that addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company adopted this guidance effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

New Accounting Releases

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

In August 2018, the FASB issued updated guidance (ASU 2018-14) intended to modify the disclosure requirements for employers that sponsor defined 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.

6

In August 2018, the SEC issued Release No. 33-10532, Disclosure Update and Simplification. In addition to eliminating certain disclosure requirements, this release also amends the interim financial statement requirements to require provision of the information required by Regulation S-X Rule 3-04 for the current and comparative year-to-date periods, with subtotals for each interim period. Rule 3-04 requires a reconciliation of stockholders’ equity beginning and ending balances for each period for which a statement of comprehensive income is required to be filed. The release is effective on November 5, 2018, the Company’s second fiscal quarter of fiscal year 2019.

Special Note Regarding Smaller Reporting Company Status

In June 2018, the SEC issued Release 33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, which changes the definition of a smaller reporting company in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.  Under this release, the new thresholds for qualifying are (1) public float of less than $250 million or (2) annual revenue of less than $100 million in annual revenue and public float of less than $700 million (including no public float).  The rule change is effective on September 10, 2018, the Company’s first fiscal quarter of fiscal year 2019.  Under this release, the Company currently qualifies as a smaller reporting company based on its public float as of the last business day of its second fiscal quarter of fiscal year 2018. A smaller reporting company may choose to comply with scaled or non-scaled financial and non-financial disclosure requirements on an item-by-item basis. The Company has not scaled its disclosures of financial and non-financial information in this Quarterly Report. The Company may determine to provide scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.

B. Acquisition of Veth Propulsion Holding BV

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 current product offerings in the marine and propulsion markets. Prior to the acquisition, the Company was a distributor of Veth 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 parent of Veth Propulsion, on June 13, 2018.

Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $60,729 in cash at closing, which included a base payment plus adjustments for net cash and working capital. This amount is subject to a final determination of working capital adjustments and an earn-out. The maximum earn-out is approximately $4,000. The earn-out will be paid if the earnings before interest, tax, depreciation and amortization of Veth Propulsion’s fiscal 2018 as defined in the Purchase Agreement (“EBITDA”) exceeds the agreed upon threshold amount. The earn-out is payable in the form of Company stock or cash, and will be determined by April 2019.

The Company financed the payment of the cash consideration through borrowings of $60,729 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 L, Debt.

Consideration Transferred

The following table summarizes the consideration transferred at the acquisition date:

Cash (a)	$	60,729
Fair value of contingent consideration (b)		2,927
Total	$	63,656

a) In the statement of cash flows, the cash used in the acquisition of Veth Propulsion in the amount of $59,649 is net of the cash, including restricted cash, acquired in the transaction, of $1,080 (see below for fair value of assets acquired and liabilities assumed).

b) This pertains to the fair value of the earn-out, which was estimated based on a probability-weighted approach.

7

Fair Value Estimate of Assets Acquired and Liabilities Assumed

The Company is continuing its review of the fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwise not available. This measurement period will not exceed one year from the acquisition date. At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value. The fair value estimates are pending completion of several elements, including the finalization of an independent appraisal and final review by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments.

Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill. The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in these consolidated financial statements.

The following summarizes the preliminary estimate of fair value of the assets acquired and liabilities assumed at the acquisition date:

Cash, including restricted cash	$	1,080		(a)
Accounts receivable		10,032		(b)
Inventories		27,641		(c)
Property, plant and equipment		1,537		(d)
Intangibles		23,700		(e)
Other assets		259
Accounts payable and customer deposits		(17,297	)
Other current liabilities		(861	)
Deferred tax liability		(7,104	)	(f)
Total net assets acquired		38,987
Goodwill		24,669		(g)
Total consideration	$	63,656

The following information provides further details about the estimated net step-up in fair value and/or the estimated fair value at the acquisition date for some key balance sheet items. 

(a) Included in cash is restricted cash in the amount of $435. This amount is restricted and not available for general business use in order to guarantee performance obligations by Veth Propulsion under certain customer contracts. A significant majority of these arrangements are set to expire in 45 days after September 28, 2018 and they are not expected to be renewed.

(b) Accounts receivable represents contractual amounts receivable from customers less an allowance for doubtful accounts. This amount approximates fair value.

(c) Inventories consist of:

Raw materials	$	13,297
Projects work in progress at fair value		14,344
Inventories at fair value		27,641
Inventories at book value		22,926
Step-up	$	4,715

8

As of the effective date of the acquisition, inventory is required to be measured at fair value. Raw materials are typically utilized in operations within one year of purchase and therefore book values approximate fair value. Projects work in progress are estimated to be approximately 70% complete, and the step to fair value less estimated costs to complete and sell resulted in a step up value of approximately $4,715.

(d) The determination of property, plant and equipment is currently in progress. This preliminary amount assumes book value approximates fair value.

(e) Intangible assets consist of:

	Estimated fair value		Estimated average useful lives		Annual amortization
Customer relationships	$	13,600		12	$	1,133
Technology and know-how		8,300		7		1,186
Tradename		1,800		10		180
Total	$	23,700			$	2,499

The preliminary fair values were determined primarily using an income method, which utilizes financial forecasts of expected future cash flows. Some of the more significant assumptions used in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in future cash flows, and the assessment of the asset’s life cycle and competitive trends impacting the asset, as well as other factors.

(f) This represents the net deferred tax liability associated with the fair value of assets acquired and liabilities assumed.

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

The fair values presented above are preliminary until the Company completes its work with the use of a third party valuation firm, and are subject to change. Any changes to the initial estimates of the fair value of assets and liabilities will impact residual goodwill and may affect future earnings.

As part of the acquisition, the Company entered into a fifteen-year lease with the Het Komt Vast Goed B.V., the owner of the real property where Veth Propulsion’s operations are located. Under this lease, the Company pays an annual rent of $1,168, with provisions for increasing rent based on the prevailing consumer price index.

Summary Financial Information

The following table presents financial information for Veth Propulsion that is included in the Company’s consolidated statement of operations for the first quarter ended September 28, 2018:

Net sales	$	13,353
Gross profit (a)		2,186
Operating loss (b)		(720	)
Net loss attributable to Twin Disc	$	(950	)

(a)	Gross profit includes the non-recurring charge for the step-up of inventories acquired of $1,171 for the quarter.
(b)	In addition to (a), operating loss includes the amortization of intangible assets acquired of $621 for the quarter, and non-recurring charges related to the acquisition of $204.

9

The following table presents unaudited supplemental pro forma information as if the acquisition of Veth Propulsion had occurred on July 1, 2017.

	Quarter Ended
	September 29, 2017
Net sales	$	59,709
Gross profit (a)		17,189
Net income attributable to Twin Disc (b)	$	2,715
Basic income per share attributable to Twin Disc	$	0.24
Diluted income per share attributable to Twin Disc	$	0.24
Weighted average number of common shares outstanding:
Basic		11,256
Diluted		11,259

(a) Gross profit includes the amortization of the step-up of inventories of $1,171 for the quarter.

(b) In addition to (a), this includes the amortization of intangible assets acquired and interest expense on borrowings under the Credit Agreement net of other expenses, amounting to $1,136, before tax.

C.   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 collectibility 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 collectibility becomes probable.

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

Identify contract with customer:

The Company gathered customer contracts and representative customer purchase orders of its various locations. The Company’s customers consist of distributors and direct end-users. With regard to distributors, the Company generally has written distribution agreements which describe the terms of the distribution arrangement, such as the product range, the sales territory, product pricing, sales support, payment and returns policy, etc. Customer contracts are generally in the form of acknowledged purchase orders. Services to be rendered, as part of the delivery of those products, are also generally specified. Such services include installation reviews and technical commissioning.

Performance obligations:

The Company’s performance obligation as it relates to the delivery of goods is straightforward; the recognition of revenue is generally driven by shipment date and the terms of sale. As it relates to the Company’s service obligations, the Company determined that installation reviews, shift development and technical commissioning are separate and distinct performance obligations.

10

Transaction price:

The Company considers the invoice price as the transaction price.

Allocation of transaction price:

The Company determined that the most relevant allocation method for its service obligations is to apply the expected cost plus appropriate margin. This is the Company’s current practice of billing for repairs, overhaul, and other product service related time incurred by its technicians.

Recognize revenue:

Revenue is recognized upon transfer of control of the products to the customer. For installation review, shift development, and technical commissioning services, revenue is recognized upon completion of the service.

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarter ended September 28, 2018.

Net sales by product group is summarized as follows:

					Elimination of
	Manufacturing		Distribution		Intercompany Sales			Total
Industrial	$	6,481	$	1,396	$	(832	)	$	7,045
Land-based transmissions		29,432		5,611		(5,407	)		29,636
Marine and propulsion systems		32,976		14,156		(10,857	)		36,275
Other		23		1,757		(47	)		1,733
Total	$	68,912	$	22,920	$	(17,143	)	$	74,689

Contract assets/liabiliies:

There are no significant balances of contract assets or liabilities as of September 28, 2018.

D. Inventories

The major classes of inventories were as follows:

	September 28, 2018		June 30, 2018
Inventories:
Finished parts	$	53,313	$	49,332
Work in process		27,716		13,183
Raw materials		42,410		21,486
	$	123,439	$	84,001

E. Warranty

The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers. However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends. While we believe the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires. The following is a listing of the activity in the warranty reserve for the quarters ended September 28, 2018 and September 29, 2017:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Reserve balance, beginning of period	$	4,407		$	2,062
Current period expense and adjustments		729			658
Payments or credits to customers		(1,020	)		(433	)
Acquisition		557			-
Translation		(6	)		39
Reserve balance, end of period	$	4,667		$	2,326

11

The current portion of the warranty accrual ($4,139 and $1,968 as of September 28, 2018 and September 29, 2017, respectively) is reflected in accrued liabilities, while the long-term portion ($528 and $358 as of September 28, 2018 and September 29, 2017, respectively) is included in other long-term liabilities on the consolidated balance sheets.

F. Contingencies

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

G. Business Segments

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

The Company has two reportable segments: manufacturing and distribution. Its segment structure reflects the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices.  Management evaluates the performance of its segments based on net income.

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

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Net sales
Manufacturing segment sales	$	68,912		$	39,872
Distribution segment sales		22,920			17,662
Inter/Intra segment elimination – manufacturing		(14,749	)		(10,332	)
Inter/Intra segment elimination – distribution		(2,394	)		(2,138	)
	$	74,689		$	45,064
Net income attributable to Twin Disc
Manufacturing segment net income	$	7,235		$	5,067
Distribution segment net income		865			669
Corporate and eliminations		(5,238	)		(2,344	)
	$	2,862		$	3,392

Assets	September 28, 2018			June 30, 2018
Manufacturing segment assets	$	367,376		$	266,417
Distribution segment assets		54,544			52,230
Corporate assets and elimination of intercompany assets		(81,163	)		(77,407	)
	$	340,757		$	241,240

12

H. Stock-Based Compensation

Performance Stock Awards (“PSA”)

During the first quarter of fiscal 2019 and 2018, the Company granted a target number of 37.0 and 54.9 PSAs, respectively, to various employees of the Company, including executive officers. The fiscal 2019 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual Earnings Per Share (“EPS”) (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2021. These PSAs are subject to adjustment if the Company’s return on invested capital, net sales, and EPS for the period falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 55.4. Based upon favorable actual results to date, the Company is currently accruing compensation expense for these PSAs.

The fiscal 2018 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual EPS (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2020. 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 69.2. Based upon favorable actual results to date, the Company is currently accruing compensation expense for these PSAs.

There were 182.7 and 224.9 unvested PSAs outstanding at September 28, 2018 and September 29, 2017, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. Compensation expense of $546 and $15 was recognized for the quarters ended September 28, 2018 and September 29, 2017, respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at September 28, 2018 was $15.02. At September 28, 2018, the Company had $1,683 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2019, 2018 and 2017 awards. The total fair value of PSAs vested as of September 28, 2018 and September 29, 2017 was $0.

Restricted Stock Awards (“RS”)

The Company has unvested RS awards outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation expense over the vesting period, which is generally 1 to 3 years. During the first quarter of fiscal 2019 and 2018, the Company granted 4.0 and 65.8 service based restricted shares, respectively, to employees and non-employee directors. There were 170.4 and 309.5 unvested shares outstanding at September 28, 2018 and September 29, 2017, respectively. A total of 2.8 shares of restricted stock were forfeited during the quarter ended September 28, 2018. There were no shares of restricted stock forfeited during the quarter ended September 29, 2017. Compensation expense of $250 and $463 was recognized for the quarters ended September 28, 2018 and September 29, 2017, respectively. The total fair value of restricted stock grants vested as of September 28, 2018 and September 29, 2017 was $1,785 and $444, respectively. As of September 28, 2018, the Company had $927 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards (“RSU”)

Under the 2018 Long Term Incentive Plan, the Company has been authorized to issue RSUs. The RSUs entitle the employee to shares of common stock of the Company if the employee remains employed by the Company through a specified date, generally three years from the date of grant. During the first quarter of fiscal 2019, the Company granted 38.0 RSUs to various employees of the Company, including executive officers. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. There were 38.0 unvested RSUs outstanding at September 28, 2018. Compensation expense of $54 was recognized for the quarter ended September 28, 2018. The weighted average grant date fair value of the unvested awards at September 28, 2018 was $25.77. As of September 28, 2018, the Company had $924 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

13

I. Pension and Other Postretirement Benefit Plans

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

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Pension Benefits:
Service cost	$	246		$	262
Interest cost		1,092			1,074
Expected return on plan assets		(1,331	)		(1,525	)
Amortization of transition obligation		9			9
Amortization of prior service cost		1			1
Amortization of actuarial net loss		678			759
Net periodic benefit cost	$	695		$	580
Postretirement Benefits:
Service cost	$	5		$	5
Interest cost		76			92
Amortization of actuarial net loss		(69	)		3
Net periodic benefit cost	$	12		$	100

The Company expects to contribute approximately $2,382 to its pension plans in fiscal 2019. As of September 28, 2018, the amount of $1,054 in contributions has been made.

The Company has reclassified $471 (net of $146 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended September 28, 2018, and $474 (net of $278 in taxes) during the quarter ended September 29, 2017. These reclassifications are included in the computation of net periodic benefit cost.

J. Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U.S corporate tax rate, business related exclusions and deductions and credits, and has tax consequences for companies that operate internationally. Most of the changes introduced in the Tax Act are effective beginning on January 1, 2018; however, as the Company has a fiscal year end of June 30, the effective dates for the Company are various and different.

For the quarter ended September 28, 2018 and September 29, 2017, the Company’s effective income tax rate was 23.4% and 371.7% respectively. In the prior year, increased and sustained profitability in a foreign jurisdiction resulted in the release of a $3,803 valuation allowance which increased the effective tax rate by 303.5%. The Tax Act reduced the US corporate income tax rate from 35% to 21%. As a fiscal June 30^th filer, this rate change has reduced the company’s effective tax rate by 13%. The mix of earnings by jurisdiction reduced the effective tax rate by 29.9%. Consistent preference items, coupled with increased profitability resulted in additional benefit to the rate.

Within the calculation of the Company’s annual effective tax rate the Company has used assumptions and estimates that may change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. Further, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act, which could have an impact on the annual effective tax rate.

The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018. The effective tax rate in the first quarter of fiscal 2019 reflects the reduction in the statutory federal income tax rate to 21%.

The deemed repatriation transition tax is a tax on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries. To determine the amount of the transition tax, the Company calculated the amount of post-1986 earnings and profits for all foreign subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. The Company calculated the amount of the transition tax and determined it to be zero based on overall net historical negative earnings and profits.

As no new material information nor material interpretational changes have developed during the first quarter of fiscal 2019, the Company’s previous calculation reflected in fiscal 2018 has not changed. With the enactment of the transition tax, any future dividends repatriated would benefit from the 100% Dividends Received Deduction. The company reaffirms its positon that the earnings of certain foreign subsidiaries remain permanently reinvested. An analysis was also completed to verify the future utilization of tax attributes and it was determined that full utilization would be realized and no valuation allowance was required. The company has completed a provisional analysis of the global intangible low taxed income (“GILTI”) provisions and anticipates no impact to the financial statements due to the offset of the inclusion with the associated foreign tax credits. A provisional foreign-derived intangible income (“FDII) calculation was completed and the benefit has been reflected in the quarterly provision. The Company has provisionally elected to treat GILTI as a period expense; however, the Company has not made a final accounting policy decision with respect to this item. A provisional analysis of the new base erosion anti-abuse tax (“BEAT”) rules has been completed and the Company does not meet the minimum thresholds at this time and is therefore not subject to this tax. These estimates may be impacted by actual future data, additional guidance or other unforeseen circumstances.

14

Under ASC Topic 740, Income Taxes ("ASC 740"), a company is generally required to recognize the effect of changes in tax laws in its financial statements in the period in which the legislation is enacted. U.S. income tax laws are deemed to be effective on the date the president signs tax legislation. The president signed the Tax Act legislation on December 22, 2017. As such, the Company is required to recognize the related impacts to the financial statements in the quarter ended December 29, 2017. In acknowledgment of the substantial changes incorporated in the Tax Act, in conjunction with the timing of the enactment being just weeks before the majority of the provisions became effective, the SEC staff issued Staff Accounting Bulletin ("SAB") 118 to provide certain guidance in determining the accounting for income tax effects of the legislation in the accounting period of enactment as well as provide a measurement period (similar to that used when accounting for business combinations) within which to finalize and reflect such final effects associated with the Tax Act. Further, SAB 118 summarizes a three-step approach to be applied each reporting period within the overall measurement period: (1) amounts should be reflected in the period including the date of enactment for those items which are deemed to be complete (i.e. all information is available and appropriately analyzed to determine the applicable financial statement impact), (2) to the extent the effects of certain changes due to the Tax Act for which the accounting is not deemed complete but for which a reasonable estimate can be determined, such provisional amount(s) should be reflected in the period so determined and adjusted in subsequent periods as such effects are finalized and (3) to the extent a reasonable estimate cannot be determined for a specific effect of the tax law change associated with the Tax Act, no provisional amount should be recorded but rather, continue to apply ASC 740 based upon the tax law in effect prior to the enactment of the Tax Act. Such measurement period is deemed to end when all necessary information has been obtained, prepared and analyzed such that a final accounting determination can be concluded, but in no event should the period extend beyond one year. If a company does not have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB 118 allows a company to report provisional numbers and adjust those amounts during the measurement period not to extend beyond one year. For the quarter ended September 28, 2018, the Company has recorded all known and estimable impacts of the Tax Act that are effective for fiscal year 2019. Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.

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

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

The Company has approximately $990 of unrecognized tax benefits, including related interest and penalties, as of September 28, 2018, which, if recognized, would favorably impact the effective tax rate. There was no significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of statutes of limitations or for other items during the quarter ended September 28, 2018. It appears possible that the amount of unrecognized tax benefits could change in the next twelve months due to on-going audit activity.

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are 2011 through 2018 for the major operations in Italy, Canada, Belgium, and Japan. The tax years open to examination in the U.S. are for years subsequent to fiscal 2015. The state of Wisconsin income tax audit remains ongoing for the fiscal years 2010 through 2013. It is reasonably possible that other audit cycles will be completed during fiscal 2019.

15

K. Goodwill and Other Intangibles

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

The Company reviews goodwill for impairment on a reporting unit basis annually as of the end of the fiscal year, and whenever events or circumstances (“triggering events”) indicate that the carrying value of goodwill may not be recoverable. The Company monitors for interim triggering events on an ongoing basis. Such triggering events include unfavorable operating results and macroeconomic trends.

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.

On July 2, 2018, as discussed in Note B, the Company acquired goodwill in the estimated amount of $24,669 and intangible assets in the estimated amount of $23,700 as part of the acquisition of Veth Propulsion Holding BV. These estimates are preliminary and are pending completion of several elements, including the finalization of an independent valuation of fair value of the assets acquired and liabilities assumed and final review by the Company’s management. The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is currently reflected.

As of September 28, 2018, changes in the carrying amount of goodwill is summarized as follows:

	Net Book Value Rollforward									By Reporting Unit
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			European Industrial			European Propulsion
Balance at June 30, 2018	$	16,514		$	(13,822	)	$	2,692		$	2,692		$	-
Acquisition		24,669			-			24,669			-			24,669
Translation adjustment		(96	)		-			(96	)		(9	)		(87	)
Balance at Septmeber 28, 2018	$	41,087		$	(13,822	)	$	27,265		$	2,683		$	24,582

For the quarter ended September 28, 2018, the Company performed a review of potential triggering events, and concluded there were no triggering events that indicated that the fair value of its European Industrial reporting unit had not more likely than not declined to below its carrying value at September 28, 2018. The Company will perform its annual impairment test for this reporting unit as of June 30, 2019.

As of September 28, 2018, the following acquired intangible assets have definite useful lives and are subject to amortization:

	Net Book Value Rollforward									Net Book Value By Asset Type
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			Trade Name			Customer Relationships			Technology Know-how			Other
Balance at June 30, 2018	$	13,485		$	(11,781	)	$	1,704		$	1,288		$	-		$	-		$	416
Acquisition		23,700			-			23,700			1,800			13,600			8,300			-
Other additions		4			-			4			-			-			-			4
Amortization		-			(665	)		(665	)		(66	)		(281	)		(295	)		(23	)
Translation adjustment		(163	)		-			(163	)		(17	)		(91	)		(55	)		-
Balance at Septmeber 28, 2018	$	37,026		$	(12,446	)	$	24,580		$	3,005		$	13,228		$	7,950		$	397

Other intangibles consist of certain amortizable acquisition costs, proprietary technology, computer software, licensing agreements and certain customer relationships.

The weighted average remaining useful life of the intangible assets included in the table above is approximately 10 years.

16

Intangible amortization expense was $665 and $44 for the quarters ended September 28, 2018, and September 29, 2017, respectively. Estimated intangible amortization expense for the remainder of fiscal 2019 and each of the next five fiscal years is as follows:

Fiscal Year
2019	$	1,996
2020		2,662
2021		2,647
2022		2,631
2023		2,628
2024		2,598

The gross carrying amount of the Company’s intangible assets that have indefinite lives and are not subject to amortization as of September 28, 2018 and June 30, 2018 was $206 and $202, respectively. These assets are comprised of acquired trade names.

L. Long-term 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 (the “2016 Credit Agreement”), 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.

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, and the personal property of Mill-Log Equipment Co., Inc. (“Mill-Log”), a wholly-owned domestic subsidiary of the Company. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. To effect these security interests, the Company and Mill-Log entered into various amendments and assignment agreements that consent to the assignment to BMO of certain agreements previously entered into between the Company and Mill-Log with Bank of Montreal in connection with the 2016 Credit Agreement. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsions described in Note B.

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

On September 25, 2018, the Company used the proceeds of a stock offering (see Note M) of $32,310 to partially pay down the Term Loan and Revolving Loans.

Long-term debt at September 28, 2018 and June 30, 2018 consisted of the following:

	September 28, 2018		June 30, 2018
Revolving loans	$	26,581	$	4,787
Term loan		10,830		-
Other		35		37
Total long-term debt	$	37,446	$	4,824

During the quarter, the average interest rates paid on loans were as follows: 5.1% on the Term Loan, 2.25% on the euro revolver, and 4.35% on the USD revolver.

As of September 28, 2018, the Company’s borrowing capacity under the terms of the Credit Agreement was $50,000, and the Company had approximately $23,419 of available borrowings. In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

The Company’s borrowings described above approximates fair value at September 28, 2018 and June 30, 2018. 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.

17

M. Shareholders’ Equity

The Company completed the sale of 1,533.3 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 paid-in capital as of September 28, 2018. The proceeds were used to partially pay down the Term Loan and Revolving Loans (see Note L).

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of September 28, 2018 remain authorized for purchase.  The Company did not make any open market purchases of its shares during the quarters ended September 28, 2018 and September 29, 2017.

The following is a reconciliation of the Company’s equity balances for the first fiscal quarter of 2019 and 2018:

	Twin Disc, Inc. Shareholders’ Equity
						Accumulated
						Other						Non-
	Common			Retained		Comprehensive			Treasury			Controlling			Total
	Stock			Earnings		Income (Loss)			Stock			Interest			Equity
Balance, June 30, 2018	$	11,570		$	178,896	$	(23,792	)	$	(23,677	)	$	619		$	143,616
Net income					2,862								41			2,903
Translation adjustments							(536	)					(25	)		(561	)
Benefit plan adjustments, net of tax							471									471
Release stranded tax effects					6,903		(6,903	)								-
Cash dividends													(115	)		(115	)
Compensation expense		850														850
Common stock issued, net		32,210														32,210
Shares acquired, net		(586	)							(328	)					(914	)
Balance, September 28, 2018	$	44,044		$	188,661	$	(30,760	)	$	(24,005	)	$	520		$	178,460

	Twin Disc, Inc. Shareholders’ Equity
						Accumulated
						Other						Non-
	Common			Retained		Comprehensive			Treasury			Controlling			Total
	Stock			Earnings		Income (Loss)			Stock			Interest			Equity
Balance, June 30, 2017	$	10,429		$	169,368	$	(32,671	)	$	(24,205	)	$	646		$	123,567
Net income					3,392								13			3,405
Translation adjustments							2,547						(6	)		2,541
Benefit plan adjustments, net of tax							474									474
Cash dividends													(172	)		(172	)
Compensation expense		479														479
Shares (acquired) issued, net		(1,030	)							817						(213	)
Balance, September 29, 2017	$	9,878		$	172,760	$	(29,650	)	$	(23,388	)	$	481		$	130,081

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended September 28, 2018, and September 29, 2017 are as follows:

	Translation			Benefit Plan
	Adjustment			Adjustment
Balance at June 30, 2018	$	7,085		$	(30,877	)
Translation adjustment during the quarter		(536	)		-
Release stranded tax effects		-			(6,903	)
Amounts reclassified from accumulated other comprehensive income		-			471
Net current period other comprehensive income		(536	)		(6,432	)
Balance at September 28, 2018	$	6,549		$	(37,309	)

18

	Translation		Benefit Plan
	Adjustment		Adjustment
Balance at June 30, 2017	$	6,130	$	(38,801	)
Translation adjustment during the quarter		2,547		-
Amounts reclassified from accumulated other comprehensive income		-		474
Net current period other comprehensive income		2,547		474
Balance at September 29, 2017	$	8,677	$	(38,327	)

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 28, 2018 are as follows:

	Amount Reclassified
	Quarter Ended
	September 28, 2018
Changes in benefit plan items
Actuarial losses	$	607	(a)
Transition asset and prior service benefit		10	(a)
Total amortization		617
Income taxes		146
Total reclassification net of tax	$	471

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 29, 2017 is as follows:

	Amount Reclassified
	Quarter Ended
	September 29, 2017
Changes in benefit plan items
Actuarial losses	$	742	(a)
Transition asset and prior service benefit		10	(a)
Total amortization		752
Income taxes		278
Total reclassification net of tax	$	474

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

N. Restructuring of Operations

The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends in certain of the Company’s markets since the fourth quarter of fiscal 2015. These programs primarily involved the reduction of workforce in several of the Company’s manufacturing locations, under a combination of voluntary and involuntary programs.

During the current year, the Company implemented continued actions to reduce personnel costs in its Belgian operations and reorganize for productivity in its European operations. These actions resulted in a restructuring charge of $173 in the quarter ended September 28, 2018. For the quarter ended September 29, 2017, restructuring charges of $1,218 pertained to similar actions to reduce personnel costs in the Company’s Belgian operations, as well as costs associated with the India manufacturing operations exit.

Restructuring activities since June 2015 have resulted in the elimination of 172 full-time employees in the manufacturing segment. Accumulated costs to date under these programs within the manufacturing segment through September 28, 2018 were $9,446.

19

The following is a rollforward of restructuring activity:

Accrued restructuring liability, June 30, 2018	$	90
Additions during the year		173
Payments and adjustments during the year		(177	)
Accrued restructuring liability, September 28, 2018	$	86

O. Earnings Per Share

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

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

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Basic:
Net income	$	2,903		$	3,405
Less: Net earnings attributable to noncontrolling interest		(41	)		(13	)
Less: Undistributed earnings attributable to unvested shares		(49	)		(85	)
Net income available to Twin Disc shareholders		2,813			3,307
Weighted average shares outstanding - basic		11,722			11,256
Basic Income Per Share:
Net income per share - basic	$	0.24		$	0.29
Diluted:
Net income	$	2,903		$	3,405
Less: Net earnings attributable to noncontrolling interest		(41	)		(13	)
Less: Undistributed earnings attributable to unvested shares		(49	)		(85	)
Net income available to Twin Disc shareholders		2,813			3,307
Weighted average shares outstanding - basic		11,722			11,256
Effect of dilutive stock awards		77			3
Weighted average shares outstanding - diluted		11,799			11,259
Diluted Income Per Share:
Net income per share - diluted	$	0.24		$	0.29

The following potential common shares were excluded from diluted EPS for the quarter ended September 28, 2018 because they were anti-dilutive: 180.6 related to the Company’s unvested PSAs, 170.4 related to the Company’s unvested RS awards, 28.2 related to the Company’s unvested RSUs, and 3.3 related to outstanding stock options.

The following potential common shares were excluded from diluted EPS for the quarter ended September 29, 2017 because they were anti-dilutive: 224.9 related to the Company’s unvested PSAs, 309.5 related to the Company’s unvested RS awards, and 9.9 related to outstanding stock options.

20

P. Lease Liabilities

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

The components of lease expense were as follows:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Finance lease cost:
Amortization of right-of-use assets	$	1		$	1
Operating lease cost		880			633
Short-term lease cost		11			33
Variable lease cost		8			3
Total lease cost	$	900		$	670
Less: Sublease income		(16	)		(53	)
Net lease cost	$	884		$	617

Other information related to leases was as follows:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	871		$	579
Operating cash flows from finance leases		1			1
Right-of-use-assets obtained in exchange for lease obligations:
Operating leases		12,127			280
Weighted average remaining lease term (years):
Operating leases		11.4			5.7
Finance lease		3.8			4.8
Weighted average discount rate:
Operating leases		7.6	%		6.5	%
Finance leases		4.0	%		4.0	%

Approximate future minimum rental commitments under non-cancellable lease as of September 28, 2018 were as follows:

	Operating Leases			Finance Leases
2019	$	2,684		$	2
2020		3,115			3
2021		2,467			3
2022		1,969			3
2023		1,790			-
Thereafter		13,212			-
Total future lease payments		25,237			11
Less: Amount representing interest		(8,167	)		(1	)
Present value of future payments	$	17,070		$	10

The Company had $17,071 and $6,527 of operating lease right-of-use assets recorded in property, plant and equipment, net as of September 28, 2018 and June 30, 2018, respectively. The Company had $17,070 and $6,527 of operating lease liabilities recorded in lease obligations as of September 28, 2018 and June 30, 2018, respectively.

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Item 2.     Management Discussion and Analysis

In the financial review that follows, we discuss our results of operations, financial condition and certain other information. This discussion should be read in conjunction with our consolidated financial statements as of September 28, 2018, and related notes, as reported in Item 1 of this Quarterly Report.

Some of the statements in this Quarterly Report on Form 10-Q are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include the Company’s description of plans and objectives for future operations and assumptions behind those plans. The words “anticipates,” “believes,” “intends,” “estimates,” and “expects,” or similar anticipatory expressions, usually identify forward-looking statements. In addition, goals established by Twin Disc, Incorporated should not be viewed as guarantees or promises of future performance. There can be no assurance the Company will be successful in achieving its goals.

In addition to the assumptions and information referred to specifically in the forward-looking statements, other factors, including but not limited to those factors discussed under Item 1A, Risk Factors, of the Company’s Annual Report filed on Form 10-K for June 30, 2018, as supplemented by the Company’s September 21, 2018 final prospectus supplement, could cause actual results to be materially different from what is expressed or implied in any forward-looking statement.

Recent Events

Acquisition of Veth Propulsion Holding BV

On July 2, 2018, the Company completed the acquisition of 100% of the outstanding common stock of Veth Propulsion Holding BV and its wholly owned subsidiaries (“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 supplier, based in the Netherlands. These products are complementary to and expand the Company’s current product offerings in the marine and propulsion markets. Under the terms of the stock purchase agreement, the Company paid an aggregate $60.7 million in cash at closing, which included a base payment plus adjustments for net cash and working capital. This amount is subject to a final determination of working capital adjustments and an earn-out. The maximum earn-out is approximately $4 million. The earn-out will be paid if the earnings before interest, tax, depreciation and amortization of Veth Propulsion’s fiscal 2018 as defined in the Purchase Agreement (“EBITDA”) exceeds the agreed upon threshold amount. The earn-out is payable in the form of Company stock or cash, and will be determined in April 2019.

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. This transaction is more fully discussed in Note L in the unaudited condensed consolidated notes to the financial statements.

The unaudited condensed consolidated financial statements and information included in this Quarterly Report on Form 10-Q (“Form 10-Q”) includes the financial results of Veth Propulsion for the period beginning July 2, 2018 through September 28, 2018. The financial results included in this Form 10-Q related to the acquisition method of accounting for the Veth Propulsion acquisition are subject to change as the acquisition method accounting is not yet finalized and dependent upon the finalization of management’s review of certain independent valuations and studies that are still in process. See Note B, “Acquisition of Veth Propulsion Holding BV” for further information about the acquisition and related transactions and the acquisition accounting

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Results of Operations

(In thousands)
	Quarter Ended
	September 28, 2018		% of Net Sales			September 29, 2017			% of Net Sales
Net sales	$	74,689				$	45,064
Cost of goods sold		50,704					31,072
Gross profit		23,985		32.1	%		13,992			31.0	%
Marketing, engineering and administrative expenses		18,986		25.4	%		13,394			29.7	%
Restructuring of operations		173		0.2	%		1,218			2.7	%
Income (loss) from operations	$	4,826		6.5	%	$	(620	)		-1.4	%

Comparison of the First Quarter of FY 2019 with the First Quarter of FY 2018

Net sales for the first quarter increased 65.7%, or $29.6 million, to $74.7 million from $45.1 million in the same period a year ago. The Veth Propulsion acquisition, which closed on July 2, 2018, was the primary contributor to this increase, representing $13.4 million of this increase. In addition, the Company continues to benefit from improved demand in North America for the Company’s oil and gas related products. Global demand for industrial products remained relatively flat through the first fiscal quarter. The Company continues to see strengthening demand in the global commercial marine market, with sales of marine and propulsion products increasing nearly 11% over the prior fiscal year first quarter, excluding the impact of the Veth Propulsion acquisition. While the net sales increase was the greatest in North America ($13.1 million) due to the North American energy market, the addition of Veth Propulsion raised the percentage of sales to the European region to 23% compared to 19% in the prior fiscal year first quarter. Although sales into Asia Pacific remained flat as a percentage of total sales, net sales into this region increased by $5.2 million (64%) on improving commercial marine and energy markets. Currency translation had a slight unfavorable impact on fiscal 2019 sales compared to the prior year totaling $0.5 million primarily due to the weakening of the Euro and Australian dollar against the U.S. dollar.

Sales at our manufacturing segment increased 72.8%, or $29.0 million, versus the same period last year. This increase includes the incremental sales related to the Veth Propulsion acquisition, which totaled $13.4 million in the quarter. The U.S. manufacturing operation experienced a 47.5%, or $13.3 million, increase in sales versus the first fiscal quarter of 2018. The primary driver for this increase was improving demand for the Company’s oil and gas related products. The Company’s Belgian operation also saw a significant increase over the prior year (27.7% or $1.7 million), largely due to improving North American demand for its marine transmission. The Company’s Italian manufacturing operations, which are seeing positive momentum in both the industrial and marine markets, experienced a 7.3% ($0.3 million) increase compared to the first quarter of fiscal 2018. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, also experienced a healthy increase (25.2%), primarily due to timing of projects for the global pleasure craft and patrol boat markets.

Our distribution segment experienced a 29.8%, or $5.3 million, increase in sales compared to the first quarter of fiscal 2018. The Company’s Asian distribution operations in Singapore, China and Japan saw a combined 49.7% increase in sales compared to the prior fiscal year’s first quarter. This increase reflects improved commercial marine, oil and gas, and patrol craft activity in the region. The Company’s distribution operation in the Northwest of the United States and Southwest of Canada experienced an increase in sales of 4.0% ($0.2 million). The year over year increase was driven by improved sales of aftermarket service and components for the Canadian oil and gas markets. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, also saw an increase in sales (4.3%) primarily due to a favorable trend in the Australian pleasure craft market.    

Gross profit as a percentage of sales increased 110 basis points to 32.1% of sales, compared to 31.0% of sales for the same period last year. This improvement in gross profit was the result of favorable movements due to a positive volume impact ($7.7 million) and the addition of Veth Propulsion ($2.2 million). The current year gross profit percent was impacted by purchase accounting related amortization of inventory step-up ($1.2 million), which had an unfavorable impact on the gross profit percent of 157 basis points in the first quarter of fiscal 2019.

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For the fiscal 2019 first quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 25.4%, compared to 29.7% for the fiscal 2018 first quarter. ME&A expenses increased $5.6 million versus the same period last fiscal year. The addition of Veth Propulsion comprises $2.9 million of this increase, which includes $0.6 million of purchase accounting related intangible amortization. The remaining increase in ME&A expenses for the quarter is the result of increases to stock based compensation ($0.6 million), marketing expenses for the Veth Propulsion acquisition and centennial celebration ($0.7 million), professional fees ($0.8 million), increased salaries ($0.2 million), increased travel cost ($0.2 million) and other volume and inflationary increases.

The Company incurred $0.2 million in restructuring charges during the first quarter of fiscal 2019, primarily associated with ongoing cost reduction actions at its European operations. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Interest expense increased to $0.7 million in the first quarter of fiscal 2019, compared to just $0.1 million for the first quarter of the prior fiscal year. This increase reflects the additional debt associated with the acquisition of Veth Propulsion on July 2, 2018.

The favorable movement in other expense (income) compared to the prior year is primarily due to the impact of currency movements related to the euro and Singapore dollar.

The fiscal 2019 first quarter tax rate of 23.4% reflects the impact of the U.S. Tax Cuts and Jobs Act (“Tax Act”) signed in December 2017. The fiscal 2018 first quarter tax benefit was primarily the result of the reversal of the valuation allowance ($3.8 million) in a certain foreign jurisdiction that had been subject to a full valuation allowance. Improvement in operating results, along with tax planning opportunities, allowed for the reversal of this valuation allowance during the fiscal 2018 first quarter.

Financial Condition, Liquidity and Capital Resources

Comparison between September 28, 2018 and June 30, 2018

As of September 28, 2018, the Company had net working capital of $124.0 million, which represents an increase of $27.0 million, or 27.9%, from the net working capital of $96.9 million as of June 30, 2018. Included in this increase is the addition of Veth Propulsion, which comprises $17.2 million of the overall increase.

Cash increased $1.4 million to $16.6 million as of September 28, 2018, versus $15.2 million as of June 30, 2018. The Veth Propulsion acquisition contributed $3.9 million of this increase. The majority of the cash as of September 28, 2018 is at the Company’s overseas operations in Europe ($9.3 million – including Veth Propulsion) and Asia-Pacific ($6.1 million).

Trade receivables of $45.9 million were up $0.5 million, or approximately 1.0%, when compared to last fiscal year-end. The Veth Propulsion acquisition contributed $8.3 million to the overall trade receivable balance as of September 28, 2018. The impact of foreign currency translation was to decrease accounts receivable by $0.1 million versus June 30, 2018. The net remaining decrease is driven by volume and the timing of sales within the quarter. As a percent of sales, trade receivables finished at 61.4% in the first quarter of fiscal 2019 compared to 61.1% for the comparable period in fiscal 2018 and 61.6% for the fourth quarter of fiscal 2018.

Inventories increased by $39.4 million, or 46.9%, versus June 30, 2018 to $123.4 million. The Veth Propulsion acquisition contributed $26.2 million to this increase. The impact of foreign currency translation was to decrease inventories by $0.3 million versus June 30, 2018. The remaining increase was seen primarily at the Company’s North American operation, driven by production requirements related to the demand for the Company’s products serving the North American oil and gas market. On a consolidated basis, as of September 28, 2018, the Company’s backlog of orders to be shipped over the next six months approximates $146.3 million, compared to $115.0 million at June 30, 2018 and $62.7 million at September 29, 2017. The increase versus the end of the prior fiscal year is being experienced at the Company’s domestic manufacturing location, along with the addition of Veth Propulsion backlog. As a percentage of six-month backlog, inventory has increased from 73% at June 30, 2018 to 84% at September 28, 2018.

Net property, plant and equipment increased $12.8 million versus June 30, 2018. The primary reason for the increase is the establishment of right-of-use assets related to the adoption of the new lease accounting guidance, which contributed $10.5 million to the increase from fiscal year end. The remaining increase includes the addition of $3.6 million in capital expenditures, primarily at the Company’s U.S. and Belgian-based manufacturing operations, which was partially offset by depreciation of $1.7 million. The net remaining increase is due to foreign currency translation effects. In total, the Company expects to invest between $14 and $16 million in capital assets in fiscal 2019. These anticipated expenditures reflect the Company’s plans to continue investing in modern equipment and facilities, its global sourcing program and new products. The Company continues to review its capital plans based on overall market conditions and availability of capital, and may make changes to its capital plans accordingly. The Company’s capital program is focused on modernizing key core manufacturing, assembly and testing processes and improving efficiencies at its facilities around the world.

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Accounts payable as of September 28, 2018 of $31.7 million was up $2.4 million, or 8.1%, from June 30, 2018. The impact of foreign currency translation was to decrease accounts payable by $0.1 million versus June 30, 2018. The remaining increase is primarily related to the addition of Veth Propulsion ($2.1 million).

Total borrowings and long-term debt as of September 28, 2018 increased by $32.6 million to $37.4 million versus $4.8 million at June 30, 2018. The primary reason for the increase is the acquisition of Veth Propulsion, which was funded with $60.7 million of debt at closing on July 2, 2108. This was offset by $32.2 million of proceeds from an equity offering completed in the quarter. During the first quarter, the Company incurred negative free cash flow (defined as operating cash flow less acquisitions of fixed assets) of ($2.7) million and ended the quarter with total debt, net of cash, of $20.9 million, compared to ($10.3) million at June 30, 2018, for a net change of $31.2 million.

Lease obligations as of September 28, 2018 increased by $10.5 million to $17.1 million versus $6.5 million at June 30, 2018. The primary reason for the increase is the acquisition of Veth Propulsion, which included a fifteen-year lease with Het Komt Vast Goed B.V., the owner of the real property where Veth Propulsion’s operations are located.

Total equity increased $34.8 million, or 24.3%, to $178.5 million as of September 28, 2018. Common stock increased by $32.5 million, primarily due to the equity offering completed during the quarter. Net earnings during the quarter increased equity by $2.9 million. Net unfavorable foreign currency translation of $0.6 million was reported, while treasury stock increased by $0.3 million. The net remaining increase in equity of $0.3 million primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans.

On April 22, 2016, the Company entered into a revolving Credit Agreement (the “2016 Credit Agreement”) with Bank of Montreal (“BOM”). This agreement permitted the Company to enter into loans up to $40 million.

In general, each revolving loan under the 2016 Credit Agreement were charged interest at a Eurodollar Rate, as defined. In addition to monthly interest payments, the Company was responsible for paying a quarterly unused fee equal to 0.15% of the average daily unused portion of the revolving credit commitment. The Company could prepay loans subject to certain limitations. Borrowings under the 2016 Credit Agreement were secured by substantially all of the Company’s personal property, including accounts receivable, inventory, certain machinery and equipment, and intellectual property, and the personal property of Mill-Log Equipment Co., Inc (“Mill-Log”). The Company also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company entered into a security agreement, IP security agreement and pledge agreement with BOM, and Mill-Log entered into a guaranty agreement, guarantor security agreement and pledge agreement with BOM, which collectively granted BOM a security interest in these assets and holdings as administrative agent for itself and other lenders that may enter into the 2016 Credit Agreement. The Company also entered into a negative pledge agreement with BOM, pursuant to which it had agreed not to sell, lease or otherwise encumber real estate that it owned except as permitted by the 2016 Credit Agreement and the negative pledge agreement. Within thirty days upon the occurrence of an event of default (as defined) that was not cured within the prescribed cure period, or if availability under the 2016 Credit Agreement was less than the greater of 15% of the aggregate revolving credit commitments and $6.0 million, the Company and Mill-Log were to execute and deliver mortgages to BOM on all real estate owned by them at such time to further secure borrowings under the 2016 Credit Agreement.

On June 29, 2018, the Company entered into a credit agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provides for the assignment and assumption of the existing loans between the Company and BOM, 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 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 million (the “Revolving Credit Commitment”).

The Credit Agreement provides that the Company may elect that the Term Loan and each Revolving Loan to be either “LIBOR Loans” or “Eurodollar Loans”, as defined, and bear interest at the applicable rate per the Credit Agreement. This rate as of September 28, 2018 was 4.36%. In addition to the month interest payments and any mandatory principal payments required by the Credit Agreement (if applicable), the Company will be responsible for paying a quarterly Revolving Credit Commitment Fee and quarterly Letter of Credit Fees. The Company may prepay the Loans (or any one of the Loans), subject to certain limitations. 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, and the personal property of Mill-Log, a wholly-owned domestic subsidiary of the Company. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. To effect these security interests, the Company and Mill-Log entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and Mill-Log with Bank of Montreal in connection with the 2016 Credit Agreement. Specifically, the Company amended and assigned to BMO a Security Agreement, IP Security Agreement, and Pledge Agreement, and Mill-Log amended and assigned to BMO a Guaranty Agreement and Guarantor Security 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) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company.

25

The Company’s balance sheet remains healthy, there are no material off-balance-sheet arrangements, and it continues to have sufficient liquidity for near-term needs. The Company had approximately $23.4 million of available borrowings under the Credit Agreement as of September 28, 2018. The Company expects to continue to generate enough cash from operations, as well as its credit facilities, to meet its operating and investing needs. As of September 28, 2018, the Company also had cash of $16.6 million, primarily at its overseas operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. In fiscal 2019, the Company expects to contribute $2.4 million to its defined benefit pension plans, the minimum contribution required.

Net working capital increased $27.0 million, or 27.9%, during the first quarter of fiscal 2019, and the current ratio stayed flat at 2.6 for both September 28, 2018 and June 30, 2018. The increase in net working capital was primarily driven by the acquisition of Veth and a demand driving increase to inventory, partially offset by a reduction to the bonus accrual following the payment of the fiscal 2018 global bonus during the first quarter of fiscal 2019.

The Company expects capital expenditures to be approximately $14 million - $16 million in fiscal 2019. These anticipated expenditures reflect the Company’s plans to invest in modern equipment and facilities, its global sourcing program and new products.

Management believes that available cash, the BMO credit facility, and potential access to debt markets will be adequate to fund the Company’s capital requirements for the foreseeable future.

The Company has approximately $1.0 million of unrecognized tax benefits, including related interest and penalties, as of September 28, 2018, which, if recognized, would favorably impact the effective tax rate. See Note J of the Condensed Consolidated Financial Statements for disclosures surrounding uncertain income tax positions.

The Company maintains defined benefit pension plans for some of its operations in the United States and Europe. The Company has established the Benefits Committee (a non-Board management committee) to oversee the operations and administration of the defined benefit plans. The Company estimates that fiscal 2019 contributions to all defined benefit plans will total $2.4 million. As of September 28, 2018, $1.1 million in contributions have been made.

New Accounting Releases

See Note A, Basis of Presentation, to the condensed consolidated financial statements for a discussion of recently issued accounting standards.

Critical Accounting Policies

The preparation of this Quarterly Report requires management’s judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

The Company’s critical accounting policies are described in Item 7 of the Company’s Annual Report filed on Form 10-K for June 30, 2018. There have been no significant changes to those accounting policies subsequent to June 30, 2018.

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Item 3.     Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to market risks from changes in interest rates, commodities and foreign exchange. To reduce such risks, the Company selectively uses financial instruments and other pro-active management techniques. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which prohibit the use of financial instruments for trading or speculative purposes.

Interest rate risk - The Company’s earnings exposure related to adverse movements of interest rates is primarily derived from outstanding floating rate debt instruments that are indexed to a Eurodollar Rate. In accordance with the Credit Agreement expiring June 30, 2023, the Company has the option of borrowing at a LIBOR Rate plus an additional “Add-On” based on total funded debt to EBITDA, which was at 2.25% as of September 28, 2018. Due to the relative stability of interest rates, the Company did not utilize any financial instruments at September 28, 2018 to manage interest rate risk exposure. A 10 percent increase or decrease in the applicable interest rate would result in a change in annual pretax interest expense of approximately $79,000.

Commodity price risk - The Company is exposed to fluctuation in market prices for such commodities as steel and aluminum. The Company does not utilize commodity price hedges to manage commodity price risk exposure.

Currency risk - The Company has exposure to foreign currency exchange fluctuations. Approximately 33% of the Company’s revenues in the quarter ended September 28, 2018 were denominated in currencies other than the U.S. dollar. Of that total, approximately 74% was denominated in euros with the balance composed of Japanese yen, the Swiss franc, Indian rupee and the Australian and Singapore dollars. The Company does not hedge the translation exposure represented by the net assets of its foreign subsidiaries. Foreign currency translation adjustments are recorded as a component of shareholders’ equity. Forward foreign exchange contracts are occasionally used to hedge the currency fluctuations on significant transactions denominated in foreign currencies.

Derivative financial instruments - The Company has written policies and procedures that place all financial instruments under the direction of the Company’s corporate treasury group and restrict derivative transactions to those intended for hedging purposes. The use of financial instruments for trading or speculative purposes is prohibited. The Company occasionally uses financial instruments to manage the market risk from changes in foreign exchange rates.

The Company primarily enters into forward exchange contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. These contracts are highly effective in hedging the cash flows attributable to changes in currency exchange rates. Gains and losses resulting from these contracts offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts generally coincide with the settlement dates of the related transactions. Gains and losses on these contracts are recorded in Other expense, net in the Condensed Consolidated Statement of Operations as the changes in the fair value of the contracts are recognized and generally offset the gains and losses on the hedged items in the same period. The primary currency to which the Company was exposed in fiscal 2019 and 2018 was the euro. The Company had no outstanding forward exchange contracts at September 28, 2018 and June 30, 2018.

Item 4.     Controls and Procedures

(a)     Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

(b)     Changes in Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). During the most recent fiscal quarter, no changes were made which have materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

27

On July 2, 2018, the Company completed the acquisition of 100% of the outstanding common stock of Veth Propulsion Holding BV. As part of its ongoing integration activities, the Company is continuing to incorporate its controls and procedures into this recently acquired business.

Part II.     OTHER INFORMATION

Item 1.     Legal Proceedings

The Company is a defendant in several product liability or related claims which are considered either adequately covered by appropriate liability insurance or involving amounts not deemed material to the business or financial condition of the Company.

Item 1A.     Risk Factors

There have been no material changes to the risk factors previously disclosed in response to Item 1A to Part I of our 2018 Annual Report on Form 10-K, as supplemented by its September 21, 2018 final prospectus supplement.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Equity Securities

There were no securities of the Company sold by the Company during the quarter ended September 28, 2018, which were not registered under the Securities Act of 1933, in reliance upon an exemption from registration provided by Section 4 (2) of the Act.

(b) Use of Proceeds

Not applicable.

(c) Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 –  27, 2018	0	NA	0	315,000
July 28 – August 31, 2018	35,612	NA	0	315,000
September 1 – 28, 2018	0	NA	0	315,000
Total	35,612	NA	0	315,000

The amounts shown in Column (a) above represent shares of common stock delivered to the Company as payment of withholding taxes due on the vesting of restricted stock and performance share awards issued under the Twin Disc, Incorporated 2010 Long-Term Incentive Compensation Plan.

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Under authorizations granted by the Board of Directors on February 1, 2008 and July 27, 2012, the Company was authorized to purchase 500,000 shares of its common stock.  This authorization has no expiration, and as of September 28, 2018, 315,000 may yet be purchased under these authorizations. The Company did not purchase any shares of its common stock during the quarter ended September 28, 2018.

Item 3.     Defaults Upon Senior Securities

None.

Item 5.     Other Information

None.

Item 6.     Exhibits

31a Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31b Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32a Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32b	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101. SCH	XBRL Schema
101.CAL	XBRL Calculation Linkbase
101.DEF	XBRL Definition Linkbase
101.LAB	XBRL Label Linkbase
101.PRE	XBRL Presentation Linkbase

29

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TWIN DISC, INCORPORATED
	(Registrant)
Date: November 6, 2018	/s/ DEBBIE A. LANGE
	Debbie A. Lange
	Corporate Controller
	Chief Accounting Officer

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EX-31.A

Exhibit 31a

CERTIFICATION

I, John H. Batten, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Twin Disc, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2018	/s/ JOHN H. BATTEN
	John H. Batten
	President, Chief Executive Officer

EX-31.B

Exhibit 31b

CERTIFICATIONS

I, Jeffrey S. Knutson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Twin Disc, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2018	/s/ JEFFREY S. KNUTSON
	Jeffrey S. Knutson
	Vice President – Finance, Chief Financial Officer, Treasurer and Secretary

EX-32.A

EXHIBIT 32a

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Twin Disc, Incorporated (the “Company”) on Form 10-Q for the fiscal quarter ending September 28, 2018, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, John H. Batten, President, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2018	/s/ JOHN H. BATTEN
	John H. Batten
	President, Chief Executive Officer

EX-32.B

EXHIBIT 32b

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Twin Disc, Incorporated (the “Company”) on Form 10-Q for the fiscal quarter ending September 28, 2018, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2018	/s/ JEFFREY S. KNUTSON
	Jeffrey S. Knutson
	Vice President – Finance, Chief Financial Officer, Treasurer and Secretary

XML

Document And Entity Information - shares	3 Months Ended
	Sep. 28, 2018	Nov. 02, 2018
Document Information [Line Items]
Entity Registrant Name	TWIN DISC INC
Entity Central Index Key	0000100378
Trading Symbol	twin
Current Fiscal Year End Date	--06-17
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		13,087,512
Document Type	10-Q
Document Period End Date	Sep. 28, 2018
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
Current assets:
Cash	$ 16,557	$ 15,171
Trade accounts receivable, net	45,887	45,422
Inventories	123,439	84,001
Prepaid expenses	7,287	8,423
Other	9,228	6,252
Total current assets	202,398	159,269
Property, plant and equipment, net	68,302	55,467
Deferred income taxes	13,838	18,056
Goodwill, net	27,265	2,692
Intangible assets, net	24,786	1,906
Other assets	4,168	3,850
Total assets	340,757	241,240
Current liabilities:
Accounts payable	31,735	29,368
Accrued liabilities	46,327	32,976
Total current liabilities	78,062	62,344
Long-term debt	37,446	4,824
Lease obligations	17,070	6,527
Accrued retirement benefits	19,985	21,068
Deferred income taxes	7,969	1,203
Other long-term liabilities	1,765	1,658
Total liabilities	162,297	97,624
Commitments and contingencies (Note F)
Twin Disc shareholders' equity:
Preferred shares authorized: 200,000; issued: none; no par value	0	0
Common shares authorized: 30,000,000; issued: 14,632,802 and 13,099,468, respectively; no par value	44,044	11,570
Retained earnings	188,661	178,896
Accumulated other comprehensive loss	(30,760)	(23,792)
Equity before treasury stock	201,945	166,674
Less treasury stock, at cost (1,567,274 and 1,545,783 shares, respectively)	24,005	23,677
Total Twin Disc shareholders' equity	177,940	142,997
Noncontrolling interest	520	619
Total equity	178,460	143,616
Total liabilities and equity	$ 340,757	$ 241,240

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Sep. 28, 2018	Jun. 30, 2018
Preferred Shares, Authorized (in shares)	200,000	200,000
Preferred Shares, Issued (in shares)	0	0
Preferred Shares, No Par Value (in dollars per share)	$ 0	$ 0
Common Shares, Authorized (in shares)	30,000,000	30,000,000
Common Shares, Issued (in shares)	14,632,802	13,099,468
Common Shares, No Par Value (in dollars per share)	$ 0	$ 0
Treasury Stock, Shares (in shares)	1,567,274	1,545,783

XML

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Net Sales	$ 74,689	$ 45,064
Cost of goods sold	50,704	31,072
Gross profit	23,985	13,992
Marketing, engineering and administrative expenses	18,986	13,394
Restructuring expenses	173	1,218
Income (loss) from operations	4,826	(620)
Interest expense	717	64
Other expense (income), net	319	569
Non-operating income (expense)	1,036	633
Income (loss) before income taxes and noncontrolling interest	3,790	(1,253)
Income tax expense (benefit)	887	(4,658)
Net income	2,903	3,405
Less: Net earnings attributable to noncontrolling interest, net of tax	(41)	(13)
Net income attributable to Twin Disc	$ 2,862	$ 3,392
Income per share data:
Basic income per share attributable to Twin Disc common shareholders (in dollars per share)	$ 0.24	$ 0.29
Diluted income per share attributable to Twin Disc common shareholders (in dollars per share)	$ 0.24	$ 0.29
Weighted average shares outstanding data:
Basic shares outstanding (in shares)	11,722	11,256
Diluted shares outstanding (in shares)	11,799	11,259
Comprehensive income:
Net income	$ 2,903	$ 3,405
Benefit plan adjustments, net of income taxes of $146 and $278, respectively	471	474
Foreign currency translation adjustment	(561)	2,541
Comprehensive income	2,813	6,420
Less: Comprehensive income attributable to noncontrolling interest	(16)	(7)
Comprehensive income attributable to Twin Disc	$ 2,797	$ 6,413

XML

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Benefit plan adjustments, tax	$ 146	$ 278

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Cash flows from operating activities:
Net income	$ 2,903	$ 3,405
Adjustments to reconcile net income to net cash provided (used) by operating activities, net of acquired assets:
Depreciation and amortization	2,349	1,644
Amortization of inventory fair value step-up	1,171
Restructuring expenses	(2)	190
Provision for deferred income taxes	3,460	(4,842)
Stock compensation expense and other non-cash changes, net	892	500
Net change in operating assets and liabilities	(9,951)	(2,328)
Net cash provided (used) by operating activities	822	(1,431)
Cash flows from investing activities:
Acquisition of Veth Propulsion, less cash acquired	(59,649)
Acquisitions of fixed assets	(3,556)	(1,467)
Proceeds from sale of fixed assets	30	17
Other, net	(129)	(129)
Net cash used by investing activities	(63,304)	(1,579)
Cash flows from financing activities:
Proceeds from issuance of common stock, net	32,210
Borrowings under long-term debt agreement	35,000
Borrowings under revolving loan agreement	67,103	16,155
Proceeds from exercise of stock options	12
Repayments under revolving loan agreement	(45,231)	(14,236)
Repayments of long-term borrowings	(24,234)
Dividends paid to noncontrolling interest	(115)	(172)
Payments of withholding taxes on stock compensation	(926)	(213)
Net cash provided by financing activities	63,819	1,534
Effect of exchange rate changes on cash	49	570
Net change in cash	1,386	(906)
Cash:
Beginning of period	15,171	16,367
End of period	$ 16,557	$ 15,461

XML

Note A - Basis of Presentation

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

A. Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared by Twin Disc, Incorporated (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments, consisting only of normal recurring items, necessary for a fair statement of results for each period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to make the information presented

not

misleading. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form

10

-K for

June 30, 2018.

The year-end condensed balance sheet data was derived from audited financial statements, but does

not

include all disclosures required by accounting principles generally accepted in the United States.

The unaudited condensed consolidated financial statements and information included in this Quarterly Report on Form

10

-Q (“Form

10

-Q”) includes the financial results of Veth Propulsion Holding BV (“Veth Propulsion”) for the period beginning

July 2, 2018

through

September 28, 2018.

The financial results included in this Form

10

-Q related to the acquisition method of accounting for the Veth Propulsion acquisition are subject to change as the acquisition method accounting is

not

yet finalized and dependent upon the finalization of management’s review of certain independent valuations and studies that are still in process. See Note B, “Acquisition of Veth Propulsion Holding BV” for further information about the acquisition and related transactions and the acquisition accounting.

Recently Adopted Accounting Standards

a.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance (ASU 2014 - 09 ) on revenue from contracts with customers. This revenue recognition guidance supersedes existing guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of control over promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. The Company adopted this guidance effective July 1, 2018, using the modified retrospective method and applied the cumulative effect to its retained earnings balance as of that date. Prior periods presented were not retrospectively adjusted for this change. The Company has applied the new revenue recognition standard only to contracts that were not completed as of July 1, 2018.

The Company determined that deferral of revenue is appropriate for certain agreements where the performance of services after product delivery is required. Such services primarily pertain to technical commissioning services by its distribution entities in its marine business, whereby the Company’s technicians calibrate the controls and transmission to ensure proper performance for the customer’s specific application. This service helps identify issues with the ship's design or performance that need to be remediated by the ship builder or other component suppliers prior to the ship being officially accepted into service by the ship buyer. The cumulative effect adjustment of adopting the new standard is not significant to the Company’s results of operations and financial condition.

b.

In February 2016, the FASB issued guidance (ASU 2016 - 02 ) which replaces the existing guidance for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company elected to early adopt the standard effective July 1, 2018 concurrent with the adoption of ASU 2014 - 09, Revenue from Contracts with Customers, using the modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements, which required the Company to restate each prior reporting period presented.

For operating leases in which the Company is a lessee, the Company concluded that all existing operating leases under the old guidance continue to be classified as operating leases under the new guidance, and all existing capital leases under the old guidance are classified as finance leases under the new guidance. The Company excluded any lease contracts with terms of twelve months or less as of the adoption date. The Company has lease agreements with lease and non-lease components, which are generally accounted for as separate lease components. The Company accounts for short-term leases on a straight-line basis over the lease term.

The following table presents the effect of the adoption of ASU

2016

-

02

on the Company’s condensed consolidated balance sheet as of

June 30, 2018:

	June 30, 2018		Adoption		June 30, 2018
	As Reported		Impact		Restated
Property, plant and equipment, net	$	48,940	$	6,527	$	55,467
Lease obligations		-		6,527		6,527

	The adoption of ASU 2014 - 09 and ASU 2016 - 02 did not have an impact on the Company’s condensed consolidated statement of operations and comprehensive income or condensed consolidated statement of cash flows for the quarter ended September 29, 2017.
c.	In March 2017, the FASB issued guidance (ASU 2017 - 07 ) intended to improve the presentation of net periodic pension cost and net periodic postretirement cost. This guidance requires that an employer report the service costs component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of income from operations. The Company adopted this guidance effective July 1, 2018 on a retrospective basis, which resulted in the reclassification of certain amounts from cost of goods sold and marketing, engineering and administrative expenses to other expense (income), net in the condensed consolidated statements of operations and comprehensive income. As a result, prior period amounts impacted have been revised accordingly.
	The following table presents the effect of the adoption of ASU 2017 - 07 on the Company’s condensed consolidated statements of operations and comprehensive income for the quarter ended September 29, 2017:

	September 29, 2017			Adoption			September 29, 2017
	As Reported			Impact			Restated
Cost of goods sold	$	31,169		$	(97	)	$	31,072
Gross profit		13,895			97			13,992
Marketing, engineering and administrative expenses		13,668			(274	)		13,394
Income (loss) from operations		(991	)		371			(620	)
Other expense (income), net		198			371			569

d. In February 2018, the FASB issued guidance (ASU 2018 - 02 ) intended to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act by allowing a reclassification from accumulated other comprehensive income to retained earnings. The Company elected to early adopt this guidance effective July 1, 2018 by making a reclassification of $6,903 from accumulated other comprehensive loss to retained earnings.

e. In October 2016, the FASB issued updated guidance (ASU 2016 - 16 ) that changes the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. The Company adopted this guidance effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

f. In August 2016, the FASB issued updated guidance (ASU 2016 - 15 ) that addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company adopted this guidance effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

New Accounting Releases

In

August 2018,

the FASB issued updated guidance (ASU

2018

-

13

) as part of the disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019 (

the Company’s fiscal

2021

), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.

In

August 2018,

the FASB issued updated guidance (ASU

2018

-

14

) intended to modify the disclosure requirements for employers that sponsor defined 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

August 2018,

the SEC issued Release

No.

33

-

10532,

Disclosure Update and Simplification. In addition to eliminating certain disclosure requirements, this release also amends the interim financial statement requirements to require provision of the information required by Regulation S-

X

Rule

3

-

04

for the current and comparative year-to-date periods, with subtotals for each interim period. Rule

3

-

04

requires a reconciliation of stockholders’ equity beginning and ending balances for each period for which a statement of comprehensive income is required to be filed. The release is effective on

November 5, 2018,

the Company’s

second

fiscal quarter of fiscal year

2019.

Special Note Regarding Smaller Reporting Company Status

In

June 2018,

the SEC issued Release

33

-

10513;

34

-

83550,

Amendments to Smaller Reporting Company Definition, which changes the definition of a smaller reporting company in Rule

12b

-

2

of the Securities Exchange Act of

1934,

as amended.  Under this release, the new thresholds for qualifying are (

1

) public float of less than

$250

million or (

2

) annual revenue of less than

$100

million in annual revenue and public float of less than

$700

million (including

no

public float).  The rule change is effective on

September 10, 2018,

the Company’s

first

fiscal quarter of fiscal year

2019.

  Under this release, the Company currently qualifies as a smaller reporting company based on its public float as of the last business day of its

second

fiscal quarter of fiscal year

2018.

A smaller reporting company

may

choose to comply with scaled or non-scaled financial and non-financial disclosure requirements on an item-by-item basis. The Company has

not

scaled its disclosures of financial and non-financial information in this Quarterly Report. The Company

may

determine to provide 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.

XML

Note B - Acquisition of Veth Propulsion Holding BV

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

B. Acquisition of Veth Propulsion Holding BV

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 current product offerings in the marine and propulsion markets. Prior to the acquisition, the Company was a distributor of Veth 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 parent of Veth Propulsion, on

June 13, 2018.

Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately

$60,729

in cash at closing, which included a base payment plus adjustments for net cash and working capital. This amount is subject to a final determination of working capital adjustments and an earn-out. The maximum earn-out is approximately

$4,000.

The earn-out will be paid if the earnings before interest, tax, depreciation and amortization of Veth Propulsion’s fiscal

2018

as defined in the Purchase Agreement (“EBITDA”) exceeds the agreed upon threshold amount. The earn-out is payable in the form of Company stock or cash, and will be determined by

April 2019.

The Company financed the payment of the cash consideration through borrowings of

$60,729

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 L, Debt.

Consideration Transferred

The following table summarizes the consideration transferred at the acquisition date:

Cash (a)	$	60,729
Fair value of contingent consideration (b)		2,927
Total	$	63,656

a) In the statement of cash flows, the cash used in the acquisition of Veth Propulsion in the amount of $59,649 is net of the cash, including restricted cash, acquired in the transaction, of $1,080 (see below for fair value of assets acquired and liabilities assumed).

b) This pertains to the fair value of the earn-out, which was estimated based on a probability-weighted approach.

Fair Value Estimate of Assets Acquired and Liabilities Assumed

The Company is continuing its review of the fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwise

not

available. This measurement period will

not

exceed

one

year from the acquisition date. At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value. The fair value estimates are pending completion of several elements, including the finalization of an independent appraisal and final review by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments.

Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill. The final determination of the purchase price, fair values and resulting goodwill

may

differ significantly from what is reflected in these consolidated financial statements.

The following summarizes the preliminary estimate of fair value of the assets acquired and liabilities assumed at the acquisition date:

Cash, including restricted cash	$	1,080		(a)
Accounts receivable		10,032		(b)
Inventories		27,641		(c)
Property, plant and equipment		1,537		(d)
Intangibles		23,700		(e)
Other assets		259
Accounts payable and customer deposits		(17,297	)
Other current liabilities		(861	)
Deferred tax liability		(7,104	)	(f)
Total net assets acquired		38,987
Goodwill		24,669		(g)
Total consideration	$	63,656

The following information provides further details about the estimated net step-up in fair value and/or the estimated fair value at the acquisition date for some key balance sheet items. 

(a) Included in cash is restricted cash in the amount of

$435.

This amount is restricted and

not

available for general business use in order to guarantee performance obligations by Veth Propulsion under certain customer contracts. A significant majority of these arrangements are set to expire in

45

days after

September 28, 2018

and they are

not

expected to be renewed.

(b) Accounts receivable represents contractual amounts receivable from customers less an allowance for doubtful accounts. This amount approximates fair value.

(c) Inventories consist of:

Raw materials	$	13,297
Projects work in progress at fair value		14,344
Inventories at fair value		27,641
Inventories at book value		22,926
Step-up	$	4,715

As of the effective date of the acquisition, inventory is required to be measured at fair value. Raw materials are typically utilized in operations within

one

year of purchase and therefore book values approximate fair value. Projects work in progress are estimated to be approximately

70%

complete, and the step to fair value less estimated costs to complete and sell resulted in a step up value of approximately

$4,715.

(d) The determination of property, plant and equipment is currently in progress. This preliminary amount assumes book value approximates fair value.

(e) Intangible assets consist of:

	Estimated fair value		Estimated average useful lives		Annual amortization
Customer relationships	$	13,600		12	$	1,133
Technology and know-how		8,300		7		1,186
Tradename		1,800		10		180
Total	$	23,700			$	2,499

The preliminary fair values were determined primarily using an income method, which utilizes financial forecasts of expected future cash flows. Some of the more significant assumptions used in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in future cash flows, and the assessment of the asset’s life cycle and competitive trends impacting the asset, as well as other factors.

(f) This represents the net deferred tax liability associated with the fair value of assets acquired and liabilities assumed.

(g) The Company is

not

able to deduct any of the goodwill for tax purposes.

The fair values presented above are preliminary until the Company completes its work with the use of a

third

party valuation firm, and are subject to change. Any changes to the initial estimates of the fair value of assets and liabilities will impact residual goodwill and

may

affect future earnings.

As part of the acquisition, the Company entered into a

fifteen

-year lease with the Het Komt Vast Goed B.V., the owner of the real property where Veth Propulsion’s operations are located. Under this lease, the Company pays an annual rent of

$1,168,

with provisions for increasing rent based on the prevailing consumer price index.

Summary Financial Information

The following table presents financial information for Veth Propulsion that is included in the Company’s consolidated statement of operations for the

first

quarter ended

September 28, 2018:

Net sales	$	13,353
Gross profit (a)		2,186
Operating loss (b)		(720	)
Net loss attributable to Twin Disc	$	(950	)

(a)	Gross profit includes the non-recurring charge for the step-up of inventories acquired of $1,171 for the quarter.
(b)	In addition to (a), operating loss includes the amortization of intangible assets acquired of $621 for the quarter, and non-recurring charges related to the acquisition of $204.

The following table presents unaudited supplemental pro forma information as if the acquisition of Veth Propulsion had occurred on

July 1, 2017.

	Quarter Ended
	September 29, 2017
Net sales	$	59,709
Gross profit (a)		17,189
Net income attributable to Twin Disc (b)	$	2,715
Basic income per share attributable to Twin Disc	$	0.24
Diluted income per share attributable to Twin Disc	$	0.24
Weighted average number of common shares outstanding:
Basic		11,256
Diluted		11,259

(a) Gross profit includes the amortization of the step-up of inventories of $1,171 for the quarter.

(b) In addition to (a), this includes the amortization of intangible assets acquired and interest expense on borrowings under the Credit Agreement net of other expenses, amounting to $1,136, before tax.

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Note C - Revenue Recognition

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

C.

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 collectibility 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 collectibility becomes probable.

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

Identify contract with customer:

The Company gathered customer contracts and representative customer purchase orders of its various locations. The Company’s customers consist of distributors and direct end-users. With regard to distributors, the Company generally has written distribution agreements which describe the terms of the distribution arrangement, such as the product range, the sales territory, product pricing, sales support, payment and returns policy, etc. Customer contracts are generally in the form of acknowledged purchase orders. Services to be rendered, as part of the delivery of those products, are also generally specified. Such services include installation reviews and technical commissioning.

Performance obligations:

The Company’s performance obligation as it relates to the delivery of goods is straightforward; the recognition of revenue is generally driven by shipment date and the terms of sale. As it relates to the Company’s service obligations, the Company determined that installation reviews, shift development and technical commissioning are separate and distinct performance obligations.

Transaction price:

The Company considers the invoice price as the transaction price.

Allocation of transaction price:

The Company determined that the most relevant allocation method for its service obligations is to apply the expected cost plus appropriate margin. This is the Company’s current practice of billing for repairs, overhaul, and other product service related time incurred by its technicians.

Recognize revenue:

Revenue is recognized upon transfer of control of the products to the customer. For installation review, shift development, and technical commissioning services, revenue is recognized upon completion of the service.

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarter ended

September 28, 2018.

Net sales by product group is summarized as follows:

					Elimination of
	Manufacturing		Distribution		Intercompany Sales			Total
Industrial	$	6,481	$	1,396	$	(832	)	$	7,045
Land-based transmissions		29,432		5,611		(5,407	)		29,636
Marine and propulsion systems		32,976		14,156		(10,857	)		36,275
Other		23		1,757		(47	)		1,733
Total	$	68,912	$	22,920	$	(17,143	)	$	74,689

Contract assets

/liabiliies

:

There are

no

significant balances of contract assets or liabilities as of

September 28, 2018.

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Note D - Inventories

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

D . Inventor ies

The major classes of inventories were as follows:

	September 28, 2018		June 30, 2018
Inventories:
Finished parts	$	53,313	$	49,332
Work in process		27,716		13,183
Raw materials		42,410		21,486
	$	123,439	$	84,001

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Note E - Warranty

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

E . Warranty

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

September 28, 2018

and

September 29, 2017:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Reserve balance, beginning of period	$	4,407		$	2,062
Current period expense and adjustments		729			658
Payments or credits to customers		(1,020	)		(433	)
Acquisition		557			-
Translation		(6	)		39
Reserve balance, end of period	$	4,667		$	2,326

The current portion of the warranty accrual (

$4,139

and

$1,968

as of

September 28, 2018

and

September 29, 2017,

respectively) is reflected in accrued liabilities, while the long-term portion (

$528

and

$358

as of

September 28, 2018

and

September 29, 2017,

respectively) is included in other long-term liabilities on the consolidated balance sheets.

XML

Note F - Contingencies

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

F . Contingencies

The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, is

not

presently determinable. Management believes that final disposition of such litigation will

not

have a material impact on the Company’s results of operations, financial position or cash flows.

XML

Note G - Business Segments

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

G . Business Segments

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

The Company has

two

reportable segments: manufacturing and distribution. Its segment structure reflects the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices.  Management evaluates the performance of its segments based on net income.

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

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Net sales
Manufacturing segment sales	$	68,912		$	39,872
Distribution segment sales		22,920			17,662
Inter/Intra segment elimination – manufacturing		(14,749	)		(10,332	)
Inter/Intra segment elimination – distribution		(2,394	)		(2,138	)
	$	74,689		$	45,064
Net income attributable to Twin Disc
Manufacturing segment net income	$	7,235		$	5,067
Distribution segment net income		865			669
Corporate and eliminations		(5,238	)		(2,344	)
	$	2,862		$	3,392

Assets	September 28, 2018			June 30, 2018
Manufacturing segment assets	$	367,376		$	266,417
Distribution segment assets		54,544			52,230
Corporate assets and elimination of intercompany assets		(81,163	)		(77,407	)
	$	340,757		$	241,240

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Note H - Stock-based Compensation

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

H . Stock-Based Compensation

Performance Stock Awards (“PSA”)

During the

first

quarter of fiscal

2019

and

2018,

the Company granted a target number of

37.0

and

54.9

PSAs, respectively, to various employees of the Company, including executive officers. The fiscal

2019

PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual Earnings Per Share (“EPS”) (as defined in the PSA Grant Agreement), in the cumulative

three

fiscal year period ending

June 30, 2021.

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

55.4.

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

The fiscal

2018

PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital, average annual sales and average annual EPS (as defined in the PSA Grant Agreement), in the cumulative

three

fiscal year period ending

June 30, 2020.

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

69.2.

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

There were

182.7

and

224.9

unvested PSAs outstanding at

September 28, 2018

and

September 29, 2017,

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

$546

and

$15

was recognized for the quarters ended

September 28, 2018

and

September 29, 2017,

respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at

September 28, 2018

was

$15.02.

At

September 28, 2018,

the Company had

$1,683

of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal

2019,

2018

and

2017

awards. The total fair value of PSAs vested as of

September 28, 2018

and

September 29, 2017

was

$0

.

Restricted Stock Awards (“RS”)

The Company has unvested RS awards outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation expense over the vesting period, which is generally

1

to

3

years. During the

first

quarter of fiscal

2019

and

2018,

the Company granted

4.0

and

65.8

service based restricted shares, respectively, to employees and non-employee directors. There were

170.4

and

309.5

unvested shares outstanding at

September 28, 2018

and

September 29, 2017,

respectively. A total of

2.8

shares of restricted stock were forfeited during the quarter ended

September 28, 2018.

There were

no

shares of restricted stock forfeited during the quarter ended

September 29, 2017.

Compensation expense of

$250

and

$463

was recognized for the quarters ended

September 28, 2018

and

September 29, 2017,

respectively. The total fair value of restricted stock grants vested as of

September 28, 2018

and

September 29, 2017

was

$1,785

and

$444,

respectively. As of

September 28, 2018,

the Company had

$927

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 the

first

quarter of fiscal

2019,

the Company granted

38.0

RSUs to various employees of the Company, including executive officers. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. There were

38.0

unvested RSUs outstanding at

September 28, 2018.

Compensation expense of

$54

was recognized for the quarter ended

September 28, 2018.

The weighted average grant date fair value of the unvested awards at

September 28, 2018

was

$25.77.

As of

September 28, 2018,

the Company had

$924

of unrecognized compensation expense related to restricted stock which will be recognized over the next

three

years.

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Note I - Pension and Other Postretirement Benefit Plans

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

I . Pension and Other Postretirement Benefit Plans

The Company has non-contributory, qualified defined benefit plans covering substantially all domestic employees hired prior to

October 1, 2003

and certain foreign employees. Additionally, the Company provides health care and life insurance benefits for certain domestic retirees. The components of the net periodic benefit cost for the defined benefit pension plans and the other postretirement benefit plan are as follows:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Pension Benefits:
Service cost	$	246		$	262
Interest cost		1,092			1,074
Expected return on plan assets		(1,331	)		(1,525	)
Amortization of transition obligation		9			9
Amortization of prior service cost		1			1
Amortization of actuarial net loss		678			759
Net periodic benefit cost	$	695		$	580
Postretirement Benefits:
Service cost	$	5		$	5
Interest cost		76			92
Amortization of actuarial net loss		(69	)		3
Net periodic benefit cost	$	12		$	100

The Company expects to contribute approximately

$2,382

to its pension plans in fiscal

2019.

As of

September 28, 2018,

the amount of

$1,054

in contributions has been made.

The Company has reclassified

$471

(net of

$146

in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended

September 28, 2018,

and

$474

(net of

$278

in taxes) during the quarter ended

September 29, 2017.

These reclassifications are included in the computation of net periodic benefit cost.

XML

Note J - Income Taxes

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

J . Income Taxes

On

December 22, 2017,

the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U.S corporate tax rate, business related exclusions and deductions and credits, and has tax consequences for companies that operate internationally. Most of the changes introduced in the Tax Act are effective beginning on

January 1, 2018;

however, as the Company has a fiscal year end of

June 30,

the effective dates for the Company are various and different.

For the quarter ended

September 28, 2018

and

September 29, 2017,

the Company’s effective income tax rate was

23.4%

and

371.7%

respectively. In the prior year, increased and sustained profitability in a foreign jurisdiction resulted in the release of a

$3,803

valuation allowance which increased the effective tax rate by

303.5%.

The Tax Act reduced the US corporate income tax rate from

35%

to

21%.

As a fiscal

June 30

th

filer, this rate change has reduced the company’s effective tax rate by

13%.

The mix of earnings by jurisdiction reduced the effective tax rate by

29.9%.

Consistent preference items, coupled with increased profitability resulted in additional benefit to the rate.

Within the calculation of the Company’s annual effective tax rate the Company has used assumptions and estimates that

may

change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. Further, the Company anticipates that the state jurisdictions will continue to determine and announce their conformity to the Tax Act, which could have an impact on the annual effective tax rate.

The permanent reduction to the U.S. federal corporate income tax rate from

35%

to

21%

is effective

January 1, 2018.

The effective tax rate in the

first

quarter of fiscal

2019

reflects the reduction in the statutory federal income tax rate to

21%.

The deemed repatriation transition tax is a tax on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries. To determine the amount of the transition tax, the Company calculated the amount of post-

1986

earnings and profits for all foreign subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. The Company calculated the amount of the transition tax and determined it to be

zero

based on overall net historical negative earnings and profits.

As

no

new material information nor material interpretational changes have developed during the

first

quarter of fiscal

2019,

the Company’s previous calculation reflected in fiscal

2018

has

not

changed. With the enactment of the transition tax, any future dividends repatriated would benefit from the

100%

Dividends Received Deduction. The company reaffirms its positon that the earnings of certain foreign subsidiaries remain permanently reinvested. An analysis was also completed to verify the future utilization of tax attributes and it was determined that full utilization would be realized and

no

valuation allowance was required. The company has completed a provisional analysis of the global intangible low taxed income (“GILTI”) provisions and anticipates

no

impact to the financial statements due to the offset of the inclusion with the associated foreign tax credits. A provisional foreign-derived intangible income (“FDII) calculation was completed and the benefit has been reflected in the quarterly provision. The Company has provisionally elected to treat GILTI as a period expense; however, the Company has

not

made a final accounting policy decision with respect to this item. A provisional analysis of the new base erosion anti-abuse tax (“BEAT”) rules has been completed and the Company does

not

meet the minimum thresholds at this time and is therefore

not

subject to this tax. These estimates

may

be impacted by actual future data, additional guidance or other unforeseen circumstances.

Under ASC Topic

740,

Income Taxes ("ASC

740"

), a company is generally required to recognize the effect of changes in tax laws in its financial statements in the period in which the legislation is enacted. U.S. income tax laws are deemed to be effective on the date the president signs tax legislation. The president signed the Tax Act legislation on

December 22, 2017.

As such, the Company is required to recognize the related impacts to the financial statements in the quarter ended

December 29, 2017.

In acknowledgment of the substantial changes incorporated in the Tax Act, in conjunction with the timing of the enactment being just weeks before the majority of the provisions became effective, the SEC staff issued Staff Accounting Bulletin ("SAB")

118

to provide certain guidance in determining the accounting for income tax effects of the legislation in the accounting period of enactment as well as provide a measurement period (similar to that used when accounting for business combinations) within which to finalize and reflect such final effects associated with the Tax Act. Further, SAB

118

summarizes a

three

-step approach to be applied each reporting period within the overall measurement period: (

1

) amounts should be reflected in the period including the date of enactment for those items which are deemed to be complete (i.e. all information is available and appropriately analyzed to determine the applicable financial statement impact), (

2

) to the extent the effects of certain changes due to the Tax Act for which the accounting is

not

deemed complete but for which a reasonable estimate can be determined, such provisional amount(s) should be reflected in the period so determined and adjusted in subsequent periods as such effects are finalized and (

3

) to the extent a reasonable estimate cannot be determined for a specific effect of the tax law change associated with the Tax Act,

no

provisional amount should be recorded but rather, continue to apply ASC

740

based upon the tax law in effect prior to the enactment of the Tax Act. Such measurement period is deemed to end when all necessary information has been obtained, prepared and analyzed such that a final accounting determination can be concluded, but in

no

event should the period extend beyond

one

year. If a company does

not

have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB

118

allows a company to report provisional numbers and adjust those amounts during the measurement period

not

to extend beyond

one

year. For the quarter ended

September 28, 2018,

the Company has recorded all known and estimable impacts of the Tax Act that are effective for fiscal year

2019.

Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.

The Company maintains valuation allowances when it is more likely than

not

that all or a portion of a deferred tax asset will

not

be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company has evaluated the realizability of the net deferred tax assets related to its operations and based on this evaluation management has concluded that

no

valuation allowances are required.

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

The Company has approximately

$990

of unrecognized tax benefits, including related interest and penalties, as of

September 28, 2018,

which, if recognized, would favorably impact the effective tax rate. There was

no

significant change in the total unrecognized tax benefits due to the settlement of audits, the expiration of statutes of limitations or for other items during the quarter ended

September 28, 2018.

It appears possible that the amount of unrecognized tax benefits could change in the next

twelve

months due to on-going audit activity.

Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are

2011

through

2018

for the major operations in Italy, Canada, Belgium, and Japan. The tax years open to examination in the U.S. are for years subsequent to fiscal

2015.

The state of Wisconsin income tax audit remains ongoing for the fiscal years

2010

through

2013.

It is reasonably possible that other audit cycles will be completed during fiscal

2019.

XML

Note K - Goodwill and Other Intangibles

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

K . Goodwill and Other Intangibles

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

The Company reviews goodwill for impairment on a reporting unit basis annually as of the end of the fiscal year, and whenever events or circumstances (“triggering events”) indicate that the carrying value of goodwill

may

not

be recoverable. The Company monitors for interim triggering events on an ongoing basis. Such triggering events include unfavorable operating results and macroeconomic trends.

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.

On

July 2, 2018,

as discussed in Note B, the Company acquired goodwill in the estimated amount of

$24,669

and intangible assets in the estimated amount of

$23,700

as part of the acquisition of Veth Propulsion Holding BV. These estimates are preliminary and are pending completion of several elements, including the finalization of an independent valuation of fair value of the assets acquired and liabilities assumed and final review by the Company’s management. The final determination of the purchase price, fair values and resulting goodwill

may

differ significantly from what is currently reflected.

As of

September 28, 2018,

changes in the carrying amount of goodwill is summarized as follows:

	Net Book Value Rollforward									By Reporting Unit
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			European Industrial			European Propulsion
Balance at June 30, 2018	$	16,514		$	(13,822	)	$	2,692		$	2,692		$	-
Acquisition		24,669			-			24,669			-			24,669
Translation adjustment		(96	)		-			(96	)		(9	)		(87	)
Balance at Septmeber 28, 2018	$	41,087		$	(13,822	)	$	27,265		$	2,683		$	24,582

For the quarter ended

September 28, 2018,

the Company performed a review of potential triggering events, and concluded there were

no

triggering events that indicated that the fair value of its European Industrial reporting unit had

not

more likely than

not

declined to below its carrying value at

September 28, 2018.

The Company will perform its annual impairment test for this reporting unit as of

June 30, 2019.

As of

September 28, 2018,

the following acquired intangible assets have definite useful lives and are subject to amortization:

	Net Book Value Rollforward									Net Book Value By Asset Type
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			Trade Name			Customer Relationships			Technology Know-how			Other
Balance at June 30, 2018	$	13,485		$	(11,781	)	$	1,704		$	1,288		$	-		$	-		$	416
Acquisition		23,700			-			23,700			1,800			13,600			8,300			-
Other additions		4			-			4			-			-			-			4
Amortization		-			(665	)		(665	)		(66	)		(281	)		(295	)		(23	)
Translation adjustment		(163	)		-			(163	)		(17	)		(91	)		(55	)		-
Balance at Septmeber 28, 2018	$	37,026		$	(12,446	)	$	24,580		$	3,005		$	13,228		$	7,950		$	397

Other intangibles consist of certain amortizable acquisition costs, proprietary technology, computer software, licensing agreements and certain customer relationships.

The weighted average remaining useful life of the intangible assets included in the table above is approximately

10

years.

Intangible amortization expense was

$665

and

$44

for the quarters ended

September 28, 2018,

and

September 29, 2017,

respectively. Estimated intangible amortization expense for the remainder of fiscal

2019

and each of the next

five

fiscal years is as follows:

Fiscal Year
2019	$	1,996
2020		2,662
2021		2,647
2022		2,631
2023		2,628
2024		2,598

The gross carrying amount of the Company’s intangible assets that have indefinite lives and are

not

subject to amortization as of

September 28, 2018

and

June 30, 2018

was

$206

and

$202,

respectively. These assets are comprised of acquired trade names.

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Note L - Long-term Debt

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

L. Long-term 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 (the

“2016

Credit Agreement”), 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.

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, and the personal property of Mill-Log Equipment Co., Inc. (“Mill-Log”), a wholly-owned domestic subsidiary of the Company. The Company has also pledged

100%

of its equity interests in certain domestic subsidiaries and

65%

of its equity interests in certain foreign subsidiaries. To effect these security interests, the Company and Mill-Log entered into various amendments and assignment agreements that consent to the assignment to BMO of certain agreements previously entered into between the Company and Mill-Log with Bank of Montreal in connection with the

2016

Credit Agreement. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsions described in Note B.

On

July 2, 2018,

in connection with the acquisition of Veth Propulsion, as described in Note B, the Company drew a total of

$60,729

of additional borrowings on the new credit facility, consisting of a

$35,000

Term Loan payable and revolver borrowings of

$25,729.

 

On

September 25, 2018,

the Company used the proceeds of a stock offering (see Note M) of

$32,310

to partially pay down the Term Loan and Revolving Loans.

Long-term debt at

September 28, 2018

and

June 30, 2018

consisted of the following:

	September 28, 2018		June 30, 2018
Revolving loans	$	26,581	$	4,787
Term loan		10,830		-
Other		35		37
Total long-term debt	$	37,446	$	4,824

During the quarter, the average interest rates paid on loans were as follows:

5.1%

on the Term Loan,

2.25%

on the euro revolver, and

4.35%

on the USD revolver.

As of

September 28, 2018,

the Company’s borrowing capacity under the terms of the Credit Agreement was

$50,000,

and the Company had approximately

$23,419

of available borrowings. In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

The Company’s borrowings described above approximates fair value at

September 28, 2018

and

June 30, 2018.

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.

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Note M - Shareholders' Equity

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

M. Shareholders’ Equity

The Company completed the sale of

1,533.3

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 paid-in capital as of

September 28, 2018.

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

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which

315.0

shares as of

September 28, 2018

remain authorized for purchase.  The Company did

not

make any open market purchases of its shares during the quarters ended

September 28, 2018

and

September 29, 2017.

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

first

fiscal quarter of

2019

and

2018:

	Twin Disc, Inc. Shareholders’ Equity
						Accumulated
						Other						Non-
	Common			Retained		Comprehensive			Treasury			Controlling			Total
	Stock			Earnings		Income (Loss)			Stock			Interest			Equity
Balance, June 30, 2018	$	11,570		$	178,896	$	(23,792	)	$	(23,677	)	$	619		$	143,616
Net income					2,862								41			2,903
Translation adjustments							(536	)					(25	)		(561	)
Benefit plan adjustments, net of tax							471									471
Release stranded tax effects					6,903		(6,903	)								-
Cash dividends													(115	)		(115	)
Compensation expense		850														850
Common stock issued, net		32,210														32,210
Shares acquired, net		(586	)							(328	)					(914	)
Balance, September 28, 2018	$	44,044		$	188,661	$	(30,760	)	$	(24,005	)	$	520		$	178,460

	Twin Disc, Inc. Shareholders’ Equity
						Accumulated
						Other						Non-
	Common			Retained		Comprehensive			Treasury			Controlling			Total
	Stock			Earnings		Income (Loss)			Stock			Interest			Equity
Balance, June 30, 2017	$	10,429		$	169,368	$	(32,671	)	$	(24,205	)	$	646		$	123,567
Net income					3,392								13			3,405
Translation adjustments							2,547						(6	)		2,541
Benefit plan adjustments, net of tax							474									474
Cash dividends													(172	)		(172	)
Compensation expense		479														479
Shares (acquired) issued, net		(1,030	)							817						(213	)
Balance, September 29, 2017	$	9,878		$	172,760	$	(29,650	)	$	(23,388	)	$	481		$	130,081

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended

September 28, 2018,

and

September 29, 2017

are as follows:

	Translation			Benefit Plan
	Adjustment			Adjustment
Balance at June 30, 2018	$	7,085		$	(30,877	)
Translation adjustment during the quarter		(536	)		-
Release stranded tax effects		-			(6,903	)
Amounts reclassified from accumulated other comprehensive income		-			471
Net current period other comprehensive income		(536	)		(6,432	)
Balance at September 28, 2018	$	6,549		$	(37,309	)

	Translation		Benefit Plan
	Adjustment		Adjustment
Balance at June 30, 2017	$	6,130	$	(38,801	)
Translation adjustment during the quarter		2,547		-
Amounts reclassified from accumulated other comprehensive income		-		474
Net current period other comprehensive income		2,547		474
Balance at September 29, 2017	$	8,677	$	(38,327	)

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended

September 28, 2018

are as follows:

	Amount Reclassified
	Quarter Ended
	September 28, 2018
Changes in benefit plan items
Actuarial losses	$	607	(a)
Transition asset and prior service benefit		10	(a)
Total amortization		617
Income taxes		146
Total reclassification net of tax	$	471

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended

September 29, 2017

is as follows:

	Amount Reclassified
	Quarter Ended
	September 29, 2017
Changes in benefit plan items
Actuarial losses	$	742	(a)
Transition asset and prior service benefit		10	(a)
Total amortization		752
Income taxes		278
Total reclassification net of tax	$	474

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

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Note N - Restructuring of Operations

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Restructuring, Impairment, and Other Activities Disclosure [Text Block]

N. Restructuring of Operations

The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends in certain of the Company’s markets since the

fourth

quarter of fiscal

2015.

These programs primarily involved the reduction of workforce in several of the Company’s manufacturing locations, under a combination of voluntary and involuntary programs.

During the current year, the Company implemented continued actions to reduce personnel costs in its Belgian operations and reorganize for productivity in its European operations. These actions resulted in a restructuring charge of

$173

in the quarter ended

September 28, 2018.

For the quarter ended

September 29, 2017,

restructuring charges of

$1,218

pertained to similar actions to reduce personnel costs in the Company’s Belgian operations, as well as costs associated with the India manufacturing operations exit.

Restructuring activities since

June 2015

have resulted in the elimination of

172

full-time employees in the manufacturing segment. Accumulated costs to date under these programs within the manufacturing segment through

September 28, 2018

were

$9,446.

The following is a rollforward of restructuring activity:

Accrued restructuring liability, June 30, 2018	$	90
Additions during the year		173
Payments and adjustments during the year		(177	)
Accrued restructuring liability, September 28, 2018	$	86

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Note O - Earnings Per Share

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

O. Earnings Per Share

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

two

-class method. 

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

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Basic:
Net income	$	2,903		$	3,405
Less: Net earnings attributable to noncontrolling interest		(41	)		(13	)
Less: Undistributed earnings attributable to unvested shares		(49	)		(85	)
Net income available to Twin Disc shareholders		2,813			3,307
Weighted average shares outstanding - basic		11,722			11,256
Basic Income Per Share:
Net income per share - basic	$	0.24		$	0.29
Diluted:
Net income	$	2,903		$	3,405
Less: Net earnings attributable to noncontrolling interest		(41	)		(13	)
Less: Undistributed earnings attributable to unvested shares		(49	)		(85	)
Net income available to Twin Disc shareholders		2,813			3,307
Weighted average shares outstanding - basic		11,722			11,256
Effect of dilutive stock awards		77			3
Weighted average shares outstanding - diluted		11,799			11,259
Diluted Income Per Share:
Net income per share - diluted	$	0.24		$	0.29

The following potential common shares were excluded from diluted EPS for the quarter ended

September 28, 2018

because they were anti-dilutive:

180.6

related to the Company’s unvested PSAs,

170.4

related to the Company’s unvested RS awards,

28.2

related to the Company’s unvested RSUs, and

3.3

related to outstanding stock options.

The following potential common shares were excluded from diluted EPS for the quarter ended

September 29, 2017

because they were anti-dilutive:

224.9

related to the Company’s unvested PSAs,

309.5

related to the Company’s unvested RS awards, and

9.9

related to outstanding stock options.

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Note P - Lease Liabilities

3 Months Ended

Sep. 28, 2018

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

P. Lease Liabilities

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

The components of lease expense were as follows:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Finance lease cost:
Amortization of right-of-use assets	$	1		$	1
Operating lease cost		880			633
Short-term lease cost		11			33
Variable lease cost		8			3
Total lease cost	$	900		$	670
Less: Sublease income		(16	)		(53	)
Net lease cost	$	884		$	617

Other information related to leases was as follows:

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	871		$	579
Operating cash flows from finance leases		1			1
Right-of-use-assets obtained in exchange for lease obligations:
Operating leases		12,127			280
Weighted average remaining lease term (years):
Operating leases		11.4			5.7
Finance lease		3.8			4.8
Weighted average discount rate:
Operating leases		7.6	%		6.5	%
Finance leases		4.0	%		4.0	%

Approximate future minimum rental commitments under non-cancellable lease as of

September 28, 2018

were as follows:

	Operating Leases			Finance Leases
2019	$	2,684		$	2
2020		3,115			3
2021		2,467			3
2022		1,969			3
2023		1,790			-
Thereafter		13,212			-
Total future lease payments		25,237			11
Less: Amount representing interest		(8,167	)		(1	)
Present value of future payments	$	17,070		$	10

The Company had

$17,071

and

$6,527

of operating lease right-of-use assets recorded in property, plant and equipment, net as of

September 28, 2018

and

June 30, 2018,

respectively. The Company had

$17,070

and

$6,527

of operating lease liabilities recorded in lease obligations as of

September 28, 2018

and

June 30, 2018,

respectively.

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Significant Accounting Policies (Policies)

3 Months Ended

Sep. 28, 2018

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

a.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance (ASU 2014 - 09 ) on revenue from contracts with customers. This revenue recognition guidance supersedes existing guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of control over promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. The Company adopted this guidance effective July 1, 2018, using the modified retrospective method and applied the cumulative effect to its retained earnings balance as of that date. Prior periods presented were not retrospectively adjusted for this change. The Company has applied the new revenue recognition standard only to contracts that were not completed as of July 1, 2018.

The Company determined that deferral of revenue is appropriate for certain agreements where the performance of services after product delivery is required. Such services primarily pertain to technical commissioning services by its distribution entities in its marine business, whereby the Company’s technicians calibrate the controls and transmission to ensure proper performance for the customer’s specific application. This service helps identify issues with the ship's design or performance that need to be remediated by the ship builder or other component suppliers prior to the ship being officially accepted into service by the ship buyer. The cumulative effect adjustment of adopting the new standard is not significant to the Company’s results of operations and financial condition.

b.

In February 2016, the FASB issued guidance (ASU 2016 - 02 ) which replaces the existing guidance for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company elected to early adopt the standard effective July 1, 2018 concurrent with the adoption of ASU 2014 - 09, Revenue from Contracts with Customers, using the modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements, which required the Company to restate each prior reporting period presented.

For operating leases in which the Company is a lessee, the Company concluded that all existing operating leases under the old guidance continue to be classified as operating leases under the new guidance, and all existing capital leases under the old guidance are classified as finance leases under the new guidance. The Company excluded any lease contracts with terms of twelve months or less as of the adoption date. The Company has lease agreements with lease and non-lease components, which are generally accounted for as separate lease components. The Company accounts for short-term leases on a straight-line basis over the lease term.

The following table presents the effect of the adoption of ASU

2016

-

02

on the Company’s condensed consolidated balance sheet as of

June 30, 2018:

	June 30, 2018		Adoption		June 30, 2018
	As Reported		Impact		Restated
Property, plant and equipment, net	$	48,940	$	6,527	$	55,467
Lease obligations		-		6,527		6,527

	The adoption of ASU 2014 - 09 and ASU 2016 - 02 did not have an impact on the Company’s condensed consolidated statement of operations and comprehensive income or condensed consolidated statement of cash flows for the quarter ended September 29, 2017.
c.	In March 2017, the FASB issued guidance (ASU 2017 - 07 ) intended to improve the presentation of net periodic pension cost and net periodic postretirement cost. This guidance requires that an employer report the service costs component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of income from operations. The Company adopted this guidance effective July 1, 2018 on a retrospective basis, which resulted in the reclassification of certain amounts from cost of goods sold and marketing, engineering and administrative expenses to other expense (income), net in the condensed consolidated statements of operations and comprehensive income. As a result, prior period amounts impacted have been revised accordingly.
	The following table presents the effect of the adoption of ASU 2017 - 07 on the Company’s condensed consolidated statements of operations and comprehensive income for the quarter ended September 29, 2017:

	September 29, 2017			Adoption			September 29, 2017
	As Reported			Impact			Restated
Cost of goods sold	$	31,169		$	(97	)	$	31,072
Gross profit		13,895			97			13,992
Marketing, engineering and administrative expenses		13,668			(274	)		13,394
Income (loss) from operations		(991	)		371			(620	)
Other expense (income), net		198			371			569

d. In February 2018, the FASB issued guidance (ASU 2018 - 02 ) intended to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act by allowing a reclassification from accumulated other comprehensive income to retained earnings. The Company elected to early adopt this guidance effective July 1, 2018 by making a reclassification of $6,903 from accumulated other comprehensive loss to retained earnings.

e. In October 2016, the FASB issued updated guidance (ASU 2016 - 16 ) that changes the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. The Company adopted this guidance effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

f. In August 2016, the FASB issued updated guidance (ASU 2016 - 15 ) that addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company adopted this guidance effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements and disclosures.

New Accounting Releases

In

August 2018,

the FASB issued updated guidance (ASU

2018

-

13

) as part of the disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to the financial statements. The amendments in this update modify the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019 (

the Company’s fiscal

2021

), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.

In

August 2018,

the FASB issued updated guidance (ASU

2018

-

14

) intended to modify the disclosure requirements for employers that sponsor defined 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

August 2018,

the SEC issued Release

No.

33

-

10532,

Disclosure Update and Simplification. In addition to eliminating certain disclosure requirements, this release also amends the interim financial statement requirements to require provision of the information required by Regulation S-

X

Rule

3

-

04

for the current and comparative year-to-date periods, with subtotals for each interim period. Rule

3

-

04

requires a reconciliation of stockholders’ equity beginning and ending balances for each period for which a statement of comprehensive income is required to be filed. The release is effective on

November 5, 2018,

the Company’s

second

fiscal quarter of fiscal year

2019.

Special Note Regarding Smaller Reporting Company Status

In

June 2018,

the SEC issued Release

33

-

10513;

34

-

83550,

Amendments to Smaller Reporting Company Definition, which changes the definition of a smaller reporting company in Rule

12b

-

2

of the Securities Exchange Act of

1934,

as amended.  Under this release, the new thresholds for qualifying are (

1

) public float of less than

$250

million or (

2

) annual revenue of less than

$100

million in annual revenue and public float of less than

$700

million (including

no

public float).  The rule change is effective on

September 10, 2018,

the Company’s

first

fiscal quarter of fiscal year

2019.

  Under this release, the Company currently qualifies as a smaller reporting company based on its public float as of the last business day of its

second

fiscal quarter of fiscal year

2018.

A smaller reporting company

may

choose to comply with scaled or non-scaled financial and non-financial disclosure requirements on an item-by-item basis. The Company has

not

scaled its disclosures of financial and non-financial information in this Quarterly Report. The Company

may

determine to provide 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.

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Note A - Basis of Presentation (Tables)

3 Months Ended

Sep. 28, 2018

Accounting Standards Update 2017-07 [Member]

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	September 29, 2017			Adoption			September 29, 2017
	As Reported			Impact			Restated
Cost of goods sold	$	31,169		$	(97	)	$	31,072
Gross profit		13,895			97			13,992
Marketing, engineering and administrative expenses		13,668			(274	)		13,394
Income (loss) from operations		(991	)		371			(620	)
Other expense (income), net		198			371			569

Accounting Standards Update 2016-02 [Member]

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	June 30, 2018		Adoption		June 30, 2018
	As Reported		Impact		Restated
Property, plant and equipment, net	$	48,940	$	6,527	$	55,467
Lease obligations		-		6,527		6,527

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Note B - Acquisition of Veth Propulsion Holding BV (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Business Acquisitions by Acquisition, Consideration Transferred [Table Text Block]

Cash (a)	$	60,729
Fair value of contingent consideration (b)		2,927
Total	$	63,656

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Cash, including restricted cash	$	1,080		(a)
Accounts receivable		10,032		(b)
Inventories		27,641		(c)
Property, plant and equipment		1,537		(d)
Intangibles		23,700		(e)
Other assets		259
Accounts payable and customer deposits		(17,297	)
Other current liabilities		(861	)
Deferred tax liability		(7,104	)	(f)
Total net assets acquired		38,987
Goodwill		24,669		(g)
Total consideration	$	63,656

Schedule of Inventory Acquired, Measured at Fair Value [Table Text Block]

Raw materials	$	13,297
Projects work in progress at fair value		14,344
Inventories at fair value		27,641
Inventories at book value		22,926
Step-up	$	4,715

Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block]

	Estimated fair value		Estimated average useful lives		Annual amortization
Customer relationships	$	13,600		12	$	1,133
Technology and know-how		8,300		7		1,186
Tradename		1,800		10		180
Total	$	23,700			$	2,499

Business Acquisition, Pro Forma Information, Actual [Table Text Block]

Net sales	$	13,353
Gross profit (a)		2,186
Operating loss (b)		(720	)
Net loss attributable to Twin Disc	$	(950	)

Business Acquisition, Pro Forma Information [Table Text Block]

	Quarter Ended
	September 29, 2017
Net sales	$	59,709
Gross profit (a)		17,189
Net income attributable to Twin Disc (b)	$	2,715
Basic income per share attributable to Twin Disc	$	0.24
Diluted income per share attributable to Twin Disc	$	0.24
Weighted average number of common shares outstanding:
Basic		11,256
Diluted		11,259

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Note C - Revenue Recognition (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Disaggregation of Revenue [Table Text Block]

					Elimination of
	Manufacturing		Distribution		Intercompany Sales			Total
Industrial	$	6,481	$	1,396	$	(832	)	$	7,045
Land-based transmissions		29,432		5,611		(5,407	)		29,636
Marine and propulsion systems		32,976		14,156		(10,857	)		36,275
Other		23		1,757		(47	)		1,733
Total	$	68,912	$	22,920	$	(17,143	)	$	74,689

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Note D - Inventories (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 28, 2018		June 30, 2018
Inventories:
Finished parts	$	53,313	$	49,332
Work in process		27,716		13,183
Raw materials		42,410		21,486
	$	123,439	$	84,001

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Note E - Warranty (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Reserve balance, beginning of period	$	4,407		$	2,062
Current period expense and adjustments		729			658
Payments or credits to customers		(1,020	)		(433	)
Acquisition		557			-
Translation		(6	)		39
Reserve balance, end of period	$	4,667		$	2,326

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Note G - Business Segments (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Net sales
Manufacturing segment sales	$	68,912		$	39,872
Distribution segment sales		22,920			17,662
Inter/Intra segment elimination – manufacturing		(14,749	)		(10,332	)
Inter/Intra segment elimination – distribution		(2,394	)		(2,138	)
	$	74,689		$	45,064
Net income attributable to Twin Disc
Manufacturing segment net income	$	7,235		$	5,067
Distribution segment net income		865			669
Corporate and eliminations		(5,238	)		(2,344	)
	$	2,862		$	3,392

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

Assets	September 28, 2018			June 30, 2018
Manufacturing segment assets	$	367,376		$	266,417
Distribution segment assets		54,544			52,230
Corporate assets and elimination of intercompany assets		(81,163	)		(77,407	)
	$	340,757		$	241,240

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Note I - Pension and Other Postretirement Benefit Plans (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Net Funded Status [Table Text Block]

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Pension Benefits:
Service cost	$	246		$	262
Interest cost		1,092			1,074
Expected return on plan assets		(1,331	)		(1,525	)
Amortization of transition obligation		9			9
Amortization of prior service cost		1			1
Amortization of actuarial net loss		678			759
Net periodic benefit cost	$	695		$	580
Postretirement Benefits:
Service cost	$	5		$	5
Interest cost		76			92
Amortization of actuarial net loss		(69	)		3
Net periodic benefit cost	$	12		$	100

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Note K - Goodwill and Other Intangibles (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Goodwill [Table Text Block]

	Net Book Value Rollforward									By Reporting Unit
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			European Industrial			European Propulsion
Balance at June 30, 2018	$	16,514		$	(13,822	)	$	2,692		$	2,692		$	-
Acquisition		24,669			-			24,669			-			24,669
Translation adjustment		(96	)		-			(96	)		(9	)		(87	)
Balance at Septmeber 28, 2018	$	41,087		$	(13,822	)	$	27,265		$	2,683		$	24,582

Schedule of Acquired Finite-Lived Intangible Assets by Major Class [Table Text Block]

	Net Book Value Rollforward									Net Book Value By Asset Type
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			Trade Name			Customer Relationships			Technology Know-how			Other
Balance at June 30, 2018	$	13,485		$	(11,781	)	$	1,704		$	1,288		$	-		$	-		$	416
Acquisition		23,700			-			23,700			1,800			13,600			8,300			-
Other additions		4			-			4			-			-			-			4
Amortization		-			(665	)		(665	)		(66	)		(281	)		(295	)		(23	)
Translation adjustment		(163	)		-			(163	)		(17	)		(91	)		(55	)		-
Balance at Septmeber 28, 2018	$	37,026		$	(12,446	)	$	24,580		$	3,005		$	13,228		$	7,950		$	397

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Fiscal Year
2019	$	1,996
2020		2,662
2021		2,647
2022		2,631
2023		2,628
2024		2,598

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Note L - Long-term Debt (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	September 28, 2018		June 30, 2018
Revolving loans	$	26,581	$	4,787
Term loan		10,830		-
Other		35		37
Total long-term debt	$	37,446	$	4,824

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Note M - Shareholders' Equity (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Stockholders Equity [Table Text Block]

	Twin Disc, Inc. Shareholders’ Equity
						Accumulated
						Other						Non-
	Common			Retained		Comprehensive			Treasury			Controlling			Total
	Stock			Earnings		Income (Loss)			Stock			Interest			Equity
Balance, June 30, 2018	$	11,570		$	178,896	$	(23,792	)	$	(23,677	)	$	619		$	143,616
Net income					2,862								41			2,903
Translation adjustments							(536	)					(25	)		(561	)
Benefit plan adjustments, net of tax							471									471
Release stranded tax effects					6,903		(6,903	)								-
Cash dividends													(115	)		(115	)
Compensation expense		850														850
Common stock issued, net		32,210														32,210
Shares acquired, net		(586	)							(328	)					(914	)
Balance, September 28, 2018	$	44,044		$	188,661	$	(30,760	)	$	(24,005	)	$	520		$	178,460

	Twin Disc, Inc. Shareholders’ Equity
						Accumulated
						Other						Non-
	Common			Retained		Comprehensive			Treasury			Controlling			Total
	Stock			Earnings		Income (Loss)			Stock			Interest			Equity
Balance, June 30, 2017	$	10,429		$	169,368	$	(32,671	)	$	(24,205	)	$	646		$	123,567
Net income					3,392								13			3,405
Translation adjustments							2,547						(6	)		2,541
Benefit plan adjustments, net of tax							474									474
Cash dividends													(172	)		(172	)
Compensation expense		479														479
Shares (acquired) issued, net		(1,030	)							817						(213	)
Balance, September 29, 2017	$	9,878		$	172,760	$	(29,650	)	$	(23,388	)	$	481		$	130,081

Reconciliation For The Changes In Accumulated Other Comprehensive Income Loss Net Of Tax By Component [Table Text Block]

	Translation			Benefit Plan
	Adjustment			Adjustment
Balance at June 30, 2018	$	7,085		$	(30,877	)
Translation adjustment during the quarter		(536	)		-
Release stranded tax effects		-			(6,903	)
Amounts reclassified from accumulated other comprehensive income		-			471
Net current period other comprehensive income		(536	)		(6,432	)
Balance at September 28, 2018	$	6,549		$	(37,309	)

	Translation		Benefit Plan
	Adjustment		Adjustment
Balance at June 30, 2017	$	6,130	$	(38,801	)
Translation adjustment during the quarter		2,547		-
Amounts reclassified from accumulated other comprehensive income		-		474
Net current period other comprehensive income		2,547		474
Balance at September 29, 2017	$	8,677	$	(38,327	)

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

	Amount Reclassified
	Quarter Ended
	September 28, 2018
Changes in benefit plan items
Actuarial losses	$	607	(a)
Transition asset and prior service benefit		10	(a)
Total amortization		617
Income taxes		146
Total reclassification net of tax	$	471

	Amount Reclassified
	Quarter Ended
	September 29, 2017
Changes in benefit plan items
Actuarial losses	$	742	(a)
Transition asset and prior service benefit		10	(a)
Total amortization		752
Income taxes		278
Total reclassification net of tax	$	474

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Note N - Restructuring of Operations (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Restructuring and Related Costs [Table Text Block]

Accrued restructuring liability, June 30, 2018	$	90
Additions during the year		173
Payments and adjustments during the year		(177	)
Accrued restructuring liability, September 28, 2018	$	86

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Note O - Earnings Per Share (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Basic:
Net income	$	2,903		$	3,405
Less: Net earnings attributable to noncontrolling interest		(41	)		(13	)
Less: Undistributed earnings attributable to unvested shares		(49	)		(85	)
Net income available to Twin Disc shareholders		2,813			3,307
Weighted average shares outstanding - basic		11,722			11,256
Basic Income Per Share:
Net income per share - basic	$	0.24		$	0.29
Diluted:
Net income	$	2,903		$	3,405
Less: Net earnings attributable to noncontrolling interest		(41	)		(13	)
Less: Undistributed earnings attributable to unvested shares		(49	)		(85	)
Net income available to Twin Disc shareholders		2,813			3,307
Weighted average shares outstanding - basic		11,722			11,256
Effect of dilutive stock awards		77			3
Weighted average shares outstanding - diluted		11,799			11,259
Diluted Income Per Share:
Net income per share - diluted	$	0.24		$	0.29

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Note P - Lease Liabilities (Tables)

3 Months Ended

Sep. 28, 2018

Notes Tables

Lease, Cost [Table Text Block]

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Finance lease cost:
Amortization of right-of-use assets	$	1		$	1
Operating lease cost		880			633
Short-term lease cost		11			33
Variable lease cost		8			3
Total lease cost	$	900		$	670
Less: Sublease income		(16	)		(53	)
Net lease cost	$	884		$	617

Operating and Finance Leases, Other Disclosures [Table Text Block]

	For the Quarter Ended
	September 28, 2018			September 29, 2017
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	871		$	579
Operating cash flows from finance leases		1			1
Right-of-use-assets obtained in exchange for lease obligations:
Operating leases		12,127			280
Weighted average remaining lease term (years):
Operating leases		11.4			5.7
Finance lease		3.8			4.8
Weighted average discount rate:
Operating leases		7.6	%		6.5	%
Finance leases		4.0	%		4.0	%

Schedule of Future Minimum Rental Payments for Operating Leases and Finance Lease, Liability, Maturity [Table Text Block]

	Operating Leases			Finance Leases
2019	$	2,684		$	2
2020		3,115			3
2021		2,467			3
2022		1,969			3
2023		1,790			-
Thereafter		13,212			-
Total future lease payments		25,237			11
Less: Amount representing interest		(8,167	)		(1	)
Present value of future payments	$	17,070		$	10

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Note A - Basis of Presentation (Details Textual) $ in Thousands	3 Months Ended
	Sep. 28, 2018 USD ($)
Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect
Retained Earnings [Member]
Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect	6,903
AOCI Attributable to Parent [Member]
Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect	$ (6,903)

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Note A - Basis of Presentation - Summary of Effect of Adopting ASU 2016-02 on the Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
Property, plant and equipment, net	$ 68,302	$ 55,467
Lease obligations	$ 17,070	6,527
Previously Reported [Member]
Property, plant and equipment, net		48,940
Lease obligations
Restatement Adjustment [Member] | Accounting Standards Update 2016-02 [Member]
Property, plant and equipment, net		6,527
Lease obligations		$ 6,527

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Note A - Basis of Presentation - Summary of Effects of Adopting ASU 2017-07 on the Condensed Statements of Operations and Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Cost of goods sold	$ 50,704	$ 31,072
Gross profit	23,985	13,992
Marketing, engineering and administrative expenses	18,986	13,394
Income (loss) from operations	4,826	(620)
Other expense (income), net	$ 319	569
Previously Reported [Member]
Cost of goods sold		31,169
Gross profit		13,895
Marketing, engineering and administrative expenses		13,668
Income (loss) from operations		(991)
Other expense (income), net		198
Restatement Adjustment [Member] | Accounting Standards Update 2017-07 [Member]
Cost of goods sold		(97)
Gross profit		97
Marketing, engineering and administrative expenses		(274)
Income (loss) from operations		371
Other expense (income), net		$ 371

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Note B - Acquisition of Veth Propulsion Holding BV (Details Textual) - USD ($) $ in Thousands			3 Months Ended
		Jul. 02, 2018	Sep. 28, 2018	Sep. 29, 2017	Sep. 28, 2017
Proceeds from Issuance of Long-term Debt, Total			$ 35,000
Payments to Acquire Businesses, Net of Cash Acquired, Total			59,649
Amortization of Inventory Fair Value Step-up			1,171
Amortization of Intangible Assets, Total			$ 665	$ 44
The 2018 Credit Agreement [Member]
Proceeds from Issuance of Long-term Debt, Total		$ 60,729
Veth Propulsion [Member]
Business Acquisition, Percentage of Voting Interests Acquired		100.00%
Payments to Acquire Businesses, Gross	[1]	$ 60,729
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High		4,000
Payments to Acquire Businesses, Net of Cash Acquired, Total		59,649
Cash Acquired from Acquisition		1,080
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Restricted Cash		$ 435
Business Acquisition, Expiration Period for Arrangements			45 days
Percentage of Work in Process of Inventory Completed		70.00%
Inventory, Net, Step-up Value Amount		$ 4,715
Amortization of Inventory Fair Value Step-up			$ 1,171		$ 1,171
Amortization of Intangible Assets, Total			621
Business Combination, Acquisition Related Costs			$ 204
Amortization of Intangible Assets and Interest Expense of Long-term Debt, Total, Before Tax					$ 1,136
Veth Propulsion [Member] | Het Komt Vast Goed B.V. [Member]
Lessee, Operating Lease, Term of Contract		15 years
Lessee, Operating Lease, Annual Rent Payments		$ 1,168

[1] In the statement of cash flows, the cash used in the acquisition of Veth Propulsion in the amount of $59,649 is net of the cash, including restricted cash, acquired in the transaction, of $1,080 (see below for fair value of assets acquired and liabilities assumed).

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Note B - Acquisition of Veth Propulsion Holding BV - Consideration Transferred (Details) - Veth Propulsion [Member] $ in Thousands	Jul. 02, 2018 USD ($)
Payments to Acquire Businesses, Gross	$ 60,729	[1]
Fair value of contingent consideration (b)	2,927	[2]
Total	$ 63,656

[1] In the statement of cash flows, the cash used in the acquisition of Veth Propulsion in the amount of $59,649 is net of the cash, including restricted cash, acquired in the transaction, of $1,080 (see below for fair value of assets acquired and liabilities assumed).

[2] This pertains to the fair value of the earn-out, which was estimated based on a probability-weighted approach.

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Note B - Acquisition of Veth Propulsion Holding BV - Summary of Preliminary Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands		Sep. 28, 2018	Jul. 02, 2018	Jun. 30, 2018
Goodwill, Ending Balance		$ 27,265		$ 2,692
Veth Propulsion [Member]
Cash, including restricted cash	[1]		$ 1,080
Accounts receivable	[2]		10,032
Inventories	[3]		27,641
Property, plant and equipment	[4]		1,537
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	[5]		23,700
Other assets			259
Accounts payable and customer deposits			(17,297)
Other current liabilities			(861)
Deferred tax liability	[6]		(7,104)
Total net assets acquired			38,987
Goodwill, Ending Balance	[7]		24,669
Total consideration			$ 63,656

[1] Included in cash is restricted cash in the amount of $435. This amount is restricted and not available for general business use in order to guarantee performance obligations by Veth Propulsion under certain customer contracts. A significant majority of these arrangements are set to expire in 45 days after September 28, 2018 and they are not expected to be renewed.

[2] Accounts receivable represents contractual amounts receivable from customers less an allowance for doubtful accounts. This amount approximates fair value.

[3] Inventories This consists of: Raw materials $ 13,297 Projects work in progress at fair value 14,344 Inventories at fair value 27,641 Inventories at book value 22,926 Step-up $ 4,715 As of the effective date of the acquisition, inventory is required to be measured at fair value. Raw materials are typically utilized in operations within one year of purchase and therefore book values approximate fair value. Projects work in progress are estimated to be approximately 70% complete, and the step to fair value less estimated costs to complete and sell resulted in a step up value of approximately $4,715.

[4] The determination of property, plant and equipment is currently in progress. This preliminary amount assumes book value approximates fair value.

[5] Intangible assets This consists of: Estimated fair value Estimated average useful lives Annual amortization Customer relationships $ 13,600 12 $ 1,133 Technology and know-how 8,300 7 1,186 Tradename 1,800 10 180 Total $ 23,700 $ 2,499 The preliminary fair values were determined primarily using an income method, which utilizes financial forecasts of expected future cash flows. Some of the more significant assumptions used in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in future cash flows, and the assessment of the asset's life cycle and competitive trends impacting the asset, as well as other factors.

[6] This represents the net deferred tax liability associated with the fair value of assets acquired and liabilities assumed.

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

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Note B - Acquisition of Veth Propulsion Holding BV - Inventories (Details) - Veth Propulsion [Member] $ in Thousands	Jul. 02, 2018 USD ($)
Raw materials	$ 13,297
Projects work in progress at fair value	14,344
Inventories at fair value	27,641	[1]
Inventories at book value	22,926
Step-up	$ 4,715

[1] Inventories This consists of: Raw materials $ 13,297 Projects work in progress at fair value 14,344 Inventories at fair value 27,641 Inventories at book value 22,926 Step-up $ 4,715 As of the effective date of the acquisition, inventory is required to be measured at fair value. Raw materials are typically utilized in operations within one year of purchase and therefore book values approximate fair value. Projects work in progress are estimated to be approximately 70% complete, and the step to fair value less estimated costs to complete and sell resulted in a step up value of approximately $4,715.

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Note B - Acquisition of Veth Propulsion Holding BV - Intangible Assets (Details) - USD ($) $ in Thousands		3 Months Ended
	Jul. 02, 2018	Sep. 28, 2018
Intangible assets, estimated fair value		$ 23,700
Intangible assets, estimated average useful lives (Year)		10 years
Customer Relationships [Member]
Intangible assets, estimated fair value		$ 13,600
Technology-Based Intangible Assets [Member]
Intangible assets, estimated fair value		8,300
Trade Names [Member]
Intangible assets, estimated fair value		$ 1,800
Veth Propulsion [Member]
Intangible assets, estimated fair value	$ 23,700
Intangible assets, estimated average useful lives (Year)
Intangible assets, annual amortization	$ 2,499
Veth Propulsion [Member] | Customer Relationships [Member]
Intangible assets, estimated fair value	$ 13,600
Intangible assets, estimated average useful lives (Year)	12 years
Intangible assets, annual amortization	$ 1,133
Veth Propulsion [Member] | Technology-Based Intangible Assets [Member]
Intangible assets, estimated fair value	$ 8,300
Intangible assets, estimated average useful lives (Year)	7 years
Intangible assets, annual amortization	$ 1,186
Veth Propulsion [Member] | Trade Names [Member]
Intangible assets, estimated fair value	$ 1,800
Intangible assets, estimated average useful lives (Year)	10 years
Intangible assets, annual amortization	$ 180

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Note B - Acquisition of Veth Propulsion Holding BV - Financial Information from Veth Propulsion Included in the Consolidated Statements of Operations (Details) - Veth Propulsion [Member] $ in Thousands	3 Months Ended
	Sep. 28, 2018 USD ($)
Net sales	$ 13,353
Gross profit (a)	2,186	[1]
Operating loss	(720)	[2]
Net loss attributable to Twin Disc	$ (950)

[1] Gross profit includes the non-recurring charge for the step-up of inventories acquired of $1,171 for the quarter.

[2] In addition to (a), operating loss includes the amortization of intangible assets acquired of $621 for the quarter, and non-recurring charges related to the acquisition of $204.

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Note B - Acquisition of Veth Propulsion Holding BV - Unaudited Supplemental Pro Forma Information (Details) - Veth Propulsion [Member] $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 29, 2017 USD ($) $ / shares shares
Net sales	$ 59,709
Gross profit (a)	17,189	[1]
Net income attributable to Twin Disc (b)	$ 2,715	[2]
Basic income per share attributable to Twin Disc (in dollars per share) | $ / shares	$ 0.24
Diluted income per share attributable to Twin Disc (in dollars per share) | $ / shares	$ 0.24
Basic (in shares) | shares	11,256
Diluted (in shares) | shares	11,259

[1] Gross profit includes the amortization of the step-up of inventories of $1,171 for the quarter.

[2] In addition to (a), this includes the amortization of intangible assets acquired and interest expense on borrowings under the Credit Agreement net of other expenses, amounting to $1,136, before tax.

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Note C - Revenue Recognition - Net Sales by Product Group (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Net Sales	$ 74,689	$ 45,064
Operating Segments [Member] | Manufacturing Segment [Member]
Net Sales	68,912	39,872
Operating Segments [Member] | Distribution Segment [Member]
Net Sales	22,920	17,662
Intersegment Eliminations [Member]
Net Sales	(17,143)
Intersegment Eliminations [Member] | Manufacturing Segment [Member]
Net Sales	(14,749)	(10,332)
Intersegment Eliminations [Member] | Distribution Segment [Member]
Net Sales	(2,394)	$ (2,138)
Industrial [Member]
Net Sales	7,045
Industrial [Member] | Operating Segments [Member] | Manufacturing Segment [Member]
Net Sales	6,481
Industrial [Member] | Operating Segments [Member] | Distribution Segment [Member]
Net Sales	1,396
Industrial [Member] | Intersegment Eliminations [Member]
Net Sales	(832)
Land Based Transmissions [Member]
Net Sales	29,636
Land Based Transmissions [Member] | Operating Segments [Member] | Manufacturing Segment [Member]
Net Sales	29,432
Land Based Transmissions [Member] | Operating Segments [Member] | Distribution Segment [Member]
Net Sales	5,611
Land Based Transmissions [Member] | Intersegment Eliminations [Member]
Net Sales	(5,407)
Marine and Propulsion Systems [Member]
Net Sales	36,275
Marine and Propulsion Systems [Member] | Operating Segments [Member] | Manufacturing Segment [Member]
Net Sales	32,976
Marine and Propulsion Systems [Member] | Operating Segments [Member] | Distribution Segment [Member]
Net Sales	14,156
Marine and Propulsion Systems [Member] | Intersegment Eliminations [Member]
Net Sales	(10,857)
Other [Member]
Net Sales	1,733
Other [Member] | Operating Segments [Member] | Manufacturing Segment [Member]
Net Sales	23
Other [Member] | Operating Segments [Member] | Distribution Segment [Member]
Net Sales	1,757
Other [Member] | Intersegment Eliminations [Member]
Net Sales	$ (47)

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Note D - Inventories - Inventories (Details) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
Finished parts	$ 53,313	$ 49,332
Work in process	27,716	13,183
Raw materials	42,410	21,486
Total inventories	$ 123,439	$ 84,001

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Note E - Warranty (Details Textual) - USD ($) $ in Thousands	Sep. 28, 2018	Sep. 29, 2017
Product Warranty Accrual, Current	$ 4,139	$ 1,968
Product Warranty Accrual, Noncurrent	$ 528	$ 358

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Note E - Warranty - Warranty (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Reserve balance	$ 4,407	$ 2,062
Current period expense and adjustments	729	658
Payments or credits to customers	(1,020)	(433)
Acquisition, Warranty	557
Translation	(6)	39
Reserve balance	$ 4,667	$ 2,326

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Note G - Business Segments (Details Textual)	3 Months Ended
	Sep. 28, 2018
Number of Reportable Segments	2

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Note G - Business Segments - Revenues by Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Net sales	$ 74,689	$ 45,064
Net income (loss)	2,862	3,392
Intersegment Eliminations [Member]
Net sales	(17,143)
Corporate, Non-Segment [Member]
Net income (loss)	(5,238)	(2,344)
Manufacturing Segment [Member] | Operating Segments [Member]
Net sales	68,912	39,872
Net income (loss)	7,235	5,067
Manufacturing Segment [Member] | Intersegment Eliminations [Member]
Net sales	(14,749)	(10,332)
Distribution Segment [Member] | Operating Segments [Member]
Net sales	22,920	17,662
Net income (loss)	865	669
Distribution Segment [Member] | Intersegment Eliminations [Member]
Net sales	$ (2,394)	$ (2,138)

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Note G - Business Segments - Assets by Segment (Details) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
Segment Assets	$ 340,757	$ 241,240
Operating Segments [Member] | Manufacturing Segment [Member]
Segment Assets	367,376	266,417
Operating Segments [Member] | Distribution Segment [Member]
Segment Assets	54,544	52,230
Corporate, Non-Segment [Member]
Segment Assets	$ (81,163)	$ (77,407)

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Note H - Stock-based Compensation (Details Textual) - USD ($)	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Performance Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	37,000	54,900
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	55,400	69,200
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	182,700	224,900
Allocated Share-based Compensation Expense, Total	$ 546,000	$ 15,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance	$ 15.02
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 1,683,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	$ 0	$ 0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	4,000	65,800
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	170,400	309,500
Allocated Share-based Compensation Expense, Total	$ 250,000	$ 463,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	927,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	$ 1,785,000	$ 444,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	2,800	0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years
Restricted Stock [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Restricted Stock [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	38,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance	38,000
Allocated Share-based Compensation Expense, Total	$ 54,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance	$ 25.77
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	$ 924,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years

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Note I - Pension and Other Postretirement Benefit Plans (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), Reclassification Adjustment from AOCI, after Tax	$ 471	$ 474
Other Comprehensive (Income) Loss, Defined Benefit Plan, Prior Service Cost (Credit), Reclassification Adjustment from AOCI, Tax	146	$ 278
Pension Plan [Member]
Defined Benefit Plan, Expected Future Employer Contributions, Current Fiscal Year	2,382
Defined Benefit Plan, Plan Assets, Contributions by Employer	$ 1,054

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Note I - Pension and Other Postretirement Benefit Plans - Net Funded Status of Pension and Postretirement Plans (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Pension Plan [Member]
Service cost	$ 246	$ 262
Interest cost	1,092	1,074
Expected return on plan assets	1,331	1,525
Amortization of transition obligation	(9)	(9)
Amortization of prior service cost	1	1
Amortization of actuarial net loss	(678)	(759)
Net periodic benefit cost	695	580
Service cost	246	262
Interest cost	1,092	1,074
Amortization of actuarial net loss	678	759
Other Postretirement Benefits Plan [Member]
Service cost	5	5
Interest cost	76	92
Amortization of actuarial net loss	69	(3)
Net periodic benefit cost	12	100
Service cost	5	5
Interest cost	76	92
Amortization of actuarial net loss	$ (69)	$ 3

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Note J - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended			12 Months Ended
	Sep. 28, 2018	Sep. 29, 2017	Sep. 28, 2017	Jun. 30, 2018
Effective Income Tax Rate Reconciliation, Percent, Total	23.40%	371.70%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	21.00%			35.00%
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Percent	(13.00%)
Transitional Income Tax , Amount	$ 0
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$ 990
Mix of Jurisdictions [Member]
Effective Income Tax Rate Reconciliation, Other Reconciling Items, Percent, Total	(29.90%)
Foreign Tax Authority [Member]
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Amount			$ 3,803
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Percent			303.50%
Foreign Tax Authority [Member] | Earliest Tax Year [Member]
Open Tax Year	2011
Foreign Tax Authority [Member] | Latest Tax Year [Member]
Open Tax Year	2018
State and Local Jurisdiction [Member] | Earliest Tax Year [Member]
Open Tax Year	2015
State and Local Jurisdiction [Member] | Earliest Tax Year [Member] | Wisconsin Department of Revenue [Member]
Open Tax Year	2010
State and Local Jurisdiction [Member] | Latest Tax Year [Member] | Wisconsin Department of Revenue [Member]
Open Tax Year	2013

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Note K - Goodwill and Other Intangibles (Details Textual) - USD ($) $ in Thousands			3 Months Ended
		Jul. 02, 2018	Sep. 28, 2018	Sep. 29, 2017	Jun. 30, 2018
Goodwill, Ending Balance			$ 27,265		$ 2,692
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			10 years
Amortization of Intangible Assets, Total			$ 665	$ 44
Indefinite-lived Intangible Assets (Excluding Goodwill), Ending Balance			206		202
European Industrial [Member]
Goodwill, Ending Balance			2,683		$ 2,692
Goodwill, Impairment Loss			0
Veth Propulsion [Member]
Goodwill, Ending Balance	[1]	$ 24,669
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	[2]	$ 23,700
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life
Amortization of Intangible Assets, Total			$ 621

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

[2] Intangible assets This consists of: Estimated fair value Estimated average useful lives Annual amortization Customer relationships $ 13,600 12 $ 1,133 Technology and know-how 8,300 7 1,186 Tradename 1,800 10 180 Total $ 23,700 $ 2,499 The preliminary fair values were determined primarily using an income method, which utilizes financial forecasts of expected future cash flows. Some of the more significant assumptions used in the development of intangible asset values include: the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in future cash flows, and the assessment of the asset's life cycle and competitive trends impacting the asset, as well as other factors.

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Note K - Goodwill and Other Intangibles - Goodwill Rollforward (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Jun. 30, 2018
Balance, goodwill gross carrying amount	$ 16,514
Acquisition, goodwill gross carrying amount	24,669
Translation adjustment, goodwill gross carrying amount	(96)
Balance, goodwill gross carrying amount	41,087
Balance, goodwill accumulated impairment	(13,822)	$ (13,822)
Balance, goodwill net book value	2,692
Balance, goodwill net book value	27,265
European Industrial [Member]
Acquisition, goodwill gross carrying amount
Translation adjustment, goodwill gross carrying amount	(9)
Balance, goodwill net book value	2,692
Balance, goodwill net book value	2,683
European Propulsion [Member]
Acquisition, goodwill gross carrying amount	24,669
Translation adjustment, goodwill gross carrying amount	(87)
Balance, goodwill net book value
Balance, goodwill net book value	$ 24,582

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Note K - Goodwill and Other Intangibles - Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Balance, Definite Intangible Assets Gross Carrying Amount	$ 13,485
Acquisition, Definite Intangible Assets Gross Carrying Amount	23,700
Other additions, Definite Intangible Assets Gross Carrying Amount	4
Translation adjustment, Definite Intangible Assets Gross Carrying Amount	(163)
Balance, Gross Carrying Amount	37,026
Balance, Definite Intangible Assets Accumulated Amortization/Impairment	(11,781)
Amortization, Definite Intangible Assets Accumulated Amortization/Impairment	(665)	$ (44)
Translation adjustment, Definite Intangible Assets Accumulated Amortization/Impairment
Balance, Definite Intangible Assets Accumulated Amortization/Impairment	(12,446)
Balance, Definite Intangible Assets Net Book Value	1,704
Intangible assets, estimated fair value	23,700
Other additions, Definite Intangible Assets Net Book Value	4
Translation adjustment, Definite Intangible Assets Net Book Value	(163)
Balance, Definite Intangible Assets Net Book Value	24,580
Trade Names [Member]
Amortization, Definite Intangible Assets Accumulated Amortization/Impairment	(66)
Balance, Definite Intangible Assets Net Book Value	1,288
Intangible assets, estimated fair value	1,800
Other additions, Definite Intangible Assets Net Book Value
Translation adjustment, Definite Intangible Assets Net Book Value	(17)
Balance, Definite Intangible Assets Net Book Value	3,005
Customer Relationships [Member]
Amortization, Definite Intangible Assets Accumulated Amortization/Impairment	(281)
Balance, Definite Intangible Assets Net Book Value
Intangible assets, estimated fair value	13,600
Other additions, Definite Intangible Assets Net Book Value
Translation adjustment, Definite Intangible Assets Net Book Value	(91)
Balance, Definite Intangible Assets Net Book Value	13,228
Technology-Based Intangible Assets [Member]
Amortization, Definite Intangible Assets Accumulated Amortization/Impairment	(295)
Balance, Definite Intangible Assets Net Book Value
Intangible assets, estimated fair value	8,300
Other additions, Definite Intangible Assets Net Book Value
Translation adjustment, Definite Intangible Assets Net Book Value	(55)
Balance, Definite Intangible Assets Net Book Value	7,950
Other Intangible Assets [Member]
Amortization, Definite Intangible Assets Accumulated Amortization/Impairment	(23)
Balance, Definite Intangible Assets Net Book Value	416
Intangible assets, estimated fair value
Other additions, Definite Intangible Assets Net Book Value	4
Translation adjustment, Definite Intangible Assets Net Book Value
Balance, Definite Intangible Assets Net Book Value	$ 397

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Note K - Goodwill and Other Intangibles - Estimated Intangibles Amortization Expense (Details) $ in Thousands	Sep. 28, 2018 USD ($)
2019	$ 1,996
2020	2,662
2021	2,647
2022	2,631
2023	2,628
2024	$ 2,598

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Note L - Long-term Debt (Details Textual) - USD ($) $ in Thousands			3 Months Ended
	Sep. 25, 2018	Jul. 02, 2018	Sep. 28, 2018	Sep. 29, 2017	Jun. 29, 2018
Proceeds from Issuance of Long-term Debt, Total			$ 35,000
Proceeds from Issuance of Common Stock	$ 32,310		$ 32,210
The 2018 Credit Agreement [Member]
Proceeds from Issuance of Long-term Debt, Total		$ 60,729
The 2018 Credit Agreement [Member] | Revolving Credit Facility [Member]
Proceeds from Issuance of Long-term Debt, Total		25,729
The 2018 Credit Agreement [Member] | Term Loan [Member]
Proceeds from Issuance of Long-term Debt, Total		$ 35,000
Debt Instrument, Interest Rate During Period			5.10%
BMO [Member] | The 2018 Credit Agreement [Member]
Debt Instrument, Percentage of Equity Interest in Certain Domestic Subsidiaries					100.00%
Debt Instrument, Percentage of Equity Interest in Certain Foreign Subsidiaries					65.00%
BMO [Member] | The 2018 Credit Agreement [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity					$ 50,000
Debt Instrument, Interest Rate During Period			4.35%
Line of Credit Facility, Current Borrowing Capacity			$ 50,000
Line of Credit Facility, Remaining Borrowing Capacity			$ 23,419
BMO [Member] | The 2018 Credit Agreement [Member] | Term Loan [Member]
Debt Agreement, Maximum Borrowing Capacity					$ 35,000
Bank of Montreal [Member] | The 2018 Credit Agreement [Member] | Revolving Credit Facility [Member]
Debt Instrument, Interest Rate During Period			2.25%

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Note L - Long-term Debt - Long-term Debt (Details) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
Long-term debt	$ 37,446	$ 4,824
Revolving Loan [Member]
Long-term debt	26,581	4,787
Term Loan [Member]
Long-term debt	10,830
Other Long-Term Debt [Member]
Long-term debt	$ 35	$ 37

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Note M - Shareholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	Sep. 25, 2018	Sep. 28, 2018	Sep. 29, 2017
Stock Issued During Period, Shares, New Issues	1,533,300
Share Price	$ 22.50
Payments of Stock Underwriting Costs		$ 2,070
Payments of Stock Offering Expenses		220
Proceeds from Issuance of Common Stock	$ 32,310	$ 32,210
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased		315,000
Treasury Stock, Shares, Acquired		0	0

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Note M - Shareholders' Equity - Shareholders' Equity Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Balance	$ 143,616	$ 123,567
Net income	2,903	3,405
Foreign currency translation adjustment	(561)	2,541
Benefit plan adjustments, net of tax	471	474
Release stranded tax effects
Cash dividends	(115)	(172)
Compensation expense and tax shortfall	850	479
Common stock issued, net	32,210
Shares acquired, net	(914)	(213)
Balance	178,460	130,081
Common Stock [Member]
Balance	11,570	10,429
Net income
Foreign currency translation adjustment
Benefit plan adjustments, net of tax
Release stranded tax effects
Cash dividends
Compensation expense and tax shortfall	850	479
Common stock issued, net	32,210
Shares acquired, net	(586)	(1,030)
Balance	44,044	9,878
Retained Earnings [Member]
Balance	178,896	169,368
Net income	2,862	3,392
Foreign currency translation adjustment
Benefit plan adjustments, net of tax
Release stranded tax effects	(6,903)
Cash dividends
Compensation expense and tax shortfall
Common stock issued, net
Shares acquired, net
Balance	188,661	172,760
AOCI Attributable to Parent [Member]
Balance	(23,792)	(32,671)
Net income
Foreign currency translation adjustment	(536)	2,547
Benefit plan adjustments, net of tax	471	474
Release stranded tax effects	6,903
Cash dividends
Compensation expense and tax shortfall
Common stock issued, net
Shares acquired, net
Balance	(30,760)	(29,650)
Treasury Stock [Member]
Balance	(23,677)	(24,205)
Net income
Foreign currency translation adjustment
Benefit plan adjustments, net of tax
Release stranded tax effects
Cash dividends
Compensation expense and tax shortfall
Common stock issued, net
Shares acquired, net	(328)	817
Balance	(24,005)	(23,388)
Noncontrolling Interest [Member]
Balance	619	646
Net income	41	13
Foreign currency translation adjustment	(25)	(6)
Benefit plan adjustments, net of tax
Release stranded tax effects
Cash dividends	(115)	(172)
Compensation expense and tax shortfall
Common stock issued, net
Shares acquired, net
Balance	$ 520	$ 481

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Note M - Shareholders' Equity - Accumulated Other Comprehensive Income (Loss), Net of Tax (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Balance	$ 143,616	$ 123,567
Release stranded tax effects
Balance	178,460	130,081
Accumulated Foreign Currency Adjustment Attributable to Parent [Member]
Balance	7,085	6,130
Translation adjustment during the quarter	(536)	2,547
Release stranded tax effects
Amounts reclassified from accumulated other comprehensive income
Net current period other comprehensive income	(536)	2,547
Translation adjustment during the quarter	536	(2,547)
Balance	6,549	8,677
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance	(30,877)	(38,801)
Translation adjustment during the quarter
Release stranded tax effects	(6,903)
Amounts reclassified from accumulated other comprehensive income	471	474
Net current period other comprehensive income	(6,432)	474
Translation adjustment during the quarter
Balance	$ (37,309)	$ (38,327)

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Note M - Shareholders' Equity - Reconciliation for the Reclassifications Out of Accumulated Other Comprehensive Income (Loss), Net of Tax (Details) - USD ($) $ in Thousands		3 Months Ended
		Sep. 28, 2018	Sep. 29, 2017
Income tax expense (benefit)		$ 887	$ (4,658)
Net income		2,903	3,405
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Actuarial losses	[1]	607	742
Transition asset and prior service benefit	[1]	10	10
Total amortization		617	752
Income tax expense (benefit)		146	278
Net income		$ 471	$ 474

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

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Note N - Restructuring of Operations (Details Textual) $ in Thousands	3 Months Ended		39 Months Ended
	Sep. 28, 2018 USD ($)	Sep. 29, 2017 USD ($)	Sep. 28, 2018 USD ($)
Restructuring Charges, Total	$ 173	$ 1,218	$ 9,446
Restructuring and Related Cost, Number of Positions Eliminated			172

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Note N - Restructuring of Operations - Roll-forward of Restructuring Activity (Details) - USD ($) $ in Thousands	3 Months Ended		39 Months Ended
	Sep. 28, 2018	Sep. 29, 2017	Sep. 28, 2018
Accrued restructuring liability	$ 90
Additions during the year	173	$ 1,218	$ 9,446
Payments and adjustments during the year	(177)
Accrued restructuring liability	$ 86		$ 86

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Note O - Earnings Per Share (Details Textual) - shares	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Performance Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	180,600	224,900
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	170,400	309,500
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	28,200
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	3,300	9,900

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Note O - Earnings Per Share - Components of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Basic:
Net income	$ 2,903	$ 3,405
Less: Net earnings attributable to noncontrolling interest	(41)	(13)
Less: Undistributed earnings attributable to unvested shares	(49)	(85)
Net income available to Twin Disc shareholders	$ 2,813	$ 3,307
Weighted average shares outstanding - basic (in shares)	11,722	11,256
Basic Income Per Share:
Net income per share - basic (in dollars per share)	$ 0.24	$ 0.29
Diluted:
Net income	$ 2,903	$ 3,405
Less: Net earnings attributable to noncontrolling interest	(41)	(13)
Less: Undistributed earnings attributable to unvested shares	(49)	(85)
Net income available to Twin Disc shareholders	$ 2,813	$ 3,307
Weighted average shares outstanding - basic (in shares)	11,722	11,256
Effect of dilutive stock awards (in shares)	77	3
Weighted average shares outstanding - diluted (in shares)	11,799	11,259
Diluted Income Per Share:
Net income per share - diluted (in dollars per share)	$ 0.24	$ 0.29

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Note P - Lease Liabilities (Details Textual) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
Operating Lease, Right-of-Use Asset	$ 17,071	$ 6,527
Operating Lease, Liability, Total	$ 17,070	$ 6,527

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Note P - Lease Liabilities - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Amortization of right-of-use assets	$ 1	$ 1
Operating lease cost	880	633
Short-term lease cost	11	33
Variable lease cost	8	3
Total lease cost	900	670
Less: Sublease income	(16)	(53)
Net lease cost	$ 884	$ 617

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Note P - Lease Liabilities - Other Information Related to Leases (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 28, 2018	Sep. 29, 2017
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases	$ 871	$ 579
Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases	1	1
Right-of-use-assets obtained in exchange for lease obligations: Operating leases	$ 12,127	$ 280
Weighted average remaining lease term (years): Operating leases (Year)	11 years 146 days	5 years 255 days
Weighted average remaining lease term (years): Finance lease (Year)	3 years 292 days	4 years 292 days
Weighted average discount rate: Operating leases	7.60%	6.50%
Weighted average discount rate: Finance leases	4.00%	4.00%

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Note P - Lease Liabilities - Future Minimum Rental Commitments Under Noncancellable Leases (Details) - USD ($) $ in Thousands	Sep. 28, 2018	Jun. 30, 2018
2019	$ 2,684
2019	2
2020	3,115
2020	3
2021	2,467
2021	3
2022	1,969
2022	3
2023	1,790
2023
Thereafter	13,212
Thereafter
Total future lease payments	25,237
Total future lease payments	11
Less: Amount representing interest	(8,167)
Less: Amount representing interest	1
Operating Lease, Liability, Total	17,070	$ 6,527
Present value of future payments	$ 10