There were no dividend payments made in the ~~high and low sales prices per quarter from July 1, 2015 through~~fiscal years ended June 30, ~~2017:~~2021 and 2020.

For information regarding the Company’s equity-based compensation plans, see the discussion under Item 12 of this report. As of August ~~24, 2017,~~20, 2021, shareholders of record numbered ~~484. The closing price~~403.

On May 13, 2019, the Company issued 139,347 shares of its common stock, valued at $1,991 ($14.29 per share), to settle its earn-out obligation under the June 13, 2018 Share Purchase Agreement entered into by Twin Disc ~~common stock~~NL Holding B.V., a wholly-owned subsidiary of the Company, with Het Komt Vast Goed B.V., the prior parent of Veth Propulsion Holding B.V. The shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the Share Purchase Agreement was a privately negotiated transaction that involved substantial due diligence on the part of ~~August 24, 2017was$16.83.~~all parties, and the shares were issued to three entities related to Het Komt Vast Goed B.V.

On February 1, 2008, the Board of Directors authorized the purchase of up to 500,000 shares of Common Stock at market values, of which 250,000 shares were purchased during fiscal 2009 and 125,000 shares were purchased during fiscal 2012. On July 27, 2012, the Board of Directors authorized the purchase of an additional 375,000 shares of Common Stock at market values. This authorization has no expiration. During the second quarter of fiscal 2013, the Company purchased 185,000 shares under this authorization. The Company did not make any purchases during fiscal ~~2015, 2016~~2020 and ~~2017.~~2021. As of June 30, ~~2017,~~2021, 315,000 shares remain authorized for purchase.

The following table compares total shareholder return over the last five fiscal years to the Standard & Poor’s 500 Machinery (Industrial) Index and the Russell 2000 index. The S&P 500 Machinery (Industrial) Index consists of a broad range of manufacturers. The Russell 2000 Index consists of a broad range of 2,000 companies. The Company believes, because of the similarity of its business with those companies contained in the S&P 500 Machinery (Industrial) Index, that comparison of shareholder return with this index is appropriate. Total return values for the Corporation’s common stock, the S&P 500 Machinery (Industrial) Index and the Russell 2000 Index were calculated based upon an assumption of a $100 investment on June 30, 2012 and based upon cumulative total return values assuming reinvestment of dividends on a quarterly basis.

Item 6. Selected Financial Data

Financial Highlights

(in thousands, except per share amounts)

Fiscal Years Ended June 30,	Fiscal Years Ended June 30,													Fiscal Years Ended June 30,
Statement of Operations Data:		2017			2016			2015		2014		2013			2021			2020			2019		2018		2017
Net sales		$	168,182		$	166,282		$	265,790	$	263,909	$	285,282		$	218,581		$	246,838		$	302,663	$	240,733	$	168,182
Net (loss) earnings			(6,115	)		(13,013	)		11,385		3,870		4,251
Net (loss) earnings attributable to Twin Disc			(6,294	)		(13,104	)		11,173		3,644		3,882
Basic (loss) earnings per share attributable to Twin Disc common shareholders			(0.56	)		(1.17	)		0.99		0.32		0.34
Diluted (loss) earnings per share attributable to Twin Disc common shareholders			(0.56	)		(1.17	)		0.99		0.32		0.34
Net (loss) income																(29,519	)		(39,571	)		10,796		9,647		(6,115	)
Net (loss) income attributable to Twin Disc																(29,719	)		(39,817	)		10,673		9,528		(6,294	)
Basic (loss) income per share attributable to Twin Disc common shareholders																(2.24	)		(3.03	)		0.84		0.82		(0.56	)
Diluted (loss) income per share attributable to Twin Disc common shareholders																(2.24	)		(3.03	)		0.83		0.82		(0.56	)
Dividends per share			-			0.18			0.36		0.36		0.36			-			-			-		-		-

June 30,	June 30,											June 30,
Balance Sheet Data		2017		2016		2015		2014		2013			2021		2020		2019		2018		2017
Total assets		$	210,898	$	213,922	$	249,862	$	266,985	$	285,458		$	275,413	$	294,127	$	346,870	$	241,240	$	210,898
Total long-term debt			6,323		8,501		10,231		14,800		23,472			32,085		42,587		42,491		4,824		6,323

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Smaller Reporting Company Status

Under SEC Release 33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company based on its public float as of the last business day of the second quarter of fiscal 2021. Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.

Note on Forward-Looking Statements

Statements in this report (including but not limited to certain statements in Items 1, 3 and 7) and in other Company communications that are not historical facts are forward-looking statements, which are based on management’s current expectations. These statements involve risks and uncertainties that could cause actual results to differ materially from what appears here.

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 the Company 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, could cause actual results to be materially different from what is presented in any forward-looking statements.

Results of Operations
(In thousands)

2017

%

2016

%

2015

%

Net sales
$ 168,182 $ 166,282 $ 265,790
Cost of goods sold
119,950 125,687 182,758

Gross profit
48,232 28.7 40,595 24.4 83,032 31.2

Marketing, engineering and administrative expenses
52,773 31.4 57,113 34.3 64,264 24.2
Restructuring of operations
1,791 1.1 921 0.6 3,282 1.2
Goodwill and other asset impairment charge
2,646 1.6 7,602 4.6 - -
Other operating expense (income)
- - (445 ) (0.3 ) - -

(Loss) earnings from operations
$ (8,978 ) (5.3 ) $ (24,596 ) (14.8 ) $ 15,486 5.8
~~Fiscal 201~~7
~~Compared to Fiscal 20~~ 16
(In thousands)
% of
~~Net~~ % of
2021
Sales
2020
Sales
Net sales for fiscal 2017 increased 1.1%, or $1.9 million, to $168.2 million from $166.3 million in fiscal 2016. The slight increase reflects an increase in demand for the Company’s oil and gas related products in North America, primarily during the second half
$ 218,581 $ 246,838
Cost of fiscal 2017. Asian demand for the Company’s commercial marine products remained depressed, while demand from European customers also remained weak, hampered by local economic concerns and an unfavorable currency dynamic for the Company’s U.S. produced goods. Excluding oil and gas applications, North American demand remained relatively stable for the Company’s commercial marine and industrial products. Currency translation had a negligible impact on fiscal 2017 sales.goods sold
167,724 191,130
Sales at our manufacturing segment increased 3.9%, or $5.5 million, versus the same period last year. In the current fiscal year, the Company’s North American manufacturing operation, the largest, experienced a 15.7% increase in sales compared to fiscal 2016. The primary driver for this significant increase was improved demand for the Company’s oil and gas related products, both new units and aftermarket service parts, primarily during the second half of the fiscal year. This increase is driven by stabilizing oil prices and consistent production levels requiring reinvestment in capital equipment following a lengthy pause created by the decline in oil prices starting in fiscal 2015. The Company’s Italian manufacturing operations, which have been adversely impacted by the softness in the European mega yacht and industrial markets, experienced a sales decrease of 3.7% compared to the prior fiscal year. The Company’s Belgian manufacturing operation saw a 19.4% decrease in sales in fiscal 2017 as the marine markets served by this operation continue to struggle. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 4.4% increase in sales, primarily due to improvements in the global patrol boat market.
Sales at our distribution segment were down 8.6%, or $6.4 million, compared to fiscal 2016. The Company’s distribution operation in Singapore, its largest Company-owned distribution operation, experienced a 26.9% reduction in sales due to a continuing decline in demand for various commercial applications and pressure-pumping transmissions for the Chinese oil and gas market following several years of very strong growth. The Company’s distribution operation in the Northwest of the United States and Southwest of Canada experienced an increase in sales of 4.8% on the improved activity in the North American oil and gas market during the second half of the fiscal year. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems primarily for the pleasure craft market, saw sales improve by 8.3%, driven by improved activity in the Australian pleasure craft market over the prior fiscal year.

Net sales for the Company’s largest product market, marine transmission and propulsion systems, were down 7.4% compared to the prior fiscal year. This decrease reflects a continuing decline in the Asian commercial marine market and continued weakness in the global pleasure craft market. In the off-highway transmission market, the year-over-year increase of 46.0% can be attributed primarily to increased shipments of the Company’s pressure pumping transmission systems and components to the North American oil and gas market, primarily during the second half of the fiscal year. The decrease experienced in the Company’s industrial products of 11.3% was due to reduced volume in agriculture, mining and general industrial markets, primarily in the North American and Italian regions.
Geographically, sales to the U.S. and Canada improved 8% in fiscal 2017 compared to fiscal 2016, representing 55% of consolidated sales for fiscal 2017 compared to 52% in fiscal 2016. North American sales benefited from increased demand for oil and gas related products in the second half of the fiscal year. Sales into China declined 12.0% compared to fiscal 2016, driven by the combination of reduced oil and gas demand and a decline in commercial marine activity. China sales represented 4.7% of 2017 consolidated net sales, down from 5.4% in fiscal 2016 and 7.4% in fiscal 2015. Overall sales into the Asia Pacific market represented approximately 17% of sales in fiscal 2017, compared to 20% in fiscal 2016. Sales into the European market declined approximately 3% from fiscal 2016 levels while accounting for 21% of consolidated net sales compared to 22% in fiscal 2016. See Note J of the Notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations.
~~Gross Profit~~
~~In fiscal 2017, gross profit increased $7.6 million, or 18.8%, to $48.2 million on a sales increase of only $1.9 million.~~ Gross profit as a percentage of sales increased 430 basis points in fiscal 2017 to 28.7%, compared to 24.4% in fiscal 2016. The table below summarizes the gross profit trend by quarter for fiscal years 2017 and 2016:

1^st Qtr

2^nd Qtr

3^rd Qtr

4^th Qtr

Year

Gross Profit:

($ millions)

2017
$ 9.2 $ 8.9 $ 13.3 $ 16.8 $ 48.2
2016
$ 8.2 $ 11.6 $ 9.6 $ 11.2 $ 40.6

% of Sales:

2017
25.6 % 26.6 % 29.5 % 31.4 % 28.7 %
2016
21.9 % 25.9 % 23.2 % 26.2 % 24.4 %
There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2017. Gross profit for the year was favorably impacted by higher volumes, a favorable product mix, a favorable exchange impact ($0.3 million) and positive cost reduction efforts. The Company estimates the net favorable impact of increased volumes on gross margin in fiscal 2017 was approximately $0.8 million. The favorable shift in product mix, primarily related to the improved North American demand for the Company’s oil and gas transmission products, had an estimated favorable impact of $2.3 million. The remaining improvement in margin ($4.2 million) is due to the continued benefit of cost reduction actions across the global enterprise, along with significant improvements in operating efficiency.

~~Marketing, Engineering and Administrative (ME&A) Expenses~~
50,857 23.3 55,708 22.6
Marketing, engineering and administrative ~~(ME&A)~~ expenses of $52.8 million were down $4.3 million, or 7.6%, compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased to 31.4% of sales versus 34.3% of sales in fiscal 2016. The reduction in fiscal 2017 compared to the prior year was driven by lower pension expense ($0.3 million), reduced corporate development spending ($0.9 million) and the positive impact of an aggressive global cost reduction program ($5.0 million). These savings were partially offset by an increase to bonus expense ($1.6 million) and stock based compensation ($0.3 million).
55,750 25.5 63,218 25.6
Restructuring ~~of Operations~~expenses
7,377 3.4 5,138 2.1
During the course of fiscal 2017, the Company executed a series of targeted restructuring activities, resulting in a pre-tax restructuring charge of $1.8 million, or $0.16 per diluted share. These actions are focused on reducing the Company’s operating costs due to the challenging global market conditions, and resulted in headcount reductions at the Company’s operations in Italy, Belgium, India and the United States.
Goodwill and ~~Other Asset Impairment Charge~~
For the quarter ended March 31, 2017, the Company performed a review of potential triggering events, such as the continued market softness and operating losses experienced during the quarter, and concluded that there were sufficient qualitative indicators in the third fiscal quarter that made it more likely than not that an impairment of the domestic industrial goodwill may have occurred. The Company completed a full impairment test, the result of which was a full impairment of the goodwill related to the U.S. Industrial business unit ($2.5 million) that remained after the fiscal 2016 impairment. Another asset impairment charge ~~of $0.1 million was also recorded related to the restructuring activities in India. See further discussion in Note P in the Notes to the Consolidated Financial Statements.~~
- - 27,603 11.2
In fiscal 2016, the Company conducted its annual assessment for goodwill impairment as of June 30, 2016 using updated inputs, including appropriate risk-based, country and company specific weighted average discount rates for all of the Company’s reporting units. The analysis identified an impairment in the domestic industrial business and the European propulsion business resulting in a charge of $7.6 million. See further discussion in Note D in the Notes to the Consolidated Financial Statements.
~~Other Operating Income~~
During fiscal 2016, the Company sold the distribution rights and assets of its distribution entity covering the southeast U.S. territory for approximately $4.1 million. As a result, a net operating gain of $0.4 million was recorded.
~~Interest Expense~~
Interest expense of $0.3 million for fiscal 2017 was down 29% versus fiscal 2016. Interest on the Company’s revolving credit facility (“revolver”) in fiscal 2017 was level with fiscal 2016 at $0.2 million, as a lower average balance was offset by a slightly higher average interest rate. The average borrowing on the revolver, computed monthly, decreased to $8.4 million in fiscal 2017, compared to $12.3 million in the prior fiscal year. The interest rate on the revolver was a range of 1.20% to 2.21% in the prior fiscal year compared to a range of 2.22% to 2.80% in the current year. The interest expense on the Company’s $25 million Senior Note, which carried a fixed rate of 6.05%, totaled $0.2 million in fiscal 2016. The final payment on the Senior Note was made in April 2016.
~~Other income (expense), net and Interest Income~~
In fiscal 2017, the decrease in other income (expense), net, was primarily due to lower fixed asset disposal losses when compared to the prior year. Interest income was lower in fiscal 2017 when compared to the prior year due to lower cash balances as the Company paid down long term debt.

~~Income Taxes~~
The effective tax rate for the twelve months of fiscal 2017 was 35.8%, which was significantly lower than the prior year rate of 48.6%. The fiscal 2016 effective tax rate was favorably impacted by a tax strategy which resulted in the recognition of foreign tax credits associated with the repatriation of $9.7 million in cashLoss from ~~our European~~ operations ~~($2.4 million). Adjusting for this non-recurring tax benefit, the fiscal 2016 effective tax rate would have been 39.1%~~
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. During fiscal 2017, the Company reported operating income in certain foreign jurisdictions where the loss carryforward period is unlimited. The Company has evaluated the likelihood of whether the net deferred tax assets related to these jurisdictions would be realized and concluded that based primarily upon the uncertainty to achieve levels of sustained improvement and uncertain exchange rates in these jurisdictions: (a) it is more likely than not that $3.8 million of deferred tax assets would not be realized; and that (b) a full valuation allowance on the balance of deferred tax assets relating to these jurisdictions continues to be necessary. The Company recorded a net increase in valuation allowance of $0.7 million in fiscal 2017 due to higher cumulative operating losses in these jurisdictions. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income and foreign source income to realize the remaining deferred tax assets.
~~Order Rates~~
As of June 30, 2017, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog) was $46.4 million, or approximately 30% higher than the six-month backlog of $35.7 million as of June 30, 2016. The Company’s backlog improved during the second half of the fiscal 2017 with the increase in North American demand for the Company’s oil and gas related products.
~~Fiscal 201~~6 ~~Compared to Fiscal 201~~5
~~Net Sales~~
Net sales for fiscal 2016 decreased 37.4%, or $99.5 million, to $166.3 million from $265.8 million in fiscal 2015. The decrease was primarily the result of a dramatic reduction in demand for the Company’s oil and gas related products in both North America and Asia driven by the extended global decline in oil and natural gas prices, along with weakening demand in Asia for the Company’s commercial marine products. Demand from European customers remained weak, hampered by local economic concerns and an unfavorable currency dynamic for the Company’s U.S. produced goods. Excluding oil and gas applications, North American demand remained relatively stable for the Company’s commercial marine and industrial products. Currency translation had a $7.9 million unfavorable impact on fiscal 2016 sales compared to the prior year due to the strengthening of the U.S. dollar against the euro and Asian currencies.
Sales at our manufacturing segment were down 39.4%, or $91.6 million, versus the same period last year. Compared to fiscal 2015, on average, the U.S. dollar strengthened against the euro. The net translation effect of this on foreign manufacturing operations was to reduce revenues for the manufacturing segment by approximately $3.8 million versus the prior year, before eliminations. In the current fiscal year, the Company’s North American manufacturing operation, the largest, experienced a 50.7% decrease in sales compared to fiscal 2015. The primary driver for this significant decrease was a sharp decline in global demand for oil and gas related products as a result of the decline in global oil prices, along with reduced demand in Asia for commercial marine products due to generally challenging Asian economic conditions. The Company’s Italian manufacturing operations, which have been adversely impacted by the softness in the European mega yacht and industrial markets, experienced a sales decrease of 14.2% compared to the prior fiscal year. The Company’s Belgian manufacturing operation saw 6.8% decrease in sales in fiscal 2016 as stable North American demand was offset by unfavorable currency movements. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced an 11.4% decrease in sales, primarily due to unfavorable currency movements along with the timing of shipments for the global patrol boat and Italian mega yacht markets.

Sales at our distribution segment were down 38.5%, or $46.4 million, compared to fiscal 2015. Compared to fiscal 2015, on average, the Asian currencies weakened against the U.S. dollar. The net translation effect of this on foreign distribution operations was to decrease revenues for the distribution segment by approximately $4.1 million versus the prior year, before eliminations. The Company’s distribution operation in Singapore, its largest Company-owned distribution operation, experienced a 54.9% reduction in sales due to a decline in demand for various commercial applications and pressure-pumping transmissions for the Chinese oil and gas market following several years of very strong growth. The Company’s distribution operation in the Northwest of the United States and Southwest of Canada experienced a decrease in sales of 42.8% on the decline of the North American oil and gas market throughout the fiscal year. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw flat sales despite an unfavorable currency movement, driven by improved shipments in the Australian mega yacht market over the prior fiscal year.
Net sales for the Company’s largest product market, marine transmission and propulsion systems, were down 29.9% compared to the prior fiscal year. This decrease reflects a sharp decline in the Asian commercial marine market, reduced demand for offshore supply vessels driven by the global decline in oil prices, continued weakness in the global pleasure craft market and a significant currency impact. In the off-highway transmission market, the year-over-year decrease of 62% can be attributed primarily to reduced shipments of the Company’s pressure pumping transmission systems and components to the North American and Asian oil and gas market. The decrease experienced in the Company’s industrial products of nearly 23% was due to decreased sales into the North American oil and gas market, along with reduced volume in agriculture, mining and general industrial markets, primarily in the North American and Italian regions.
Geographically, sales to the U.S. and Canada declined nearly 41% in fiscal 2016 compared to fiscal 2015, representing 52% of consolidated sales for fiscal 2016 compared to 55% in fiscal 2015. North American sales were severely impacted by reduced demand for oil and gas related products throughout the fiscal year. Sales into China declined 54.2% compared to fiscal 2015, driven by the combination of reduced oil and gas demand and a decline in commercial marine activity. China sales represented 5.4% of 2016 consolidated net sales, down from 7.4% in fiscal 2015 and 12.8% in fiscal 2014. Overall sales into the Asia Pacific market represented approximately 20% of sales in fiscal 2016, compared to 21% in fiscal 2015. Sales into the European market also suffered, reporting a 17% decrease from fiscal 2015 levels while accounting for 22% of consolidated net sales compared to only 17% in fiscal 2015. See Note J of the Notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations.

~~Gross Profit~~
In fiscal 2016, gross profit decreased $42.4 million, or 51.1%, to $40.6 million. Gross profit as a percentage of sales decreased 680 basis points in fiscal 2016 to 24.4%, compared to 31.2% in fiscal 2015. The table below summarizes the gross profit trend by quarter for fiscal years 2016 and 2015:

1^st Qtr

2^nd Qtr

3^rd Qtr

4^th Qtr

Year

Gross Profit:

($ millions)

2016
$ 8.2 $ 11.6 $ 9.6 $ 11.2 $ 40.6
2015
$ 22.4 $ 22.1 $ 19.0 $ 19.5 $ 83.0

% of Sales:

2016
21.9 % 25.9 % 23.2 % 26.2 % 24.4 %
2015
34.5 % 30.4 % 31.2 % 29.0 % 31.2 %
There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2016. Gross profit for the year was negatively impacted by significantly lower volumes, an unfavorable product mix and an unfavorable exchange impact ($1.1 million). The Company estimates the net unfavorable impact of decreased volumes on gross margin in fiscal 2016 was approximately $44.4 million. The unfavorable shift in product mix, primarily related to the significant decline in the Company’s oil and gas transmission business, had an estimated unfavorable impact of $4.0 million. These unfavorable movements were partially offset by an aggressive effort to reduce the Company’s fixed cost structure, resulting in savings of $7.1 million in fiscal 2016.
~~Marketing, Engineering and Administrative (ME&A) Expenses~~
Marketing, engineering, and administrative (ME&A) expenses of $57.1 million were down $7.2 million, or 11.1%, compared to the prior fiscal year. As a percentage of sales, ME&A expenses increased to 34.3% of sales versus 24.2% of sales in fiscal 2015. The reduction in fiscal 2016 compared to the prior year was driven by lower bonus expense ($3.2 million), a favorable currency impact ($1.7 million) and aggressive spending reductions across the global enterprise ($5.9 million). These savings were partially offset by an increase to pension expense ($2.0 million), stock based compensation ($0.7 million), spending on corporate development activities ($0.7 million) and costs related to third quarter activity to revise the Wells Fargo and Prudential credit agreements ($0.2 million).
~~Restructuring of Operations~~
During the course of fiscal 2016, the Company executed a series of targeted restructuring activities, resulting in a pre-tax restructuring charge of $0.9 million, or $0.08 per diluted share. These actions are focused on reducing the Company’s operating costs due to the challenging global market conditions, and resulted in headcount reductions at the Company’s operations in Italy, Singapore and the United States.
~~Goodwill Impairment Charge~~
The Company conducted its annual assessment for goodwill impairment as of June 30, 2016 using updated inputs, including appropriate risk-based, country and company specific weighted average discount rates for all of the Company’s reporting units. The analysis identified an impairment in the domestic industrial business and the European propulsion business resulting in a charge of $7.6 million. See further discussion in Note D in the Notes to the Consolidated Financial Statements.
~~Other Operating Income~~
During fiscal 2016, the Company sold the distribution rights and assets of its distribution entity covering the southeast U.S. territory for approximately $4.1 million. As a result, a net operating gain of $0.4 million was recorded.

~~Interest Expense~~
~~Interest expense of $0.4 million for fiscal 2016 was down 30% versus fiscal 2015. Interest on the Company’s revolving credit facility (“revolver”~~
$ (12,270 ) increased to $0.2 million in fiscal 2016. The increase can be attributed to an overall increase in the average borrowings and the average interest rate year-over-year. The average borrowing on the revolver, computed monthly, increased to $12.3 million in fiscal 2016, compared to $10.7 million in the prior fiscal year. The interest rate on the revolver was a range of 1.16% to 1.20% in the prior fiscal year compared to a range of 1.20% to 2.21% in the current year. The interest expense on the Company’s $25 million Senior Note, which carried a fixed rate of 6.05%, decreased $0.2 million to $0.2 million, due to a lower remaining principal balance. The final payment on the Senior Note was made in April 2016.
~~Other income (expense), net and Interest Income~~
For the fiscal 2016 full year, Other, net declined by $1.3 million due primarily to a prior year life insurance benefit and unfavorable exchange movements related to the Japanese yen, Singapore dollar, euro and Australian dollar. Interest income was flat in fiscal 2016 compared to the prior year.
~~Income Taxes~~
The effective tax rate for the twelve months of fiscal 2016 was 48.6%, which is significantly higher than the prior year rate of 28.4%. The full year effective rates are impacted by the non-deductibility of operating results in a certain foreign jurisdiction that is subject to a full valuation allowance. Adjusting both fiscal years for the results of this jurisdiction, the fiscal 2016 full year rate would have been 45.0% compared to 30.9% for the same period in fiscal 2015. The fiscal 2016 effective tax rate was favorably impacted by a tax strategy which resulted in the recognition of foreign tax credits associated with the repatriation of $9.7 million in cash from our European operations ($2.4 million). Adjusting for this non-recurring tax benefit, the fiscal 2016 effective tax rate would have been 36.2%. The fiscal 2015 rate was favorably impacted by a change in the jurisdictional mix of earnings, along with favorable discrete items related to foreign earnings, and the reinstatement of the research and development credit for calendar 2015.
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. During fiscal 2016, the Company reported operating income in certain foreign jurisdictions where the loss carryforward period is unlimited. The Company has evaluated the likelihood of whether the net deferred tax assets related to these jurisdictions would be realized and concluded that based primarily upon the uncertainty to achieve levels of sustained improvement and uncertain exchange rates in these jurisdictions; (a) it is more likely than not that $3.1 million of deferred tax assets would not be realized; and that (b) a full valuation allowance on the balance of deferred tax assets relating to these jurisdictions continues to be necessary. The Company recorded a net decrease in valuation allowance of $0.5 million in fiscal 2016 due to lower cumulative operating losses in these jurisdictions. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income and foreign source income to realize the remaining deferred tax assets.
~~Order Rates~~
As of June 30, 2016, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog) was $35.7 million, or approximately 4% higher than the six-month backlog of $34.4 million as of June 30, 2015. The Company’s backlog remained relatively consistent through the year, as markets remained at a relatively low level throughout fiscal 2016.

~~Liquidity and Capital Resources~~
~~Fiscal Years 2017, 2016 and 2015~~
~~The net cash provided by operating activities in fiscal 2017 totaled $3.2 million, a slight decrease ($0.2 million or 6%~~
(5.6 ) from fiscal 2016. The slight change is primarily the result of a significant improvement in net earnings ($6.9 million) being offset by moderating working capital improvements ($8.3 million lower in fiscal 2017), as the prior fiscal year benefited from successful inventory reductions. While inventory improved slightly in fiscal 2017 ($0.4 million), fiscal 2016 saw a $13.7 million improvement driven by declining volumes and strong working capital management. While the accounts receivable balance increased significantly in fiscal 2017 ($6.0 million) on the strong second half sales volume, receivable performance improved in fiscal 2017, with days sales outstanding falling from 66 days at June 30, 2016 to 56 days at June 30, 2017. Accounts payable saw a corresponding volume-driven increase ($6.6 million).
The net cash provided by operating activities in fiscal 2016 totaled $3.4 million, a decrease of $13.7 million, or approximately 80%, versus fiscal 2015. The decrease compared to the prior fiscal year is primarily due to the decline in earnings totaling $24.4 million. This decline was partially offset by reduced working capital. Accounts receivable decreased by $18.4 million, driven by the reduced sales volume and strong collection efforts. The inventory improvement is the successful result of a concerted global effort to manage working capital levels in light of the challenging market conditions. Net inventory as a percentage of the six-month backlog decreased from 232% as of June 30, 2015 to 186% as of June 30, 2016. The decrease in accounts payable reflects the reduced purchasing activity throughout the fiscal year as a result of the reduced volume, while accrued liabilities declined with the payment of severance and bonus obligations.
The net cash provided by operating activities in fiscal 2015 totaled $17.1 million, a decrease of $8.7 million, or approximately 33.7%, versus fiscal 2014. The reduction compared to fiscal 2014 primarily relates to an increase in accounts receivable, a reduction in accrued retirement benefits and an increase in a life insurance receivable. These unfavorable movements were partially offset by a significant reduction in inventory. Adjusted for an $8.1 million impact of foreign currency translation, net inventory decreased by $9.3 million compared to the prior fiscal year end. The majority of this decrease was seen at the Company’s North American operations in response to the decline in demand through the second half of the fiscal year. Net inventory as a percentage of the six-month backlog increased from 148% as of June 30, 2014 to 232% as of June 30, 2015. The increase in receivables compared to the prior year end relates to timing of shipments within the fourth quarter, along with a slight easing of payment patterns due to economic pressures in the oil and gas market. The decrease in accounts payable is in line with the reduced purchase activity through the fourth quarter.
The net cash used by investing activities primarily represents capital spending activity totaling $3.1 million. The fiscal 2017 capital projects were again limited to critical replacement and maintenance items and costs related to new product introduction. This was partially offset by proceeds from the sale of certain operating assets, primarily associated with the closure of our India plant.
The net cash provided by investing activities in fiscal 2016 of $1.1 million represents primarily the proceeds from the sale of Twin Disc Southeast in the first quarter of the fiscal year ($3.5 million) and the proceeds from a life insurance policy ($2.0 million), partially offset by relatively modest capital spending activity totaling $4.2 million. The capital projects for fiscal 2016 were limited to key replacement items and high potential new product introductions.
The net cash used for investing activities in fiscal 2015 of $6.8 million consisted primarily of capital expenditures for machinery and equipment and facility upgrades at our U.S., Belgian and Singapore facilities. In fiscal 2015, the Company spent $9.0 million for capital expenditures, up from $7.2 million in fiscal 2014. The Company also received a net reimbursement of premiums paid on executive split dollar life insurance policies during the year ($1.9 million) due to resignations and retirements.
The net cash used by financing activities in fiscal 2017 of $2.4 million consisted primarily of net payments of debt ($2.2 million). During fiscal 2017, the Company did not purchase any shares as part of its Board-authorized stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan.

The net cash used by financing activities in fiscal 2016 of $8.1 million consisted primarily of dividends paid to shareholders ($2.0 million) and net payments of debt ($5.3 million). During fiscal 2016,
$ (40,251 ) (16.3 )

Fiscal 2021 Compared to Fiscal 2020

Net Sales

Net sales for fiscal 2021 decreased 11.4%, or $28.3 million, to $218.6 million from $246.8 million in fiscal 2020. The Company experienced a broad-based softening in demand through the first three fiscal quarters across the industrial and marine markets, due in large part to the continued impacts of the COVID-19 crisis on the Company’s global markets. The weakness in the North American oil and gas market experienced throughout fiscal 2020 persisted through fiscal 2021, with some improvement in aftermarket activity in the fourth quarter of fiscal 2021. The Company began to see a general market recovery trend starting at the end of the fiscal second quarter, which continued through the fiscal fourth quarter. With a recovering global economy following a relaxation of COVID-19 restrictions, the Company has seen renewed demand for its products across all segments. With improving volume levels through the year, the Company reported a fourth quarter favorable variance to the prior year of 11.5%, its first favorable year-over-year variance since the third quarter of fiscal 2019. Currency translation had a favorable impact on fiscal 2021 sales compared to the prior year totaling $11.6 million primarily due to the strengthening of the euro and Australian dollar against the U.S. dollar

Sales at our manufacturing segment decreased 15.8%, or $36.1 million, versus the same period last year. The largest decline was seen at the Company’s North American manufacturing operation, the largest, which experienced a 28.0% decline in sales compared to fiscal 2020. The primary driver for this decrease was a broad reduction in demand created by the global economic impact of the COVID-19 pandemic. The Company’s Veth Propulsion operation in the Netherlands experienced an 18.5% decrease in sales in fiscal 2021, also due to the global market impacts of the COVID-19 pandemic. The Company’s Italian manufacturing operations reported a 16.6% increase in sales from fiscal 2020, with foreign currency contributing half of that increase and a recovering European industrial market in the second half of the fiscal year driving the remaining volume growth. Similarly, the Company’s Belgian manufacturing operation saw a 12.2% increase in sales in fiscal 2021 on a favorable foreign exchange impact and an economic recovery in the fourth fiscal quarter. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 7.2% increase in sales, primarily due to a favorable currency impact.

Sales at our distribution segment were up 4.6%, or $4.4 million, compared to fiscal 2020, with the entire increase coming in the fourth fiscal quarter. The Company’s Asian distribution operation in Singapore, China and Japan experienced an 8.3% decrease in sales due to the weakened global demand resulting from COVID-19, partially offset by stable demand for the Company’s oil and gas transmissions. The Company’s European distribution operation saw an increase of $0.4 million thanks to a positive currency impact of $1.3 million. The operational decline is the result of the impact of the COVID-19 pandemic. The Company’s North American distribution operation saw an increase of 3.0% thanks to improving market conditions in the fourth fiscal quarter driving additional demand. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems primarily for the pleasure craft market, saw sales increase sharply (52.8%), driven by a significant favorable currency impact (15.9%) and strong demand for the Company’s product in the pleasure craft market.

Net sales for the Company’s marine transmission, propulsion and boat management systems were down 16.6% compared to the prior fiscal year. This decrease reflects a general weakening of the global economy primarily as a result of the COVID-19 pandemic. While most marine markets were significantly impacted, the pleasure craft market in Australia was an area of strength. In the off-highway transmission market, the year-over-year decrease of 6.8% can also be attributed primarily to the global impact of the COVID-19 pandemic through the first three quarters, while the year-over-year comparisons turned positive in the fourth quarter. Sale of the Company’s pressure pumping transmission systems into China remained steady and consistent with the prior year. The decrease experienced in the Company’s industrial products of 11.0% was also seen primarily in the first three quarters of the fiscal year, brought on by a weakening global economy and the impacts of the COVID-19 pandemic. This comparison also turned positive in the fourth fiscal quarter, as the global recovery started to gain traction.

Geographically, sales to the U.S. and Canada declined 23% in fiscal 2021 compared to fiscal 2020, representing 32% of consolidated sales for fiscal 2021 compared to 36% in fiscal 2020. The reduction is primarily due to the impact of the COVID-19 pandemic. Sales into the Asia Pacific market actually increased 2% compared to fiscal 2020 and represented approximately 24% of sales in fiscal 2021, compared to 21% in fiscal 2020. The increase in fiscal 2021 reflects a strong Australian pleasure craft market and consistent Chinese demand for the Company’s oil and gas transmission. Sales into the European market declined approximately 11% from fiscal 2020 levels while accounting for 37% of consolidated net sales in both fiscal 2021 and fiscal 2020. The decrease, similar to North America, is primarily the result of the global economic impact of the COVID-19 pandemic. See Note J, Business Segments and Foreign Operations, of the notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations.

Gross Profit

In fiscal 2021, gross profit decreased $4.9 million, or 8.7%, to $50.9 million on a sales decrease of $28.3 million. Gross profit as a percentage of sales increased 70 basis points in fiscal 2021 to 23.3%, compared to 22.6% in fiscal 2020. The table below summarizes the gross profit trend by quarter for fiscal years 2021 and 2020:

1^st Qtr

2^nd Qtr

3^rd Qtr

4^th Qtr

Year

Gross Profit:

($ millions)

2021
$ 9.7 $ 8.9 $ 14.0 $ 18.3 $ 50.9
2020
$ 9.6 $ 15.7 $ 16.5 $ 13.9 $ 55.7

% of Sales:

2021
21.0 % 18.3 % 24.2 % 27.7 % 23.3 %
2020
16.3 % 26.4 % 24.1 % 23.3 % 22.6 %
There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2021. Gross profit for the year was primarily impacted by reduced volumes and a continued unfavorable product mix. This was driven by the global economic impact of the COVID-19 pandemic and very limited sales of high-margin oil and gas transmissions and parts. Margin was favorably impacted by the recording of a benefit related to the Employee Retention Credit (“ERC”), a COVID-19 relief program of the U.S. government, totaling $2.4 million, split evenly between the third and fourth quarters. The Company estimates the net unfavorable impact of reduced volumes on gross margin in fiscal 2021 was approximately $6.5 million. The unfavorable shift in product mix, primarily related to the reduced shipments of the Company’s high margin oil and gas transmission units and aftermarket products, had an estimated unfavorable impact of $3.7 million.
Marketing, Engineering and Administrative (ME&A) Expenses
Marketing, engineering, and administrative (ME&A) expenses of $55.8 million were down $7.5 million, or 11.8%, compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased slightly to 25.5% of sales versus 25.6% of sales in fiscal 2020. The decrease in spending in fiscal 2021 compared to the prior year was driven by reduced domestic salaries and benefits ($3.4 million), a reclassification of certain costs from ME&A to COGS ($2.4 million), lower amortization expense ($1.0 million), reduced marketing activities ($1.5 million) and a benefit related to the domestic ERC ($1.2 million), reduced corporate travel ($0.9 million) and the impact of global expense containment measures ($1.5 million). These decreases were partially offset by an increase in global bonus expense ($2.4 million) and an exchange driven increase ($2.0 million).
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Restructuring of Operations
During the course of fiscal 2021, the Company incurred $7.4 million in restructuring charges. Included in this amount is $2.3 million related to the provision for an announced restructuring program at the Company’s Belgian operation resulting in the elimination of 23 positions. The action was taken to allow the Belgian operation to focus resources on core manufacturing processes, while allowing for savings on the outsourcing of non-core processes. The Company anticipates annual pre-tax savings upon completion of the restructuring of approximately $1.6 million. The Company also recorded a $4.3 million charge for the impairment of its corporate office building, which is currently held for sale. The remaining $0.8 million of restructuring charges relates to productivity and cost reduction actions at the Company’s domestic and European operations. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.
Income from Extinguishment of Loan
During the fourth fiscal quarter, the Company received formal forgiveness of its PPP Loan in the amount of $8.2 million. The Company recorded $8.2 million in income from extinguishment of loan in its consolidated statement of operations in fiscal 2021. See Note G, Debt, of the notes to the consolidated financial statements for additional information on the PPP loan.
Interest Expense
Interest expense of $2.4 million for fiscal 2021 was $0.5 million higher than fiscal 2020 on a higher average interest rate, partially offset by a lower average balance on the domestic revolver.
Other income (expense), net
In fiscal 2021, other expense, net, increased $1.8 million primarily due to the impact of currency movements related to the euro and Asian currencies.
Income Taxes
The effective tax rate for fiscal 2021 is -200.0% compared to 9.5% for fiscal 2020. During the current fiscal year, the Company received full forgiveness of its PPP loan which resulted in an increase to the effective tax rate of 17.5%. In the prior year, the Company’s management determined that the carrying value of certain goodwill and intangibles exceeded the fair value and a $27.6 million impairment loss was calculated, which resulted in a decrease to the prior year effective tax rate of 13.8%. During the current fiscal year, the Company was able to take advantage of the newly enacted high tax exception regulations. The Company filed its federal tax return utilizing this exception and had no global intangible low taxed income (“GILTI”) inclusion increasing the current rate by 12.4%. Due to continued historical domestic losses and uncertain future domestic earnings, the Company recognized a full domestic valuation allowance reducing the effective tax rate by 248.2%.
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 likelihood of whether the net domestic deferred tax assets would be realized and concluded that it is more likely than not that all of deferred tax assets would not be realized. Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $24.4 million, included in income tax expense (benefit) on the consolidated statement of operations, has been recorded for fiscal year 2021.
Order Rates
As of June 30, 2021, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog) was $70.3 million or approximately 6% higher than the six-month backlog of $66.6 million as of June 30, 2020. The increased backlog is primarily attributable to the improvement in order rates through the second half of the fiscal year, as the global economy began to recover from the COVID-19 pandemic.
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Liquidity and Capital Resources
Fiscal Years 2021 and 2020
The net cash provided by operating activities in fiscal 2021 totaled $6.5 million, a decrease of $2.6 million from the prior fiscal year. The positive operating cash flow was generated by continued progress in working capital reduction efforts, which contributed $3.4 million during the year before considering the $3.2 million reclassification, net of the $4.8 million impairment recorded to restructuring expenses, of the corporate office building as a current asset held for sale as of June 30, 2021. The largest contributions came from inventory reduction ($5.6 million) and increased trade payables ($5.3 million). These improvements were partially offset by an increase in trade receivables ($8.8 million) resulting from the increased sales volume in the fourth quarter of the current fiscal year.
The net cash used by investing activities for fiscal 2021 primarily represents capital spending activity totaling $4.5 million, partially offset by the receipt of $1.5 million on the note receivable related to the sale of the assets of a previously owned subsidiary of the Company in fiscal 2019. The capital spending amount reflects a $6.2 million (58.3%) decrease in spending on capital projects compared to fiscal 2020. Given the extreme economic uncertainty brought on by the COVID-19 pandemic, the Company limited fiscal 2021 capital spending to critical replacement items and spending needed to bring the new Lufkin facility online.
The net cash used by financing activities relates primarily to payments of long-term debt ($3.9 million), along with payments for withholding taxes on stock compensation ($0.2 million) and dividends paid to a non-controlling interest ($0.2 million). During fiscal 2021, the Company did not purchase any shares as part of its Board-authorized stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan.

In fiscal 2015, the net cash used by financing activities of $9.2 million consisted primarily of dividends paid to shareholders of the Company of $4.1 million and net payments of debt of $4.6 million. During fiscal 2015, the Company did not purchase any shares as part of its Board-authorized stock repurchase program.
��
Future Liquidity and Capital Resources

On June ~~30, 2014,~~29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the ~~Wells Fargo Agreement, which was subsequently amended on February 1, 2016. Prior~~assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the ~~February 1, 2016 amendment, it permitted~~Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $50.0 million (the “Revolving Credit Commitment”). The Credit Agreement also allows the Company to ~~enter~~obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $3.0 million in any fiscal year.
On March 4, 2019, the Company entered into ~~unsecured revolving credit loans up~~a second amendment (the “Second Amendment”) to the Credit Agreement. The Second Amendment reduced the principal amount of the term loan commitment under the Credit Agreement from $35.0 million to $20.0 million. In connection with the Second Amendment, the Company issued an amended and restated term note in the amount of ~~$60 million. This amendment~~$20.0 million to the Bank, which amended the original $35.0 million note provided ~~for a borrowing base calculation~~under the Credit Agreement.
Prior to determine borrowing capacity, up to a maximum of $40 million. This capacity was based upon eligible domestic inventory, eligible accounts receivable and machinery and equipment, subject to certain adjustments. The amended Wells Fargo Agreement also revisedentering into the ~~definition of EBITDA for~~Second Amendment, the ~~four consecutive fiscal quarters ending on and including December 25, 2015 to and including September 30, 2016 to add $0.5 million, reflective~~outstanding principal amount of the ~~restructuring charge taken by~~term loan (the “Term Loan”) under the Credit Agreement was $10.8 million. On the date of the Second Amendment, the Bank made an additional advance on the Term Loan to the Company in the ~~second~~amount of $9.2 million. The Second Amendment also extended the maturity date of the Term Loan from January 2, 2020 to March 4, 2026, and added a requirement that the Company make principal installments of $0.5 million per quarter starting with the quarter ending June 30, 2019.
The Second Amendment also reduced the applicable margin for purposes of determining the interest rate applicable to the Term Loan. Previously, the applicable margin was 3.00%, which was added to the Monthly Reset LIBOR Rate or the Adjusted LIBOR, as applicable. Under the Second Amendment, the applicable margin was between 1.375% and 2.375%, depending on the Company’s total funded debt to EBITDA ratio.
17
The Second Amendment also adjusted certain financial covenants made by the Company under the Credit Agreement. Specifically, the Company covenanted (i) not to allow its total funded debt to EBITDA ratio to be greater than 3.00 to 1.00 (the cap had previously been 3.50 to 1.00 for quarters ending on or before September 30, 2019 and 3.25 to 1.00 for quarters ending on or about December 31, 2019 through September 30, 2020), and (ii) that its tangible net worth will not be less than $100.0 million plus 50% of net income for each fiscal year ending on and after June 30, 2019 for which net income is a positive number (the $100.0 million figure had previously been $70.0 million).
On January 28, 2020, the Company entered into a third amendment (the “Third Amendment”) to the Credit Agreement. The Third Amendment restated the financial covenant provisions related to the maximum allowable ratio of total funded debt to EBITDA from 3.00 to 1.00 to 4.00 to 1.00 for the quarter ended December 27, 2019, 5.00 to 1.00 for the quarter ending March 27, 2020, 4.00 to 1.00 for the quarter ending June 30, 2020, 3.50 to 1.00 for the quarter ending September 25, 2020 and 3.00 to 1.00 for quarters ending on or after December 25, 2020. For purposes of determining EBITDA, the Third Amendment added back extraordinary expenses (not to exceed $3.9 million) related to the previously reported isolated product performance issue on one of the Company’s oil and gas transmission models at certain installations. Under the Third Amendment, the applicable margin for revolving loans, letters of credit, and term loans was between 1.25% and 3.375%, depending on the Company’s total funded debt to EBITDA ratio.
On April 17, 2020, the Company entered into a promissory note (the “PPP Note”) evidencing an unsecured loan in the amount of $8.2 million (the “PPP Loan”) made to the Company under the PPP. The PPP was established under the CARES Act and is a program under the U.S. SBA. The PPP Loan to the Company is administered by BMO. The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal payments are deferred until April 2022.
In connection with the PPP Loan, the Company entered into a fourth amendment to the Credit Agreement (the “Fourth Amendment”) on April 17, 2020. The Fourth Amendment: (1) permits the Company to incur indebtedness in the form of the PPP Loan notwithstanding the Credit Agreement’s restrictions limiting the Company’s ability to incur indebtedness, and (2) provides that the PPP Loan (to the extent that the PPP Loan is forgiven) shall be disregarded for purposes of calculating financial covenants in the Credit Agreement. Any unforgiven portion of the PPP Loan and the interest thereon will not be disregarded for purposes of calculating the financial covenants.
On July 22, 2020, the Company entered into a fifth amendment (the “Fifth Amendment”) to the Credit Agreement that amends the Credit Agreement dated as of June 29, 2018, as amended between the Company and BMO. The Fifth Amendment reduced BMO’s Revolving Credit Commitment from $50.0 million to $45.0 million. The Fifth Amendment also gives the Company the option to make interest-only payments on the Term Loan for quarterly payments occurring on September 30, 2020 and December 31, 2020, and limits the Company’s Capital Expenditures for the fiscal year ending June 30, ~~2016,~~2021 to $10.0 million.
The Fifth Amendment provides the Company with relief from its Total Funded Debt to EBITDA ratio financial covenant under the Credit Agreement through (and including) the earlier of June 30, 2021 or a date selected by the Company. During the financial covenant relief period:
●
The “Applicable Margin” to be applied to Revolving Loans, the Term Loan, and the Commitment/Facility Fee will be increased to 3.25%, 3.875%, and 0.20%, respectively.
●
The Company may not make certain restricted payments (specifically, cash dividends, distributions, purchases, redemptions or other acquisitions of or with respect to shares of its common stock or other common equity interests).
●
The Company must maintain liquidity (as defined in the Fifth Amendment) of at least $15.0 million.
●
The Company must maintain minimum EBITDA of at least (1) $1.0 million for the fiscal quarter ending June 30, 2020 and the two fiscal quarters ending on or about September 30, 2020; (2) $2.5 million for the three fiscal quarters ending on or about December 31, 2020; (3) $6.0 million for the four fiscal quarters ending on or about March 31, 2021; and (4) $10.0 million for the four fiscal quarters ending June 30, 2021.
For purposes of the minimum EBITDA financial covenant and ~~further adjusted~~the Total Funded Debt to EBITDA ratio, the Fifth Amendment clarified that EBITDA shall exclude any gain that is realized on the forgiveness of the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loan that the Company previously received.
The Fifth Amendment also changed the definition of ~~EBITDA to add back non-cash stock based compensation expense~~“LIBOR” (used in calculating interest on Eurodollar Loans), “Monthly Reset LIBOR Rate” (used in calculating interest on LIBOR Loans), and ~~additional restructuring charges not to exceed $0.3 million~~“LIBOR Quoted Rate” (used in the definition of “Base Rate,” which is used in calculating interest on Letters of Credit that are drawn upon and not timely reimbursed).
The Company also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. Under the Fifth Amendment, the Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.
18
On January 27, 2021, the Company entered into a Forbearance Agreement and Amendment No. 6 to the Credit Agreement (the “Forbearance Agreement”) that further amended the Credit Agreement.
The Company entered into the Forbearance Agreement because the Company was not in compliance with its financial covenant to maintain a minimum EBITDA of at least $2.5 million for the three fiscal ~~quarter~~quarters ended as of December 25, 2020. In the Forbearance Agreement, the Bank has agreed to forbear from exercising its rights and remedies against the Company under the Credit Agreement with respect to the Company’s noncompliance with the minimum EBITDA financial covenant during the period (the “Forbearance Period”) commencing January 27, 2021 and ending ~~March 25, 2016,~~on the earlier of (i) September 30, 2021, and ~~$0.3~~(ii) the date on which a default under the Forbearance Agreement or Credit Agreement occurs. During the Forbearance Period, the Bank may continue to honor requests of the Company for draws on the revolving note provided by the Bank under the Credit Agreement, except that the revolving credit commitment is reduced from $45.0 million ~~in each subsequent fiscal quarter.~~ to $42.5 million during the Forbearance Period.
The ~~amended Wells Fargo~~Forbearance Agreement also ~~waived any events~~added to the Company’s financial reporting requirements under the Credit Agreement by requiring the Company to provide the Bank with monthly forecasts of the Company’s financial statements, and monthly reports on the Company’s six-month backlog.
When the Forbearance Period ends on September 30, 2021, the Bank’s forbearance under the Forbearance Agreement will cease, and, therefore, on December 31, 2021, the Company is subject to the Total Funded Debt to EBITDA ratio financial covenant of 3.00 to 1.00. Further, upon an event of default ~~that~~and upon notice from the Bank, the Company’s obligations under the Loan Documents would be accelerated and become due at the default rate, and the Bank may ~~have occurred~~exercise its rights and remedies under the Credit Agreement for any occurrence and continuation of default under the Credit Agreement.
For the quarter ended June 30, 2021, as a result of the Forbearance Agreement, the Company was not required to meet the minimum EBITDA financial covenant. The Company expects to be in compliance with the terms of the ~~agreement prior~~Credit Agreement following the forbearance period, and therefore continues to classify its ~~February 1, 2016 amendment.~~debt as long term.
The Company remains in compliance with its liquidity and other financial covenants, and has agreed to provide additional financial reports to BMO.

Borrowings under the amended Wells Fargo 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”), a wholly-owned domestic subsidiary of the Company. The Company had also pledged 65% of its equity interests in certain foreign subsidiaries.
Loans under the Wells Fargo Agreement were generally charged interest at the LIBOR Rate plus (a) 1.00% if the Company’s adjusted four-quarter EBITDA (as defined) was at least $11 million, or (b) 1.50% if the Company’s adjusted four-quarter EBITDA (as defined) was less than $11 million.
~~On April 22, 2016, the Company entered into a revolving~~ Credit Agreement (the “BMO Agreement”) with Bank of Montreal (“BMO”). This agreement permits the Company to enter into loans up to $40 million. This maximum may be increased under the BMO Agreement by an additional $10 million so long as there exists no default and certain other conditions specified in the BMO Agreement are satisfied. On the day of the closing of the BMO Agreement, the Company used proceeds to pay off the loan balance under the Wells Fargo Agreement.
In general, each revolving loan under the BMO Agreement will bear interest at a Eurodollar Rate, as defined. This rate as of June 30, 2017 was 2.80%. In addition to monthly interest payments, the Company will be responsible for paying a quarterly unused fee equal to 0.15% of the average daily unused portion of the revolving credit commitment. The Company may prepay loans subject to certain limitations. Borrowings under the BMO Agreement are 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.~~property. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company has entered into a security agreement, IP security agreement and pledge agreement with BMO, and Mill-Log has entered into a guaranty agreement, guarantor security agreement and pledge agreement with BMO, which collectively grant BMO a security interest in these assets and holdings as administrative agent for itself and other lenders that may enter into the BMO Agreement. The Company has also entered into a ~~negative pledge agreement~~Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it ~~has~~ agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the ~~BMO~~Credit Agreement and the ~~negative pledge agreement. Within thirty days upon~~Negative Pledge Agreement.
Upon the occurrence of an ~~event~~Event of ~~default (as defined) that is not cured within~~Default, BMO may take the ~~prescribed cure period, or if availability~~following actions upon written notice to the Company: (1) terminate its remaining obligations under the ~~BMO~~Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement ~~is less than~~to be immediately due and payable; and (3) demand the ~~greater of 15%~~Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate ~~revolving credit commitments and $6.0 million,~~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.
On March 3, 2021 the Company submitted its application for forgiveness of the PPP Loan. The application was supported by documentation of qualified expenses and ~~Mill-Log will execute and deliver mortgages~~compliance of eligibility with the program. On June 16, 2021 the Company was notified by the SBA that the PPP loan was fully forgiven. The Company recorded the forgiveness as income from extinguishment of loan. This is described further in Note G, Debt, of the notes to ~~BMO on all real estate owned by them at such time to further secure borrowings under~~ the ~~BMO Agreement.~~consolidated financial statements.

19
A private shelf agreement (“the Prudential Agreement”) was entered into on June 30, 2014. Among other things, the Prudential Agreement: (a) amended and restated the note agreement between the Company and purchasers dated as of April 10, 2006, as it had been amended from time to time; and (b) set forth the terms of the potential sale and purchase of up to $50 million in shelf notes by the Company to the Prudential group of companies, the lender. The notes bear interest on the outstanding principal balance at a fixed rate of 6.05% per annum, payable quarterly. The principal was payable in annual installments of $3.6 million, and matured and became due and payable in full on April 10, 2016.
The Prudential Agreement included financial covenants regarding minimum net worth, minimum EBITDA and a maximum total funded debt to EBITDA ratio. It also included certain covenants that limit, among other things, certain indebtedness, acquisitions, investments, capital expenditures and dividends. The amendment to the Prudential Agreement waived any events of default that may have occurred under the terms of the agreement prior to its February 1, 2016 amendment.
~~The final payment of $3.6 million was made on April 11, 2016. In addition, the shelf notes arrangement under the Prudential Agreement was terminated on April 21, 2016.~~

The Company’s balance sheet remains ~~very~~ strong, there are no material off-balance-sheet arrangements, and ~~we continue~~it continues to have sufficient liquidity for near-term needs. The Company had approximately ~~$21.4~~$27.1 million of available borrowings under the ~~BMO~~Credit Agreement as of June 30, ~~2017.~~2021. 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 June 30, ~~2017,~~2021, the Company also had cash of ~~$16.4~~$12.3 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 ~~2018,~~2022, the Company expects to contribute ~~$2.3~~$0.7 million to its defined benefit pension plans, the minimum contribution required.

Net working capital ~~decreased $4.0~~increased $6.2 million, or ~~4.5%~~5.7%, during fiscal ~~2017,~~2021 and the current ratio (calculated as total current assets divided by total current liabilities) decreased from ~~3.5~~2.6 at June 30, ~~2016~~2020 to ~~2.9~~2.4 at June 30, ~~2017.~~2021. The ~~decrease~~increase in net working capital was primarily ~~driven~~the result of the reclassification of the assets currently held for sale ($9.5 million) from long term assets to current assets. Excluding this one-off movement, working capital decreased by ~~an increase in accounts payable (volume driven)~~$3.4 million. This reduction was the result of a focused inventory reduction effort ($5.6 million), increased trade payables ($5.3 million) and accrued expenses ~~(bonus accrual)~~($9.2 million), ~~and a decrease in cash (foreign repatriation). These favorable movements were~~ partially offset by a volume driven increase ~~in accounts receivable.~~to trade receivables ($8.8 million) and a reclassification of a component of short term debt back to long term ($2.7 million).

The Company expects capital expenditures to be approximately $7$10 million - $9$12 million in fiscal ~~2018.~~2022. These anticipated expenditures reflect the Company’s plans to invest in modern equipment to drive ~~productivity~~efficiencies, quality improvements ~~its global sourcing program~~ and ~~new products.~~cost reductions.

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

The Company had no material off-balance sheet arrangements ~~other than operating leases,~~ as of June 30, ~~2017~~2021 and ~~2016.~~2020.

~~The Company has obligations under non-cancelable operating lease contracts and loan and senior note agreements for certain future payments. A summary of those commitments follows (in thousands):~~

Wisconsin	~~39-0667110~~39-0667110
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1328 Racine Street, Racine, Wisconsin	53403
(Address of Principal Executive Office)	(Zip Code)

Registrant's Telephone Number, including area code:	(262) ~~638-4000~~638‑4000

Title of each class	Trading Symbol(s)	Name of each exchange on which ~~registered:~~registered
Common ~~stock, no par~~Stock (No Par Value)	TWIN	The NASDAQ Stock Market LLC
~~Preferred stock purchase rights~~	~~The NASDAQ Stock Market LLC~~

PART I.

	Item 1.	Business.	4
	Item 1A.	Risk Factors.	5
	Item 1B.	Unresolved Staff Comments.	810
	Item 2.	Properties.	910
	Item 3.	Legal Proceedings.	910
	Item 4.	Mine Safety Disclosure.	910
		Information About Our Executive ~~Officers of the Registrant.~~Officers.	1011

PART II.

	Item 5.	Market for the Registrant’s Common Stock, ~~and~~ Related Stockholder ~~Matters.~~Matters and Issuer Purchases of Equity Securities.	1112
	Item 6.	Selected Financial Data.	13
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	13
	Item 7A.	Quantitative and Qualitative Disclosure About Market Risk.	2622
	Item 8.	Financial Statements and Supplementary Data.	2823
	Item 9.	Change In and Disagreements With Accountants on Accounting and Financial Disclosure.	2823
	Item 9A.	Controls and Procedures.	2923
	Item 9B.	Other Information.	2924

PART III.

	Item 10.	Directors, ~~and~~ Executive Officers ~~of the Registrant.~~and Corporate Governance.	3025
	Item 11.	Executive Compensation.	3025
	Item 12.	Security Ownership of Certain Beneficial Owners and ~~Management.~~Management and Related Stockholder Matters.	3125
	Item 13.	Certain Relationships and Related Transactions, Director Independence.	3126
	Item 14.	Principal Accounting Fees and Services.	3126

PART IV.

	Item 15.	Exhibits, Financial Statement Schedules.	31

		~~Signatures.~~	6427
		Exhibit Index.	6567
		Signatures.	71

~~Jacksonville, Florida, U.S.A.~~	~~Gold Coast,~~Brisbane, Queensland, Australia

~~Coburg, Oregon, U.S.A.~~	~~Singapore~~

~~Kent, Washington, U.S.A.~~	~~Shanghai, China~~

~~Edmonton, Alberta, Canada~~	Guangzhou, China

~~Burnaby, British Columbia, Canada~~Perth, Western Australia, Australia	Chennai, India

~~Brisbane,~~Gold Coast, Queensland, Australia	Coimbatore, India

~~Perth, Western Australia, Australia~~Singapore	Saitama City, Japan
Shanghai, China

Name	Age	Position
John H. Batten	5256	Chief Executive Officer
James E. Feiertag	64	President, Chief ~~Executive~~Operating Officer
Jeffrey S. Knutson	5256	Vice President – Finance, Chief Financial Officer, Treasurer and Secretary
~~Malcolm F. Moore~~	66	~~Executive Vice President, Chief Operating Officer~~
~~Dean J. Bratel~~	53	~~Vice President – Sales and Applied Technology~~
~~Denise L. Wilcox~~	60	~~Vice President – Human Resources~~
~~Michael B. Gee~~	50	~~Vice President – Engineering~~
~~Donald J. Nelson~~	56	~~Vice President – Operations~~
Debbie A. Lange	5963	Corporate Controller

	Fiscal Year Ended June 30, 2021				Fiscal Year Ended June 30, 2020
Quarter	High		Low		High		Low
First Quarter	$	7.76	$	4.66	$	15.18	$	9.60
Second Quarter		7.97		4.87		12.59		9.50
Third Quarter		10.35		7.35		11.61		6.06
Fourth Quarter		15.02		8.79		8.35		4.84

	Fiscal Year Ended 6/30/17						Fiscal Year Ended 6/30/16
Quarter	High		Low		Dividend		High		Low		Dividend
First Quarter	$	13.34	$	9.35	$	-	$	18.80	$	12.11	$	0.09
Second Quarter		15.52		10.01		-		14.71		10.20		0.09
Third Quarter		21.75		14.38		-		11.50		8.19		-
Fourth Quarter		21.27		14.81		-		13.43		8.50		-

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
April 1, 2017 – April 28, 2017	0	NA	0	315,000
April 29, 2017 – May 26, 2017	0	NA	0	315,000
May 27, 2017 - June 30, 2017	0	NA	0	315,000
Total	0	NA	0	315,000

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
March 27, 2021 – April 30, 2021	0	NA	0	315,000
May 1, 2021 – May 28, 2021	0	NA	0	315,000
May 29, 2021 - June 30, 2021	0	NA	0	315,000
Total	0	NA	0	315,000

	1^st Qtr			2^nd Qtr			3^rd Qtr			4^th Qtr			Year
Gross Profit:
($ millions)
2021	$	9.7		$	8.9		$	14.0		$	18.3		$	50.9
2020	$	9.6		$	15.7		$	16.5		$	13.9		$	55.7

% of Sales:
2021		21.0	%		18.3	%		24.2	%		27.7	%		23.3	%
2020		16.3	%		26.4	%		24.1	%		23.3	%		22.6	%

Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		After 5 Years
Revolving loan borrowing	$	6,285	$	-	$	-	$	6,285	$	-
Long-term debt, including current maturities	$	38	$	2	$	6	$	6	$	24
Operating leases	$	5,128	$	2,435	$	1,456	$	999	$	238

2017	1st Qtr.			2nd Qtr.			3rd Qtr.			4th Qtr.		Year

Net sales	$	35,835		$	33,672		$	45,084		$	53,591	$	168,182
Gross profit		9,173			8,949			13,294			16,816		48,232
Restructuring expenses		258			816			293			424		1,791
Goodwill and other asset impairment charge		-			-			2,637			9		2,646
Net (loss) earnings		(2,671	)		(2,892	)		(1,728	)		1,176		(6,115	)
Net (loss) earnings attributable to Twin Disc		(2,696	)		(2,912	)		(1,849	)		1,163		(6,294	)
Basic (loss) earnings per shareattributable to Twin Disc common shareholders		(0.24	)		(0.26	)		(0.16	)		0.10		(0.56	)
Diluted (loss) earnings per shareattributable to Twin Disc common shareholders		(0.24	)		(0.26	)		(0.16	)		0.10		(0.56	)
Dividends per share		-			-			-			-		-

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	Page

Report of Independent Registered Public Accounting Firm	3329-30

Consolidated Balance Sheets as of June 30, ~~2017~~2021 and ~~2016~~2020	3431

Consolidated Statements of Operations and Comprehensive ~~Income~~Loss for the years ended June 30, ~~2017, 2016~~2021 and ~~2015~~2020	3532

Consolidated Statements of Cash Flows for the years ended June 30, ~~2017, 2016~~2021 and ~~2015~~2020	3633

Consolidated Statements of Changes in Equity for the years ended June 30, ~~2017, 2016~~2021 and ~~2015~~2020	3734

Notes to Consolidated Financial Statements	~~38-62~~35-65


INDEX TO FINANCIAL STATEMENT SCHEDULE

Schedule II - Valuation and Qualifying Accounts	6366

	●	We evaluated the reasonableness of management’s estimates in regards to the ability to generate future taxable income and utilize the deferred tax assets by evaluating: (i) the forecast of future taxable income, including testing of management’s forecasts against the Company’s historical performance, and (ii) testing management’s assessment of the timing of future reversals of temporary differences.
	●	We utilized personnel with specialized knowledge and skill in income taxes and accounting for income taxes under ASC 740 to assist in the evaluation of management’s assessment of positive and negative evidence and their conclusion that it is more likely than not that the Company will not realize the benefit of its deferred tax assets.

	2021			2020

ASSETS
Current assets:
Cash	$	12,340		$	10,688
Trade accounts receivable, net		39,491			30,682
Inventories		114,967			120,607
Assets held for sale		9,539			0
Prepaid expenses		5,704			5,269
Other		9,926			6,739
Total current assets		191,967			173,985

Property, plant and equipment, net		45,463			58,284
Right-of-use assets operating leases		14,736			14,448
Intangible assets, net		17,480			18,973
Deferred income taxes		2,511			24,445
Other assets		3,256			3,992

Total assets	$	275,413		$	294,127

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,000		$	4,691
Accounts payable		31,011			25,663
Accrued liabilities		45,549			36,380
Total current liabilities		78,560			66,734

Long-term debt		30,085			37,896
Lease obligations		12,887			12,738
Accrued retirement benefits		11,176			27,938
Deferred income taxes		5,045			5,501
Other long-term liabilities		7,000			3,362

Total liabilities		144,753			154,169

Commitments and contingencies (Note O)

Equity:
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; no par value		40,972			42,756
Retained earnings		126,936			156,655
Accumulated other comprehensive loss		(22,615	)		(41,226	)
		145,293			158,185
Less treasury stock, at cost (984,139 and 1,226,809 shares, respectively)		15,083			18,796

Total Twin Disc shareholders' equity		130,210			139,389

Noncontrolling interest		450			569

Total equity		130,660			139,958

Total liabilities and equity	$	275,413		$	294,127

	2021			2020
Cash flows from operating activities:
Net loss	$	(29,519	)	$	(39,571	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		11,243			11,925
Income from extinguishment of loan		(8,200	)		0
Restructuring of operations		6,619			2,269
Stock compensation expense		2,154			1,158
Provision for deferred income taxes		17,655			(8,072	)
Goodwill and other asset impairment charge		0			27,603
Other, net		798			258
Changes in operating assets and liabilities
Trade accounts receivable		(7,810	)		13,132
Inventories		9,063			6,775
Other assets		(5,007	)		2,246
Accounts payable		4,606			(3,342	)
Accrued liabilities		7,058			(5,807	)
Accrued/prepaid retirement benefits		(2,132	)		544

Net cash provided by operating activities		6,528			9,118

Cash flows from investing activities:
Capital expenditures		(4,464	)		(10,699	)
Proceeds on note receivable		1,500			500
Proceeds from sale of plant assets		102			137
Proceeds from life insurance policy		253			102
Other, net		(133	)		(159	)

Net cash used by investing activities		(2,742	)		(10,119	)

Cash flows from financing activities:
Borrowings under long-term debt agreement		0			8,200
Borrowings under revolving loan agreement		76,335			99,262
Repayments under revolving loan agreement		(78,370	)		(105,065	)
Repayments of long-term borrowings		(1,838	)		(2,241	)
Payments of withholding taxes on stock compensation		(224	)		(913	)
Dividends paid to noncontrolling interest		(220	)		(298	)

Net cash used by financing activities		(4,317	)		(1,055	)

Effect of exchange rate changes on cash		2,183			382

Net change in cash		1,652			(1,674	)

Cash:
Beginning of year		10,688			12,362

End of year	$	12,340		$	10,688

Supplemental cash flow information:
Cash paid during the year for:
Interest	$	2,366		$	1,861
Income taxes		3,257			3,481

	Twin Disc, Inc. Shareholders’ Equity
							Accumulated
							Other						Non-
	*Common*			*Retained*			*Comprehensive*			*Treasury*			*Controlling*			*Total*
	*Stock*			*Earnings*			*Income (Loss)*			*Stock*			*Interest*			*Equity*
Balance at June 30, 2019	$	45,047		$	196,472		$	(37,971	)	$	(21,332	)	$	602		$	182,818

Net (loss) income		0			(39,817	)		0			0			246			(39,571	)
Translation adjustments		0			0			(985	)		0			19			(966	)
Benefit plan adjustments, net of tax		0			0			(1,675	)		0			0			(1,675	)
Unrealized loss on hedges, net of tax		0			0			(595	)		0			0			(595	)
Cash dividends		0			0			0			0			(298	)		(298	)
Compensation expense		1,158			0			0			0			0			1,158
Shares (acquired) issued, net		(3,449	)		0			0			2,536			0			(913	)

Balance at June 30, 2020		42,756			156,655			(41,226	)		(18,796	)		569			139,958

Net (loss) income		0			(29,719	)		0			0			200			(29,519	)
Translation adjustments		0			0			5,738			0			(99	)		5,639
Benefit plan adjustments, net of tax		0			0			12,113			0			0			12,113
Unrealized gain on hedges, net of tax		0			0			760			0			0			760
Cash dividends		0			0			0			0			(220	)		(220	)
Compensation expense		2,154			0			0			0			0			2,154
Shares (acquired) issued, net		(3,938	)		0			0			3,713			0			(225	)

Balance at June 30, 2021	$	40,972		$	126,936		$	(22,615	)	$	(15,083	)	$	450		$	130,660

	Twin Disc, Inc. Shareholders’ Equity
							Accumulated
							Other						Non-
	Common			Retained			Comprehensive			Treasury			Controlling			Total
	Stock			Earnings			Income (Loss)			Stock			Interest			Equity
Balance at June 30, 2014	$	11,973		$	183,695		$	(15,943	)	$	(28,141	)	$	727		$	152,311

Net earnings					11,173									212			11,385
Translation adjustments								(14,039	)					(80	)		(14,119	)
Benefit plan adjustments, net of tax								(5,499	)								(5,499	)
Cash dividends					(4,061	)								(220	)		(4,281	)
Compensation expense and windfall tax benefits		668															668
Shares (acquired) issued, net		(382	)								84						(298	)

Balance at June 30, 2015		12,259			190,807			(35,481	)		(28,057	)		639			140,167

Net (loss) earnings					(13,104	)								91			(13,013	)
Translation adjustments								(1,582	)					25			(1,557	)
Benefit plan adjustments, net of tax								(7,080	)								(7,080	)
Cash dividends					(2,041	)								(192	)		(2,233	)
Compensation expense and windfall tax benefits		946															946
Shares (acquired) issued, net		(1,444	)								1,267						(177	)

Balance at June 30, 2016		11,761			175,662			(44,143	)		(26,790	)		563			117,053

Net (loss) earnings					(6,294	)								179			(6,115	)
Translation adjustments								972						13			985
Benefit plan adjustments, net of tax								10,500									10,500
Cash dividends														(109	)		(109	)
Compensation expense and windfall tax benefits		1,393															1,393
Shares (acquired) issued, net		(2,725	)								2,585						(140	)

Balance at June 30, 2017	$	10,429		$	169,368		$	(32,671	)	$	(24,205	)	$	646		$	123,567

	June 30, 2020					June 30, 2020
	As Reported		Impact			Restated

Property, plant and equipment, net	$	72,732	$	(14,448	)	$	58,284
Right-of-use assets operating leases		0		14,448			14,448

Lease obligations	$	13,495	$	(757	)	$	12,738
Other long-term liabilities		2,605		757			3,362

	Net Book Value Rollforward									Net Book Value By Reporting Unit
	Gross Carrying Amount			Accumulated Impairment			Net Book Value			U.S. Industrial			European Industrial		European Propulsion			Other
Balance at June 30, 2015	$	16,459		$	(3,670	)	$	12,789		$	8,941		$	2,542	$	1,281		$	25
Sale of business		(25	)		-			(25	)		-			-		-			(25	)
Impairment		-			(7,602	)		(7,602	)		(6,391	)		-		(1,211	)		-
Translation adjustment		(42	)		-			(42	)		-			28		(70	)		-
Balance at June 30, 2016		16,392			(11,272	)		5,120			2,550			2,570		-			-
Impairment		-			(2,550	)		(2,550	)		(2,550	)		-		-			-
Translation adjustment		15			-			15			-			15
Balance at June 30, 2017	$	16,407		$	(13,822	)	$	2,585		$	-		$	2,585	$	-		$	-

	Net Book Value Rollforward								Net Book Value By Asset Type									Net Book Value Rollforward									Net Book Value By Asset Type
	Gross Carrying Amount		Accumulated Amortization / Impairment			Net Book Value			Licensing agreements			Trade Name			Other			Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			Customer Relationships			Technology Know-how			Trade Name			Other
Balance at June 30, 2015	$	13,272	$	(11,299	)	$	1,973		$	510		$	1,459		$	4
Balance at June 30, 2019																		$	39,587		$	(14,434	)	$	25,153		$	14,843		$	7,025		$	2,733		$	552
Addition																			92			-			92			0			0			0			92
Amortization																			-			(4,532	)		(4,532	)		(3,003	)		(1,139	)		(232	)		(158	)
Impairment																			-			(1,306	)		(1,306	)		0			0			(1,080	)		(226	)
Translation adjustment																			(434	)		-			(434	)		(286	)		(102	)		(33	)		(13	)
Balance at June 30, 2020																			39,245			(20,272	)		18,973			11,554			5,784			1,388			247
Addition		138					138									138			833			-			833			0			0			0			833
Amortization				(164	)		(164	)		(60	)		(81	)		(23	)		-			(3,390	)		(3,390	)		(1,880	)		(1,226	)		(184	)		(100	)
Translation adjustment		16					16						15			1			1,064			-			1,064			647			325			78			14
Balance at June 30, 2016		13,426		(11,463	)		1,963			450			1,393			120
Amortization				(168	)		(168	)		(60	)		(80	)		(28	)
Translation adjustment		10		(1	)		9						6			3
Balance at June 30, 2017	$	13,436	$	(11,632	)	$	1,804		$	390		$	1,319		$	95
Balance at June 30, 2021																		$	41,142		$	(23,662	)	$	17,480		$	10,321		$	4,883		$	1,282		$	994

Fiscal Year
2018	$	180
2019		177
2020		156
2021		150
2022		143
Thereafter		997

Fiscal Year
2022	$	3,316
2023		3,144
2024		2,988
2025		2,817
2026		1,427
Thereafter		3,788

	Net Book Value Rollforward									Net Book Value By Reporting Unit
	Gross Carrying Amount			Accumulated Impairment			Net Book Value			European Propulsion			European Industrial
Balance at June 30, 2019	$	39,776		$	(13,822	)	$	25,954		$	23,371		$	2,583
Impairment		-			(25,380	)		(25,380	)		(22,822	)		(2,558	)
Translation adjustment		(574	)		-			(574	)		(549	)		(25	)
Balance at June 30, 2020		39,202			(39,202	)		0			0			0
Translation adjustment		0			-			0			0			0
Balance at June 30, 2021	$	39,202		$	(39,202	)	$	0		$	0		$	0

	2017		2016
Revolving loan agreement	$	6,285	$	8,478
Other		38		23
Subtotal		6,323		8,501
Less: current maturities		-		-
Total long-term debt	$	6,323	$	8,501

	2021			2020
Credit Agreement Debt
Revolving loans (expire June 2023)	$	15,415		$	16,641
Term loan (due March 2026)		16,500			17,500
PPP loan		0			8,200
Other		170			246
Subtotal		32,085			42,587
Less: current maturities		(2,000	)		(4,691	)
Total long-term debt	$	30,085		$	37,896

Fiscal Year
2022	$	2,084
2023		17,461
2024		2,015
2025		2,000
2026		8,500
Thereafter		25
	$	32,085

	Balance Sheet Location	2021		2020
Lease Assets
Operating lease right-of-use assets	Right-of-use assets operating leases	$	14,736	$	14,448
Finance lease right-of-use assets	Property, plant and equipment, net		5,244		959

Lease Liabilities
Operating lease liabilities	Accrued liabilities	$	1,870	$	1,724
Operating lease liabilities	Lease obligations		12,887		12,738
Finance lease liabilities	Accrued liabilities		541		233
Finance lease liabilities	Other long-term liabilities		4,836		757

	2021			2020
Finance lease cost:
Amortization of right-of-use assets	$	580		$	188
Interest on lease liabilities		273			56
Operating lease cost		2,795			3,137
Short-term lease cost		24			64
Variable lease cost		159			58
Total lease cost		3,831			3,503
Less: Sublease income		(154	)		(212	)
Net lease cost	$	3,677		$	3,291

	2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,022		$	3,141
Operating cash flows from finance leases		480			167
Financing cash flows from finance leases		273			56
Right-of-use-assets obtained in exchange for lease obligations:
Operating leases		1,481			2,757
Finance leases		4,814			592
Weighted average remaining lease term (years):
Operating leases		9.8			10.7
Finance lease		12.0			4.0
Weighted average discount rate:
Operating leases		7.2	%		7.4	%
Finance leases		5.2	%		6.2	%

	Translation			Benefit Plan
	Adjustment			Adjustment
Balance at June 30, 2014	$	20,779		$	(36,722	)
Other comprehensive loss before reclassifications		(14,039	)		(7,518	)
Amounts reclassified from accumulated other comprehensive income		-			2,019
Net current period other comprehensive loss		(14,039	)		(5,499	)
Balance at June 30, 2015	$	6,740		$	(42,221	)

	Translation		Benefit Plan			Cash Flow			Net Investment
	Adjustment		Adjustment			Hedges			Hedges
Balance at June 30, 2020	$	3,454	$	(43,576	)	$	(1,104	)	$	0
Other comprehensive loss before reclassifications		5,738		9,783			426			334
Amounts reclassified from accumulated other comprehensive loss		0		2,330			0			0
Net current period other comprehensive income		5,738		12,113			426			334
Balance at June 30, 2021	$	9,192	$	(31,463	)	$	(678	)	$	334

	Amount			Amount
	Reclassified			Reclassified
Amortization of benefit plan items
Actuarial losses	$	(3,074	)	$	(3,246	)
Transition asset and prior service benefit		(36	)		187
Total before tax benefit		(3,110	)		(3,059	)
Tax benefit		1,091			729
Total reclassification net of tax	$	(2,019	)	$	(2,330	)

2017	Manufacturing		Distribution		Total
2021							Manufacturing			Distribution		Total
Net Sales	$	146,491	$	67,804	$	214,295	$	191,510		$	100,221	$	291,731
Intra-segment sales		13,146		7,296		20,442		9,436			14,746		24,182
Inter-segment sales		22,921		2,750		25,671		44,575			4,393		48,968
Interest income		42		32		74		172			17		189
Interest expense		301		-		301		2,449			1		2,450
Income taxes		1,684		784		2,468		(980	)		189		(791	)
Depreciation and amortization		6,125		425		6,550		10,455			412		10,867
Net earnings attributable to Twin Disc		629		2,438		3,067
Net income attributable to Twin Disc								11,016			105		11,121
Assets		222,136		50,418		272,554		364,379			46,956		411,335
Expenditures for segment assets		2,674		290		2,964		3,500			188		3,688

	Segment						Consolidated			Segment						Consolidated
	Totals			Adjustments			Totals			Totals			Adjustments			Totals
2017
2021
Interest income	$	74		$	(2	)	$	72		$	189		$	(170	)	$	19
Interest expense		301			2			303			2,450			(92	)		2,358
Income taxes		2,468			(5,882	)		(3,414	)		(791	)		20,471			19,680
Depreciation and amortization		6,550			467			7,017			10,867			376			11,243
Assets		272,554			(61,656	)		210,898			411,335			(135,922	)		275,413
Expenditures for segment assets		2,964			169			3,133			3,688			776			4,464

2016
2020
Interest income	$	142		$	5		$	147		$	368		$	(290	)	$	78
Interest expense		398			28			426			2,128			(268	)		1,860
Income taxes		(2,446	)		(9,836	)		(12,282	)		(1,759	)		(2,410	)		(4,169	)
Depreciation and amortization		8,007			840			8,847			11,530			395			11,925
Assets		274,309			(60,387	)		213,922			408,535			(114,408	)		294,127
Expenditures for segment assets		4,038			176			4,214			10,349			350			10,699

2015
Interest income	$	204		$	(80	)	$	124
Interest expense		946			(340	)		606
Income taxes		8,771			(4,256	)		4,515
Depreciation and amortization		8,605			1,556			10,161
Assets		308,508			(58,646	)		249,862
Expenditures for segment assets		8,606			443			9,049