Significant Accounting Policies (Policies)

12 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Consolidation Principles

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

2020,

certain subsidiaries changed their reporting periods to conform to the Company's fiscal year end. The impact of aligning to the corporate reporting period is

not

material to the consolidated results. All significant intercompany transactions have been eliminated.

Use of Estimates, Policy [Policy Text Block]

Management Estimates--

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

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Translation of Foreign Currencies

--The financial statements of the Company's non-U.S. subsidiaries are translated using the current exchange rate for assets and liabilities and the weighted-average exchange rate for the year for revenues and expenses. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss, which is included in equity. Gains and losses from foreign currency transactions are included in earnings. Included in other income (expense) are foreign currency transaction losses of (

$570

) and (

$681

) in fiscal

2020

and

2019,

respectively.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash

--The Company considers all highly liquid investments with original maturities of

three

months or less to be cash equivalent. Under the Company's cash management system, cash balances at certain banks are funded when checks are presented for payment. To the extent that checks issued, but

not

yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the amount of those un-presented checks is included in accounts payable.

Receivable [Policy Text Block]

Accounts

Receivable

--These represent trade accounts receivable and are stated net of an allowance for doubtful accounts of

$1,740

and

$1,582

at

June 30, 2020

and

2019,

respectively. The Company records an allowance for doubtful accounts for certain customers where a risk of default has been specifically identified as well as provisions determined on a general basis when it is believed that some default is probable and estimable. The assessment of likelihood of customer default is based on a variety of factors, including the length of time the receivables are past due, the historical collection experience and existing economic conditions. Various factors

may

adversely impact its customer's ability to access sufficient liquidity and capital to fund their operations and render the Company's estimation of customer defaults inherently uncertain. While the Company believes current allowances for doubtful accounts are adequate, it is possible that these factors

may

cause higher levels of customer defaults and bad debt expense in future periods.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

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

.

If measured at fair value, cash would be classified as Level

1

and all other items listed above would be classified as Level

2

in the fair value hierarchy, as defined in Note N, Pension and Other Postretirement Benefit Plans. The Company's borrowings under the revolving loan agreement, which is classified as long-term debt and consists of loans that are routinely borrowed and repaid throughout the year, approximate fair value at

June 30, 2020.

The Company's term loan borrowing, which is LIBOR-based, approximates fair value at

June 30, 2020.

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

2

in the fair value hierarchy.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments

-

-

The Company has written policies and procedures that place all financial instruments under the direction of the Company's corporate treasury department and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is prohibited. The Company uses derivative financial instruments to manage certain financial risks. The Company enters into forward contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. The Company uses interest rate swap contracts to reduce the exposure to variability in interest rates on floating debt borrowings. The Company designates certain financial instruments as cash flow hedges for accounting purposes. See Note S, Derivative Financial Instruments, for additional information.

Inventory, Policy [Policy Text Block]

Inventories

--Inventories are valued at the lower of cost or net realizable value. Cost has been determined by the last-in,

first

-out (LIFO) method for the majority of inventories located in the United States, and by the

first

-in,

first

-out (FIFO) method for all other inventories. Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among others, when evaluating the adequacy of the reserve for excess and obsolete inventory.

Property, Plant and Equipment, Policy [Policy Text Block]

Property, Plant and Equipment and Depreciation

--Assets are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and betterments are capitalized and depreciated. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. The lives assigned to buildings and related improvements range from

10

to

40

years, and the lives assigned to machinery and equipment range from

5

to

15

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

not

removed from the accounts until physically disposed.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-lived Assets

--The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets

may

not

be fully recoverable. For property, plant and equipment and other long-lived assets, excluding indefinite-lived intangible assets, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Fair value is primarily determined using discounted cash flow analyses; however, other methods

may

be used to determine the fair value, including

third

party valuations when necessary.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Other Intangibles

--Goodwill and other indefinite-lived intangible assets, primarily tradenames, are tested for impairment at least annually during the Company's

fourth

fiscal quarter and more frequently if an event occurs which indicates the asset

may

be impaired. If applicable, goodwill and other indefinite-lived intangible assets

not

subject to amortization have been assigned to reporting units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators

may

include, among others: a significant decline in expected future cash flows; a sustained, significant decline in the Company's stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company's consolidated financial statements.

Goodwill impairment charges are recorded using a simplified

one

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

The Company reviews goodwill for impairment on a reporting unit basis annually as of the

first

day of the Company's

fourth

fiscal quarter, and whenever events or changes in circumstances (“triggering events”) indicate that the carrying value of goodwill

may

not

be recoverable.

The Company conducted interim qualitative assessments throughout the year. In the

third

quarter of fiscal

2020,

the Company believed that the economic disruptions and unprecedented market volatilities and uncertainties resulting from the COVID-

19

outbreak was a triggering event for the reporting units which contained goodwill. Consequently, it performed an interim goodwill impairment test as of

March 27, 2020

using updated inputs, including appropriate risk-based, country and company specific weighted average discount rates for the Company's reporting units. As a result of that test, the Company recorded a goodwill impairment charge of

$25,380,

which fully removed goodwill from its balance sheet. See Note E, Goodwill and Other Intangibles, for additional information.

The fair value of the Company's other intangible assets with indefinite lives, primarily tradenames, is estimated using the relief-from-royalty method, which requires assumptions related to projected revenues; assumed royalty rates that could be payable if the Company did

not

own the asset; and a discount rate. Long-lived assets, including intangible assets, are assessed for impairment qualitatively on a quarterly basis. In the

third

quarter of fiscal

2020,

upon management's determination that adverse macroeconomic developments as a result of the COVID-

19

outbreak has given rise to a triggering event for all of the Company's assets groups, the Company performed a Step

1

assessment, or a recoverability test of its intangibles and other long-lived assets using an undiscounted operating cash flow analysis as of

March 27, 2020,

as well as the review of other assets in service and their remaining useful lives. As a result of that assessment, the Company recorded an impairment charge of

$2,223.

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

fourth

quarter of fiscal

2020,

the Company performed a qualitative assessment and concluded that an impairment test was

not

necessary.

Changes in circumstances, existing at the measurement date or at other times in the future, or in the numerous estimates associated with management's judgments, assumptions and estimates made in assessing the fair value of goodwill and other indefinite-lived intangibles, could result in an impairment charge in the future. The Company will continue to monitor all significant estimates and impairment indicators, and will perform interim impairment reviews as necessary.

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

Income Tax, Policy [Policy Text Block]

Income

Taxes

--The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company's financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than

not

that the Company will

not

realize the benefit of such assets. The Company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than

not

to be sustained upon examination by the taxing authority.

Revenue [Policy Text Block]

Revenue Recognition

--Revenue from contracts with customers is recognized using a

five

-step model consisting of the following: (

1

) identify the contract with a customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

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

5

) recognize revenue when (or as) the Company satisfies a performance obligation. Performance obligations are satisfied when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. The amount of revenue recognized is based on the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. The customer's ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is

not

probable, consideration received is

not

recognized as revenue unless the consideration is nonrefundable and the Company

no

longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable.

Goods sold to

third

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

Shipping and Handling, Fees and Costs [Policy Text Block]

Shipping and Handling Fees and Costs

--The Company records revenue from shipping and handling costs in net sales. The cost associated with shipping and handling of products is reflected in cost of goods sold.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

a. In June 2018, the FASB issued guidance (ASU 2018 - 07 ) intended to simplify the accounting for share based payments granted to nonemployees. Under the amendments in this guidance, payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The Company adopted this guidance effective July 1, 2019. The adoption of this guidance did not have a material impact on the Company's financial statements and disclosures.

New Accounting Releases

a. In June 2016, the FASB issued updated guidance (ASU 2016 - 13 ) and also issued subsequent amendments to the initial guidance under ASU 2018 - 19, ASU 2019 - 04 and ASU 2019 - 05 (collectively Topic 326 ). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The amendments in this guidance are effective for fiscal years beginning after December 15, 2019 ( the Company's fiscal 2021 ), with early adoption permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The Company does not expect adoption of the new guidance to have a significant impact on its financial statements.

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

c. In August 2018, the FASB issued updated guidance (ASU 2018 - 14 ) intended to modify the disclosure requirements for employers that sponsor defined benefit pension or postretirement plans. The amendments in this guidance are effective for fiscal years ending after December 15, 2020 ( the Company's fiscal 2021 ), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company's disclosures.

d. In December 2019, the FASB issued guidance (ASU 2019 - 12 ) intended to simplify the accounting for income taxes. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 ( the Company's fiscal 2022 ), with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company's disclosures.

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