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Note B - Acquisition of Veth Propulsion Holding BV | 12 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | B. A CQUISITION OF V ETH P ROPULSION HOLDING B . V . On July 2, 2018, the Company completed the acquisition of 100% of the outstanding common stock of Veth Propulsion. Veth Propulsion is a global manufacturer of highly-engineered primary and auxiliary propulsions and propulsion machinery for maritime vessels, including rudder propellers, bow thrusters, generator sets and engine service and repair, based in the Netherlands. These products are complementary to and expand the Company’s current product offerings in the marine and propulsion markets. Prior to the acquisition, the Company was a distributor of Veth Propulsion products in North America and Asia. This acquisition was pursuant to a Share Purchase Agreement (“Purchase Agreement”) entered into by Twin Disc NL Holding B.V., a wholly-owned subsidiary of the Company, with Het Komt Vast Goed B.V., the prior parent of Veth Propulsion, on June 13, 2018. Veth Propulsion is reported as part of the Company’s manufacturing segment. Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $59,407 in cash, and $1,991 in shares of common stock on May 13, 2019, which represents the fair value of 139,347 shares. The shares of stock were issued in settlement of the earn-out, a contingent consideration, after Veth Propulsion demonstrated that it achieved the profitability target (earnings before interest, tax, depreciation and amortization or “EBITDA”) under the terms of the Purchase Agreement. The difference between the fair value at settlement and the initial fair value assigned to the earn-out at acquisition date of $2,921 is recognized in the income statement. The maximum earn-out at acquisition was $3,300. The fair value at acquisition was determined by using a discounted probability weighted approach. See Note R, Restructuring of Operations and Other Operating Income. The total consideration transferred at acquisition date was:
Cash, paid at closing and after agreed-upon working capital adjustments |  | $ | 59,407 |
Fair value of contingent consideration at acquisition date |  |  | 2,921 |
Total |  | $ | 62,328 |
Fair value of assets acquired and liabilities assumed at acquisition date:
Fair Value of Assets Acquired |  |  |  |
Cash, including restricted cash |  | $ | 1,078 |
Accounts receivable and other current assets |  |  | 10,437 |
Inventories |  |  | 26,862 |
Property, plant and equipment |  |  | 2,661 |
Intangibles (a) |  |  | 26,500 |
Accounts payable and accrued liabilities |  |  | (21,208 | )
Deferred tax liability |  |  | (8,001 | )
Total net assets acquired |  |  | 38,329 |
Goodwill (b) |  |  | 23,999 |
Total consideration |  | $ | 62,328 |
| (a) | Intangibles consist of customer relationships, technology and know-how and tradenames, with estimated useful lives 12 years, 7 years, and 10 years, respectively, and weighted average remaining useful life of approximately 9 years. The amounts acquired are presented in Note F, Goodwill and Other Intangibles.
| (b) | The Company is not able to deduct any of the goodwill for tax purposes.
The Company financed the payment of the cash consideration through borrowings under a new credit agreement entered into on June 29, 2018 with BMO Harris Bank N.A. (the “Credit Agreement”). The Credit Agreement is further discussed in Note I, Debt. Summary Pro Forma Financial Information The following table presents financial information for Veth Propulsion that is included in the Company’s consolidated statement of operations for the year ended June 30, 2019:
|  | Year Ended |
|  | June 30, 2019 |
Net sales |  | $ | 54,909 |
Gross profit (a) |  |  | 10,085 |
Operating loss (b) |  |  | (1,281 | )
Net loss attributable to Twin Disc |  |  | (1,849 | )
| (a) | Gross profit includes the non-recurring purchase accounting charge for the step-up of inventories acquired of $4,277 for the year.
| (b) | In addition to (a), operating loss includes the depreciation of property, plant and equipment and amortization of intangible assets acquired of $2,636 for the year. Operating loss also includes one -time transaction charges related to the acquisition of $461 for the year.
The following table presents unaudited supplemental pro forma information as if the acquisition of Veth Propulsion had occurred on July 1, 2017.
|  | Year Ended |  | Year Ended |
|  | June 30, 2019 |  | June 30, 2018 |
Net sales | $ | 302,663 |  | $ | 296,556 |
Gross profit (a) |  | 93,918 |  |  | 92,158 |
Net income attributable to Twin Disc (b) |  | 14,227 |  |  | 5,277 |
Basic income per share attributable to Twin Disc common shareholders | $ | 1.13 |  | $ | 0.47 |
Diluted income per share attributable to Twin Disc common shareholders | $ | 1.12 |  | $ | 0.46 |
Weighted average number of common shares outstanding: |  |  |  |  |  |
Basic |  | 12,571 |  |  | 11,295 |
Diluted |  | 12,682 |  |  | 11,395 |
| (a) | Gross profit includes the amortization of the step-up of inventories of $4,715 for the year ended June 30, 2018. For the year ended, June 30, 2019, the amortization of the step-up of inventories of $4,277 is excluded.
| (b) | In addition to (a), this includes the amortization of intangible assets acquired and interest expense on borrowings under the Credit Agreement net of other expenses, amounting to $4,542 before tax, for the year ended June 30, 2018, as well as $1,768 related to one -time transaction charges. For the year ended June 30, 2019, this excludes one -time transaction charges related to the acquisition of $461.

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