TWIN DISC INC Stock Compensation Disclosure
L. STOCK-BASED COMPENSATION
In the first quarter of fiscal 2025, the Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (the “Omnibus Plan”), which was subsequently approved by the Company’s shareholders. The Omnibus Plan amended and restated the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”), and effectively replaced the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”). Benefits under the Omnibus Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. The Omnibus Plan is designed to benefit key employees and consultants of the Company and its subsidiaries, as well as non-employee directors of the Company.
There is reserved for issuance under the Plan an aggregate of 1,636,550 shares of the Company’s common stock, which consists of the previously-approved 715,000 shares of common stock reserved for issuance under the 2021 LTI Plan prior to its amendment and restatement to become the Omnibus Plan; 521,550 shares of common stock that remained available for issuance under the 2020 Directors' Plan; and 400,000 newly authorized shares of common stock. Shares issued under the Omnibus Plan may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.
Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are issued at the target level of performance):
| 2025 | 2024 | |||||||
| 2020 Directors' Plan | - | 521,550 | ||||||
| 2021 LTI Plan | - | 41,439 | ||||||
| Omnibus Plan | 875,701 | |||||||
Performance Stock Awards (“PSA”)
In fiscal 2025 and 2024, the Company granted a target number of 116,091 and 119,349 PSAs, respectively, to various employees of the Company, including executive officers.
The PSAs granted in fiscal 2025 will vest if the Company achieves performance-based objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative fiscal year period ending June 30, 2027. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 227,610. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.
The PSAs granted in fiscal 2024 will vest if the Company achieves performance-based objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative fiscal year period ending June 30, 2026. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 238,698. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.
There were 233,154 and 233,861 unvested PSAs outstanding at June 30, 2025 and 2024, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. A total of 2,286 and 0 shares of performance stock awards were forfeited during fiscal 2025 and 2024, respectively. The compensation expense for the year ended June 30, 2025 and 2024, related to PSAs, was $1,951 and $1,648, respectively. The tax expense from compensation expense for the year ended June 30, 2025 and 2024, related to PSAs, was $417 and $386, respectively. The weighted average grant date fair value of the unvested awards at June 30, 2025 was $12.63. At June 30, 2025, the Company had $1,522 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2025 and 2024 awards. The total fair value of performance stock awards vested in fiscal 2025 and fiscal 2024 was $1,706.
Performance Stock Unit Awards (“PSUA”)
The PSUAs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date. The fiscal 2024 PSUAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSUA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026. These PSUAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of PSUAs that can vest if the target objective is exceeded totals 16,006.
During fiscal 2025 and 2024 , the Company granted a target number of 0 and 10,473 PSUAs, respectively, to various individuals in the Company. A total of 2,470 and 0 shares of PSUAs were forfeited during fiscal 2025 and 2024, respectively. There were 8,003 and 10,473 unvested PSUAs outstanding at June 30, 2025 and 2024, respectively. The compensation expense for the year ended June 30, 2025 and 2024, related to PSUAs, was $24 and $40, respectively. The tax expense from compensation expense for the year ended June 30, 2025 and 2024, related to PSUAs, was $6 and $9, respectively. The weighted average grant date fair value of the unvested PSUAs at June 30, 2025 was $12.15. At June 30, 2025, the Company had $33 of unrecognized compensation expense related to the unvested PSUAs that would vest if the specified target objective was achieved for the fiscal 2025 and 2024 awards. The total fair value of PSUAs vested in fiscal 2025 and fiscal 2024 was $0.
Restricted Stock Awards (“RS”)
The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation over the vesting period, which is generally to years. During fiscal 2025 and 2024, the Company granted 48,733 and 118,544 service based restricted shares, respectively, to employees and non-employee directors in each year. A total of 0 and 2,413 shares of restricted stock were forfeited during fiscal 2025 and 2024, respectively. There were 252,888 and 244,568 unvested shares outstanding at June 30, 2025 and 2024, respectively. Compensation expense of $1,266 and $1,265 was recognized during the year ended June 30, 2025 and 2024, respectively, related to these service-based awards. The tax benefit from compensation expense for the year ended June 30, 2025 and 2024, related to these service-based awards, was $297 and $297, respectively. The total fair value of restricted stock grants vested in fiscal 2025 and 2024 was $464 and $2,345, respectively. As of June 30, 2025, the Company had $579 of unrecognized compensation expense related to restricted stock which will be recognized over the next years.
Restricted Stock Unit Awards (“RSU”)
The RSUs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally years from the date of grant or when performance conditions have been met. In fiscal 2025 and 2024, the Company granted 77,395 and 7,089 RSUs, respectively, to various employees of the Company, including executive officers. A total of 1,601 and 0 shares of restricted stock unit awards were forfeited during fiscal 2025 and 2024, respectively. There were 82,883 and 134,989 unvested RSUs outstanding at June 30, 2025 and June 30, 2024, respectively. Compensation expense of $866 and $496 was recognized during the year ended June 30, 2025 and 2024, respectively. The tax benefit from compensation expense for the year ended June 30, 2025 and 2024, related to these service-based awards, was $203 and $116, respectively. The total fair value of restricted stock grants vested in fiscal 2025 and 2024 was $1,779 and $0, respectively. The weighted average grant date fair value of the unvested awards at June 30, 2025 was $12.79. As of June 30, 2025, the Company had $692 of unrecognized compensation expense related to RSUs which will be recognized over the next year.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.