UNITED
STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549

Form
10-Q

QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the quarterly period ended March 30, 2007Commission File
Number 1-7635

TWIN DISC,
INCORPORATED

(Exact name of registrant as specified in its charter)

Wisconsin
    39-0667110(State or other jurisdiction of  Incorporation or organization)
    (I.R.S. Employer Identification No.)1328 Racine Street, Racine, Wisconsin 53403(Address of principal executive offices)(262) 638-4000(Registrant's telephone number, including area
  code)


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

Yes [  ] No [ x ].

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act. (Check one):

Large Accelerated Filer [
 ]
Accelerated
Filer [x
]Non-accelerated filer [  ] .

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [  ] No[ x ] .

At April 30, 2007, the registrant had 5,849,088 shares of its common
stock outstanding.

1

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|PART 1 
      FINANCIAL INFORMATION                                                                          
|--------------------------------------------------------------------------------------------------------------
|                                                                                                              
|Item 1. Financial
      Statements                                                                            
|TWIN DISC,
      INCORPORATED                                                                                 
|CONDENSED
      CONSOLIDATED BALANCE SHEETS                                                                   
|(In
      Thousands, Unaudited)                                                                               
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Assets                                                                                                        
|Current
      assets:                                                                                         
|Cash and cash
      equivalents                                                                               
|Trade accounts
      receivable, net                                                                          
|Inventories,
      net                                                                                        
|Deferred income
      taxes                                                                                   
|Other                                                                                                         
|                                                                                                              
|                                                                                                              
|Total current
      assets                                                                                    
|                                                                                                              
|Property, plant
      and equipment, net                                                                      
|Goodwill                                                                                                      
|Deferred income
      taxes                                                                                   
|Intangible
      assets, net                                                                                  
|Other
      assets                                                                                            
|                                                                                                              
|                                                                                                              
|Liabilities
      and Shareholders' Equity                                                                    
|Current
      liabilities:                                                                                    
|Bank
      overdraft                                                                                          
|Notes
      payable                                                                                           
|Current
      maturities of long-term debt                                                                    
|Accounts
      payable                                                                                        
|Accrued
      liabilities                                                                                     
|                                                                                                              
|                                                                                                              
|Total current
      liabilities                                                                               
|                                                                                                              
|Long-term
      debt                                                                                          
|Accrued
      retirement benefits                                                                             
|Other long-term
      liablilities                                                                            
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Minority
      interest                                                                                       
|                                                                                                              
|Shareholders'
      equity:                                                                                   
|Common shares
      authorized: 15,000,000;                                                                   
|issued:
      6,550,224; no par value                                                                         
|Retained
      earnings                                                                                       
|Accumulated other
      comprehensive loss                                                                    
|                                                                                                              
|                                                                                                              
|Less treasury
      stock, at cost                                                                            
|(701,136 and
      718,236 shares, respectively)                                                              
|                                                                                                              
|                                                                                                              
|Total
      shareholders' equity                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|The notes to
      condensed consolidated financial statements are an integral part of these
      statements.

2

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|TWIN DISC, INCORPORATED                               
|------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENTS OF
  OPERATIONS     
|(In
      Thousands Except Per Share Data, Unaudited) 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                      
|Net
      sales                                       
|Cost
      of goods sold                              
|                                                      
|                                                      
|                                                      
|Marketing, engineering and administrative
    expenses
|Interest expense                                      
|Other (income) expense, net                           
|                                                      
|                                                      
|                                                      
|Earnings before income taxes and minority
    interest
|Income taxes                                          
|                                                      
|                                                      
|Earnings before minority interest                     
|Minority interest                                     
|                                                      
|                                                      
|Net
      earnings                                    
|                                                      
|                                                      
|Dividends per share                                   
|                                                      
|Earnings per share data:                              
|Basic earnings per share                              
|Diluted earnings per share                            
|                                                      
|Shares outstanding data:                              
|Average shares outstanding                            
|Dilutive stock options                                
|                                                      
|                                                      
|Diluted shares outstanding                            
|                                                      
|Comprehensive income:                                 
|Net
      earnings                                    
|Foreign currency translation adjustment               
|                                                      
|                                                      
|Comprehensive income                                  

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

3

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|TWIN DISC, INCORPORATED                                
|-------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENTS OF CASH
    FLOWS    
|(In
      Thousands, Unaudited)                        
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Cash
      flows from operating activities:            
|Net
      earnings                                     
|Adjustments to reconcile net earnings to               
|net
      cash (used) provided in operating activities:
|Depreciation and amortization                          
|Other non-cash changes  net                           
|Net
      change in working capital,                   
|excluding cash                                         
|                                                       
|                                                       
|Cash
      flows from investing activities:            
|Acquisitions of fixed assets                           
|Proceeds from sale of fixed assets                     
|                                                       
|                                                       
|Cash
      flows from financing activities:            
|Bank
      overdraft                                   
|Increase (decrease) in notes payable, net              
|Proceeds from long-term debt                           
|Proceeds from exercise of stock options                
|Purchase of treasury stock                             
|Dividends paid                                         
|Other                                                  
|                                                       
|                                                       
|                                                       
|Effect of exchange rate changes on cash                
|                                                       
|                                                       
|Net
      change in cash and cash equivalents          
|                                                       
|Cash
      and cash equivalents:                       
|Beginning of period                                    
|                                                       
|                                                       
|End
      of period                                    

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

4

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED MARCH 30, 2007 (UNAUDITED)

A. Basis of Presentation

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

Certain balances in prior fiscal years have been reclassified to conform to the presentation adopted in the current year. This reclassification had no impact on the Companys
Condensed Consolidated Statement of Operations.

New Accounting Releases

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. FIN No. 48 is
effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of adoption of FIN No. 48 on its consolidated financial statements.

During September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No.
87, 88, 106, and 132(R). This statement requires an employer that sponsors one or more single-employer defined benefit plans to:

|1. | Recognize the funded status of a benefit plan  measured as the difference between plan assets at fair value and the benefit obligation  in its statement of financial
position.                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost pursuant to FASB Statement No. 87 , Employers Accounting for Pensions, or No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions.
|  
|3. | Measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end.                                                                                                                                                                                                                                                                                   
|  
|4. | Disclose in the notes to the consolidated financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from
delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation.                                                                                       
|  

This statement is effective for fiscal years ending after December 15, 2006. Based upon amounts disclosed in the Companys 2006 Annual Report on Form 10-K, the impact of adopting
this statement would result in the recognition of an additional liability of $6,544,000 (primarily related to postretirement healthcare), a deferred tax impact of $2,552,000 and an offsetting charge to other comprehensive income of
$3,992,000. The impact of this statement could differ from these amounts, depending primarily upon current fiscal year asset performance and actuarial assumptions.

5

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In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for
Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This statement is
effective as of the beginning of an entitys first fiscal year that begins after
November 15, 2007 and is not expected to have a material impact on the Companys
financial statements.

|B. Inventory                                                               |           |               
|-------------------------------------------------------------------------- | --------- | --------------
|                                                                          
|The
      major classes of inventories were as follows (in
    thousands): |           |               
|                                                                          
|                                                                           | March 30, | June
      30,
|                                                                           | 2007      | 2006          
|Inventories:                                                               |           |               
|Finished goods (units and components)                                      | $54,387   | $39,656       
|Work
      in process                                                      | 12,984    | 11,176        
|Raw
      materials                                                        | 14,423    | 14,249        
|                                                                          
|                                                                           | $81,794   | $65,081       

Finished goods inventory includes both fully assembled units and finished
components that may be sold as replacement parts or assembled into complete
units.

C. Warranty

Twin Disc (the Company) engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of its
suppliers. However, its warranty obligation is affected by product failure
rates, the extent of the market affected by the failure and the expense involved
in satisfactorily addressing the situation. The warranty reserve is established
based on our best estimate of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. When evaluating
the adequacy of the reserve for warranty costs, management takes into
consideration the term of the warranty coverage, historical claim rates and
costs of repair, knowledge of the type and volume of new products and economic
trends. While we believe the warranty reserve is adequate and that the judgment
applied is appropriate, such amounts estimated to be due and payable in the
future could differ materially from what actually transpires. The following is a
listing of the activity in the warranty reserve during the three and nine month
periods ended March 30, 2007 and March 31, 2006, respectively (in
thousands).

|                                     | Three Months Ended | Nine
      Months Ended
|------------------------------------ | ------------------ | -----------------------
|                                     | March 30,          | March 31,              
|                                     | 2007               | 2006                   
|                                    
|Reserve balance, beginning of period | $7,451             | $6,457                 
|Current period expense               | 1,229              | 1,037                  
|Payments or credits to customers     | (1,197)            | (861)                  
|Acquisition accounting               | -                  | -                      
|Translation                          | 48                 | 84                     
|                                     |                    |                        
|                                    
|Reserve balance, end of period       | $7,531             | $6,717                 

D. Contingencies

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

E. Business Segments

Information about the Companys segments is summarized as follows (in
thousands):

6

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|                                 | Three Months Ended | Nine
      Months Ended
|-------------------------------- | ------------------ | -----------------------
|                                 | March 30,          | March 31,              
|                                 | 2007               | 2006                   
|                                
|Manufacturing segment sales      | $76,626            | $59,203                
|Distribution segment sales       | 29,053             | 19,585                 
|Inter/Intra segment elimination  | (19,274)           | (14,663)               
|                                
|Net
      sales                  | $86,405            | $64,125                
|                                
|Manufacturing segment earnings   | $
      10,531     | $
      7,283          
|Distribution segment earnings    | 3,033              | 1,502                  
|Inter/Intra segment elimination  | (1,979)            | (2,487)                
|                                
|Earnings before income taxes     |                    |                        
|and
      minority interest      | $11,585            | $ 6,298                
|                                
|                                 | March 30,          | June
      30,         
|Assets                           | 2007               | 2006                   
|                                
|Manufacturing segment assets     | $283,224           | $239,138               
|Distribution segment assets      | 59,937             | 53,896                 
|Corporate assets and elimination |                    |                        
|of
      inter-company assets    | (77,536)           | (56,862)               
|                                
|                                 | $265,625           | $236,172               

F. Stock Based Compensation

In July 2005, the Company adopted SFAS No. 123R Share Based Payment
(FAS 123R). This statement requires the Company to expense the cost of employee
services received in exchange for an award of equity instruments using the
fair-value-based method. All options outstanding were 100% vested at the
adoption of this statement.

During 2007 and 2006, 3,600 and 3,600 stock options were granted,
respectively. As a result, compensation cost of $40,000 and $19,000 has been
recognized in the Condensed Consolidated Statements of Operations for fiscal
2007 and 2006. No options were granted in the third quarter of 2007 or
2006.

In fiscal 2007 and 2006, the Company granted 30,434 and 47,510
performance stock unit award grants, respectively, to various employees of the
Company, including executive officers. The performance stock unit awards granted
in fiscal 2007 will vest if the Company achieves a specified target objective
relating to consolidated net operating profit after tax (NOPAT) in the
cumulative three fiscal year period ending June 30, 2009. The performance stock
unit awards granted in fiscal 2007 are subject to adjustment if the Companys
NOPAT for the period falls below or exceeds the specified target objective, and
the maximum number of performance stock units that can be awarded if the target
objective is exceeded is 36,521. The stock unit awards granted in fiscal 2006
will vest if the Company achieves specified consolidated gross revenue
objectives in the fiscal year ending June 30, 2008. If such objectives are met,
the employees will receive a cash payment equal to the number of units
multiplied by the fair-value of the Companys common stock as of June 30, 2008
and 2009. There were 74,569 and 23,755 unvested stock unit awards outstanding at
March 30, 2007 and March 31, 2006, respectively. The performance stock unit
awards are remeasured at fair-value at the end of each reporting period. The
fair-value of the stock unit awards are expensed over the performance period for
the shares that are expected to ultimately vest. The compensation expense for
the three and nine months ended March 30, 2007, related to the performance stock
unit award grants, approximated $456,000 and $990,000, respectively. The
compensation expense for the three and nine months ended March 31, 2006, related
to the performance stock unit award grants, approximated $130,000.

In fiscal 2007 and 2006, the Company granted 30,441 and 66,700
performance stock awards, respectively, to various employees of the Company,
including executive officers. The performance stock awards granted in fiscal
2007 will

7

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vest if the Company achieves a specified target objective relating to
consolidated NOPAT in the cumulative three fiscal year period ending June 30,
2009. The performance stock awards granted in fiscal 2007 are subject to
adjustment if the Companys NOPAT for the period falls below or exceeds the
specified target objective, and the maximum number of performance shares that
can be awarded if the target objective is exceeded is 36,532. The 2006 stock
awards will vest if the Company achieves specified consolidated gross revenue
objectives in the fiscal years ending June 30, 2008. There were 148,891 and
128,650 unvested stock awards outstanding at March 30, 2007 and March 31, 2006,
respectively. The fair value of the stock awards (on the date of grant) is
expensed over the performance period for the shares that are expected to
ultimately vest. The compensation expense for the three and nine months ended
March 30, 2007, related to performance stock awards, approximated $222,000 and
$667,000, respectively. The compensation expense for the three and nine months
ended March 31, 2006 related to performance stock awards, approximated $166,000
and $502,000, respectively.

In addition to the performance shares mentioned above, the Company has
unvested restricted stock outstanding that will vest if certain service
conditions are fulfilled. During fiscal 2007 and 2006, the Company granted 3,600
service based restricted shares to non-employee directors in each year. There
were 31,600 and 34,000 unvested shares outstanding at March 30, 2007 and March
31, 2006, respectively. Compensation expense of $39,000 and $117,000 was
recognized during the three and nine months ended March 30, 2007, respectively,
related to these service-based awards. Compensation expense of $44,000 and
$112,000 was recognized during the three and nine months ended March 31, 2006,
respectively, related to these service-based awards.

G. Pension and Other Postretirement Benefit Plans

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

|                                      | Three Months Ended | Nine
      Months Ended
|------------------------------------- | ------------------ | -----------------------
|                                      | March 30,          | March 31,              
|                                      | 2007               | 2006                   
|                                     
|Pension Benefits:                     |                    |                        
|Service cost                          | $ 308              | $
      293            
|Interest cost                         | 1,760              | 1,745                  
|Expected return on plan assets        | (2,185)            | (1,956)                
|Amortization of prior service cost    | (179)              | (156)                  
|Amortization of transition obligation | 17                 | 16                     
|Amortization of net actuarial loss    | 675                | 964                    
|                                      |                    |                        
|Net
      periodic benefit cost       | $ 396              | $ 906                  
|                                     
|                                     
|Postretirement Benefits:              |                    |                        
|Service cost                          | $
      19         | $
      18             
|Interest cost                         | 334                | 352                    
|Amortization of net actuarial loss    | 53                 | 86                     
|                                      |                    |                        
|Net
      periodic benefit cost       | $ 406              | $ 456                  

The Company previously disclosed in its financial statements for the year
ended June 30, 2006, that it expected to contribute $5,077,000 to its pension
plan in fiscal 2007 and indicated that a review of the Pension Protection Act of
2006 may result in the Company electing to make additional contributions. In the
first fiscal quarter, the Company elected to make $7.7 million of contributions
to its domestic defined benefit plans. This amount included contributions of
$5.5 million in excess of the minimum required. This allowed the plans to be at
the Full Funding

8

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Limit for the 2005 plan year, and as a result, the plans will be exempt
from paying PBGC variable rate premiums for the 2006 plan year. For the balance
of fiscal 2007, the Company is not required to make any additional contributions
to its domestic defined benefit plans. However, based on overall financial
performance, cash flows and in light of the recently enacted Pension Protection
Act of 2006, the Company may elect to make further contributions beyond those
required.

H. Acquisitions

Effective May 31, 2006, the Company acquired 100% of the outstanding
stock of four related foreign entities: B.C.S. S.r.l., an Italian limited
liability company; B.C.S. Service S.r.l., an Italian limited liability company;
Boat Equipment Limited, a Maltese limited liability company; and Vetus Italia
S.r.l., an Italian limited liability company (collectively the BCS Group).
This acquisition was accounted for using the purchase method of accounting. See
the Notes to the Annual Financial Statements for the year ended June 30, 2006
for a complete description of the BCS acquisition. The purchase price, including
acquisition costs, net of cash acquired was $20,330,000. A preliminary
allocation of the purchase price was completed at June 30, 2006. Additional
adjustments to the BCS preliminary purchase price allocation remain a
possibility as further review and analysis is completed in relation to this
acquisition.

Pro forma disclosures have not been included due to the lack of available
quarterly information in prior periods.

I. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill, substantially all of
which is allocated to the manufacturing segment, for the nine months ended March
30, 2007 were as follows (in thousands):

|Balance at June
      30, 2006  | $15,304
|------------------------------- | -------
|Translation
      adjustment    | 224    
|Acquisition
      accounting    | 448    
|                               
|Balance at March
      30, 2007 | $15,976

The gross carrying amount and accumulated amortization of the Companys
intangible assets that have finite useful lives and are subject to amortization
as of March 30, 2007 and June 30, 2006 are as follows (in thousands):

|                                     | March 30,   | June 30,   
|------------------------------------ | ----------- | -----------
|                                     | 2007        | 2006       
|Intangible assets with finite lives: |             |            
|Licensing
      agreements           | $
    3,015 | $
    3,015
|Non-compete
      agreements         | 4,732       | 4,732      
|Other                                | 4,993       | 4,971      
|                                    
|                                     | 12,740      | 12,718     
|Accumulated
      amortization       | (4,231)     | (3,382)    
|Translation
      adjustment         | 311         | 116        
|                                    
|Total                                | $ 8,820     | $
9,452    

Intangible amortization expense was $286,000 and $850,000 for the three
and nine months ended March 30, 2007, respectively, and $84,000 and $253,000 for
the three and nine months ended March 31, 2006, respectively. Estimated
intangible amortization expense for the remainder of this year and each of the
next five fiscal years is as follows (in thousands):

9

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|Fiscal Year |       
|----------- | ------
|2007        | $   84
|2008        | 953   
|2009        | 952   
|2010        | 752   
|2011        | 752   
|2012        | 752   

The gross carrying amount of the Companys intangible assets that have
indefinite lives and are not subject to amortization as of March 30, 2007 and
June 30, 2006 are $2,848,000 and $2,759,000, respectively. These assets are
comprised of acquired tradenames.

J. Long-term Debt

Long-term debt at March 30, 2007 and June 30, 2006 consisted of the
following (in thousands):

|                               | March 30, | June 30,     
|------------------------------ | --------- | -------------
|                               | 2007      | 2006         
|                              
|Revolving loan                 | $25,750   | $
      9,000
|10-year unsecured senior notes | 25,000    | 25,000       
|Other                          | 4,428     | 5,002        
|                               |           |              
|Subtotal                       | 55,178    | 39,002       
|Less: current maturities       | (551)     | (633)        
|                               |           |              
|Total long-term debt           | $54,627   | $38,369      

The increase in long-term debt of $16,258,000 was driven by (1) increased
working capital requirements due to increased demand for the Companys products,
(2) payments on capital expenditures, (3) increased contributions to the
Companys domestic defined benefit pension plans, and (4) the payment of annual
incentive and bonus awards for fiscal 2006 performance in the first quarter of
fiscal 2007.

Item 2. Management Discussion and Analysis

In the financial review that follows, we discuss our results of
operations, financial condition and certain other information. This discussion
should be read in conjunction with our consolidated 2006 financial statements
and related notes.

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

In addition to the assumptions and information referred to specifically
in the forward-looking statements, other factors, including but not limited to
those factors discussed under Item 1A, Risk Factors, of the Companys Annual
Report filed on Form 10-K for June 30, 2006 could cause actual results to be
materially different from what is presented here.

10

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|Results of
      Operations      |                          |                         |                 |                 |                |       |                |      
|-------------------------------- | ------------------------ | ----------------------- | --------------- | --------------- | -------------- | ----- | -------------- | -----
|                                
|                                
|(In
      thousands)             |                          |                         |                 |                 |                |       |                |      
|                                 | Three Months
      Ended | Nine Months
      Ended
|                                 | March
    30,            | March
      31,         | March
      30, | March
      31,
|                                 | 2007                     | %                       | 2006            | %               | 2007           | %     | 2006           | %    
|                                
|Net
    sales                    | $
    86,405             |                         | $
    64,125    |                 | $226,418       |       | $170,753       |      
|Cost of goods
      sold         | 58,220                   |                         | 44,219          |                 | 153,531        |       | 120,420        |      
|                                
|Gross
      profit               | 28,185                   | 32.6%                   | 19,906          | 31.0%           | 72,887         | 32.2% | 50,333         | 29.5%
|                                
|Marketing,
      engineering and |                          |                         |                 |                 |                |       |                |      
|administrative
      expenses    | 15,913                   | 18.4                    | 13,153          | 20.5            | 44,093         | 19.5  | 34,790         | 20.4 
|                                 |                          |                         |                 |                 |                |       |               
|                                
|Earnings from
      operations   | $
      12,272           | 14.2                    | $
      6,753   | 10.5            | $
      28,794 | 12.7  | $
      15,543 | 9.1  

Comparison of the Third Quarter of FY 2007 with the Third Quarter of FY
2006

Net sales for the third quarter improved 34.7%, or $22.3 million, to
$86.4 million from $64.1 million in the same period a year ago. The recent BCS
Group acquisition contributed $7.3 million to net sales in the fiscal 2007 third
quarter. Sales from our existing operations, after backing out the recent
acquisition, increased 23.4% . The quarter-over-quarter improvement came in a
number of the Companys product markets. The Companys North American
manufacturing operations saw increased demand for transmission and industrial
products for oil-servicing and commercial applications. In addition, sales of
the Companys military transmissions were up. Sales of marine transmissions for
commercial applications also saw quarter-over-quarter improvement in sales and
order activities. Compared to the third quarter of fiscal 2006, the Euro and
Asian currencies strengthened against the US dollar. The translation effect of
this strengthening on foreign operations was to increase revenues by
approximately $2.4 million versus the prior year, before
eliminations.

Sales at our manufacturing segment were up 29.4% versus the same period
last year. Adjusting for the impact of the BCS Group acquisition, sales of
existing manufacturing operations were up 21.0% versus the third quarter of
fiscal 2006. Sales at our US domestic manufacturing locations were up almost
20%. As noted above, the sales growth in our domestic operations was primarily
driven by increased sales of commercial marine transmissions, military and
oilfield series transmissions, and industrial products. Sales at our Belgian
manufacturing location were up nearly 23% over the same period last year. Nearly
a third of this increase can be attributed to the translation effect of a
strengthening Euro versus the third quarter of last fiscal year. The prior
years third fiscal quarter was unfavorably affected by material shortages and
equipment downtime at our Belgian operation that occurred in the first and
second fiscal quarters of fiscal 2006. The quarter-over-quarter improvement can
be attributed to the absence of these factors in fiscal 2007s third quarter as
well as an improvement in overall order activity. Our Italian manufacturing
operations, excluding the BCS Group, saw a nearly 30% increase in sales compared
to fiscal 2006s third quarter. Approximately half of this increase can be
attributed to the translation effect of a strengthening Euro versus the third
quarter of last fiscal year.

Our distribution segment experienced an increase of 48.3% in sales
compared to the third quarter of fiscal 2006. Adjusting for the impact of the
BCS Group acquisition, sales of existing distribution operations were up 32.7%
versus the third quarter of fiscal 2006. Our North American distribution
operations continued to experience

11

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increased demand in oil field related products, while the Companys Asian
distribution operations saw significant growth in the commercial marine
transmission markets.

The elimination for net inter/intra segment sales increased $4.6 million,
accounting for the remainder of the net change in sales versus the same period
last year. Nearly two-thirds of the net change in sales, excluding the impact of
the BCS Group, came at our domestic manufacturing location. These increased
sales were primarily to third party entities. After considering this, the net
increase in inter/intra segment sales was consistent with the overall increase
in sales and order levels experienced by the Company in the third
quarter.

Gross margin as a percentage of sales increased to 32.6% of sales,
compared to 31.0% of sales for the same period last year. This 160 basis point
improvement can be attributed to improved product mix, selective price
increases, improved productivity and absorption, and the impact of cost
reduction programs. These favorable margin items were partially offset by higher
prices for steel, shipping and energy versus the same period of the prior fiscal
year. Higher volume, level fixed costs, increased manufacturing productivity and
absorption at our domestic manufacturing operations, and lower pension expense
helped to partially offset higher raw material and other costs.

Marketing, engineering, and administrative (ME&A) expenses were 21.0%
higher compared to last years third fiscal quarter. Excluding the ME&A
expenses of the acquired BCS group companies, the quarter-over-quarter increase
was 7.9% . As a percentage of sales, ME&A expenses were down 2.1 percentage
points to 18.4% of sales versus 20.5% of sales in the third quarter of fiscal
2006. The overall increase can be attributed to the quarter-over-quarter
increase in salary and wage costs, including stock based compensation expense,
and general spending as well as the costs associated with the selection and
implementation of a new global enterprise resource planning (ERP) system.
These increases were partially offset by a reduction in the costs associated
with Sarbanes-Oxley compliance activities when compared to the prior fiscal
year.

Interest expense of $0.9 million for the quarter was up 110.5% versus
last years third fiscal quarter. In the quarter, the Company incurred interest
of $0.4 million on the $25 million of Senior Notes that were entered into in
April 2006. In addition, for the third quarter of fiscal 2006, the interest rate
on the Companys revolving credit facility was in the range of 5.56% to 5.89%,
whereas for the third quarter of fiscal 2007 the range was 6.57% to 6.6% . At
the same time, the average balance of the Companys revolving credit facility
increased versus the prior year. As a result, total interest on the revolver
grew by just over $0.2 million to $0.5 million.

The consolidated income tax rate was slightly lower than a year ago
primarily due to changes in the mix of foreign versus domestic earnings as well
as a $0.2 million tax benefit booked in the quarter related to R&D tax
credits.

Comparison of the First Nine Months of FY 2007 with the First Nine Months
of FY 2006

Net sales for the first nine months of 2007 improved 32.6%, or $55.7
million, to $226.4 million from $170.8 million in the same period a year ago.
The recent BCS Group acquisition contributed $22.0 million to net sales in the
first nine months of fiscal 2007. Sales from our existing operations, after
backing out the recent acquisition, increased 19.7% . Consistent with the third
quarter results discussed above, the year-over-year improvement came in a number
of the Companys product markets. The Companys North American manufacturing
operations saw increased demand for transmission and industrial products for
oil-servicing and commercial applications. In addition, sales of the Companys
military transmissions were up. Sales of marine transmissions for commercial
applications also saw year-over-year improvement in sales and order activities.
Compared to the first nine months of fiscal 2006, the Euro and Asian currencies
strengthened against the US dollar. The translation effect of this strengthening
on foreign operations was to increase revenues by approximately $5.5 million
versus the prior year, before eliminations.

Sales at our manufacturing segment were up just over 30% versus the same
period last year. Adjusting for the impact of the BCS Group acquisition, sales
of existing manufacturing operations were up 20.6% versus the first nine months
of fiscal 2006. Sales at our US domestic manufacturing location were up nearly
20%. As noted above, the sales growth in our domestic operations was primarily
driven by increased sales of commercial marine transmissions, military and
oilfield series transmissions, and industrial products. Sales at our Belgian
manufacturing

12

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location were up 24.1% over the same period last year. Approximately one quarter of this increase can be attributed to the translation effect of a strengthening Euro versus the first
nine months of last fiscal year. The prior years first nine months were unfavorably effected by material shortages and equipment downtime at our Belgian operation. The year-over-year improvement can be attributed to the absence of these
factors in fiscal 2007s first nine months as well as an improvement in overall order activity. Our Italian manufacturing operations, excluding the BCS Group, saw an over 20% increase in sales compared to fiscal 2006s first nine months.
Just under half of this increase can be attributed to the translation effect of a strengthening Euro versus the first nine months of last fiscal year.

Our distribution segment experienced an increase of 23.5% in sales compared to the first nine months of fiscal 2006. Adjusting for the impact of the BCS Group acquisition, sales of
existing distribution operations were up approximately 10% versus the first nine months of fiscal 2006. As noted above, our distribution operations posted strong third quarter sales results compared to fiscal 2006s third quarter. Our North
American distribution operations continued to experience increased demand in oil field related products, in particular demand for the Companys 8500 series transmission, while the Companys Asian distribution operations saw significant
growth in the commercial marine transmission markets.

The elimination for net inter/intra segment sales increased $5.8 million, accounting for the remainder of the net change in sales versus the same period last year. Over two-thirds
of the net change in sales, excluding the impact of the BCS Group, came at our domestic manufacturing location. These increased sales were primarily to third party entities.After considering this, the net increase in inter/intra segment sales was consistent with the overall increase in sales and order levels experienced by the
Company in the first nine months.

Gross margin as a percentage of sales increased to 32.2% of sales, compared to 29.5% of sales for the same period last year. This 270 basis point improvement can be attributed to
improved product mix, selective price increases, improved productivity and absorption, and the impact of cost reduction programs. These favorable margin items were partially offset by higher prices for steel, shipping and energy versus the same
period of the prior fiscal year. Higher volume, level fixed costs, increased manufacturing productivity and absorption at our domestic manufacturing operations, and lower pension expense helped to partially offset higher raw material and other
costs.

Marketing, engineering, and administrative (ME&A) expenses were 26.7% higher compared to last fiscal years first nine months. Excluding the ME&A expenses of the acquired
BCS group companies, the year-over-year increase was 13.9% . As a percentage of sales, ME&A expenses were down to 19.5% of sales versus 20.4% of sales in the fiscal 2006s first nine months. The overall increase can be attributed to the
quarter-over-quarter increase in salary and wage costs, including stock based compensation expense, and general spending as well as the costs associated with the selection and implementation of a new global enterprise resource planning
(ERP) system. These increases were partially offset by a reduction in the costs associated with Sarbanes-Oxley compliance activities when compared to the prior fiscal year.

Interest expense of $2.4 million for the first nine months of fiscal 2007 was up 107.1% versus last fiscal years first nine months. In the first nine months, the Company
incurred interest of $1.1 million on the $25 million of Senior Notes that were entered into in April 2006. In addition, for the first nine months of fiscal 2006, the interest rate on the Companys revolving credit facility was in the
range of 4.4% to just under 5.89%, whereas for the first nine months of fiscal 2007 the range was 6.1% to 6.6% . In addition, the average balance of the Companys revolving credit facility was up slightly versus the prior year. As a result,
total interest on the revolver was up by $0.3 million to $1.0 million.

The consolidated income tax rate was slightly lower than a year ago primarily due to changes in the mix of foreign versus domestic earnings as well as a $0.2 million tax benefit
booked in the third quarter related to R&D tax credits.

Financial Condition, Liquidity and Capital ResourcesComparison between March 30, 2007 and June 30, 2006

13

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As of March 30, 2007, the Company had net working capital of $92.8
million, which represents an increase of $21.3 million from the net working
capital of $71.5 million as of June 30, 2006.

Cash and cash equivalents decreased 9.8% to $14.8 million as of March 30,
2007. The majority of the cash and cash equivalents as of March 30, 2007 are at
our overseas operations in Europe and Asia-Pacific.

Trade receivables of $63.0 million were up $7.0 million from last fiscal
year-end. Of this overall increase, just over $0.8 million can be attributed to
the effects of foreign currency translations. The net increase is consistent
with the sales volume increase experienced in the third fiscal quarter. Sales
for the third fiscal quarter of $86.4 million represented an increase of over
19% compared to the fourth fiscal quarter of fiscal 2006.

Net inventory increased by $16.7 million, or 25.7%, versus June 30, 2006
to $81.8 million. More than half of the increase came at the Companys domestic
manufacturing location, where a significant increase in the order rate continues
to be experienced. On a consolidated basis, as of March 30, 2007, the Companys
backlog of orders to be shipped over the next six months, including the recently
acquired BCS group companies, approximates $118.4 million, up 29.3% since the
year began and up 33.8% compared with the same period a year ago.

Net property, plant and equipment (PP&E) increased $6.8 million
versus June 30, 2006. This includes the addition of $11.2 million in capital
expenditures, primarily at the Companys domestic and Belgian manufacturing
operations, which was offset by depreciation of $4.4 million. In total, the
Company expects to invest between $15 and $17 million in capital assets in
fiscal 2007. The quoted lead times on certain manufacturing equipment purchases
may push some of the capital expenditures into the next fiscal year. This
compares to $8.4 million in capital expenditures in fiscal 2006, $12.0 million
in fiscal 2005 and $4.2 million in fiscal 2004. The Companys capital program is
focusing on modernizing key core manufacturing, assembly and testing processes
at its facilities around the world as well as the selection and implementation
of a global ERP system.

Accounts payable as of March 30, 2007 of $30.4 million were up $2.5
million, or 9.1%, from June 30, 2006. The increase is primarily the result of
the overall increase in volume and continued strength in order activity in the
third quarter. The balance as of June 30, 2006 included a high level of capital
related items in the year-end balance being paid out in the first fiscal quarter
of 2007.

Total borrowings, notes payable and long-term debt, as of March 30, 2007
increased by $13.0 million, or nearly 31%, to $55.2 million versus June 30,
2006. This increase was driven by (1) increased working capital requirements due
to increased demand for the Companys products, (2) payments on capital
expenditures, (3) increased contributions to the Companys domestic defined
benefit pension plans, and (4) the payment of annual incentive and bonus awards
for fiscal 2006 performance in the first half of fiscal 2007. In the first half
of fiscal 2007, the Company elected to make $7.7 million of contributions to its
domestic defined benefit plans. This amount included contributions of $5.5
million in excess of the minimum required. This allowed the plans to be at the
Full Funding Limit for the 2005 plan year, and as a result, the plans will be
exempt from paying PBGC variable rate premiums for the 2006 plan year. For the
balance of fiscal 2007, the Company is not required to make any additional
contributions to its domestic defined benefit plans.

Total shareholders equity increased by $19.4 million to a total of
$108.7 million. Retained earnings increased by $15.1 million. The net increase
in retained earnings included $16.9 million in net earnings reported
year-to-date, offset by $1.8 million in dividend payments. Net favorable foreign
currency translation of $3.2 million was reported as the U.S. Dollar weakened
against the Euro and Asian currencies during the first nine months of fiscal
2007. The net remaining increase of $1.1 million represents the net effect on
shareholders equity of the Companys stock based compensation
programs.

The Companys balance sheet remains very strong, there are no
off-balance-sheet arrangements, and we continue to have sufficient liquidity for
near-term needs. As of March 30, 2007, the Company had outstanding available
borrowings under its $35 million revolving line of credit of nearly $10.0
million. Furthermore, the Company has

14

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nearly $15 million in cash and cash equivalents at its subsidiaries
around the world. Management believes that available cash, our revolver
facility, cash generated from operations, existing lines of credit and access to
debt markets will be adequate to fund our capital requirements for the
foreseeable future.

As of March 30, 2007, the Company has obligations under non-cancelable
operating lease contracts and a senior note agreement for certain future
payments. A summary of those commitments follows (in thousands):

|                        |         | Less than     | 1-3           | 3-5     | After 5    
|----------------------- | ------- | ------------- | ------------- | ------- | -----------
|Contractual Obligations | Total   | 1 year        | Years         | Years   | Years      
|                        |         |               |               |         |            
|Revolving loan          | $25,750 |               | $25,750       |         |            
|                        |         |               |               |         |            
|Long-term debt          | $29,428 | $
      551   | $
      2,614 | $ 8,017 | $18,246    
|                        |         |               |               |         |            
|Operating leases        | $ 9,558 | $
      2,734 | $
      3,883 | $ 2,187 | $
      754
|Total obligations       | $64,736 | $ 3,285       | $32,247       | $10,204 | $19,000    

In October 2006, the revolving loan agreement scheduled to expire in
October 2007 was amended to extend the term to October 31, 2009. Also, in March
2007, the Companys revolving loan and senior note agreements were amended to
increase the Companys annual capital expenditure covenant from $15 million to
$17 million for fiscal year 2007. All other terms and covenants remain the
same.

New
Accounting Releases

In June 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement No. 109. This interpretation clarifies
the accounting for uncertainty in income taxes recognized in an entitys
financial statements in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. It prescribes a
recognition threshold and measurement attribute for financial statement
disclosure of tax positions taken or expected to be taken on a tax return. FIN
No. 48 is effective for fiscal years beginning after December 15, 2006. The
Company is currently evaluating the impact of adoption of FIN No. 48 on its
consolidated financial statements.

During September 2006, the FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R). This statement
requires an employer that sponsors one or more single-employer defined benefit
plans to:

|1. | Recognize the
      funded status of a benefit plan  measured as the difference between plan
      assets at fair value and the benefit obligation  in its statement of
      financial position.                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Recognize as a
      component of other comprehensive income, net of tax, the gains or losses
      and prior service costs or credits that arise during the period but are
      not recognized as components of net periodic benefit cost pursuant to FASB
      Statement No. 87 , Employers Accounting for Pensions, or No. 106,
      Employers Accounting for Postretirement Benefits Other Than
      Pensions.
|  
|3. | Measure
      defined benefit plan assets and obligations as of the date of the
      employers fiscal year-end.                                                                                                                                                                                                                                                                                                           
|  
|4. | Disclose in
      the notes to the consolidated financial statements additional information
      about certain effects on net periodic benefit cost for the next fiscal
      year that arise from delayed recognition of the gains or losses, prior
      service costs or credits, and transition asset or obligation.                                                                                                   
|  

15

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This statement is effective for fiscal years ending after December 15, 2006. Based upon amounts disclosed in the Companys 2006 Annual Report on Form 10-K, the impact of adopting
this statement would result in the recognition of an additional liability of $6,544,000 (primarily related to postretirement healthcare), a deferred tax impact of $2,552,000 and an offsetting charge to other comprehensive income of
$3,992,000. The impact of this statement could differ from these amounts, depending primarily upon current fiscal year asset performance and actuarial assumptions.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No.
115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This statement is effective as of the beginning of an entitys first fiscal year that begins after November 15,
2007 and is not expected to have a material impact on the Companys financial statements.

Critical Accounting Policies

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

Twin Discs critical accounting policies are described in Item 7 of the Companys Annual Report filed on Form 10-K for June 30, 2006. There have been no significant changes
to those accounting policies subsequent to June 30, 2006.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

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

Interest rate risk - The Companys earnings exposure related to adverse movements of interest rates is primarily derived from outstanding floating rate debt instruments that are
indexed to the prime and LIBOR interest rates. In accordance with the $35,000,000 revolving loan agreement expiring October 31, 2009, the Company has the option of borrowing at the prime interest rate or LIBOR plus an additional
Add-On, between 1% and 2.75%, depending on the Companys Total Funded Debt to EBITDA ratio, as defined. Due to the relative stability of interest rates, the Company did not utilize any financial instruments at March 30, 2007 to
manage interest rate risk exposure. A 10 percent increase or decrease in the applicable interest rate would result in a change in pretax interest expense of approximately $169,000.

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

Currency risk - The Company has exposure to foreign currency exchange fluctuations. Approximately 45% and 40% of the Companys revenues in the nine months ended March 30, 2007
and the year ended June 30, 2006, respectively, were denominated in currencies other than the U.S. Dollar. Of those non-U.S. Dollar denominated amounts, approximately 70% were denominated in Euros with the balance composed of Japanese Yen, the Swiss
Franc and the Australian and Singapore Dollars. The Company does not hedge the translation exposure represented by the net assets of its foreign subsidiaries. Foreign currency translation adjustments are recorded as a component of shareholders
equity. Forward foreign exchange contracts are used to hedge the currency fluctuations on significant transactions denominated in foreign currencies.

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

16

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The Company primarily enters into forward exchange contracts to reduce
the earnings and cash flow impact of nonfunctional currency denominated
receivables and payables. These contracts are highly effective in hedging the
cash flows attributable to changes in currency exchange rates. Gains and losses
resulting from these contracts offset the foreign exchange gains or losses on
the underlying assets and liabilities being hedged. The maturities of the
forward exchange contracts generally coincide with the settlement dates of the
related transactions. Gains and losses on these contracts are recorded in Other
income (expense), net in the Condensed Consolidated Statement of Operations as
the changes in the fair value of the contracts are recognized and generally
offset the gains and losses on the hedged items in the same period. The primary
currency to which the Company was exposed in fiscal 2007 and 2006 was the Euro.
At March 30, 2007, the Company had net outstanding forward exchange contracts to
purchase Euros in the value of $730,000 with a weighted average maturity of 39
days. The fair value of the Companys contracts was a gain of approximately
$13,000 at March 30, 2007. At June 30, 2006, the Company had net outstanding
forward exchange contracts to purchase Euros in the value of $2,250,000 with a
weighted average maturity of 47 days. The fair value of the Companys contracts
was a gain of approximately $31,000 at June 30, 2006.

Item 4. Controls and Procedures.

(a)Evaluation of
Disclosure Controls and Procedures.

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

(b)Changes in
Internal Control Over Financial Reporting.

Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). During the period covered by this report, no
changes were made which have materially affected, or which are reasonably likely
to materially affect, our internal control over financial reporting. On May 31,
2006, the Company acquired the BCS Group for approximately $20.3 million,
including acquisitions costs, net of cash acquired. As part of its ongoing
integration activities, the Company is continuing to incorporate its controls
and procedures into this recently acquired business.

|Part
      II. |  | OTHER
      INFORMATION 
|-------------- |  | ------------------------
|Item
      1.  |  | Legal
      Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously
disclosed in response to Item 1A to Part I of our 2006 Annual Report on Form
10-K.

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

There were no securities of the Company sold by the Company during the
three and nine months ended March 30, 2007, which were not registered under the
Securities Act of 1933, in reliance upon an exemption from registration provided
by Section 4 (2) of the Act.

During the period covered by this report, the Company offered
participants in the Twin Disc, Incorporated B The Accelerator 401(k) Savings
Plan (the Plan) the option to invest their Plan accounts in a fund comprised
of

17

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Company stock. Participation interests of Plan participants in the Plan,
which may be considered securities, were not registered with the SEC.
Participant accounts in the Plan consist of a combination of employee deferrals,
Company matching contributions, and, in some cases, additional Company
profit-sharing contributions. No underwriters were involved in these
transactions. On September 6, 2002, the Company filed a Form S-8 to register
200,000 shares of Company common stock offered through the Plan, as well as an
indeterminate amount of Plan participation interests.

|Issuer Purchases
      of Equity Securities |                 |                      |                               
|------------------------------------------- | --------------- | -------------------- | ------------------------------
|                                            |                 |                      |                               
|                                            |                 |                      |                               
|                                            | (a)
      Total |                      | (c) Total Number
      of     
|                                            | Number
      of | (b)
      Average    | Shares Purchased
      as Part
|Period                                      | Shares          | Price Paid
      per | of Publicly
      Announced   
|                                            | Purchased       | Share                | Plans or
      Programs       
|                                            |                 |                      |                               
|January 1 - 31,
      2007                  | 0               | NA                   | 0                             
|                                            |                 |                      |                               
|February 1 - 28,
      2007                 | 0               | NA                   | 0                             
|                                            |                 |                      |                               
|March 1 - 30,
      2007                    | 0               | NA                   | 0                             
|                                            |                 |                      |                               
|Total                                       | 0               |                      | 0                             
|                                            |                 |                      |                               

In April 1995, the Company authorized 100,000 shares to be purchased in a
Stock Repurchase Program. In January 2002, the program was extended to authorize
an additional 100,000 shares to be purchased. There is no expiration date for
this program.

|Item 3. |  | Defaults Upon Senior Securities.                                                                                 |  | 
|------- |  | ---------------------------------------------------------------------------------------------------------------- |  | 
|None.   |  |                                                                                                                  |  | 
|Item 4. |  | Submission of Matters to a Vote of Security
      Holders.                                                       |  | 
|None.   |  |                                                                                                                  |  | 
|Item 5. |  | Other Information.                                                                                               |  | 
|None.   |  |                                                                                                                  |  | 
|Item 6. |  | Exhibits.                                                                                                        |  | 
|31a     |  | Certfication of
      Chief Executive Officer pursuant to Section  302 of the
      Sarbanes-Oxley Act of 2002. 
|31b     |  | Certification of
      Chief Financial Officer pursuant to Section  302 of the
      Sarbanes-Oxley Act of 2002.
|32a     |  | Certification of
      Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002. 
|32b     |  | Certification of
      Chief Financial Officer pursuant to Section  906 of the
      Sarbanes-Oxley Act of 2002.

18

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SIGNATURE

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

TWIN
      DISC, INCORPORATED(Registrant)Date: May 9,
      2007
    /S/JEFFREY S. KNUTSONJeffrey S. KnutsonCorporate ControllerChief Accounting Officer


19

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