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 quarter ended March 28, 2008Commission File
Number 1-7635

TWIN DISC,
INCORPORATED(Exact name of
registrant as specified in its charter)

Wisconsin
    
    39-0667110(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    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 x No .

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):  (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, 2008, the registrant had 11,152,114 shares of its common
stock outstanding.

1

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|PART I  FINANCIAL INFORMATION                 |              
|---------------------------------------------- | -------------
|                                              
|Item
      1. Financial Statements             |              
|TWIN DISC, INCORPORATED                        |              
|CONDENSED CONSOLIDATED BALANCE SHEETS          |              
|(In
      Thousands, Unaudited)                |              
|                                              
|                                               | March 28,    
|                                               | 2008         
|Assets                                         |              
|Current assets:                                |              
|Cash
      and cash equivalents                | $16,940      
|Trade accounts receivable, net                 | 66,862       
|Inventories, net                               | 96,442       
|Deferred income taxes                          | 6,569        
|Other                                          | 10,230       
|                                               |              
|                                              
|Total current assets                           | 197,043      
|                                              
|Property, plant and equipment, net             | 65,568       
|Goodwill, net                                  | 18,277       
|Deferred income taxes                          | 2,634        
|Intangible assets, net                         | 9,684        
|Other assets                                   | 6,920        
|                                              
|                                               | $300,126     
|Liabilities and Shareholders' Equity           |              
|Current liabilities:                           |              
|Current maturities of long-term debt           | $
      2,114
|Accounts payable                               | 39,260       
|Accrued liabilities                            | 50,096       
|                                               |              
|                                              
|Total current liabilities                      | 91,470       
|                                              
|Long-term debt                                 | 55,239       
|Accrued retirement benefits                    | 23,625       
|Other long-term                                | 748          
|                                               |              
|                                              
|                                               | 171,082      
|                                              
|Minority interest                              | 584          
|                                              
|Shareholders' equity:                          |              
|Common shares authorized: 30,000,000;          |              
|issued: 13,099,468; no par value               | 14,375       
|Retained earnings                              | 136,132      
|Accumulated other comprehensive income (loss)  | 8,085        
|                                              
|                                               | 158,592      
|Less
      treasury stock, at cost             |              
|(1,947,354 and 1,384,272 shares,
respectively) | 30,132       
|                                               |              
|                                              
|Total shareholders' equity                     | 128,460      
|                                              
|                                               | $300,126     
|                                              

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                              
|Gross profit                                          
|Marketing, engineering and administrative
    expenses
|Earnings from operations                              
|Interest expense                                      
|Other expense (income), 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                                    
|Adjustment for amortization of net actuarial
    loss 
|and
      prior service cost                          
|Foreign currency translation adjustment               
|                                                      
|Comprehensive income                                  
|                                                      

3

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TWIN DISC,
INCORPORATED

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)

|                                                        | Nine
      Months Ended
|------------------------------------------------------- | -----------------------
|                                                        | March 28,              
|                                                        | 2008                   
|                                                       
|Cash
      flows from operating activities:             |                        
|Net
      earnings                                      | $17,243                
|Adjustments to reconcile net earnings to                |                        
|net
      cash provided (used) by operating activities: |                        
|Depreciation and amortization                           | 5,426                  
|Other non-cash changes, net                             | 2,391                  
|Net
      change in working capital,                    |                        
|excluding cash                                          | (14,245)               
|                                                       
|                                                        | 10,815                 
|Cash
      flows from investing activities:             |                        
|Acquisitions of fixed assets                            | (10,605)               
|Proceeds from sale of fixed assets                      | 263                    
|                                                        |                        
|                                                        | (10,342)               
|                                                       
|Cash
      flows from financing activities:             |                        
|Bank
      overdraft                                    | -                      
|(Decrease) increase in notes payable, net               | (98)                   
|Proceeds from long-term debt                            | 12,880                 
|Proceeds from exercise of stock options                 | 133                    
|Purchase of treasury stock                              | (15,643)               
|Dividends paid                                          | (2,220)                
|Other                                                   | 19                     
|                                                       
|                                                        | (4,929)                
|                                                        |                        
|                                                       
|Effect of exchange rate changes on cash                 | 1,888                  
|                                                        |                        
|                                                       
|Net
      change in cash and cash equivalents           | (2,568)                
|                                                       
|Cash
      and cash equivalents:                        |                        
|Beginning of period                                     | 19,508                 
|                                                        |                        
|                                                       
|End
      of period                                     | $16,940                

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

(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.

New
Accounting Releases

In March 2008, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 161, Disclosures about
Derivative Instruments and Hedging Activities  An Amendment of FASB Statement
No. 133. This statement enhances the disclosures regarding derivatives and
hedging activities by requiring:

|· | Disclosure of
      the objectives for using derivative instruments be disclosed in terms of
      underlying risk and accounting designation;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
| 
|· | Disclosure of
      the fair values of derivative instruments and their gains and losses in a
      tabular format;                           
| 
|· | Disclosure of
      information about credit-risk-related contingent features; and                                                            
| 
|· | Cross-reference from the derivative footnote to other footnotes in
      which derivative-related information is disclosed.                   
| 

SFAS No. 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. Adoption of SFAS No. 161 is not expected to have a
material impact on the Companys financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised), Business
Combinations. This statement will significantly change the accounting for
business combinations, requiring the acquiring entity to recognize the acquired
assets and liabilities at the acquisition date fair value with limited
exceptions. The statement also includes a substantial number of new disclosure
requirements. SFAS No. 141 (R) applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
report period beginning on or after December 15, 2008. Earlier adoption is
prohibited. Accordingly, the Company will be subject to SFAS No. 141(R)
beginning on July 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements  An Amendment of ARB No. 51. SFAS No. 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary, and
includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. Adoption of SFAS No. 160 is not expected
to have a material impact on the financial statements of the Company.

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.

5

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In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. On February 12, 2008, the FASB issued
FASB Staff Position (FSP) 157-b which delays the effective date of SFAS 157 for
one year, for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). FAS 157 and FSP 157-b are effective for
financial statements issued for fiscal years beginning after November 15, 2007
and are not expected to have a material impact on the financial statements of
the Company.

B. Inventory

The major classes of inventories were as follows (in
thousands):

|                      | March
    28, | June
    30,
|--------------------- | ------------- | ------------
|                      | 2008          | 2007        
|Inventories:          |               |             
|Finished
      goods  | $56,378       | $49,594     
|Work
      in process | 21,921        | 13,011      
|Raw
      materials   | 18,143        | 13,648      
|                     
|                      | $96,442       | $76,253     

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

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 28, 2008 and March 30, 2007 (in thousands).

|                                           | Three Months
      Ended | Nine Months
      Ended
|------------------------------------------ | ------------------------ | -----------------------
|                                           | March
    28,            | March
    30,          
|                                           | 2008                     | 2007                   
|                                          
|Reserve balance,
      beginning of period | $7,802                   | $7,451                 
|Current period
      expense               | 1,191                    | 1,229                  
|Payments or
      credits to customers     | (1,151)                  | (1,197)                
|Acquisition
      accounting               | -                        | -                      
|Translation                                | 279                      | 48                     
|                                           |                          |                        
|                                          
|Reserve balance,
      end of period       | $8,121                   | $7,531                 
|                                          

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
|-------------------------------- | ------------------ | -----------------------
|                                 | Mar.
      28,     | Mar.
      30,         
|                                 | 2008               | 2007                   
|                                
|Manufacturing segment sales      | $78,689            | $76,626                
|Distribution segment sales       | 28,702             | 29,053                 
|Inter/Intra segment elimination  | (21,553)           | (19,274)               
|                                
|Net
      sales                  | $85,838            | $86,405                
|                                
|                                
|                                
|Manufacturing segment earnings   | $
      9,033      | $10,531                
|Distribution segment earnings    | 2,011              | 3,033                  
|Inter/Intra segment elimination  | (337)              | (1,979)                
|                                
|Earnings before income taxes     |                    |                        
|and
      minority interest      | $10,707            | $11,585                
|                                
|                                 | Mar.
      28,     | June
      30,         
|Assets                           | 2008               | 2007                   
|                                
|Manufacturing segment assets     | $351,708           | $318,983               
|Distribution segment assets      | 63,155             | 58,501                 
|Corporate assets and elimination |                    |                        
|of
      inter-company assets    | (114,737)          | (110,300)              
|                                
|                                 | $300,126           | $267,184               
|                                

In fiscal 2008 and 2007, the Company granted 52,758 and 60,868
performance stock unit awards, respectively, to various employees of the
Company, including executive officers. The performance stock unit awards granted
in fiscal 2008 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, 2010. The performance stock
unit awards granted in fiscal 2008 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 63,310. The performance stock unit awards granted in
fiscal 2007 will 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 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 73,042.
There were 202,178 and 149,420 unvested performance stock unit awards
outstanding at March 28, 2008 and March 30, 2007, respectively. As these awards
are ultimately settled in cash, they are recorded as a liability and are subject
to stock market volatility. As such, the performance stock unit awards are
remeasured at fair-value at the end of each reporting period. The fair-value of
the performance stock unit awards 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 28, 2008, related to the performance stock
unit awards, approximated $(1,888,000) and $(638,000), respectively. The
compensation expense for the three and nine months ended March 30, 2007, related
to the performance stock unit awards, approximated $456,000 and $990,000,
respectively.

In fiscal 2008 and 2007, the Company granted 37,310 and 60,882
performance stock awards (equity classified awards), respectively, to various
employees of the Company, including executive officers. The performance stock
awards granted in fiscal 2008 will vest if the Company achieves a specified
target objective relating to consolidated NOPAT in the cumulative three fiscal
year period ending June 30, 2010. The performance stock awards granted in fiscal
2008 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

7

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exceeded is 44,772. The performance stock awards granted in fiscal 2007
will 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 73,058. There were 218,558
and 298,914 unvested performance stock awards outstanding at March 28, 2008 and
March 30, 2007, respectively. The fair value of the performance 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 28, 2008, related to performance stock awards, approximated
$244,000 and $695,000, respectively. 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.

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 plan are as follows (in thousands):

|                                            | Three Months
      Ended | Nine Months
      Ended
|------------------------------------------- | ------------------------ | -----------------------
|                                            | Mar.
    28,             | Mar.
    30,           
|                                            | 2008                     | 2007                   
|                                           
|Pension
      Benefits:                     |                          |                        
|Service
      cost                          | $305                     | $
    308              
|Interest
      cost                         | 1,738                    | 1,760                  
|Expected return
      on plan assets        | (2,411)                  | (2,185)                
|Amortization of
      prior service cost    | (180)                    | (179)                  
|Amortization of
      transition obligation | 21                       | 17                     
|Amortization of
      net loss              | 428                      | 675                    
|                                            |                          |                        
|Net periodic
      benefit (income) cost    | $(99)                    | $ 396                  
|                                           
|                                           
|Postretirement
      Benefits:              |                          |                        
|Service
      cost                          | $9                       | $
    19               
|Interest
      cost                         | 341                      | 334                    
|Amortization of
      net actuarial loss    | 133                      | 53                     
|                                            |                          |                        
|Net periodic
      benefit cost             | $483                     | $ 406                  

The Company previously disclosed in its financial statements for the year
ended June 30, 2007, that it expected to contribute $1,823,000 to its pension
plan in fiscal 2008. As of March 28, 2008, $1,799,000 of contributions have been
made.

H. Income Taxes

During June 2006, the FASB issued FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109. FIN 48 addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements by standardizing the level of confidence needed to recognize
uncertain tax benefits and the process for measuring the amount of benefit to
recognize. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition.

We adopted the provisions of FIN 48 as of July 1, 2007. We did not
recognize an increase or decrease in the net

8

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liability for unrecognized tax benefits at July 1, 2007. As of the date
of adoption, we had total unrecognized tax benefits of approximately $325,000
that would favorably affect the effective tax rate if recognized. We do not
anticipate that the net amount of unrecognized tax benefits will change
significantly during the next twelve months.

There was no significant change in the total unrecognized tax benefits
due to the settlement of audits, the expiration of statute of limitations, or
for other items during the quarter or nine months ended March 28,
2008.

Annually, we file income tax returns in various taxing jurisdictions
inside and outside the United States. In general, the tax years that remain
subject to examination are 2003 through 2007 for our major operations in the
U.S., Italy, Belgium and Japan. The U.S. Internal Revenue Service is currently
auditing our consolidated income tax return for fiscal 2006. Other audits
currently underway include those in Singapore and Italy. It is reasonably
possible that at least one of these audit cycles will be completed during fiscal
2008.

We recognize accrued interest and penalties related to unrecognized tax
benefits in income tax expense. As of July 1, 2007, total accrued penalties and
net accrued interest with respect to income taxes was approximately $27,000,
that would favorably affect the effective tax rate if recognized. There was no
significant change in the amount of accrued interest and penalties during the
quarter or nine months ended March 28, 2008.

The consolidated income tax rate for the nine months was significantly
lower than the prior year (33.3% versus 37.0%) due primarily to the favorable
impact of certain discrete items, including the reduction of the Italian
corporate tax rate and an increase in the estimated tax benefits related to
foreign tax credits. The Italian Finance Bill of 2008 was enacted on December
24, 2007, and resulted in a decrease to the overall corporate tax rate (from
37.25% to 31.4%) effective with the first fiscal year that begins after December
31, 2007. Deferred taxes were adjusted during the quarter to reflect the impact
of the tax rate changes, resulting in a reduction to the Companys tax provision
of approximately $1.0 million.

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
28, 2008 were as follows (in thousands):

|Balance at June
      30, 2007  | $17,171
|------------------------------- | -------
|Translation
      adjustment    | 1,106  
|                                |        
|                               
|Balance at March
      28, 2008 | $18,277

The gross carrying amount and accumulated amortization of the Companys
intangible assets that have defined useful lives and are subject to amortization
as of March 28, 2008 and June 30, 2007 are as follows (in thousands):

|                                     | March
    28, | June
    30,
|------------------------------------ | ------------- | ------------
|                                     | 2008          | 2007        
|Intangible assets with finite lives: |               |             
|Licensing
      agreements           | $
    3,015   | $
    3,015 
|Non-compete
      agreements         | 2,050         | 2,050       
|Other                                | 5,991         | 6,078       
|                                    
|                                     | 11,056        | 11,143      
|Accumulated
      amortization       | (4,928)       | (4,303)     
|Translation
      adjustment         | 1,134         | 368         
|                                    
|Total                                | $ 7,262       | $
7,208     

9

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The weighted average remaining useful life of the intangible assets
included in the table above is approximately 10 years.

Intangible amortization expense was $242,000 and $712,000 for the three
and nine months ended March 28, 2008, respectively, and $286,000 and $850,000
for the three and nine months ended March 30, 2007, respectively. Estimated
intangible amortization expense for the remainder of fiscal 2008 and each of the
next five fiscal years is as follows (in thousands):

|Fiscal Year |            
|----------- | -----------
|2008        | $
      274
|2009        | 969        
|2010        | 746        
|2011        | 746        
|2012        | 743        
|2013        | 698        

The gross carrying amount of the Companys intangible assets that have
indefinite lives and are not subject to amortization as of March 28, 2008 and
June 30, 2007 are $2,422,000 and $2,144,000, respectively. These assets are
comprised of acquired tradenames.

J. Long-term Debt

Long-term debt at March 28, 2008 and June 30, 2007 consisted of the
following (in thousands):

|                               | March 28, | June
      30,
|------------------------------ | --------- | --------------
|                               | 2008      | 2007          
|                              
|Revolving loan                 | $28,050   | $14,525       
|10-year unsecured senior notes | 25,000    | 25,000        
|Other                          | 4,303     | 4,395         
|                               |           |               
|Subtotal                       | 57,353    | 43,920        
|Less: current maturities       | (2,114)   | (1,768)       
|                               |           |               
|Total long-term debt           | $55,239   | $42,152       
|                              

K.  Shareholders Equity

In
October 2007, the Board of Directors approved a two-for-one stock split of the
Companys outstanding common stock. The split was issued on December 31, 2007 to
shareholders of record at the close of business on December 10, 2007. The split
increased the number of shares outstanding to approximately 11.4 million from
approximately 5.7 million. The Condensed Consolidated Financial Statements and
Notes thereto, including all share and per share data, have been restated as if
the stock split had occurred as of the earliest period presented.

On July 27, 2007, the Board of Directors authorized the purchase of up to
200,000 shares of Common Stock at market values. This resolution supersedes the
resolution previously adopted by the Board in January 2002. On August 14, 2007,
the Board of Directors authorized the purchase of an additional 200,000 shares
of Common Stock at market values. On February 1, 2008, the Board of Directors
authorized the purchase of an additional 500,000 shares of Common Stock at
market values. In the first nine months of fiscal 2008, the Company repurchased
660,000 shares of its outstanding common stock at an average price of $23.70 per
share at a total cost of $15,643,000.

Item 2. Management Discussion and Analysis

In the financial review that follows, we discuss our results of
operations, financial condition and certain other

10

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information. This discussion should be read in conjunction with our
consolidated 2007 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 the Company should not be viewed
as guarantees or promises of future performance. There can be no assurance the
Company will be successful in achieving its goals.

In addition to the assumptions and information referred to specifically
in the forward-looking statements, other factors, including but not limited to
those factors discussed under Item 1A, Risk Factors, of the Companys Annual
Report filed on Form 10-K for June 30, 2007 could cause actual results to be
materially different from what is presented here.

|Results of
      Operations      |                          |                         |              |               |                |               |                |      
|-------------------------------- | ------------------------ | ----------------------- | ------------ | ------------- | -------------- | ------------- | -------------- | -----
|                                
|(In
      thousands)             |                          |                         |              |               |                |               |                |      
|                                 | Three Months
      Ended | Nine Months
      Ended
|                                 | March
    28,            | March
    30,           |              | March
    28, |                | March
    30,
|                                 | 2008                     | %                       | 2007         | %             | 2008           | %             | 2007           | %    
|                                
|Net
    sales                    | $
    85,838             |                         | $
    86,405 |               | $241,345       |               | $226,418       |      
|Cost of goods
      sold         | 59,211                   |                         | 58,220       |               | 165,522        |               | 153,531        |      
|                                
|Gross
      profit               | 26,627                   | 31.0%                   | 28,185       | 32.6%         | 75,823         | 31.4%         | 72,887         | 32.2%
|                                
|Marketing,
      engineering and |                          |                         |              |               |                |               |                |      
|administrative
      expenses    | 14,969                   | 17.4                    | 15,913       | 18.4          | 47,041         | 19.5          | 44,093         | 19.5 
|                                 |                          |                         |              |               |                |               |               
|                                
|Earnings from
      operations   | $11,658                  | 13.6                    | $12,272      | 14.2          | $
      28,782 | 11.9          | $
      28,794 | 12.7 

Comparison of the Third Quarter of FY 2008 with the Third Quarter of FY
2007

Net sales for the third quarter decreased slightly by less 0.7%, or $0.6
million, to $85.8 million from $86.4 million in the same period a year ago.
Compared to the third quarter of fiscal 2007, the Euro and Asian currencies
strengthened against the U.S. Dollar. The translation effect of this
strengthening on foreign operations was to increase revenues by approximately
$6.6 million versus the prior year, before eliminations. Adjusted for this
translation effect, sales were down 8.3% . Demand for the Companys commercial
and pleasure craft marine products continued to increase. Sales and orders of
commercial marine gears into Southeast Asia and the Gulf Coast of the United
States remained strong, as did marine propulsion and boat management system
sales into the Italian mega yacht market. The increase in marine product sales
helped to insulate the Company from the softness that the Company continued to
experience in the third quarter in the oil and gas transmission and industrial
product sectors. Demand for land based transmissions for military applications
and Airport Rescue and Fire Fighting (ARFF) vehicles remained high.

Sales at our manufacturing segment were up 2.7%, or $2.1 million, to
$78.7 million from $76.6 million in the same period last year. Sales at our U.S.
domestic manufacturing locations were down 11.6% . This was primarily due to the
cyclical softening in the Companys industrial markets and the slow down in
sales of transmissions for the oil and gas markets, offset by higher sales of
propulsion systems for the mega yacht market, transmissions for the ARFF market
and commercial marine transmissions. Sales at our Belgian manufacturing location
were up nearly 23% over the same period last year. Just under two-thirds of this
increase can be attributed to the positive

11

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translation effect of a strengthening Euro versus the U.S. Dollar. The
Belgian operations backlog remains at recent historical highs. Our Italian
manufacturing operations saw a 33% increase in sales compared to fiscal 2007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. The net remaining increase is due to increased sales of boat
management systems products for the Italian mega yacht market. The Companys
Swiss manufacturing operation, which manufactures propellers for high end
pleasure craft and military patrol boat applications, experienced a 28% increase
in sales versus the prior years third fiscal quarter. Approximately half of
this increase was due to the translation effect of a strengthening Swiss Franc
versus the U.S. Dollar versus the same period a year ago.

Our distribution segment experienced a slight decrease of 1.2% in sales,
or $0.4 million, to $28.7 million from $29.1 million in the same period a year
ago. The Companys distribution operations in Australia and joint venture in
Japan saw significant growth in the pleasure craft and commercial marine
transmission markets, respectively. This was offset by a decrease in the
Companys North American distribution operations, which saw a sharp decline in
sales of oil and gas transmissions in the quarter versus the same period a year
ago. Compared to the third quarter of fiscal 2007, the Euro and Asian currencies
strengthened against the U.S. Dollar. The translation effect of this
strengthening on foreign distribution operations was to increase revenues by
approximately $2.4 million versus the prior year, before eliminations. Adjusted
for this translation effect, sales were off nearly 10% versus the prior years
third fiscal quarter, driven by the decrease in oil & gas transmission
sales.

The elimination for net inter/intra segment sales increased $2.3 million,
accounting for the remainder of the net change in sales versus the same period
last year.

Gross profit as a percentage of sales decreased to 31.0% of sales,
compared to 32.6% of sales for the same period last year. This 160 basis point
deterioration can be attributed to reduced sales of higher margin products,
higher sales of lower margin products, and increased material costs, partially
offset by higher pricing, expanded outsourcing and lower pension expense. The
continued weakening of the U.S. Dollar versus the Euro continued to put pressure
on the U.S. sales of products of our Belgian manufacturing operation, while also
continuing to enhance the global competitiveness of our domestically produced
products. This was more than offset by the favorable effect of foreign currency
translation due primarily to the strengthening Euro versus the U.S. Dollar. The
Companys Belgian operations gross profit was unfavorably affected by the
continued relative strength of the Euro versus the U.S. Dollar, when compared to
the average rate in fiscal 2007. This operation manufactures with Euro-based
costs and sells more than a third of its production into the U.S. market at U.S.
Dollar prices. It is estimated that the year-over-year effect of a stronger Euro
was to deteriorate margins at our Belgian subsidiary by over $0.5 million in the
third fiscal quarter versus the same period a year ago. The year-over-year
effect of lower pension expense was to decrease cost of goods sold by over $0.3
million in the third fiscal quarter versus the same period a year
ago.

Marketing, engineering, and administrative (ME&A) expenses were 5.9%
lower compared to last years third fiscal quarter. As a percentage of sales,
ME&A expenses were down 1.0 percentage points to 17.4% of sales versus 18.4%
of sales in the third quarter of fiscal 2007. The lower ME&A expenses were
due to an approximate $2.3 million decrease in stock-based compensation expense,
primarily due to the decrease in the Companys stock price as of the end of the
third fiscal quarter. This was partially offset by the impact of foreign
currency translation from overseas operations of approximately $0.9 million and
expenditures associated with the implementation of a new global enterprise
resource planning (ERP) system.

Interest expense of $0.8 million was down $0.1 million compared to fiscal
2007s third 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 2007, the interest rate on the
Companys revolving credit facility was 6.57%, whereas for the third quarter of
fiscal 2008 the range was 4.36% to 6.49% . At the same time, the average balance
of the Companys revolving credit facility remained relatively flat versus the
prior year. As a result, total interest on the revolver decreased by $0.1
million to just over $0.3 million.

The consolidated income tax rate for the third quarter was significantly
lower than the prior year (25.4% versus 34.7%) due primarily to the favorable
impact of certain discrete items, including the reduction of the Italian

12

---

corporate tax rate and an increase in the estimated tax benefits related
to foreign tax credits as a result of filing the Companys fiscal 2007 U.S. tax
return. The Italian Finance Bill of 2008 was enacted on December 24, 2007, and
resulted in a decrease to the overall corporate tax rate (from 37.25% to 31.4%)
effective with the first fiscal year that begins after December 31, 2007.
Deferred taxes were adjusted during the quarter to reflect the impact of the tax
rate changes, resulting in a reduction to the Companys tax provision of
approximately $1.0 million.

Comparison of the First Nine Months of FY 2008 with the First Nine Months
of FY 2007

Net sales for the first nine months of fiscal 2008 improved 6.6%, or
$14.9 million, to $241.3 million from $226.4 million in the same period a year
ago. Compared to the first nine months of fiscal 2007, the Euro and Asian
currencies strengthened against the U.S. Dollar. The translation effect of this
strengthening on foreign operations was to increase revenues by approximately
$14.1 million versus the prior year, before eliminations. The Companys North
American manufacturing operations saw increased demand for land based
transmission products for the Airport Rescue and Fire Fighting (ARFF). In
addition, sales of the Companys propulsion products for the Italian mega yacht
market were up year over year. However, these were more than offset by the
cyclical softening experienced in our industrial markets and a slow down in
demand for the Companys oil and gas transmission products that began in the
second fiscal quarter. Overseas, the Company experienced particularly strong
increases in sales at our Italian manufacturing locations, which serve the
Italian mega yacht and industrial markets, as well as our distribution
operations in Singapore and Australia, which serve commercial and pleasure craft
marine markets, respectively.

Sales at our manufacturing segment were up 4.6%, or $9.5 million, to
$214.9 million from $205.4 million in the same period last year. Year-to-date,
sales at our U.S. domestic manufacturing locations were down almost 3%. This was
primarily due to higher sales of propulsion systems for the mega yacht market,
transmissions for the ARFF market and commercial marine transmissions, being
more than offset by the cyclical softening in the Companys industrial markets
and the slow down in sales of transmissions for the oil and gas markets. Sales
at our Belgian manufacturing location were up nearly 11% over the same period
last year. Adjusting for the positive translation effect of a strengthening Euro
versus the U.S. Dollar, sales were up just under 1%. While the Belgian
operations backlog is at recent historical highs, it was unfavorably affected
by material shortages and equipment downtime during the second and third fiscal
quarters, as progress continues on the plant re-layout associated with the June
2007 restructuring program. Our Italian manufacturing operations saw an over 23%
increase in sales compared to fiscal 2007s first nine months. A little more
than half of this increase can be attributed to the translation effect of a
strengthening Euro versus the first nine months of last fiscal year. The net
remaining increase is primarily due to increased sales of boat management
systems products for the Italian mega yacht market as well as small marine gears
for the Italian market. The Companys Swiss manufacturing operation, which
manufactures propellers for high end pleasure craft and military patrol boat
applications, experienced a 21% increase in sales versus the prior years first
nine months. A little less than 40% of this increase was due to the translation
effect of a strengthening Swiss Franc versus the U.S. Dollar versus the same
period a year ago. Overall, the translation effect of the strengthening Euro and
Swiss Franc on foreign manufacturing operations was to increase revenues by
approximately $8.6 million versus the prior year, before
eliminations.

Our distribution segment experienced an increase of 16.7% in sales, or
$12.1 million, to $84.3 million from $72.2 million in the same period a year
ago. The Companys distribution operations in Singapore and joint venture in
Japan saw significant growth in the commercial marine transmission markets,
while our distribution operation in Australia saw double-digit growth in its
sales to its primarily marine pleasure craft transmission customers. Compared to
the first nine months of fiscal 2007, the Euro and Asian currencies strengthened
against the U.S. dollar. The translation effect of this strengthening on foreign
distribution operations was to increase revenues by approximately $5.5 million
versus the prior year, before eliminations.

The elimination for net inter/intra segment sales increased $6.6 million,
accounting for the remainder of the net change in sales versus the same period
last year.

Gross profit as a percentage of sales decreased to 31.4% of sales,
compared to 32.2% of sales for the same period

13

---

last year. The fiscal 2007 results included the impact of an unfavorable purchase accounting adjustment to inventory related to the BCS acquisition in the amount of $1.2 million
before tax. This adjustment had the effect of lowering fiscal 2007s first nine months gross profit as a percentage of sales by over 50 basis points. After adjusting for the effect of this prior year adjustment, the 130 basis point
deterioration can be attributed to reduced sales of higher margin products, higher sales of lower margin products, and increased material costs, partially offset by higher pricing, expanded outsourcing and lower pension expense. In addition, the
Companys Belgian operations gross profit was unfavorably affected by the continued relative strength of the Euro versus the U.S. Dollar, when compared to the average rate in fiscal 2007s first nine months. This operation
manufactures with Euro-based costs and sells more than a third of its production into the U.S. market at U.S. Dollar prices. It is estimated that the year-over-year effect of a stronger Euro was to deteriorate margins at our Belgian subsidiary by
over $1.2 million in the first nine months of fiscal 2008 versus the same period a year ago. The year-over-year effect of lower pension expense was to decrease cost of good sold by over $1.0 million in the first nine months versus the same
period a year ago.

Marketing, engineering, and administrative (ME&A) expenses were 6.7% higher compared to last fiscal years first nine months. As a percentage of sales, ME&A expenses were
flat at 19.5% of sales. The higher ME&A expenses were due to the impact of foreign currency translation from overseas operations of approximately $2.0 million and expenditures associated with the implementation of a new global enterprise
resource planning (ERP) system, which resulted in an increase in domestic and corporate IT spending of $1.3 million. These increases were partially offset by lower stock based compensation expense of $1.6 million versus the first
nine months of fiscal 2007 as well as lower pension expenses of $0.4 million.

Interest expense of $2.3 million decreased slightly versus the first nine months of fiscal 2007. Year-to-date, 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 2007, the interest rate on the Companys revolving credit facility was in the range of 6.13% to 6.57%, whereas for the first nine
months of fiscal 2008 the range was 4.36% to 6.57% . At the same time, the average month-end balance of the Companys revolving credit facility increased versus the prior year, from $18.9 million to $22.5 million. The net effect of the
lower average interest was to offset the effect of the higher average outstanding balance. As a result, total interest on the revolver remained relatively flat at $1.1 million.

The consolidated income tax rate for the nine months was significantly lower than the prior year (33.3% versus 37.0%) due primarily to the favorable impact of certain discrete items,
including the reduction of the Italian corporate tax rate and an increase in the estimated tax benefits related to foreign tax credits as a result of filing the Companys fiscal 2007 U.S. tax return. The Italian Finance Bill of 2008 was enacted
on December 24, 2007, and resulted in a decrease to the overall corporate tax rate (from 37.25% to 31.4%) effective with the first fiscal year that begins after December 31, 2007. Deferred taxes were adjusted during the third quarter to reflect the
impact of the tax rate changes, resulting in a reduction to the Companys tax provision of approximately $1.0 million.

Financial Condition, Liquidity and Capital ResourcesComparison between March 28, 2008 and June 30, 2007

As of March 28, 2008, the Company had net working capital of $105.6 million, which represents an increase of $12.3 million, or 13%, from the net working capital of $93.3
million as of June 30, 2007.

Cash and cash equivalents decreased 13.2% to $16.9 million as of March 28, 2008. The majority of the cash and cash equivalents as of March 28, 2008 are at our overseas operations
in Europe and Asia-Pacific.

Trade receivables of $66.9 million were up $3.6 million from last fiscal year-end. The effect of foreign currency translation due to the strengthening Euro and Asian
currencies was to increase trade accounts receivables by just over $5.4 million versus the end of the prior fiscal year. As a result, adjusted for the impact of foreign currency

14

---

translations, trade receivables were down by nearly 3%. Sales for the
third quarter of fiscal 2008 totaled $85.8 million versus $90.8 million for the
fourth quarter of fiscal 2007. The overall decrease in accounts receivable was
consistent with the lower sales volume experienced, after adjusting for the
impact of foreign currency translation.

Net inventory increased by $20.2 million, or 26.5%, versus June 30, 2007
to $96.4 million. The majority, roughly two-thirds, of the net increase in
inventory came at the Companys European manufacturing locations.

Approximately $7.4 million of the $20.2 million increase can be
attributed to the effect of foreign currency translation due to the relative
strengthening of the Euro and Asian currencies versus the U.S. Dollar since the
end of the prior fiscal year. After adjusting for the impact of the foreign
currency translation, the net increase in inventory since the start of the
fiscal year can be primarily attributed to the normal seasonal build experienced
heading into the fourth fiscal quarter, supplier issues experienced in the third
fiscal quarter at the Companys Belgian operation and a quality issue
experienced at the Companys domestic operation. In both of the latter two
cases, the issues have been resolved in the fourth fiscal quarter and
inventories are anticipated to decline by fiscal year end. On a consolidated
basis, as of March 28, 2008, the Companys backlog of orders to be shipped over
the next six months approximates $125.7 million, up 14% since the year began and
up 6% compared with the same period a year ago. Of the $15.3 million increase
experienced since the beginning of the fiscal year, approximately $7.4 million
can be attributed to the effect of foreign currency translation.

Net property, plant and equipment (PP&E) increased $8.8 million
versus June 30, 2007. This includes the addition of $10.6 million in capital
expenditures, primarily at the Companys domestic and Belgian manufacturing
operations, which was offset by depreciation of $4.7 million. The net remaining
increase is due to the effects of foreign currency translation. In total, the
Company expects to invest between $15 and $17 million in capital assets in
fiscal 2008. The quoted lead times on certain manufacturing equipment purchases
may push some of the capital expenditures into the next fiscal year. This
compares to $15.7 million in capital expenditures in fiscal 2007, $8.4 million
in fiscal 2006 and $12.0 million in fiscal 2005. 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 implementation of
the global ERP system.

Accounts payable as of March 28, 2008 of $39.3 million were up $10.4
million, or 35.9%, from June 30, 2007. The increase is primarily the result of
the overall increase in inventory and continued strength in order activity in
the third quarter, as well as the effect of foreign currency translation. The
balance as of March 28, 2008 also includes capital related items that will be
paid out in the fourth fiscal quarter of 2008.

Total borrowings, notes payable and long-term debt, as of March 28, 2008
increased by $13.4 million, or nearly 31%, to $57.4 million versus June 30,
2007. This increase was driven by (1) the $15.6 million stock repurchase in the
first and third fiscal quarters, (2) capital expenditures, (3) a $1.7 million
contribution to the Companys domestic defined benefit pension plans and (4) the
payment of annual incentive and bonus awards for fiscal 2007 performance in the
first fiscal quarter of 2008. These were partially offset by cash flows from
operations. In the first and third fiscal quarters, the Company repurchased a
total of 660,000 shares of its outstanding common stock at an average price of
$23.70 per share (these figures are after the December 2007 2-for-1 stock
split). For the balance of fiscal 2008, the Company is not required to make any
additional contributions to its domestic defined benefit plans. At March 28,
2008, the Company is in compliance with all covenants and other requirements set
forth in its revolving loan and note agreements.

Total shareholders equity increased by $13.0 million to a total of
$128.5 million. Retained earnings increased by $15.0 million. The net increase
in retained earnings included $17.2 million in net earnings reported
year-to-date, offset by $2.2 million in dividend payments. Net favorable foreign
currency translation of $12.6 million was reported as the U.S. Dollar weakened
against the Euro and Asian currencies during the first nine months of fiscal
2008. The net remaining decrease of $14.6 million relates primarily to the stock
repurchases noted above.

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 28, 2008, the Company had available borrowings
under its $35 million revolving line of credit of $7.0 million. Furthermore, the
Company has nearly $17 million in cash

15

---

and cash equivalents at its subsidiaries around the world, approximately
20% of which is considered permanently reinvested. 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 28, 2008, 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      
|                        |          |               |               |               |            
|Revolver borrowing      | $28,050  |               | $28,050       |               |            
|                        |          |               |               |               |            
|Long-term debt          | $29,303  | $
      2,114 | $
      5,131 | $
      7,648 | $14,410    
|                        |          |               |               |               |            
|Operating leases        | $ 10,983 | $
      3,159 | $
      4,593 | $
      2,682 | $
      549
|                        |          |               |               |               |            
|Total obligations       | $68,336  | $ 5,273       | $37,774       | $10,330       | $14,959    

New
Accounting Releases

In March 2008, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 161, Disclosures about
Derivative Instruments and Hedging Activities  An Amendment of FASB Statement
No. 133. This statement enhances the disclosures regarding derivatives and
hedging activities by requiring:

|· | Disclosure of
      the objectives for using derivative instruments be disclosed in terms of
      underlying risk and accounting designation;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
| 
|· | Disclosure of
      the fair values of derivative instruments and their gains and losses in a
      tabular format;                           
| 
|· | Disclosure of
      information about credit-risk-related contingent features; and                                                            
| 
|· | Cross-reference from the derivative footnote to other footnotes in
      which derivative-related information is disclosed.                   
| 

SFAS No. 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. Adoption of SFAS No. 161 is not expected to have a
material impact on the Companys financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised), Business
Combinations. This statement will significantly change the accounting for
business combinations, requiring the acquiring entity to recognize the acquired
assets and liabilities at the acquisition date fair value with limited
exceptions. The statement also includes a substantial number of new disclosure
requirements. SFAS No. 141 (R) applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
report period beginning on or after December 15, 2008. Earlier adoption is
prohibited. Accordingly, the Company will be subject to SFAS No. 141(R)
beginning on July 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements  An Amendment of ARB No. 51. SFAS No. 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary, and
includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest. SFAS No. 160 is effective for

16

---

fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Adoption of SFAS No. 160 is not expected to have
a material impact on the financial statements of the Company.

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.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position (FSP) 157-b which delays the effective date of SFAS 157 for one year, for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FAS 157 and FSP 157-b are effective for financial statements issued for fiscal years
beginning after November 15, 2007 and are not expected to have a material impact on the financial statements of the Company.

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, 2007. There have been no significant changes
to those accounting policies subsequent to June 30, 2007.

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, 2010, 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. Due to the relative stability of interest rates, the Company did not utilize any financial instruments at March 28, 2008 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 $122,000.

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

Stock market risk  The Companys earnings are exposed to stock market risk relative to the Performance Stock Unit Awards. These are cash based awards which are revalued at
the end of each reporting period based upon the Companys closing stock price as of the end of the period. A one dollar increase or decrease in the Companys stock price would result in a decrease or increase, respectively, in earnings
from operations of approximately $127,000. These awards were valued at the Companys March 28, 2008 closing stock price of $15.74.

Currency risk - The Company has exposure to foreign currency exchange fluctuations. Approximately 54% of the Companys revenues in the nine months ended March 28, 2008 were
denominated in currencies other than the U.S. Dollar. Of that total, approximately 66% was denominated in Euro with the balance composed of Japanese Yen, the Swiss Franc and the Australian and Singapore Dollars. The Company does not hedge the
translation exposure

17

---

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.

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 2008 and 2007
was the Euro. At March 28, 2008, the Company had net outstanding forward exchange contracts to purchase Euros in the value of $845,000 with a weighted average maturity of 39 days. The fair value of the Companys contracts was a gain of
approximately $63,000 at March 28, 2008. At June 30, 2007, the Company had net outstanding forward exchange contracts to purchase Euros in the value of $765,000 with a weighted average maturity of 29 days. The fair value of the
Companys contracts was a minimal gain at June 30, 2007.

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.

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 2007 Annual Report on Form 10-K.

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

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There were no securities of the Company sold by the Company during the
nine months ended March 28, 2008, 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 - The Accelerator 401(k) Savings
Plan (the Plan) the option to invest their Plan accounts in a fund comprised
of 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 Shares     
|                   | Number of       | (b)
      Average | Shares Purchased as Part    | that
      May Yet Be
|Period             | Shares          | Price Paid per    | of
      Publicly Announced | Purchased Under the  
|                   | Purchased       | Share             | Plans or Programs           | Plans or Programs    
|                   |                 |                   |                             |                      
|                  
|                  
|December 29 2007  |                 |                   |                             |                      
|January 25, 2008   | 0               | NA                | 0                           | 140,000              
|                   |                 |                   |                             |                      
|                  
|                  
|January 26, 2008  | 140,000         | $16.26            | 140,000                     | 500,000              
|February 29, 2008  |                 |                   |                             |                      
|                   |                 |                   |                             |                      
|                  
|                  
|March 1  28, 2008 | 0               | NA                | 0                           | 500,000              
|                   |                 |                   |                             |                      
|                  
|                  
|Total              | 140,000         |                   | 140,000                     |                      
|                   |                 |                   |                             |                      

On July 27, 2007, the Board of Directors authorized the purchase of up to
200,000 shares of Common Stock at market values. This resolution supersedes the
resolution previously adopted by the Board in January 2002. On August 14, 2007,
the Board of Directors authorized the purchase of an additional 200,000 shares
of Common Stock at market values. On February 1, 2008 the Board of Directors
authorized the purchase of an additional 500,000 shares of Common Stock at
market values. All shares purchased in the quarter were acquired via open market
purchases.

|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.

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|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.

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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 7, 2008
    
    /s/JEFFREY S. KNUTSONJeffrey S. KnutsonCorporate ControllerChief Accounting Officer


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