TWIN DISC INC 10-K

Item 9A. Controls and Procedures Conclusion Regarding Disclosure Controls and Procedures As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report and under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure. 19 Management ’ s Report on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: 1. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company, 2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and 3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate. The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework (2013 edition) in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon such evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of June 30, 2024. For purposes of evaluating the Company’s internal control over financial reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting, the Company did not include the internal controls of TD Finland Oy and Katsa Oy (collectively, “Katsa”), which the Company acquired on May 31, 2024, and which are included in the consolidated balance sheets of the Company as of June 30, 2024, and the related consolidated statements of operations and comprehensive income, cash flows, and changes in shareholders’ equity, for the year then ended. The Company reports Katsa’s operations on a one-month lag. Therefore, only the opening balance sheet and a bargain purchase gain impact the fiscal year 2024 results. Katsa constitutes 12.7% of total assets as of June 30, 2024, and 0% and 0% of net sales and income from operations, respectively, for the year then ended. RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of June 30, 2024, as stated in their report which appears herein. Changes in Internal Control Over Financial Reporting During the fourth quarter of fiscal 2024, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 20 PART III Item 10. Directors, Executive Officers and Corporate Governance For information with respect to the executive officers of the Registrant, see "Information About Our Executive Officers" at the end of Part I of this report. For information with respect to the Directors of the Registrant, see "Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. For information with respect to the Company’s Code of Ethics, see "Guidelines for Business Conduct and Ethics” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. The Company’s Code of Ethics is included on the Company’s website, www.twindisc.com. If the Company makes any substantive amendment to the Code of Ethics, or grants a waiver from a provision of the Code of Ethics for its Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer (or any person performing similar functions), it intends to disclose the nature of such amendment on its website within four business days of the amendment or waiver in lieu of filing a Form 8-K with the SEC. For information with respect to procedures by which shareholders may recommend nominees to the Company’s Board of Directors, see “Director Committee Functions: Nominating and Governance Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. There were no changes to these procedures since the Company’s last disclosure relating to these procedures. For information with respect to the Audit Committee Financial Expert, see “Director Committee Functions: Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. For information with respect to the Audit Committee Disclosure, see “Director Committee Functions: Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. For information with respect to the Audit Committee Membership, see “Director Committee Functions: Committee Membership” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, see “Delinquent Section 16(a) Reports” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. Item 11. Executive Compensation The information set forth under the captions "Executive Compensation" and "Director Compensation” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 31, 2024, is incorporated into this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters For information regarding security ownership of certain beneficial owners and management, see the Proxy Statement for the Annual Meeting of Shareholders to be held on October 31, 2024, under the captions "Principal Shareholders” and “Directors and Executive Officers" and incorporated into this report by reference. For information regarding securities authorized for issuance under equity compensation plans of the Company, see “Equity Compensation Plan Information” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 31, 2024, which is incorporated into this report by reference. 21 There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant. Item 13. Certain Relationships and Related Transactions, Director Independence For information with respect to transactions with related persons and policies for the review, approval or ratification of such transactions, see “Corporate Governance – Review, Approval or Ratification of Transactions with Related Persons” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. For information with respect to director independence, see “Corporate Governance – Board Independence” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, which is incorporated into this report by reference. Item 14. Principal Accounting Fees and Services The Company incorporates by reference the information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held October 31, 2024, under the headings “Fees to Independent Registered Public Accounting Firm” and “Pre-approval Policies and Procedures.” PART IV Item 15. Exhibits, Financial Statement Schedules (a)(1) Consolidated Financial Statements See Index to Consolidated Financial Statements and Financial Statement Schedule, the Report of Independent Registered Public Accounting Firm and the Consolidated Financial Statements, all of which are incorporated by reference. (a)(2) Consolidated Financial Statement Schedule See Index to Consolidated Financial Statements and Financial Statement Schedule, and the Consolidated Financial Statement Schedule, all of which are incorporated by reference. (a)(3) Exhibits. See Exhibit Index included as the last page of this form, which is incorporated by reference. 22 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm, RSM US LLP, Milwaukee, Wisconsin, PCAOB ID # 49 24-26 Consolidated Balance Sheets as of June 30, 2024 and 2023 27 Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2024 and 2023 28 Consolidated Statements of Cash Flows for the years ended June 30, 2024 and 2023 29 Consolidated Statements of Changes in Equity for the years ended June 30, 2024 and 2023 30 Notes to Consolidated Financial Statements 31-62 INDEX TO FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying Accounts 63 Schedules, other than those listed, are omitted for the reason that they are inapplicable, are not required, or the information required is shown in the financial statements or the related notes. 23 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Twin Disc, Incorporated Opinion on the Internal Control Over Financial Reporting We have audited Twin Disc, Incorporated’s (the Company) internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated September 6, 2024, expressed an unqualified opinion. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded TD Finland Oy and Katsa Oy, (collectively, “Katsa”) from its assessment of internal control over financial reporting as of June 30, 2024 because it was acquired by the Company in a purchase business combination in the fourth quarter of fiscal 2024. We have also excluded Katsa from our audit of internal control over financial reporting. Katsa is a wholly owned subsidiary whose total assets, net sales and income from operations represent approximately 12.7%, 0.0% and 0.0%, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2024. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management ’ s Report on Internal Control over Financial Reporting in Item 9A . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Milwaukee, Wisconsin September 6, 2024 24 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Twin Disc, Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Twin Disc, Incorporated (the Company) as of June 30, 2024 and 2023, the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the two years in the period ended June 30, 2024, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated September 6, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Emphasis of Matter As discussed in Note A to the consolidated financial statements, the Company elected to change its method of accounting for actuarial gains and losses related to its pension and other postretirement benefit plans during the prior year ended June 30, 2023. The Company adopted this change on a retrospective basis. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 25 Deferred Tax Asset Valuation Allowance As described in Note O to the consolidated financial statements the Company’s gross deferred tax asset and valuation allowance was approximately $30,157,000 and $24,035,000, respectively, as of June 30, 2024. The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. In evaluating the realizability of deferred tax assets in future periods, the available positive and negative evidence, including projected future taxable income exclusive of reversing temporary differences, history of book losses, tax planning strategies and results of recent operations, are considered. We identified management’s determination of the value of deferred tax assets as a critical audit matter as there is significant judgment required by management to conclude that it is more likely than not that these deferred tax assets will be realized in future periods. In addition, the auditing of these elements involved complex and subjective auditor judgment, including the need to involve personnel with specialized skill and knowledge. Our audit procedures to evaluate management’s determination that sufficient taxable income will not be generated to realize all of the deferred tax assets included the following, among others: ● We evaluated the design and operating effectiveness of internal controls over income taxes, specifically, those controls over the evaluation of the realizability of deferred tax assets. ● We evaluated the reasonableness of management’s estimates in regard to the ability to generate future taxable income and utilize the deferred tax assets by evaluating: (i) the forecast of future taxable income, including testing of management’s forecasts against the Company’s historical performance, and (ii) testing management’s assessment of the timing of future reversals of temporary differences. ● We utilized personnel with specialized knowledge and skill in income taxes and accounting for income taxes under Accounting Standards Codification (ASC) 740 to assist in the evaluation of management’s assessment of positive and negative evidence and their conclusion that it is more likely than not that the Company will not realize the benefit of its deferred tax assets. /s/ RSM US LLP We have served as the Company’s auditor since 2017. Milwaukee, Wisconsin September 6, 2024 26 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2024 and 2023 (In thousands except share amounts) 2024 2023 ASSETS Current assets: Cash $ 20,070 $ 13,263 Trade accounts receivable, net 52,207 54,760 Inventories, net 130,484 131,930 Assets held for sale - 2,968 Prepaid expenses 8,656 8,459 Other 8,214 8,326 Total current assets 219,631 219,706 Property, plant and equipment, net 58,074 38,650 Right-of-use operating lease assets 16,622 13,133 Intangible assets, net 12,686 12,637 Deferred income taxes 2,339 2,244 Other assets 2,706 2,811 Total assets $ 312,058 $ 289,181 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 2,000 $ 2,010 Accounts payable 32,586 36,499 Accrued liabilities 64,930 61,586 Total current liabilities 99,516 100,095 Long-term debt 23,811 16,617 Operating lease obligations 14,376 10,811 Accrued retirement benefits 7,854 7,608 Deferred income taxes 5,340 3,280 Other long-term liabilities 6,107 5,253 Total liabilities 157,004 143,664 Twin Disc shareholders' equity: Preferred shares authorized: 200,000 ; issued: none ; no par value - - Common shares authorized: 30,000,000 ; issued: 14,632,802 ; no par value 41,798 42,855 Retained earnings 129,592 120,299 Accumulated other comprehensive loss ( 6,905 ) ( 5,570 ) 164,485 157,584 Less treasury stock, at cost ( 637,778 and 814,734 shares, respectively) 9,783 12,491 Total Twin Disc, Incorporated shareholders' equity 154,702 145,093 Noncontrolling interest 352 424 Total equity 155,054 145,517 Total liabilities and equity $ 312,058 $ 289,181 The notes to consolidated financial statements are an integral part of these statements. 27 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME For the years ended June 30, 2024 and 2023 (In thousands, except per share amounts) 2024 2023 Net sales $ 295,127 $ 276,960 Cost of goods sold 208,709 202,628 Cost of goods sold - Sale of boat management system product line and related inventory 3,099 - Gross profit 83,319 74,332 Marketing, engineering and administrative expenses 71,622 62,243 Restructuring expenses 218 177 Other operating income - ( 4,148 ) Income from operations 11,479 16,060 Other Income (expense): Interest expense ( 1,443 ) ( 2,253 ) Bargain purchase gain 3,724 - Other income, net 1,607 658 3,888 ( 1,595 ) Income before income taxes and noncontrolling interest 15,367 14,465 Income tax expense 4,121 3,788 Net income 11,246 10,677 Less: Net earnings attributable to noncontrolling interest, net of tax ( 258 ) ( 297 ) Net income attributable to Twin Disc, Incorporated $ 10,988 $ 10,380 Dividends per share $ 0.12 $ - Income per share data: Basic income per share attributable to Twin Disc, Incorporated common shareholders $ 0.80 $ 0.77 Diluted income per share attributable to Twin Disc, Incorporated common shareholders $ 0.79 $ 0.75 Weighted average shares outstanding data: Basic shares outstanding 13,683 13,468 Diluted shares outstanding 13,877 13,811 Comprehensive income Net income $ 11,246 $ 10,677 Benefit plan adjustments, net of income taxes of $ 8 and $ 21 , respectively ( 2,114 ) 666 Foreign currency translation adjustment 657 635 Unrealized gain on hedges, net of income taxes of $ 0 and 0 , respectively 46 54 Comprehensive income 9,835 12,032 Less: Comprehensive income attributable to noncontrolling interest 183 248 Comprehensive income attributable to Twin Disc, Incorporated $ 9,652 $ 11,784 The notes to consolidated financial statements are an integral part of these statements. 28 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 30, 2024 and 2023 (In thousands) 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,246 $ 10,677 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,981 9,359 Gain on disposal of assets ( 91 ) ( 4,264 ) Loss on sale of boat management system product line and related inventory 3,099 - Bargain purchase gain on Katsa, OY acquisition ( 3,724 ) - Restructuring expenses ( 82 ) 137 Provision for deferred income taxes ( 560 ) ( 634 ) Stock compensation expense 3,449 2,996 Other, net 387 201 Changes in operating assets and liabilities, net of acquired business Trade accounts receivable, net 9,540 ( 8,393 ) Inventories, net 6,015 ( 2,750 ) Other assets 2,041 476 Accounts payable ( 5,166 ) 7,136 Accrued liabilities ( 755 ) 9,785 Accrued retirement benefits ( 1,664 ) ( 1,828 ) Net cash provided by operating activities 33,716 22,898 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant, and equipment ( 8,707 ) ( 7,918 ) Acquisition of Katsa, OY, less cash acquired ( 23,178 ) - Proceeds from sale of fixed assets - 7,177 Other, net ( 184 ) 333 Net cash used by investing activities ( 32,069 ) ( 408 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving loan arrangements 90,534 81,620 Repayments of revolving loan arrangements ( 81,109 ) ( 97,774 ) Repayments of other long-term debt ( 2,010 ) ( 2,037 ) Payments of right-of-use finance lease obligations ( 921 ) ( 621 ) Dividends paid to shareholders ( 1,695 ) - Dividends paid to noncontrolling interest ( 254 ) ( 236 ) Payments of withholding taxes on stock compensation ( 1,791 ) ( 463 ) Net cash provided (used) by financing activities 2,754 ( 19,511 ) Effect of exchange rate changes on cash 2,406 ( 2,237 ) Net change in cash 6,807 742 Cash: Beginning of period 13,263 12,521 End of period $ 20,070 $ 13,263 Supplemental cash flow information Cash paid during the year for: Interest 1,378 2,162 Income tax 1,724 3,592 The notes to consolidated financial statements are an integral part of these statements. 29 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended June 30, 2024 and 2023 (In thousands) Twin Disc, Inc. Shareholders’ Equity Accumulated Other Non- Common Retained Comprehensive Treasury Controlling Total Stock Earnings Loss Stock Interest Equity Balance at June 30, 2022 (As Adjusted) $ 42,551 $ 109,919 $ ( 6,974 ) $ ( 14,720 ) $ 412 $ 131,188 Net income 10,380 297 10,677 Translation adjustments 684 ( 49 ) 635 Benefit plan adjustments, net of tax 666 666 Unrealized gain on hedges, net of tax 54 54 Cash dividends ( 236 ) ( 236 ) Compensation expense 2,996 2,996 Stock awards, net of tax ( 2,692 ) 2,229 ( 463 ) Balance at June 30, 2023 42,855 120,299 ( 5,570 ) ( 12,491 ) 424 145,517 Net income 10,988 258 11,246 Dividends paid to shareholders ( 1,695 ) ( 254 ) ( 1,949 ) Translation adjustments 733 ( 76 ) 657 Benefit plan adjustments, net of tax ( 2,114 ) ( 2,114 ) Unrealized gain on hedges, net of tax 46 46 Compensation expense 3,449 3,449 Stock awards, net of tax ( 4,506 ) 2,708 ( 1,798 ) Balance at June 30, 2024 $ 41,798 $ 129,592 $ ( 6,905 ) $ ( 9,783 ) $ 352 $ 155,054 The notes to consolidated financial statements are an integral part of these statements. 30 TWIN DISC, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA) A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations ‑‑Twin Disc, Incorporated (“Twin Disc”, or the “Company”) was incorporated under the laws of the state of Wisconsin in 1918. Twin Disc designs, manufactures and sells marine and heavy duty off‑highway power transmission equipment. The Company has manufacturing locations in the United States, Belgium, Finland, Italy, the Netherlands, and Switzerland. In addition to these countries, it has distribution locations in Singapore, China, Australia and Japan. Products offered include: marine transmissions, azimuth drives, surface drives, propellers and boat management systems as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government and industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network. On May 31, 2024, the Company completed the acquisition of 100 % of the outstanding common stock of Katsa Oy (“Katsa”). Based in Finland, Katsa is an European manufacturer of custom-designed, high-quality power transmission components and gearboxes for industrial and marine end-markets for a broad range of end market applications. Katsa also provides a wide range of after-sales services, including spare part deliveries, reverse engineering, modeling, and gearbox refurbishment. Basis of Presentations ‑‑The consolidated financial statements and information included in this Annual Report on Form 10 -K (“Form 10 -K”) include the financial results of Katsa (the opening balance sheet and operations on a one -month lag), and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements have been prepared in accordance with Generally Accepted Accounting Principles of the United States of America. The Company’s fiscal year end is June 30. Consolidation Principles ‑‑The consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly-owned domestic and foreign subsidiaries. One foreign subsidiary is included based on a fiscal year ending May 31, to facilitate prompt reporting of consolidated results. All significant intercompany transactions have been eliminated. Management Estimates-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. Translation of Foreign Currencies ‑‑The financial statements of the Company’s non-U.S. subsidiaries that use the local currency as their functional currency are translated using the current exchange rate for assets and liabilities, the weighted-average exchange rate for the year for revenues and expenses, and the historical exchange rate for the year for equity. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss, which is included in equity. Gains and losses from foreign currency transactions are included in earnings. Included in other (expense) income are foreign currency transaction gain (losses) of ($ 377 ) and ($ 373 ) in fiscal 2024 and 2023, respectively. Business Combinations ‑‑ In accordance with ASC 805 - 10, “Business Combinations”, the Company accounts for all business combinations using the acquisition method of accounting. Under this method, the Company allocates the fair value of consideration transferred in a business combination to the estimated fair value at the acquisition date of the tangible and intangible assets acquired as well as the liabilities assumed. Acquisition costs are expensed as incurred. Any excess consideration transferred is recorded as goodwill and in instances where the fair value of consideration transferred is less than the estimated fair value of tangible and intangible assets acquired less liabilities assumed, such amounts are recorded as a gain on the bargain purchase. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill or the gain on the bargain purchase. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. As of June 30, 2024, there were no operational results from Katsa included in the fiscal 2024 results of the Company. 31 Cash --The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalent. Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment. To the extent that checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the amount of those un-presented checks is included in accounts payable. The Company maintains cash in bank accounts in excess of insured limits. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice. Accounts Receivable --These represent trade accounts receivable and are stated net of an allowance for credit losses of $ 1,383 and $ 1,221 at June 30, 2024 and 2023, respectively. The Company records an allowance for credit losses for certain customers where a risk of default has been specifically identified as well as provisions determined on a general basis when it is believed that some default is probable and estimable. The assessment of likelihood of customer default is based on a variety of factors, including the length of time the receivables are past due, the historical collection experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. Various factors may adversely impact its customer’s ability to access sufficient liquidity and capital to fund their operations and render the Company’s estimation of customer defaults inherently uncertain. While the Company believes current allowance for credit losses are adequate, it is possible that these factors may cause higher levels of customer defaults and bad debt expense in future periods. Fair Value of Financial Instruments --The carrying amount reported in the consolidated balance sheets for cash, trade accounts receivable and accounts payable approximate fair value because of the immediate short-term maturity of these financial instruments . If measured at fair value, cash would be classified as Level 1 and all other items listed above would be classified as Level 2 in the fair value hierarchy, as defined in Note N, Pension and Other Postretirement Benefit Plans. The Company’s borrowings under the revolving loan agreement, which is classified as long-term debt and consists of loans that are routinely borrowed and repaid throughout the year, approximate fair value at June 30, 2024. The Company’s term loan borrowing, which is SOFR-based, approximates fair value at June 30, 2024. If measured at fair value in the financial statements, long-term debt (including any current portion) would be classified as Level 2 in the fair value hierarchy. Inventories ‑‑Inventories are valued at the lower of cost or net realizable value (or lower of cost or market where appropriate). Cost has been determined by the last‑in, first‑out (LIFO) method for the majority of inventories located in the United States, and by the first‑in, first‑out (FIFO) or average cost methods for all other inventories. Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among others, when evaluating the adequacy of the reserve for excess and obsolete inventory. Assets Held for Sale-- Assets that will be recovered principally through sale rather than in its continuing use in operations are reclassified out of property, plant and equipment and into assets held for sale if all of the following criteria are met: (a) management, having the authority to approve the action, commits to a plan to sell the asset(s); (b) the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (c) an active program to locate a buyer, and other actions required to complete the plan to sell the asset have been initiated; (d) the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within a year; (e) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (f) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that plan will be withdrawn. Assets held for sale are carried at fair value less costs to sell, or net book value, whichever is lower. The Company ceases to record depreciation expense at the time of designation as held for sale. During fiscal 2023, the Company classified as and sold certain assets held for sale and recorded a net gain of approximately $ 4.1 million recorded in other operating income. During fiscal 2024, the Company reclassified its former corporate headquarters previously classified as held for sale to property, plant and equipment as an idle asset. The Company continues to market the assets for sale and expects to eventually sell these assets, however, it’s not probable that a sale will occur within one year. As such, the assets are considered permanently idled and the Company has not resumed depreciation expense during the year ended June 30, 2024. 32 Property, Plant and Equipment and Depreciation ‑‑Assets are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and betterments are capitalized and depreciated. Capital project costs are accumulated in construction-in-progress until completed, at which time the costs are transferred to the relevant asset and commence depreciation. Depreciation is provided on the straight‑line method over the estimated useful lives of the assets. The lives assigned to buildings and related improvements range from 10 to 40 years, and the lives assigned to machinery and equipment range from 5 to 15 years. Upon disposal of property, plant and equipment, the cost of the asset and the related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Fully depreciated assets are not removed from the accounts until physically disposed. At June 30, 2024, the Company owned one permanently idled facility with a book value of $ 3.0 million. This facility is assessed for impairment quarterly and depreciation has ceased. This facility is accounted for within property, plant and equipment. Right of Use Lease Assets ‑‑In accordance with ASC 842, the Company’s leases, with lease periods longer than twelve months, are recorded on the consolidated balance sheets. These leases primarily consist of office and warehouse facilities, as well as production and office equipment. The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically do not provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current borrowing rate, the lease period, and the economic environments where the lease activity is concentrated. Impairment of Long-lived Assets --The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. When triggering events are identified, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists for property, plant and equipment and other long-lived assets, including intangible assets. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Fair value is primarily determined using discounted cash flow analyses; however, other methods may be used to determine the fair value, including third party valuations when necessary. Intangible Assets -- Intangible assets primarily consist of customer relationships, technology know-how, and tradenames, all of which are definite-lived. They were initially valued at fair value at acquisition, and are amortized over their respective useful lives on the basis of straight line or accelerated, as appropriate. Derivative Financial Instruments - - The Company has written policies and procedures that place all financial instruments under the direction of the Company’s corporate treasury department and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is prohibited. The Company uses derivative financial instruments to manage certain financial risks. The Company enters into forward contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. The Company uses interest rate swap contracts to reduce the exposure to variability in interest rates on floating debt borrowings. The Company designates certain financial instruments as cash flow hedges for accounting purposes. The Company designates certain financial instruments as net investment hedges to reduce the exposure in its foreign currency denominated net investments in wholly-owned subsidiaries. See Note R, Derivative Financial Instruments, for additional information. Pension and Other Postretirement Benefits Plans -- The Company provides a wide range of benefits to employees and retired employees, including pensions and postretirement health care coverage. Plan assets and obligations are recorded annually based on the Company’s measurement date utilizing various actuarial assumptions such as discount rates, expected return on plan assets, compensation increases, retirement and mortality tables, and health care cost trend rates as of that date. 33 Change in Accounting Method During the fourth quarter of fiscal year 2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for the Company’s pension and postretirement benefit plans (the “Accounting change”). Prior to the Accounting change, actuarial gains and losses were recognized as a component of accumulated other comprehensive loss upon annual remeasurement and were amortized into earnings in future periods when they exceeded the accounting corridor, a defined range within which amortization of net gains and losses is not required. Under the Accounting change, the accounting corridor of 10% of the greater of the projected benefit obligation and plan assets was modified to add full, immediate recognition above a second 20% threshold. Although the decision to make the Accounting change occurred in the fourth quarter of fiscal year 2023, the actual accounting method change was applied to all calculations for fiscal year end 2023 presented in this Form 10 -K. Under the new accounting method, actuarial gains and losses are recognized in net periodic benefit cost through a Modified Mark-to-market (“MMTM”) (expense) benefit upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. The method for recognizing prior service credits (charges) as a component of accumulated other comprehensive loss and amortized into earnings in future periods is not changing. With respect to the recognition of actuarial gains and losses, while the historical principle was acceptable, the Company believes the Accounting change is preferable as it better aligns with fair value principles by recognizing the effects of economic and interest rate changes in plan assets and liabilities in the year in which the gains and losses are incurred to the degree such accumulated gains and losses exceed the new 20% threshold in addition to amortizing the amounts between the 10% and 20% thresholds over time. Income Taxes --The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. The Company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority. Segment Reporting --Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. As of June 30, 2024, the Company identified two operating segments. Refer to "Note K. Business Segments and Foreign Operations" for further information. Revenue Recognition --Revenue from contracts with customers is recognized using a five -step model consisting of the following: 1. Identify the contract with a customer ; The Company’s customers consist of distributors and direct end-users. With regard to distributors, the Company generally has written distribution agreements which describe the terms of the distribution arrangement, such as the product range, the sales territory, product pricing, sales support, payment and returns policy, etc. Customer contracts are generally in the form of acknowledged purchase orders. Services to be rendered, as part of the delivery of those products, are also generally specified. Such services include installation reviews and technical commissioning. 2. Identify the performance obligations in the contract ; The Company’s performance obligations primarily consist of product delivery and certain service obligations such as technical commissioning, repair services, installation reviews, and shift development. 3. Determine the transaction price ; The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. Variable consideration is immaterial. 4. Allocate the transaction price to the performance obligations in the contract ; The Company determined that the most relevant allocation method for its service obligations is to apply the expected cost plus appropriate margin. This is the Company’s practice of billing for repairs, overhaul, and other product service related time incurred by its technicians. 5. Recognize revenue ; Revenue is recognized as each performance obligation is satisfied which is typically when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. For technical commissioning, repairs, installation review, and shift development services, revenue is recognized upon completion of the service. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable. 34 Goods sold to third party distributors are subject to an annual return policy, for which a provision is made at the time of shipment based upon historical experience. Goods sold under bill and hold arrangements are recorded as revenue when control has been transferred to the customer and when the reason for the arrangement is substantive, when the product is identified as the customer’s asset, when the product is ready for delivery to the customer, and when the Company cannot use the product or redirect the product to another customer. While significant customer deposits are collected at certain locations, the Company’s payment terms are short-term in nature and therefore do not include a significant financing component. In the table below, contract assets are accounts receivable, trade and contract liabilities are customer deposits. Contract balances for the years ended June 30, 2024, 2023, and 2022 are as follows: Contract Assets Contract Liabilities 2022 45,452 17,021 2023 54,760 22,937 2024 52,207 26,540 Our contracts are short term in nature, and therefore, the amount included in contract liabilities at the beginning of the year was recognized as revenue in the reporting period. Shipping and Handling Fees and Costs --The Company records revenue from shipping and handling costs in net sales. The cost associated with shipping and handling of products is reflected in cost of goods sold. Recently Issued Not Yet Adopted Accounting Standards -- In December 2023, the FASB issued guidance ASU 2023 - 09, Improvements to Income Tax Disclosures (“ASU 2023 - 09” ), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) disaggregated between domestic and foreign. ASU 2023 - 09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of adopting this standard on its financial statement disclosures. Recently Adopted Accounting Standards -- In June 2016, the FASB issued updated guidance (ASU 2016 - 13 ) and also issued subsequent amendments to the initial guidance under ASU 2018 - 19, ASU 2019 - 04, ASU 2019 - 05 and ASU 2019 - 10 (collectively ASC 326 ). ASC 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The amendments in this guidance are effective for filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, and for smaller reporting companies for fiscal years beginning after December 15, 2022 ( the Company’s fiscal 2024 ), with early adoption permitted for certain amendments. ASC 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The adoption of this guidance did not have a material impact on the Company’s financial statements. Special Note Regarding Smaller Reporting Company Status -- Under SEC Release 33 - 10513; 34 - 83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company based on its public float as of the last business day of the second quarter of fiscal 2024. Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules. 35 B. ACQUISITION OF KATSA OY On May 31, 2024, the Company completed the acquisition of 100 % of the outstanding common stock of Katsa Oy (“Katsa”). Based in Finland, Katsa is a European manufacturer of custom-designed, high-quality power transmission components and gearboxes for industrial and marine end-markets for a broad range of end market applications. Katsa also provides a wide range of after-sales services, including spare part deliveries, reverse engineering, modeling, and gearbox refurbishment. As a well-established business with a solid reputation for quality in addition to its strong in-house manufacturing and engineering capabilities, this acquisition is an excellent opportunity to expand Twin Disc’s global presence, leveraging Kata’s longstanding relationships with leading European OEMs to introduce the Company’s portfolio into new, growing markets. This acquisition was pursuant to a Sale and Purchase Agreement (“Purchase Agreement”) entered into by TD Finland Holding Oy, a wholly-owned subsidiary of the Company, with Timo Salli and Jouko Salli, the prior owners, on March 5, 2024. Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $ 25.5 million in cash at closing, which included a base payment plus adjustments for net cash and working capital, and transactions costs of $ 0.4 million. This amount was subject to a final determination of working capital adjustments. The Company, in part, financed the payment of the cash consideration through borrowings of $ 16.9 million under a new credit agreement entered into on April 1, 2024 with BMO Harris Bank N.A. (the “Credit Agreement”). The Credit Agreement is further discussed in Note H, Debt. Purchase Price Allocation The acquisition of Katsa met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805” ), with the Company identified as the legal and the accounting acquirer. The Company recognized approximately $ 0.7 million of acquisition-related costs which were expensed in the consolidated statement of operations for the year ended June 30, 2024. The following table details the allocation of the purchase price of the assets acquired and liabilities assumed in connection with the acquisition of Katsa. Cash purchase price $ 25.1 Final working capital adjustment 0.8 Total consideration $ 25.9 Assets acquired (in millions): Cash $ 2.7 Trade accounts receivable, net 7.4 Inventories, net 10.6 Prepaid expenses 0.3 Other 0.8 Property, plant and equipment, net 13.9 Right-of-use operating lease assets 0.5 Intangible assets, net 3.4 Total assets acquired $ 39.6 Liabilities assumed (in millions): Accounts payable 1.8 Accrued liabilities 5.3 Lease obligations 0.4 Deferred income taxes 2.5 Total liabilities assumed $ 10.0 Total identified net assets acquired (in millions): $ 29.6 Gain on bargain purchase 3.7 Purchase price consideration $ 25.9 36 The fair value of the identifiable assets acquired and liabilities assumed of $ 29.6 million exceeded the purchase price of the business, and additional expected working capital adjustment, of $ 25.9 million. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measurements were appropriate. Accordingly, the acquisition has been accounted for as a bargain purchase and as a result, the Company recognized a gain of $ 3.7 million, net of income tax of $ 2.5 million associated with the acquisition. The amount is recorded in other income in the consolidated statements of operations and comprehensive income. Pro forma results of operation for this acquisition have not been presented because the effects of the acquisition were not material to the Company’s consolidated financial results. Fair Value Estimate of Assets Acquired and Liabilities Assumed The Company is continuing its review of the fair value estimate of certain assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwise not available. This measurement period will not exceed one year from the acquisition date. At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value. The provisional fair value estimates of the property, plant and equipment, net, the intangible assets, net, and deferred income taxes are pending final review by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments. Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill or the excess of such fair values over the purchase price is allocated to bargain purchase gain. The final determination of the purchase price, fair values and resulting bargain purchase gain may differ significantly from what is reflected in these consolidated financial statements. The following summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date, including the preliminary estimates of the property, plant and equipment, net, the intangible assets, net, and deferred income taxes: Assets acquired (in millions): Cash $ 2.7 Trade accounts receivable, net 7.4 (a) Inventories, net 10.6 (b) Prepaid expenses 0.3 Other 0.8 Property, plant and equipment, net 13.9 (c) Right-of-use operating lease assets 0.5 Intangible assets, net 3.4 (d) Accounts payable 1.8 Accrued liabilities 5.3 (e) Lease obligations 0.4 Deferred income taxes 2.5 Total identified net assets acquired (in millions): $ 29.6 Gain on bargain purchase 3.7 (f) Purchase price consideration $ 25.9 The following information provides further details about the preliminary estimated net step-up in fair value and/or the estimated fair value at the acquisition date for some key balance sheet items. (a) Accounts receivable represent contractual amounts receivable from customers. The amounts approximate fair value. 37 (b) Inventory consists of (in millions): Raw materials $ 4.5 Work in progress at fair value 2.8 Finished goods at fair value 3.3 Inventories at fair value $ 10.6 Inventories at book value 9.8 Step-up $ 0.8 (c) The value of property, plant and equipment is estimated at (in millions): Buildings $ 7.6 Land 0.9 Equipment 5.4 Property, plant and equipment at fair value 13.9 Property, plant and equipment at book value 5.3 Step-up $ 8.6 (d) Intangible assets consist of (in millions): Estimated fair Estimated average value useful lives Customer relationships $ 1.5 12 Tradename 0.9 10 Technology know-how 1.0 7 Total $ 3.4 (e) The amounts approximate fair value. (f) The Company recognized a bargain purchase gain of $ 3.7 million, net of income tax expense of $ 2.5 million associated with the acquisition. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measurements were appropriate. The fair value of the identifiable assets acquired and liabilities assumed exceeded the fair value of the purchase price of the business. The fair values of property, plant and equipment, net, intangible assets, net, and deferred taxes presented above are preliminary until the final purchase price consideration is determined and the Company completes its work with the use of a third -party valuation firm. These values are subject to change. Any changes to the initial estimates of the fair value of assets and liabilities will impact the bargain purchase gain and may affect future earnings. C. INVENTORIES The major classes of inventories at June 30 were as follows: 2024 2023 Finished parts $ 60,166 $ 66,956 Work in process 23,096 23,374 Raw materials 47,222 41,600 $ 130,484 $ 131,930 In the first quarter of fiscal year 2024, the Company entered into an agreement to sell most of its boat management system product line located at one of its subsidiaries in Italy. The sale amount was below cost and resulted in the Company recognizing an inventory write-down of $ 2.1 million. The Company also evaluated its other boat management system inventory, not associated with the sale. The evaluation resulted in the Company recognizing an additional inventory write-down of $ 1.6 million for inventory located in the U.S. These write-downs were partially offset by certain liabilities transferred to the buyer at the time of the sale. The sale was completed in the second quarter of fiscal year 2024. 38 Inventories stated on a LIFO basis represent approximately 31 % and 33 % of total inventories at June 30, 2024 and 2023, respectively. The approximate current cost of the LIFO inventories exceeded the LIFO cost by $ 30,680 and $ 30,646 at June 30, 2024 and 2023, respectively. Inventories were reduced during 2024 and 2023, resulting in a liquidation of LIFO inventory layers that were carried at a lower cost prevailing from a prior year, as compared with current costs in the current year (“LIFO decrement”). A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. For the years ended June 30, 2024 and 2023, the effects of LIFO decrements decreased cost of goods sold by $ 1,553 and $ 3,685 , respectively. The Company had reserves for inventory obsolescence of $ 12,693 and $ 12,858 at June 30, 2024 and 2023, respectively. D. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at June 30 were as follows: 2024 2023 Land $ 3,062 $ 2,148 Buildings 44,833 26,349 Machinery and equipment 189,913 148,088 237,808 176,585 Less: accumulated depreciation ( 179,734 ) ( 137,935 ) $ 58,074 $ 38,650 Included in the above amounts are finance lease right-of-use assets of $ 5,210 and $ 4,427 for the years ended June 30, 2024 and 2023, respectively. Depreciation expense for the years ended June 30, 2024 and 2023 was $ 6,707 and $ 6,400 , respectively. At June 30, 2024, the Company owned one permanently idle facility with a book value of $ 3.0 million. The asset is presented within property, plant, and equipment, net on the Consolidated Balance Sheets. No impairment losses were recorded in fiscal 2024 or 2023. E. INTANGIBLE ASSETS On May 31, 2024, the Company acquired intangible assets in the amount of $ 3.4 million consisting of customer relationships, a tradename, and technology know-how as part of the acquisition of Katsa. At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization: Net Book Value Rollforward Net Book Value By Asset Type Accumulated Gross Carrying Amount Amortization / Impairment Net Book Value Customer Relationships Technology Know-how Trade Names Other Balance at June 30, 2022 $ 39,845 $ ( 26,835 ) $ 13,010 $ 7,636 $ 3,238 $ 972 $ 1,164 Addition 2,204 - 2,204 - - - 2,204 Reduction ( 10,506 ) 10,506 - - - - - Amortization - ( 2,959 ) ( 2,959 ) ( 1,340 ) ( 1,202 ) ( 39 ) ( 378 ) Translation adjustment 382 - 382 257 386 ( 265 ) 4 Balance at June 30, 2023 31,925 ( 19,288 ) 12,637 6,553 2,422 668 2,994 Addition 3,488 - 3,488 1,519 987 857 125 Reduction ( 714 ) 714 - - - - - Amortization - ( 3,273 ) ( 3,273 ) ( 1,245 ) ( 1,280 ) - ( 748 ) Translation adjustment ( 166 ) - ( 166 ) ( 107 ) ( 31 ) ( 14 ) ( 14 ) Balance at June 30, 2024 $ 34,533 $ ( 21,847 ) $ 12,686 $ 6,720 $ 2,098 $ 1,511 $ 2,357 39 Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accelerated, as appropriate, over the estimated useful lives of the assets. The weighted average remaining useful life of the intangible assets included in the table above is approximately 6 years. Intangible amortization expense for the years ended June 30, 2024 and 2023 was $ 3,273 and $ 2,959 , respectively. Estimated intangible amortization expense for each of the next five fiscal years is as follows: Fiscal Year 2025 3,476 2026 2,530 2027 2,000 2028 1,642 2029 1,350 Thereafter 1,688 F. ACCRUED LIABILITIES Accrued liabilities at June 30 were as follows: 2024 2023 Customer deposits $ 26,540 $ 22,937 Salaries and wages 14,186 10,102 Warranty 3,341 2,970 Distributor rebates 3,931 3,620 Retirement benefits 1,831 1,693 Other 15,101 20,264 $ 64,930 $ 61,586 G. WARRANTY The Company warrants all assembled products, parts (except component products or parts on which written warranties are issued by the respective manufacturers thereof and are furnished to the original customer, as to which the Company makes no warranty and assumes no liability) and service against defective materials or workmanship. Such warranty generally extends from periods ranging from 12 months to 24 months. 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 number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on the Company’s 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 the Company believes that 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 years ended June 30: 2024 2023 Reserve balance, July 1 $ 3,476 $ 3,329 Current period expense and adjustments 5,850 2,451 Payments or credits to customers ( 5,102 ) ( 2,268 ) Translation adjustment ( 4 ) ( 36 ) Reserve balance, June 30 $ 4,220 $ 3,476 40 The current portion of the warranty accrual ($ 3,341 and $ 2,970 at June 30, 2024 and 2023, respectively) is reflected in accrued liabilities, while the long-term portion ($ 879 and $ 506 at June 30, 2024 and 2023, respectively) is included in other long-term liabilities on the consolidated balance sheets. H. DEBT Long-term debt consisted of the following at June 30: 2024 2023 Credit Agreement Debt Revolving loans (expire April 2027) $ 16,288 $ 7,094 Term loan (due April 2027) 9,500 11,500 Other 23 33 Subtotal 25,811 18,627 Less: current maturities ( 2,000 ) ( 2,010 ) Total long-term debt $ 23,811 $ 16,617 Credit Agreement Debt : On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $ 35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $ 50.0 million (the “Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $ 20.0 million, extended the maturity date of the Term Loan to April 1, 2027, and require the Company to make principal installment payments on the Term Loan of $ 0.5 million per quarter. In addition, under subsequent amendments to the Credit Agreement, BMO’s Revolving Credit Commitment is currently $ 45.0 million. The Credit Agreement also allows the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $ 5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement currently runs through April 1, 2027. Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate (“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that are not timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Currently, the Applicable Margins are between 2.00 % and 3.50 % for Revolving Loans and Letters of Credit; 2.125 % and 3.625 % for Term Loans; and 0.15 % and 0.30 % for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $ 0.6 million for the Katsa acquisition, as well as pro-forma EBITDA of Katsa as permitted by the Bank. The Company’s Tangible Net Worth may not be less than $ 100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023. 41 Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 100 % of its equity interests in certain domestic subsidiaries and 65 % of its equity interests in certain foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement. The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. The Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement. Upon the occurrence of an Event of Default, BMO may take the following actions upon written notice to the Company: ( 1 ) terminate its remaining obligations under the Credit Agreement; ( 2 ) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and ( 3 ) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105 % of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company. On April 1, 2024, the Company entered into Amendment No. 10 to Credit Agreement (the “Tenth Amendment”) that amended and extended the Credit Agreement. The Tenth Amendment increased the Revolving Credit Commitment from $ 40.0 million to $ 45.0 million, and also increased the Borrowing Base for Revolving Loans from the sum of (a) 85 % of outstanding unpaid Eligible Receivable and (b) the lesser of $ 30.0 million and 50 % of Eligible Inventory to the sum of (a) 85 % of outstanding unpaid Eligible Receivables and (b) the lesser of $ 35.0 million (reduced to $ 32.5 million beginning with the first quarter of the 2026 fiscal year) and 60 % of Eligible Inventory (reduced to 55 % of Eligible Inventory beginning with the third quarter of the 2025 fiscal year, and 50 % of Eligible Inventory beginning with the first quarter of the 2026 fiscal year). The Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Katsa by TD Finland Holding Oy, a wholly-owned subsidiary of the Company. The Tenth Amendment specifically permits the Company to use Revolving Loans for the Katsa acquisition The Tenth Amendment also extended the Credit Agreement through April 1, 2027 and extended the maturity date of the Term Loan and the Term Loan Commitment Date to April 1, 2027. The Tenth Amendment also increased the Applicable Margins under the Credit Agreement for purposes of determining interest rates on Revolving Loans, Letters of Credit, Term Loans, and the Unused Revolving Credit Commitment. Prior to the Tenth Amendment, the Applicable Margins were between 1.25 % and 2.75 % for Revolving Loans and Letters of Credit; 1.375 % and 2.875 % for Term Loans; and .10% and .15% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). Under the Tenth Amendment, the Applicable Margins are between 2 % and 3.5 % for Revolving Loans and Letters of Credit; 2.125 % and 3.625 % for Term Loans; and .15% and .3% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). The Tenth Amendment also increased the amount of Restricted Payments that the Company may make in the form of cash dividends, distributions, purchases, redemptions, or other acquisitions of its common stock from $ 3.0 million to $ 5.0 million in any fiscal year. During fiscal year 2024, the average interest rate was 6.97 % on the Term Loan, and 5.67 % on the Revolving Loans. As of June 30, 2024, the Company’s borrowing capacity under the terms of the Credit Agreement was approximately $ 42,813 and the Company had approximately $ 26,525 of available borrowings. 42 The Company’s borrowings described above approximates fair value at June 30, 2024 and June 30, 2023. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy. The Company is party to an interest rate swap arrangement with Bank of Montreal, with an initial amount of $ 20,000 and a maturity date of March 4, 2026 to hedge the Term Loan. As of June 30, 2024, the notional amount was $ 9,500 . This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging . This swap is included in the disclosures in Note S, Derivative Financial Instruments. During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies. Effective upon the designation, all changes in fair value of the euro Revolving Loan are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note S, Derivative Financial Instruments. The aggregate scheduled maturities of outstanding long-term debt obligations in subsequent years are as follows: Fiscal Year 2025 $ 2,000 2026 2,000 2027 21,788 2028 - 2029 - Thereafter 23 $ 25,811 The PPP Loan: On April 17, 2020, the Company entered into a promissory note (the “PPP Loan”) evidencing an unsecured loan in the amount of $ 8,200 made to the Company under the Payment Protection Plan ("PPP"). The PPP is a liquidity facility program established by the U.S. government as part of the CARES Act in response to the negative economic impact of the COVID- 19 outbreak. The PPP Loan is funded by the Small Business Administration (“SBA”) and administered by BMO. The PPP Loan has a two -year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments were deferred until April 2022. The PPP Loan is a forgivable loan to the extent proceeds are used to cover qualified documented payroll, mortgage interest, rent, and utility costs over a 24 -week measurement period (as amended) following loan funding. For the loan to be forgiven, the Company was required to formally apply for forgiveness, and potentially, could be required to pass an audit that it met the eligibility qualifications of the loan. In accounting for the terms of the PPP Loan, the Company is guided by ASC 470 Debt , and ASC 450 - 30 Gain contingency . Accordingly, it recorded the proceeds of the PPP Loan of $ 8,200 as debt and derecognized the liability when the loan was forgiven. The Company believed that the possibility of loan forgiveness was to be regarded as a contingent gain and therefore did not recognize the gain (and derecognize the loan) until all uncertainty was removed (i.e., all conditions for forgiveness are met). The Company applied for forgiveness, and on June 16, 2021, it was notified by BMO that the SBA remitted funds to BMO to repay the PPP Loan in full, evidencing that the PPP Loan was fully forgiven. The Company removed the balance of the PPP Loan from its consolidated balance sheet and recorded $ 8,200 in income from extinguishment of loan in its consolidated statement of operations in fiscal 2021. While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the SBA for a period of six years after forgiveness. The audit is intended to confirm the Company’s eligibility for the PPP loan and the appropriateness of the PPP loan forgiveness. In accordance with ASC 450 Contingencies , the Company assessed the probability of failing the audit and being required to repay all or any portion of the PPP Loan. The Company is aware of the requirements and has retained all necessary documentation in support of its eligibility, including gross receipts calculations, supporting payroll expenses and related information. The Company believes that it has materially complied with all the requirements of the PPP and reasonably assured it would satisfy the requirements of an audit. 43 Other lines of credit: The Company has established unsecured lines of credit, which may be withdrawn at the option of the banks. Under these arrangements, the Company has unused and available credit lines of $ 1,053 with a weighted average interest rate of 5.14 % as of June 30, 2024, and $ 1,057 with a weighted average interest rate of 5.1 % as of June 30, 2023. I. LEASE OBLIGATIONS The following table provides a summary of leases recorded on the consolidated balance sheet at June 30. Balance Sheet Location 2024 2023 Lease Assets Operating lease right-of-use assets Right-of-use operating lease assets $ 16,622 $ 13,133 Finance lease right-of-use assets Property, plant and equipment, net 5,210 4,427 Lease Liabilities Operating lease liabilities Accrued liabilities $ 2,352 $ 2,343 Operating lease liabilities Operating lease obligations 14,376 10,811 Finance lease liabilities Accrued liabilities 882 643 Finance lease liabilities Other long-term liabilities 4,795 4,314 The components of lease expense for the years ended June 30 were as follows: Other information related to leases was as follows: 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,447 $ 3,282 Operating cash flows from finance leases 308 267 Financing cash flows from finance leases 921 621 Right-of-use-assets obtained in exchange for lease obligations: Operating leases 6,069 2,917 Finance leases 1,383 522 Weighted average remaining lease term (years): Operating leases 8.4 8.8 Finance lease 8.7 11.3 Weighted average discount rate: Operating leases 8.3 % 7.2 % Finance leases 6.2 % 5.2 % Approximate future minimum rental commitments under non-cancellable leases as of June 30, 2024 were as follows: Operating Leases Finance Leases 2025 $ 3,789 $ 1,039 2026 3,197 988 2027 2,816 918 2028 2,270 820 2029 2,201 619 Thereafter 9,724 2,791 Total future lease payments 23,997 7,175 Less: Amount representing interest ( 7,269 ) ( 1,497 ) Present value of future payments $ 16,728 $ 5,678 44 J. SHAREHOLDERS' EQUITY The total number of shares of common stock outstanding at June 30, 2024 and 2023 was 13,995,024 and 13,818,068 , respectively. At June 30, 2024 and 2023, treasury stock consisted of 637,778 and 814,734 shares of common stock, respectively. The Company issued 176,956 and 145,725 shares of treasury stock in fiscal 2024 and 2023, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded forfeitures of 2,413 and 0 shares of previously issued restricted stock in fiscal 2024 and 2023, respectively. The difference between the cost of treasury shares and the option price is recorded in common stock. Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open market purchases of its common stock. The Company did not make any open market purchases during the two most recent fiscal years. As of June 30, 2024 and 2023, 315,000 shares remain authorized for purchase. Cash dividends per share was $ 0.12 and $ 0.00 in fiscal 2024 and 2023. The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued. The Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock. The components of accumulated other comprehensive loss included in equity as of June 30, 2024 and 2023 are as follows: 2024 2023 Translation adjustments $ ( 849 ) $ ( 1,582 ) Benefit plan adjustments, net of income taxes of ($ 141 ) and ($ 133 ) respectively ( 8,062 ) ( 5,948 ) Net gain on cash flow hedge derivatives, net of income taxes of ($ 210 ) and ($ 210 ), respectively 504 688 Net gain on net investment hedge derivatives, net of income taxes of $ 103 and $ 103 , respectively 1,502 1,272 Accumulated other comprehensive loss $ ( 6,905 ) $ ( 5,570 ) A reconciliation for the changes in accumulated other comprehensive loss, net of tax, by component for the years ended June 30, 2024 and June 30, 2023 is as follows: Translation Benefit Plan Cash Flow Net Investment Adjustment Adjustment Hedges Hedges Balance at June 30, 2022 $ ( 2,266 ) $ ( 6,614 ) $ 356 $ 1,550 Other comprehensive loss before reclassifications 684 - - - Plan merger remeasurement adjustment ( 1,115 ) Amounts reclassified from accumulated other comprehensive loss - 1,781 332 ( 278 ) Net current period other comprehensive income (loss) 684 666 332 ( 278 ) Balance at June 30, 2023 $ ( 1,582 ) $ ( 5,948 ) $ 688 $ 1,272 Translation Benefit Plan Cash Flow Net Investment Adjustment Adjustment Hedges Hedges Balance at June 30, 2023 $ ( 1,582 ) $ ( 5,948 ) $ 688 $ 1,272 Other comprehensive loss before reclassifications 733 - - - Amounts reclassified from accumulated other comprehensive loss - ( 2,114 ) ( 184 ) 230 Net current period other comprehensive income (loss) 733 ( 2,114 ) ( 184 ) 230 Balance at June 30, 2024 $ ( 849 ) $ ( 8,062 ) $ 504 $ 1,502 45 A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended June 30, 2024 is as follows: Amount Reclassified Changes in benefit plan items Actuarial loss $ ( 2,079 ) Transition asset and prior service benefit 21 Translation ( 64 ) Total amortization ( 2,122 ) Income taxes 8 Total changes, net of tax $ ( 2,114 ) A reconciliation for the reclassifications out of accumulated other comprehensive loss, net of tax, for the year ended June 30, 2023 is as follows: Amount Reclassified Changes in benefit plan items Actuarial income $ 16 Transition asset and prior service benefit 336 Plan merger remeasurement adjustment ( 1,115 ) MMTM adjustment 2,430 Translation 6 Total amortization 1,673 Income taxes 108 Total changes, net of tax $ 1,781 K. BUSINESS SEGMENTS AND FOREIGN OPERATIONS The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, energy and natural resources, government, and industrial markets. Net sales by product group is summarized as follows: 2024 2023 Industrial $ 25,668 $ 29,775 Land-based transmissions 78,518 73,048 Marine and propulsion systems 171,766 147,825 Other 19,175 26,312 Total $ 295,127 $ 276,960 Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets. The land-based transmission products include applications for oil field and natural gas, military and airport rescue and firefighting. The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, and propellers for the global commercial marine, pleasure craft and patrol boat markets. Other includes non-Twin Disc manufactured product sold through Company-owned distribution entities. 46 The Company has two reportable segments: manufacturing and distribution. Its segment structure reflects the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices. Management evaluates the performance of its segments based on net earnings. Information about the Company's segments, before intercompany eliminations, is summarized as follows: 2024 Manufacturing Distribution Total Net Sales $ 250,933 $ 148,920 $ 399,853 Intra-segment sales 6,974 15,661 22,635 Inter-segment sales 77,978 4,113 82,091 Interest income 335 344 679 Interest expense 1,987 11 1,998 Income taxes 890 2,519 3,409 Depreciation and amortization 8,606 341 8,947 Net income attributable to Twin Disc 24,587 7,250 31,837 Assets 443,149 73,033 516,182 Expenditures for segment assets 7,305 730 8,035 2023 Manufacturing Distribution Total Net Sales $ 244,090 $ 121,964 $ 366,054 Intra-segment sales 9,258 12,779 22,037 Inter-segment sales 60,858 6,199 67,057 Interest income 879 256 1,135 Interest expense 3,297 3 3,300 Income taxes 2,722 1,585 4,307 Depreciation and amortization 8,572 295 8,867 Net income attributable to Twin Disc 22,964 6,839 29,803 Assets 381,668 69,213 450,881 Expenditures for segment assets 5,336 374 5,710 The following is a reconciliation of reportable segment net sales and net income to the Company’s consolidated totals: 2024 2023 Net sales: Total net sales from reportable segments $ 399,853 $ 366,054 Elimination of inter-company sales ( 104,726 ) ( 89,094 ) Total consolidated net sales $ 295,127 $ 276,960 Net income attributable to Twin Disc, Incorporated: Total net income from reportable segments $ 31,837 $ 29,803 Other adjustments and corporate expenses ( 20,849 ) ( 19,423 ) Total consolidated net income attributable to Twin Disc $ 10,988 $ 10,380 47 Corporate expenses pertain to certain costs that are not allocated to the reportable segments, primarily consisting of corporate overhead costs, including administrative functions and global functional expenses. Other significant items: Segment Consolidated Totals Adjustments Totals 2024 Interest income $ 679 $ ( 615 ) $ 64 Interest expense 1,998 ( 555 ) 1,443 Income taxes 3,409 712 4,121 Depreciation and amortization 8,947 1,034 9,981 Assets 516,182 ( 204,124 ) 312,058 Expenditures for segment assets 8,035 672 8,707 2023 Interest income $ 1,135 $ ( 1,102 ) $ 33 Interest expense 3,301 ( 1,048 ) 2,253 Income taxes 4,307 ( 519 ) 3,788 Depreciation and amortization 8,868 491 9,359 Assets 450,881 ( 161,700 ) 289,181 Expenditures for segment assets 5,710 2,208 7,918 All adjustments represent inter-company eliminations and corporate amounts. Geographic information about the Company is summarized as follows: Net sales 2024 2023 United States $ 79,823 $ 98,108 Netherlands 46,162 33,845 China 45,527 29,996 Australia 17,790 22,339 Italy 16,814 19,671 Other countries 89,011 73,001 Total $ 295,127 $ 276,960 Net sales by geographic region are based on product shipment destination. Long-lived assets primarily pertain to property, plant and equipment and exclude goodwill, other intangibles, and deferred income taxes. They are summarized as follows: Long-lived assets 2024 2023 United States $ 39,475 $ 31,628 Netherlands 10,270 10,396 Finland 14,362 - Belgium 5,746 6,160 Italy 1,356 1,372 Switzerland 1,093 619 Other countries 5,100 4,419 Total $ 77,402 $ 54,594 48 No one customer accounted for 10% of consolidated net sales in fiscal year 2024. There was one customer, an authorized distributor of the Company, that accounted for 10 % of consolidated net sales in fiscal year 2023. Disaggregated revenue: The following tables present details deemed most relevant to the users of the financial statements for the years ended June 30, 2024 and June 30, 2023. Net sales by product group for the year ended June 30, 2024 is summarized as follows: Elimination of Manufacturing Distribution Intercompany Sales Total Industrial $ 23,656 $ 5,163 $ ( 3,151 ) $ 25,668 Land-based transmissions 71,464 40,693 ( 33,639 ) 78,518 Marine and propulsion systems 152,855 86,202 ( 67,291 ) 171,766 Other 2,958 16,862 ( 645 ) 19,175 Total $ 250,933 $ 148,920 $ ( 104,726 ) $ 295,127 Net sales by product group for the year ended June 30, 2023 is summarized as follows: Elimination of Manufacturing Distribution Intercompany Sales Total Industrial $ 28,445 $ 6,162 $ ( 4,832 ) $ 29,775 Land-based transmissions 69,411 29,787 ( 26,150 ) 73,048 Marine and propulsion systems 136,992 67,033 ( 56,200 ) 147,825 Other 9,242 18,982 ( 1,912 ) 26,312 Total $ 244,090 $ 121,964 $ ( 89,094 ) $ 276,960 L. STOCK-BASED COMPENSATION In fiscal 2022, the Company adopted the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”). Benefits under the 2021 LTI Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. There is reserved for issuance under the Plan an aggregate of 715,000 shares of the Company’s common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes. In fiscal 2021, the Company adopted the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”) a plan to grant non-employee directors’ equity-based awards. Benefits under the 2020 Directors’ Plan may be granted, awarded or paid in any one or a combination of stock options, restricted stock awards, or cash-settled restricted stock units. Under the 2020 Directors’ Plan, non-employee directors may elect to receive all or a portion of their base cash retainer in the form of restricted stock. There is reserved for issuance under the 2020 Directors’ Plan an aggregate of 750,000 shares of the Company's common stock, which may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes. Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are issued at the target level of performance): 2024 2023 2020 Directors' Plan 521,550 560,531 2021 LTI Plan 41,439 233,270 49 Performance Stock Awards ( “ PSA ” ) In fiscal 2024 and 2023, the Company granted a target number of 119,349 and 118,131 PSAs, respectively, to various employees of the Company, including executive officers. The PSAs granted in fiscal 2024 will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 238,698 . Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs. The PSAs granted in fiscal 2023 will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2025. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 234,166 . Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs. There were 233,861 and 437,862 unvested PSAs outstanding at June 30, 2024 and 2023, respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. The compensation expense for the year ended June 30, 2024 and 2023, related PSAs, was $ 1,648 and $ 1,218 , respectively. The tax benefit from compensation expense for the year ended June 30, 2024 and 2023, related to PSAs, was $ 386 and $ 286 , respectively. The weighted average grant date fair value of the unvested awards at June 30, 2024 was $ 11.81 . At June 30, 2024, the Company had $ 1,327 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2024 and 2023 awards. The total fair value of performance stock awards vested in fiscal 2024 and fiscal 2023 was $ 1,659 . Performance Stock Unit Awards ( “ PSUA ” ) The PSUAs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date. During fiscal 2024 and 2023 , the Company granted a target number of 10.5 and 0 PSUAs, respectively, to various individuals in the Company. The fiscal 2024 PSUAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSUA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026. These PSUAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 20.9 . The compensation expense for the year ended June 30, 2024 and 2023, related PSAs, was $ 40 and $ 0 , respectively. Restricted Stock Awards ( “ RS ” ) The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years. During fiscal 2024 and 2023, the Company granted 118,544 and 179,959 service-based restricted shares, respectively, to employees and non-employee directors in each year. A total of 2,413 and 0 shares of restricted stock were forfeited during fiscal 2024 and 2023, respectively. There were 308,564 and 272,438 unvested shares outstanding at June 30, 2024 and 2023, respectively. Compensation expense of $ 1,265 and $ 1,317 was recognized during the year ended June 30, 2024 and 2023, respectively, related to these service-based awards. The tax benefit from compensation expense for the year ended June 30, 2024 and 2023, related to these service-based awards, was $ 297 and $ 309 , respectively. The total fair value of restricted stock grants vested in fiscal 2024 and 2023 was $ 2,345 and $ 1,699 , respectively. As of June 30, 2024, the Company had $ 1,280 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years. 50 Restricted Stock Unit Awards ( “ RSU ” ) In fiscal 2024 and 2023, the Company granted 7,089 and 72,376 RSUs, respectively, to various employees of the Company, including executive officers. The RSUs granted in fiscal 2023 will vest if the employee remains employed by the Company through a specified date from the date of grant. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. The RSUs granted in fiscal 2023 will vest if the employee remains employed by the Company through June 30, 2025 and if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the RSU Grant Agreement), in the cumulative three fiscal year period ending June 30, 2025. These RSUs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of shares that can be earned if the target objective is exceeded is 144,752 . Based upon actual results to date, the Company is currently accruing compensation expense for these RSUs. There were 134,989 and 130,163 unvested RSUs outstanding at June 30, 2024 and June 30, 2023, respectively. Compensation expense of $ 496 and $ 461 was recognized during the year ended June 30, 2024 and 2023, respectively. The tax benefit from compensation expense for the year ended June 30, 2024 and 2023, related to these service-based awards, was $ 116 and $ 108 , respectively. The weighted average grant date fair value of the unvested awards at June 30, 2024 was $ 10.97 . As of June 30, 2024, the Company had $ 287 of unrecognized compensation expense related to RSUs which will be recognized over the next year. M. ENGINEERING AND DEVELOPMENT COSTS Engineering and development costs include research and development expenses for new products, development and major improvements to existing products, and other costs for ongoing efforts to refine existing products. Research and development costs charged to operations totaled $ 2,629 and $ 2,458 in fiscal 2024 and 2023, respectively. Total engineering and development costs were $ 9,843 and $ 8,741 in fiscal 2024 and 2023, respectively, and are primarily recorded within Marketing, engineering and administration expenses on the consolidated statements of operations and comprehensive income. N. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic employees hired prior to October 1, 2003, and certain foreign employees. Domestic plan benefits are based on years of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company froze future accruals under domestic defined benefit pension plans. To reduce administration costs, in December 2022, the Company merged its domestic hourly and salaried defined benefit pension plans into a single plan. Due to the merger, an interim remeasurement was required which resulted in a net measurement loss (gain on liability offset by loss on assets) which increased the net liability from an expected amount of $ 1.5 million to a measured amount of $ 2.6 million. Lower future administrative costs are expected to be favorable to the net liability in subsequent measurements. The Company's funding policy for the plans covering domestic employees is to contribute an actuarially determined amount which falls between the minimum required contribution and maximum amount that can be deducted for federal income tax purposes. In addition, the Company has unfunded, non-qualified retirement plans for certain management employees and Directors. In the case of management employees, benefits are based on an annual credit to a bookkeeping account, intended to restore the benefits that would have been earned under the qualified plans, but for the earnings limitations under the Internal Revenue Code. In the case of Directors, benefits are based on years of service on the Board. All benefits vest upon retirement from the Company. In addition to providing pension benefits, the Company provides other postretirement benefits, including healthcare and life insurance benefits for certain domestic retirees. All employees retiring after December 31, 1992, and electing to continue healthcare coverage through the Company's group plan, are required to pay 100 % of the premium cost. 51 The measurement date for the Company’s pension and postretirement benefit plans in fiscal 2024 and 2023 was June 30. As discussed in Note A, during the fourth quarter of fiscal year 2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for its pension and postretirement benefit plans. Under the new method, actuarial gains and losses are recognized in net periodic benefit costs upon annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement. These changes have been applied retrospectively to prior years presented below. See Note A for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements. The income to the Company of its retirement benefit plans is shown in the following table: Year Ended June 30 Pension Benefits Other Postretirement Benefits Components of net periodic benefit income: 2024 2023 2024 2023 Service cost $ 373 $ 338 $ 8 $ 10 Interest cost 3,609 3,570 191 213 Prior service cost - 20 - - Expected return on plan assets ( 4,283 ) ( 4,240 ) - - Amortization of transition obligation 38 38 - - Amortization of prior service cost (benefit) 35 ( 100 ) ( 708 ) ( 314 ) Amortization of actuarial net loss 65 2,451 - - Modified mark-to market effect - ( 2,428 ) - - Net periodic benefit income $ ( 163 ) $ ( 351 ) $ ( 509 ) $ ( 91 ) Obligations and Funded Status The following table sets forth the Company's defined benefit pension plans’ and other postretirement benefit plans’ funded status and the amounts recognized in the Company's balance sheets and statement of operations and comprehensive income as of June 30: Other Pension Postretirement Benefits Benefits 2024 2023 2024 2023 Change in benefit obligation: Benefit obligation, beginning of year $ 72,242 $ 79,549 $ 3,685 $ 4,785 Service cost 373 340 8 10 Interest cost 3,609 3,571 191 213 Prior service cost - 20 - - Actuarial loss (gain) 254 ( 3,361 ) ( 166 ) ( 633 ) Contributions by plan participants 116 112 - - Benefits paid ( 8,484 ) ( 7,989 ) ( 549 ) ( 690 ) Benefit obligation, end of year $ 68,110 $ 72,242 $ 3,169 $ 3,685 Change in plan assets: Fair value of assets, beginning of year $ 67,338 $ 73,338 $ - $ - Actual return on plan assets 3,101 1,141 - - Employer contribution 589 736 549 690 Contributions by plan participants 116 112 - - Benefits paid ( 8,484 ) ( 7,989 ) ( 549 ) ( 690 ) Fair value of assets, end of year $ 62,660 $ 67,338 $ - $ - Funded status $ ( 5,450 ) $ ( 4,904 ) $ ( 3,169 ) $ ( 3,685 ) Amounts recognized in the balance sheet consist of: Other assets - noncurrent $ - $ 28 $ - $ - Accrued liabilities - current ( 260 ) ( 308 ) ( 505 ) ( 701 ) Accrued retirement benefits - noncurrent ( 5,190 ) ( 4,624 ) ( 2,664 ) ( 2,984 ) Net amount recognized $ ( 5,450 ) $ ( 4,904 ) $ ( 3,169 ) $ ( 3,685 ) Amounts recognized in accumulated other comprehensive loss consist of (net of tax): Net transition obligation $ 53 $ 83 $ - $ - Prior service benefit ( 145 ) ( 42 ) - ( 67 ) Actuarial net loss (gain) 8,768 7,064 ( 614 ) ( 1,090 ) Net amount recognized $ 8,676 $ 7,105 $ ( 614 ) $ ( 1,157 ) 52 The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during the next fiscal year for the qualified defined benefit and other postretirement benefit plans are as follows: Other Pension Postretirement Benefits Benefits Net transition obligation $ 96 $ - Prior service benefit ( 32 ) - Actuarial net loss (gain) 239 ( 262 ) Net amount to be recognized $ 303 $ ( 262 ) The accumulated benefit obligation for all defined benefit pension plans was approximately $ 68,110 and $ 72,242 at June 30, 2024 and 2023, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets : June 30 2024 2023 Projected and accumulated benefit obligation $ 64,286 $ 67,808 Fair value of plan assets 58,839 62,876 Components of Net Periodic Benefit Income: Pension Benefits 2024 2023 Service cost $ 373 $ 338 Interest cost 3,609 3,570 Prior service cost - 20 Expected return on plan assets ( 4,283 ) ( 4,240 ) Amortization of transition obligation 38 38 Amortization of prior service cost (benefit) 35 ( 100 ) Amortization of actuarial net loss 65 23 Net periodic benefit income $ ( 163 ) $ ( 351 ) Other Postretirement Benefits 2024 2023 Service cost $ 8 $ 10 Interest cost 191 213 Amortization of prior service benefit ( 708 ) ( 314 ) Net periodic benefit income $ ( 509 ) $ ( 91 ) 53 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income for Fiscal 2024 (Pre-tax): Other Postretirement Pension Benefits Net loss (income) $ 1,656 $ ( 165 ) Amortization of transition asset ( 38 ) - Amortization of prior service (benefit) cost ( 34 ) 88 Amortization of net (income) loss ( 64 ) 620 Total recognized in other comprehensive loss 1,520 543 Net periodic benefit income ( 163 ) ( 509 ) Total recognized in net periodic benefit income and other comprehensive loss $ 1,357 $ 34 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal 2023 (Pre-tax): Other Postretirement Pension Benefits Net income $ ( 307 ) $ ( 633 ) Amortization of transition asset ( 38 ) - Amortization of prior service cost 99 275 Amortization of net (income) loss ( 23 ) 39 Total recognized in other comprehensive income ( 269 ) ( 319 ) Net periodic benefit income ( 351 ) ( 91 ) Total recognized in net periodic benefit income and other comprehensive income $ ( 620 ) $ ( 410 ) Additional Information Assumptions Other Pension Benefits Postretirement Benefits Weighted average assumptions used to determine benefit obligations at June 30 2024 2023 2024 2023 Discount rate 5.25 % 5.29 % 5.66 % 5.74 % Expected return on plan assets 6.54 % 6.65 % Other Pension Benefits Postretirement Benefits Weighted average assumptions used to determine net periodic benefit costs for years ended June 30 2024 2023 2024 2023 Discount rate 5.07 % 5.02 % 5.74 % 4.83 % Expected return on plan assets 6.47 % 6.42 % The assumed weighted-average healthcare cost trend rate was 8.30 % in 2024, grading down to 5.00 % in 2025. 54 Plan Assets The Company’s Benefits Committee (“Committee”), a non-board management committee, oversees investment matters related to the Company’s funded benefit plans. The Committee works with external actuaries and investment consultants on an ongoing basis to establish and monitor investment strategies and target asset allocations. The overall objective of the Committee’s investment strategy is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension plans. The Committee has established an Investment Policy Statement which provides written documentation of the Company’s expectations regarding its investment programs for the pension plans, establishes objectives and guidelines for the investment of the plan assets consistent with the Company’s financial and benefit-related goals, and outlines criteria and procedures for the ongoing evaluation of the investment program. The Company employs a total return on investment approach whereby a mix of investments among several asset classes are used to maximize long-term return of plan assets while avoiding excessive risk. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, and annual liability measurements. The Company’s pension plan weighted-average asset allocations at June 30, 2024 and 2023 by asset category were as follows: Target June 30 Asset Category Allocation 2024 2023 Equity securities 38 % 19 % 40 % Debt securities 55 % 71 % 49 % Real estate 7 % 10 % 11 % 100 % 100 % 100 % Due to market conditions and other factors, actual asset allocation may vary from the target allocation outlined above. The U.S. pension plans held 98,211 shares of Company stock with a fair market value of $ 1,157 ( 1.8 % of total plan assets) at June 30, 2024 and 98,211 shares with a fair market value of $ 1,106 ( 1.6 % of total plan assets) at June 30, 2023. The U.S. plans have a long-term return assumption of 7.0 %. This rate was derived based upon historical experience and forward-looking return expectations for major asset class categories. Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are classified into the following hierarchy: Level I Unadjusted quoted prices in active markets for identical instruments Level II Unadjusted quoted prices in active markets for similar instruments, or Unadjusted quoted prices for identical or similar instruments in markets that are not active, or Other inputs that are observable in the market or can be corroborated by observable market data Level III Use of one or more significant unobservable inputs The following table presents plan assets using the fair value hierarchy as of June 30, 2024: Total Level I Level II Level III Cash and cash equivalents $ 647 $ 647 $ - $ - Equity securities: Company common stock (a) 1,157 1,157 - - Common stock (a) 1,479 1,479 - - Mutual funds (b) 4,261 4,261 - - Annuity contracts (c) 6,264 - - 6,264 Total $ 13,808 $ 7,544 $ - $ 6,264 Investments Measured at Net Asset Value (d) 48,852 Total $ 62,660 55 Total Level I Level II Level III Cash and cash equivalents $ 858 $ 858 $ - $ - Equity securities: Company common stock (a) 1,106 1,106 - - Common stock (a) 9,590 9,590 - - Mutual funds (b) 3,112 3,112 - - Annuity contracts (c) 6,688 - - 6,688 Total $ 21,354 $ 14,666 $ - $ 6,688 Investments Measured at Net Asset Value (d) 45,984 Total $ 67,338 (a) Common stock is valued at the closing price reported on the active market on which the individual securities are traded. These securities include U.S. equity securities invested in companies that are traded on exchanges inside the U.S. and international equity securities invested in companies that are traded on exchanges outside the U.S. (b) Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Company’s funded benefit plans are open-end mutual funds that are registered with the Securities Exchange Commission. These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual funds held by the Company’s funded benefit plans are deemed to be actively traded. (c) Annuity contracts represent contractual agreements in which payments are made to an insurance company, which agrees to pay out an income or lump sum amount at a later date. Annuity contracts are valued at fair value using the net present value of future cash flows. (d) In accordance with ASC 820 - 10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at the end of the year. The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that calculate fair value based on NAV per share practical expedient as of June 30, 2024 and June 30, 2023: 2024 2023 Fixed income funds $ 35,089 $ 29,057 International equity securities 1,808 2,251 Real estate 5,209 6,315 Hedged equity mutual funds 6,746 8,361 Total $ 48,852 $ 45,984 The following tables present a reconciliation of the fair value measurements using significant unobservable inputs (Level III) as of June 30, 2024 and 2023: 2024 2023 Beginning balance $ 6,688 $ 6,302 Actual return on plan assets: Relating to assets still held at reporting date 605 184 Purchases, sales and settlements, net ( 1,029 ) 203 Ending balance $ 6,264 $ 6,688 56 Cash Flows Contributions The Company expects to contribute $ 542 to its defined benefit pension plans in fiscal 2025. The Company expects to contribute $ 519 to its other postretirement benefit plans in fiscal 2025. Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Other Pension Postretirement Benefits Benefits 2025 $ 7,593 $ 519 2026 6,910 467 2027 6,805 431 2028 6,769 396 2029 6,061 356 Years 2029 - 2033 30,967 1,234 The Company does not expect to make any Part D reimbursements for the periods presented. The Company sponsors defined contribution plans covering substantially all domestic employees and certain foreign employees. These plans provide for employer contributions based primarily on employee participation. The total expense under the plans was $ 2,447 and $ 2,260 in fiscal 2024 and 2023, respectively. These amounts are recorded in cost of goods sold and marketing, engineering and administration costs. O. INCOME TAXES United States and foreign (loss) income before income taxes and minority interest were as follows: 2024 2023 United States $ ( 6,213 ) $ 683 Foreign 21,580 13,782 $ 15,367 $ 14,465 The provision (benefit) for income taxes is comprised of the following: 2024 2023 Currently payable: Federal $ 7 $ 72 State 66 ( 5 ) Foreign 4,608 4,355 4,681 4,422 Deferred: Federal $ 10 $ - State ( 2 ) ( 47 ) Foreign ( 568 ) ( 587 ) ( 560 ) ( 634 ) $ 4,121 $ 3,788 57 The components of the net deferred tax asset as of June 30 are summarized in the table below. 2024 2023 Deferred tax assets: Retirement plans and employee benefits $ 4,683 $ 4,234 Foreign tax credit carryforwards 8,347 7,983 Federal tax credits, net of ASU 2013-11 1,683 1,724 State net operating loss and other state creditcarryforwards, net of ASU 2013-11 2,226 2,143 Federal net operating loss 4,042 4,489 Reserves 931 774 Inventories 93 - Research & experimental expenditure capitalization 816 588 Foreign net operating loss carryforwards 52 - Accruals 1,081 936 Right of use assets - operating leases 4,038 3,501 Disallowed interest 1,384 1,062 Capital loss carryforward 108 108 Translation adjustment 565 494 Other assets 108 115 30,157 28,151 Valuation allowance ( 24,035 ) ( 22,345 ) $ 6,122 $ 5,806 Deferred tax liabilities: Inventories - 96 Property, plant and equipment 673 850 Intangible assets 1,010 1,561 Long term operating lease obligations 4,034 3,427 Hedging 445 435 Step-up on fair value adjustment 2,530 - Other liabilities 431 473 9,123 6,842 Total net deferred tax liabilities $ ( 3,001 ) $ ( 1,036 ) At June 30, 2024 the Company has net operating loss carryforwards (“NOLs”) of approximately $ 19,249 and $ 30,536 for federal and state income tax purposes which will expire at various dates from fiscal year 2025 – 2044. Federal NOLs were generated subsequent to fiscal 2019 and have an indefinite carryover period. The Company has federal and state tax credit carryforwards of approximately $ 10,370 and $ 1,041 , respectively, which will expire at various dates from fiscal 2026 – 2044. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company has evaluated the likelihood of whether the net deferred tax assets would be realized and concluded that it is more likely than not that all of deferred tax assets would not be realized. Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $ 24,035 and $ 22,345 have been recorded for fiscal years 2024 and 2023, respectively. 58 Following is a reconciliation of the applicable U.S. federal income taxes to the actual income taxes reflected in the statements of operations (in thousands): 2024 2023 U.S. federal income tax at 21 % $ 3,227 $ 3,038 Increases (reductions) in tax resulting from: US Foreign inclusion items 463 67 Foreign rate differences 555 739 Foreign permanent items 127 20 Foreign prior period adjustments 118 166 Foreign other 3 ( 90 ) Foreign bargain purchase gain ( 782 ) - Foreign tax ruling ( 786 ) - Foreign uncollectible tax receivable 238 - State taxes ( 144 ) 69 Change in prior year estimate 96 ( 113 ) Research & development tax credits ( 47 ) ( 127 ) Foreign tax credits ( 480 ) - Unrecognized tax benefits 3 64 Stock compensation ( 445 ) ( 13 ) Rate changes - ( 39 ) Deferred tax basis adjustments 132 41 Executive compensation 471 219 GILTI Inclusion - 97 FDII Deduction - - Valuation Allowance 1,110 ( 426 ) Other, net 262 76 $ 4,121 $ 3,788 The Company has not provided additional U.S. income taxes on cumulative earnings of its consolidated foreign subsidiaries that are considered to be reinvested indefinitely. The Company reaffirms its position that the earnings of those subsidiaries remain permanently invested and has no plans to repatriate funds from any permanently reinvested subsidiaries to the U.S. for the foreseeable future. These earnings relate to ongoing operations and were approximately $ 20,977 and $ 24,612 at June 30, 2024 and June 30, 2023, respectively. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are 2019 through 2024 for our major operations in Belgium, Japan, Netherlands, Singapore and Australia. The tax years open to examination in the U.S. are for years subsequent to fiscal 2019. The Company has approximately $ 766 and $ 774 of unrecognized tax benefits as of June 30, 2024 and June 30, 2023 respectively, which, if recognized would impact the effective tax rate. No material changes are expected to the reserve during the next 12 months. The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits in income tax expense. 59 Below is a reconciliation of beginning and ending amount of unrecognized tax benefits as of June 30: 2024 2023 Unrecognized tax benefits, beginning of year $ 774 $ 716 Additions based on tax positions related to the prior year - 22 Additions based on tax positions related to the current year 8 36 Reductions based on tax positions related to the prior year ( 16 ) - Subtractions due to statues closing - - Settlements with taxing authorities - - Unrecognized tax benefits, end of year $ 766 $ 774 Substantially all of the Company’s unrecognized tax benefits as of June 30, 3024, if recognized, would affect the effective tax rate. As of June 30, 2024 and 2023, the amounts accrued for interest and penalties totaled $ 68 and $ 52 , respectively, and are not included in the reconciliation above. P. CONTINGENCIES The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, are 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, either individually or in the aggregate. Q. ASSETS HELD FOR SALE To improve its fixed cost structure and monetize some of its under-utilized assets, the Company commenced the active marketing of several of its real estate properties. Such actions required the Company to reclassify these assets from property, plant and equipment to assets held for sale, at fair value less costs to sell, or net book value, whichever is lower. Fair value was determined using real estate broker estimates and would be classified as Level 3 in the fair value hierarchy. This assessment of fair value did not result in the Company recognizing a write-down of the carrying value of the assets during fiscal 2024 or 2024. In the first quarter of fiscal 2023, the Company commenced the active marketing of a real estate property located in Nivelles, Belgium. This action required the Company to reclassify the assets from property, plant, and equipment to assets held for sale, at fair value less costs to sell or net book value, whichever is lower. Fair value was determined using real estate broker estimates and would be classified as Level 3 in the fair value hierarchy. The real estate property's fair value less costs to sell exceeded its net book value. The Company reclassified the property's net book value of $ 2,801 from property, plant, and equipment to assets held for sale. In the second quarter of fiscal 2023, the Company completed the sale of the real estate property located in Belgium and received $ 7,150 in proceeds, net of fees and recorded a gain of $ 4,161 in other operating income. In the first quarter of fiscal 2024, the Company entered into an agreement to sell certain machinery assets, inventory, and legal relationships of its boat management systems product line for $ 1.5 million, which $ 0.6 million was paid upon closing with the remainder to be paid in monthly equal installments over 11 months. As of June 30, 2024, the Company received substantially all of the purchase price, and cash proceeds received are presented within the changes in trade accounts receivable, net in the consolidated statement of cash flows. This action required the Company to reclassify these assets from property, plant and equipment and inventory to assets held for sale, at fair value less costs to sell, or net book value, whichever is lower. The fair value of the machinery assets was determined using local internal specialists. The machinery assets’ fair value less costs to sell exceeded its net book value. The boat management systems inventory was valued at the lower of cost or net realizable value. Net realizable value was determined using the offer amount from the buyer less costs to sell. This assessment resulted in the Company recognizing a write-down of the carrying value of its boat management systems inventory of $2.1 million (see Note C for further information regarding the impact of this transaction). The write-down was classified in the income statement as a component of cost of goods sold. The agreement closed October 30, 2023. 60 R. EARNINGS PER SHARE The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period. The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect. The components of basic and diluted earnings per share were as follows: 2024 2023 Basic: Net income $ 11,246 $ 10,677 Less: Net earnings attributable to noncontrolling interest ( 258 ) ( 297 ) Less: Undistributed earnings attributable to unvested shares - - Net income attributable to Twin Disc, Incorporated 10,988 10,380 Weighted average shares outstanding - basic 13,683 13,468 Basic Income Per Share: Net income per share - basic $ 0.80 $ 0.77 Diluted: Net income $ 11,246 $ 10,677 Less: Net earnings attributable to noncontrolling interest ( 258 ) ( 297 ) Less: Undistributed earnings attributable to unvested shares - - Net income attributable to Twin Disc, Incorporated 10,988 10,380 Weighted average shares outstanding - basic 13,683 13,468 Effect of dilutive stock awards 194 343 Weighted average shares outstanding - diluted 13,877 13,811 Diluted Income Per Share: Net income per share - diluted $ 0.79 $ 0.75 S. DERIVATIVE FINANCIAL INSTRUMENTS The Company reports all derivative instruments on its consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes. As a global organization, the Company faces exposure to market risks, such as fluctuations in foreign currency exchange rates, interest rates and commodity prices. To manage the volatility relating to these exposures, the Company enters into various derivative instruments from time to time under its risk management policies. The Company designates derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its policy. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. The Company’s practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if it determines the underlying forecasted transaction is no longer probable of occurring. 61 Interest Rate Swaps Designated as Cash Flow Hedges The primary purpose of the Company’s cash flow hedging activities is to manage the potential changes in value associated with interest payments on the Company’s SOFR-based indebtedness. The Company records gains and losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive loss to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net earnings, at which time these gains and losses are recognized in interest expense on its consolidated statements of operations and comprehensive income. Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows. These contracts generally have original maturities of greater than twelve months. Net unrealized after-tax gains related to cash flow hedging activities that were included in accumulated other comprehensive loss were ($ 504 ) and ($ 688 ) for the years ended June 30, 2024 and 2023, respectively. The unrealized amounts in accumulated other comprehensive loss will fluctuate based on changes in the fair value of open contracts during each reporting period. The Company estimates that ($ 218 ) of net unrealized gains related to cash flow hedging activities included in accumulated other comprehensive loss will be reclassified into earnings within the next twelve months. Derivatives Designated as Net Investment Hedges The Company is exposed to foreign currency exchange risk related to its investment in net assets in foreign countries. As discussed in Note H, Debt, during the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan, with a notional amount of €13,500, as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign subsidiaries. All changes in fair value of the euro revolver were then reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. Net unrealized after-tax gains related to net investment hedging activities that were included in accumulated other comprehensive loss were ($ 1,502 ) and ($ 1,272 ) for the years ended June 30, 2024 and 2023, respectively. Foreign Currency Forward Contracts Not Designated as Hedges The Company primarily enters into forward exchange contracts to reduce the earnings and cash flow impact of non-functional 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 expense, net in the consolidated statement of operations and comprehensive income 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 2024 and 2023 was the euro. At June 30, 2024 and 2023, there were no significant forward exchange contracts outstanding. Other Derivative Instruments The Company does not utilize commodity price hedges to manage commodity price risk exposure. Likewise, the Company does not hedge the translation exposure represented by the net assets of its foreign subsidiaries. Fair Value of Derivative Instruments The Company’s interest rate swaps and foreign currency forward contracts are recorded at fair value on the consolidated balance sheets using a discounted cash flow analysis that incorporates observable market inputs. These market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained from pricing data quoted by various banks, third -party sources and foreign currency dealers involving identical or comparable instruments (Level 2 ). Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings on some of the Company’s counterparties may change during the term of the financial instruments. The Company closely monitors its counterparties’ credit ratings and, if necessary, will make any appropriate changes to its financial instruments. The fair value generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date. 62 As discussed in Note H, Debt, the Company's euro denominated Revolving Loan approximates fair value at June 30, 2024 and June 30, 2023. If measured at fair value in the financial statements, it would be classified as Level 2 in the fair value hierarchy. The fair value of derivative instruments included in the consolidated balance sheets at June 30 were as follows: Balance Sheet Location 2024 2023 Derivatives designated as hedges: Interest rate swaps Other current assets $ 218 $ 292 Interest rate swaps Other noncurrent assets 76 187 The impact of the Company’s derivative instruments on the consolidated statement of operations and comprehensive income for the years ended June 30 was as follows: Statement of Operations and Comprehensive Income Location 2024 2023 Derivatives designated as hedges: Interest rate swap Interest expense $ 262 $ 311 Interest rate swap Unrealized (loss) gain on hedges ( 184 ) 332 Net investment hedge Unrealized gain (loss) on hedges 230 ( 278 ) 63 TWIN DISC, INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended June 30, 2024 and 2023 (in thousands) Balance at Charged to Balance at Beginning Costs and End of Description of Period Expenses Adjustments (1) Period 2024 Allowance for credit losses on accounts receivable $ 1,221 $ 240 $ 78 $ 1,383 Reserve for inventory obsolescence $ 12,858 $ 2,331 $ 2,496 $ 12,693 Deferred tax valuation allowance $ 22,345 $ - $ ( 1,690 ) $ 24,035 2023 Allowance for credit losses on accounts receivable $ 1,741 $ 140 $ 660 $ 1,221 Reserve for inventory obsolescence $ 11,557 $ 1,740 $ 439 $ 12,858 Deferred tax valuation allowance $ 23,097 $ - $ 752 $ 22,345 ( 1 ) Activity primarily represents amounts written-off during the year, along with other adjustments (primarily foreign currency translation adjustments). 64 EXHIBIT INDEX TWIN DISC, INCORPORATED 10-K for Year Ended June 30, 2024 Exhibit Description Included Herewith 3a) Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of the Company's Form 8‑K dated December 6, 2007). File No. 001-07635. 3b) Articles of Amendment to the Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of the Company's Form 8‑K dated October 29, 2020). File No. 001-07635. 3c) Restated Bylaws of Twin Disc, Incorporated, as amended through October 29, 2021 (Incorporated by reference to Exhibit 3.2 of the Company's Form 8‑K dated October 29, 2020). File No. 001-07635. Exhibit 10 Material Contracts Included Herewith a) Director Tenure and Retirement Policy (Incorporated by reference to Exhibit 10.A of the Company’s Form 10-K dated September 2, 2021). File No. 001-07635. b) Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 6, 2024). File No. 001-07635. c) The Twin Disc, Incorporated 2021 Long-Term Incentive Compensation Plan (Incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on October 28, 2021). File No. 001-07635. d) The 2020 Stock Incentive Plan for Non-Employee Directors (Incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on October 29, 2020). File No. 001-07635. e) Form of Performance Stock Award Grant Agreement for award of performance shares on August 4, 2021 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 10, 2021). File No. 001-07635. f) Form of Restricted Stock Unit Grant Agreement for restricted stock units granted on August 4, 2021 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 10, 2021). File No. 001-07635. g) Form of Restricted Stock Grant Agreement for restricted stock grants on August 3, 2022 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 8,2022). File No. 001-07635. h) Form of Restricted Stock Unit Grant Agreement for restricted stock units granted on August 3, 2022 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 8,2022). File No. 001-07635. i) Form of Performance Stock Award Grant Agreement for award of performance shares on August 3, 2022 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 8,2022). File No. 001-07635. j) Form of Restricted Stock Grant Agreement for restricted stock grants on August 3, 2023 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 9, 2023). File No. 001-07635. k) Form of Performance Stock Award Grant Agreement for award of performance shares on August 4, 2023 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 9, 2023). File No. 001-07635. l) Amendment to Restricted Stock Unit Grant Agreement for restricted stock units granted on August 3, 2022 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 9, 2022). File No. 001-07635. 65 m) Form of Restricted Stock Unit Grant Agreement for restricted stock unit grants on August 1, 2024 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 6, 2024). File No. 001-07635. n) Form of Performance Stock Award Grant Agreement for performance stock grants on August 1, 2024 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 6, 2024). File No. 001-07635. o) Twin Disc, Incorporated Supplemental Executive Retirement Plan, amended and restated as of July 29, 2010 (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated August 4, 2010). File No. 001-07635. p) Form of Change in Control Severance Agreements (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated August 3, 2022). File No. 001-07635. q) Form of Indemnity Agreement (Incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K dated August 2, 2005). File No. 001-07635. r) Credit Agreement Between Twin Disc, Incorporated and BMO Harris Bank, dated June 29, 2018 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. s) Amendment and Assignment of Revolving Loan Note between Bank of Montreal and BMO Harris Bank, N.A., dated June 29, 2018. (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. t) Assignment of and Amendment to Security Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Twin Disc, Incorporated, dated June 29, 2018. (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. u) Assignment of and Amendment to IP Security Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Twin Disc, Incorporated, dated June 29, 2018. (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. v) Assignment of and Amendment to Pledge Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., Twin Disc, Incorporated, and Mill-Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. w) Assignment of and Amendment to the Guaranty Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Mill-Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference to Exhibit 10.6 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. x) Assignment of and Amendment to Guarantor Security Agreement By and Among Bank of Montreal, BMO Harris Bank, N.A., and Mill-Log Equipment Co., Inc., dated June 29, 2018. (Incorporated by reference to Exhibit 10.7 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. y) Assignment of and Amendment to Negative Pledge Agreement By and Among Twin Disc, Incorporated, Bank of Montreal, and BMO Harris Bank N.A., dated June 29, 2018. (Incorporated by reference to Exhibit 10.8 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. z) Collateral Assignment of Rights under Purchase Agreement from Twin Disc, Incorporated and Twin Disc NL Holding B.V. in favor of BMO Harris Bank N.A., dated July 2, 2018. (Incorporated by reference to Exhibit 10.9 of the Company’s Form 8-K dated July 3, 2018). File No. 001-07635. aa) First Amendment to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated September 21, 2018). File No. 001-07635. bb) Amendment No. 2 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated March 6, 2019). File No. 001-07635. 66 cc) Amended and Restated Term Note between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated March 6, 2019). File No. 001-07635. dd) Amendment No. 3 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated January 30, 2020). File No. 001-07635. ee) Promissory Note dated April 17, 2021, entered into by Twin Disc, Incorporated, as borrower, for the benefit of BMO Harris Bank, N.A., as lender (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated April 21, 2020). File No. 001-07635. ff) Amendment No. 4 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated April 21, 2020). File No. 001-07635. gg) Amendment No. 5 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated July 28, 2020). File No. 001-07635. hh) Form of Deposit Account Control Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.3 of the Company’s Form 8-K dated July 28, 2020). File No. 001-07635. ii) Forbearance Agreement and Amendment No. 6 to June 29, 2018 Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated January 29, 2021). File No. 001-07635. jj) First Amended and Restated Forbearance Agreement and Amendment No. 7 to Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated October 5, 2021). File No. 001-07635. kk) Second Amended and Restated Forbearance Agreement and Amendment No. 8 to Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated March 4, 2022). File No. 001-07635. ll) mm) nn) Amendment No. 9 to Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated July 6, 2022). File No. 001-07635. Amendment No. 10 to Credit Agreement between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated April 2, 2024). File No. 001-07635. Fourth Amended and Restated Revolving Note between Twin Disc, Incorporated and BMO Harris Bank, N.A. (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated April 2, 2024). File No. 001-07635. oo) ISDA Master Agreement and Schedule, dated April 11, 2019, between Twin Disc, Incorporated and Bank of Montreal (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated April 26, 2019). File No. 001-07635. pp) Confirmation of swap transaction, dated April 22, 2019, from Bank of Montreal to Twin Disc, Incorporated (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated April 26, 2019). File No. 001-07635. 67 Exhibit Description Herewith 21 Subsidiaries of the Registrant X 23a Consent of Independent Registered Public Accounting Firm X 24 Power of Attorney X 31a Certification X 31b Certification X 32a Certification pursuant to 18 U.S.C. Section 1350 X 32b Certification pursuant to 18 U.S.C. Section 1350 X 101.INS Inline XBRL Instance Document, filed herewith 101.SCH Inline XBRL Schema Document, filed herewith 101.CAL Inline XBRL Calculation Linkbase Document, filed herewith 101.DEF Inline XBRL Definition Linkbase Document, filed herewith 101.LAB Inline XBRL Label Linkbase Document, filed herewith 101.PRE Inline XBRL Presentation Linkbase, filed herewith 104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. September 6, 2024 TWIN DISC, INCORPORATED By: /s/ JOHN H. BATTEN John H. Batten President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. September 6, 2024 By: /s/ MICHAEL C. SMILEY Michael C. Smiley Chairman of the Board September 6, 2024 By: /s/ JOHN H. BATTEN John H. Batten President and Chief Executive Officer September 6, 2024 By: /s/ JEFFREY S. KNUTSON Jeffrey S. Knutson Vice President - Finance, Chief Financial Officer, Treasurer and Secretary September 6, 2024 Michael Doar, Director Janet P. Giesselman, Director David W. Johnson, Director Juliann Larimer, Director Kevin M. Olsen, Director By: /s/ JEFFREY S. KNUTSON Jeffrey S. Knutson Vice President - Finance, Chief Financial Officer, Treasurer and Secretary (Attorney in Fact) 69