What changed in this filing

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Item 1. Financial Statements

2024-11-06 compared with 2024-05-08 · 291 added, 708 removed, 491 unchanged (67% of the section changed)

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

March 29, 2024

September 27, 2024

June 30, 2024

3 unchanged sentences

51,513 52,207

Inventories, net

143,865 130,484

Assets held for sale

Prepaid expenses

Other current assets

18,158 16,870

Total current assets

2 unchanged sentences

58,959 58,074

Right-of-use assets operating leases

Right-of-use operating lease assets

16,700 16,622

15 unchanged sentences

27,794 23,811

Lease obligations

Right-of-use lease obligations

14,506 14,376

4 unchanged sentences

165,528 157,004

Twin Disc shareholders' equity:

Twin Disc, Incorporated shareholders' equity:

Preferred shares authorized:

7 unchanged sentences

Less treasury stock, at cost ( 528,546 and 637,778 shares, respectively)

Total Twin Disc shareholders' equity

Total Twin Disc, Incorporated shareholders' equity

157,531 154,702

5 unchanged sentences

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

For the Quarter-Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

$ 72,897 $ 63,554

Cost of goods sold (COGS)

Cost of goods sold

53,575 43,818

COGS - Sale of boat management system product line and related inventory

Cost of goods sold - Sale of boat management system product line and related inventory

19,322 16,637

1 unchanged sentence

19,487 16,917

Restructuring expenses

139 33 207 208

Other operating expense (income)

- 1 - ( 4,149 )

Income from operations

Loss from operations

( 165 ) ( 280 )

Other Income (expense):

Interest expense

( 636 ) ( 394 )

Other (income) expense, net

Other (expense) income, net

( 1,344 ) 137

( 1,980 ) ( 257 )

Income before income taxes and noncontrolling interest

Loss before income taxes and noncontrolling interest

( 2,145 ) ( 537 )

1 unchanged sentence

( 2,772 ) ( 1,083 )

3,900 3,357 3,752 3,793

Net earnings attributable to noncontrolling interest, net of tax

( 78 ) ( 76 ) ( 173 ) ( 188 )

Net income attributable to Twin Disc

Net loss (income) attributable to noncontrolling interest, net of tax

Net loss attributable to Twin Disc, Incorporated

$ ( 2,765 ) $ ( 1,173 )

Dividends per share

$ 0.04 $ - $ 0.08 $ -

Income per share data:

Basic income per share attributable to Twin Disc common shareholders

Loss per share data:

Basic loss per share attributable to Twin Disc, Incorporated common shareholders

$ ( 0.20 ) $ ( 0.09 )

Diluted income per share attributable to Twin Disc common shareholders

Diluted loss per share attributable to Twin Disc, Incorporated common shareholders

$ ( 0.20 ) $ ( 0.09 )

4 unchanged sentences

13,778 13,527

Comprehensive income

Comprehensive income (loss)

$ ( 2,772 ) $ ( 1,083 )

Benefit plan adjustments, net of income taxes of $ 11 and $ 5 , respectively

( 191 ) ( 29 ) ( 470 ) ( 1,240 )

Foreign currency translation adjustment

7,164 ( 3,036 )

Unrealized gain (loss) on hedges, net of income taxes of $ 0 , $ 0 , $ 0 and $ 0 , respectively

196 ( 224 ) ( 73 ) ( 26 )

Comprehensive income

Unrealized (loss) gain on hedges, net of income taxes of $ 0 and 0 , respectively

Comprehensive income (loss)

3,760 ( 4,074 )

Comprehensive income attributable to noncontrolling interest

34 67 224 277

Comprehensive income attributable to Twin Disc

Comprehensive income (loss) attributable to Twin Disc, Incorporated

$ 3,624 $ ( 4,224 )

3 unchanged sentences

(IN THOUSANDS)

For the Three Quarters Ended

March 29, 2024

March 31, 2023

For the Quarter Ended

September 27, September 29,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

$ ( 2,772 ) $ ( 1,083 )

Adjustments to reconcile net loss to net cash (used) provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Loss on sale of boat management product line and related inventory

Restructuring expenses

Provision for deferred income taxes

1 unchanged sentence

Net change in operating assets and liabilities

Net cash provided by operating activities

( 5,465 ) 4,134

Net cash (used) provided by operating activities

( 4,344 ) 9,802

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property, plant, and equipment

( 2,362 ) ( 3,690 )

Proceeds from sale of fixed assets

Net cash (used) provided by investing activities

Net cash used by investing activities

( 2,722 ) ( 3,645 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving loan arrangements

30,090 27,184

Repayments of revolving loan arrangements

( 26,791 ) ( 23,423 )

Repayments of other long-term debt

Dividends paid to shareholders

Payments of finance lease obligations

Payments of right-of-use finance lease obligations

( 546 ) ( 847 )

Payments of withholding taxes on stock compensation

Net cash used by financing activities

( 1,249 ) ( 1,763 )

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net change in cash

( 3,359 ) 7,165

Beginning of period

20,070 13,263

End of period

$ 16,711 $ 20,428

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

2 unchanged sentences

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

Basis of Presentation

Basis of Presentation and Other Information

The unaudited condensed consolidated financial statements have been prepared by Twin Disc, Incorporated (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include adjustments, consisting primarily of normal recurring items, necessary for a fair statement of results for each period.

2 unchanged sentences

These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form 10 - K for June 30, 2024.

The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States.

The prior year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States.

The condensed consolidated financial statements and information presented herein include the financial results of Katsa Oy (“Katsa”).

On May 31, 2024, the Company completed the acquisition of 100 % of the outstanding common stock of 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.

The provisional fair value estimates of Katsa's property, plant and equipment, net, intangible assets, net, and deferred income taxes are pending final review by the Company, and Katsa is included in the Company's manufacturing segment.

The Company’s condensed consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly-owned domestic and foreign subsidiaries.

The Company's reporting period ends on the last Friday of the quarterly calendar period.

The Company's fiscal year ends on June 30, regardless of the day of the week on which June 30 falls.

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 income (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, and retroactively applied to all other amounts presented in this Form 10 -Q.

Under the new accounting method, actuarial gains and losses are recognized in net periodic benefit cost through a modified mark-to-market (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 income (loss) and amortized into earnings in future periods did not change.

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.

The Accounting change has been applied retrospectively to prior years and amounts presented.

See Notes G, K, M and P for further information regarding the impact of the Accounting change on the Company’s current and prior consolidated financial statements.

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.

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) each disaggregated between domestic and foreign.

In November 2023, the FASB issued guidance ASU 2023 - 07, "Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses.

In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements.

The Company expects to adopt the new annual disclosures as required for fiscal 2025 and the interim disclosures as required beginning with the first quarter of fiscal 2026.

In December 2023, the FASB issued guidance ASU 2023 - 09, "Improvements to Income Tax Disclosures," 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.

12 unchanged sentences

The major classes of inventories were as follows:

March 29, 2024

September 27, 2024

June 30, 2024

5 unchanged sentences

The Company also evaluated its other boat management system inventory, not associated with the sale.

This 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 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.

4 unchanged sentences

While we believe the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires.

The following is a listing of the activity in the warranty reserve for the quarters ended March 29, 2024 and March 31, 2023:

The following is a listing of the activity in the warranty reserve for the quarters ended September 27, 2024 and September 29, 2023:

For the Quarter Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

Reserve balance, beginning of period

2 unchanged sentences

Reserve balance, end of period

The current portion of the warranty accrual ($ 4,052 and $ 3,503 as of March 29, 2024 and March 31, 2023, respectively) is reflected in accrued liabilities, while the long-term portion ($ 843 and $ 515 as of March 29, 2024 and March 31, 2023, respectively) is included in other long-term liabilities on the consolidated balance sheets.

The current portion of the warranty accrual ($ 3,452 and $ 3,409 as of September 27, 2024 and September 29, 2023, respectively) is reflected in accrued liabilities, while the long-term portion ($ 998 and $ 751 as of September 27, 2024 and September 29, 2023, respectively) is included in other long-term liabilities on the condensed consolidated balance sheets.

Contingencies

12 unchanged sentences

Transfers among segments are at established inter-company selling prices.

Management evaluates the performance of its segments based on net income.

Management evaluates the performance of its segments based on net (loss) income.

Information about the Company’s segments is summarized as follows:

For the Quarter Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

Manufacturing segment sales

2 unchanged sentences

Inter/Intra segment elimination – distribution

Net income attributable to Twin Disc

Net (loss) income attributable to Twin Disc

Manufacturing segment net income

1 unchanged sentence

Corporate and eliminations

March 29, 2024

September 27, 2024

June 30, 2024

3 unchanged sentences

Disaggregated revenue:

The following tables presents details deemed most relevant to the users of the financial statements for the quarters ended March 29, 2024 and March 31, 2023.

Net sales by product group for the quarter ended March 29, 2024 is summarized as follows:

Elimination of

Manufacturing

Intercompany Sales

Land-based transmissions

Marine and propulsion systems

Net sales by product group for the quarter ended March 31, 2023 is summarized as follows:

Elimination of

Manufacturing

Intercompany Sales

Land-based transmissions

Marine and propulsion systems

Net Sales by product group for the three quarters ended March 29, 2024 is summarized as follows:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended September 27, 2024 and September 29, 2023.

Net sales by product group for the quarter ended September 27, 2024 is summarized as follows:

Elimination of

3 unchanged sentences

Marine and propulsion systems

Net Sales by product group for the three quarters ended March 31, 2023 is summarized as follows:

Net sales by product group for the quarter ended September 29, 2023 is summarized as follows:

Elimination of

4 unchanged sentences

Stock-Based Compensation

In the first quarter of fiscal 2025, the Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (the “Omnibus Plan”), which was subsequently approved by the Company’s shareholders.

The Omnibus Plan amended and restated the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”), and effectively replaced the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”).

Benefits under the Omnibus Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards.

The Omnibus Plan is designed to benefit key employees (including officers) of the Company and its subsidiaries, as well as non-employee directors of the Company.

There is reserved for issuance under the Plan an aggregate of 1,636,550 shares of the Company’s common stock, which consists of the previously-approved 715,000 shares of common stock reserved for issuance under the 2021 LTI Plan prior to its amendment and restatement to become the Omnibus Plan;

521,550 shares of common stock that remained available for issuance under the 2020 Directors' Plan;

and 400,000 newly authorized shares of common stock.

Shares issued under the Omnibus Plan may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both.

The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.

Performance Stock Awards ( “ PSA ” )

During the first three quarters of fiscal 2024 and 2023, the Company granted a target number of 119.3 and 118.1 PSAs, respectively, to various employees of the Company, including executive officers.

The fiscal 2024 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative earnings before interest, taxes, depreciation, and amortization ("EBITDA", as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026.

During the first quarter of fiscal 2025 and 2024, the Company granted a target number of 116.1 and 119.3 PSAs, respectively, to various employees of the Company, including executive officers.

The fiscal 2025 PSAs 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, 2027.

These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 232.2 .

1 unchanged sentence

There were 329.9 and 437.9 unvested PSAs outstanding at March 29, 2024 and March 31, 2023, respectively.

There were 350.0 and 329.9 unvested PSAs outstanding at September 27, 2024 and September 29, 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.

Compensation expense of $ 326 and $ 307 was recognized for the quarters ended March 29, 2024 and March 31, 2023, respectively, related to PSAs.

Compensation expense of $ 704 and $ 903 was recognized for the three quarters ended March 29, 2024 and March 31, 2023, respectively, related to PSAs.

The weighted average grant date fair value of the unvested awards at March 29, 2024 was $ 11.48 .

At March 29, 2024, the Company had $ 1,652 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 PSAs vested as of March 29, 2024 and March 31, 2023 was $ 0 .

Compensation expense of $ 659 and $ 53 was recognized for the quarters ended September 27, 2024 and September 29, 2023, respectively, related to PSAs.

The weighted average grant date fair value of the unvested awards at September 27, 2024 was $ 10.85 .

At September 27, 2024, the Company had $ 2,672 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2025 and 2024 awards.

The total fair value of PSAs vested as of September 27, 2024 and September 29, 2023 was $ 0 .

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 the first three quarters of fiscal 2024 and 2023 , the Company granted a target number of 10.5 and 0 PSUAs, respectively, to various individuals in the Company.

During the first quarter of fiscal 2025 and 2024, the Company granted a target number of 0 and 10.5 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 .

There were 10.5 and 0 unvested PSUAs outstanding at March 29, 2024 and March 31, 2023, respectively.

There were 10.5 and 10.5 unvested PSUAs outstanding at September 27, 2024 and September 29, 2023, respectively.

The fair value of the PSUAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest.

Compensation expense of $ 11 and $ 0 was recognized for the quarters ended March 29, 2024 and March 31, 2023, respectively, related to PSUAs.

Compensation expense of $ 29 and $ 0 was recognized for the three quarters ended March 29, 2024 and March 31, 2023, respectively, related to PSUAs.

The weighted average grant date fair value of the unvested awards at March 29, 2024 was $ 12.15 .

At March 29, 2024, the Company had $ 98 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective were achieved for the fiscal 2024 awards.

The total fair value of PSUAs vested as of March 29, 2024 and March 31, 2023 was $ 0 .

Compensation expense of $ 11 and $ 7 was recognized for the quarters ended September 27, 2024 and September 29, 2023, respectively, related to PSUAs.

The weighted average grant date fair value of the unvested awards at September 27, 2024 was $ 12.15 .

At September 27, 2024, the Company had $ 76 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2024 awards.

The total fair value of PSUAs vested as of September 27, 2024 and September 29, 2023 was $ 0 .

Restricted Stock Awards ( “ RS ” )

1 unchanged sentence

The fair value of the RS grants is recorded as compensation expense over the vesting period, which is generally 1 to 3 years.

During the first three quarters of fiscal 2024 and 2023, the Company granted 117.2 and 180.0 service based restricted shares, respectively, to employees and non-employee directors.

There were 246.6 and 308.6 unvested shares outstanding at March 29, 2024 and March 31, 2023, respectively.

A total of 2.4 and 0 shares of restricted stock were forfeited during the three quarters ended March 29, 2024 and March 31, 2023, respectively.

Compensation expense of $ 330 and $ 313 was recognized for the quarters ended March 29, 2024 and March 31, 2023, respectively.

Compensation expense of $ 953 and $ 1,007 was recognized for the three quarters ended March 29, 2024 and March 31, 2023, respectively.

The total fair value of restricted stock grants vested as of March 29, 2024 and March 31, 2023 was $ 2,196 and $ 1,699 , respectively.

As of March 29, 2024, the Company had $ 1,568 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

During the first quarter of fiscal 2025 and 2024, the Company granted 1.8 and 81.5 service based restricted shares, respectively, to employees and non-employee directors.

There were 244.4 and 260.2 unvested shares outstanding at September 27, 2024 and September 29, 2023, respectively.

A total of 0 and 2.4 shares of restricted stock were forfeited during the quarters ended September 27, 2024 and September 29, 2023, respectively.

Compensation expense of $ 311 and $ 312 was recognized for the quarters ended September 27, 2024 and September 29, 2023, respectively.

The total fair value of restricted stock grants vested as of September 27, 2024 and September 29, 2023 was $ 27 and $ 1,623 , respectively.

As of September 27, 2024, the Company had $ 993 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards ( “ RSU ” )

The RSUs entitles an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally three years from the date of grant or when performance conditions have been met.

The RSUs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally three years from the date of grant or when performance conditions have been met.

The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period.

During the first three quarters of fiscal 2024 and 2023, the Company granted 7.1 and 72.4 of employment based RSUs, respectively.

There were 135.0 and 130.2 unvested RSUs outstanding at March 29, 2024 and March 31, 2023, respectively.

Compensation expense of $ 124 and $ 116 was recognized for the quarters ended March 29, 2024 and March 31, 2023, respectively.

Compensation expense of $ 372 and $ 340 was recognized for the three quarters ended March 29, 2024 and March 31, 2023, respectively.

The total fair value of RSUs vested as of March 29, 2024 and March 31, 2023 was $ 25 and $ 40 , respectively.

The weighted average grant date fair value of the unvested awards at March 29, 2024 was $ 10.97 .

As of March 29, 2024, the Company had $ 412 of unrecognized compensation expense related to RSUs which will be recognized over the next three years.

During the first quarter of fiscal 2025 and 2024, the Company granted 77.4 and 7.1 of employment based RSUs, respectively.

There were 156.9 and 136.8 unvested RSUs outstanding at September 27, 2024 and September 29, 2023, respectively.

Compensation expense of $ 43 and $ 123 was recognized for the quarters ended September 27, 2024 and September 29, 2023, respectively.

The total fair value of restricted stock units vested as of September 27, 2024 and September 29, 2023 was $ 701 and $ 0 , respectively.

The weighted average grant date fair value of the unvested awards at September 27, 2024 was $ 10.79 .

As of September 27, 2024, the Company had $ 1,089 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Pension and Other Postretirement Benefit Plans

1 unchanged sentence

Additionally, the Company provides healthcare and life insurance benefits for certain domestic retirees.

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 Notes A, K, M, and P for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements.

The components of the net periodic benefit cost for the defined benefit pension plans and the other postretirement benefit plan are as follows:

For the Quarter Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

Pension Benefits:

5 unchanged sentences

Amortization of actuarial net loss

Net periodic benefit (gain) cost

Net periodic benefit cost (gain)

Postretirement Benefits:

Interest cost

Amortization of prior service cost

Amortization of actuarial net loss

Amortization of prior service benefit

Amortization of actuarial net gain

Net periodic benefit gain

The service cost component is included in cost of goods sold and marketing, engineering and administrative expenses.

All other components of net periodic benefit cost are included in other (income) expense, net.

All other components of net periodic benefit cost are included in other (expense) income, net.

The Company expects to contribute approximately $ 556 to its pension plans in fiscal 2025.

As of March 29, 2024, $ 634 in contributions to the pension plans have been made.

The Company has reclassified ($ 191 ) (net of $ 10 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended March 29, 2024, and ($ 29 ) (net of $ 1 in taxes) during the quarter ended March 31, 2023.

The Company has reclassified ($ 470 ) (net of $ 2 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the three quarters ended March 29, 2024, and $( 1,240 ) (net of $ 5 in taxes) during the three quarters ended March 31, 2023.

As of September 27, 2024, $ 205 in contributions to the pension plans have been made.

The Company has reclassified $ 221 (net of $ 11 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended September 27, 2024, and ($ 171 ) (net of $ 5 in taxes) during the quarter ended September 29, 2023.

These reclassifications are included in the computation of net periodic benefit cost.

The Company computes its effective tax rate each quarter consistent with the requirements of ASC 740 - 270 - 25.

However, due to historic domestic losses and the full domestic valuation allowance, the Company has removed the loss jurisdiction for which no tax benefit may be recorded from the Annual Effective Tax Rate ("AETR") calculations consistent with ASC 740 - 270 - 30 - 30.

The Company recorded an overall effective tax rate of 9.3 % and 14.0 % for the quarters ended March 29, 2024 and March 31, 2023, respectively and an overall effective tax rate of 41.0 % and 38.2 % for the three quarters ended March 29, 2024 and March 31, 2023.

Year-to-date foreign earnings were $ 14,916 and $ 8,207 , with corresponding income tax expense of $ 2,599 and $ 2,303 for the period ended March 29, 2024 and March 31, 2023.

The foreign effective tax rate for the period ended March 29, 2024 incudes a total discrete benefit of ( $834 ), of which ($ 786 ) related to a favorable tax ruling related to operations in the Netherlands.

Year-to-date domestic earnings were ($ 8,557 ) and ($ 2,063 ), with corresponding income tax expense of $ 7 and $ 47 for the three quarters ended March 29, 2024 and March 31, 2023.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated Annual Effective Tax Rate (AETR).

Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.

To calculate its AETR, an entity must estimate its ordinary income or loss and the related tax expense or benefit for its full fiscal year.

In situations in which an entity is in a loss position and recognizes a full valuation allowance, the guidance in ASC 740 - 270 - 25 - 9 applies.

Due to continued historical domestic losses and uncertain future domestic earnings, the company continues to recognize a full domestic valuation allowance.

Permanent differences continue to fluctuate and are significant compared to projected ordinary income.

Therefore, per ASC guidance, the fully valued domestic entity was removed from the annualized effective rate calculation.

Because of the full U.S.

valuation allowance, the U.S.

entity may only recognize tax expense / benefit recorded for ASC 740 - 10 adjustments.

For the Quarter-Ended

September 27, 2024

September 29, 2023

Foreign earnings, before income taxes of $ 854 and $ 516 , respectively

$ 3,443 $ 2,055

Domestic losses, before income taxes of ($ 227 ) and $ 30 , respectively

( 5,588 ) ( 2,592 )

Loss before income taxes and noncontrolling interest

$ ( 2,145 ) $ ( 537 )

Income tax expense

Effective income tax rate

- 29.2 % - 101.7 %

Due to the full US valuation allowance currently in place, no tax benefit can be recognized on the domestic losses.

A discrete benefit was recorded during the period of ($ 227 ) related to the release of an uncertain tax position.

Intangible Assets

As of March 29, 2024, the following acquired intangible assets have definite useful lives and are subject to amortization:

As of September 27, 2024, the following acquired intangible assets have definite useful lives and are subject to amortization:

Net Book Value Rollforward

7 unchanged sentences

Translation adjustment

Balance at March 29, 2024

Balance at September 27, 2024

Other intangibles consist mainly of computer software.

1 unchanged sentence

The weighted average remaining useful life of the intangible assets included in the table above is approximately 5 years.

Intangible amortization expense was $ 822 and $ 738 for the quarters ended March 29, 2024, and March 31, 2023, respectively.

Intangible amortization expense was $ 2,458 and $ 2,140 for the three quarters ended March 29, 2024, and March 31, 2023, respectively.

Intangible amortization expense was $ 926 and $ 819 for the quarters ended September 27, 2024, and September 29, 2023, respectively.

Estimated intangible amortization expense for the remainder of fiscal 2025 and each of the next five fiscal years is as follows:

Total $ 10,157

Long-Term Debt and Subsequent Event

Long-term debt at March 29, 2024 and June 30, 2023 consisted of the following:

March 29, 2024

Long-term Debt

Long-term debt at September 27, 2024 and June 30, 2024 consisted of the following:

September 27, 2024

June 30, 2024

17 unchanged sentences

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).

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 Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank.

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.

7 unchanged sentences

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.

( 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 intends to use the increased borrowing capacity under the Credit Agreement to help finance its previously announced proposed acquisition of Katsa Oy 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 Oy acquisition.

In addition, 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 Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank.

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.

Prior to the Tenth Amendment, the Credit Agreement was scheduled to terminate as of June 30, 2025, and the Term Loan and Term Loan Commitment Date were scheduled to mature/terminate on March 4, 2026.

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.

The Company remains in compliance with its liquidity and other covenants.

As of March 29, 2024, current maturities include $ 2.0 million of term loan payments due within the coming year.

Other long-term debt pertains mainly to a financing arrangement in Europe.

These liabilities carry terms of three to five years and implied interest rates ranging from 7 % to 25 %.

A total amount of $ 10 in principal was paid on these liabilities during the current fiscal year.

During the quarters ended March 29, 2024, the average interest rate was 6.83 % on the Term Loan, and 5.12 % on the Revolving Loans.

As of March 29, 2024, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $ 37,016 , and the Company had approximately $ 29,694 of available borrowings.

As of September 27, 2024, current maturities include $ 2,000 of term loan payments due within the coming year.

During the quarter ended September 27, 2024, the average interest rate was 7.52 % on the Term Loan, and 6.03 % on the Revolving Loans.

As of September 27, 2024, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $ 41,027 , and the Company had approximately $ 20,756 available borrowings.

In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

The Company’s borrowings described above approximate fair value at March 29, 2024 and June 30, 2023.

The Company’s borrowings described above approximate fair value at September 27, 2024 and June 30, 2024.

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 notional amount of $ 20,000 and a maturity date of March 4, 2026 to hedge the Term Loan.

As of March 29, 2024, the notional amount was $ 10,000 .

As of September 27, 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 O, Derivative Financial Instruments.

This swap is included in the disclosures in Note N, 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.

2 unchanged sentences

Shareholders ’ Equity

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of March 29, 2024 remain authorized for purchase.

The Company did not make any open market purchases of its shares during the quarters ended March 29, 2024 and March 31, 2023.

As of July 1, 2022, the cumulative effect of the Accounting change resulted in $ 25.1 million decrease to retained earnings and a corresponding $ 25.1 million increase to accumulated other comprehensive loss, both net of tax of $ 0 ($ 7.9 million in deferred tax asset offset by $ 7.9 million valuation allowance).

See Notes A, G, M, and P for further information regarding the impact of the Accounting change on the Company’s prior year consolidated financial statements.

The following is a reconciliation of the Company’s equity balances for the three fiscal quarters of 2024 and 2023:

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of September 27, 2024 remain authorized for purchase.

The Company did not make any open market purchases of its shares during the quarters ended September 27, 2024 and September 29, 2023.

The following is a reconciliation of the Company’s equity balances for the first fiscal quarter of 2025 and 2024:

Twin Disc, Inc.

3 unchanged sentences

$ 41,798 $ 129,592 $ ( 6,905 ) $ ( 9,783 ) $ 352 $ 155,054

Net (loss) income

( 2,765 ) ( 7 ) ( 2,772 )

Translation adjustments

( 3,096 ) 60 ( 3,036 )

Benefit plan adjustments, net of tax

( 171 ) ( 171 )

Unrealized gain on hedges, net of tax

Compensation expense

Shares (acquired) issued, net

( 3,911 ) 2,148 ( 1,763 )

Balance, September 29, 2023

39,439 119,126 ( 8,621 ) ( 10,343 ) 574 140,175

Dividends paid to shareholders

3 unchanged sentences

Benefit plan adjustments, net of tax

( 108 ) ( 108 )

Unrealized loss on hedges, net of tax

1 unchanged sentence

Compensation expense

Shares (acquired) issued, net

( 550 ) 541 ( 9 )

Balance, December 29, 2023

39,661 119,496 ( 4,059 ) ( 9,802 ) 614 145,910

3,822 78 3,900

Dividends paid to shareholders

( 559 ) ( 559 )

Translation adjustments

( 3,040 ) ( 44 ) ( 3,084 )

Benefit plan adjustments, net of tax

( 191 ) ( 191 )

Unrealized gain on cash flow hedge, net of tax

Compensation expense

Shares (acquired) issued, net

Stock awards, net

( 2,920 ) 1,671 ( 1,249 )

Balance, March 29, 2024

Balance, September 27, 2024

$ 39,902 $ 126,257 $ ( 516 ) $ ( 8,112 ) $ 488 $ 158,019

4 unchanged sentences

$ 42,855 $ 120,299 $ ( 5,570 ) $ ( 12,491 ) $ 424 $ 145,517

Net (loss) income

( 1,173 ) 90 ( 1,083 )

5 unchanged sentences

Compensation expense

Shares (acquired) issued, net

Stock awards, net

( 3,911 ) 2,148 ( 1,763 )

1 unchanged sentence

$ 39,439 $ 119,126 $ ( 8,621 ) $ ( 10,343 ) $ 574 $ 140,175

1,746 15 1,761

Translation adjustments

8,333 59 8,392

Benefit plan adjustments, net of tax

( 1,122 ) ( 1,122 )

Unrealized loss on hedges, net of tax

( 595 ) ( 595 )

Compensation expense

Shares (acquired) issued, net

( 697 ) 402 ( 295 )

Balance, December 30, 2022

41,444 110,243 ( 5,982 ) ( 12,562 ) 622 133,765

3,281 76 3,357

Translation adjustments

1,023 ( 9 ) 1,014

Benefit plan adjustments, net of tax

( 29 ) ( 29 )

Unrealized loss on cash flow hedge, net of tax

( 224 ) ( 224 )

Compensation expense

Shares (acquired) issued, net

Balance, March 31, 2023

$ 42,145 $ 113,524 $ ( 5,212 ) $ ( 12,527 ) $ 689 $ 138,619

Reconciliations for the changes in accumulated other comprehensive loss, net of tax, by component for the quarters ended March 29, 2024 and March 31, 2023 are as follows:

Reconciliations for the changes in accumulated other comprehensive loss, net of tax, by component for the quarters ended September 27, 2024 and September 29, 2023 are as follows:

Net Investment

2 unchanged sentences

Translation adjustment during the quarter

( 3,096 ) - - -

Amounts reclassified from accumulated other comprehensive loss

- 221 ( 169 ) ( 684 )

Net current period other comprehensive (loss) income

( 3,096 ) ( 171 ) ( 6 ) 222

Balance, September 29, 2023

( 4,678 ) ( 6,119 ) 682 1,494

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

- ( 108 ) ( 183 ) ( 302 )

Net current period other comprehensive income (loss)

7,021 221 ( 169 ) ( 684 )

Balance at December 29, 2023

477 ( 6,227 ) 499 1,192

Translation adjustment during the quarter

( 3,040 ) - - -

Amounts reclassified from accumulated other comprehensive loss

- ( 191 ) 40 156

Net current period other comprehensive (loss) income

( 3,040 ) ( 191 ) 40 156

Balance at March 29, 2024

Balance, September 27, 2024

$ 6,172 $ ( 7,841 ) $ 335 $ 818

10 unchanged sentences

$ ( 4,678 ) $ ( 6,119 ) $ 682 $ 1,494

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

- ( 7 ) ( 10 ) ( 585 )

Plan merger adjustment

- ( 1,115 ) - -

Net current period other comprehensive income (loss)

8,333 ( 1,122 ) ( 10 ) ( 585 )

Balance at December 30, 2022

( 261 ) ( 7,825 ) 1,003 1,101

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

- ( 29 ) ( 133 ) ( 91 )

Net current period other comprehensive income (loss)

1,023 ( 29 ) ( 133 ) ( 91 )

Balance at March 31, 2023

$ 762 $ ( 7,854 ) $ 870 $ 1,010

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended March 29, 2024 are as follows:

Amount Reclassified

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 27, 2024 are as follows:

Amount Reclassified

Quarter Ended

Three Quarters Ended

March 29, 2024

September 27, 2024

Changes in benefit plan items

Actuarial losses

$ ( 198 ) (a)

$ ( 461 ) (a)

Actuarial gains

Transition asset and prior service benefit

Total amortization

( 201 ) ( 472 )

Income tax expense

Total reclassification net of tax

$ ( 191 ) $ ( 470 )

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended March 31, 2023 is as follows:

Amount Reclassified

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 29, 2023 is as follows:

Amount Reclassified

Quarter Ended

Three Quarters Ended

March 31, 2023

September 29, 2023

Changes in benefit plan items

Actuarial gains

Actuarial losses

$ ( 172 ) (a)

Transition asset and prior service benefit

Mark-to-market adjustment

( 607 ) ( 1,821 )

Plan merger remeasurement adjustment

Total amortization

( 28 ) ( 1,235 )

Income tax expense

Total reclassification net of tax

$ ( 29 ) $ ( 1,240 )

These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note G, "Pension and Other Postretirement Benefit Plans" for further details).

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 resulted in the Company recognizing a write-down of the carrying value of its former corporate headquarters by $ 4,267 in the fourth quarter of fiscal 2021.

In the first quarter of fiscal 2023, the Company commenced the active marketing of an additional real estate property located in Nivelles, Belgium.

This action 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.

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.

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.

The write-down was classified in the income statement as a component of cost of goods sold.

The agreement closed October 30, 2023.

These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note G, "Pension and Other Postretirement Benefit Plans" for further details).

Earnings Per Share

2 unchanged sentences

Certain restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company and are therefore included in computing earnings per share pursuant to the two -class method.

As discussed in Note A, during the fourth quarter of 2023, the Company changed its Accounting method related to the recognition of actuarial gains and losses for its pension plans.

These changes have been applied retrospectively to prior years.

See Notes A, G, K, and P for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements.

The components of basic and diluted earnings per share were as follows:

For the Quarter Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

$ 3,900 $ 3,357 $ 3,752 $ 3,793

Net earnings attributable to noncontrolling interest

( 78 ) ( 76 ) ( 173 ) ( 188 )

Undistributed earnings attributable to unvested shares

Net income attributable to Twin Disc

3,822 3,281 3,579 3,605

September 27, 2024

September 29, 2023

Net loss (income) attributable to noncontrolling interest

Net loss attributable to Twin Disc, Incorporated

Weighted average shares outstanding - basic

13,742 13,504 13,663 13,455

Basic Income Per Share:

Net earnings per share - basic

$ 0.28 $ 0.24 $ 0.26 $ 0.27

$ 3,900 $ 3,357 $ 3,752 $ 3,793

Net earnings attributable to noncontrolling interest

( 78 ) ( 76 ) ( 173 ) ( 188 )

Undistributed earnings attributable to unvested shares

Net income attributable to Twin Disc

3,822 3,281 3,579 3,605

Basic loss Per Share:

Net loss per share - basic

Net loss (income) attributable to noncontrolling interest

Net loss attributable to Twin Disc, Incorporated

Weighted average shares outstanding - basic

13,742 13,504 13,663 13,455

Effect of dilutive stock awards

162 158 189 153

Weighted average shares outstanding - diluted

13,904 13,662 13,852 13,608

Diluted Income Per Share:

Net earnings per share - diluted

$ 0.27 $ 0.24 $ 0.26 $ 0.26

The following potential common shares were excluded from diluted EPS for the three quarters ended March 29, 2024 because they were anti-dilutive:

224.6 related to the Company’s unvested PSAs, 10.5 related to the Company’s unvested PSAUs, 153.9 related to the Company’s unvested RS awards, and 51.0 related to the Company’s unvested RSUs.

The following potential common shares were excluded from diluted EPS for the three quarters ended March 31, 2023 because they were anti-dilutive:

355.5 related to the Company’s unvested PSAs, 191.6 related to the Company’s unvested RS awards, and 59.5 related to the Company’s unvested RSUs.

Diluted loss Per Share:

Net loss per share - diluted

The following potential common shares were excluded from diluted EPS for the quarter ended September 27, 2024 because they were anti-dilutive:

84.5 related to the Company’s unvested PSAs, 0.0 related to the Company’s unvested PSUA awards, 157.2 related to the Company’s unvested RS awards, and 103.2 related to the Company’s unvested RSUs.

The following potential common shares were excluded from diluted EPS for the quarter ended September 29, 2023 because they were anti-dilutive:

265.0 related to the Company’s unvested PSAs, 5.2 related to the Company’s unvested PSUA awards, 108.5 related to the Company’s unvested RS awards, and 72.6 related to the Company’s unvested RSUs.

Lease Liabilities

6 unchanged sentences

Non-lease components and the lease components to which they relate are accounted for as a single lease component.

The following table provides a summary of leases recorded on the condensed consolidated balance sheet.

Balance Sheet Location

March 29, 2024

The following table provides a summary of leases recorded on the condensed consolidated balance sheets.

Condensed Consolidated Balance Sheets Location

September 27, 2024

June 30, 2024

Operating lease right-of-use assets

Right-of-use operating lease assets

Right-of-use assets operating leases

Finance lease right-of-use assets

$ 16,700 $ 16,622

Right-of-use finance lease assets

Property, plant and equipment, net

Lease Liabilities

Operating lease liabilities

Right-of-use operating lease liabilities, current

Accrued liabilities

Operating lease liabilities

Lease obligations

Finance lease liabilities

$ 2,392 $ 2,352

Right-of-use operating lease liabilities, non-current

Right-of-use lease obligations

14,506 14,376

Right-of-use finance lease liabilities, current

Accrued liabilities

Finance lease liabilities

Right-of-use finance lease liabilities, non-current

Other long-term liabilities

$ 5,089 $ 4,795

The components of lease expense were as follows:

For the Quarter Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

Finance lease cost:

9 unchanged sentences

For the Quarter Ended

For the Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

Cash paid for amounts included in the measurement of lease liabilities:

11 unchanged sentences

Finance leases

Approximate future minimum rental commitments under non-cancellable leases as of March 29, 2024 were as follows:

Approximate future minimum rental commitments under non-cancellable leases as of September 27, 2024 were as follows:

Operating Leases

9 unchanged sentences

Interest Rate Swap Contracts

The Company has one outstanding interest rate swap contract as of March 29, 2024, with a notional amount of $ 10,000 .

The Company has one outstanding interest rate swap contract as of September 27, 2024, with a notional amount of $ 9,500 .

It has been designated as a cash flow hedge in accordance with ASC 815, Derivatives and Hedging.

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 condensed 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.

Cash flows from derivative financial instruments are classified as cash flows from financing activities on the condensed 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 $ 539 and $ 688 as of March 29, 2024, and June 30, 2023, respectively.

Net unrealized after-tax gains related to cash flow hedging activities that were included in accumulated other comprehensive loss were $ 335 and $504 as of September 27, 2024, and June 30, 2024, 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.

4 unchanged sentences

All changes in the fair value of the euro revolver were then recorded in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments.

Net unrealized after-tax income related to net investment hedging activities that were included in accumulated other comprehensive loss were ($ 1,348 ) and ($ 1,272 ) as of March 29, 2024 and June 30, 2023, respectively.

Net unrealized after-tax gains related to net investment hedging activities that were included in accumulated other comprehensive loss were $ 818 and $ 1,502 as of September 27, 2024 and June 30, 2024, respectively.

Fair Value of Derivative Instruments

The fair value of derivative instruments included in the condensed consolidated balance sheets were as follows:

Balance Sheet Location

March 29, 2024

Condensed Consolidated Balance Sheets Location

September 27, 2024

June 30, 2024

4 unchanged sentences

Other noncurrent assets

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income for the quarters ended March 29, 2024 and March 31, 2023, respectively, was as follows:

Statement of Comprehensive

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended September 27, 2024 and September 29, 2023, respectively, was as follows:

Condensed Consolidated Statements of Operations

For the Quarter Ended

For the Three Quarters Ended

Income Location

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

and Comprehensive Income (Loss) Location

September 27, 2024

September 29, 2023

Derivative designated as hedge:

2 unchanged sentences

Interest rate swap

Unrealized gain (loss) on hedges

Unrealized loss on hedges

Net investment hedge

Unrealized gain (loss) on hedges

IMPACT OF ACCOUNTING METHOD CHANGE

The following tables summarize the effects of the Accounting change described in Note A on the Company’s condensed consolidated statement of operations and comprehensive income, statement of cash flows and statement of changes in equity for the quarter ended and the three quarters ended March 31, 2023 and condensed consolidated balance sheet as of March 31, 2023.

CONDENSED CONSOLIDATED STATEMENT OF OPERATION AND COMPREHENSIVE INCOME

For the Quarter Ended

For the Three Quarters Ended

March 31, 2023

As Computed Under Previous Method

Effect of Accounting Change

As Reported Under New Method

As Computed Under Previous Method

Effect of Accounting Change

As Reported Under New Method

$ 73,772 $ - $ 73,772 $ 193,036 $ - $ 193,036

Cost of goods sold

54,507 - 54,507 143,451 - 143,451

19,265 - 19,265 49,585 - 49,585

Marketing, engineering and administrative expenses

14,626 - 14,626 45,688 - 45,688

Restructuring expenses

33 - 33 208 - 208

Other operating expense (income)

1 - 1 ( 4,149 ) - ( 4,149 )

Income from operations

4,605 - 4,605 7,838 - 7,838

Other expense (income):

Interest expense

522 - 522 1,682 - 1,682

Other expense (income), net

785 ( 607 ) 178 1,834 ( 1,821 ) 13

1,307 ( 607 ) 700 3,516 ( 1,821 ) 1,695

Income before income taxes and noncontrolling interest

3,298 607 3,905 4,322 1,821 6,143

Income tax expense

548 - 548 2,350 - 2,350

2,750 607 3,357 1,972 1,821 3,793

Net earnings attributable to noncontrolling interest, net of tax

( 76 ) - ( 76 ) ( 188 ) - ( 188 )

Net income attributable to Twin Disc

$ 2,674 $ 607 $ 3,281 $ 1,784 $ 1,821 $ 3,605

Income per share data:

Basic income per share attributable to Twin Disc common shareholders

$ 0.20 $ 0.04 $ 0.24 $ 0.13 $ 0.14 $ 0.27

Diluted income per share attributable to Twin Disc common shareholders

$ 0.20 $ 0.04 $ 0.24 $ 0.13 $ 0.13 $ 0.26

Weighted average shares outstanding data:

Basic shares outstanding

13,504 - 13,504 13,455 - 13,455

Diluted shares outstanding

13,662 - 13,662 13,608 - 13,608

Comprehensive income

$ 2,750 $ 607 $ 3,357 $ 1,972 $ 1,821 $ 3,793

Benefit plan adjustments, net of income taxes of $ 1 and $ 5 computed under previous method;

and $ 1 and $ 5 as reported under new method

578 ( 607 ) ( 29 ) 581 ( 1,821 ) ( 1,240 )

Foreign currency translation adjustment

1,014 - 1,014 3,116 - 3,116

Unrealized loss on hedges, net of income taxes of $ 0 and $ 0 , respectively

( 224 ) - ( 224 ) ( 26 ) - ( 26 )

Comprehensive income

4,118 - 4,118 5,643 - 5,643

Comprehensive income attributable to noncontrolling interest

67 - 67 277 - 277

Comprehensive income attributable to Twin Disc

$ 4,051 $ - $ 4,051 $ 5,366 $ - $ 5,366

CONDENSED CONSOLIDATED CONDENSED BALANCE SHEET

March 31, 2023

As Computed Under Previous Method

Effect of Accounting Change

As Reported Under New Method

Current assets:

$ 14,024 $ - $ 14,024

Trade accounts receivable, net

44,438 - 44,438

136,153 - 136,153

Assets held for sale

2,968 - 2,968

Prepaid expenses

10,025 - 10,025

8,341 - 8,341

Total current assets

215,949 - 215,949

Property, plant and equipment, net

40,700 - 40,700

Right-of-use assets operating leases

12,415 - 12,415

Intangible assets, net

11,239 - 11,239

Deferred income taxes

2,542 - 2,542

2,668 - 2,668

$ 285,513 $ - $ 285,513

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$ 2,000 $ - $ 2,000

Accounts payable

29,726 - 29,726

Accrued liabilities

56,886 - 56,886

Total current liabilities

88,612 - 88,612

Long-term debt

29,276 - 29,276

Lease obligations

9,897 - 9,897

Accrued retirement benefits

10,315 - 10,315

Deferred income taxes

3,391 - 3,391

Other long-term liabilities

5,403 - 5,403

Total liabilities

146,894 - 146,894

Twin Disc shareholders' equity:

Preferred shares authorized:

Common shares authorized:

42,145 - 42,145

Retained earnings

136,815 ( 23,291 ) 113,524

Accumulated other comprehensive (loss) income

( 28,503 ) 23,291 ( 5,212 )

150,457 - 150,457

Less treasury stock, at cost ( 819,398 shares, respectively)

12,527 - 12,527

Total Twin Disc shareholders' equity

137,930 - 137,930

Noncontrolling interest

138,619 - 138,619

Total liabilities and equity

$ 285,513 $ - $ 285,513

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Three Quarters Ended March 31, 2023

As Computed Under Previous Method

Accounting Change

As Reported Under

CASH FLOWS FROM OPERATING ACTIVITIES:

$ 1,972 $ 1,821 $ 3,793

Adjustments to reconcile net income to net cash provided by activities:

Depreciation and amortization

6,936 - 6,936

Gain on sale of assets

( 4,237 ) - ( 4,237 )

Provision for deferred income taxes

( 1,462 ) - ( 1,462 )

Stock compensation expense

2,355 - 2,355

Net change in operating assets and liabilities

1,295 ( 1,821 ) ( 526 )

Net cash provided by operating activities

6,859 - 6,859

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property, plant, and equipment

( 6,783 ) - ( 6,783 )

Proceeds from sale of fixed assets

7,177 - 7,177

Proceeds on note receivable

Net cash provided by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving loan arrangements

65,862 - 65,862

Repayments of revolving loan arrangements

( 69,823 ) - ( 69,823 )

Repayments of other long-term debt

( 1,534 ) - ( 1,534 )

Payments of finance lease obligations

( 231 ) - ( 231 )

Payments of withholding taxes on stock compensation

( 463 ) - ( 463 )

Net cash used by financing activities

( 6,189 ) - ( 6,189 )

Effect of exchange rate changes on cash

Net change in cash

1,503 - 1,503

Beginning of period

12,521 - 12,521

End of period

$ 14,024 $ - $ 14,024

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Three Quarters Ended March 31, 2023

Retained earnings

Balance at June 30, 2022

Net income attributable to Twin Disc

Balance at March 31, 2023

Accumulated other comprehensive (loss) income

Balance at June 30, 2022

Translation adjustments

Benefit plan adjustments, net of tax

Unrealized loss on hedges, net of tax

Balance at March 31, 2023

Unrealized (loss) gain on hedges

Management Discussion and Analysis

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

This discussion should be read in conjunction with our consolidated financial statements as of March 29, 2024, and related notes, as reported in Item 1 of this Quarterly Report.

This discussion should be read in conjunction with our condensed consolidated financial statements as of September 27, 2024, and related notes, as reported in Item 1 of this Quarterly Report.

Some of the statements in this Quarterly Report on Form 10-Q are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.

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Quarter Ended

Three Quarters Ended

March 29, 2024

March 31, 2023

March 29, 2024

March 31, 2023

September 27, 2024

September 29, 2023

Cost of goods sold

COGS - Sale of boat management system product line and related inventory

Cost of goods sold - Sale of boat management system product line and related inventory

Marketing, engineering and administrative expenses

Restructuring expense

Other operating expense (income)

Income from operations

Comparison of the Third Quarter of Fiscal 2024 with the Third Quarter of Fiscal 2023

Net sales for the third quarter increased 0.5%, or $0.4 million, to $74.2 million from $73.8 million in the same quarter a year ago.

The Company has benefited from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024.

With the some stabilization in the global supply chain, along with improving operational performance, the Company has been able to improve overall delivery results.

Global sales of marine and propulsion products improved 3.2% from the prior year, while shipments of off-highway transmission products declined slightly (2.5%).

Shipments of industrial products declined by 14.7%, with a slow-down in the domestic housing and construction markets, as well as weakness in European market demand.

The European region enjoyed the most significant sales improvement ($2.1 million or 8.9%) due to improved shipments Veth propulsion products for European applications.

The Asia Pacific region also saw a slight increase ($0.1 million or 0.4%), with improved demand in the commercial marine market, partially offset by timing of oil and gas shipments into China.

Sales into North America decreased 19.3%, or $5.2 million, primarily due to some softening in aftermarket demand in the oil and gas market and weaker demand for industrial products.

Currency translation had a slightly favorable impact on third quarter fiscal 2024 sales compared to the third quarter of the prior year totaling $0.1 million.

Sales at our manufacturing segment decreased 1.9%, or $1.2 million, versus the same quarter last year.

manufacturing operations experienced a 9.4%, or $3.1 million, decrease in sales versus the third fiscal quarter of 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets.

The Company’s operation in the Netherlands saw dramatically increased revenue of $4.9 million (32.8%) compared to the third fiscal quarter of 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past few quarters, along with improved supply chain performance.

Similarly, the Company’s Belgian operation saw an increase compared to the prior year third quarter (12.9% or $0.9 million), with improved delivery performance driven by operational and supply chain execution.

The Company’s Italian manufacturing operations were down $4.1 million (51.9%) compared to the third quarter of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.2 million (13.9%) compared to the prior year third quarter.

Our distribution segment experienced an increase in sales of $3.1 million (9.2%) in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023.

The Company’s Asian distribution operations in Singapore, China and Japan were up 1.2% or $0.2 million from the prior year on improved commercial marine demand, partially offset by reduced deliveries for energy related products in China.

The Company’s North America distribution operation saw a 7.9% ($0.7 million) increase on strong demand for marine products manufactured by the European operations.

The Company’s European distribution operation saw a significant increase ($1.5 million or 29.1%) on strong demand and improved supply of product.

The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a decrease in revenue (9.7% or $0.7 million) from the prior year third fiscal quarter, primarily due to softer demand for pleasure craft products in the region following record levels in the prior year.

Gross profit as a percentage of sales for the third quarter of fiscal 2024 improved to 28.2%, compared to 26.1% for the same period last year.

The improvement in the current year third quarter compared to the prior year result was primarily driven by price realization and cost reductions, with a slightly positive mix impact.

The mix impact for the quarter was essentially neutral.

For the fiscal 2024 third quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.2%, compared to 19.8% for the fiscal 2023 third quarter.

ME&A expenses increased $2.6 million (17.6%) versus the same period last fiscal year.

The increase in ME&A spending for the quarter was comprised of higher wages and benefits ($0.5 million), increased global bonus expense ($0.4 million), travel costs ($0.3 million), lease expense ($0.2 million), higher professional fees ($0.5 million, driven by acquisition activities), along with other inflationary increases.

The increases were driven by investments to drive growth (resources to support our hybrid electric strategy), corporate development and other inflationary impacts.

The Company incurred minor restructuring charges during the third quarter of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation.

The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Interest expense was down slightly to $0.3 million in the third quarter of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Other income, net of $1.0 million for the third fiscal quarter was primarily attributable to a currency gains and a pension benefit.

The fiscal 2024 third quarter effective tax rate was 10.6% compared to 14.0% in the prior fiscal year third quarter.

The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the reduced effective tax rate for both periods.

Comparison of the First Three Quarters of Fiscal 2024 with the First Three Quarters of Fiscal 2023

Net sales for the first three quarters increased 9.2%, or $17.7 million, to $210.7 million from $193.0 million in the same period a year ago.

The Company has continued to benefit from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024.

With the easing of global supply chain disruptions, along with improving operational performance, the Company has been able to improve delivery results compared to the prior year.

Global sales of marine and propulsion products improved 17.3% from the prior year, while shipments of off-highway transmission products improved by 6.7%.

Shipments of industrial products declined by 15.5%, with a slow-down in the domestic housing and construction markets.

The Asia Pacific region enjoyed the most significant sales improvement ($14.5 million or 34.1%) due to improved shipments of oil and gas transmissions into China, an improved demand for commercial marine products and continued strength in pleasure craft demand in Australia.

The European region also saw a significant increase ($13.5 million or 23.0%), with improved operational performance at our facilities in Belgium and the Netherlands, coupled with continued strong demand.

Sales into North America decreased 19.1%, or $14.4 million, primarily due to some softening in aftermarket demand in the oil and gas market.

Currency translation had a favorable impact on first three quarters of fiscal 2024 sales compared to the same period in the prior year totaling $4.5 million primarily due to the strengthening of the euro against the U.S.

Sales at our manufacturing segment increased 3.5%, or $5.9 million, versus the same period last year.

manufacturing operations experienced a 7.8%, or $7.2 million, decrease in sales versus the first three quarters of fiscal 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets.

The Company’s operation in the Netherlands saw increased revenue of $16.1 million (45.2%) compared to the first three quarters of fiscal 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past several quarters, along with a favorable currency impact and improved supply chain performance.

Similarly, the Company’s Belgian operation saw an increase compared to the prior fiscal year first three quarters (21.5% or $3.6 million), with a favorable translation effect and improved delivery performance driven by operational and supply chain execution.

The Company’s Italian manufacturing operations were down $6.9 million (33.2%) compared to the first three quarters of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.3 million (7.3%) compared to the prior fiscal year first three quarters.

Our distribution segment experienced an increase in sales of $23.4 million (27.95%) in the first three quarters of fiscal 2024 compared to the first three quarters of fiscal 2023.

The Company’s Asian distribution operations in Singapore, China and Japan were up 48.6% or $14.1 million from the prior year on improving deliveries for energy related products in China and strong commercial marine demand in the region.

The Company’s North America distribution operation saw a 9.3% ($1.9 million) increase on strong domestic demand for marine products from the European operations.

The Company’s European distribution operation saw a significant increase ($3.8 million or 27.9%) on strong demand, a favorable currency impact and improved supply of product.

The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue (1.2% or $0.3 million) from the prior year first three quarters, primarily due to continued strong demand for pleasure craft products in the region.

Gross profit as a percentage of sales for the first three quarters of fiscal 2024 improved to 27.6%, compared to 25.7% for the same period last year.

The improvement in the first three quarters of the current year compared to the prior year result was primarily volume related, along with a positive mix impact due to additional oil and gas units shipped in the current year.

These favorable movements were partially offset by the negative impact of the sale of the BCS business that was recorded in the first quarter of fiscal 2024.

For the fiscal 2024 first three quarters, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 24.3%, compared to 23.7% for the fiscal 2023 first three quarters.

ME&A expenses increased $5.6 million (12.2%) versus the same period last fiscal year.

The increase in ME&A spending for the first three quarters was comprised of higher wages and benefits ($1.4 million), travel costs ($0.7 million), software maintenance ($0.3 million), product development ($0.3 million), global bonus expense ($0.9 million), professional fees ($0.4 million), lease expense ($0.3 million), depreciation and amortization ($0.6 million) and a positive currency translation impact ($0.5 million).

The increases were driven by inflationary impacts and investment in resources to support our hybrid electric strategy.

The Company incurred minor restructuring charges during the first three quarters of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation.

The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Interest expense was down 37.6% to $1.0 million in the first three quarters of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Other income of $0.6 million for the first three quarters of fiscal 2024 was primarily attributable to a pension benefit, partially offset by a currency loss.

The fiscal 2024 first three quarters effective tax rate was 41.9% compared to 38.2% in the prior fiscal year comparable period.

The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the increase to the effective tax rate.

Loss from operations

Comparison of the First Quarter of Fiscal 2025 with the First Quarter of Fiscal 2024

Net sales for the first quarter increased 14.7%, or $9.3 million, to $72.9 million from $63.6 million in the same quarter a year ago.

The acquisition of Katsa Oy (“Katsa”), completed in the fourth quarter of fiscal 2024, contributed $9.2 million of additional revenue in the quarter.

This was partially offset by the sale of the boat management system product line in the prior year, reducing revenue by $1.8 million in the quarter.

The remaining increase of $1.9 million reflects continued growth in demand for the company’s Veth propulsion systems, along with improved revenue from the European and Australian distribution entities.

The Company experienced a decline in demand for oilfield transmissions in China, negatively impacting revenue for the quarter.

Global sales of marine and propulsion products improved 17.0% from the prior year, while shipments of industrial products improved by 61.3%.

Shipments of off-highway transmission products declined by 7.0%, with a slow-down in the Chinese oil market.

The European region saw a significant increase in revenue ($7.7 million or 35.6%) thanks primarily to the acquisition of Katsa.

Sales into North America decreased 5.6%, or $1.0 million, on softer commercial marine shipments in the quarter.

The Asia Pacific region declined 15.3%, or $3.0 million, on weaker demand for oilfield transmissions into China.

Currency translation had a favorable impact on first quarter fiscal 2025 sales compared to the first quarter of the prior year totaling $0.7 million primarily due to the strengthening of the euro against the U.S.

Sales at our manufacturing segment increased 14.8%, or $8.1 million, versus the same quarter last year.

The Company’s new acquisition in Finland, Katsa, contributed $9.2 million of incremental revenue.

manufacturing operations experienced a 1.8%, or $0.5 million, increase in sales versus the first fiscal quarter of 2024, with some improvement in demand for industrial products.

The Company’s operation in the Netherlands saw increased revenue of $0.7 million (4.5%) compared to the first fiscal quarter of 2024, as this operation continues to experience record demand for its propulsion systems.

The Company’s Belgian operation saw a decrease compared to the prior year first quarter (7.3% or $0.4 million), with weaker demand for its marine transmission products.

The Company’s Italian manufacturing operation was down $2.1 million, 41.0%, compared to the first quarter of fiscal 2024, due primarily to the sale of the boat management product line in the prior year.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.2 million, 12.1%, compared to the prior year first quarter.

Our distribution segment experienced a decrease in sales of $2.6 million, 7.8%, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

The Company’s Asian distribution operations in Singapore, China and Japan were down 34.6% or $6.3 million from the prior year on delayed deliveries for energy related products into China.

The Company’s North America distribution operation saw a slight decrease ($0.3 million or 6.2%) on timing of supply of product from the manufacturing operations.

The Company’s European distribution operation saw a significant increase ($2.1 million or 58.8%) on a strong backlog of commercial marine projects.

The Company’s distribution operation in Australia and New Zealand, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue (22.6% increase from the prior year first fiscal quarter), primarily due to strong pleasure craft demand and a favorable currency impact.

Gross profit as a percentage of sales for the first quarter of fiscal 2025 improved to 26.5%, compared to 26.2% for the same period last year.

The improvement in the current year first quarter compared to the prior year result reflects the impact of additional volume partially offset by a negative mix impact.

For the fiscal 2025 first quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 26.7%, compared to 26.6% for the fiscal 2024 first quarter.

ME&A expenses increased $2.6 million, 15.2%, over the same period last fiscal year.

The increase in ME&A spending for the quarter was comprised of the addition of Katsa ($1.4 million), a stock-based compensation adjustment ($0.5 million), a legal settlement ($0.4 million) and a general inflationary impact ($0.3 million).

Interest expense was up $0.2 million to $0.6 million in the first quarter of fiscal 2025, with a higher average outstanding revolver balance following the Katsa acquisition.

Other expense of $1.3 million for the first fiscal quarter was primarily attributable to a currency loss ($1.1 million) and pension amortization expense ($0.2 million).

The fiscal 2025 first quarter effective tax rate was (29.2%) compared to (101.9%) in the prior fiscal year first quarter.

The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the change to the effective tax rate.

Financial Condition, Liquidity and Capital Resources

Comparison between March 29, 2024 and June 30, 2023

As of March 29, 2024, the Company had net working capital of $119.9 million, which represents an increase of $0.3 million, or 0.2%, from the net working capital of $119.6 million as of June 30, 2023.

Cash increased by $10.6 million to $23.8 million as of March 29, 2024, versus $13.3 million as of June 30, 2023.

As of March 29, 2024, the majority of the cash is at the Company’s overseas operations in Europe ($5.6 million) and Asia-Pacific ($10.4 million).

The Company had $7.9 million of domestic cash available at March 29, 2024 in anticipation of the closing of the Katsa Oy acquisition announced in March.

Comparison between September 27, 2024 and June 30, 2024

As of September 27, 2024, the Company had net working capital of $126.6 million, which represents an increase of $6.5 million, or 5.4%, from the net working capital of $120.1 million as of June 30, 2024.

Cash decreased by $3.4 million to $16.7 million as of September 27, 2024, versus $20.1 million as of June 30, 2024.

As of September 27, 2024, the majority of the cash is at the Company’s overseas operations in Europe ($7.0 million) and Asia-Pacific ($9.5 million).

Trade receivables of $51.5 million were down $0.7 million, or 1.3%, when compared to last fiscal year-end.

The impact of foreign currency translation was to decrease accounts receivable by $0.2 million versus June 30, 2023.

As a percent of sales, trade receivables finished at 55.2% in the third quarter of fiscal 2024 compared to 60.2% for the comparable period in fiscal 2023 and 65.2% for the fourth quarter of fiscal 2023.

Inventories were reduced by $2.1 million (1.6%) versus June 30, 2023.

The impact of foreign currency translation was to decrease inventories by $0.9 million versus June 30, 2023.

The remaining decrease was essentially the result of the sale of the BCS business, reducing inventory by $3.8 million.

The operation in the Netherlands reported an offsetting increase driven by continued growth in backlog and the need for inventory to support growth.

Much of this inventory, however, is funded through customer advance payments upon receipt of the order.

On a consolidated basis, as of March 29, 2024, the Company’s backlog of orders to be shipped over the next six months approximates $130.5 million, compared to $119.2 million at June 30, 2023 and $127.7 million at March 31, 2023.

As a percentage of six-month backlog, inventory has decreased from 111% at June 30, 2023 to 100% at March 29, 2024.

The impact of foreign currency translation was to increase accounts receivable by $1.4 million versus June 30, 2024.

As a percent of sales, trade receivables finished at 70.7% in the first quarter of fiscal 2025 compared to 62.6% for the comparable period in fiscal 2024 and 61.8% for the fourth quarter of fiscal 2024.

Inventories increased by $13.4 million, or 10.3%, versus June 30, 2024 to $143.9 million.

The impact of foreign currency translation was to increase inventories by $4.2 million versus June 30, 2024.

The largest increase came at our operation in the Netherlands ($4.6 million) in support of growing backlog for the Veth product, also impacted by timing of shipment of several large projects.

The Singapore distribution entity experienced a $2.3 million increase related to customer delays of deliveries on oilfield transmissions into China.

Additional increases were seen at our facilities in Lufkin ($1.5 million) Belgium ($1.0 million) and Australia ($0.9 million).

The global operations team is focused on driving inventory improvements in the second fiscal quarter and beyond, with several large orders expected to ship within the quarter.

On a consolidated basis, as of September 27, 2024, the Company’s backlog of orders to be shipped over the next six months approximates $144.3 million, compared to $133.7 million at June 30, 2024 and $122.5 million at September 29, 2023.

As a percentage of six-month backlog, inventory has increased from 98% at June 30, 2024 to 100% at September 27, 2024.

Net property, plant and equipment increased $0.9 million (0.1%) to $59.0 million versus $58.1 million at June 30, 2024.

The Company had capital spending of $7.6 million in the first three quarters.

This increase was partially offset by depreciation ($5.0 million) and the impact of the sale of the BCS business.

Capital spending occurring in the first three quarters was primarily related to replacement capital.

The Company had capital spending of $2.2 million in the quarter, and a favorable exchange impact of $0.8 million.

These increases were offset by depreciation of $1.9 million.

Capital spending occurring in the first quarter was primarily related to replacement capital, along with capital to drive growth and operating efficiencies.

In total, the Company expects to invest between $13 and $15 million in capital assets in fiscal 2025.

1 unchanged sentence

The Company’s capital program is focused on modernizing key core manufacturing, assembly and testing processes and improving efficiencies at its facilities around the world.

Accounts payable as of March 29, 2024 of $33.2 million was down $3.3 million, or 9.0%, from June 30, 2023.

The impact of foreign currency translation was to decrease accounts payable by $0.3 million versus June 30, 2023.

The remaining decrease is primarily related to the reduced purchasing activities in light of stable demand and inventory reduction efforts.

Total borrowings and long-term debt as of March 29, 2024 decreased $1.6 million to $17.0 million versus $18.6 million at June 30, 2023.

During the first three quarters, the Company reported positive free cash flow of $14.7 million (defined as operating cash flow less acquisitions of fixed assets), driven by positive operating results and working capital performance, partially offset by the payment of a bonus accrual and capital spending.

The Company ended the quarter with total debt, net of cash, of ($6.8) million, compared to $5.4 million at June 30, 2023, for a net improvement of $12.2 million.

Total equity increased $1.4 million, or 0.1%, to $146.9 million as of March 29, 2024.

The net income during the first three quarters increased equity by $3.6 million, offset by an unfavorable foreign currency translation of $0.9 million and the payment of a dividend ($1.2 million).

Accounts payable as of September 27, 2024 of $31.1 million was down $1.5 million, or 4.5%, from June 30, 2024.

The impact of foreign currency translation was to increase accounts payable by $1.0 million versus June 30, 2024.

The remaining decrease is primarily related to the timing of inventory receipts within the quarter.

Total borrowings and long-term debt as of September 27, 2024 increased $4.0 million to $29.8 million versus $25.8 million at June 30, 2024.

During the first quarter, the Company reported negative free cash flow of $6.7 million (defined as operating cash flow less acquisitions of fixed assets), driven by unfavorable working capital movement related primarily to inventory, the payment of the annual bonus for fiscal 2024 and capital spending.

The Company ended the quarter with total debt, net of cash, of $13.1 million, compared to $5.7 million at June 30, 2024, for a net degradation of $7.4 million.

Total equity increased $2.7 million, or 1.8%, to $157.4 million as of September 27, 2024.

The net loss during the first quarter decreased equity by $2.9 million, offset by a favorable foreign currency translation of $7.0 million.

The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $1.9 million.

The net remaining decrease in equity primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans, along with the unrealized gain on cash flow hedges.

The net remaining decrease in equity of $0.7 million primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans, along with the unrealized loss on cash flow hedges.

On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A.

15 unchanged sentences

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 Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank.

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.

11 unchanged sentences

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 Tenth Amendment specifically permits the Company to use Revolving Loans for the Katsa Oy acquisition.

In addition, 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 Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank.

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.

Prior to the Tenth Amendment, the Credit Agreement was scheduled to terminate as of June 30, 2025, and the Term Loan and Term Loan Commitment Date were scheduled to mature/terminate on March 4, 2026.

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 Company remains in compliance with its liquidity and other covenants.

As of March 29, 2024, current maturities include $2.0 million of term loan payments due within the coming year.

Other significant contractual obligations as of March 29, 2024 are disclosed in Note N "Lease Liabilities" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Management believes that available cash, the Credit Agreement, the unsecured lines of credit, cash generated from future operations, and potential access to debt markets will be adequate to fund the Company's cash and capital requirements for the foreseeable future.

Other significant contractual obligations as of September 27, 2024 are disclosed in Note N "Lease Liabilities" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There are no material undisclosed guarantees.

As of March 29, 2024, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant, and equipment, which generally have terms of less than 90 days.

As of September 27, 2024, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant, and equipment, which generally have terms of less than 90 days.

The Company has long-term obligations related to its postretirement plans which are discussed in detail in Note G "Pension and Other Postretirement Benefit Plans” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1of this Quarterly Report on Form 10-Q.

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The Company does not have any material off-balance sheet arrangements.

New Accounting Releases

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements