What changed in this filing

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Item 1. Financial Statements

2025-02-05 compared with 2024-11-06 · 454 added, 229 removed, 553 unchanged (55% of the section changed)

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

September 27, 2024

December 27, 2024

June 30, 2024

16 unchanged sentences

Deferred income taxes

Other noncurrent assets

$ 307,360 $ 312,058

3 unchanged sentences

$ 2,000 $ 2,000

Current maturities of right-of use operating lease obligations

Accounts payable

6 unchanged sentences

22,873 23,811

Right-of-use lease obligations

Right-of-use operating lease obligations

13,656 14,376

22 unchanged sentences

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

For the Quarter Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

$ 89,921 $ 72,994 $ 162,818 $ 136,547

1 unchanged sentence

66,662 52,338 120,237 96,156

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

Cost of goods sold - Other

1,579 - 1,579 3,099

21,680 20,656 41,002 37,292

Marketing, engineering and administrative expenses

18,920 17,218 38,407 34,136

Loss from operations

Income from operations

2,760 3,438 2,595 3,156

Other Income (expense):

Other (expense) income:

Interest expense

( 495 ) ( 392 ) ( 1,131 ) ( 786 )

Other (expense) income, net

Other income (expense), net

386 ( 449 ) ( 958 ) ( 310 )

( 109 ) ( 841 ) ( 2,089 ) ( 1,096 )

Loss before income taxes and noncontrolling interest

Income before income taxes and noncontrolling interest

2,651 2,597 506 2,060

1 unchanged sentence

1,552 1,662 2,179 2,208

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

Net loss attributable to Twin Disc, Incorporated

Net income (loss)

1,099 935 ( 1,673 ) ( 148 )

Net income attributable to noncontrolling interest, net of tax

( 180 ) ( 5 ) ( 173 ) ( 95 )

Net income (loss) attributable to Twin Disc, Incorporated

$ 919 $ 930 $ ( 1,846 ) $ ( 243 )

Dividends per share

Loss per share data:

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

$ 0.04 $ 0.04 $ 0.08 $ 0.04

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

Income (loss) per share data:

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

$ 0.07 $ 0.07 $ ( 0.13 ) $ ( 0.02 )

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

$ 0.07 $ 0.07 $ ( 0.13 ) $ ( 0.02 )

Weighted average shares outstanding data:

3 unchanged sentences

14,058 13,923 13,818 13,629

Comprehensive income (loss)

Comprehensive (loss) income

Net income (loss)

$ 1,099 $ 935 $ ( 1,673 ) $ ( 148 )

Benefit plan adjustments, net of income taxes of $ 13 , ($ 13 ), $ 2 and ($ 8 ), respectively

( 1,668 ) ( 108 ) ( 1,446 ) ( 279 )

Foreign currency translation adjustment

( 11,369 ) 5,190 ( 4,078 ) 2,154

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

Comprehensive income (loss)

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

1,146 ( 485 ) 293 ( 269 )

Comprehensive (loss) income

( 10,792 ) 5,532 ( 6,904 ) 1,458

Comprehensive income attributable to noncontrolling interest

Comprehensive income (loss) attributable to Twin Disc, Incorporated

( 122 ) ( 40 ) ( 258 ) ( 190 )

Comprehensive (loss) income attributable to Twin Disc, Incorporated

$ ( 10,914 ) $ 5,492 $ ( 7,162 ) $ 1,268

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

2 unchanged sentences

(IN THOUSANDS)

For the Quarter Ended

September 27, September 29,

For the Two Quarters Ended

December 27, 2024

December 29, 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

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

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

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

Depreciation and amortization

Gain on sale of assets

Loss on write-down of industrial product inventory

Loss on sale of boat management product line and related inventory

Restructuring expenses

Provision for deferred income taxes

(Benefit) provision for deferred income taxes

Stock compensation expense and other non-cash changes, net

Net change in operating assets and liabilities

( 5,465 ) 4,134

Net cash (used) provided by operating activities

( 4,344 ) 9,802

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property, plant, and equipment

( 2,362 ) ( 3,690 )

Proceeds from sale of fixed assets

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

1 unchanged sentence

Payments of right-of-use finance lease obligations

( 546 ) ( 847 )

Payments of withholding taxes on stock compensation

( 1,249 ) ( 1,763 )

Net cash provided by financing activities

Net cash used 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 and Other Information

Basis of Presentation

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.

13 unchanged sentences

All significant intercompany transactions have been eliminated.

Certain prior year immaterial amounts have been reclassified to conform with the current year's presentation.

The changes did not have a material impact on the Company's condensed consolidated financial position, results of operations, or cash flows in any of the periods presented.

Recently Issued Not Yet Adopted Accounting Standards

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2024 - 03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” (“ASU 2024 - 03” ) to expand expense disclosures by requiring disaggregated disclosure of certain income statement expense line items, including those that contain purchases of inventory, employee compensation, depreciation and amortization.

ASU 2024 - 03 is effective for fiscal years beginning after December 15, 2026, or the Company’s fiscal 2028, and subsequent interim periods, with early adoption permitted.

The amendments should be applied prospectively, but retrospective application is permitted.

The company is currently assessing the impact of the requirements on our Condensed Consolidated Financial Statements.

The Company is currently evaluating the impact of adopting this standard on it financial statement disclosures.

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

2 unchanged sentences

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.

In December 2023, the FASB issued guidance ASU 2023 - 09, Improvements to Income Tax Disclosures (“ASU 2023 - 09” ), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income rate.

The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) disaggregated between domestic and foreign.

1 unchanged sentence

The Company is currently evaluating the impact of adopting this standard on its financial statement disclosures.

Recently Adopted Accounting Standards

In June 2016, the FASB issued updated guidance (ASU 2016 - 13 ) and also issued subsequent amendments to the initial guidance under ASU 2018 - 19, ASU 2019 - 04, ASU 2019 - 05 and ASU 2019 - 10 (collectively ASC 326 ).

ASC 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

This replaces the existing incurred loss model with an expected loss model and requires the use of forward- looking information to calculate credit loss estimates.

The amendments in this guidance are effective for filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, and for smaller reporting companies for fiscal years beginning after December 15, 2022 ( the Company’s fiscal 2024 ), with early adoption permitted for certain amendments.

ASC 326 must be adopted by applying a cumulative effect adjustment to retained earnings.

The adoption of this guidance did not have a material impact on the Company’s financial statements.

Special Note Regarding Smaller Reporting Company Status

3 unchanged sentences

The major classes of inventories were as follows:

September 27, 2024

December 27, 2024

June 30, 2024

Finished parts

$ 59,396 $ 60,166

Work in process

24,503 23,096

Raw materials

44,379 47,222

$ 128,278 $ 130,484

In the second quarter of fiscal year 2025, the Company completed a product rationalization evaluation on its industrial product offerings.

As a result of the evaluation, an inventory write-down on certain industrial products, totaling $ 1.6 million, was recorded.

In the first quarter of fiscal year 2024, the Company entered into an agreement to sell most of its boat management system product line located at one of its subsidiaries in Italy.

1 unchanged sentence

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

The evaluation resulted in the Company recognizing an additional inventory write-down of $ 1.6 million for inventory located in the U.S.

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 the sale.

5 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 September 27, 2024 and September 29, 2023:

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

For the Quarter Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Reserve balance, beginning of period

$ 4,450 $ 4,160 $ 4,220 $ 3,476

Current period expense and adjustments

1,762 1,208 2,598 2,724

Payments or credits to customers

( 1,851 ) ( 898 ) ( 2,517 ) ( 1,718 )

Reserve balance, end of period

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.

$ 4,559 $ 4,488 $ 4,559 $ 4,488

The current portion of the warranty accrual ($ 3,467 and $ 3,549 as of December 27, 2024 and December 29, 2023, respectively) is reflected in accrued liabilities, while the long-term portion ($ 1,092 and $ 939 as of December 27, 2024 and December 29, 2023, respectively) is included in other long-term liabilities on the 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 (loss) income.

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

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

For the Quarter Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Manufacturing segment sales

$ 76,463 $ 58,368 $ 139,781 $ 112,906

Distribution segment sales

35,727 37,242 65,311 70,095

Inter/Intra segment elimination – manufacturing

( 14,673 ) ( 18,795 ) ( 28,045 ) ( 38,979 )

Inter/Intra segment elimination – distribution

Net (loss) income attributable to Twin Disc

( 7,596 ) ( 3,821 ) ( 14,229 ) ( 7,475 )

$ 89,921 $ 72,994 $ 162,818 $ 136,547

Net income (loss) attributable to Twin Disc, Incorporated

Manufacturing segment net income

$ 3,131 $ 2,078 $ 5,000 $ 3,636

Distribution segment net income

1,228 3,173 2,179 4,179

Corporate and eliminations

September 27, 2024

( 3,440 ) ( 4,321 ) ( 9,025 ) ( 8,058 )

$ 919 $ 930 $ ( 1,846 ) $ ( 243 )

December 27, 2024

June 30, 2024

Manufacturing segment assets

$ 459,422 $ 443,149

Distribution segment assets

39,376 73,033

Corporate assets and elimination of intercompany assets

( 191,438 ) ( 204,124 )

$ 307,360 $ 312,058

Disaggregated revenue:

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:

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

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

Elimination of

1 unchanged sentence

Intercompany Sales

$ 9,329 $ 1,053 $ ( 923 ) $ 9,459

Land-based transmissions

18,594 2,101 ( 1,685 ) 19,010

Marine and propulsion systems

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

48,512 27,659 ( 19,479 ) 56,692

28 4,914 ( 182 ) 4,760

$ 76,463 $ 35,727 $ ( 22,269 ) $ 89,921

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

Elimination of

1 unchanged sentence

Intercompany Sales

$ 5,704 $ 1,557 $ ( 730 ) $ 6,531

Land-based transmissions

15,003 7,953 ( 7,093 ) 15,863

Marine and propulsion systems

37,661 24,058 ( 14,773 ) 46,946

- 3,674 ( 20 ) 3,654

$ 58,368 $ 37,242 $ ( 22,616 ) $ 72,994

Net Sales by product group for the two quarters ended December 27, 2024 is summarized as follows:

Elimination of

Manufacturing

Intercompany Sales

$ 18,126 $ 2,106 $ ( 1,604 ) $ 18,628

Land-based transmissions

36,747 5,664 ( 6,117 ) 36,294

Marine and propulsion systems

84,859 48,992 ( 34,057 ) 99,794

49 8,549 ( 496 ) 8,102

$ 139,781 $ 65,311 $ ( 42,274 ) $ 162,818

Net Sales by product group for the two quarters ended December 29, 2023 is summarized as follows:

Elimination of

Manufacturing

Intercompany Sales

$ 10,994 $ 2,586 $ ( 1,364 ) $ 12,216

Land-based transmissions

29,684 20,623 ( 15,867 ) 34,440

Marine and propulsion systems

72,228 40,378 ( 29,197 ) 83,409

- 6,508 ( 26 ) 6,482

$ 112,906 $ 70,095 $ ( 46,454 ) $ 136,547

Stock-Based Compensation

2 unchanged sentences

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.

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.

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

There is reserved for issuance under the Plan an aggregate of 1,636,550 shares of the Company’s common stock, which consists of the previously-approved 715,000 shares of common stock reserved for issuance under the 2021 LTI Plan prior to its amendment and restatement to become the Omnibus Plan; 521,550 shares of common stock that remained available for issuance under the 2020 Directors' Plan; and 400,000 newly authorized shares of common stock.

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

1 unchanged sentence

Performance Stock Awards ( “ PSA ” )

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.

During the first two quarters 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.

2 unchanged sentences

These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 238.7 .

There were 350.0 and 329.9 unvested PSAs outstanding at September 27, 2024 and September 29, 2023, respectively.

There were 350.0 and 335.2 unvested PSAs outstanding at December 27, 2024 and December 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 $ 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 .

Compensation expense of $ 376 and $ 325 was recognized for the quarters ended December 27, 2024 and December 29, 2023, respectively, related to PSAs.

Compensation expense of $ 1,035 and $ 379 was recognized for the two quarters ended December 27, 2024 and December 29, 2023, respectively, related to PSAs.

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

At December 27, 2024, the Company had $ 2,296 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 December 27, 2024 and December 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 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.

During the first two quarters of fiscal 2024 and 2023, 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 10.5 unvested PSUAs outstanding at September 27, 2024 and September 29, 2023, respectively.

There were 10.5 and 10.5 unvested PSUAs outstanding at December 27, 2024 and December 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 $ 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 .

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

Compensation expense of $ 22 and $ 18 was recognized for the two quarters ended December 27, 2024 and December 29, 2023, respectively, related to PSUAs.

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

At December 27, 2024, the Company had $ 65 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 December 27, 2024 and December 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 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.

During the first two quarters of fiscal 2024 and 2023, the Company granted 44.0 and 115.7 service based restricted shares, respectively, to employees and non-employee directors.

There were 251.0 and 251.3 unvested shares outstanding at December 27, 2024 and December 29, 2023, respectively.

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

Compensation expense of $ 317 and $ 310 was recognized for the quarters ended December 27, 2024 and December 29, 2023, respectively.

Compensation expense of $ 628 and $ 623 was recognized for the two quarters ended December 27, 2024 and December 29, 2023, respectively.

The total fair value of restricted stock grants vested as of December 27, 2024 and December 29, 2023 was $ 437 and $ 2,206 , respectively.

As of December 27, 2024, the Company had $ 1,176 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards ( “ RSU ” )

1 unchanged sentence

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

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.

During the first two quarters of fiscal 2024 and 2023, the Company granted 77.4 and 7.1 of employment based RSUs, respectively.

There were 159.9 and 135.0 unvested RSUs outstanding at December 27, 2024 and December 29, 2023, respectively.

Compensation expense of $ 149 and $ 126 was recognized for the quarters ended December 27, 2024 and December 29, 2023, respectively.

Compensation expense of $ 192 and $ 247 was recognized for the two quarters ended December 27, 2024 and December 29, 2023, respectively.

The total fair value of restricted stock units vested as of December 27, 2024 and December 29, 2023 was $ 701 and $ 25 , respectively.

The weighted average grant date fair value of the unvested awards at December 27, 2024 was $ 10.88 .

As of December 27, 2024, the Company had $ 1,022 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Pension and Other Postretirement Benefit Plans

3 unchanged sentences

For the Quarter Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Pension Benefits:

$ 81 $ 94 $ 164 $ 188

Prior service cost

Interest cost

836 896 1,672 1,792

Expected return on plan assets

( 826 ) ( 1,048 ) ( 1,652 ) ( 2,096 )

Amortization of transition obligation

1 unchanged sentence

Amortization of actuarial net loss

246 16 493 31

Net periodic benefit cost (gain)

$ 358 $ ( 23 ) $ 720 $ ( 49 )

Postretirement Benefits:

$ 2 $ 2 $ 5 $ 4

Interest cost

Amortization of prior service benefit

( 69 ) ( 22 ) ( 137 ) ( 44 )

Amortization of actuarial net gain

( 10 ) ( 155 ) ( 19 ) ( 310 )

Net periodic benefit gain

$ ( 24 ) $ ( 127 ) $ ( 45 ) $ ( 255 )

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

1 unchanged sentence

The Company expects to contribute approximately $ 535 to its pension plans in fiscal 2024.

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.

As of December 27, 2024, $ 396 in contributions to the pension plans have been made.

The Company has reclassified $ 140 (net of $ 13 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended December 27, 2024, and ($ 108 ) (net of ($ 13 ) in taxes) during the quarter ended December 29, 2023.

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

The Company has reclassified $ 361 (net of $ 2 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the two quarters ended December 27, 2024, and ($ 279 ) (net of ($ 8 ) in taxes) during the two quarters ended December 29, 2023.

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

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).

9 unchanged sentences

For the Quarter-Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Foreign earnings, before income taxes of $ 1,552 , $ 1,683 , $ 2,406 , and $ 2,199 , respectively

2 unchanged sentences

( 3,009 ) ( 3,612 ) ( 8,594 ) ( 6,204 )

Loss before income taxes and noncontrolling interest

Earnings before income taxes and noncontrolling interest

$ 2,651 $ 2,597 $ 506 $ 2,060

Income tax expense

$ 1,552 $ 1,662 $ 2,179 $ 2,208

Effective income tax rate

1 unchanged sentence

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.

A discrete expense was recorded during the period of $ 148 related to foreign returns filed compared to income tax provision accrued.

Intangible Assets

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

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

Net Book Value Rollforward

2 unchanged sentences

Accumulated Amortization / Impairment

Net Book Value

Customer Relationships

Technology Know-how

Balance at June 30, 2024

$ 34,533 $ ( 21,847 ) $ 12,686 $ 6,720 $ 2,098 $ 1,511 $ 2,357 $ 12,686

203 - 203 - - - 203 203

- ( 1,806 ) ( 1,806 ) ( 650 ) ( 627 ) ( 125 ) ( 404 ) ( 1,806 )

Translation adjustment

Balance at September 27, 2024

( 227 ) - ( 227 ) ( 156 ) ( 50 ) ( 18 ) ( 3 ) ( 227 )

Balance at December 27, 2024

$ 34,509 $ ( 23,653 ) $ 10,856 $ 5,914 $ 1,421 $ 1,368 $ 2,153 $ 10,856

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 $ 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:

Intangible amortization expense was $ 880 and $ 817 for the quarters ended December 27, 2024, and December 29, 2023, respectively.

Intangible amortization expense was $ 1,806 and $ 1,636 for the two quarters ended December 27, 2024, and December 29, 2023, respectively.

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

Long-term Debt

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

September 27, 2024

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

December 27, 2024

June 30, 2024

1 unchanged sentence

Revolving loans (expire April 2027)

$ 15,851 $ 16,288

Term loan (due April 2027)

24,873 25,811

current maturities

( 2,000 ) ( 2,000 )

Total long-term debt

$ 22,873 $ 23,811

Credit Agreement Debt:

27 unchanged sentences

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

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.

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

During the quarter ended December 27, 2024, the average interest rate was 7.94 % on the Term Loan, and 6.09 % on the Revolving Loans.

As of December 27, 2024, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $ 42,909 , and the Company had approximately $ 27,058 of 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 September 27, 2024 and June 30, 2024.

The Company’s borrowings described above approximate fair value at December 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 September 27, 2024, the notional amount was $ 9,500 .

As of December 27, 2024, the notional amount was $ 9,000 .

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 N, Derivative Financial Instruments.

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

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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 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:

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 December 27, 2024 remain authorized for purchase.

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

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

Twin Disc, Inc.

16 unchanged sentences

39,902 126,257 ( 389 ) ( 8,112 ) 488 158,146

919 180 1,099

Dividends paid to shareholders

( 566 ) ( 566 )

Translation adjustments

( 11,311 ) ( 58 ) ( 11,369 )

Benefit plan adjustments, net of tax

( 1,668 ) ( 1,668 )

Unrealized gain on hedges, net of tax

Compensation expense

Stock awards, net

( 644 ) 637 ( 7 )

Balance, December 27, 2024

$ 40,111 $ 126,610 $ ( 12,222 ) $ ( 7,475 ) $ 610 $ 147,634

Twin Disc, Inc.

3 unchanged sentences

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

Net (loss) income

( 1,173 ) 90 ( 1,083 )

9 unchanged sentences

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

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:

Dividends paid to shareholders

( 560 ) ( 560 )

Translation adjustments

5,155 35 5,190

Benefit plan adjustments, net of tax

( 108 ) ( 108 )

Unrealized loss on hedges, net of tax

( 485 ) ( 485 )

Compensation expense

Stock awards, net

( 550 ) 541 ( 9 )

Balance, December 29, 2023

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

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

Net Investment

8 unchanged sentences

$ 6,299 $ ( 7,841 ) $ 335 $ 818

Translation adjustment during the quarter

( 11,311 ) - - -

Return on plan assets

Amounts reclassified from accumulated other comprehensive loss

- 140 24 1,122

Net current period other comprehensive (loss) income

( 11,311 ) ( 1,668 ) 24 1,122

Balance, December 27, 2024

$ ( 5,012 ) $ ( 9,509 ) $ 359 $ 1,940

Net Investment

9 unchanged sentences

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

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

Amount Reclassified

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

- ( 108 ) ( 183 ) ( 302 )

Net current period other comprehensive income (loss)

5,155 ( 108 ) ( 183 ) ( 302 )

Balance, December 29, 2023

$ 477 $ ( 6,227 ) $ 499 $ 1,192

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

Quarter Ended

September 27, 2024

December 27, 2024

Changes in benefit plan items

Actuarial gains

Actuarial losses

Transition asset and prior service benefit

Return on plan assets

( 1,808 ) ( 1,808 )

Total amortization

Income tax expense

( 1,681 ) ( 1,448 )

Total reclassification, net of tax

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

Amount Reclassified

$ ( 1,668 ) $ ( 1,446 )

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

Quarter Ended

September 29, 2023

Two Quarters Ended

December 29, 2023

Changes in benefit plan items

Actuarial losses

$ ( 172 ) (a)

Transition asset and prior service benefit

Total amortization

Income tax expense

( 95 ) ( 271 )

Total reclassification, net of tax

$ ( 108 ) $ ( 279 )

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).

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

September 27, 2024

September 29, 2023

Net loss (income) attributable to noncontrolling interest

Net loss attributable to Twin Disc, Incorporated

For the Quarter Ended

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Net income (loss)

$ 1,099 $ 935 $ ( 1,673 ) $ ( 148 )

Net income attributable to noncontrolling interest, net of tax

( 180 ) ( 5 ) ( 173 ) ( 95 )

Net income (loss) attributable to Twin Disc, Incorporated

919 930 ( 1,846 ) ( 243 )

Weighted average shares outstanding - basic

Basic loss Per Share:

Net loss per share - basic

Net loss (income) attributable to noncontrolling interest

Net loss attributable to Twin Disc, Incorporated

13,868 13,718 13,818 13,629

Basic Income (Loss) Per Share:

Net earnings (loss) per share - basic

$ 0.07 $ 0.07 $ ( 0.13 ) $ ( 0.02 )

Net income (loss)

$ 1,099 $ 935 $ ( 1,673 ) $ ( 148 )

Net income attributable to noncontrolling interest, net of tax

( 180 ) ( 5 ) ( 173 ) ( 95 )

Net income (loss) attributable to Twin Disc, Incorporated

919 930 ( 1,846 ) ( 243 )

Weighted average shares outstanding - basic

13,868 13,718 13,818 13,629

Effect of dilutive stock awards

Weighted average shares outstanding - diluted

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.

14,058 13,923 13,818 13,629

Diluted Income (Loss) Per Share:

Net earnings (loss) per share - diluted

$ 0.07 $ 0.07 $ ( 0.13 ) $ ( 0.02 )

The following potential common shares were excluded from diluted EPS for the two quarters ended December 27, 2024 as the Company reported a net loss:

404.3 related to the Company’s unvested PSAs, 7.9 related to the Company’s unvested PSAUs, 171.0 related to the Company’s unvested RS awards, and 68.0 related to the Company’s unvested RSUs.

The following potential common shares were excluded from diluted EPS for the two quarters ended December 29, 2023 as the Company reported a net loss:

330.0 related to the Company’s unvested PSAs, 10.5 related to the Company’s unvested PSAUs, 80.2 related to the Company’s unvested RS awards, and 87.4 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 sheets.

Condensed Consolidated Balance Sheets Location

September 27, 2024

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

Condensed Consolidated Balance Sheet

December 27, 2024

June 30, 2024

Right-of-use operating lease assets

Right-of-use assets operating leases

Right-of-use operating lease assets

$ 16,431 $ 16,622

3 unchanged sentences

Right-of use operating lease liabilities, current

Accrued liabilities

Current maturities of right-of use operating lease obligations

$ 2,813 $ 2,521

Right-of use operating lease liabilities, non-current

Right-of-use lease obligations

Right-of use operating lease obligations

13,656 14,376

3 unchanged sentences

Other long-term liabilities

$ 5,089 $ 4,795

The components of lease expense were as follows:

For the Quarter Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Finance lease cost:

Amortization of right-of-use assets

$ 237 $ 175 $ 469 $ 397

Interest on lease liabilities

96 77 189 151

Operating lease cost

1,003 882 1,942 1,775

Short-term lease cost

Variable lease cost

139 99 239 199

Total lease cost

1,497 1,239 2,874 2,531

Sublease income

( 21 ) ( 20 ) ( 42 ) ( 41 )

Net lease cost

$ 1,476 $ 1,219 $ 2,830 $ 2,490

Other information related to leases was as follows:

For the Quarter Ended

September 27, 2024

September 29, 2023

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

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

Operating cash flows from operating leases

$ 1,084 $ 934 $ 2,086 $ 1,871

Operating cash flows from finance leases

97 76 192 149

Financing cash flows from finance leases

471 207 1,017 471

Right-of-use-assets obtained in exchange for lease obligations:

Operating leases

1,255 188 1,581 188

Finance leases

224 123 732 657

Weighted average remaining lease term (years):

4 unchanged sentences

Finance leases

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

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

Operating Leases

Finance Leases

$ 2,095 $ 593

Total future lease payments

Amount representing interest

( 6,717 ) ( 1,464 )

Present value of future payments

$ 16,469 $ 5,860

Derivative Financial Instruments

4 unchanged sentences

Interest Rate Swap Contracts

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

The Company has one outstanding interest rate swap contract as of December 27, 2024, with a notional amount of $ 9,000 .

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

1 unchanged sentence

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 (loss).

Cash flows from derivative financial instruments are classified as cash flows from financing activities on the condensed consolidated statements of cash flows.

Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows.

These contracts generally have original maturities of greater than twelve months.

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

Net unrealized after-tax gains related to cash flow hedging activities that were included in accumulated other comprehensive loss were $ 359 and $504 as of December 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 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.

Net unrealized after-tax income related to net investment hedging activities that were included in accumulated other comprehensive loss were $ 1,940 and $ 1,502 as of December 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:

Condensed Consolidated Balance Sheets Location

September 27, 2024

Condensed Consolidated Balance

Sheet Location

December 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 (loss) for the quarters ended September 27, 2024 and September 29, 2023, respectively, was as follows:

Condensed Consolidated Statements of Operations

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

Condensed Consolidated Statements

of Operations and Comprehensive

For the Quarter Ended

and Comprehensive Income (Loss) Location

September 27, 2024

September 29, 2023

For the Two Quarters Ended

(Loss) Income Location

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Derivative designated as hedge:

2 unchanged sentences

Interest rate swap

Unrealized loss on hedges

Unrealized gain (loss) on hedges

Net investment hedge

Unrealized (loss) gain on hedges

Unrealized gain (loss) 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 condensed consolidated financial statements as of September 27, 2024, and related notes, as reported in Item 1 of this Quarterly Report.

This discussion should be read in conjunction with our consolidated financial statements as of December 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.

5 unchanged sentences

Results of Operations

(In thousands)

Quarter Ended

September 27, 2024

September 29, 2023

Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Cost of goods sold

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

Cost of goods sold - other

Marketing, engineering and administrative expenses

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.

Income from operations

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

Net sales for the second quarter increased 23.2%, or $16.9 million, to $89.9 million from $73.0 million in the same quarter a year ago.

The acquisition of Katsa Oy, completed in the fourth quarter of fiscal 2024, contributed $10.0 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 $0.8 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.

The remaining increase of $7.1 million primarily reflects continued growth in demand for the company’s Veth propulsion systems, along with improved shipments of the Company’s products for the airport rescue and firefighting (“ARFF”) market.

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

Global sales of marine and propulsion products improved 20.8% from the prior year, while shipments of industrial products improved by 44.8%.

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

Shipments of off-highway transmission products improved by 19.8%, with improving ARFF shipments.

The European region saw a significant increase in revenue ($5.4 million or 21.5%) 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 into North America increased 13.3%, or $2.7 million, on improved industrial and commercial marine shipments in the quarter.

The Asia Pacific region increased 2.1%, or $0.4 million, on flat demand for oilfield transmissions into China.

Currency translation had a favorable impact on second quarter fiscal 2025 sales compared to the second quarter of the prior year totaling $0.4 million primarily due to the strengthening of the euro, Singapore dollar and Australian dollar against the U.S.

Sales at our manufacturing segment increased 31.0%, or $18.1 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 new acquisition, Katsa Oy, in Finland contributed $10.0 million of incremental revenue.

manufacturing operations experienced a 10.3%, or $2.9 million, increase in sales versus the second fiscal quarter of 2024, with improvement in demand for ARFF and industrial products.

The Company’s operation in the Netherlands saw increased revenue of $8.2 million (48.6%) compared to the second 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 (20.3% or $1.4 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.

The Company’s Italian manufacturing operations were down $2.4 million (47.8%) compared to the second quarter of fiscal 2024, due primarily to the sale of the boat management product line in the prior year, along with weaker European demand for industrial and commercial marine products.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.1 million (6.1%) compared to the prior year second quarter.

Our distribution segment experienced a decrease in sales of $1.5 million (6.1%) in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024.

The Company’s Asian distribution operations in Singapore, China and Japan were up 39.8% or $4.6 million from the prior year on improved deliveries of commercial marine transmissions.

The Company’s North America distribution operation saw a decrease ($2.2 million or 27.2%) on timing of shipments from European manufacturing operations and some softening in North American demand.

The Company’s European distribution operation saw a decline ($0.9 million or 12.3%) on weaker shipments 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 a decrease in revenue of 17.9% from the prior year first fiscal quarter, primarily due to weaker pleasure craft demand partially offset by a favorable currency impact.

Gross profit as a percentage of sales for the second quarter of fiscal 2025 declined to 24.1%, compared to 28.3% for the same period last year.

The current quarter includes the impact of a non-cash inventory write-down of $1.6 million.

This write-down reflects the results of a product rationalization exercise of the Company’s industrial product line following the acquisition of Katsa.

Excluding this adjustment, the second quarter gross profit percent was 26.0%.

The shortfall to the prior year gross profit percentage is attributed to a less favorable product mix, purchase accounting amortization related to Katsa and surcharges related to the purchase of electric motors in the quarter.

For the fiscal 2025 second quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 21.0%, compared to 23.6% for the fiscal 2024 second quarter.

ME&A expenses increased $1.7 million (9.9%) 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 increase in ME&A spending for the quarter was comprised of the addition of Katsa ($1.6 million) and an increase in professional fees ($0.8 million).

These increases were offset by a decrease in global bonus expense ($0.8 million).

Interest expense was up $0.1 million to $0.5 million in the second quarter of fiscal 2025, with a higher average outstanding revolver balance following the Katsa acquisition.

Other expense (benefit) of ($0.4) million for the second fiscal quarter was primarily attributable to a currency gain ($0.5 million), partially offset by pension amortization expense ($0.2 million).

The fiscal 2025 second quarter effective tax rate was 58.5% compared to 64.0% in the prior fiscal year second quarter.

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

Comparison of the First Six Months of Fiscal 2025 with the First Six Months of Fiscal 2024

Net sales for the first six months increased 19.2%, or $26.3 million, to $162.8 million from $136.5 million in the same period a year ago.

The acquisition of Katsa Oy, completed in the fourth quarter of fiscal 2024, contributed $19.2 million of additional revenue in the first half.

This was partially offset by the sale of the boat management system product line in the prior year, reducing revenue by $2.6 million in the period.

The remaining increase of $9.7 million primarily reflects continued growth in demand for the company’s Veth propulsion systems, along with improved shipments of the Company’s products for the airport rescue and firefighting (“ARFF”) market.

Global sales of marine and propulsion products improved 19.6% from the prior year, driven by strong demand for the Veth product.

Shipments of industrial products improved by 52.5%, driven by the addition of Katsa.

Shipments of off-highway transmission products improved by 5.4%, with improving ARFF shipments.

The European region saw a significant increase in revenue ($19.5 million or 41.6%) thanks primarily to the acquisition of Katsa.

Sales into North America increased 4.3%, or $1.7 million, on improved industrial and commercial marine shipments in the second quarter.

The Asia Pacific region increased 6.6%, or $2.6 million, on steady demand for oilfield transmissions into China, strong commercial marine activity and a favorable currency impact.

Currency translation had a favorable impact on first half fiscal 2025 sales compared to the first half of the prior year totaling $1.0 million primarily due to the strengthening of the euro, Singapore dollar and Australian dollar against the U.S.

Sales at our manufacturing segment increased 22.8%, or $26.9 million, versus the same period last year.

The Company’s new acquisition, Katsa Oy, in Finland contributed $19.2 million of incremental revenue.

manufacturing operations experienced a 6.1%, or $3.4 million, increase in sales versus the first half of fiscal 2024, with improvement in demand for ARFF and industrial products.

The Company’s operation in the Netherlands saw increased revenue of $8.9 million (27.9%) compared to the first half of fiscal 2024, as this operation continues to experience record demand for its propulsion systems and has begun to increase capacity to satisfy the growing demand.

The Company’s Belgian operation saw a decrease compared to the prior year first half (14.6% or $1.8 million), with weaker demand for its marine transmission products.

The Company’s Italian manufacturing operations were down $4.4 million (44.4%) compared to the first half of fiscal 2024, due primarily to the sale of the boat management product line in the prior year, along with weaker European demand for industrial and commercial marine products.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.3 million (8.9%) compared to the prior year first half.

Our distribution segment experienced a decrease in sales of $4.8 million (6.8%) in the first half of fiscal 2025 compared to the first half of fiscal 2024.

The Company’s Asian distribution operations in Singapore, China and Japan were down 5.7% or $1.7 million from the prior year on weaker demand for oilfield transmissions into China.

The Company’s North America distribution operation saw a decrease ($1.9 million or 14.5%) on timing of shipments from European manufacturing operations and some softening in North American demand.

The Company’s European distribution operation saw an increase ($1.2 million or 11.3%) on stronger shipments 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 a decrease in revenue of 2.4% from the prior year first fiscal half, primarily due to weaker pleasure craft demand partially offset by a favorable currency impact.

Gross profit as a percentage of sales for the first half of fiscal 2025 declined to 25.2%, compared to 27.3% for the same period last year.

The current year includes the impact of a non-cash inventory write-down of $1.6 million.

This write-down reflects the results of a product rationalization exercise of the Company’s industrial product line following the acquisition of Katsa.

Excluding this adjustment, the first half gross profit percent was 26.2%.

The shortfall to the prior year gross profit percentage is attributed to a less favorable product mix, along with purchase accounting amortization related to Katsa.

For the fiscal 2025 first half, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.6%, compared to 25.0% for the first half of fiscal 2024.

ME&A expenses increased $4.3 million (12.5%) over the same period last fiscal year.

The increase in ME&A spending for the first half was comprised of the addition of Katsa ($3.0 million), a catch up adjustment to non-cash stock compensation ($0.6 million), a legal settlement ($0.4 million), an increase in professional fees ($0.4 million) and other inflation related increases ($0.7 million).

These increases were offset by a decrease in global bonus expense ($0.8 million).

Interest expense was up $0.3 million to $1.1 million in the first half of fiscal 2025, with a higher average outstanding revolver balance following the Katsa acquisition.

Other expense of $1.0 million for the first half was primarily attributable to a currency loss ($0.6 million), along with pension amortization expense ($0.5 million).

The fiscal 2025 first half effective tax rate was 430.6% compared to 107.2% in the prior fiscal year first half.

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 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).

Comparison between December 27, 2024 and June 30, 2024

As of December 27, 2024, the Company had net working capital of $113.9 million, which represents a decrease of $6.2 million, or 5.2%, from the net working capital of $120.1 million as of June 30, 2024.

Cash decreased by $4.2 million to $15.9 million as of December 27, 2024, versus $20.1 million as of June 30, 2024.

As of December 27, 2024, the majority of the cash is at the Company’s overseas operations in Europe ($4.6 million) and Asia-Pacific ($9.0 million).

Trade receivables of $53.7 million were down $1.5 million, or 2.8%, when compared to last fiscal year-end.

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.

The impact of foreign currency translation was to decrease accounts receivable by $0.9 million versus June 30, 2024.

As a percent of sales, trade receivables finished at 59.7% in the second quarter of fiscal 2025 compared to 56.8% for the comparable period in fiscal 2024 and 61.8% for the fourth quarter of fiscal 2024.

Inventories decreased by $2.2 million, or 1.7%, versus June 30, 2024 to $128.3 million.

The impact of foreign currency translation was to decrease inventories by $2.6 million versus June 30, 2024.

The largest decrease came at our operations in the United States ($2.4 million), favorably impacted by the non-cash write down of industrial inventory in the quarter ($1.6 million).

Our operation in the Netherlands saw an increase ($1.4 million) in support of growing backlog for the Veth product.

The Singapore distribution entity experienced a $4.1 million increase primarily related to customer delays of deliveries on oilfield transmissions into China.

Additional increases were seen at our facilities in Belgium ($1.1 million) and Australia ($0.8 million).

The global operations team is focused on driving inventory improvements in the second half and beyond.

On a consolidated basis, as of December 27, 2024, the Company’s backlog of orders to be shipped over the next six months approximates $124.0 million, compared to $133.7 million at June 30, 2024 and $125.2 million at December 29, 2023.

The reduction in backlog since June 30, 2024 ($9.7 million) is largely due to a currency translation impact ($5.5 million).

As a percentage of six-month backlog, inventory has increased from 98% at June 30, 2024 to 103% at December 27, 2024.

Net property, plant and equipment increased $0.4 million (0.7%) to $58.5 million versus $58.1 million at June 30, 2024.

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

The Company had capital spending of $5.1 million in the first half, and an unfavorable exchange impact of $0.8 million.

These increases were offset by depreciation of $4.0 million.

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

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

In total, the Company expects to invest between $12 and $15 million in capital assets in fiscal 2025.

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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 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.

Accounts payable as of December 27, 2024 of $28.6 million was down $4.0 million, or 12.3%, from June 30, 2024.

The impact of foreign currency translation was to decrease accounts payable by $0.4 million versus June 30, 2024.

The remaining decrease is primarily related to the inventory reduction during the second quarter.

Total borrowings and long-term debt as of December 27, 2024 decreased $0.9 million to $24.9 million versus $25.8 million at June 30, 2024.

During the first half, the Company reported negative free cash flow of $0.5 million (defined as operating cash flow less acquisitions of fixed assets), driven by favorable working capital movement offset by capital spending.

The Company ended the quarter with total debt, net of cash, of $9.0 million, compared to $5.7 million at June 30, 2024, for a net degradation of $3.3 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.

Total equity decreased $7.4 million, or 4.8%, to $147.6 million as of December 27, 2024.

The net loss during the first half decreased equity by $1.7 million, while other decreases related to a favorable foreign currency translation of $4.1 million and dividends paid to shareholders of $1.1 million.

The net change in common stock and treasury stock resulting from the accounting for stock-based compensation increased equity by $0.6 million.

The net remaining decrease in equity of $1.1 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.

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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.

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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.

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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.

Other significant contractual obligations as of December 27, 2024 are disclosed in Note M "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 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.

As of December 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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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