What changed in this filing

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Item 1. Financial Statements

2025-05-07 compared with 2025-02-05 · 507 added, 399 removed, 608 unchanged (60% of the section changed)

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

December 27, 2024

March 28, 2025

June 30, 2024

57 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME

COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

For the Quarter Ended

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

$ 81,242 $ 74,161 $ 244,060 $ 210,709

6 unchanged sentences

19,472 17,199 57,811 51,268

Restructuring expenses

287 139 355 207

Income from operations

3 unchanged sentences

( 660 ) ( 263 ) ( 1,791 ) ( 1,049 )

Other income (expense), net

Other (expense) income, net

( 1,567 ) 959 ( 2,525 ) 649

( 2,227 ) 696 ( 4,316 ) ( 400 )

Income before income taxes and noncontrolling interest

(Loss) income before income taxes and noncontrolling interest

( 280 ) 4,298 226 6,358

1 unchanged sentence

1,142 398 3,320 2,606

Net income (loss)

Net (loss) income

( 1,422 ) 3,900 ( 3,094 ) 3,752

Net income attributable to noncontrolling interest, net of tax

Net earnings attributable to noncontrolling interest, net of tax

( 50 ) ( 78 ) ( 223 ) ( 173 )

Net income (loss) attributable to Twin Disc, Incorporated

Net (loss) income attributable to Twin Disc, Incorporated

$ ( 1,472 ) $ 3,822 $ ( 3,317 ) $ 3,579

1 unchanged sentence

$ 0.04 $ 0.04 $ 0.12 $ 0.08

Income (loss) per share data:

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

(Loss) income per share data:

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

$ ( 0.11 ) $ 0.28 $ ( 0.24 ) $ 0.26

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

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

$ ( 0.11 ) $ 0.27 $ ( 0.24 ) $ 0.26

4 unchanged sentences

13,895 13,904 13,841 13,852

Comprehensive (loss) income

Net income (loss)

Comprehensive income (loss)

Net (loss) income

$ ( 1,422 ) $ 3,900 $ ( 3,094 ) $ 3,752

3 unchanged sentences

4,152 ( 3,084 ) 74 ( 930 )

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

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

( 653 ) 196 ( 360 ) ( 73 )

Comprehensive (loss) income

Comprehensive income (loss)

2,278 821 ( 4,625 ) 2,279

1 unchanged sentence

( 82 ) ( 34 ) ( 340 ) ( 224 )

Comprehensive (loss) income attributable to Twin Disc, Incorporated

Comprehensive income (loss) attributable to Twin Disc, Incorporated

$ 2,196 $ 787 $ ( 4,965 ) $ 2,055

3 unchanged sentences

(IN THOUSANDS)

For the Two Quarters Ended

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Net (loss) income

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

Depreciation and amortization

2 unchanged sentences

Loss on sale of boat management product line and related inventory

Restructuring expenses

(Benefit) provision for deferred income taxes

4 unchanged sentences

Acquisition of property, plant, and equipment

Proceeds from sale of fixed assets

Acquisition of Kobelt, less cash acquired

Proceeds from sale of property, plant, and equipment

Net cash used by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under long-term debt agreement

Borrowings under revolving loan arrangements

4 unchanged sentences

Payments of withholding taxes on stock compensation

Net cash used by financing activities

Net cash provided (used) by financing activities

Effect of exchange rate changes on cash

12 unchanged sentences

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 Kobelt Manufacturing Co.

On February 14, 2025, the Company completed the acquisition of 100 % of the outstanding common stock of Kobelt.

Based in Surrey, British Columbia, Kobelt is a Canadian manufacturer of controls, propulsion, steering, and braking systems to the marine, oil and gas, and industrial markets.

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

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

2 unchanged sentences

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.

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, with the exception of our investment in Twin Disc Nico LTD., which is 66 % owned by the Company.

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

10 unchanged sentences

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.

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

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

10 unchanged sentences

The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports, and/or proxy statements if it remains a smaller reporting company under SEC rules.

Acquisition of Kobelt Manufacturing Co.

On February 14, 2025, the Company completed the acquisition of 100 % of the outstanding common stock of Kobelt Manufacturing Co.

Based in Surrey, British Columbia, Kobelt is a Canadian manufacturer of controls, propulsion, steering, and braking systems to the marine, oil and gas, and industrial markets.

This acquisition was pursuant to a Sale and Purchase Agreement (“Purchase Agreement”) entered into by Twin Disc Canada Holdings Ltd, a wholly-owned subsidiary of the Company, with the prior owners, on February 14, 2025.

Immediately following the acquisition, Kobelt and Twin Disc Canada Holdings Ltd amalgamated to continue as a wholly-owned subsidiary of the Company, retaining the Kobelt name.

Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $ 16,586 in cash at closing, which included a base payment plus adjustments for net cash, working capital, and earnout.

This amount was subject to a final determination of working capital adjustments and earnout calculation.

The transaction is considered a taxable stock acquisition.

The Company, in part, financed the payment of the cash consideration through borrowings of $ 6,500 under a new credit agreement entered into on February 14, 2025 with BMO Harris Bank N.A.

(the “Credit Agreement”).

The Credit Agreement is further discussed in Note K, Debt.

Kobelt brings a complementary range of products that enhance and diversify the Company's portfolio, reinforcing Twin Disc’s position as a global leader in power transmission solutions.

Kobelt's in-house foundry and expertise in bronze die casting, precision machining, assembly and testing ensure complete quality control, which aligns perfectly with the Company's commitment to engineering excellence.

With over 60 years of experience designing and manufacturing high-quality products, Kobelt is a well-suited addition to the Twin Disc family.

This acquisition opens new opportunities for growth and partnerships, leveraging the Company's global sales and service teams to drive even greater success.

Since the acquisition date, the Company included in its condensed consolidated statement of operations and comprehensive income (loss) net sales and earnings for Kobelt of $ 1,229 and ( $160 ), respectively.

Purchase Price Allocation

The acquisition of Kobelt met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805” ), with the Company identified as the legal and the accounting acquirer.

The Company recognized approximately $ 0.7 million of acquisition-related costs which were expensed in the consolidated statement of operations for the quarter ended March 28, 2025.

The following table details the allocation of the purchase price of the assets acquired and liabilities assumed in connection with the acquisition of Kobelt.

Cash purchase price

Total consideration

Assets acquired:

Trade accounts receivable

Other current assets

Property, plant and equipment

Intangible assets

Total assets acquired

Liabilities assumed:

Accounts payable

Accrued liabilities

Total liabilities assumed

Total identified net assets acquired:

Purchase price consideration

Fair Value Estimate of Assets Acquired and Liabilities Assumed

The Company is continuing its review of the fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwise not available.

This measurement period will not exceed one year from the acquisition date.

At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value.

The fair value estimates are pending completion of some elements, including the finalization of an independent appraisal and final review by the Company.

Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments.

Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill.

The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in these consolidated financial statements.

The following summarizes the preliminary estimate of fair value of the assets acquired and liabilities assumed at the acquisition date:

Assets acquired and liabilities assumed:

Trade accounts receivable

Other current assets

Property, plant and equipment

Intangible assets

Accounts payable

Accrued liabilities

Total identified net assets acquired:

Purchase price consideration

The following information provides further details about the preliminary estimated net step-up in fair value and/or the estimated fair value at the acquisition date for some key balance sheet items.

(a) Accounts receivable represent contractual amounts receivable from customers.

The amounts approximate fair value.

(b) Inventory consists of:

Raw materials

Work in progress at fair value

Finished goods at fair value

Inventories at fair value

Inventories at book value

Dies, tools and fixtures

Machinery and equipment

Property, plant and equipment at fair value

Property, plant and equipment at book value

(d) Intangible assets consist of:

Estimated average

Customer relationship

Computer Software - External

Developed technology

(e) The amounts approximate fair value.

(f) The Company recorded goodwill of $ 2,131 associated with the acquisition.

The fair value of the purchase price of the business exceeded the fair value of the identifiable assets acquired and liabilities assumed.

The weighted average remaining useful life of the intangible assets included in the table above is approximately 17.4 years.

The major classes of inventories were as follows:

December 27, 2024

March 28, 2025

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.

11 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 December 27, 2024 and December 29, 2023:

The following is a listing of the activity in the warranty reserve for the quarters ended March 28, 2025 and March 29, 2024:

For the Quarter Ended

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

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

$ 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.

The current portion of the warranty accrual ($ 3,641 and $ 4,052 as of March 28, 2025 and March 29, 2024, respectively) is reflected in accrued liabilities, while the long-term portion ($ 1,057 and $ 843 as of March 28, 2025 and March 29, 2024, respectively) is included in other long-term liabilities on the consolidated balance sheets.

Contingencies

15 unchanged sentences

For the Quarter Ended

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

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

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

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

Net income (loss) attributable to Twin Disc, Incorporated

Net (loss) income 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

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

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

December 27, 2024

March 28, 2025

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

Corporate assets and elimination of

intercompany assets

Disaggregated revenue:

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:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended March 28, 2025 and March 29, 2024.

Net sales by product group for the quarter ended March 28, 2025 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

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:

Net sales by product group for the quarter ended March 29, 2024 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:

Net Sales by product group for the three quarters ended March 28, 2025 is summarized as follows:

Elimination of

1 unchanged sentence

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:

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

Elimination of

1 unchanged sentence

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

7 unchanged sentences

Performance Stock Awards ( “ PSA ” )

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.

During the first three 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 335.2 unvested PSAs outstanding at December 27, 2024 and December 29, 2023, respectively.

There were 350.0 and 329.9 unvested PSAs outstanding at March 28, 2025 and March 29, 2024, 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 $ 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 .

Compensation expense of $ 376 and $ 326 was recognized for the quarters ended March 28, 2025 and March 29, 2024, respectively, related to PSAs.

Compensation expense of $ 1,296 and $ 704 was recognized for the three quarters ended March 28, 2025 and March 29, 2024, respectively, related to PSAs.

The weighted average grant date fair value of the unvested awards at March 28, 2025 was $ 10.85 .

At March 28, 2025, the Company had $ 1,919 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2025, 2024 and 2023 awards.

The total fair value of PSAs vested as of March 28, 2025 and March 29, 2024 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 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.

During the first three quarters 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 10.5 unvested PSUAs outstanding at December 27, 2024 and December 29, 2023, respectively.

There were 10.5 and 10.5 unvested PSUAs outstanding at March 28, 2025 and March 29, 2024, 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 $ 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 .

Compensation expense of $ 22 and $ 11 was recognized for the quarters ended March 28, 2025 and March 29, 2024, respectively, related to PSUAs.

Compensation expense of $ 33 and $ 29 was recognized for the three quarters ended March 28, 2025 and March 29, 2024, respectively, related to PSUAs.

The weighted average grant date fair value of the unvested awards at March 28, 2025 was $ 12.15 .

At March 28, 2025, the Company had $ 55 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 March 28, 2025 and March 29, 2024 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 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.

During the first three quarters of fiscal 2025 and 2024, the Company granted 45.8 and 117.2 service based restricted shares, respectively, to employees and non-employee directors.

There were 251.3 and 246.6 unvested shares outstanding at March 28, 2025 and March 29, 2024, respectively.

A total of 0 and 2.4 shares of restricted stock were forfeited during the three quarters ended March 28, 2025 and March 29, 2024, respectively.

Compensation expense of $ 321 and $ 330 was recognized for the quarters ended March 28, 2025 and March 29, 2024, respectively.

Compensation expense of $ 949 and $ 953 was recognized for the three quarters ended March 28, 2025 and March 29, 2024, respectively.

The total fair value of restricted stock grants vested as of March 28, 2025 and March 29, 2024 was $ 454 and $ 2,196 , respectively.

As of March 28, 2025, the Company had $ 877 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 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.

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

There were 156.9 and 135.0 unvested RSUs outstanding at March 28, 2025 and March 29, 2024, respectively.

Compensation expense of $ 137 and $ 124 was recognized for the quarters ended March 28, 2025 and March 29, 2024, respectively.

Compensation expense of $ 327 and $ 372 was recognized for the three quarters ended March 28, 2025 and March 29, 2024, respectively.

The total fair value of restricted stock units vested as of March 28, 2025 and March 29, 2024 was $ 701 and $ 25 , respectively.

The weighted average grant date fair value of the unvested awards at March 28, 2025 was $ 10.66 .

As of March 28, 2025, the Company had $ 852 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

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

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 $ 671 to its pension plans in fiscal 2025.

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).

As of March 28, 2025, $ 592 in contributions to the pension plans have been made.

The Company has reclassified $ 201 (net of $ 5 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended March 28, 2025, and ($ 191 ) (net of $ 10 in taxes) during the quarter ended March 29, 2024.

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

The Company has reclassified ($ 1,246 ) (net of $ 3 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the three quarters ended March 28, 2025, and ($ 470 ) (net of $ 2 in taxes) during the three quarters ended March 29, 2024.

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

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

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

Foreign earnings, before income taxes of $ 1,140 , $ 400 , $ 3,546 , and $ 2,599 , respectively

$ 5,054 $ 6,010 $ 14,154 $ 14,915

Domestic losses, before income taxes of $ 0 , ($ 21 ), ($ 227 ) and $ 9 , respectively

Domestic losses, before income taxes of $ 0 , ($ 2 ), $( 227 ) and $ 7 , respetively

( 5,334 ) ( 1,712 ) ( 13,928 ) ( 8,557 )

Earnings before income taxes and noncontrolling interest

(Loss) income before income taxes and noncontrolling interest

$ ( 280 ) $ 4,298 $ 226 $ 6,358

4 unchanged sentences

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

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

Goodwill and Intangible Assets

Goodwill represents the excess of the consideration transferred net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed.

The Company reviews goodwill for impairment on a reporting unit basis annually as of the end of the fiscal year, and whenever events or circumstances (“triggering events”) indicate that the carrying value of goodwill may not be recoverable.

The Company monitors for interim triggering events on an ongoing basis.

Such triggering events include unfavorable operating results and macroeconomic trends.

The fair value of reporting units is primarily driven by projected growth rates and operating results under the income approach using a discounted cash flow model, which applies an appropriate market-participant discount rate, and consideration of other market approach data from guideline public companies.

If declining actual operating results or future operating results become indicative that the fair value of the Company’s reporting units has declined below their carrying values, an interim goodwill impairment test may need to be performed and may result in a non-cash goodwill impairment charge.

On February 14, 2025, as discussed in Note B, the Company acquired goodwill in the estimated amount of $ 2,131 and intangible assets in the estimated amount of $ 2,847 as part of the acquisition of Kobelt.

These estimates are preliminary and are pending completion of several elements, including finalization of an independent valuation of fair value of the assets acquired and liabilities assumed and final review by the Company’s management.

The final determination of fair values and resulting goodwill may differ significantly from what is currently reflected.

As of March 28, 2025, changes in the carrying amount of goodwill is summarized as follows:

Balance at June 30, 2024

Translation adjustment

Balance at March 28, 2025

For the quarter ended March 28.

2025, the Company performed a review of potential triggering events, and concluded there were no triggering events that indicated that the fair value of its reporting units had not more likely than not declined to below their carrying values at March 28, 2025.

The Company will perform an annual impairment test for its new and stand-alone reporting unit, Kobelt, as of June 30, 2025.

As of March 28, 2025, the following acquired intangible assets have definite useful lives and are subject to amortization:

Net Book Value Rollforward

Net Book Value By Asset Type

Gross Carrying Amount

Accumulated Amortization / Impairment

Customer Relationships

Gross Carrying

Amortization /

Relationships

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 )

Other additions

Translation adjustment

( 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

Balance at March 28, 2025

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 8 years.

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.

Intangible amortization expense was $ 915 and $ 822 for the quarters ended March 28, 2025, and March 29, 2024, respectively.

Intangible amortization expense was $ 2,721 and $ 2,458 for the three quarters ended March 28, 2025, and March 29, 2024, 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 December 27, 2024 and June 30, 2024 consisted of the following:

December 27, 2024

Long-term debt at March 28, 2025 and June 30, 2024 consisted of the following:

March 28, 2025

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:

26 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 Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Katsa by TD Finland Holding Oy, a wholly-owned subsidiary of the Company.

The Tenth Amendment specifically permitted the Company to use Revolving Loans for the Katsa 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 acquisition, as well as pro-forma EBITDA of Katsa 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.

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;

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;

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.

On February 14, 2025, the Company entered into a Credit Agreement (the “New Agreement”) with Bank of Montreal (the “Bank”) that refinances and replaces the credit agreement dated as of June 29, 2018, as amended between the Company and BMO.

Pursuant to the New Agreement, the Bank made a Term Loan to the Company in the principal amount of $ 15 million, consisting of as assignment of a term loan under the Credit Agreement from BMO to the Bank with a remaining principal of $ 8.5 million and an additional advance of $ 6.5 million.

The maturity date of the Term Loan is April 1, 2027, and the Company is required to make principal installments on the Term Loan of at least $ 0.750 million per quarter.

Under the new agreement, the Company is restricted in making dividend payments beyond $ 5 million in any fiscal year.

In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $ 50 million (the “Revolving Credit Commitment”).

The Borrowing Base is the sum of (a) 85 % of outstanding unpaid Eligible Receivables and (b) the lesser of $ 40 million for each fiscal month ending on or prior to August 31, 2025 ( reduced to $ 35 million for each fiscal month ending on or prior to August 31, 2026, and further reduced to $ 32.5 million for each fiscal month ending thereafter) and 60 % of Eligible Inventory for each fiscal month ending on or prior to August 31, 2025 ( reduced to 55 % of Eligible Inventory for each fiscal month ending on or prior to February 28, 2026, and 50 % of Eligible Inventory for each fiscal month ending thereafter).

The New Agreement also allows the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, would become Revolving Loans.

Under the New Agreement, the Company may not pay cash dividends on its common stock in excess of $ 5.0 million in any fiscal year.

The term of the Revolving Loans under the New Agreement runs through April 1, 2027.

The Company used the increased borrowing capacity under the New Agreement to help finance its acquisition of Kobelt Manufacturing Co.

(“Kobelt”), as described elsewhere in this current report.

Kobelt is included as a Borrower under the New Agreement, and may borrow directly under the New Agreement up to the lesser of the Revolving Credit Commitment or $ 25 million.

For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included.

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 each of the Company’s Kobelt Acquisition and the Company’s prior Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy and Kobelt as permitted by the Bank.

Interest rates under the New Agreement are based on the secured overnight financing rate (“SOFR”), the euro interbank offered rate (the “EURIBO Rate”), or the Canadian Overnight Repo Rate Average (the “CORRA”).

Loans under the New Agreement are designated as either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin;

“Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin;

“Term CORRA Loans,” which accrue interest at an Adjusted Term CORRA plus an Applicable Margin;

“Daily Compounded CORRA Loans,” which accrue interest at a Daily Compounded CORRA plus an Applicable Margin;

or Canadian Prime Rate Loans,” which accrue interest at the Canadian Prime Rate plus an Applicable Margin.

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).

Borrowings under the New Agreement are secured by substantially all of the Company’s, including Kobelt’s, personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property.

The Company has also pledged 65 % of its equity interests in certain foreign subsidiaries.

To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment to the Bank of certain agreements previously entered into between the Company and the Bank in connection with an April 22, 2016 credit agreement between the Company and the Bank, and further amended such agreements pursuant to the terms of the New Agreement.

Specifically, the Company amended and agreed to the assignment to the Bank of a Security Agreement, IP Security Agreement, Pledge Agreement, Perfection Certificate, and Assignment as to Liens and Encumbrances.

The Company also amended and assigned to the Bank a Negative Pledge Agreement, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the New Agreement and the Negative Pledge Agreement.

The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt, described in Item 8.01 below.

Upon the occurrence of an Event of Default, the Bank may take the following actions upon written notice to the Company:

( 1 ) terminate its remaining obligations under the New Agreement;

( 2 ) declare all amounts outstanding under the New 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 the Bank determines a greater amount is necessary.

If such Event of Default is due to the Company’s bankruptcy, the Bank may take the three actions listed above without notice to the Company.

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

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.

As of March 28, 2025, current maturities include $ 3,000 of term loan payments due within the coming year.

During the quarter ended March 28, 2025, the average interest rate was 6.95 % on the Term Loan, and 5.74 % on the Revolving Loans.

As of March 28, 2025, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $ 47,322 , and the Company had approximately $ 21,571 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 December 27, 2024 and June 30, 2024.

The Company’s borrowings described above approximate fair value at March 28, 2025 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 December 27, 2024, the notional amount was $ 9,000 .

As of March 28, 2025, the notional amount was $ 8,500 .

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 P, Derivative Financial Instruments.

During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies.

Effective upon the designation, all changes in the fair value of the euro revolver are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments.

This net investment hedge is included in the disclosures in Note O, Derivative Financial Instruments.

This net investment hedge is included in the disclosures in Note P, Derivative Financial Instruments.

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 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:

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 28, 2025 remain authorized for purchase.

The Company did not make any open market purchases of its shares during the quarters ended March 28, 2025 and March 29, 2024.

The following is a reconciliation of the Company’s equity balances for the quarters ended March 28, 2025 and March 29, 2024:

Twin Disc, Inc.

2 unchanged sentences

Balance, June 30, 2024

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

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

Dividends paid to shareholders

( 570 ) ( 570 )

Translation adjustments

7,148 143 7,291

Benefit plan adjustments, net of tax

Unrealized loss on hedges, net of tax

( 853 ) ( 853 )

Compensation expense

Stock awards, net

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

Balance, September 27, 2024

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

1 unchanged sentence

Stock awards, net

( 644 ) 637 ( 7 )

Balance, December 27, 2024

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

Net (loss) income

Dividends paid to shareholders

Translation adjustments

Benefit plan adjustments, net of tax

Unrealized loss on hedges, net of tax

Compensation expense

Stock awards, net

Balance, March 28, 2025

Twin Disc, Inc.

2 unchanged sentences

Balance, June 30, 2023

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

Net (loss) income

( 1,173 ) 90 ( 1,083 )

Translation adjustments

( 3,096 ) 60 ( 3,036 )

Benefit plan adjustments, net of tax

( 171 ) ( 171 )

Unrealized gain on hedges, net of tax

1 unchanged sentence

Stock awards, 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

( 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 27, 2024

$ 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:

Dividends paid to shareholders

Translation adjustments

Benefit plan adjustments, net of tax

Unrealized gain on cash flow hedge, net of tax

Compensation expense

Stock awards, net

Balance, March 29, 2024

Reconciliations for the changes in accumulated other comprehensive loss, net of tax, by component for the quarters ended March 28, 2025 and March 29, 2024 are as follows:

Net Investment

Balance, June 30, 2024

$ ( 849 ) $ ( 8,062 ) $ 504 $ 1,502

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

- 221 ( 169 ) ( 684 )

Net current period other comprehensive income (loss)

7,148 221 ( 169 ) ( 684 )

Balance, September 27, 2024

$ 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

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive income (loss)

Balance, March 28, 2025

Net Investment

Balance, June 30, 2023

$ ( 1,582 ) $ ( 5,948 ) $ 688 $ 1,272

Translation adjustment during the quarter

( 3,096 ) - - -

Amounts reclassified from accumulated other comprehensive loss

- ( 171 ) ( 6 ) 222

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)

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

Balance, December 27, 2024

$ 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:

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive (loss) income

Balance, March 29, 2024

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended March 28, 2025 are as follows:

Quarter Ended

December 27, 2024

Three Quarters

March 28, 2025

Changes in benefit plan items

2 unchanged sentences

Return on plan assets

( 1,808 ) ( 1,808 )

Total amortization

( 1,681 ) ( 1,448 )

Total reclassification, net of tax

$ ( 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:

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

Quarter Ended

Two Quarters Ended

December 29, 2023

Three Quarters

March 29, 2024

Changes in benefit plan items

2 unchanged sentences

Total amortization

( 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).

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

Restructuring of Operations

Restructuring expenses

The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends in certain of the Company’s markets since the fourth quarter of fiscal 2015.

These programs primarily involved the reduction of workforce in several of the Company’s manufacturing locations, under a combination of voluntary and involuntary programs.

During the fourth quarter of fiscal 2021, the Company undertook a series of steps to accelerate its focus on its core competencies, improve its fixed cost structure, and monetize some of its under-utilized assets.

The Company continued its restructuring plans with regard to its Belgian operations during fiscal year 2025 and 2024.

A voluntary program was implemented to reduce the workforce.

The action was taken to allow the Belgian operation to focus resources on core manufacturing processes, while allowing for savings on the outsourcing of non-core processes.

Total restructuring charges relating to streamlining operations totaled $ 287 and $ 139 in the quarters ending March 28, 2025 and March 29, 2024, respectively.

Total restructuring charges relating to streamlining operations totaled to $ 355 and $ 207 in the three quarters ending March 28, 2025 and March 29, 2024, respectively.

The following is a roll-forward of restructuring activity:

Accrued restructuring liability, June 30, 2024

Payments, adjustments and write-offs during the year

Accrued restructuring liability, March 28, 2025

Earnings Per Share

4 unchanged sentences

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 )

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

Net (loss) income

Net earnings attributable to noncontrolling interest, net of tax

Net (loss) income attributable to Twin Disc, Incorporated

Weighted average shares outstanding - basic

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 )

Basic (Loss) Income Per Share:

Net (loss) earnings per share - basic

Net (loss) income

Net earnings attributable to noncontrolling interest, net of tax

Net (loss) income attributable to Twin Disc, Incorporated

Weighted average shares outstanding - basic

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

Effect of dilutive stock awards

Weighted average shares outstanding - diluted

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:

Diluted (Loss) Income Per Share:

Net (loss) earnings per share - diluted

The following potential common shares were excluded from diluted EPS for the three quarters ended March 28, 2025 as the Company reported a net loss:

404.3 related to the Company’s unvested PSAs, 10.5 related to the Company’s unvested PSAUs, 103.2 related to the Company’s unvested RS awards, and 38.2 related to the Company’s unvested RSUs.

9 unchanged sentences

Condensed Consolidated Balance Sheet

December 27, 2024

March 28, 2025

June 30, 2024

1 unchanged sentence

Right-of-use operating lease assets

$ 16,431 $ 16,622

Right-of-use finance lease assets

3 unchanged sentences

Current maturities of right-of use operating lease obligations

$ 2,813 $ 2,521

Right-of use operating lease liabilities, non-current

Right-of use operating lease obligations

13,656 14,376

Right of use finance lease liabilities, current

4 unchanged sentences

For the Quarter Ended

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

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

For the Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

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 December 27, 2024 were as follows:

Approximate future minimum rental commitments under non-cancellable leases as of March 28, 2025 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 December 27, 2024, with a notional amount of $ 9,000 .

The Company has one outstanding interest rate swap contract as of March 28, 2025, with a notional amount of $ 8,500 .

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

3 unchanged sentences

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 $ 359 and $504 as of December 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 $ 314 and $504 as of March 28, 2025, 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 $ 1,940 and $ 1,502 as of December 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 $ 1,332 and $ 1,502 as of March 28, 2025 and June 30, 2024, respectively.

Fair Value of Derivative Instruments

2 unchanged sentences

Sheet Location

December 27, 2024

March 28, 2025

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

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended March 28, 2025 and March 29, 2024, respectively, was as follows:

Condensed Consolidated Statements

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For the Quarter Ended

For the Two Quarters Ended

(Loss) Income Location

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

For the Three Quarters Ended

Income (Loss) Location

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

Derivative designated as hedge:

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Interest expense

$ 70 $ 62 $ 181 $ 200

Interest rate swap

Unrealized gain (loss) on hedges

Unrealized (loss) gain on hedges

( 45 ) 40 ( 190 ) ( 148 )

Net investment hedge

Unrealized gain (loss) on hedges

Unrealized (loss) gain on hedges

( 608 ) 156 ( 170 ) 75

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 December 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 March 28, 2025, 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

Two Quarters Ended

December 27, 2024

December 29, 2023

December 27, 2024

December 29, 2023

Three Quarters Ended

March 28, 2025

March 29, 2024

March 28, 2025

March 29, 2024

Cost of goods sold

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Marketing, engineering and administrative expenses

Restructuring expense

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.

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

Net sales for the third quarter increased 9.5%, or $7.1 million, to $81.2 million from $74.2 million in the same quarter a year ago.

The acquisition of Katsa Oy, completed in the fourth quarter of fiscal 2024, contributed $7.1 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 $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.

In addition, the acquisition of Kobelt, completed in the current quarter, contributed $1.2 million of additional revenue.

The remaining decrease of $1.2 million primarily reflects weaker demand for oil and gas transmissions in China, along with some softening in North American commercial marine activity, partially offset by continued growth in demand for the company’s Veth propulsion systems.

Global sales of marine and propulsion products improved 9.0% from the prior year, while shipments of industrial products improved by 56.2%.

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 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.

Shipments of off-highway transmission products declined by 6.9%, with reduced Chinese demand for oil and gas transmissions.

The European region saw a significant increase in revenue ($9.1 million or 35.8%) thanks primarily to the acquisition of Katsa and continued growth of the Veth product line.

Sales into North America and Asia were essentially flat with the prior period quarter.

Currency translation had an unfavorable impact on third quarter fiscal 2025 sales compared to the third quarter of the prior year totaling $2.5 million primarily due to the strengthening of the US dollar against the euro, Singapore dollar and Australian dollar.

Sales at our manufacturing segment increased 12.8%, or $8.2 million, versus the same quarter last year.

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 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.

The Company’s recent acquisition, Katsa Oy, in Finland contributed $7.1 million of incremental revenue.

The acquisition of Kobelt within the quarter contributed $1.2 million of incremental revenue.

manufacturing operations were essentially flat, showing a 1.2% decline from the prior third quarter, with consistent demand for airport rescue and firefighting (“ARFF”), marine and industrial products.

The Company’s operation in the Netherlands saw increased revenue of $3.4 million (17.4%) compared to the third 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 third quarter (27.9% or $2.2 million), with weaker demand for its marine transmission products.

The Company’s Italian manufacturing operations were down $0.8 million (14.4%) compared to the third quarter of fiscal 2024, due to weaker demand for industrial and commercial marine products in the region.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was down $0.1 million (9.7%) compared to the prior year third quarter.

Our distribution segment experienced a decrease in sales of $5.3 million (14.9%) in the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024.

The Company’s Asian distribution operations in Singapore, China and Japan were down 8.9% or $1.2 million from the prior year on reduced Chinese demand for oil and gas transmissions.

The Company’s North America distribution operation also saw a decrease ($3.9 million or 43.4%) on some softening in North American demand for commercial marine products.

The Company’s European distribution operation saw a decline ($0.6 million or 8.2%) on a 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 an increase in revenue of 5.9% from the prior year third fiscal quarter), primarily due to improved pleasure craft demand.

Gross profit as a percentage of sales for the third quarter of fiscal 2025 declined to 26.7%, compared to 28.2% for the same period last year.

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

For the fiscal 2025 third quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 24.0%, compared to 23.2% for the fiscal 2024 third quarter.

ME&A expenses increased $2.3 million (13.2%) over the same period last fiscal year.

The increase in ME&A spending for the quarter was comprised of the addition of Katsa ($1.6 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.

The increase in ME&A spending for the quarter was comprised of the addition of Katsa and Kobelt ($1.7 million), an inflationary increase to wages ($0.6 million) and an increase in professional fees ($0.5 million).

These increases were offset by a decrease in global bonus expense ($0.1 million), telephone expense ($0.1 million) and the impact of currency translation ($0.4 million).

Interest expense was up $0.4 million to $0.7 million in the third quarter of fiscal 2025, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other expense (benefit) of $1.6 million for the third fiscal quarter was primarily attributable to a currency loss ($1.3 million) resulting from the weakening of the US dollar against the euro, along with pension amortization expense ($0.2 million).

The fiscal 2025 third quarter effective tax rate was (407.9%) compared to 9.3% in the prior fiscal year third quarter.

The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the change to the effective tax rate, which becomes very volatile when pre-tax results are very close to breakeven.

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

Net sales for the first nine months increased 15.8%, or $33.4 million, to $244.1 million from $210.7 million in the same period a year ago.

The acquisition of Katsa Oy, completed in the fourth quarter of fiscal 2024, contributed $26.3 million of additional revenue in the first nine months, while the recently announced acquisition of Kobelt contributed $1.2 million.

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.

The remaining increase of $8.5 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 ARFF market.

Global sales of marine and propulsion products improved 16.1% from the prior year, driven by strong demand for the Veth product.

Shipments of industrial products improved by 53.7%, 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.

Shipments of off-highway transmission products improved by just 1.0%, with improving ARFF shipments being offset by weaker Chinese demand for oil and gas transmissions.

The European region saw a significant increase in revenue ($28.7 million or 39.6%) thanks primarily to the acquisition of Katsa and continued growth of the Veth product.

Sales into North America increased 2.4%, or $1.5 million, on improved industrial and commercial marine shipments in the first half of the fiscal year.

The Asia Pacific region decreased 4.7%, or $2.7 million, on weaker demand for oilfield transmissions into China in the first fiscal quarter.

Currency translation had an unfavorable impact on the first nine months of fiscal 2025 sales compared to the comparable period of the prior year totaling $1.5 million primarily due to the weakening of the euro, Singapore dollar and Australian dollar against the U.S.

Sales at our manufacturing segment increased 18.4%, or $33.1 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 new acquisition, Katsa Oy, in Finland contributed $26.3 million of incremental revenue, while the recently announced acquisition of Kobelt contributed $1.2 million.

manufacturing operations experienced a 3.5%, or $3.0 million, increase in sales versus the first nine months of fiscal 2024, with improvement in demand for ARFF and industrial products.

The Company’s operation in the Netherlands saw increased revenue of $12.4 million (23.9%) compared to the first nine months 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 (19.9% or $4.0 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 Italian manufacturing operations were down $3.3 million (22.3%) compared to the first nine months 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 (2.5%) compared to the prior year comparable period.

Our distribution segment experienced a decrease in sales of $8.0 million (7.7%) in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024.

The Company’s Asian distribution operations in Singapore, China and Japan were down 6.7% or $2.9 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 North America distribution operation saw a decrease ($5.8 million or 26.4%) on some softening in North American demand for commercial marine products.

The Company’s European distribution operation saw an increase ($0.6 million or 3.7%) 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 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 0.1% from the prior year comparable period, on stable demand.

Gross profit as a percentage of sales for the first nine months of fiscal 2025 declined to 25.7%, compared to 27.6% 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.

Excluding this adjustment, the first nine months gross profit percent was 26.3%.

The remaining 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 nine months, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.7%, compared to 24.3% for the first nine months of fiscal 2024.

ME&A expenses increased $6.5 million (12.8%) 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).

The increase in ME&A spending for the first nine months was comprised of the addition of Katsa and Kobelt ($4.7 million), a catch-up adjustment to non-cash stock compensation ($0.6 million), a legal settlement ($0.4 million), an increase in professional fees ($0.9 million) and other inflation related increases ($0.6 million).

These increases were offset by a decrease in global bonus expense ($0.7 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.

Interest expense was up $0.7 million to $1.8 million in the first nine months of fiscal 2025, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other expense of $2.5 million for the first nine months was primarily attributable to a currency loss ($1.9 million), along with pension amortization expense ($0.7 million).

The fiscal 2025 first nine month effective tax rate was 1,469.0% compared to 41.0% in the prior fiscal year comparable period.

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

This rate becomes very volatile when pre-tax results are very close to breakeven.

Financial Condition, Liquidity and Capital Resources

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.

Comparison between March 28, 2025 and June 30, 2024

As of March 28, 2024, the Company had net working capital of $123.1 million, which represents an increase of $3.0 million, or 2.5%, from the net working capital of $120.1 million as of June 30, 2024.

Cash decreased by $3.8 million to $16.2 million as of March 28, 2025, versus $20.1 million as of June 30, 2024.

As of March 28, 2025, the majority of the cash is at the Company’s overseas operations in Europe ($4.8 million) and Asia-Pacific ($11.2 million).

Trade receivables of $57.3 million were up $5.1 million, or 9.8%, 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, 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.

As a percent of sales, trade receivables finished at 70.5% in the third quarter of fiscal 2025 compared to 55.2% for the comparable period in fiscal 2024 and 61.8% for the fourth quarter of fiscal 2024.

The current quarter was unfavorably impacted by timing of sales within the quarter, heavily weighted toward the end of the quarter.

Inventories increased by $7.5 million, or 5.7%, versus June 30, 2024 to $138.0 million.

The impact of foreign currency translation was to decrease inventories by $0.6 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 largest increase is the result of the Kobelt acquisition during the quarter ($6.0 million).

The Singapore distribution entity experienced a $2.4 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).

Additional increases were seen at our US distribution operation ($1.6 million) and Australia ($0.6 million).

Offsetting decreases came at our operations in the United States ($1.9 million), favorably impacted by the non-cash write down of industrial inventory in the second fiscal quarter ($1.6 million).

Our operation in Finland saw a decrease ($1.7 million) on a softening in demand during the quarter.

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.

On a consolidated basis, as of March 28, 2025, the Company’s backlog of orders to be shipped over the next six months approximates $133.7 million, compared to $133.7 million at June 30, 2024 and $130.5 million at March 29, 2024.

As a percentage of six-month backlog, inventory has increased from 98% at June 30, 2024 to 103% at March 28, 2025.

Net property, plant and equipment increased $5.6 million (9.6%) to $63.7 million versus $58.1 million at June 30, 2024.

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 half was primarily related to replacement capital, along with capital to drive growth and operating efficiencies.

The Company had capital spending of $7.5 million in the first three quarters, along with the impact of the Kobelt acquisition ($5.0 million).

This increase was offset by depreciation of $6.2 million and an unfavorable exchange impact ($0.9 million).

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

In total, the Company expects to invest between $10 and $12 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 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 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.

Accounts payable as of March 28, 2025 of $31.6 million was down $1.0 million, or 3.1%, from June 30, 2024.

The impact of foreign currency translation was essentially neutral to accounts payable.

The decrease is primarily related to reduced purchasing activity toward the end of the quarter.

Total borrowings and long-term debt as of March 28, 2025 increased $15.0 million to $40.8 million versus $25.8 million at June 30, 2024.

The increase is primarily related to the acquisition of Kobelt in the quarter ($16.7 million).

During the first nine months, the Company reported positive free cash flow of $0.5 million (defined as operating cash flow less acquisitions of fixed assets), driven by improved earnings.

The Company ended the quarter with total debt, net of cash, of $24.5 million, compared to $5.7 million at June 30, 2024, for a net increase of $18.8 million.

Total equity decreased $4.9 million, or 3.1%, to $150.2 million as of March 28, 2025.

The net loss during the first nine months decreased equity by $3.1 million, while other decreases related to dividends paid to shareholders of $1.7 million.

The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.9 million.

The net remaining decrease in equity of $1.0 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.

On April 1, 2024, the Company entered into Amendment No.

10 to Credit Agreement (the “Tenth Amendment”) that amended and extended the Credit Agreement.

The Tenth Amendment increased the Revolving Credit Commitment from $40.0 million to $45.0 million, and also increased the Borrowing Base for Revolving Loans from the sum of (a) 85% of outstanding unpaid Eligible Receivable and (b) the lesser of $30.0 million and 50% of Eligible Inventory to the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $35.0 million (reduced to $32.5 million beginning with the first quarter of the 2026 fiscal year) and 60% of Eligible Inventory (reduced to 55% of Eligible Inventory beginning with the third quarter of the 2025 fiscal year, and 50% of Eligible Inventory beginning with the first quarter of the 2026 fiscal year).

The Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Katsa by TD Finland Holding Oy, a wholly-owned subsidiary of the Company.

The Tenth Amendment specifically permitted the Company to use Revolving Loans for the Katsa 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 acquisition, as well as pro-forma EBITDA of Katsa 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 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).

Pursuant to the New Agreement, the Bank made a Term Loan to the Company in the principal amount of $15 million, consisting of as assignment of a term loan under the Credit Agreement from BMO to the Bank with a remaining principal of $8.5 million and an additional advance of $6.5 million.

The maturity date of the Term Loan is April 1, 2027, and the Company is required to make principal installments on the Term Loan of at least $0.750 million per quarter.

Under the new agreement, the Company is restricted in making dividend payments beyond $5 million in any fiscal year.

In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $50 million (the “Revolving Credit Commitment”).

The Borrowing Base is the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $40 million for each fiscal month ending on or prior to August 31, 2025 (reduced to $35 million for each fiscal month ending on or prior to August 31, 2026, and further reduced to $32.5 million for each fiscal month ending thereafter) and 60% of Eligible Inventory for each fiscal month ending on or prior to August 31, 2025 (reduced to 55% of Eligible Inventory for each fiscal month ending on or prior to February 28, 2026, and 50% of Eligible Inventory for each fiscal month ending thereafter).

The New Agreement also allows the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, would become Revolving Loans.

Under the New Agreement, the Company may not pay cash dividends on its common stock in excess of $5.0 million in any fiscal year.

The term of the Revolving Loans under the New Agreement runs through April 1, 2027.

The Company used the increased borrowing capacity under the New Agreement to help finance its acquisition of Kobelt Manufacturing Co.

(“Kobelt”), as described elsewhere in this current report.

Kobelt is included as a Borrower under the New Agreement, and may borrow directly under the New Agreement up to the lesser of the Revolving Credit Commitment or $25 million.

For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included.

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 each of the Company’s Kobelt Acquisition and the Company’s prior Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy and Kobelt as permitted by the Bank.

Loans under the New Agreement are designated as either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin;

“Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin;

“Term CORRA Loans,” which accrue interest at an Adjusted Term CORRA plus an Applicable Margin;

“Daily Compounded CORRA Loans,” which accrue interest at a Daily Compounded CORRA plus an Applicable Margin;

or Canadian Prime Rate Loans,” which accrue interest at the Canadian Prime Rate plus an Applicable Margin.

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).

Borrowings under the New Agreement are secured by substantially all of the Company’s and Kobelt’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property.

The Company has also pledged 65% of its equity interests in certain foreign subsidiaries.

The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt, described in Item 8.01 below.

Upon the occurrence of an Event of Default, the Bank may take the following actions upon written notice to the Company:

(1) terminate its remaining obligations under the New Agreement;

(2) declare all amounts outstanding under the New 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 the Bank determines a greater amount is necessary.

If such Event of Default is due to the Company’s bankruptcy, the Bank may take the three actions listed above without notice to the Company.

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

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 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.

Other significant contractual obligations as of March 28, 2025 are disclosed in Note O "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 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.

As of March 28, 2025, 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 H "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.

Postretirement medical claims are paid by the Company as they are submitted.

In fiscal 2025, the Company expects to contribute $0.5 million to postretirement benefits based on actuarial estimates;

however, these amounts can vary significantly from year to year because the Company is self-insured.

In fiscal 2025, the Company expects to contribute $0.5 million to postretirement benefits based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured.

In fiscal 2025, the Company expects to contribute $0.7 million to its defined benefit pension plans.

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

Management believes that available cash, the New 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.

New Accounting Releases

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What changed 10-Q

Item 1. Financial Statements