TWIN DISC INC 10-K

Item 9A. Controls and Procedures Conclusion Regarding Disclosure Controls and Procedures As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report and under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure. 20 Management ’ s Report on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: 1. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company, 2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and 3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate. The Company conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the framework (2013 edition) in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon such evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of June 30, 2025. For purposes of evaluating the Company’s internal control over financial reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting, the Company did not include the internal controls of Kobelt, which the Company acquired on February 14, 2025, and which are included in the consolidated balance sheets of the Company as of June 30, 2025, and the related consolidated statements of operations and comprehensive income, cash flows, and changes in shareholders’ equity, for the year then ended. RSM US LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of June 30, 2025, as stated in their report which appears herein. Changes in Internal Control Over Financial Reporting During the fourth quarter of fiscal 2025, there have not been any changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 21 PART III Item 10. Directors, Executive Officers and Corporate Governance For information with respect to the executive officers of the Registrant, see "Information About Our Executive Officers" at the end of Part I of this report. For information with respect to the Directors of the Registrant, see "Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. For information with respect to the Company’s Code of Ethics, see "Guidelines for Business Conduct and Ethics” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. The Company’s Code of Ethics is included on the Company’s website, www.twindisc.com. If the Company makes any substantive amendment to the Code of Ethics, or grants a waiver from a provision of the Code of Ethics for its Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer (or any person performing similar functions), it intends to disclose the nature of such amendment on its website within four business days of the amendment or waiver in lieu of filing a Form 8-K with the SEC. For information with respect to procedures by which shareholders may recommend nominees to the Company’s Board of Directors, see “Director Committee Functions: Nominating and Governance Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. There were no changes to these procedures since the Company’s last disclosure relating to these procedures. For information with respect to the Audit Committee Financial Expert, see “Director Committee Functions: Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. For information with respect to the Audit Committee Disclosure, see “Director Committee Functions: Audit Committee” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. For information with respect to the Audit Committee Membership, see “Director Committee Functions: Committee Membership” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. For information with respect to the Company’s Insider Trading Policy, see “Insider Trading Policy” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, see “Delinquent Section 16(a) Reports” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. 22 Item 11. Executive Compensation The information set forth under the captions "Executive Compensation" and "Director Compensation” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 30, 2025, is incorporated into this report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters For information regarding security ownership of certain beneficial owners and management, see the Proxy Statement for the Annual Meeting of Shareholders to be held on October 30, 2025, under the captions "Principal Shareholders” and “Directors and Executive Officers" and incorporated into this report by reference. For information regarding securities authorized for issuance under equity compensation plans of the Company, see “Equity Compensation Plan Information” in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 30, 2025, which is incorporated into this report by reference. There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant. Item 13. Certain Relationships and Related Transactions, Director Independence For information with respect to transactions with related persons, see “Corporate Governance – Transactions with Related Persons” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. For information with respect to director independence, see “Corporate Governance – Board Independence” in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, which is incorporated into this report by reference. Item 14. Principal Accounting Fees and Services The Company incorporates by reference the information contained in the Proxy Statement for the Annual Meeting of Shareholders to be held October 30, 2025, under the headings “Fees to Independent Registered Public Accounting Firm” and “Pre-approval Policies and Procedures.” PART IV Item 15. Exhibits, Financial Statement Schedules (a)(1) Consolidated Financial Statements See Index to Consolidated Financial Statements and Financial Statement Schedule, the Report of Independent Registered Public Accounting Firm and the Consolidated Financial Statements, all of which are incorporated by reference. (a)(2) Consolidated Financial Statement Schedule See Index to Consolidated Financial Statements and Financial Statement Schedule, and the Consolidated Financial Statement Schedule, all of which are incorporated by reference. (a)(3) Exhibits. See Exhibit Index included as the last page of this form, which is incorporated by reference. 23 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm, RSM US LLP , Milwaukee, Wisconsin , PCAOB ID # 49 25-28 Consolidated Balance Sheets as of June 30, 2025 and 2024 29 Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2025 and 2024 30 Consolidated Statements of Cash Flows for the years ended June 30, 2025 and 2024 31 Consolidated Statements of Changes in Equity for the years ended June 30, 2025 and 2024 32 Notes to Consolidated Financial Statements 33-70 INDEX TO FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying Accounts 71 Schedules, other than those listed, are omitted for the reason that they are inapplicable, are not required, or the information required is shown in the financial statements or the related notes. 24 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Twin Disc, Incorporated Opinion on the Internal Control Over Financial Reporting We have audited Twin Disc, Incorporated’s (the Company) internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated September 5, 2025 expressed an unqualified opinion. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Kobelt Manufacturing Co. Ltd. (“Kobelt”) from its assessment of internal control over financial reporting as of June 30, 2025 because it was acquired by the Company in a purchase business combination in the third quarter of fiscal 2025. We have also excluded Kobelt from our audit of internal control over financial reporting. Kobelt is a wholly owned subsidiary whose total assets, net sales and income from operations represent approximately 6.0%, 1.4% and 0.9%, respectively, of the related consolidated financial statement amounts as of and for the year ended June 30, 2025. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management ’ s Report on Internal Control over Financial Reporting in Item 9A . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. 25 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Milwaukee, Wisconsin September 5, 2025 26 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Twin Disc, Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Twin Disc, Incorporated and its subsidiaries (the Company) as of June 30, 2025 and 2024, the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the two years in the period ended June 30, 2025, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated September 5, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 27 Deferred Tax Asset Valuation Allowance As described in Note O to the consolidated financial statements the Company’s gross deferred tax asset and valuation allowance was approximately $31,582,000 and $23,964,000, respectively, as of June 30, 2025. The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. In evaluating the realizability of deferred tax assets in future periods, the available positive and negative evidence, including projected future taxable income exclusive of reversing temporary differences, history of book losses, tax planning strategies and results of recent operations, are considered. We identified management’s determination of the value of deferred tax assets as a critical audit matter as there is significant judgment required by management to conclude that it is more likely than not that these deferred tax assets will be realized in future periods. In addition, the auditing of these elements involved complex and subjective auditor judgment, including the need to involve personnel with specialized skill and knowledge. Our audit procedures to evaluate management’s determination that sufficient taxable income will not be generated to realize all of the deferred tax assets included the following, among others: ● We evaluated the design and operating effectiveness of internal controls over income taxes, specifically, those controls over the evaluation of the realizability of deferred tax assets. ● We evaluated the reasonableness of management’s estimates in regard to the ability to generate future taxable income and utilize the deferred tax assets by evaluating: (i) the forecast of future taxable income, including testing of management’s forecasts against the Company’s historical performance, and (ii) testing management’s assessment of the timing of future reversals of temporary differences. ● We utilized personnel with specialized knowledge and skill in income taxes and accounting for income taxes under Accounting Standards Codification (ASC) 740 to assist in the evaluation of management’s assessment of positive and negative evidence and their conclusion that it is more likely than not that the Company will not realize the benefit of its deferred tax assets. /s/ RSM US LLP We have served as the Company’s auditor since 2017. Milwaukee, Wisconsin September 5, 2025 28 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2025 and 2024 (In thousands except share amounts) 2025 2024 ASSETS Current assets: Cash $ 16,109 $ 20,070 Trade accounts receivable, net 58,941 52,207 Inventories, net 151,951 130,484 Other current assets 19,914 16,870 Total current assets 246,915 219,631 Property, plant and equipment, net 69,576 58,074 Right-of-use operating lease assets 17,250 16,622 Goodwill 2,892 - Intangible assets, net 13,361 12,686 Deferred income taxes 2,812 2,339 Other noncurrent assets 2,756 2,706 Total assets $ 355,562 $ 312,058 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 3,000 $ 2,000 Current maturities of right-of use operating lease obligations 3,393 2,521 Accounts payable 38,745 32,586 Accrued liabilities 80,655 62,409 Total current liabilities 125,793 99,516 . Long-term debt 28,446 23,811 Right-of-use operating lease obligations 14,357 14,376 Accrued retirement benefits 11,832 7,854 Deferred income taxes 4,320 5,340 Other long-term liabilities 6,423 6,107 Total liabilities 191,171 157,004 Twin Disc shareholders' equity: Preferred shares authorized: 200,000 ; issued: none ; no par value - - Common shares authorized: 30,000,000 ; issued: 14,632,802 ; no par value 42,269 41,798 Retained earnings 125,414 129,592 Accumulated other comprehensive income (loss) 3,730 ( 6,905 ) 171,413 164,485 Less treasury stock, at cost ( 482,181 and 637,778 shares, respectively) 7,402 9,783 Total Twin Disc, Incorporated shareholders' equity 164,011 154,702 Noncontrolling interest 380 352 Total equity 164,391 155,054 Total liabilities and equity $ 355,562 $ 312,058 The notes to consolidated financial statements are an integral part of these statements. 29 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME For the years ended June 30, 2025 and 2024 (In thousands, except per share amounts) 2025 2024 Net sales $ 340,738 $ 295,127 Cost of goods sold 246,433 208,709 Cost of goods sold - other 1,579 3,099 Gross profit 92,726 83,319 Marketing, engineering and administrative expenses 82,431 71,622 Restructuring expenses 408 218 Income from operations 9,887 11,479 Other Income (expense): Interest expense ( 2,646 ) ( 1,443 ) Bargain purchase gain - 3,724 Other (expense) income, net ( 5,472 ) 1,607 ( 8,118 ) 3,888 Income before income taxes and noncontrolling interest 1,769 15,367 Income tax expense 3,368 4,121 Net (loss) income ( 1,599 ) 11,246 Less: Net earnings attributable to noncontrolling interest, net of tax ( 295 ) ( 258 ) Net (loss) income attributable to Twin Disc, Incorporated $ ( 1,894 ) $ 10,988 Dividends per share $ 0.16 $ 0.12 (Loss) income per share data: Basic (loss) income per share attributable to Twin Disc, Incorporated common shareholders $ ( 0.14 ) $ 0.80 Diluted (loss) income per share attributable to Twin Disc, Incorporated common shareholders $ ( 0.14 ) $ 0.79 Weighted average shares outstanding data: Basic shares outstanding 13,856 13,683 Diluted shares outstanding 13,856 13,877 Comprehensive income Net (loss) income $ ( 1,599 ) $ 11,246 Benefit plan adjustments, net of income taxes of $ 13 and $ 8 , respectively ( 3,399 ) ( 2,114 ) Foreign currency translation adjustment 15,924 657 Unrealized (loss) gain on hedges, net of income taxes of $ 0 and $ 0 , respectively ( 1,851 ) 46 Comprehensive income 9,075 9,835 Less: Comprehensive income attributable to noncontrolling interest 334 183 Comprehensive income attributable to Twin Disc, Incorporated $ 8,741 $ 9,652 The notes to consolidated financial statements are an integral part of these statements. 30 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 30, 2025 and 2024 (In thousands) 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 1,599 ) $ 11,246 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 14,899 9,981 Gain on sale of assets ( 98 ) ( 91 ) Loss on write-down of industrial product inventory 1,579 - Loss on sale of boat management system product line and related inventory - 3,099 Gain on Katsa acquisition - ( 3,724 ) Restructuring charges 39 ( 82 ) Provision for deferred income taxes ( 1,581 ) ( 560 ) Stock compensation expense 4,107 3,449 Other, net 1,226 387 Changes in operating assets and liabilities, net of acquired business Trade accounts receivable, net ( 2,032 ) 9,540 Inventories, net ( 9,730 ) 6,015 Other assets 2,748 2,041 Accounts payable 2,414 ( 5,166 ) Accrued liabilities 12,463 ( 755 ) Accrued retirement benefits ( 456 ) ( 1,664 ) Net cash provided by operating activities 23,979 33,716 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant, and equipment ( 15,157 ) ( 8,707 ) Acquisition of Kobelt, less cash acquired ( 17,236 ) - Acquisition of Katsa, less cash acquired - ( 23,178 ) Proceeds from sale of property, plant, and equipment 147 - Other, net ( 653 ) ( 184 ) Net cash used by investing activities ( 32,899 ) ( 32,069 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under long-term debt agreement 6,500 - Borrowings under revolving loan arrangements 122,264 90,534 Repayments of revolving loan arrangements ( 122,264 ) ( 81,109 ) Repayments of other long-term debt ( 2,500 ) ( 2,010 ) Payments of right-of-use finance lease obligations ( 1,119 ) ( 921 ) Dividends paid to shareholders ( 2,284 ) ( 1,695 ) Dividends paid to noncontrolling interest ( 306 ) ( 254 ) Payments of withholding taxes on stock compensation ( 1,256 ) ( 1,791 ) Net cash (used) provided by financing activities ( 965 ) 2,754 Effect of exchange rate changes on cash 5,924 2,406 Net change in cash ( 3,961 ) 6,807 Cash: Beginning of period 20,070 13,263 End of period $ 16,109 $ 20,070 Supplemental cash flow information Cash paid during the year for: Interest 2,221 1,378 Income tax 3,844 1,724 The notes to consolidated financial statements are an integral part of these statements. 31 TWIN DISC, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended June 30, 2025 and 2024 (In thousands) Twin Disc, Inc. Shareholders’ Equity Accumulated Other Non- Common Retained Comprehensive Treasury Controlling Total Stock Earnings (Loss) Income Stock Interest Equity Balance at June 30, 2023 $ 42,855 $ 120,299 $ ( 5,570 ) $ ( 12,491 ) $ 424 $ 145,517 Net income 10,988 258 11,246 Dividends paid to shareholders ( 1,695 ) ( 254 ) ( 1,949 ) Translation adjustments 733 ( 76 ) 657 Benefit plan adjustments, net of tax ( 2,114 ) ( 2,114 ) Unrealized gain on hedges, net of tax 46 46 Compensation expense 3,449 3,449 Stock awards, net of tax ( 4,506 ) 2,708 ( 1,798 ) Balance at June 30, 2024 41,798 129,592 ( 6,905 ) ( 9,783 ) 352 155,054 Net (loss) income ( 1,894 ) 295 ( 1,599 ) Dividends paid to shareholders ( 2,284 ) ( 306 ) ( 2,590 ) Translation adjustments 15,885 39 15,924 Benefit plan adjustments, net of tax ( 3,399 ) ( 3,399 ) Unrealized loss on hedges, net of tax ( 1,851 ) ( 1,851 ) Compensation expense 4,107 4,107 Stock awards, net of tax ( 3,636 ) 2,381 ( 1,255 ) Balance at June 30, 2025 $ 42,269 $ 125,414 $ 3,730 $ ( 7,402 ) $ 380 $ 164,391 The notes to consolidated financial statements are an integral part of these statements. 32 TWIN DISC, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA) A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations ‑‑Twin Disc, Incorporated (“Twin Disc”, or the “Company”) was incorporated under the laws of the state of Wisconsin in 1918. Twin Disc designs, manufactures and sells marine and heavy duty off‑highway power transmission equipment. The Company has manufacturing locations in the United States, Belgium, Canada, Finland, Italy, the Netherlands, and Switzerland. In addition to these countries, it has distribution locations in Singapore, China, Australia and Japan. Products offered include: marine transmissions, azimuth drives, surface drives, propellers and boat management systems as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, controls systems, and braking systems. The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government, military, and industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network. On February 14, 2025, the Company completed the acquisition of 100 % of the outstanding common stock of Kobelt Manufacturing Co. Ltd. (“Kobelt”). Based in Surrey, British Columbia, Canada, Kobelt is a 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 deferred income taxes, 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. On May 31, 2024, the Company completed the acquisition of 100 % of the outstanding common stock of Katsa Oy (“Katsa”). Based in Finland, Katsa is an European manufacturer of custom-designed, high-quality power transmission components and gearboxes for industrial and marine end-markets for a broad range of end market applications. Katsa also provides a wide range of after-sales services, including spare part deliveries, reverse engineering, modeling, and gearbox refurbishment. Katsa is included in the Company’s manufacturing segment. Basis of Presentations ‑‑The consolidated financial statements and information included in this Annual Report on Form 10 -K (“Form 10 -K”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements have been prepared in accordance with Generally Accepted Accounting Principles of the United States of America. The Company’s fiscal year end is June 30. Consolidation Principles ‑‑The consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly-owned domestic and foreign subsidiaries. All significant intercompany transactions have been eliminated. Management Estimates-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. Translation of Foreign Currencies ‑‑The financial statements of the Company’s non-U.S. subsidiaries that use the local currency as their functional currency are translated using the current exchange rate for assets and liabilities, the weighted-average exchange rate for the year for revenues and expenses, and the historical exchange rate for the year for equity. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss), which is included in equity. Gains and losses from foreign currency transactions are included in earnings. Included in other (expense) income are foreign currency transaction gain (losses) of ($ 4,825 ) and $ 377 in fiscal 2025 and 2024, respectively. Business Combinations ‑‑ In accordance with ASC 805 - 10, “Business Combinations”, the Company accounts for all business combinations using the acquisition method of accounting. Under this method, the Company allocates the fair value of consideration transferred in a business combination to the estimated fair value at the acquisition date of the tangible and intangible assets acquired as well as the liabilities assumed. Acquisition costs are expensed as incurred. Any excess consideration transferred is recorded as goodwill and in instances where the fair value of consideration transferred is less than the estimated fair value of tangible and intangible assets acquired less liabilities assumed, such amounts are recorded as a gain on the bargain purchase. 33 Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill or the gain on the bargain purchase. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Cash --The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalent. Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment. To the extent that checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the amount of those un-presented checks is included in accounts payable. The Company maintains cash in bank accounts in excess of insured limits. The Company has not experienced any losses and does not believe that significant credit risk exists as a result of this practice. Accounts Receivable, net --These represent trade accounts receivable and are stated net of an allowance for credit losses of $ 1,548 and $ 1,383 at June 30, 2025 and 2024, respectively. The Company records an allowance for credit losses for certain customers where a risk of default has been specifically identified as well as provisions determined on a general basis when it is believed that some default is probable and estimable. The assessment of likelihood of customer default is based on a variety of factors, including the length of time the receivables are past due, the historical collection experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. Various factors may adversely impact its customer’s ability to access sufficient liquidity and capital to fund their operations and render the Company’s estimation of customer defaults inherently uncertain. While the Company believes current allowance for credit losses are adequate, it is possible that these factors may cause higher levels of customer defaults and bad debt expense in future periods. Fair Value of Financial Instruments --The carrying amount reported in the consolidated balance sheets for cash, trade accounts receivable and accounts payable approximate fair value because of the immediate short-term maturity of these financial instruments . If measured at fair value, cash would be classified as Level 1 and all other items listed above would be classified as Level 2 in the fair value hierarchy, as defined in Note N, Pension and Other Postretirement Benefit Plans. The Company’s borrowings under the revolving loan agreement, which is classified as long-term debt and consists of loans that are routinely borrowed and repaid throughout the year, approximate fair value at June 30, 2025. The Company’s term loan borrowing, which is SOFR-based, approximates fair value at June 30, 2025. If measured at fair value in the financial statements, long-term debt (including any current portion) would be classified as Level 2 in the fair value hierarchy. Inventories, net ‑‑Inventories are valued at the lower of cost or net realizable value (or lower of cost or market where appropriate). Cost has been determined by the last‑in, first‑out (LIFO) method for the majority of inventories located in the United States, and by the first‑in, first‑out (FIFO) or average cost methods for all other inventories. Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among others, when evaluating the adequacy of the reserve for excess and obsolete inventory. Property, Plant and Equipment, net and Depreciation ‑‑Assets are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and betterments are capitalized and depreciated. Capital project costs are accumulated in construction-in-progress until completed, at which time the costs are transferred to the relevant asset and commence depreciation. Depreciation is provided on the straight‑line method over the estimated useful lives of the assets. The lives assigned to buildings and related improvements range from 10 to 40 years, and the lives assigned to machinery and equipment range from 5 to 15 years. Upon disposal of property, plant and equipment, the cost of the asset and the related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Fully depreciated assets are not removed from the accounts until physically disposed. At June 30, 2025 and 2024, the Company owned one permanently idled facility with a book value of $ 3.0 million. This facility is assessed for impairment quarterly and depreciation has ceased. This facility is accounted for within property, plant and equipment. 34 Right of Use Lease Assets ‑‑In accordance with ASC 842, the Company’s leases, with lease periods longer than twelve months, are recorded on the consolidated balance sheets. These leases primarily consist of office and warehouse facilities, as well as production and office equipment. The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically do not provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current borrowing rate, the lease period, and the economic environments where the lease activity is concentrated. Impairment of Long-lived Assets --The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. When triggering events are identified, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists for property, plant and equipment and other long-lived assets, including intangible assets. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Fair value is primarily determined using discounted cash flow analyses; however, other methods may be used to determine the fair value, including third party valuations when necessary. Intangible Assets, net -- Intangible assets primarily consist of customer relationships, technology know-how, and tradenames, all of which are definite-lived. They were initially valued at fair value at acquisition, and are amortized over their respective useful lives on the basis of straight line or accelerated, as appropriate. Goodwill -- The Company reviews goodwill for impairment on a reporting unit basis annually as of the first day of the Company’s fourth fiscal quarter, and whenever events or changes in circumstances (“triggering events”) indicate that the carrying value of goodwill may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements. Goodwill impairment charges are recorded using a simplified one -step approach. The fair value of a reporting unit, as defined, is compared to the carrying value of the reporting unit, including goodwill. The fair value is primarily determined using discounted cash flow analyses which is driven by projected growth rates, and which applies an appropriate market-participant discount rate; the fair value determined is also compared to the value obtained using a market approach from guideline public company multiples. If the carrying amount exceeds the fair value, that difference is recognized as an impairment loss. The Company conducted its annual assessment for goodwill impairment as of June 30, 2025 using updated inputs, including appropriate risk-based, country and company specific weighted average discount rates for the Company’s reporting unit with goodwill. The Company completed its impairment testing as of June 30, 2025 and concluded there were no impairments. Changes in circumstances, existing at the measurement date or at other times in the future, or in the numerous estimates associated with management’s judgments, assumptions and estimates made in assessing the fair value of goodwill, could result in an impairment charge in the future. The Company will continue to monitor all significant estimates and impairment indicators, and will perform interim impairment reviews, as necessary. Derivative Financial Instruments - - The Company has written policies and procedures that place all financial instruments under the direction of the Company’s corporate treasury department and restrict all derivative transactions to those intended for hedging purposes. The use of financial instruments for trading purposes is prohibited. The Company uses derivative financial instruments to manage certain financial risks. The Company enters into forward contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. The Company uses interest rate swap contracts to reduce the exposure to variability in interest rates on floating debt borrowings. The Company designates certain financial instruments as cash flow hedges for accounting purposes. The Company designates certain financial instruments as net investment hedges to reduce the exposure in its foreign currency denominated net investments in wholly-owned subsidiaries. See Note S, Derivative Financial Instruments, for additional information. 35 Pension and Other Postretirement Benefits Plans -- The Company provides a wide range of benefits to employees and retired employees, including pensions and postretirement health care coverage. Plan assets and obligations are recorded annually based on the Company’s measurement date utilizing various actuarial assumptions such as discount rates, expected return on plan assets, compensation increases, retirement and mortality tables, and health care cost trend rates as of that date. Income Taxes --The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which temporary differences are expected to reverse. Valuation allowances are provided for deferred tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets. The Company evaluates its uncertain tax positions as new information becomes available. Tax benefits are recognized to the extent a position is more likely than not to be sustained upon examination by the taxing authority. Segment Reporting --Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. As of June 30, 2025, the Company identified two operating segments. Refer to "Note K. Business Segments and Foreign Operations" for further information. Revenue Recognition --Revenue from contracts with customers is recognized using a five -step model consisting of the following: 1. Identify the contract with a customer ; The Company’s customers consist of distributors and direct end-users. With regard to distributors, the Company generally has written distribution agreements which describe the terms of the distribution arrangement, such as the product range, the sales territory, product pricing, sales support, payment and returns policy, etc. Customer contracts are generally in the form of acknowledged purchase orders. Services to be rendered, as part of the delivery of those products, are also generally specified. Such services include installation reviews and technical commissioning. 2. Identify the performance obligations in the contract ; The Company’s performance obligations primarily consist of product delivery and certain service obligations such as technical commissioning, repair services, installation reviews, and shift development. 3. Determine the transaction price ; The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for those goods or services, including the expected value of variable consideration. Variable consideration is immaterial. 4. Allocate the transaction price to the performance obligations in the contract ; The Company determined that the most relevant allocation method for its service obligations is to apply the expected cost plus appropriate margin. This is the Company’s practice of billing for repairs, overhaul, and other product service related time incurred by its technicians. 5. Recognize revenue ; Revenue is recognized as each performance obligation is satisfied which is typically when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. For technical commissioning, repairs, installation review, and shift development services, revenue is recognized upon completion of the service. The customer’s ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer. If collectability of substantially all of the consideration in a contract is not probable, consideration received is not recognized as revenue unless the consideration is nonrefundable and the Company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable. Goods sold to third party distributors are subject to an annual return policy, for which a provision is made at the time of shipment based upon historical experience. Goods sold under bill and hold arrangements are recorded as revenue when control has been transferred to the customer and when the reason for the arrangement is substantive, when the product is identified as the customer’s asset, when the product is ready for delivery to the customer, and when the Company cannot use the product or redirect the product to another customer. While significant customer deposits are collected at certain locations, the Company’s payment terms are generally short-term in nature and therefore do not include a significant financing component. 36 At June 30, the Company reported the following contract assets and liabilities, which are presented within trade accounts receivable, net and accrued liabilities on the consolidated balance sheets, respectively. Deferred revenue represents billings in excess of cost based on milestone billings in the contract. Contract Assets Contract Liabilities Costs in Excess of Billings, Net Trade Accounts Receivable, Net Total Contract Assets Customer Deposits Deferred Revenue Total Contract Liabilities 2023 $ - $ 54,760 $ 54,760 $ 22,937 $ - $ 22,937 2024 5,216 52,207 57,423 26,540 2,025 28,565 2025 $ 6,988 $ 58,941 $ 65,929 $ 13,538 $ 29,664 $ 43,202 Our contracts are generally short term in nature, and therefore, the amount included in contract liabilities at the beginning of the year was recognized as revenue in the reporting period. Shipping and Handling Fees and Costs --The Company records revenue from shipping and handling costs in net sales. The cost associated with shipping and handling of products is reflected in cost of goods sold. Recently Issued Not Yet Adopted Accounting Standards -- In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2024 - 03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” (“ASU 2024 - 03” ) to expand expense disclosures by requiring disaggregated disclosure of certain income statement expense line items, including those that contain purchases of inventory, employee compensation, depreciation and amortization. ASU 2024 - 03 is effective for fiscal years beginning after December 15, 2026, or the Company’s fiscal 2028, and subsequent interim periods, with early adoption permitted. The amendments should be applied prospectively, but retrospective application is permitted. The Company is currently assessing the impact of the requirements on our Condensed Consolidated Financial Statements. In December 2023, the FASB issued guidance ASU 2023 - 09, Improvements to Income Tax Disclosures (“ASU 2023 - 09” ), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) disaggregated between domestic and foreign. ASU 2023 - 09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of adopting this standard on its financial statement disclosures. Recently Adopted Accounting Standards -- In November 2023, the FASB issued guidance ASU 2023 - 07, "Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. The Company adopted the new annual disclosures as required for fiscal 2025 and will adopt the interim disclosures as required beginning with the first quarter of fiscal 2026. Special Note Regarding Smaller Reporting Company Status -- Under SEC Release 33 - 10513; 34 - 83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company based on its public float as of the last business day of the second quarter of fiscal 2025. Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules. 37 B. ACQUISITIONS Kobelt Manufacturing Co., Ltd., Inc. 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. 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 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 $ 17,236 in cash at closing, which included a base payment plus adjustments for net cash, working capital, and earnout. The Company paid an additional $ 516 for the net working capital adjustment. The amount is still subject to a final determination of the 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 Bank of Montreal (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 consolidated statement of operations and comprehensive income net sales and earnings (loss) for Kobelt of $ 4,870 and ($ 164 ), 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. 38 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 $ 17,102 Earnout 374 Total consideration $ 17,476 Assets acquired: Cash $ 240 Trade accounts receivable 1,881 Inventories 5,984 Other current assets 290 Property, plant and equipment 5,031 Intangible assets 2,847 Total assets acquired $ 16,273 Liabilities assumed : Accounts payable $ 924 Accrued liabilities 520 Deferred tax liability 159 Total liabilities assumed $ 1,603 Total identified net assets acquired: $ 14,670 Goodwill 2,806 Purchase price consideration $ 17,476 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. 39 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: Cash $ 240 Trade accounts receivable 1,881 (a) Inventories, net 5,984 (b) Other current assets 290 Property, plant and equipment 5,031 (c) Intangible assets, net 2,847 (d) Accounts payable ( 924 ) Accrued liabilities ( 520 )(e) Deferred tax liability ( 159 ) Total identified net assets acquired: 14,670 Goodwill 2,806 (f) Purchase price consideration $ 17,476 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 $ 4,622 Work in progress at fair value 520 Finished goods at fair value 842 Inventories at fair value $ 5,984 Inventories at book value 5,558 Step-up $ 426 (c) The value of property, plant and equipment is estimated at: Dies, tools and fixtures $ 2,976 Machinery and equipment 1,718 Other 337 Property, plant and equipment at fair value $ 5,031 Property, plant and equipment at book value 2,156 Step-up $ 2,875 (d) Intangible assets consist of : Estimated fair value Estimated average useful lives Tradename 636 20 Backlog 21 <1 Customer relationship 1,201 15 Computer Software - External 71 5 Developed technology 918 20 $ 2,847 (e) The amounts approximate fair value. (f) The Company recorded goodwill of $ 2,806 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. 40 Katsa OY On May 31, 2024, the Company completed the acquisition of 100 % of the outstanding common stock of Katsa. Based in Finland, Katsa is a European manufacturer of custom-designed, high-quality power transmission components and gearboxes for industrial and marine end-markets for a broad range of end market applications. Katsa also provides a wide range of after-sales services, including spare part deliveries, reverse engineering, modeling, and gearbox refurbishment. As a well-established business with a solid reputation for quality in addition to its strong in-house manufacturing and engineering capabilities, this acquisition is an excellent opportunity to expand Twin Disc’s global presence, leveraging Kata’s longstanding relationships with leading European OEMs to introduce the Company’s portfolio into new, growing markets. This acquisition was pursuant to a Sale and Purchase Agreement (“Purchase Agreement”) entered into by TD Finland Holding Oy, a wholly-owned subsidiary of the Company, with Timo Salli and Jouko Salli, the prior owners, on March 5, 2024. Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $ 25,522 in cash at closing, which included a base payment plus adjustments for net cash and working capital, and transactions costs of $ 377 . This amount was subject to a final determination of working capital adjustments. The Company, in part, financed the payment of the cash consideration through borrowings of $ 16.9 million under a new credit agreement entered into on April 1, 2024 with BMO Harris Bank N.A. (the “Credit Agreement”). The Credit Agreement is further discussed in Note H, Debt. Purchase Price Allocation The acquisition of Katsa met the criteria for a business combination to be accounted for using the acquisition method under ASC 805, Business Combinations (“ASC 805” ), with the Company identified as the legal and the accounting acquirer. The Company recognized approximately $ 745 of acquisition-related costs which were expensed in the consolidated statement of operations for the year ended June 30, 2024. The following table details the allocation of the purchase price of the assets acquired and liabilities assumed in connection with the acquisition of Katsa. Cash purchase price $ 25,145 Final working capital adjustment 739 Total consideration $ 25,884 Assets acquired (in millions): Cash $ 2,706 Trade accounts receivable, net 7,400 Inventories, net 10,694 Prepaid expenses 312 Other 786 Property, plant and equipment, net 13,853 Right-of-use operating lease assets 507 Intangible assets, net 3,377 Total assets acquired $ 39,635 Liabilities assumed (in millions): Accounts payable $ 1,822 Accrued liabilities 5,360 Lease obligations 410 Deferred income taxes 2,435 Total liabilities assumed $ 10,027 Total identified net assets acquired (in millions): $ 29,608 Gain on bargain purchase 3,724 Purchase price consideration $ 25,884 41 The fair value of the identifiable assets acquired and liabilities assumed of $ 29,608 exceeded the purchase price of the business, and additional expected working capital adjustment, of $ 25,884 . As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measurements were appropriate. Accordingly, the acquisition has been accounted for as a bargain purchase and as a result, the Company recognized a gain of $ 3,724 , net of income tax of $ 2,435 . associated with the acquisition. The amount is recorded in other income in the consolidated statements of operations and comprehensive income. Pro forma results of operation for this acquisition have not been presented because the effects of the acquisition were not material to the Company’s consolidated financial results. Fair Value Estimate of Assets Acquired and Liabilities Assumed The Company is continuing its review of the fair value estimate of certain assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwise not available. This measurement period will not exceed one year from the acquisition date. At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value. The provisional fair value estimates of the property, plant and equipment, net, the intangible assets, net, and deferred income taxes are pending final review by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments. Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill or the excess of such fair values over the purchase price is allocated to bargain purchase gain. The final determination of the purchase price, fair values and resulting bargain purchase gain may differ significantly from what is reflected in these consolidated financial statements. The following summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date, including the preliminary estimates of the property, plant and equipment, net, the intangible assets, net, and deferred income taxes: Assets acquired (in millions): Cash $ 2,706 Trade accounts receivable, net 7,400 (a) Inventories, net 10,694 (b) Prepaid expenses 312 Other 786 Property, plant and equipment, net 13,853 (c) Right-of-use operating lease assets 507 Intangible assets, net 3,377 (d) Accounts payable 1,822 Accrued liabilities 5,360 (e) Lease obligations 410 Deferred income taxes 2,435 Total identified net assets acquired (in millions): $ 29,608 Gain on bargain purchase 3,724 (f) Purchase price consideration $ 25,884 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. 42 (b) Inventory consists of (in millions): Raw materials $ 4,524 Work in progress at fair value 2,802 Finished goods at fair value 3,368 Inventories at fair value $ 10,694 Inventories at book value 9,858 Step-up $ 836 (c) The value of property, plant and equipment is estimated at (in millions): Buildings $ 7,560 Land 894 Equipment 5,399 Property, plant and equipment at fair value $ 13,853 Property, plant and equipment at book value 5,333 Step-up $ 8,520 (d) Intangible assets consist of (in millions): Estimated fair value Estimated average useful lives Customer relationships $ 1,525 12 Tradename 872 10 Technology know-how 980 7 Total $ 3,377 (e) The amounts approximate fair value. (f) The Company recognized a bargain purchase gain of $ 3,724 , net of income tax expense of $ 2,435 associated with the acquisition. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measurements were appropriate. The fair value of the identifiable assets acquired and liabilities assumed exceeded the fair value of the purchase price of the business. The fair values of property, plant and equipment, net, intangible assets, net, and deferred taxes presented above are preliminary until the final purchase price consideration is determined and the Company completes its work with the use of a third -party valuation firm. These values are subject to change. Any changes to the initial estimates of the fair value of assets and liabilities will impact the bargain purchase gain and may affect future earnings. C. INVENTORIES, NET The major classes of inventories at June 30 were as follows: 2025 2024 Finished parts $ 67,037 $ 60,166 Work in process 27,229 23,096 Raw materials 57,685 47,222 $ 151,951 $ 130,484 43 In the first quarter of fiscal year 2024, the Company entered into an agreement to sell most of its boat management system product line located at one of its subsidiaries in Italy. The sale amount was below cost and resulted in the Company recognizing an inventory write-down of $ 2.1 million. The Company also evaluated its other boat management system inventory, not associated with the sale. The evaluation resulted in the Company recognizing an additional inventory write-down of $ 1.6 million for inventory located in the U.S. These write-downs were partially offset by certain liabilities transferred to the buyer at the time of the sale. The sale was completed in the second quarter of fiscal year 2024. The second quarter of fiscal year 2025 includes the impact of a non-cash inventory write-down of $ 1,579 . This write-down reflects the results of a product rationalization exercise of the Company’s industrial product line following the acquisition of Katsa. Inventories stated on a LIFO basis represent approximately 24 % and 31 % of total inventories at June 30, 2025 and 2024, respectively. The approximate current cost of the LIFO inventories exceeded the LIFO cost by $ 31,877 and $ 30,680 at June 30, 2025 and 2024, respectively. Inventories in the United States were reduced during fiscal 2025 and 2024, resulting in a liquidation of LIFO inventory layers that were carried at a lower cost prevailing from a prior year, as compared with current costs in the current year (“LIFO decrement”). A LIFO decrement results in the erosion of layers created in earlier years, and, therefore, a LIFO layer is not created for years that have decrements. For the years ended June 30, 2025 and 2024, the effects of LIFO decrements decreased cost of goods sold by $ 2,112 and $ 1,553 , respectively. The Company had reserves for inventory obsolescence of $ 16,016 and $ 12,693 at June 30, 2025 and 2024, respectively. D. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment at June 30 were as follows: 2025 2024 Land $ 3,381 $ 3,062 Buildings 47,438 44,833 Machinery and equipment 212,611 189,913 263,430 237,808 Less: accumulated depreciation ( 193,854 ) ( 179,734 ) $ 69,576 $ 58,074 Included in the above amounts are finance lease right-of-use assets of $ 5,794 and $ 5,210 for the years ended June 30, 2025 and 2024, respectively. Depreciation expense for the years ended June 30, 2025 and 2024 was $ 10,042 and $ 6,707 , respectively. At June 30, 2025 and 2024, the Company owned one permanently idle facility with a book value of $ 3.0 million. The asset is presented within property, plant, and equipment, net on the Consolidated Balance Sheets. No impairment losses were recorded in fiscal 2025 or 2024. E. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill represents the excess of the consideration transferred net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed. On February 14, 2025, as discussed in Note B, the Company acquired goodwill in the estimated amount of $ 2,806 and intangible assets in the estimated amount of $ 2,847 as part of the acquisition of Kobelt. 44 As of June 30, 2025, changes in the carrying amount of goodwill is summarized as follows: Net Book Value Rollforward Balance at June 30, 2024 $ - Acquisition 2,806 Translation adjustment 86 Balance at June 30, 2025 $ 2,892 At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization: Net Book Value Rollforward Net Book Value By Asset Type Gross Carrying Amount Accumulated Amortization / Impairment Net Book Value Customer Relationships Technology Know-how Trade Names Other Total Balance at June 30, 2023 $ 31,925 $ ( 19,288 ) $ 12,637 $ 6,553 $ 2,422 $ 668 $ 2,994 $ 12,637 Additions 5,382 ( 1,894 ) 3,488 1,519 987 857 125 3,488 Reduction ( 714 ) 714 - - - - - - Amortization - ( 3,273 ) ( 3,273 ) ( 1,245 ) ( 1,280 ) - ( 748 ) ( 3,273 ) Translation adjustment ( 166 ) - ( 166 ) ( 107 ) ( 40 ) ( 5 ) ( 14 ) ( 166 ) Balance at June 30, 2024 36,427 ( 23,741 ) 12,686 6,720 2,089 1,520 2,357 12,686 Additions 3,471 - 3,471 1,187 908 628 748 3,471 Amortization - ( 3,959 ) ( 3,959 ) ( 1,341 ) ( 1,312 ) ( 281 ) ( 1,025 ) ( 3,959 ) Translation adjustment 3,505 ( 2,342 ) 1,163 629 149 169 216 1,163 Balance at June 30, 2025 $ 43,403 $ ( 30,042 ) $ 13,361 $ 7,195 $ 1,834 $ 2,036 $ 2,296 $ 13,361 Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accelerated, as appropriate, over the estimated useful lives of the assets. The weighted average remaining useful life of the intangible assets included in the table above is approximately 7 years. Intangible amortization expense for the years ended June 30, 2025 and 2024 was $ 3,959 and $ 3,273 , respectively. Estimated intangible amortization expense for each of the next five fiscal years is as follows: Fiscal Year 2026 $ 2,614 2027 2,414 2028 2,297 2029 1,925 2030 635 Thereafter 3,476 Total $ 13,361 F. ACCRUED LIABILITIES Accrued liabilities at June 30 were as follows: 2025 2024 Deferred Revenue $ 29,664 $ 2,025 Customer deposits 13,538 26,540 Salaries and wages 14,095 14,186 Warranty 4,174 3,341 Distributor rebates 3,083 3,930 Retirement benefits 1,664 1,831 Other 14,437 10,556 $ 80,655 $ 62,409 45 G. WARRANTY The Company warrants all assembled products, parts (except component products or parts on which written warranties are issued by the respective manufacturers thereof and are furnished to the original customer, as to which the Company makes no warranty and assumes no liability) and service against defective materials or workmanship. Such warranty generally extends from periods ranging from 12 months to 24 months. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers. However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends. While the Company believes that the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires. The following is a listing of the activity in the warranty reserve during the years ended June 30: 2025 2024 Reserve balance, July 1 $ 4,220 $ 3,476 Current period expense and adjustments 5,499 5,850 Payments or credits to customers ( 4,676 ) ( 5,102 ) Translation adjustment 214 ( 4 ) Reserve balance, June 30 $ 5,257 $ 4,220 The current portion of the warranty accrual ($ 4,174 and $ 3,341 at June 30, 2025 and 2024, respectively) is reflected in accrued liabilities, while the long-term portion ($ 1,084 and $ 879 at June 30, 2025 and 2024, respectively) is included in other long-term liabilities on the consolidated balance sheets. H. DEBT Long-term debt consisted of the following at June 30: 2025 2024 Credit Agreement Debt Revolving loans (expire April 2027) $ 17,921 $ 16,288 Term loan (due April 2027) 13,500 9,500 Other 25 23 Subtotal 31,446 25,811 Less: current maturities ( 3,000 ) ( 2,000 ) Total long-term debt $ 28,446 $ 23,811 Credit Agreement Debt : Current Credit Agreement On February 14, 2025, the Company entered into an amended and restated Credit Agreement (the “Credit 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 Harris Bank, N.A. (the “Prior Credit Agreement”). There were no significant financing costs associated with the credit agreement. Pursuant to the Credit Agreement, the Bank made a Term Loan to the Company in the principal amount of $ 15.0 million, consisting of an assignment of a term loan under the Prior 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 $ 0.75 million per quarter. Under the Credit Agreement, the Company is restricted in making dividend payments beyond $ 5 million in any fiscal year. 46 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, $ 50.0 million (the “Revolving Credit Commitment”). The Borrowing Base is the sum of (a) 85 % of outstanding unpaid Eligible Receivables and (b) the lesser of $ 40.0 million for each fiscal month ending on or prior to August 31, 2025 ( reduced to $ 35.0 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 Credit 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 Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $ 5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement runs through April 1, 2027. The Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Kobelt. Kobelt is included as a Borrower under the Credit Agreement, and may borrow directly under the Credit Agreement up to the lesser of the Revolving Credit Commitment or $ 25.0 million. For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included. Interest rates under the Credit Agreement are based on the secured overnight financing rate (“SOFR”), the euro interbank offered rate (the “EURIBO Rate”), or the Canadian Overnight Repo Rate (the “CORRA”). Loans under the Credit 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 earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio). The Credit Agreement requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $ 0.6 million for each of the Company’s Kobelt Acquisition and the Company’s prior Katsa acquisition, as well as pro-forma EBITDA of Katsa and Kobelt as permitted by the Bank. The Company’s Tangible Net Worth may not be less than $ 100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2024. Borrowings under the Credit Agreement 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. 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 Credit 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 Credit Agreement and the Negative Pledge Agreement. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt. Borrowings under the Credit Agreement are also required to be guaranteed by each U.S. subsidiary of the Company. 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 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 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. 47 Prior Credit Agreement The Prior Credit Agreement, which was replaced by the Credit Agreement on February 14, 2025, provided for the assignment and assumption of the previously existing loans under a 2016 credit agreement between the Company and Bank of Montreal (as amended, the “2016 Credit Agreement”) into a term loan (the “Prior Term Loan”) and revolving credit loans (each a “Prior Revolving Loan” and, collectively, the “Prior Revolving Loans,” and, together with the Prior Term Loan, the “Prior Loans”). Pursuant to the Prior Credit Agreement, BMO agreed to make the Prior Term Loan to the Company in a principal amount not to exceed $ 35.0 million and the Company could, from time to time prior to the maturity date, enter into Prior Revolving Loans in amounts not to exceed, in the aggregate, $ 50.0 million (the “Prior Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Prior Credit Agreement reduced the Prior Term Loan to $ 20.0 million, extended the maturity date of the Prior Term Loan to April 1, 2027, and required the Company to make principal installment payments on the Prior Term Loan of $ 0.5 million per quarter. Subsequent amendments to the Prior Credit Agreement (prior to the Tenth Amendment to the Prior Credit Agreement discussed below) incrementally decreased BMO’s Prior Revolving Credit Commitment to $ 40.0 million. The Prior Credit Agreement also allowed the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Prior Revolving Loans. Under the Prior Credit Agreement, the Company was prohibited from paying cash dividends on its common stock in excess of $ 5.0 million in any fiscal year. Under the Prior Credit Agreement as amended, interest rates were based on either the SOFR or the EURIBO Rate. Prior Loans were designated either as “SOFR Loans,” which accrued interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrued interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that were not timely reimbursed to the Bank bore interest at a Base Rate plus an Applicable Margin. The Company also paid a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Immediately prior to February 14, 2025, the Applicable Margins were between 2 % and 3.5 % for Prior Revolving Loans and Letters of Credit; 2.125 % and 3.625 % for Prior Term Loans; and 0.15 % and 0.3 % for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). The Prior Credit Agreement, as amended, required the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio could not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio could not be less than 1.10 to 1.00. In determining whether the Company was in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA included transaction expenses of up to $ 0.6 million for the Katsa acquisition, as well as pro-forma EBITDA of Katsa as permitted by the Bank. The Company’s Tangible Net Worth could not be less than $ 100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2024. Borrowings under the Prior Credit Agreement were secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company had also pledged 100 % of its equity interests in certain domestic subsidiaries and 65 % of its equity interests in certain foreign subsidiaries. The Company had also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement. The Company had also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. The Bank could not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Prior Credit Agreement. 48 Upon the occurrence of an Event of Default, BMO could take the following actions upon written notice to the Company: ( 1 ) terminate its remaining obligations under the Prior Credit Agreement; ( 2 ) declare all amounts outstanding under the Prior 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 could take the three actions listed above without notice to the Company. On April 1, 2024, the Company had entered into Amendment No. 10 to Prior Credit Agreement (the “Tenth Amendment”) that amended and extended the Prior Credit Agreement. The Tenth Amendment increased the Prior Revolving Credit Commitment from $ 40.0 million to $ 45.0 million, and also increased the Borrowing Base for Prior 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 Tenth Amendment 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 Prior 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 included 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 Prior Credit Agreement through April 1, 2027 and extended the maturity date of the Prior Term Loan and the Prior Term Loan Commitment Date to April 1, 2027. The Tenth Amendment also increased the Applicable Margins under the Prior Credit Agreement for purposes of determining interest rates on Prior Revolving Loans, Letters of Credit, Prior Term Loans, and the Prior Unused Revolving Credit Commitment. Prior to the Tenth Amendment, the Applicable Margins were between 1.25 % and 2.75 % for Prior Revolving Loans and Letters of Credit; 1.375 % and 2.875 % for Prior Term Loans; and .10% and .15% for the Prior Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). Under the Tenth Amendment, the Applicable Margins were between 2 % and 3.5 % for Prior Revolving Loans and Letters of Credit; 2.125 % and 3.625 % for Prior Term Loans; and .15% and .3% for the Prior Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). During fiscal year 2025, the average interest rate was 7.07 % on the Term Loan, and 5.39 % on the Revolving Loans. As of June 30, 2025, the Company’s borrowing capacity under the terms of the Credit Agreement was approximately $ 50,597 and the Company had approximately $ 32,079 of available borrowings. The Company’s borrowings described above approximates fair value at June 30, 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 amount of $ 20,000 and a maturity date of March 4, 2026 to hedge the Term Loan. As of June 30, 2025, the notional amount was $ 7,500 . This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging . This swap is included in the disclosures in Note S, Derivative Financial Instruments. During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies. Effective upon the designation, all changes in fair value of the euro Revolving Loan are reported in accumulated other comprehensive income (loss) along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note S, Derivative Financial Instruments. 49 The aggregate scheduled maturities of outstanding long-term debt obligations in subsequent years are as follows: Fiscal Year 2026 $ 3,000 2027 3,000 2028 25,421 2029 - 2030 - Thereafter 25 $ 31,446 Other lines of credit: The Company has established unsecured lines of credit, which may be withdrawn at the option of the banks. Under these arrangements, the Company has unused and available credit lines of $ 4,531 with a weighted average interest rate of 3.03 % as of June 30, 2025, and $ 1,053 with a weighted average interest rate of 5.14 % as of June 30, 2024. I. LEASE OBLIGATIONS The following table provides a summary of leases recorded on the consolidated balance sheet at June 30. Condensed Consolidated Balance Sheet Location 2025 2024 Lease Assets Right-of-use operating lease assets Right-of-use operating lease assets $ 17,250 $ 16,622 Right-of-use finance lease assets Property, plant and equipment, net 5,794 5,210 Lease Liabilities Right-of use operating lease liabilities, current Current maturities of right-of use operating lease obligations $ 3,393 $ 2,521 Right-of use operating lease liabilities, non-current Right-of use operating lease obligations 14,357 14,376 Right of use finance lease liabilities, current Accrued liabilities 1,014 713 Right of use finance lease liabilities, non-current Other long-term liabilities 5,212 4,795 The components of lease expense for the years ended June 30 were as follows: 2025 2024 Finance lease cost: Amortization of right-of-use assets $ 980 $ 811 Interest on lease liabilities 393 308 Operating lease cost 3,840 3,718 Short-term lease cost 379 33 Variable lease cost 531 398 Total lease cost 6,123 5,268 Less: Sublease income ( 111 ) ( 81 ) Net lease cost $ 6,012 $ 5,187 50 Other information related to leases was as follows: 2025 2024 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 4,330 $ 3,447 Operating cash flows from finance leases 400 308 Financing cash flows from finance leases 1,119 921 Right-of-use-assets obtained in exchange for lease obligations: Operating leases 2,863 6,069 Finance leases 1,317 1,383 Weighted average remaining lease term (years): Operating leases 7.3 8.4 Finance lease 7.1 8.7 Weighted average discount rate: Operating leases 8.6 % 8.3 % Finance leases 6.8 % 6.2 % Approximate future minimum rental commitments under non-cancellable leases as of June 30, 2025 were as follows: Operating Leases Finance Leases 2026 $ 4,755 $ 1,443 2027 4,043 1,364 2028 2,773 1,253 2029 2,378 871 2030 1,927 558 Thereafter 8,389 2,250 Total future lease payments 24,265 7,739 Less: Amount representing interest ( 6,515 ) ( 1,513 ) Present value of future payments $ 17,750 $ 6,226 J. SHAREHOLDERS' EQUITY The total number of shares of common stock outstanding at June 30, 2025 and 2024 was 14,150,581 and 13,995,024 , respectively. At June 30, 2025 and 2024, treasury stock consisted of 482,181 and 637,778 shares of common stock, respectively. The Company issued 155,597 and 176,956 shares of treasury stock in fiscal 2025 and 2024, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded forfeitures of 0 and 2,413 shares of previously issued restricted stock in fiscal 2025 and 2024, respectively. The difference between the cost of treasury shares and the option price is recorded in common stock. Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open market purchases of its common stock. The Company did not make any open market purchases during the two most recent fiscal years. As of June 30, 2025 and 2024, 315,000 shares remain authorized for purchase. Cash dividends per share were $ 0.16 and $ 0.12 in fiscal 2025 and 2024. The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued. The Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock. 51 The components of accumulated other comprehensive income (loss) included in equity as of June 30, 2025 and 2024 are as follows: 2025 2024 Translation adjustments $ 15,036 $ ( 849 ) Benefit plan adjustments, net of income taxes of $( 322 ) and ($ 181 ) respectively ( 11,461 ) ( 8,062 ) Net gain on cash flow hedge derivatives, net of income taxes of ($ 210 ) and ($ 210 ), respectively 284 504 Net (loss) gain on net investment hedge derivatives, net of income taxes of $ 103 and $ 103 , respectively ( 129 ) 1,502 Accumulated other comprehensive income (loss) $ 3,730 $ ( 6,905 ) A reconciliation for the changes in accumulated other comprehensive income (loss), net of tax, by component for the years ended June 30, 2025 and June 30, 2024 is as follows: Translation Benefit Plan Cash Flow Net Investment Adjustment Adjustment Hedges Hedges Balance at June 30, 2023 $ ( 1,582 ) $ ( 5,948 ) $ 688 $ 1,272 Other comprehensive loss before reclassifications 733 - Amounts reclassified from accumulated other comprehensive income (loss) - ( 2,114 ) ( 184 ) 230 Net current period other comprehensive income (loss) 733 ( 2,114 ) ( 184 ) 230 Balance at June 30, 2024 $ ( 849 ) $ ( 8,062 ) $ 504 $ 1,502 Translation Benefit Plan Cash Flow Net Investment Adjustment Adjustment Hedges Hedges Balance at June 30, 2024 $ ( 849 ) $ ( 8,062 ) $ 504 $ 1,502 Other comprehensive loss before reclassifications 15,885 - - - Return on plan assets ( 1,808 ) Amounts reclassified from accumulated other comprehensive income (loss) ( 1,591 ) ( 220 ) ( 1,631 ) Net current period other comprehensive income (loss) 15,885 ( 3,399 ) ( 220 ) ( 1,631 ) Balance at June 30, 2025 $ 15,036 $ ( 11,461 ) $ 284 $ ( 129 ) Reconciliation for the changes in benefit plan adjustments, net of tax for the year ended June 30, 2025 is as follows: Amount Reclassified Changes in benefit plan items Actuarial loss $ ( 1,741 ) Transition asset and prior service benefit 14 Return on plan assets ( 1,808 ) Translation 101 Total amortization ( 3,434 ) Income taxes 35 Total changes, net of tax $ ( 3,399 ) 52 Reconciliation for the changes in benefit plan adjustments, net of tax for the year ended June 30, 2024 is as follows: Amount Reclassified Changes in benefit plan items Actuarial loss $ ( 2,079 ) Transition asset and prior service benefit 21 Translation ( 64 ) Total amortization ( 2,122 ) Income taxes 8 Total changes, net of tax $ ( 2,114 ) K. BUSINESS SEGMENTS AND FOREIGN OPERATIONS The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, energy and natural resources, government, and industrial markets. Net sales by product group for the years ended June 30 is summarized as follows: 2025 2024 Industrial $ 41,502 $ 25,668 Land-based transmissions 80,192 78,518 Marine and propulsion systems 201,101 171,766 Other 17,943 19,175 Total $ 340,738 $ 295,127 Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets. The land-based transmission products include applications for oil field and natural gas, military and airport rescue and firefighting. The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, and propellers for the global commercial marine, pleasure craft and patrol boat markets. Other includes non-Twin Disc manufactured product sold through Company-owned distribution entities. The Company has two reportable segments: manufacturing and distribution. Its segment structure reflects the way the chief operating decision-maker (“CODM”) makes operating decisions and manages the growth and profitability of the business. It also corresponds with the CODM’s approach of allocating resources and assessing the financial performance of its segments. The Company’s CODM is the Chief Executive Officer, who reviews financial information presented on a consolidated basis. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices. The CODM evaluates the performance of its segments based on net sales, gross profit, operating income (loss), and net earnings (loss). 53 The following table presents the selected financial information with respect to the Company’s reportable segments for the year ended June 30, 2025: Manufacturing Distribution Corporate Elimination and adjustments Consolidated Net sales: Net sales $ 295,550 $ 130,956 $ - $ ( 85,768 ) $ 340,738 Intra-segment sales ( 7,213 ) ( 21,043 ) - 28,256 - Inter-segment sales ( 52,691 ) ( 4,821 ) - 57,512 - Total consolidated net sales $ 235,646 $ 105,092 $ - $ - $ 340,738 Cost of goods sold: Cost of goods sold $ 229,807 $ 104,165 $ - $ 85,576 $ 419,548 Intra-segment cost of goods sold ( 7,213 ) ( 21,043 ) - ( 28,256 ) ( 56,512 ) Inter-segment cost of goods sold ( 52,691 ) ( 4,821 ) - ( 57,512 ) ( 115,024 ) Total consolidated cost of goods sold $ 169,903 $ 78,301 $ - $ ( 192 ) $ 248,012 Gross profit $ 65,743 $ 26,791 $ - $ 192 $ 92,726 Marketing, engineering and administrative expenses $ 41,388 $ 14,796 $ 26,247 $ - $ 82,431 Restructuring expenses 252 93 63 - 408 Operating income (loss) $ 24,103 $ 11,902 $ ( 26,310 ) $ 192 $ 9,887 Other (income) expense: Interest income $ ( 1,045 ) $ ( 550 ) $ ( 1,801 ) $ 3,329 $ ( 67 ) Interest expense 5,900 7 68 ( 3,329 ) 2,646 Other (income) expense 14,725 6,537 ( 15,818 ) 95 5,539 Total consolidated other (income) expense $ 19,580 $ 5,994 $ ( 17,551 ) $ 95 $ 8,118 Pretax earnings (loss) $ 4,523 $ 5,908 $ ( 8,759 ) $ 97 $ 1,769 Income tax expense (benefit) 1,476 2,151 ( 228 ) ( 31 ) 3,368 Net earnings (loss) $ 3,047 $ 3,757 $ ( 8,531 ) $ 128 $ ( 1,599 ) Minority interest - ( 295 ) - - ( 295 ) Net earnings (loss) attributable to Twin Disc, Incorporated $ 3,047 $ 3,462 $ ( 8,531 ) $ 128 $ ( 1,894 ) Total consolidated assets $ 487,114 $ 66,087 $ ( 186,291 ) $ ( 11,348 ) $ 355,562 Depreciation and amortization $ 13,282 $ 353 $ 1,264 $ - $ 14,899 Expenditures for segment assets 11,590 1,902 1,665 - 15,157 54 The following table presents the selected financial information with respect to the Company’s reportable segments for the year ended June 30, 2024: Manufacturing Distribution Corporate Elimination and adjustments Consolidated Net sales: Net sales $ 250,934 $ 148,919 $ - $ ( 104,726 ) $ 295,127 Intra-segment sales ( 6,974 ) ( 15,661 ) - 22,635 - Inter-segment sales ( 77,978 ) ( 4,113 ) - 82,091 - Total consolidated net sales $ 165,982 $ 129,145 $ - $ - $ 295,127 Cost of goods sold: Cost of goods sold $ 196,140 $ 122,505 $ - $ 102,615 $ 421,260 Intra-segment cost of goods sold ( 6,974 ) ( 15,661 ) - ( 22,635 ) ( 45,270 ) Inter-segment cost of goods sold ( 77,978 ) ( 4,113 ) - ( 82,091 ) ( 164,182 ) Total consolidated cost of goods sold $ 111,188 $ 102,731 $ - $ ( 2,111 ) $ 211,808 Gross profit $ 54,794 $ 26,414 $ - $ 2,111 $ 83,319 Marketing, engineering and administrative expenses $ 31,801 $ 15,340 $ 24,481 $ - $ 71,622 Restructuring expenses 149 41 28 - 218 Operating income (loss) $ 22,844 $ 11,033 $ ( 24,509 ) $ 2,111 $ 11,479 Other (income) expense: Interest income $ ( 335 ) $ ( 344 ) $ - $ 615 $ ( 64 ) Interest expense 1,987 11 60 ( 615 ) 1,443 Other (income) expense ( 4,285 ) 1,341 ( 3,812 ) 1,489 ( 5,267 ) Total consolidated other (income) expense $ ( 2,633 ) $ 1,008 $ ( 3,752 ) $ 1,489 $ ( 3,888 ) Pretax earnings (loss) $ 25,477 $ 10,025 $ ( 20,757 ) $ 622 $ 15,367 Income tax expense 1,244 2,164 311 402 4,121 Net earnings (loss) $ 24,233 $ 7,861 $ ( 21,068 ) $ 220 $ 11,246 Minority Interest - ( 258 ) - - ( 258 ) Net earnings (loss) attributable to Twin Disc, Incorporated $ 24,233 $ 7,603 $ ( 21,068 ) $ 220 $ 10,988 Total consolidated assets $ 456,731 $ 58,351 $ ( 194,730 ) $ ( 8,296 ) $ 312,058 Depreciation and amortization $ 8,606 $ 341 $ 1,034 $ - $ 9,981 Expenditures for segment assets 7,304 730 673 - 8,707 Corporate expenses pertain to certain costs that are not allocated to the reportable segments, primarily consisting of corporate overhead costs, including administrative functions and global functional expenses. Geographic information about the Company for the years ended June 30 is summarized as follows: 2025 2024 Net sales United States $ 87,549 $ 79,823 Netherlands 52,735 46,162 China 28,666 45,527 Finland 24,618 - Australia 22,358 17,790 Italy 10,420 16,814 Other countries 114,392 89,011 Total $ 340,738 $ 295,127 Net sales by geographic region are based on product shipment destination. 55 Long-lived assets primarily pertain to property, plant and equipment and exclude goodwill, other intangibles, and deferred income taxes. They are summarized as follows: Long-lived assets 2025 2024 United States $ 39,949 $ 39,475 Netherlands 11,426 10,270 Finland 15,660 14,362 Belgium 8,184 5,746 Canada 5,952 - Other Countries 8,412 7,549 Total $ 89,583 $ 77,402 No one customer accounted for 10% of consolidated net sales in fiscal year 2025 and 2024. Disaggregated revenue: The following tables present details deemed most relevant to the users of the financial statements for the years ended June 30, 2025 and June 30, 2024. Net sales by product group for the year ended June 30, 2025 is summarized as follows: Elimination of Manufacturing Distribution Intercompany Sales Total Industrial $ 40,717 $ 5,176 $ ( 4,391 ) $ 41,502 Land-based transmissions 76,171 16,621 ( 12,600 ) 80,192 Marine and propulsion systems 178,553 90,196 ( 67,648 ) 201,101 Other 109 18,963 ( 1,129 ) 17,943 Total $ 295,550 $ 130,956 $ ( 85,768 ) $ 340,738 Net sales by product group for the year ended June 30, 2024 is summarized as follows: Elimination of Manufacturing Distribution Intercompany Sales Total Industrial $ 23,656 $ 5,163 $ ( 3,151 ) $ 25,668 Land-based transmissions 71,464 40,693 ( 33,639 ) 78,518 Marine and propulsion systems 152,855 86,202 ( 67,291 ) 171,766 Other 2,959 16,861 ( 645 ) 19,175 Total $ 250,934 $ 148,919 $ ( 104,726 ) $ 295,127 L. STOCK-BASED COMPENSATION In the first quarter of fiscal 2025, the Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (the “Omnibus Plan”), which was subsequently approved by the Company’s shareholders. The Omnibus Plan amended and restated the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”), and effectively replaced the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”). Benefits under the Omnibus Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. The Omnibus Plan is designed to benefit key employees and consultants of the Company and its subsidiaries, as well as non-employee directors of the Company. 56 There is reserved for issuance under the Plan an aggregate of 1,636,550 shares of the Company’s common stock, which consists of the previously-approved 715,000 shares of common stock reserved for issuance under the 2021 LTI Plan prior to its amendment and restatement to become the Omnibus Plan; 521,550 shares of common stock that remained available for issuance under the 2020 Directors' Plan; and 400,000 newly authorized shares of common stock. Shares issued under the Omnibus Plan may be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes. Shares available for future awards as of June 30 were as follows (assuming that outstanding performance awards are issued at the target level of performance): 2025 2024 2020 Directors' Plan - 521,550 2021 LTI Plan - 41,439 Omnibus Plan 875,701 Performance Stock Awards ( “ PSA ” ) In fiscal 2025 and 2024, the Company granted a target number of 116,091 and 119,349 PSAs, respectively, to various employees of the Company, including executive officers. The PSAs granted in fiscal 2025 will vest if the Company achieves performance-based objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2027. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 227,610 . Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs. The PSAs granted in fiscal 2024 will vest if the Company achieves performance-based objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026. These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 238,698 . Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs. There were 233,154 and 233,861 unvested PSAs outstanding at June 30, 2025 and 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. A total of 2,286 and 0 shares of performance stock awards were forfeited during fiscal 2025 and 2024, respectively. The compensation expense for the year ended June 30, 2025 and 2024, related to PSAs, was $ 1,951 and $ 1,648 , respectively. The tax expense from compensation expense for the year ended June 30, 2025 and 2024, related to PSAs, was $ 417 and $ 386 , respectively. The weighted average grant date fair value of the unvested awards at June 30, 2025 was $ 12.63 . At June 30, 2025, the Company had $ 1,522 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2025 and 2024 awards. The total fair value of performance stock awards vested in fiscal 2025 and fiscal 2024 was $ 1,706 . 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. 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 PSUAs that can vest if the target objective is exceeded totals 16,006 . 57 During fiscal 2025 and 2024 , the Company granted a target number of 0 and 10,473 PSUAs, respectively, to various individuals in the Company. A total of 2,470 and 0 shares of PSUAs were forfeited during fiscal 2025 and 2024, respectively. There were 8,003 and 10,473 unvested PSUAs outstanding at June 30, 2025 and 2024, respectively. The compensation expense for the year ended June 30, 2025 and 2024, related to PSUAs, was $ 24 and $ 40 , respectively. The tax expense from compensation expense for the year ended June 30, 2025 and 2024, related to PSUAs, was $ 6 and $ 9 , respectively. The weighted average grant date fair value of the unvested PSUAs at June 30, 2025 was $ 12.15 . At June 30, 2025, the Company had $ 33 of unrecognized compensation expense related to the unvested PSUAs that would vest if the specified target objective was achieved for the fiscal 2025 and 2024 awards. The total fair value of PSUAs vested in fiscal 2025 and fiscal 2024 was $ 0 . Restricted Stock Awards ( “ RS ” ) The Company has unvested RS outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation over the vesting period, which is generally 1 to 3 years. During fiscal 2025 and 2024, the Company granted 48,733 and 118,544 service based restricted shares, respectively, to employees and non-employee directors in each year. A total of 0 and 2,413 shares of restricted stock were forfeited during fiscal 2025 and 2024, respectively. There were 252,888 and 244,568 unvested shares outstanding at June 30, 2025 and 2024, respectively. Compensation expense of $ 1,266 and $ 1,265 was recognized during the year ended June 30, 2025 and 2024, respectively, related to these service-based awards. The tax benefit from compensation expense for the year ended June 30, 2025 and 2024, related to these service-based awards, was $ 297 and $ 297 , respectively. The total fair value of restricted stock grants vested in fiscal 2025 and 2024 was $ 464 and $ 2,345 , respectively. As of June 30, 2025, the Company had $ 579 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years. Restricted Stock Unit Awards ( “ RSU ” ) The RSUs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally three years from the date of grant or when performance conditions have been met. In fiscal 2025 and 2024, the Company granted 77,395 and 7,089 RSUs, respectively, to various employees of the Company, including executive officers. A total of 1,601 and 0 shares of restricted stock unit awards were forfeited during fiscal 2025 and 2024, respectively. There were 82,883 and 134,989 unvested RSUs outstanding at June 30, 2025 and June 30, 2024, respectively. Compensation expense of $ 866 and $ 496 was recognized during the year ended June 30, 2025 and 2024, respectively. The tax benefit from compensation expense for the year ended June 30, 2025 and 2024, related to these service-based awards, was $ 203 and $ 116 , respectively. The total fair value of restricted stock grants vested in fiscal 2025 and 2024 was $ 1,779 and $ 0 , respectively. The weighted average grant date fair value of the unvested awards at June 30, 2025 was $ 12.79 . As of June 30, 2025, the Company had $ 692 of unrecognized compensation expense related to RSUs which will be recognized over the next year. M. ENGINEERING AND DEVELOPMENT COSTS Engineering and development costs include research and development expenses for new products, development and major improvements to existing products, and other costs for ongoing efforts to refine existing products. Research and development costs charged to operations totaled $ 2,699 and $ 2,629 in fiscal 2025 and 2024, respectively. Total engineering and development costs were $ 12,236 and 9,843 in fiscal 2025 and 2024, respectively, and are primarily recorded within marketing, engineering and administrative expenses on the consolidated statements of operations and comprehensive income. N. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic employees hired prior to October 1, 2003, and certain foreign employees. Domestic plan benefits are based on years of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company froze future accruals under domestic defined benefit pension plans. 58 In addition, the Company has unfunded, non-qualified retirement plans for certain management employees and Directors. In the case of management employees, benefits are based on an annual credit to a bookkeeping account, intended to restore the benefits that would have been earned under the qualified plans, but for the earnings limitations under the Internal Revenue Code. In the case of Directors, benefits are based on years of service on the Board. All benefits vest upon retirement from the Company. In addition to providing pension benefits, the Company provides other postretirement benefits, including healthcare and life insurance benefits for certain domestic retirees. All employees retiring after December 31, 1992, and electing to continue healthcare coverage through the Company's group plan, are required to pay 100 % of the premium cost. The measurement date for the Company’s pension and postretirement benefit plans in fiscal 2025 and 2024 was June 30. Obligations and Funded Status The following table sets forth the Company's defined benefit pension plans’ and other postretirement benefit plans’ funded status and the amounts recognized in the Company's balance sheets and statement of operations and comprehensive income as of June 30: Other Pension Postretirement Benefits Benefits 2025 2024 2025 2024 Change in benefit obligation: Benefit obligation, beginning of year $ 68,110 $ 72,242 $ 3,169 $ 3,685 Service cost 352 373 7 8 Interest cost 3,404 3,609 165 191 Prior service cost 21 - - - Actuarial loss (gain) 1,753 254 33 ( 166 ) Contributions by plan participants 137 116 155 - Benefits paid ( 7,353 ) ( 8,484 ) ( 659 ) ( 549 ) Benefit obligation, end of year $ 66,424 $ 68,110 $ 2,870 $ 3,169 Change in plan assets: Fair value of assets, beginning of year $ 62,660 $ 67,338 $ - $ - Actual return on plan assets 2,616 3,101 - - Return on plan assets ( 1,808 ) Employer contribution 608 589 504 549 Contributions by plan participants 137 116 155 - Benefits paid ( 7,353 ) ( 8,484 ) ( 659 ) ( 549 ) Fair value of assets, end of year $ 56,860 $ 62,660 $ - $ - Funded status $ ( 9,564 ) $ ( 5,450 ) $ ( 2,870 ) $ ( 3,169 ) Amounts recognized in the balance sheet consist of: Other assets - noncurrent $ 15 $ - $ - $ - Accrued liabilities - current ( 380 ) ( 260 ) ( 237 ) ( 505 ) Accrued retirement benefits - noncurrent ( 9,199 ) ( 5,190 ) ( 2,633 ) ( 2,664 ) Net amount recognized $ ( 9,564 ) $ ( 5,450 ) $ ( 2,870 ) $ ( 3,169 ) Amounts recognized in accumulated other comprehensive income (loss) consist of (net of tax): Net transition obligation $ 26 $ 53 $ - $ - Prior service benefit ( 185 ) ( 145 ) - - Actuarial net loss (gain) 11,937 8,768 ( 317 ) ( 614 ) Net amount recognized $ 11,778 $ 8,676 $ ( 317 ) $ ( 614 ) 59 The amounts in accumulated other comprehensive income (loss) that are expected to be recognized as components of net periodic benefit cost during the next fiscal year for the qualified defined benefit and other postretirement benefit plans are as follows: Other Pension Postretirement Benefits Benefits Net transition obligation $ 96 $ - Prior service benefit ( 37 ) - Actuarial net loss (gain) 2,623 ( 53 ) Net amount to be recognized $ 2,682 $ ( 53 ) The accumulated benefit obligation for all defined benefit pension plans was approximately $ 66,424 and $ 68,110 at June 30, 2025 and 2024, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets : June 30 2025 2024 Projected and accumulated benefit obligation $ 62,355 $ 64,286 Fair value of plan assets 52,776 58,839 Components of Net Periodic Benefit Cost (Income): Pension Benefits 2025 2024 Service cost $ 347 $ 373 Interest cost 3,400 3,609 Prior service cost 21 - Expected return on plan assets ( 3,411 ) ( 4,283 ) Amortization of transition obligation 42 38 Amortization of prior service cost 26 35 Amortization of actuarial net loss 984 65 Net periodic benefit cost (income) $ 1,409 $ ( 163 ) Other Postretirement Benefits 2025 2024 Service cost $ 7 $ 8 Interest cost 165 191 Amortization of prior service cost - ( 88 ) Amortization of actuarial net gain ( 262 ) ( 620 ) Net periodic benefit income $ ( 90 ) $ ( 509 ) 60 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income for Fiscal 2025 (Pre-tax): Other Postretirement Pension Benefits Net loss $ 2,487 $ 34 Amortization of transition asset ( 43 ) - Amortization of prior service benefit ( 27 ) - Amortization of net (income) loss ( 985 ) 262 Total recognized in other comprehensive income 1,432 296 Net periodic benefit cost (income) 1,409 ( 90 ) Total recognized in net periodic benefit cost (income) and other comprehensive income $ 2,841 $ 206 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss for Fiscal 2024 (Pre-tax): Other Postretirement Pension Benefits Net loss (income) $ 1,656 $ ( 165 ) Amortization of transition asset ( 38 ) - Amortization of prior service (income) cost ( 34 ) 88 Amortization of net (income) loss ( 64 ) 620 Total recognized in other comprehensive loss 1,520 543 Net periodic benefit income ( 163 ) ( 509 ) Total recognized in net periodic benefit cost (income) and other comprehensive loss $ 1,357 $ 34 Additional Information Assumptions Other Pension Benefits Postretirement Benefits Weighted average assumptions used to determine benefit obligations at June 30 2025 2024 2025 2024 Discount rate 5.00 % 5.25 % 5.28 % 5.66 % Expected return on plan assets 5.74 % 6.54 % Other Pension Benefits Postretirement Benefits Weighted average assumptions used to determine net periodic benefit costs for years ended June 30 2025 2024 2025 2024 Discount rate 4.97 % 5.07 % 5.66 % 5.74 % Expected return on plan assets 5.55 % 6.47 % The assumed weighted-average healthcare cost trend rate was 7.7 % in fiscal 2025, grading down from 8.3 % in fiscal 2024. 61 Plan Assets The Company’s Benefits Committee (“Committee”), a non-board management committee, oversees investment matters related to the Company’s funded benefit plans. The Committee works with external actuaries and investment consultants on an ongoing basis to establish and monitor investment strategies and target asset allocations. The overall objective of the Committee’s investment strategy is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension plans. The Committee has established an Investment Policy Statement which provides written documentation of the Company’s expectations regarding its investment programs for the pension plans, establishes objectives and guidelines for the investment of the plan assets consistent with the Company’s financial and benefit-related goals, and outlines criteria and procedures for the ongoing evaluation of the investment program. The Company employs a total return on investment approach whereby a mix of investments among several asset classes are used to maximize long-term return of plan assets while avoiding excessive risk. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, and annual liability measurements. The Company’s pension plan weighted-average asset allocations at June 30, 2025 and 2024 by asset category were as follows: Target June 30 Asset Category Allocation 2025 2024 Equity securities 15 % 15 % 19 % Debt securities 75 % 78 % 71 % Real estate 10 % 7 % 10 % 100 % 100 % 100 % Due to market conditions and other factors, actual asset allocation may vary from the target allocation outlined above. The U.S. pension plans held 98,211 shares of Company stock with a fair market value of $ 867 ( 1.7 % of total plan assets) at June 30, 2025 and 98,211 shares with a fair market value of $ 1,157 ( 1.8 % of total plan assets) at June 30, 2024. The U.S. plans have a long-term return assumption of 6.25 %. This rate was derived based upon historical experience and forward-looking return expectations for major asset class categories. Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are classified into the following hierarchy: Level I Unadjusted quoted prices in active markets for identical instruments Level II Unadjusted quoted prices in active markets for similar instruments, or Unadjusted quoted prices for identical or similar instruments in markets that are not active, or Other inputs that are observable in the market or can be corroborated by observable market data Level III Use of one or more significant unobservable inputs The following table presents plan assets using the fair value hierarchy as of June 30, 2025: Total Level I Level II Level III Cash and cash equivalents $ 924 $ 924 $ - $ - Equity securities: Company common stock (a) 867 867 - - Common stock (a) 2,537 2,537 - - Mutual funds (b) 4,434 4,434 - - Annuity contracts (c) 7,080 - - 7,080 Total $ 15,842 $ 8,762 $ - $ 7,080 Investments Measured at Net Asset Value (d) 41,018 Total $ 56,860 62 The following table presents plan assets using the fair value hierarchy as of June 30, 2024: Total Level I Level II Level III Cash and cash equivalents $ 647 $ 647 $ - $ - Equity securities: Company common stock (a) 1,157 1,157 - - Common stock (a) 1,479 1,479 - - Mutual funds (b) 4,261 4,261 - - Annuity contracts (c) 6,264 - - 6,264 Total $ 13,808 $ 7,544 $ - $ 6,264 Investments Measured at Net Asset Value (d) 48,852 Total $ 62,660 (a) Common stock is valued at the closing price reported on the active market on which the individual securities are traded. These securities include U.S. equity securities invested in companies that are traded on exchanges inside the U.S. and international equity securities invested in companies that are traded on exchanges outside the U.S. (b) Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Company’s funded benefit plans are open-end mutual funds that are registered with the Securities Exchange Commission. These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual funds held by the Company’s funded benefit plans are deemed to be actively traded. (c) Annuity contracts represent contractual agreements in which payments are made to an insurance company, which agrees to pay out an income or lump sum amount at a later date. Annuity contracts are valued at fair value using the net present value of future cash flows. (d) In accordance with ASC 820 - 10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at the end of the year. The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that calculate fair value based on NAV per share practical expedient as of June 30, 2025 and June 30, 2024: 2025 2024 Fixed income funds $ - $ 35,089 International equity securities 37,687 1,808 Real estate - 5,209 Hedged equity mutual funds 3,331 6,746 Total $ 41,018 $ 48,852 The following tables present a reconciliation of the fair value measurements using significant unobservable inputs (Level III) as of June 30, 2025 and 2024: 2025 2024 Beginning balance $ 6,264 $ 6,688 Actual return on plan assets: Relating to assets still held at reporting date 1,362 605 Purchases, sales and settlements, net ( 546 ) ( 1,029 ) Ending balance $ 7,080 $ 6,264 Cash Flows Contributions The Company expects to contribute $ 708 to its defined benefit pension plans in fiscal 2026. The Company expects to contribute $ 467 to its other postretirement benefit plans in fiscal 2026. 63 Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Other Pension Postretirement Benefits Benefits 2026 $ 7,217 $ 467 2027 6,799 431 2028 6,801 396 2029 6,087 356 2030 5,810 319 Years 2031 - 2034 29,313 901 The Company does not expect to make any Part D reimbursements for the periods presented. The Company sponsors defined contribution plans covering substantially all domestic employees and certain foreign employees. These plans provide for employer contributions based primarily on employee participation. The total expense under the plans was $ 2,683 and $ 2,447 in fiscal 2025 and 2024, respectively. These amounts are recorded in cost of goods sold and marketing, engineering and administration costs. O. INCOME TAXES United States and foreign (loss) income before income taxes and minority interest as of June 30 were as follows: 2025 2024 United States $ ( 12,329 ) $ ( 6,213 ) Foreign 14,098 21,580 $ 1,769 $ 15,367 The provision (benefit) for income taxes is comprised of the following: 2025 2024 Currently payable: Federal $ ( 32 ) $ 7 State 62 66 Foreign 4,919 4,608 4,949 4,681 Deferred: Federal $ - $ 10 State ( 289 ) ( 2 ) Foreign ( 1,292 ) ( 568 ) ( 1,581 ) ( 560 ) $ 3,368 $ 4,121 64 The components of the net deferred tax asset as of June 30 are summarized in the table below. 2025 2024 Deferred tax assets: Retirement plans and employee benefits $ 5,065 $ 4,683 Foreign tax credit carryforwards 9,639 8,347 Federal tax credits, net of ASU 2013-11 1,645 1,683 State net operating loss and other state credit carryforwards, net of ASU 2013-11 2,651 2,226 Federal net operating loss - 4,042 Reserves 1,053 931 Inventories 1,138 93 Research & experimental expenditure capitalization 1,118 816 Foreign net operating loss carryforwards 450 52 Accruals 620 1,081 Right of use assets - operating leases 4,629 4,038 Disallowed interest 1,751 1,384 Capital loss carryforward 108 108 Translation adjustment 1,417 565 Other assets 298 108 31,582 30,157 Valuation allowance ( 23,964 ) ( 24,035 ) $ 7,618 $ 6,122 Deferred tax liabilities: Inventories $ 59.0 $ - Property, plant and equipment 2,719 673 Intangible assets 1,058 1,010 Long term operating lease obligations 4,917 4,034 Hedging 11 445 Step-up on fair value adjustment - 2,530 Other liabilities 362 431 9,126 9,123 Total net deferred tax liabilities $ ( 1,508 ) $ ( 3,001 ) At June 30, 2025 the Company has net operating loss carryforwards (“NOLs”) of approximately $ 0 and $ 31,031 for federal and state income tax purposes which will expire at various dates from fiscal year 2026 – 2044. During the year, the Company filed amended tax returns, which resulted in adjustments to certain tax attribute balances, including federal net operating loss and foreign tax credit carryforwards. The Company has federal and state tax credit carryforwards of approximately $ 11,718 and $ 1,276 , respectively, which will expire at various dates from fiscal 2026 – 2044. The majority of the Company’s foreign tax credit carryforwards, which make up $ 9,639 of the $ 11,718 , are scheduled to expire in fiscal year 2026. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company has evaluated the likelihood of whether the net deferred tax assets would be realized and concluded that it is more likely than not that all of deferred tax assets would not be realized. Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $ 23,964 and $ 24,035 have been recorded for fiscal years 2025 and 2024, respectively. 65 Following is a reconciliation of the applicable U.S. federal income taxes to the actual income taxes reflected in the statements of operations (in thousands): 2025 2024 U.S. federal income tax at 21 % $ 371 $ 3,227 Increases (reductions) in tax resulting from: US Foreign inclusion items 902 463 Foreign rate differences 361 555 Foreign permanent items 336 127 Foreign prior period adjustments ( 79 ) 118 Foreign other 5 3 Foreign bargain purchase gain - ( 782 ) Foreign tax ruling - ( 786 ) Foreign uncollectible tax receivable - 238 State taxes ( 242 ) ( 144 ) Change in prior year estimate 61 96 Research & development tax credits ( 107 ) ( 47 ) Foreign tax credits - ( 480 ) Unrecognized tax benefits - 3 Stock compensation 155 ( 445 ) Deferred tax basis adjustments 1,990 132 Executive compensation 372 471 FDII Deduction ( 8 ) - Valuation Allowance ( 827 ) 1,110 Other, net 78 262 $ 3,368 $ 4,121 The Company has not provided additional U.S. income taxes on cumulative earnings of its consolidated foreign subsidiaries that are considered to be reinvested indefinitely. The Company reaffirms its position that the earnings of those subsidiaries remain permanently invested and has no plans to repatriate funds from any permanently reinvested subsidiaries to the U.S. for the foreseeable future. These earnings relate to ongoing operations and were approximately $ 30,302 and $ 20,977 at June 30, 2025 and June 30, 2024, respectively. Such earnings could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company’s intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. Annually, the Company files income tax returns in various taxing jurisdictions inside and outside the United States. In general, the tax years that remain subject to examination are 2020 through 2025 for our major operations in Belgium, Japan, Netherlands, Singapore and Australia. The tax years open to examination in the U.S. are for years subsequent to fiscal 2020. The Company has approximately $ 644 and $ 766 of unrecognized tax benefits as of June 30, 2025 and June 30, 2024 respectively, which, if recognized would impact the effective tax rate. No material changes are expected to the reserve during the next 12 months. The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits in income tax expense. 66 Below is a reconciliation of beginning and ending amount of unrecognized tax benefits as of June 30: 2025 2024 Unrecognized tax benefits, beginning of year $ 766 $ 774 Additions based on tax positions related to the prior year 95 - Additions based on tax positions related to the current year 38 8 Reductions based on tax positions related to the prior year ( 28 ) ( 16 ) Subtractions due to statues closing ( 227 ) - Unrecognized tax benefits, end of year $ 644 $ 766 Substantially all of the Company’s unrecognized tax benefits as of June 30, 2025, if recognized, would affect the effective tax rate. As of June 30, 2025 and 2024, the amounts accrued for interest and penalties totaled $ 6 and $ 68 , respectively, and are not included in the reconciliation above. On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act,” into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in calendar year 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Act also includes certain changes to the US taxation of foreign activity, including changes to foreign tax credits, GILTI, FDII, and BEAT. These changes are generally effective for tax years beginning after December 31, 2025. These changes were not reflected in the income tax provision for the period ended June 30, 2025, as enactment occurred after the balance sheet date. The Company is currently evaluating the impact on future periods. This tax act may have a material impact on the company’s ability to realize it’s deferred tax assets and the need to maintain the valuation allowance. The impacts of this law change is expected to be reflected in the first quarter of fiscal year 2026, the period in which the tax act was enacted into law. P. CONTINGENCIES The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, are not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Company’s results of operations, financial position or cash flows, either individually or in the aggregate. Q. 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 $ 369 and $ 300 in fiscal year June 30, 2025 and June 30, 2024, respectively. 67 The following is a roll-forward of restructuring activity: Accrued restructuring liability, June 30, 2024 $ - Additions 408 Payments, adjustments and write-offs during the year ( 369 ) Accrued restructuring liability, June 30, 2025 $ 39 R. EARNINGS PER SHARE The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period. The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect. The components of basic and diluted earnings per share were as follows: 2025 2024 Basic: Net (loss) income $ ( 1,599 ) $ 11,246 Less: Net earnings attributable to noncontrolling interest ( 295 ) ( 258 ) Net (loss) income attributable to Twin Disc, Incorporated ( 1,894 ) 10,988 Weighted average shares outstanding - basic 13,856 13,683 Basic Income Per Share: Net (loss) income per share - basic $ ( 0.14 ) $ 0.80 Diluted: Net (loss) income $ ( 1,599 ) $ 11,246 Less: Net earnings attributable to noncontrolling interest ( 295 ) ( 258 ) Net (loss) income attributable to Twin Disc, Incorporated ( 1,894 ) 10,988 Weighted average shares outstanding - basic 13,856 13,683 Effect of dilutive stock awards - 194 Weighted average shares outstanding - diluted 13,856 13,877 Diluted Income Per Share: Net (loss) income per share - diluted $ ( 0.14 ) $ 0.79 The following potential common shares were excluded from diluted EPS for the year-ended June 30, 2025 as the Company reported a net loss: 404.3 related to the Company’s unvested PSAs, 10.5related to the Company’s unvested PSAUs, 121.0 related to the Company’s unvested RS awards, and 55.0 related to the Company’s unvested RSUs. S. DERIVATIVE FINANCIAL INSTRUMENTS The Company reports all derivative instruments on its consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes. 68 As a global organization, the Company faces exposure to market risks, such as fluctuations in foreign currency exchange rates, interest rates and commodity prices. To manage the volatility relating to these exposures, the Company enters into various derivative instruments from time to time under its risk management policies. The Company designates derivative instruments as hedges on a transaction basis to support hedge accounting. The changes in fair value of these hedging instruments offset in part or in whole corresponding changes in the fair value or cash flows of the underlying exposures being hedged. The Company assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its policy. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. The Company’s practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if it determines the underlying forecasted transaction is no longer probable of occurring. Interest Rate Swaps Designated as Cash Flow Hedges The primary purpose of the Company’s cash flow hedging activities is to manage the potential changes in value associated with interest payments on the Company’s SOFR-based indebtedness. The Company records gains and losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive income (loss) to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net earnings, at which time these gains and losses are recognized in interest expense on its consolidated statements of operations and comprehensive income. Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows. These contracts generally have original maturities of greater than twelve months. Net unrealized after-tax gains related to cash flow hedging activities that were included in accumulated other comprehensive income (loss) were ($ 284 ) and ($ 504 ) for the years ended June 30, 2025 and 2024, respectively. The unrealized amounts in accumulated other comprehensive income (loss) will fluctuate based on changes in the fair value of open contracts during each reporting period. The Company estimates that ($ 75 ) of net unrealized loss related to cash flow hedging activities included in accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months. Derivatives Designated as Net Investment Hedges The Company is exposed to foreign currency exchange risk related to its investment in net assets in foreign countries. As discussed in Note H, Debt, during the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan, with a notional amount of €13,500, as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign subsidiaries. All changes in fair value of the euro revolver were then reported in accumulated other comprehensive income (loss) along with the foreign currency translation adjustments on those foreign investments. Net unrealized after-tax gains related to net investment hedging activities that were included in accumulated other comprehensive income (loss) were $ 129 and ($ 1,502 ) for the years ended June 30, 2025 and 2024, respectively. Foreign Currency Forward Contracts Not Designated as Hedges The Company primarily enters into forward exchange contracts to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables. These contracts are highly effective in hedging the cash flows attributable to changes in currency exchange rates. Gains and losses resulting from these contracts offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts generally coincide with the settlement dates of the related transactions. Gains and losses on these contracts are recorded in other expense, net in the consolidated statement of operations and comprehensive income as the changes in the fair value of the contracts are recognized and generally offset the gains and losses on the hedged items in the same period. The primary currency to which the Company was exposed in fiscal 2025 and 2024 was the euro. At June 30, 2025 and 2024, there were no significant forward exchange contracts outstanding. Other Derivative Instruments The Company does not utilize commodity price hedges to manage commodity price risk exposure. Likewise, the Company does not hedge the translation exposure represented by the net assets of its foreign subsidiaries. 69 Fair Value of Derivative Instruments The Company’s interest rate swaps and foreign currency forward contracts are recorded at fair value on the consolidated balance sheets using a discounted cash flow analysis that incorporates observable market inputs. These market inputs include foreign currency spot and forward rates, and various interest rate curves, and are obtained from pricing data quoted by various banks, third -party sources and foreign currency dealers involving identical or comparable instruments (Level 2 ). Counterparties to these foreign currency forward contracts have at least an investment grade rating. Credit ratings on some of the Company’s counterparties may change during the term of the financial instruments. The Company closely monitors its counterparties’ credit ratings and, if necessary, will make any appropriate changes to its financial instruments. The fair value generally reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date. As discussed in Note H, Debt, the Company's euro denominated Revolving Loan approximates fair value at June 30, 2025 and June 30, 2024. If measured at fair value in the financial statements, it would be classified as Level 2 in the fair value hierarchy. The fair value of derivative instruments included in the consolidated balance sheets at June 30 were as follows: Balance Sheet Location 2025 2024 Derivatives designated as hedges: Interest rate swaps Other current assets $ 75 $ 218 Interest rate swaps Other noncurrent assets - 76 The impact of the Company’s derivative instruments on the consolidated statement of operations and comprehensive income for the years ended June 30 was as follows: Statement of Operations and Comprehensive Income Location 2025 2024 Derivatives designated as hedges: Interest rate swap Interest expense $ 270 $ 262 Interest rate swap Unrealized loss on hedges ( 220 ) ( 184 ) Net investment hedge Unrealized (loss) gain on hedges ( 1,631 ) 230 70 TWIN DISC, INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended June 30, 2025 and 2024 (in thousands) Description Balance at Beginning of Period Charged to Costs and Expenses Adjustments(1) Balance at End of Period 2025: Allowance for credit losses on accounts receivable $ 1,383 $ ( 57 ) $ 222 $ 1,548 Reserve for inventory obsolescence $ 12,693 $ 3,773 $ ( 450 ) $ 16,016 Deferred tax valuation allowance $ 24,035 $ - $ ( 71 ) $ 23,964 2024: Allowance for credit losses on accounts receivable $ 1,221 $ 240 $ ( 78 ) $ 1,383 Reserve for inventory obsolescence $ 12,858 $ 2,331 $ ( 2,496 ) $ 12,693 Deferred tax valuation allowance $ 22,345 $ - $ 1,690 $ 24,035 ( 1 ) Activity primarily represents amounts written-off during the year, along with other adjustments (primarily foreign currency translation adjustments). 71 EXHIBIT INDEX TWIN DISC, INCORPORATED 10-K for Year Ended June 30, 2025 Exhibit Description Included Herewith 3a) Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of the Company's Form 8‑K dated December 6, 2007). File No. 001-07635. 3b) Articles of Amendment to the Restated Articles of Incorporation of Twin Disc, Incorporated (Incorporated by reference to Exhibit 3.1 of the Company's Form 8‑K dated October 29, 2020). File No. 001-07635. 3c) Restated Bylaws of Twin Disc, Incorporated, as amended through October 29, 2021 (Incorporated by reference to Exhibit 3.2 of the Company's Form 8‑K dated October 29, 2020). File No. 001-07635. Exhibit 10 Material Contracts Included Herewith a) Director Tenure and Retirement Policy (Incorporated by reference to Exhibit 10.A of the Company’s Form 10-K dated September 2, 2021). File No. 001-07635. b) Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 6, 2024). File No. 001-07635. c) The Twin Disc, Incorporated 2021 Long-Term Incentive Compensation Plan (Incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on October 28, 2021). File No. 001-07635. d) The 2020 Stock Incentive Plan for Non-Employee Directors (Incorporated by reference to Appendix A of the Proxy Statement for the Annual Meeting of Shareholders held on October 29, 2020). File No. 001-07635. e) Form of Restricted Stock Grant Agreement for restricted stock grants on August 3, 2022 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 8,2022). File No. 001-07635. f) Form of Restricted Stock Unit Grant Agreement for restricted stock units granted on August 3, 2022 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 8,2022). File No. 001-07635. g) Form of Performance Stock Award Grant Agreement for award of performance shares on August 3, 2022 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 8,2022). File No. 001-07635. h) Form of Restricted Stock Grant Agreement for restricted stock grants on August 3, 2023 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 9, 2023). File No. 001-07635. i) Form of Performance Stock Award Grant Agreement for award of performance shares on August 4, 2023 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 9, 2023). File No. 001-07635. j) Amendment to Restricted Stock Unit Grant Agreement for restricted stock units granted on August 3, 2023 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 9, 2023). File No. 001-07635. k) Form of Restricted Stock Unit Grant Agreement for restricted stock unit grants on August 1, 2024 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 6, 2024). File No. 001-07635. l) Form of Performance Stock Award Grant Agreement for performance stock grants on August 1, 2024 (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated August 6, 2024). File No. 001-07635. m) Form of Restricted Stock Grant Agreement for restricted stock grants on August 6, 2025 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated August 12, 2025). File No. 001-07635. 72 n) Form of Performance Stock Award Grant Agreement for award of performance shares on August 6, 2025 (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated August 12, 2025). File No. 001-07635. o) Twin Disc, Incorporated Supplemental Executive Retirement Plan, amended and restated as of July 29, 2010 (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated August 4, 2010). File No. 001-07635. p) Form of Change in Control Severance Agreements (Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K dated August 3, 2022). File No. 001-07635. q) Form of Indemnity Agreement (Incorporated by reference to Exhibit 10.5 of the Company’s Form 8-K dated August 2, 2005). File No. 001-07635. r) Credit Agreement By and Among Twin Disc, Incorporated, Twin Disc Canada Holdings Ltd., Kobelt Manufacturing Co. Ltd., and Bank of Montreal, dated February 14, 2025 (Incorporated by reference to Exhibit 1.1 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. s) Fifth Amended and Restated Revolving Note By and Among Twin Disc, Incorporated, Kobelt Manufacturing Co., Ltd. and Bank of Montreal (Incorporated by reference to Exhibit 1.2 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. t) Assignment and Assumption of Revolving Loan Note Between BMO Bank, N.A. and Bank of Montreal (Incorporated by reference to Exhibit 1.3 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. u) Second Amended and Restated Term Note By and Among Twin Disc, Incorporated, Kobelt Manufacturing Co., Ltd. and Bank of Montreal (Incorporated by reference to Exhibit 1.4 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. v) Assignment and Assumption of Term Loan Note Between BMO Bank, N.A. and Bank of Montreal (Incorporated by reference to Exhibit 1.5 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. w) Assignment and Amendment to Security Agreement By and Among BMO Bank, N.A., Bank of Montreal, and Twin Disc, Incorporated (Incorporated by reference to Exhibit 1.6 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. x) Assignment and Amendment to IP Security Agreement By and Among BMI Bank, N.A., Bank of Montreal, Twin Disc, Incorporated, and Kobelt Manufacturing Co., Ltd. (Incorporated by reference to Exhibit 1.7 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. y) Assignment of and Amendment to Pledge Agreement By and Among BMO Bank, N.A., Bank of Montreal, and Twin Disc, Incorporated (Incorporated by reference to Exhibit 1.8 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. z) Assignment of and Amendment to Perfection Certificate By and Among BMO Bank, N.A., Bank of Montreal, Twin Disc, Incorporated, and Kobelt Manufacturing Co. Ltd. (Incorporated by reference to Exhibit 1.9 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. aa) Assignment of and Amendment to Assignment as to Liens and Encumbrances By and Among BMO Bank, N.A., Bank of Montreal, and Twin Disc, Incorporated (Incorporated by reference to Exhibit 1.10 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. bb) Assignment of and Amendment to Negative Pledge Agreement By and Among BMO Bank, N.A., Bank of Montreal, and Twin Disc, Incorporated (Incorporated by reference to Exhibit 1.11 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. cc) Collateral Assignment of Rights Under Purchase Agreement By and Among Twin Disc, Incorporated, Twin Disc Canada Holdings Ltd., and Bank of Montreal (Incorporated by reference to Exhibit 1.12 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. dd) Share Purchase Agreement Among Kobelt Manufacturing Co. Ltd., Twin Disc Canada Holdings Ltd., Twin Disc, Incorporated, the Shareholders of Kobelt Manufacturing Co. Ltd., and Mark Chesley, dated February 14, 2025 (Incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K dated February 18, 2025). File No. 001-07635. ee) ISDA Master Agreement and Schedule, dated April 11, 2019, between Twin Disc, Incorporated and Bank of Montreal (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated April 26, 2019). File No. 001-07635. ff) Confirmation of swap transaction, dated April 22, 2019, from Bank of Montreal to Twin Disc, Incorporated (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated April 26, 2019). File No. 001-07635. 73 Exhibit Description Herewith 19 Insider Trading X 21 Subsidiaries of the Registrant X 23a Consent of Independent Registered Public Accounting Firm X 24 Power of Attorney X 31a Certification X 31b Certification X 32a Certification pursuant to 18 U.S.C. Section 1350 X 32b Certification pursuant to 18 U.S.C. Section 1350 X 97 Policy Relating to Recovery of Erroneously Awarded Compensation X 101.INS Inline XBRL Instance Document, filed herewith 101.SCH Inline XBRL Schema Document, filed herewith 101.CAL Inline XBRL Calculation Linkbase Document, filed herewith 101.DEF Inline XBRL Definition Linkbase Document, filed herewith 101.LAB Inline XBRL Label Linkbase Document, filed herewith 101.PRE Inline XBRL Presentation Linkbase, filed herewith 104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) 74 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. September 5, 2025 TWIN DISC, INCORPORATED By: /s/ JOHN H. BATTEN John H. Batten President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. September 5, 2025 By: /s/ MICHAEL C. SMILEY Michael C. Smiley Chairman of the Board September 5, 2025 By: /s/ JOHN H. BATTEN John H. Batten President and Chief Executive Officer September 5, 2025 By: /s/ JEFFREY S. KNUTSON Jeffrey S. Knutson Vice President - Finance, Chief Financial Officer, Treasurer and Secretary September 5, 2025 Michael Doar, Director Janet P. Giesselman, Director David W. Johnson, Director Juliann Larimer, Director Kevin M. Olsen, Director By: /s/ JEFFREY S. KNUTSON Jeffrey S. Knutson Vice President - Finance, Chief Financial Officer, Treasurer and Secretary (Attorney in Fact) 75