What changed in this filing

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Item 1. Financial Statements

2026-02-04 compared with 2025-11-05 · 416 added, 259 removed, 749 unchanged (47% of the section changed)

3 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

September 26, 2025

December 26, 2025

June 30, 2025

60 unchanged sentences

For the Quarter Ended

September 26, 2025 September 27, 2024

For the Two Quarters Ended

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

$ 90,180 $ 89,921 $ 170,176 $ 162,818

1 unchanged sentence

67,813 66,662 124,875 120,237

Cost of goods sold - other

- 1,579 - 1,579

22,367 21,680 45,301 41,002

Marketing, engineering and administrative expenses

20,654 18,920 41,352 38,407

Other operating income

( 374 ) - ( 374 ) -

Income (loss) from operations

13 unchanged sentences

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

107 180 213 173

Net income (loss) attributable to Twin Disc, Incorporated

16 unchanged sentences

Benefit plan adjustments, net of income taxes of $ 1 , $ 13 , $ 0 , and $ 2 , respectively

640 ( 1,668 ) 1,272 ( 1,447 )

Foreign currency translation adjustment

1 unchanged sentence

Unrealized gain (loss) on hedges, net of income taxes of $ 31 , $ 0 , $ 7 and $ 0 , respectively

( 131 ) 1,146 ( 33 ) 293

Comprehensive income (loss)

1 unchanged sentence

Comprehensive income (loss) attributable to noncontrolling interest

80 122 271 258

Comprehensive income (loss) attributable to Twin Disc, Incorporated

4 unchanged sentences

(IN THOUSANDS)

For the Quarter Ended

September 26, 2025 September 27, 2024

For the Two Quarters Ended

December 26, 2025

December 27, 2024

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$ ( 412 ) $ ( 2,772 )

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

1 unchanged sentence

Gain on sale of assets

Loss on write-down of industrial product inventory

Provision for deferred income taxes

( 403 ) ( 361 )

Stock compensation expense and other non-cash changes, net

Net change in operating assets and liabilities

( 11,035 ) ( 5,465 )

Net cash provided (used) by operating activities

( 7,524 ) ( 4,344 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property, plant, and equipment

( 3,430 ) ( 2,362 )

Proceeds from sale of property, plant, and equipment

( 9 ) ( 369 )

Net cash provided (used) by investing activities

( 3,439 ) ( 2,722 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving loan arrangements

40,375 30,090

Repayments of revolving loan arrangements

( 27,971 ) ( 26,791 )

Repayments of long-term debt

Dividends paid to shareholders

( 566 ) ( 570 )

Payments of finance lease obligations

( 284 ) ( 546 )

Cash used in net share settlement of restricted stock units

Payments of withholding taxes on stock compensation

( 1,675 ) ( 1,249 )

Net cash provided (used) by financing activities

Effect of exchange rate changes on cash

( 773 ) 2,773

Net change in cash

( 1,868 ) ( 3,359 )

Beginning of period

16,109 20,070

End of period

$ 14,241 $ 16,711

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

21 unchanged sentences

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

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

The Company is currently assessing the impact of the requirements on its Condensed Consolidated Financial Statements.

Recently Adopted Accounting Standards

11 unchanged sentences

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

The Company reported the following contract assets and liabilities, which are presented within trade accounts receivable, net and accrued liabilities on the condensed balance sheets.

The Company reported the following contract assets and liabilities, which are presented within trade accounts receivable, net, other current assets, and accrued liabilities on the condensed consolidated balance sheets.

Deferred revenue represents billings in excess of cost based on milestone billings in the contract.

Contract Assets Contract Liabilities

Cost in Excess Trade Accounts Total Contract Customer Deferred Total Contract

of Billings, Net Receivable, Net Assets Deposits Revenue Liabilities

Contract Assets

Contract Liabilities

Costs in Excess

of Billings, Net

Trade Accounts

Receivable, Net

Total Contract

June 30, 2024

June 30, 2025

September 26, 2025 $ 5,897 $ 63,950 $ 69,847 $ 11,836 $ 33,886 $ 45,722

The Company’s 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.

December 26, 2025

The Company’s contracts are generally short term in nature, and therefore, the amount included in contract liabilities at each quarter is recognized as revenue in the next year.

Inventories, Net

The major classes of inventories were as follows:

September 26, 2025

December 26, 2025

June 30, 2025

Finished parts

$ 67,473 $ 67,037

Work in process

28,988 27,229

Raw materials

61,811 57,685

$ 158,272 $ 151,951

The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers.

3 unchanged sentences

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

The following is a listing of the activity in the warranty reserve for the quarters ended September 26, 2025 and September 27, 2024:

For the Quarter Ended

September 26, 2025

September 27, 2024

The following is a listing of the activity in the warranty reserve as of December 26, 2025 and June 30, 2025:

December 26, 2025

June 30, 2025

Reserve balance, beginning of period

$ 5,257 $ 4,220

Current period expense and adjustments

Payments or credits to customers

( 1,389 ) ( 821 )

Reserve balance, end of period

$ 4,894 $ 4,450

The current portion of the warranty accrual ($ 3,930 and $ 3,452 as of September 26, 2025 and September 27, 2024, respectively) is reflected in accrued liabilities, while the long-term portion ($ 964 and $ 998 as of September 26, 2025 and September 27, 2024, respectively) is included in other long-term liabilities on the condensed consolidated balance sheets.

The current portion of the warranty accrual ($ 4,452 and $ 4,174 as of December 26, 2025 and June 30, 2025, respectively) is reflected in accrued liabilities, while the long-term portion ($ 889 and $ 1,083 as of December 26, 2025 and June 30, 2025, respectively) is included in other long-term liabilities on the condensed consolidated balance sheets.

Contingencies

7 unchanged sentences

manufacturing and distribution.

Its segment structure reflects the way chief operating decision-maker (“CODM”) makes operating decisions and manages the growth and profitability of the business.

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.

3 unchanged sentences

The CODM evaluates the performance of its segments based on net sales, gross profit, operating income (loss), and net income (loss).

The following table presents the selected financial information with respect to the Company’s reportable segments as of September 26, 2025:

The following table presents the selected financial information with respect to the Company’s reportable segments as of the quarter ended December 26, 2025:

Manufacturing

19 unchanged sentences

11,177 3,677 5,800 - 20,654

Other operating income

- - ( 374 ) - ( 374 )

Operating income (loss)

19 unchanged sentences

$ ( 10,713 ) $ ( 192 ) $ 35,580 $ ( 2,304 ) $ 22,371

Total consolidated assets

Depreciation and amortization

$ 2,943 $ 95 $ 299 $ - $ 3,337

Expenditures for segment assets

5,349 538 857 - 6,744

The following table presents the selected financial information with respect to the Company’s reportable segments as of the quarter ended December 27, 2024:

Manufacturing

Elimination and adjustments

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

Intra-segment sales

( 2,344 ) ( 5,847 ) - 8,191 -

Inter-segment sales

( 13,161 ) ( 917 ) - 14,078 -

Total consolidated net sales

60,958 28,963 - - 89,921

Cost of goods sold:

Cost of goods sold

63,229 28,086 - $ 23,074 68,241

Intra-segment cost of goods sold

( 2,344 ) ( 5,847 ) - ( 8,191 ) -

Inter-segment cost of goods sold

( 13,161 ) ( 917 ) - ( 14,078 ) -

Total consoldiated cost of goods sold

47,724 21,322 - 805 68,241

13,234 7,641 - 805 21,680

Marketing, engineering and administrative expenses

9,300 3,618 6,002 - 18,920

Operating income (loss)

3,934 4,023 ( 6,002 ) 805 2,760

Other income (expense):

Interest income

215 135 792 ( 1,124 ) 18

Interest expense

( 1,594 ) ( 2 ) ( 23 ) 1,124 ( 495 )

Other income (expense)

732 ( 1,353 ) 1,011 ( 22 ) 368

Total consolidated other income (expense)

( 647 ) ( 1,220 ) 1,780 ( 22 ) ( 109 )

Pretax earnings (loss)

3,287 2,803 ( 4,222 ) 783 2,651

Income tax benefit (expense)

( 849 ) ( 702 ) - ( 1 ) ( 1,552 )

Net income (loss)

2,438 2,101 ( 4,222 ) 782 1,099

Minority interest

- 180 - - 180

Net income (loss) attributable to Twin Disc, Incorporated

$ 2,438 $ 1,921 $ ( 4,222 ) $ 782 $ 919

Depreciation and amortization

2 unchanged sentences

2,346 234 201 - 2,781

The following table presents the selected financial information with respect to the Company’s reportable segments as of September 27, 2024:

The following table presents the selected financial information with respect to the Company’s reportable segments as of the two quarters ended December 26, 2025:

Manufacturing

Elimination and

Elimination and adjustments

$ 156,143 $ 47,137 $ - $ ( 33,104 ) $ 170,176

17 unchanged sentences

21,672 7,413 12,267 - 41,352

Other operating income

- - ( 374 ) - ( 374 )

Operating income (loss)

25 unchanged sentences

5,668 194 888 - 6,750

The following table presents the selected financial information with respect to the Company’s reportable segments as of the two quarters ended December 27, 2024:

Manufacturing

Elimination and adjustments

Intra-segment sales

Inter-segment sales

Total consolidated net sales

Cost of goods sold:

Cost of goods sold

Intra-segment cost of goods sold

Inter-segment cost of goods sold

Total consoldiated cost of goods sold

Marketing, engineering and administrative expenses

Operating income (loss)

Other income (expense):

Interest income

Interest expense

Other income (expense)

Total consolidated other income (expense)

Pretax earnings (loss)

Income tax benefit (expense)

Net income (loss)

Minority interest

Net income (loss) attributable to Twin Disc, Incorporated

Total consolidated assets

Depreciation and amortization

Expenditures for segment assets

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended September 26, 2025 and September 27, 2024.

Net sales by product group for the quarter ended September 26, 2025 is summarized as follows:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended December 26, 2025 and December 27, 2024.

Net sales by product group for the quarter ended December 26, 2025 is summarized as follows:

Elimination of

1 unchanged sentence

Intercompany Sales

$ 10,304 $ 997 $ ( 923 ) $ 10,378

Land-based transmissions

17,880 2,951 ( 3,273 ) 17,558

Marine and propulsion systems

45,870 13,483 ( 11,127 ) 48,226

- 4,347 ( 513 ) 3,834

$ 74,054 $ 21,778 $ ( 15,836 ) $ 79,996

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

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

Elimination of

1 unchanged sentence

Intercompany Sales

Land-based transmissions

Marine and propulsion systems

Net sales by product group for the two quarters ended December 26, 2025 is summarized as follows:

Elimination of

Manufacturing

Intercompany Sales

Land-based transmissions

Marine and propulsion systems

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

Elimination of

Manufacturing

Intercompany Sales

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

8 unchanged sentences

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 include non-Twin Disc manufactured product sold through Company-owned distribution entities.

Other products include non-Twin Disc manufactured product sold through Company-owned distribution entities.

Stock-Based Compensation

7 unchanged sentences

Performance Stock Awards ( “ PSA ” )

During the first quarter of fiscal 2026 and 2025, the Company granted a target number of 166.5 and 116.1 PSAs, respectively, to various employees of the Company, including executive officers.

During the first two quarters of fiscal 2026 and 2025, the Company granted a target number of 166.5 and 116.1 PSAs, respectively, to various employees of the Company, including executive officers.

The fiscal 2026 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2028.

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 333.1 .

Based upon actual results to date, the Company is currently not accruing compensation expense for these PSAs.

The fiscal 2025 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2027.

There were 396.4 and 350.0 unvested PSAs outstanding at September 26, 2025 and September 27, 2024, respectively.

There were 396.4 and 350.0 unvested PSAs outstanding at December 26, 2025 and December 27, 2024, respectively.

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

Compensation expense of $ 378 and $ 659 was recognized for the quarters ended September 26, 2025 and September 27, 2024, respectively, related to PSAs.

The weighted average grant date fair value of the unvested awards at September 26, 2025 was $ 11.12 .

At September 26, 2025, the Company had $ 2,736 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2026 and 2025 awards.

The total fair value of PSAs vested as of September 26, 2025 and September 27, 2024 was $ 0 .

Compensation expense of $ 455 and $ 376 was recognized for the quarters ended December 26, 2025 and December 27, 2024, respectively, related to PSAs.

Compensation expense of $ 833 and $ 1,035 was recognized for the two quarters ended December 26, 2025 and December 27, 2024, respectively, related to PSAs.

The weighted average grant date fair value of the unvested awards at December 26, 2025 was $ 11.12 .

At December 26, 2025, the Company had $ 2,281 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2026 and 2025 awards.

The total fair value of PSAs vested as of December 26, 2025 and December 27, 2024 was $ 0 .

Performance Stock Unit Awards ( “ PSUA ” )

The PSUAs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date.

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.

The PSUAs granted in fiscal 2024 will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSUA Grant Agreement), in the cumulative three fiscal year period ending June 30, 2026.

These PSUAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 20.9 .

There were 8.0 and 10.5 unvested PSUAs outstanding at September 26, 2025 and September 27, 2024, respectively.

There were 8.0 and 10.5 unvested PSUAs outstanding at December 26, 2025 and December 27, 2024, respectively.

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

Compensation expense of $ 8 and $ 11 was recognized for the quarters ended September 26, 2025 and September 27, 2024, respectively, related to PSUAs.

The weighted average grant date fair value of the unvested awards at September 26, 2025 was $ 12.15 .

At September 26, 2025, the Company had $ 25 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2025 awards.

The total fair value of PSUAs vested as of September 26, 2025 and September 27, 2024 was $ 0 .

Compensation expense of $ 9 and $ 11 was recognized for the quarters ended December 26, 2025 and December 27, 2024, respectively, related to PSUAs.

Compensation expense of $ 17 and $ 22 was recognized for the two quarters ended December 26, 2025 and December 27, 2024, respectively, related to PSUAs.

The weighted average grant date fair value of the unvested awards at December 26, 2025 was $ 12.15 .

At December 26, 2025, the Company had $ 17 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal 2025 awards.

The total fair value of PSUAs vested as of December 26, 2025 and December 27, 2024 was $ 0 .

Restricted Stock Awards ( “ RS ” )

1 unchanged sentence

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

During the first quarter of fiscal 2026 and 2025, the Company granted 113.2 and 1.8 service based restricted shares, respectively.

There were 233.2 and 244.4 unvested shares outstanding at September 26, 2025 and September 27, 2024, respectively.

A total of 2.2 and 0 shares of restricted stock were forfeited during the quarters ended September 26, 2025 and September 27, 2024, respectively.

Compensation expense of $ 305 and $ 311 was recognized for the quarters ended September 26, 2025 and September 27, 2024, respectively.

The total fair value of restricted stock grants vested as of September 26, 2025 and September 27, 2024 was $ 1,156 and $ 27 , respectively.

As of September 26, 2025, the Company had $ 1,269 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

During the first two quarters of fiscal 2026 and 2025, the Company granted 147.2 and 44.0 service based restricted shares, respectively, to employees and non-employee directors.

There were 225.0 and 251.0 unvested shares outstanding at December 26, 2025 and December 27, 2024, respectively.

A total of 2.1 and 0 shares of restricted stock were forfeited during the two quarters ended December 26, 2025 and December 27, 2024, respectively.

Compensation expense of $ 298 and $ 317 was recognized for the quarters ended December 26, 2025 and December 27, 2024, respectively.

Compensation expense of $ 602 and $ 628 was recognized for the two quarters ended December 26, 2025 and December 27, 2024, respectively.

The total fair value of restricted stock grants vested as of December 26, 2025 and December 27, 2024 was $ 1,817 and $ 437 , respectively.

As of December 26, 2025, the Company had $ 1,472 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards ( “ RSU ” )

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

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

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

During the first quarter of fiscal 2026 and 2025, the Company granted 0 and 77.4 of employment based RSUs, respectively.

There were 79.2 and 156.9 unvested RSUs outstanding at September 26, 2025 and September 27, 2024, respectively.

Compensation expense of $ 171 and $ 43 was recognized for the quarters ended September 26, 2025 and September 27, 2024, respectively.

The total fair value of restricted stock units vested as of September 26, 2025 and September 27, 2024 was $ 33 and $0, respectively.

The weighted average grant date fair value of the unvested awards at September 26, 2025 was $ 12.84 .

As of September 26, 2025, the Company had $ 605 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

During the first two quarters of fiscal 2026 and 2025, the Company granted 0 and 77.4 of employment based RSUs, respectively.

There were 79.2 and 159.9 unvested RSUs outstanding at December 26, 2025 and December 27, 2024, respectively.

Compensation expense of $ 85 and $ 149 was recognized for the quarters ended December 26, 2025 and December 27, 2024, respectively.

Compensation expense of $ 256 and $ 192 was recognized for the two quarters ended December 26, 2025 and December 27, 2024, respectively.

The total fair value of restricted stock units vested as of December 26, 2025 and December 27, 2024 was $ 33 and $ 701 , respectively.

The weighted average grant date fair value of the unvested awards at December 26, 2025 was $ 12.84 .

As of December 26, 2025, the Company had $ 520 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Pension and Other Postretirement Benefit Plans

2 unchanged sentences

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

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

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

For the Quarter Ended

September 26, 2025

September 27, 2024

For the Two Quarters Ended

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

Pension Benefits:

2 unchanged sentences

Expected return on plan assets

( 751 ) ( 826 )

Amortization of transition obligation

6 unchanged sentences

Amortization of actuarial net loss (gain)

( 13 ) ( 10 )

Net periodic benefit cost (gain)

$ 23 $ ( 23 )

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

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

The Company expects to contribute approximately $ 708 to its pension plans in fiscal 2026.

As of September 26 2025, the amount of $ 181 in contributions to the pension plans have been made.

The Company has reclassified $ 632 (net of $ 1 in taxes) of benefit plan adjustments from accumulated other comprehensive income (loss) during the quarter ended September 26, 2025, and $ 221 (net of $ 11 in taxes) during the quarter ended September 27, 2024.

As of December 26, 2025, the amount of $ 383 in contributions to the pension plans have been made.

The Company has reclassified $ 640 (net of $ 1 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended December 26, 2025, and $ 140 (net of $ 13 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended December 27, 2024.

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

The Company has reclassified $ 1,272 (net of $ 0 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the two quarters ended December 25, 2026, and $ 361 (net of $ 2 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the two quarters ended December 27, 2024.

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

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

2 unchanged sentences

In situations in which an entity is in a loss position and recognizes a full valuation allowance, the guidance in ASC 740 - 270 - 30 - 36a applies.

Due to continued historical domestic and foreign immaterial jurisdiction losses and uncertain future earnings, the company continues to recognize a full valuation allowance for these entities.

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.

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.

In addition, all other available positive and negative evidence is taken into consideration, including impacts of tax reform.

The Company has evaluated the realizability of deferred tax assets and concluded that the U.S.

and state valuation allowance is no longer required and should be released as of December 26, 2025.

The Company is expected to be in a cumulative three year income position at the end of the year, and expects to be profitable in future periods.

This release relates to both projections of future income and a significant tax planning action for the current year which constitutes a significant unusual or infrequently occurring tax only item, the tax effects of which have been excluded from the estimated AETR as per ASC 740 - 270.

The Company recognized $ 22.8 million of the related $ 23.9 million domestic valuation allowance release tax benefit as a discrete item during the quarter.

The Company continues to maintain a valuation allowance in immaterial foreign jurisdictions, due to continued losses and uncertain future earnings.

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

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

Because of the full U.S.

and foreign immaterial jurisdiction valuation allowance, these entities may only recognize tax benefit (expense) recorded for ASC 740 - 10 adjustments.

Therefore, per ASC guidance, the immaterial foreign jurisdiction was removed from the annualized effective rate calculation.

Because of the foreign valuation allowance, the entity may only recognize tax expense / benefit recorded for ASC 740 - 10 adjustments.

For the Quarter-Ended

September 26, 2025

September 27, 2024

For the Two Quarters Ended

December 26, 2025

December 27, 2024 December 26, 2025 December 27, 2024

Foreign earnings (loss), before income taxes of $ 1,024 , $ 1,552 , $ 2,022 , and $ 2,406 , respectively

8 unchanged sentences

- 3120.3 % 58.5 % - 1638.8 % 430.6 %

Due to the full U.S.

and immaterial foreign jurisdiction allowance currently in place, no tax benefit can be recognized on the losses within those jurisdictions.

A discrete benefit was recorded during the period of ($ 14 ) related to the release of an uncertain tax position.

During the quarter ended September 26, 2025, the Company recorded a discrete tax expense of $ 147 for U.S.

federal, state, and foreign withholding taxes associated with a planned repatriation from China for previously indefinitely reinvested earnings.

The change in assertion was due to cash flow optimization.

The impact of this discrete item increased the Company's foreign effective tax rate by 4.6 % for the period.

In prior periods, the Company had asserted indefinite reinvestment of these earnings and no deferred tax liability was recorded.

On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was enacted and signed into law.

The Act restores and makes permanent a number of corporate tax provisions, such as full expensing for U.S.-based research and development expenditures and capital investments, as well as certain changes to the U.S.

taxation of foreign activity.

The Company has evaluated the impact of the provisions and determined that while the legislation impacts the timing of certain tax deductions, it does not result in a material impact to the Company's effective tax rate.

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.

As of September 26, 2025, changes in the carrying amount of goodwill is summarized as follows:

As of December 26, 2025, changes in the carrying amount of goodwill are summarized as follows:

Net Book Value Rollforward

Balance at June 30, 2025

Translation adjustment

Balance at September 26, 2025

As of September 26, 2025, the following acquired intangible assets have definite useful lives and are subject to amortization:

Balance at December 26, 2025

As of December 26, 2025, the following acquired intangible assets have definite useful lives and are subject to amortization:

Net Book Value Rollforward

2 unchanged sentences

Accumulated Amortization / Impairment

Customer Relationships

Relationships

Balance at June 30, 2025

$ 43,403 $ ( 30,042 ) $ 13,361 $ 7,195 $ 1,834 $ 2,036 $ 2,296 $ 13,361

8 - 8 - - - 8 8

- ( 667 ) ( 667 ) ( 326 ) ( 49 ) ( 76 ) ( 216 ) ( 667 )

Translation adjustment

( 332 ) 200 ( 132 ) ( 72 ) ( 29 ) ( 26 ) ( 5 ) ( 132 )

Balance at September 26, 2025

$ 43,079 $ ( 30,509 ) $ 12,570 $ 6,797 $ 1,756 $ 1,934 $ 2,083 $ 12,570

Balance at December 26, 2025

Other intangibles consist mainly of computer software.

1 unchanged sentence

The weighted average remaining useful life of the intangible assets included in the table above is approximately 7 years.

Intangible amortization expense was $ 667 and $ 926 for the quarters ended September 26, 2025, and September 27, 2024, respectively.

Estimated intangible amortization expense for the remainder of fiscal 2026 and each of the next five fiscal years is as follows:

Intangible amortization expense was $ 682 and $ 880 for the quarters ended December 26, 2025, and December 27, 2024, respectively.

Intangible amortization expense was $ 1,349 and $ 1,806 for the two quarters ended December 26, 2025, and December 27, 2024, respectively.

Estimated intangible amortization expense for the remainder of fiscal 2026 and each of the next five fiscal years and thereafter is as follows:

Long-term Debt

Long-term debt at September 26, 2025 and June 30, 2025 consisted of the following:

September 26, 2025

Long-term debt at December 26, 2025 and June 30, 2025 consisted of the following:

December 26, 2025

June 30, 2025

1 unchanged sentence

Revolving loans (expire April 2027)

$ 30,194 $ 17,921

Term loan (due April 2027)

13,500 13,500

43,719 31,446

current maturities

( 3,000 ) ( 3,000 )

Total long-term debt

$ 40,719 $ 28,446

Credit Agreement Debt :

27 unchanged sentences

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.

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

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

55 unchanged sentences

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

As of September 26, 2025, current maturities include $ 3,000 of term loan payments due within the coming year.

During the quarter ended September 26, 2025, the average interest rate was 6.73 % on the Term Loan, and 5.26 % on the Revolving Loans.

As of September 26, 2025, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $ 46,337 , and the Company had approximately $ 16,143 available borrowings.

As of December 26, 2025, current maturities include $ 3,000 of term loan payments due within the coming year.

During the quarter ended December 26, 2025, the average interest rate was 6.50 % on the Term Loan, and 5.27 % on the Revolving Loans.

As of December 26, 2025, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $ 45,358 , and the Company had approximately $ 13,617 available borrowings.

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

The Company’s borrowings described above approximate fair value at September 26, 2025 and June 30, 2025.

The Company’s borrowings described above approximate fair value at December 26, 2025 and June 30, 2025.

If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.

The Company is party to an interest rate swap arrangement with Bank of Montreal, with an initial notional amount of $ 20,000 and a maturity date of March 4, 2026 to hedge the Term Loan.

As of September 26, 2025, the notional amount was $ 7,500 .

As of December 26, 2025, the notional amount was $ 7,000 .

This swap has been designated as a cash flow hedge under ASC 815, Derivatives and Hedging.

1 unchanged sentence

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

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

Effective upon the designation, all changes in the fair value of the euro revolver 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 O, Derivative Financial Instruments.

Shareholders ’ Equity

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of September 26, 2025 remain authorized for purchase.

The Company did not make any open market purchases of its shares during the quarters ended September 26, 2025 and September 27, 2024.

The following is a reconciliation of the Company’s equity balances for the first fiscal quarters of 2026 and 2025:

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of December 26, 2025 remain authorized for purchase.

The Company did not make any open market purchases of its shares during the quarters ended December 26, 2025 and December 27, 2024.

The following is a reconciliation of the Company’s equity balances for the first two fiscal quarters of 2026 and 2025:

Twin Disc, Inc.

Shareholders’ Equity

Accumulated Other

Comprehensive

Income (Loss)

Treasury Stock

Balance, June 30, 2025

13 unchanged sentences

37,813 124,330 1,944 ( 3,770 ) 571 160,888

Net income (loss)

22,371 107 $ 22,478

Dividends paid to shareholders

( 571 ) ( 571 )

Translation adjustments

1,056 ( 27 ) 1,029

Benefit plan adjustments, net of tax

Unrealized gain (loss) on hedges, net of tax

( 131 ) ( 131 )

Compensation expense

Stock awards, net

( 520 ) 520 0

Balance, December 26, 2025

$ 38,139 $ 146,130 $ 3,509 $ ( 3,250 ) $ 651 $ 185,179

Twin Disc, Inc.

Shareholders’ Equity

Accumulated Other

Comprehensive

Income (Loss)

Treasury Stock

Balance, June 30, 2024

14 unchanged sentences

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

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended September 26, 2025 and September 27, 2024 are as follows:

Benefit Plan Adjustment

Net income (loss)

919 180 1,099

Dividends paid to shareholders

( 566 ) ( 566 )

Translation adjustments

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

Benefit plan adjustments, net of tax

( 1,668 ) ( 1,668 )

Unrealized gain (loss) on hedges, net of tax

Compensation expense

Stock awards, net

( 644 ) 637 ( 7 )

Balance, December 27, 2024

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

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the two quarters ended December 26, 2025 and December 27, 2024 are as follows:

Net Investment

Balance, June 30, 2025

8 unchanged sentences

$ 12,520 $ ( 10,829 ) $ 253 $ -

Benefit Plan Adjustment

Translation adjustment during the quarter

Amounts reclassified from accumulated other comprehensive income (loss)

- 640 ( 28 ) ( 103 )

Net current period other comprehensive income (loss)

1,056 640 ( 28 ) ( 103 )

Balance, December 26, 2025

$ 13,576 $ ( 10,189 ) $ 225 $ ( 103 )

Net Investment

Balance, June 30, 2024

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

Amounts reclassified from accumulated other comprehensive income (loss)

Net current period other comprehensive income (loss)

- 221 ( 169 ) ( 684 )

Net current period other comprehensive (loss) income

7,148 221 ( 169 ) ( 684 )

Balance, September 27, 2024

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

Translation adjustment during the quarter

( 11,311 ) - - -

Return on plan assets

- ( 1,808 ) - -

Amounts reclassified from accumulated other comprehensive income (loss)

2 unchanged sentences

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

Balance, September 27, 2024

Balance, December 27, 2024

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

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 26, 2025 are as follows:

Amount Reclassified

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended December 26, 2025 are as follows:

Quarter Ended

Two Quarters Ended

December 26, 2025

Changes in benefit plan items

Actuarial loss (gain)

$ 633 (a) $ 1,256 (a)

Transition asset and prior service cost (benefit)

Total amortization

Total changes, net of tax

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

Amount Reclassified

Total reclassification, net of tax

$ 640 $ 1,272

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

Quarter Ended

Two Quarters Ended

December 27, 2024

Changes in benefit plan items

Actuarial loss (gain)

(a)Transition asset and prior service cost (benefit)

Transition asset and prior service cost (benefit)

Return of plan assets

( 1,808 ) ( 1,808 )

Total amortization

Total changes, net of tax

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

( 1,681 ) ( 1,449 )

Total reclassification, net of tax

$ ( 1,668 ) $ ( 1,447 )

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

Earnings Per Share

3 unchanged sentences

The components of basic and diluted EPS were as follows:

September 26, 2025 September 27, 2024

For the Quarter Ended

For the Two Quarters Ended

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

Net income (loss)

$ ( 412 ) $ ( 2,772 )

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

Net income (loss) attributable to Twin Disc, Incorporated

( 518 ) ( 2,765 )

Weighted average shares outstanding - basic

13,961 13,778

Basic earnings (loss) per share:

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

$ ( 0.04 ) $ ( 0.20 )

Net income (loss)

$ ( 412 ) $ ( 2,772 )

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

Net income (loss) attributable to Twin Disc, Incorporated

( 518 ) ( 2,765 )

Weighted average shares outstanding - basic

13,961 13,778

Effect of dilutive stock awards

Weighted average shares outstanding - diluted

13,961 13,778

Diluted earnings (loss) per share:

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

$ ( 0.04 ) $ ( 0.20 )

The following potential common shares were excluded from diluted EPS for the quarter ended September 26, 2025 as the Company reported a net loss:

229.9 related to the Company’s unvested PSAs, 8.0 related to the Company’s unvested PSUA awards, 233.2 related to the Company’s unvested RS awards, and 79.2 related to the Company’s unvested RSUs.

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

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

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

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

Lease Liabilities

9 unchanged sentences

Balance Sheets Location

September 26, 2025

December 26, 2025

June 30, 2025

1 unchanged sentence

Right-of-use operating lease assets

$ 16,311 $ 17,250

Right-of-use finance lease assets

3 unchanged sentences

Current maturities of right-of-use operating lease obligations

$ 3,336 $ 3,393

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

Right-of-use lease obiligations

13,474 14,357

Right-of-use lease obligations

Right-of-use finance lease liabilities, current

2 unchanged sentences

Other long-term liabilities

$ 4,975 $ 5,212

The components of lease expense were as follows:

For the Quarter Ended

September 26, 2025

September 27, 2024

For the Two Quarters Ended

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

Finance lease cost:

6 unchanged sentences

Sublease income

( 26 ) ( 21 )

Net lease cost

$ 1,650 $ 1,355

Other information related to leases was as follows:

For the Quarter Ended

September 26, 2025

September 27, 2024

For the Two Quarters Ended

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

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

Operating cash flows from operating leases

$ 1,240 $ 1,013

Operating cash flows from finance leases

9 unchanged sentences

Finance leases

Approximate future minimum rental commitments under non-cancellable leases as of September 26, 2025 were as follows:

Approximate future minimum rental commitments under non-cancellable leases as of December 26, 2025 were as follows:

Operating Leases

Finance Leases

$ 3,336 $ 1,063

Total future lease payments

Amount representing interest

( 5,999 ) ( 1,344 )

Present value of future payments

$ 16,810 $ 6,038

Derivative Financial Instruments

4 unchanged sentences

Interest Rate Swap Contracts

The Company has one outstanding interest rate swap contract as of September 26, 2025, with a notional amount of $ 7,500 .

The Company has one outstanding interest rate swap contract as of December 26, 2025, with a notional amount of $ 7,000 .

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

3 unchanged sentences

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

Net unrealized after-tax gains (loss) related to cash flow hedging activities that were included in accumulated other comprehensive income (loss) were $ 253 and $ 284 as of September 26, 2025, and June 30, 2025, respectively.

Net unrealized after-tax gain (loss) related to cash flow hedging activities that were included in accumulated other comprehensive income (loss) were $ 225 and $ 284 as of December 26, 2025, and June 30, 2025, 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.

4 unchanged sentences

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

Net unrealized after-tax gains (loss) related to net investment hedging activities that were included in accumulated other comprehensive income (loss) were $ 0 and ($ 129 ) as of September 26, 2025 and June 30, 2025, respectively.

Net unrealized after-tax gains (loss) related to net investment hedging activities that were included in accumulated other comprehensive income (loss) were $ 103 and $ 129 as of December 26, 2025 and June 30, 2025, respectively.

Fair Value of Derivative Instruments

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

Condensed Consolidated

Balance Sheets Location

September 26, 2025

Condensed Consolidated Balance

Sheet Location

December 26, 2025

June 30, 2025

2 unchanged sentences

Other current assets

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended September 26, 2025 and September 27, 2024, respectively, was as follows:

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended December 26, 2025 and December 27, 2024, respectively, was as follows:

Condensed Consolidated Statements

1 unchanged sentence

For the Quarter Ended

For the Two Quarters Ended

Income (Loss) Location

September 26, 2025

September 27, 2024

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

Derivative designated as hedge:

3 unchanged sentences

Unrealized gain (loss) on hedges

( 31 ) ( 169 )

Net investment hedge

2 unchanged sentences

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

This discussion should be read in conjunction with our condensed consolidated financial statements as of September 26, 2025, and related notes, as reported in Item 1 of this Quarterly Report.

This discussion should be read in conjunction with our condensed consolidated financial statements as of December 26, 2025, and related notes, as reported in Item 1 of this Quarterly Report.

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

5 unchanged sentences

Results of Operations

(In thousands)

Quarter Ended

September 26, 2025

% of Net Sales

September 27, 2024

% of Net Sales

Two Quarters Ended

December 26, 2025

December 27, 2024

December 26, 2025

December 27, 2024

Cost of goods sold

Cost of goods sold - other

Marketing, engineering and administrative expenses

Other operating income

Income (loss) from operations

Comparison of the First Quarter of Fiscal 2026 with the First Quarter of Fiscal 2025

Net sales for the first quarter increased 9.7%, or $7.1 million, to $80.0 million from $72.9 million in the same quarter a year ago.

Comparison of the Second Quarter of Fiscal 2026 with the Second Quarter of Fiscal 2025

Net sales for the second quarter increased 0.3%, or $0.3 million, to $90.2 million from $89.9 million in the same quarter a year ago.

The acquisition of Kobelt, completed in the third quarter of fiscal 2025, contributed $3.2 million of additional revenue in the quarter.

The remaining increase primarily reflects continued growth in demand for the company’s Veth propulsion systems.

Global sales of marine and propulsion products improved 14.6% from the prior year, largely on the strength of the Veth product demand.

Sales of industrial products improved 13.2% from the prior year first quarter, with a significant contribution from the Kobelt acquisition.

Shipments of off-highway transmission products improved slightly (1.5%), with generally stable demand across end markets.

The North American region saw a significant increase in revenue ($8.7 million or 48.9%) thanks to the acquisition of Kobelt and expansion of Veth product sales into the region.

Sales into Europe increased 6.8%, or $2.0 million, on growing demand for the Veth product.

The Asia Pacific region declined 14.5%, or $2.4 million, on weaker commercial marine demand and reduced shipments of oilfield transmissions into China.

Currency translation had a favorable impact on first quarter fiscal 2026 sales compared to the first quarter of the prior year totaling $3.2 million primarily due to the strengthening of the euro against the U.S.

The remaining decrease of $2.9 million primarily reflects temporary weakness in commercial marine demand, impacted by the existing tariff structure, along with continued soft demand for oil and gas transmissions into China.

These decreases were partially offset by continued growth in demand for the Company’s Veth propulsion systems, along with improved shipments of the Company’s Katsa products acquired in fiscal 2024.

Global sales of marine and propulsion products were flat with the prior year, as weakness in commercial marine demand was offset by strength in demand for the Veth product.

Shipments of off-highway transmission products decreased by 8.1%, with weakness in demand for oil and gas transmissions into China and delayed airport rescue and firefighting transmissions (“ARFF”) shipments resulting from ongoing tariff concerns.

Shipments of industrial products improved nearly 22% as demand for Katsa product continues to grow, along with the favorable impact from the Kobelt acquisition.

The European region saw a significant increase in revenue ($3.1 million or 8.4%) thanks primarily to strong regional demand for Veth and Katsa products.

Sales into North America increased 9.6%, or $2.2 million, driven by the addition of Kobelt.

The Asia Pacific region decreased 24.5%, or $5.0 million, on weaker demand for commercial marine and oilfield transmissions in the region.

Currency translation had a favorable impact on second quarter fiscal 2026 sales compared to the second quarter of the prior year totaling $4.1 million primarily due to the strengthening of the euro against the U.S.

Sales at our manufacturing segment increased 3.3%, or $2.4 million, versus the same quarter last year.

The Company’s new Canadian acquisition, Kobelt, contributed $3.1 million of incremental revenue.

manufacturing operations experienced a 1.4%, or $0.4 million, decrease in sales versus the first fiscal quarter of 2025, driven by a reduction in aftermarket demand.

The Company’s operation in the Netherlands saw increased revenue of $6.8 million (43.6%) compared to the first fiscal quarter of 2025, as this operation continues to ramp up production to meet record demand for its propulsion systems.

The Company’s Finnish operation saw an increase in revenue ($0.7 million or 7.7%) as demand for European defense applications continues to improve.

The Company’s Belgian operation saw a decrease compared to the prior year first quarter (16.2% or $0.8 million), with weaker demand for its marine transmission products.

The Company’s Italian manufacturing operation was up $0.6 million (16.7%) compared to the first quarter of fiscal 2025, due primarily to some strengthening demand for marine products in the region.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.7 million (44.4%) compared to the prior year first quarter.

Our distribution segment experienced a decrease in sales of $7.8 million (26.4%) in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025.

The Company’s Asian distribution operations in Singapore, China and Japan were down 24.7% or $2.9 million from the prior year on reduced demand for commercial marine products.

The Company’s North America distribution operation saw a $2.1 million decrease (41.6%) on reduced demand for European produced goods, somewhat impacted by the changing tariff structure.

Similarly, the Company’s European distribution operation saw a significant decrease ($2.5 million or 45.5%) on reduced activity in commercial marine projects.

The Company’s distribution operation in Australia and New Zealand, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a slight decrease in revenue (3.0% from the prior year first fiscal quarter), on relatively stable demand.

Gross profit as a percentage of sales for the first quarter of fiscal 2026 improved to 28.7%, compared to 26.5% for the same period last year.

The improvement in the current year first quarter compared to the prior year result reflects the impact of additional volume and the success of margin improvement initiatives across the manufacturing operations.

For the fiscal 2026 first quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 25.9%, compared to 26.7% for the fiscal 2025 first quarter.

The Company’s new acquisition, Kobelt, in Canada contributed $3.2 million of incremental revenue.

manufacturing operations experienced a 10.6%, or $3.3 million, decrease in sales versus the second fiscal quarter of 2025, with shipment delays for ARFF products and weaker demand for oil and gas transmissions in China.

The Company’s operation in the Netherlands saw increased revenue of $1.6 million (6.4%) compared to the second fiscal quarter of 2025, as this operation continues to experience record demand for its propulsion systems.

The Company’s Belgian operation saw a decrease compared to the prior year second quarter (16.6% or $0.9 million), with weaker demand for its marine transmission products due in part to the domestic tariff structure.

The Company’s Italian manufacturing operation was up $2.5 million (77.7%) compared to the second quarter of fiscal 2025, due primarily to stronger European demand for industrial and commercial marine products.

The Company’s operation in Finland saw revenue increase 21.2% ($2.1 million), with strong demand for defense related products in the region.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.4 million (23.7%) compared to the prior year second quarter.

Our distribution segment experienced a decrease in sales of $10.4 million (29.0%) in the second quarter of fiscal 2026 compared to the second quarter of fiscal 2025.

The Company’s Asian distribution operations in Singapore, China and Japan were down 37.2%, or $6.0 million, from the prior year on reduced demand for commercial marine transmissions and oil and gas transmissions for China.

The Company’s North America distribution operation saw a decrease ($1.9 million or 32.7%) impacted by the existing tariff structure and related impact on goods coming from European manufacturing operations.

Similarly, the Company’s European distribution operation saw a decline ($1.9 million or 30.9%) on weaker shipments of commercial marine projects.

The Company’s distribution operation in Australia and New Zealand, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a decrease in revenue of 6.9% from the prior year second fiscal quarter, primarily due to weaker pleasure craft demand.

Gross profit as a percentage of sales for the second quarter of fiscal 2026 improved to 24.8%, compared to 24.1% for the same period last year.

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

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

The current quarter was impacted by a less favorable product mix, dilution of margin due to invoicing of tariffs and isolated operational/quality issues within the quarter.

For the fiscal 2026 second quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 22.9%, compared to 21.0% for the fiscal 2025 second quarter.

ME&A expenses increased $1.7 million (9.2%) over the same period last fiscal year.

The increase in ME&A spending for the quarter was comprised of the addition of Kobelt ($0.6 million) and a currency translation impact ($0.5 million).

Interest expense was up $0.2 million to $0.8 million in the first quarter of fiscal 2026, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other expense of $0.9 million for the first fiscal quarter was primarily attributable to a currency loss ($0.2 million) and pension amortization expense ($0.7 million).

The fiscal 2026 first quarter effective tax rate was 172.2% compared to (29.2%) in the prior fiscal year first quarter.

The full domestic valuation allowance provides for a very volatile effective tax rate.

This, along with the mix of foreign earnings by jurisdiction, resulted in the change to the effective tax rate.

The increase in ME&A spending for the quarter was comprised of the addition of Kobelt ($0.5 million), a foreign currency impact ($0.5 million), increased commission expense ($0.5 million) and a small net inflationary impact of $0.3 million.

Interest expense was up $0.3 million to $0.8 million in the second quarter of fiscal 2026, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other income (expense) of $0.6 million for the second fiscal quarter was primarily attributable to a currency gain ($0.1 million), partially offset by pension amortization expense ($0.7 million).

The fiscal 2026 second quarter effective tax rate was -3,120.4% compared to 58.5% in the prior fiscal year second quarter.

The change in the effective tax rate for the quarter resulted from a full reversal of the domestic valuation allowance.

Comparison of the First Six Months of Fiscal 2026 with the First Six Months of Fiscal 2025

Net sales for the first six months increased 4.5%, or $7.4 million, to $170.2 million from $162.8 million in the same period a year ago.

The acquisition of Kobelt, completed in the third quarter of fiscal 2025, contributed $6.3 million of additional revenue in the first half.

The remaining increase of $1.1 million reflects continued growth in demand for the Company’s Veth propulsion systems, along with improved shipments of the Company’s Katsa products acquired in fiscal 2024.

These increases were partially offset by temporary weakness in commercial marine demand, impacted by the existing tariff structure, along with continued soft demand for oil and gas transmissions into China.

Global sales of marine and propulsion products improved 5.9% from the prior year, driven by strong demand for Veth product offset by some weakness in commercial marine demand.

Shipments of industrial products improved by 17.7%, driven by the addition of Katsa and Kobelt.

Shipments of off-highway transmission products declined by 3.5%, with delayed ARFF shipments.

The European region saw a significant increase in revenue ($5.1 million or 7.7%) thanks primarily to growing demand for Veth and Katsa products in the region.

Sales into North America increased 26.7%, or $10.9 million, on improved industrial and commercial marine shipments in the second quarter.

The Asia Pacific region decreased 20.0%, or $7.4 million, on weaker demand for commercial marine and oil and gas transmissions in the region.

Currency translation had a favorable impact on first half fiscal 2026 sales compared to the first half of the prior year totaling $4.1 million primarily due to the strengthening of the euro against the U.S.

Sales at our manufacturing segment increased 11.7%, versus the same period last year.

The Company’s new acquisition, Kobelt, in Canada contributed $6.3 million of incremental revenue.

manufacturing operations experienced a 6.2%, or $3.7 million, decline in sales versus the first half of fiscal 2025, with tariff concerns creating a drag on shipments.

The Company’s operation in the Netherlands saw increased revenue of $8.4 million (20.7%) compared to the first half of fiscal 2025, as this operation continues to experience record demand for its propulsion systems and has begun to increase capacity to satisfy the growing demand.

The Company’s Belgian operation saw a decrease compared to the prior year first half (16.4% or $1.7 million), with weaker US demand for its marine transmission products, impacted by tariffs.

The Company’s Italian manufacturing operation was up $3.1 million (45.4%) compared to the first half of fiscal 2025, due primarily to stronger European demand for industrial and commercial marine products.

The Company’s operation in Finland saw revenue increase 14.7% ($2.8 million), with improving demand for defense related products in the region.

The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $1.1 million (33.7%) compared to the prior year first half.

Our distribution segment experienced a decrease in sales of $18.2 million (27.8%) in the first half of fiscal 2026 compared to the first half of fiscal 2025.

The Company’s Asian distribution operations in Singapore, China and Japan were down 31.9% or $9.0 million from the prior year on weaker commercial marine activity in the region, along with reduced demand for oilfield transmissions into China.

The Company’s North America distribution operation saw a decrease ($4.0 million or 36.9%) on softening North American demand for European manufactured product, impacted by the current tariff structure.

The Company’s European distribution operation saw a decrease ($4.4 million or 37.8%) on soft demand for commercial marine projects in the region.

The Company’s distribution operation in Australia and New Zealand, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a decrease in revenue of 5.0% from the prior year first fiscal half, primarily due to weaker pleasure craft demand partially offset by a favorable currency impact.

Gross profit as a percentage of sales for the first half of fiscal 2026 improved to 26.6%, compared to 25.2% for the same period last year.

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

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

Excluding this adjustment, the fiscal 2025 first half gross profit percentage was 26.2%.

The improvement in gross profit percentage versus the prior year first half is attributed to improved operational execution at our Veth operation and successful margin improvement initiatives, partially offset by isolated quality and facility charges.

For the fiscal 2026 first half, ME&Aexpenses, as a percentage of sales, were 24.3%, compared to 23.6% for the first half of fiscal 2025.

ME&A expenses increased $3.0 million (7.7%) over the same period last fiscal year.

The increase in ME&A spending for the first half was comprised of the addition of Kobelt ($1.1 million), a foreign currency translation impact ($1.0 million), an increase in professional fees ($0.7 million) and the net of savings initiatives offset by inflation related increases ($0.2 million).

Interest expense was up $0.4 million to $1.6 million in the first half of fiscal 2026, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other expense of $1.5 million for the first half was primarily attributable to pension amortization expense ($1.4 million), along with a small currency loss ($0.1 million).

The fiscal 2026 first half effective tax rate was -1,638.9% compared to 430.6% in the prior fiscal year first half.

The change in the effective tax rate for the first half resulted from a full reversal of the domestic valuation allowance.

Financial Condition, Liquidity and Capital Resources

Comparison between September 26, 2025 and June 30, 2025

As of September 26, 2025, the Company had net working capital of $132.3 million, which represents an increase of $11.2 million, or 9.3%, from the net working capital of $121.1 million as of June 30, 2025.

Cash decreased by $1.9 million to $14.2 million as of September 26, 2025, versus $16.1 million as of June 30, 2025.

As of September 26, 2025, the majority of the cash is at the Company’s overseas operations in Europe ($4.4 million) and Asia-Pacific ($9.1 million).

Trade receivables of $63.9 million were up $5.0 million, or 8.5%, when compared to last fiscal year-end.

The impact of foreign currency translation was to decrease accounts receivable by $0.4 million versus June 30, 2025.

As a percent of sales, trade receivables finished at 79.9% in the first quarter of fiscal 2026 compared to 70.7% for the comparable period in fiscal 2025 and 61.0% for the fourth quarter of fiscal 2025.

Comparison between December 26, 2025 and June 30, 2025

As of December 26, 2025, the Company had net working capital of $133.3 million, which represents an increase of $12.2 million, or 10.1%, from the net working capital of $121.1 million as of June 30, 2025.

Cash decreased by $1.2 million to $14.9 million as of December 26, 2025, versus $16.1 million as of June 30, 2025.

As of December 26, 2025, the majority of the cash is at the Company’s overseas operations in Europe ($5.8 million) and Asia-Pacific ($8.1 million).

Trade receivables of $53.6 million were down $5.3 million, or 9.0%, when compared to last fiscal year-end.

The impact of foreign currency translation was essentially neutral versus June 30, 2025.

As a percent of sales, trade receivables finished at 59.5% in the second quarter of fiscal 2026 compared to 59.7% for the comparable period in fiscal 2025 and 61.0% for the fourth quarter of fiscal 2025.

Inventories increased by $11.2 million, or 7.4%, versus June 30, 2025 to $163.2 million.

The impact of foreign currency translation was to decrease inventories by $1.1 million versus June 30, 2025.

The largest increase came at our domestic operation ($3.9 million) due to delayed shipments.

Our operation in the Netherlands increased $1.3 million in support of growing backlog for the Veth product, also impacted by delayed shipment of a large project.

The Singapore distribution entity experienced a $2.0 million increase related to customer delays of deliveries on oilfield transmissions into China.

Our operation in Finland saw a $1.3 million increase driven by growing demand for product in the defense market.

Our Australian distribution operation saw a $1.0 million decrease in inventory.

On a consolidated basis, as of September 26, 2025, the Company’s backlog of orders to be shipped over the next six months approximates $163.3 million, compared to $150.5 million at June 30, 2025 and $144.3 million at September 27, 2024.

As a percentage of six-month backlog, inventory has decreased from 101% at June 30, 2025 to 97% at September 26, 2025.

The impact of foreign currency translation was essentially neutral versus June 30, 2025.

The largest increase came at our operations in the United States ($6.0 million), unfavorably impacted by tariff related shipment delays.

Our operation in the Netherlands saw an increase ($2.9 million) in support of growing backlog for the Veth product.

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

Our operation in Finland also experienced an increase ($1.2 million or 8.4%) on strong demand for industrial products include defense applications.

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

On a consolidated basis, as of December 26, 2025, the Company’s backlog of orders to be shipped over the next six months grew to $175.3 million, compared to $150.5 million at June 30, 2025 and $124.0 million at December 27, 2024.

The increase in backlog since June 30, 2025 ($24.8 million) is largely reflective of strong market conditions for the Veth product and increasing global defense spending.

As a percentage of six-month backlog, inventory has decreased from 99% at June 30, 2025 to 93% at December 26, 2025.

Net property, plant and equipment increased $1.8 million (2.6%) to $71.4 million versus $69.6 million at June 30, 2025.

The Company had capital spending of $3.4 million in the quarter.

This increase was offset by depreciation of $2.3 million and an unfavorable exchange impact of $0.3 million.

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

The Company had capital spending of $6.8 million in the first half, and a relatively neutral exchange impact.

This increase was offset by depreciation of $4.5 million.

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

In total, the Company expects to invest between $12 and $15 million in capital assets in fiscal 2026.

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

Accounts payable as of September 26, 2025 of $37.1 million was down $1.7 million, or 4.3%, from June 30, 2025.

Accounts payable as of December 26, 2025 of $36.7 million was down $2.1 million, or 5.4%, from June 30, 2025.

The impact of foreign currency translation was to decrease accounts payable by $0.2 million versus June 30, 2025.

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

Total borrowings and long-term debt as of September 26, 2025 increased $12.3 million to $43.7 million versus $31.4 million at June 30, 2025.

During the first quarter, the Company reported negative free cash flow of $11.0 million (defined as operating cash flow less acquisitions of fixed assets), driven by unfavorable working capital movement related primarily to inventory, the payment of the annual bonus for fiscal 2025, timing of trade receivable receipts and capital spending.

The remaining decrease is related to the normal timing of purchasing activity and related payments.

Total borrowings and long-term debt as of December 26, 2025 increased $13.1 million to $44.5 million versus $31.4 million at June 30, 2025.

During the first half, the Company reported negative free cash flow of $9.6 million (defined as operating cash flow less acquisitions of fixed assets), driven by an increase to inventory and capital spending.

The Company ended the quarter with total debt, net of cash, of $29.7 million, compared to $15.3 million at June 30, 2025, for a net degradation of $14.3 million.

Total equity decreased $3.5 million, or 2.1%, to $160.9 million as of September 26, 2025.

The net loss during the first quarter decreased equity by $0.4 million, along with an unfavorable foreign currency translation of $2.4 million.

The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.8 million.

The quarterly dividend decreased equity by $0.6 million.

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

Total equity increased $20.8 million, or 12.6%, to $185.2 million as of December 26, 2025.

The net earnings during the first half increased equity by $21.9 million, while other decreases related to a favorable foreign currency translation of $1.4 million and dividends paid to shareholders of $1.1 million.

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

The net remaining increase in equity of $1.4 million primarily represents the amortization of benefit plan adjustments on the Company’s defined benefit pension plans, along with the unrealized loss on cash flow hedges.

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.

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

Other significant contractual obligations as of September 26, 2025 are disclosed in Note N "Lease Liabilities" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other significant contractual obligations as of December 26, 2025 are disclosed in Note N "Lease Liabilities" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There are no material undisclosed guarantees.

As of September 26, 2025, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant, and equipment, which generally have terms of less than 90 days.

As of December 26, 2025, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant, and equipment, which generally have terms of less than 90 days.

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

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

What changed 10-Q

Item 1. Financial Statements