Core Viewpoint - Twin Disc, Inc. is set to release its fiscal 2026 first-quarter results on November 5, 2025, at 8:00 am Eastern, followed by a conference call at 9:00 am Eastern to discuss the results and engage with the investment community [1]. Company Overview - Twin Disc, Inc. specializes in designing, manufacturing, and selling marine and heavy-duty off-highway power transmission equipment, including marine transmissions, azimuth drives, surface drives, propellers, and boat management systems [3]. - The company serves various markets, including pleasure craft, commercial and military marine, energy and natural resources, government, and industrial sectors [3]. - Sales are conducted through a direct sales force and a distributor network, catering to both domestic and international customers [3].

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Summary of Twin Disc Conference Call (October 08, 2025) Company Overview - **Company**: Twin Disc (NasdaqGS:TWIN) - **Industry**: Global transmission power technology - **Headquarters**: Wisconsin, USA - **Established**: 1918 - **Employees**: Approximately 1,000 globally - **Revenue**: Just under $341 million with a gross margin of 27.2% [3][4][22] Key Points Market Position and Strategy - Twin Disc has been a leader in transmission power technology for 100 years, focusing on hybrid and electric solutions [2][22] - The company is well-positioned to benefit from increased defense spending, particularly in NATO countries and the U.S. Navy [2][10] - The company has made significant acquisitions, including Veth in the Netherlands, Katsa Oy in Finland, and Kobelt in Canada, to diversify its offerings and enhance cash flow [3][6][19] Financial Performance - The backlog has increased by 15% year-over-year, with defense-related backlog up 45% year-over-year [10][22] - The company aims to grow its industrial business to match the scale of its marine transmission and propulsion business, currently at 12% of total revenue [14][19] Product Segments - The largest end market is Europe, driven by acquisitions and growth in marine business [4][10] - Marine products account for approximately 60% of the business, while land-based transmission systems make up 24% [4][5] - The company is focusing on hybrid and electric solutions, particularly in marine applications, due to regulatory pressures and market demand [11][35] Defense and Government Programs - The company sees significant growth potential in defense spending, particularly for autonomous vessels and military applications [10][32] - The focus has shifted from oil and gas to more stable markets, reducing reliance on cyclical industries [19][28] Acquisitions and Integration - Recent acquisitions are progressing well, with successful integration strategies in place [24][27] - The company is focused on leveraging its global service network to enhance the growth of acquired companies [19][20] Challenges and Risks - Supply chain issues, particularly related to battery and motor components, are hindering the rollout of hybrid solutions [11][12] - Tariffs are creating uncertainty in the U.S. market, affecting order placements and inventory management [31] Future Outlook - The company anticipates growth across all markets, with defense and marine sectors expected to lead [30][32] - Twin Disc is committed to investing in organic growth and further acquisitions to enhance its market position [20][21] Conclusion - Twin Disc is strategically positioned to capitalize on market trends in defense and hybrid technology, with a strong focus on integrating recent acquisitions and expanding its product offerings [22][38]

Core Insights - Twin Disc, Inc. will present at the Noble Emerging Growth Virtual Equity Conference on October 8, 2025, at 3:30 pm Central [1] - The company's executives will be available for one-on-one meetings with registered investors during the conference [1] Company Overview - Twin Disc, Inc. designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment [3] - Product offerings include marine transmissions, azimuth drives, surface drives, propellers, boat management systems, power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, and control systems [3] - The company serves customers in pleasure craft, commercial and military marine markets, as well as energy, natural resources, government, and industrial markets [3] - Sales are conducted through a direct sales force and a distributor network, targeting both domestic and foreign customers [3]

Core Viewpoint - Twin Disc, Incorporated (TWIN) has experienced a significant share price increase of 70.4% over the past six months, outperforming the industry growth of 11.6% and other competitors like Flowserve Corporation and Nordson Corporation [1] Company Overview - Twin Disc, established in 1918, specializes in designing, manufacturing, and selling marine and heavy-duty off-highway power transmission equipment, with operations in North America and Europe and distribution in the Asia-Pacific [3] - The product portfolio includes marine transmissions, azimuth and surface drives, propellers, power-shift transmissions, torque converters, industrial clutches, control systems, and braking systems, serving various markets through a global sales network [3] Key Tailwinds - Rising global defense spending is a major tailwind, with TWIN positioned to capture a growing defense pipeline valued at $50–75 million, which now accounts for approximately 15% of the backlog [4] - The company leads in hybrid and electrification solutions, capitalizing on sustainability trends by offering electric and hybrid systems that significantly reduce emissions and fuel consumption [5] - Strategic acquisitions have expanded TWIN's product offerings and geographic reach, diversifying revenue sources and creating synergies in manufacturing and distribution [6][7] Operational Strengths - TWIN benefits from operational initiatives that enhance margins and responsiveness, alongside a strong balance sheet that supports long-term growth [8] - The company targets a free cash flow conversion above 60% and has significantly reduced leverage from 5.5x in FY21 to 0.8x in FY25, with ambitious revenue and margin goals for 2030 [8] Challenges - Nearly 60% of TWIN's revenues come from cyclical marine and oil & gas sectors, making it vulnerable to economic fluctuations, particularly in Europe [9] - The transition to hybrid systems faces challenges such as high costs and fragmented supply chains, along with exposure to currency and geopolitical risks due to global operations [9] Valuation - TWIN is currently undervalued, trading at 0.58X trailing 12-month EV/sales, significantly lower than the industry average of 3.64X and peers like Flowserve and Nordson [10] Conclusion - The company is strategically transforming its business through defense expansion, electrification, and acquisitions, supported by operational discipline and a robust balance sheet, positioning it well to navigate near-term volatility [11][12]

[PART I](index=4&type=section&id=PART%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Twin Disc, Incorporated designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment globally, recently expanding through acquisitions of Katsa Oy and Kobelt Manufacturing Co. Ltd - Twin Disc designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment, with manufacturing in the US, Belgium, Canada, Finland, Italy, Netherlands, and Switzerland, and distribution in Singapore, China, Australia, New Zealand, and Japan[18](index=18&type=chunk) - Products include marine transmissions, azimuth drives, surface drives, propellers, boat management systems, power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, control systems, and braking systems[18](index=18&type=chunk) - Acquired **100%** of Kobelt Manufacturing Co. Ltd. on February 14, 2025, a manufacturer of controls, propulsion, steering, and braking systems for marine, oil and gas, and industrial markets[19](index=19&type=chunk) - Acquired **100%** of Katsa Oy on May 31, 2024, a European manufacturer of custom-designed power transmission components and gearboxes for industrial and marine end-markets[20](index=20&type=chunk) Key Business Metrics (Fiscal Years 2025 & 2024) | Metric | FY2025 | FY2024 | |:---|:---|:---| | Top 10 Customers % of Net Sales | 35% | 43% | | R&D Costs (in millions) | $2.7 | $2.6 | | Total Engineering & Development Costs (in millions) | $12.2 | $9.8 | | Unfilled Open Orders (6-month backlog, in millions) | $150.5 | $133.7 | | Employees | 980 | 910 | [Item 1A. Risk Factors](index=5&type=section&id=Item%201A.%20Risk%20Factors) The Company faces various risks, including currency fluctuations, dependence on volatile oil and energy markets, and challenges from recent acquisitions - Currency fluctuations, particularly between the U.S. dollar and the euro, can adversely affect profitability due to significant sales and operating costs in foreign currencies[34](index=34&type=chunk) - Dependence on oil exploration and drilling markets makes the company vulnerable to oil price volatility and reduced demand[36](index=36&type=chunk) - Risk of increasing commodity costs (e.g., steel) and potential adverse effects from tariffs or trade restrictions, which may not be fully passed on to customers[39](index=39&type=chunk)[40](index=40&type=chunk) - International sales (**73% of consolidated net sales in FY2025**) and operations are subject to risks including political instability, trade issues, differing legal systems, and cybersecurity threats[44](index=44&type=chunk)[48](index=48&type=chunk)[59](index=59&type=chunk) - Integration of Katsa and Kobelt acquisitions carries risks of inaccurate forecasts, higher-than-expected integration costs, unknown liabilities, and potential impairment of significant intangible assets recorded[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - The company remains subject to audit for its Paycheck Protection Program (PPP) loan, with potential repayment obligations and reputational damage if non-compliance is found[51](index=51&type=chunk)[52](index=52&type=chunk) [Item 1B. Unresolved Staff Comments](index=11&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report [Item 1C. Cybersecurity](index=11&type=section&id=Item%201C.%20Cybersecurity) The Audit Committee oversees management's identification and management of cybersecurity risks, with implemented processes for assessment and no material incidents reported - The Company's Audit Committee is responsible for overseeing management's identification and management of cybersecurity risks[61](index=61&type=chunk) - Processes include security monitoring, third-party managed vendor threat hunting, mandatory employee training, and oversight of vendor/customer system interfaces[62](index=62&type=chunk) - No material cybersecurity incidents have been experienced, and related expenses have been immaterial, but the company anticipates expending greater resources due to evolving threats[63](index=63&type=chunk) [Item 2. Properties](index=11&type=section&id=Item%202.%20Properties) Twin Disc maintains its corporate headquarters in Milwaukee, Wisconsin, and operates various owned and leased manufacturing and distribution facilities globally - Corporate headquarters are leased in Milwaukee, Wisconsin, U.S.A[64](index=64&type=chunk) - Manufacturing facilities are owned in Racine, Wisconsin (two facilities, one idle), Finland (three facilities), and Italy (one facility), totaling approximately **739,200 square feet**[65](index=65&type=chunk) - Additional manufacturing, assembly, and office facilities are leased in Sturtevant, Wisconsin; Lufkin, Texas; Papendrecht, Netherlands; Nivelles, Belgium; Novazzano, Switzerland; Decima, Italy; Tampere, Finland; and Surrey, Canada[65](index=65&type=chunk) - Distribution operations are conducted from leased facilities in Brisbane, Gold Coast (Australia), Chennai, Coimbatore (India), Singapore, Shanghai, Guangzhou (China), Saitama City (Japan), and Auckland (New Zealand)[66](index=66&type=chunk) [Item 3. Legal Proceedings](index=12&type=section&id=Item%203.%20Legal%20Proceedings) Twin Disc is a defendant in product liability claims, but management believes the outcome will not materially impact the Company's financial position - Twin Disc is a defendant in product liability or related claims[67](index=67&type=chunk) - Management believes the final disposition of such litigation will not materially impact the Company's results of operations, financial position, or cash flows[67](index=67&type=chunk) [Item 4. Mine Safety Disclosure](index=12&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the Company [Information About Our Executive Officers](index=12&type=section&id=Information%20About%20Our%20Executive%20Officers) This section lists the Company's executive officers, including their age and position, who are elected annually by the Board of Directors Executive Officers | Name | Age | Position | |:---|:---|:---| | John H. Batten | 60 | President and Chief Executive Officer | | Jeffrey S. Knutson | 60 | Vice President – Finance, Chief Financial Officer, Treasurer and Secretary | - John H. Batten was renamed President and Chief Executive Officer in October 2022, having served in various leadership roles since 1996[71](index=71&type=chunk) - Jeffrey S. Knutson was named Chief Financial Officer and Treasurer in June 2015, and Vice President – Finance, Interim Chief Financial Officer and Interim Treasurer in February 2015, with prior roles as Corporate Secretary and Corporate Controller[72](index=72&type=chunk) [PART II](index=13&type=section&id=PART%20II) [Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=13&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Stock%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's common stock trades on NASDAQ under TWIN, with future dividends at Board discretion, and no share repurchases in fiscal years 2024-2025 - The Company's common stock is traded on the NASDAQ Global Select Market under the symbol **TWIN**[73](index=73&type=chunk) - The declaration and payment of future dividends are subject to the discretion of the Board of Directors, based on future results, financial condition, capital levels, and cash requirements[74](index=74&type=chunk) Issuer Purchases of Equity Securities (Q4 FY2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |:---|:---|:---|:---|:---| | March 29, 2025 – April 25, 2025 | 0 | NA | 0 | 315,000 | | April 26, 2025 – May 30, 2025 | 0 | NA | 0 | 315,000 | | May 31, 2025 - June 30, 2025 | 0 | NA | 0 | 315,000 | | **Total** | **0** | **NA** | **0** | **315,000** | - As of June 30, 2025, **315,000 shares** remain authorized for purchase under a Board-authorized stock repurchase plan with no expiration[76](index=76&type=chunk) [Item 6. Reserved](index=13&type=section&id=Item%206.%20Reserved) This item is reserved [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews the Company's financial performance for fiscal years 2025 and 2024, highlighting increased net sales from acquisitions, decreased gross profit margin, and a net loss in fiscal 2025 due to higher expenses and currency losses [Special Note Regarding Smaller Reporting Company Status](index=13&type=section&id=Special%20Note%20Regarding%20Smaller%20Reporting%20Company%20Status) The Company qualifies as a smaller reporting company, allowing for scaled financial and non-financial disclosures in this annual report - 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[77](index=77&type=chunk) - As a smaller reporting company, it has scaled some of its financial and non-financial disclosures in this annual report[77](index=77&type=chunk) [Note on Forward-Looking Statements](index=14&type=section&id=Note%20on%20Forward-Looking%20Statements) The report contains forward-looking statements based on management's current expectations, subject to risks and uncertainties, with no obligation to update them publicly - The report contains forward-looking statements, identified by words like 'anticipates,' 'believes,' 'intends,' 'estimates,' and 'expects,' which are based on management's current expectations and subject to risks and uncertainties[79](index=79&type=chunk) - Actual results may vary from these statements due to differences between assumptions and actual performance, and the company disclaims any obligation to publicly update or revise forward-looking statements[79](index=79&type=chunk)[80](index=80&type=chunk) [Fiscal 2025 Compared to Fiscal 2024](index=14&type=section&id=Fiscal%202025%20Compared%20to%20Fiscal%202024) Net sales increased by **15.5%** in fiscal 2025, primarily driven by acquisitions, while gross profit margin declined and operating income decreased Net Sales Performance (FY2025 vs. FY2024) | Metric | FY2025 (in millions) | FY2024 (in millions) | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Net Sales | $340.7 | $295.1 | +$45.6 | +15.5% | | Katsa Acquisition Contribution | $39.1 | - | - | - | | Kobelt Acquisition Contribution | $4.9 | - | - | - | | Currency Translation Impact | +$1.5 | - | - | - | - Excluding acquisitions, revenue was relatively flat, with strong growth in Veth products offset by weaker oil and gas transmission shipments to China and softness in European industrial and commercial marine markets[81](index=81&type=chunk) Segment and Product Sales Changes (FY2025 vs. FY2024, excluding acquisitions) | Segment/Product | Change (YoY) | |:---|:---| | Manufacturing Segment (excluding acquisitions) | -2.5% (-$7.5 million) | | Veth Propulsion Operation | +12.3% | | Domestic Manufacturing Operation | -1.8% (due to softening oil & gas demand in China) | | Italian Manufacturing Operations | -29.7% (due to BCS business sale in FY2024) | | Belgian Manufacturing Operation | -18.4% (due to softer European marine markets) | | Swiss Manufacturing Operation | +3.9% (due to strengthening European propulsion market) | | Distribution Segment | -8.6% (-$12.4 million) | | Asian Distribution Operations | -6.7% (due to softening energy-related demand in China) | | North American Distribution Operation | -26.9% (due to weaker domestic demand for marine products) | | Marine Transmission and Propulsion Systems | +17.1% | | Off-highway Transmission Market | +2.1% | | Industrial Products | +61.8% | Geographic Sales Contribution (FY2025 vs. FY2024) | Region | FY2025 % of Sales | FY2024 % of Sales | FY2025 Sales Change (YoY) | |:---|:---|:---|:---| | U.S. and Canada | 27% | 28% | +10% | | Asia Pacific | 22% | 32% | -20% | | European | 41% | 33% | +40% | Gross Profit (FY2025 vs. FY2024) | Metric | FY2025 (in millions) | FY2024 (in millions) | Change (YoY) | |:---|:---|:---|:---| | Gross Profit | $92.7 | $83.3 | +$9.4 | | Gross Profit as % of Sales | 27.2% | 28.2% | -100 bps | | Impact of Improved Volumes | +$12.9 | - | - | | Impact of Less Favorable Product Mix | -$3.1 | - | - | | Purchase Accounting Amortization | -$0.9 | - | - | Marketing, Engineering and Administrative (ME&A) Expenses (FY2025 vs. FY2024) | Metric | FY2025 (in millions) | FY2024 (in millions) | Change (YoY) | |:---|:---|:---|:---| | ME&A Expenses | $82.4 | $71.6 | +$10.8 | | ME&A Expenses as % of Sales | 24.2% | 24.3% | -10 bps | | Drivers of Increase: | | | | | Katsa and Kobelt Operations | +$8.6 | - | - | | Salaries and Benefits (inflationary) | +$1.5 | - | - | | Stock Compensation Expense | +$0.7 | - | - | | Professional Fees | +$1.3 | - | - | | Legal Settlement | +$0.4 | - | - | | Offsets: | | | | | Global Bonus Expense Reduction | -$1.0 | - | - | | Bad Debt Expense Reduction | -$0.3 | - | - | | Other Cost Savings | -$0.4 | - | - | Restructuring Charges (FY2025 vs. FY2024) | Metric | FY2025 (in millions) | FY2024 (in millions) | |:---|:---|:---| | Restructuring Charges | $0.4 | $0.2 | Interest Expense (FY2025 vs. FY2024) | Metric | FY2025 (in millions) | FY2024 (in millions) | Change (YoY) | |:---|:---|:---|:---| | Interest Expense | $2.6 | $1.4 | +$1.2 | | Primary Driver | Increased average balance due to acquisitions | - | - | Other Income, Net (FY2025 vs. FY2024) | Metric | FY2025 (in millions) | FY2024 (in millions) | Change (YoY) | |:---|:---|:---|:---| | Other (Expense) Income, Net | $(5.5) | $5.3 | -$10.8 | | Primary Drivers of Change: | | | | | Currency Translation Losses | -$5.2 | - | - | | Defined Benefit Pension Amortization | -$2.0 | - | - | | Prior Year Bargain Purchase Gain (Katsa) | - | +$3.7 | - | Income Taxes (FY2025 vs. FY2024) | Metric | FY2025 | FY2024 | |:---|:---|:---| | Effective Tax Rate | 190.4% | 26.8% | | Valuation Allowance | $24.0 million | $24.0 million | Order Rates (June 30, 2025 vs. June 30, 2024) | Metric | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (YoY) | % Change (YoY) | |:---|:---|:---|:---|:---| | Six-Month Backlog | $150.5 | $133.7 | +$16.8 | +13% | | Primary Drivers | Continued strength in order rates, Veth product growth, Kobelt backlog ($2.8 million) | - | - | - | [Liquidity and Capital Resources](index=16&type=section&id=Liquidity%20and%20Capital%20Resources) Operating cash flow decreased, while investing activities increased due to acquisitions and capital expenditures, with the company refinancing its credit agreement to maintain liquidity Cash Flow Summary (FY2025 vs. FY2024) | Cash Flow Activity | FY2025 (in millions) | FY2024 (in millions) | Change (YoY) | |:---|:---|:---|:---| | Net cash provided by operating activities | $24.0 | $33.7 | -$9.7 | | Net cash used by investing activities | $(32.9) | $(32.1) | -$0.8 | | Net cash (used) provided by financing activities | $(1.0) | $2.8 | -$3.8 | - Operating cash flow decreased primarily due to an increase in inventory in fiscal 2025, driven by shipping delays and operational increases to support backlog[95](index=95&type=chunk) - Investing activities included the acquisition of Kobelt (**$17.2 million**) and increased capital expenditures (**$15.2 million**) for Katsa and machine tool deliveries[96](index=96&type=chunk) - Financing activities included dividend payments (**$2.6 million**), finance lease payments (**$1.1 million**), stock compensation withholding taxes (**$1.3 million**), partially offset by incremental borrowings (**$4.0 million**)[97](index=97&type=chunk) - On February 14, 2025, the Company entered into an amended and restated Credit Agreement with Bank of Montreal, including a **$15.0 million Term Loan** (maturity April 1, 2027) and a **$50.0 million Revolving Credit Commitment**[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - The Credit Agreement restricts dividend payments to **$5.0 million per fiscal year** and requires compliance with financial covenants: Total Funded Debt to EBITDA ratio (max **3.50:1.00**), Fixed Charge Coverage Ratio (min **1.10:1.00**), and Tangible Net Worth (min **$100.0 million** + **50% of positive Net Income**)[99](index=99&type=chunk)[100](index=100&type=chunk)[103](index=103&type=chunk) - As of June 30, 2025, the Company had approximately **$32.1 million** of available borrowings under the Credit Agreement and **$16.1 million** in cash, primarily from overseas operations[107](index=107&type=chunk) - Capital expenditures are projected to be **$17 million - $19 million** in fiscal 2026, focused on growth, efficiencies, quality improvements, and cost reductions[110](index=110&type=chunk) [Other Matters](index=19&type=section&id=Other%20Matters) Critical accounting policies include Pension and Income Taxes, with recent accounting standards like ASU 2023-07 on segment reporting adopted or being assessed - Critical accounting policies include Pension and Other Postretirement Benefit Plans (using discount rates from Willis Towers Watson BOND:Link model) and Income Taxes and Valuation Allowances (assessing future taxable income for deferred tax asset realization)[113](index=113&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Recently issued accounting standards include ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures), both effective for fiscal years beginning after December 15, 2026 and 2024, respectively, with impacts currently being assessed[213](index=213&type=chunk)[214](index=214&type=chunk) - The Company adopted ASU 2023-07 (Segment Reporting) for annual disclosures in fiscal 2025, with interim disclosures to be adopted in fiscal 2026[215](index=215&type=chunk) [Item 7A. Quantitative and Qualitative Disclosure About Market Risk](index=20&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The Company has elected not to provide quantitative and qualitative disclosures about market risk due to its status as a Smaller Reporting Company - The Company is electing not to provide quantitative and qualitative disclosure about market risk due to its status as a Smaller Reporting Company[118](index=118&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=20&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the Consolidated Financial Statements and Financial Statement Schedule for detailed financial information - Refers to the Consolidated Financial Statements and Financial Statement Schedule for detailed information[119](index=119&type=chunk) [Item 9. Change In and Disagreements With Accountants on Accounting and Financial Disclosure](index=20&type=section&id=Item%209.%20Change%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[120](index=120&type=chunk) [Item 9A. Controls and Procedures](index=20&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and internal control over financial reporting were effective as of June 30, 2025, excluding the recently acquired Kobelt - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[121](index=121&type=chunk) - Management concluded that its internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework (2013 edition)[124](index=124&type=chunk) - The assessment of internal control over financial reporting excluded Kobelt, which was acquired on February 14, 2025[125](index=125&type=chunk) - RSM US LLP, an independent registered public accounting firm, audited and attested to the effectiveness of the Company's internal control over financial reporting[126](index=126&type=chunk) - No material changes in the Company's internal control over financial reporting occurred during the fourth quarter of fiscal 2025[127](index=127&type=chunk) [Item 9B. Other Information](index=21&type=section&id=Item%209B.%20Other%20Information) This item is not applicable [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=21&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable [PART III](index=22&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=22&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information from the Proxy Statement regarding directors, executive officers, corporate governance, and the Code of Ethics - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders on October 30, 2025[131](index=131&type=chunk) - The Company's Code of Ethics is available on its website, and any substantive amendments or waivers for key officers will be disclosed there[132](index=132&type=chunk) - Details regarding the Audit Committee Financial Expert, Audit Committee Disclosure, and Membership are also incorporated by reference[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Item 11. Executive Compensation](index=23&type=section&id=Item%2011.%20Executive%20Compensation) This item incorporates by reference information regarding executive and director compensation from the Proxy Statement for the Annual Meeting of Shareholders - Information on executive and director compensation is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders on October 30, 2025[139](index=139&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=23&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This item incorporates by reference information from the Proxy Statement concerning security ownership and equity compensation plans, with no known arrangements for a change of control - Information regarding security ownership of certain beneficial owners and management, and equity compensation plans, is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders on October 30, 2025[140](index=140&type=chunk)[141](index=141&type=chunk) - There are no known arrangements that may result in a change in control of the Registrant[141](index=141&type=chunk) [Item 13. Certain Relationships and Related Transactions, Director Independence](index=23&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20Director%20Independence) This item incorporates by reference information from the Proxy Statement regarding transactions with related persons and director independence - Information on transactions with related persons and director independence is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders on October 30, 2025[142](index=142&type=chunk)[143](index=143&type=chunk) [Item 14. Principal Accounting Fees and Services](index=23&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This item incorporates by reference information from the Proxy Statement concerning principal accounting fees and services, and pre-approval policies and procedures - Information on principal accounting fees and services, and pre-approval policies and procedures, is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders on October 30, 2025[144](index=144&type=chunk) [PART IV](index=23&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=23&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This item outlines the consolidated financial statements, financial statement schedules, and exhibits included in the report, all incorporated by reference - Consolidated Financial Statements are incorporated by reference[144](index=144&type=chunk) - Consolidated Financial Statement Schedule is incorporated by reference[145](index=145&type=chunk) - The Exhibit Index is included as the last page of this form and incorporated by reference[146](index=146&type=chunk) [Financial Statements and Notes](index=24&type=section&id=Financial%20Statements%20and%20Notes) [Report of Independent Registered Public Accounting Firm](index=25&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) RSM US LLP issued an unqualified opinion on Twin Disc's internal control over financial reporting and consolidated financial statements, excluding the recently acquired Kobelt - RSM US LLP issued an unqualified opinion on the Company's internal control over financial reporting as of June 30, 2025[151](index=151&type=chunk) - An unqualified opinion was also expressed on the consolidated financial statements for the two years ended June 30, 2025[152](index=152&type=chunk)[160](index=160&type=chunk) - Kobelt Manufacturing Co. Ltd. was excluded from the assessment and audit of internal control over financial reporting due to its acquisition in the third quarter of fiscal 2025[153](index=153&type=chunk) - Kobelt's total assets, net sales, and income from operations represented 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[153](index=153&type=chunk) - The determination of the value of deferred tax assets was identified as a critical audit matter due to significant judgment required by management and complex, subjective auditor judgment[166](index=166&type=chunk)[167](index=167&type=chunk) [Consolidated Balance Sheets](index=29&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased by **$43.5 million**, driven by inventories and property, plant, and equipment, while liabilities rose by **$34.2 million**, primarily due to accrued liabilities and long-term debt Consolidated Balance Sheet Summary (in thousands) | Metric | June 30, 2025 | June 30, 2024 | Change (YoY) | |:---|:---|:---|:---| | **ASSETS** | | | | | Cash | $16,109 | $20,070 | $(3,961) | | Trade accounts receivable, net | $58,941 | $52,207 | $6,734 | | Inventories, net | $151,951 | $130,484 | $21,467 | | Total current assets | $246,915 | $219,631 | $27,284 | | Property, plant and equipment, net | $69,576 | $58,074 | $11,502 | | Goodwill | $2,892 | $- | $2,892 | | Intangible assets, net | $13,361 | $12,686 | $675 | | Deferred income taxes (asset) | $2,812 | $2,339 | $473 | | **Total assets** | **$355,562** | **$312,058** | **$43,504** | | **LIABILITIES AND EQUITY** | | | | | Current maturities of long-term debt | $3,000 | $2,000 | $1,000 | | Accounts payable | $38,745 | $32,586 | $6,159 | | Accrued liabilities | $80,655 | $62,409 | $18,246 | | Total current liabilities | $125,793 | $99,516 | $26,277 | | Long-term debt | $28,446 | $23,811 | $4,635 | | Accrued retirement benefits | $11,832 | $7,854 | $3,978 | | Deferred income taxes (liability) | $4,320 | $5,340 | $(1,020) | | **Total liabilities** | **$191,171** | **$157,004** | **$34,167** | | Common shares | $42,269 | $41,798 | $471 | | Retained earnings | $125,414 | $129,592 | $(4,178) | | Accumulated other comprehensive income (loss) | $3,730 | $(6,905) | $10,635 | | Less treasury stock, at cost | $7,402 | $9,783 | $(2,381) | | **Total equity** | **$164,391** | **$155,054** | **$9,337** | [Consolidated Statements of Operations and Comprehensive Income](index=30&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Net sales increased by **15.5%**, but the company reported a net loss of **$1.6 million** in fiscal 2025, a significant decline from the prior year's net income, driven by higher expenses and currency losses Consolidated Statements of Operations Summary (in thousands, except per share amounts) | Metric | FY2025 | FY2024 | Change (YoY) | |:---|:---|:---|:---| | Net sales | $340,738 | $295,127 | $45,611 | | Cost of goods sold | $246,433 | $208,709 | $37,724 | | Gross profit | $92,726 | $83,319 | $9,407 | | Marketing, engineering and administrative expenses | $82,431 | $71,622 | $10,809 | | Income from operations | $9,887 | $11,479 | $(1,592) | | Interest expense | $(2,646) | $(1,443) | $(1,203) | | Bargain purchase gain | $- | $3,724 | $(3,724) | | Other (expense) income, net | $(5,472) | $1,607 | $(7,079) | | Income before income taxes and noncontrolling interest | $1,769 | $15,367 | $(13,598) | | Income tax expense | $3,368 | $4,121 | $(753) | | Net (loss) income | $(1,599) | $11,246 | $(12,845) | | Net (loss) income attributable to Twin Disc, Incorporated | $(1,894) | $10,988 | $(12,882) | | Dividends per share | $0.16 | $0.12 | $0.04 | | Basic (loss) income per share | $(0.14) | $0.80 | $(0.94) | | Diluted (loss) income per share | $(0.14) | $0.79 | $(0.93) | | Comprehensive income attributable to Twin Disc, Incorporated | $8,741 | $9,652 | $(911) | [Consolidated Statements of Cash Flows](index=31&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased, investing activities increased due to acquisitions and capital expenditures, and financing activities shifted to using cash, resulting in a net decrease in cash for the year Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | FY2025 | FY2024 | Change (YoY) | |:---|:---|:---|:---| | Net (loss) income | $(1,599) | $11,246 | $(12,845) | | Depreciation and amortization | $14,899 | $9,981 | $4,918 | | Changes in operating assets and liabilities (net of acquired business) | | | | | Trade accounts receivable, net | $(2,032) | $9,540 | $(11,572) | | Inventories, net | $(9,730) | $6,015 | $(15,745) | | Accounts payable | $2,414 | $(5,166) | $7,580 | | Accrued liabilities | $12,463 | $(755) | $13,218 | | **Net cash provided by operating activities** | **$23,979** | **$33,716** | **$(9,737)** | | Acquisition of property, plant, and equipment | $(15,157) | $(8,707) | $(6,450) | | Acquisition of Kobelt, less cash acquired | $(17,236) | $- | $(17,236) | | Acquisition of Katsa, less cash acquired | $- | $(23,178) | $23,178 | | **Net cash used by investing activities** | **$(32,899)** | **$(32,069)** | **$(830)** | | Borrowings under long-term debt agreement | $6,500 | $- | $6,500 | | Borrowings under revolving loan arrangements | $122,264 | $90,534 | $31,730 | | Repayments of revolving loan arrangements | $(122,264) | $(81,109) | $(41,155) | | Dividends paid to shareholders | $(2,284) | $(1,695) | $(589) | | **Net cash (used) provided by financing activities** | **$(965)** | **$2,754** | **$(3,719)** | | Effect of exchange rate changes on cash | $5,924 | $2,406 | $3,518 | | **Net change in cash** | **$(3,961)** | **$6,807** | **$(10,768)** | | Cash, end of period | $16,109 | $20,070 | $(3,961) | [Consolidated Statements of Changes in Equity](index=33&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased by **$9.3 million**, primarily due to a significant positive translation adjustment, offsetting the net loss and dividend payments in fiscal 2025 Consolidated Statements of Changes in Equity Summary (in thousands) | Metric | June 30, 2025 | June 30, 2024 | Change (YoY) | |:---|:---|:---|:---| | **Balance at June 30** | **$164,391** | **$155,054** | **$9,337** | | Net (loss) income attributable to Twin Disc, Incorporated | $(1,894) | $10,988 | $(12,882) | | Dividends paid to shareholders | $(2,284) | $(1,695) | $(589) | | Translation adjustments | $15,885 | $733 | $15,152 | | Benefit plan adjustments, net of tax | $(3,399) | $(2,114) | $(1,285) | | Unrealized (loss) gain on hedges, net of tax | $(1,851) | $46 | $(1,897) | | Compensation expense | $4,107 | $3,449 | $658 | | Stock awards, net of tax | $(3,636) | $(4,506) | $870 | [Note A. Description of Business and Summary of Significant Accounting Policies](index=34&type=section&id=Note%20A.%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note details Twin Disc's business, recent acquisitions, financial statement presentation, and key accounting policies, including foreign currency translation, business combinations, inventory, leases, and revenue recognition - Twin Disc designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment, serving pleasure craft, commercial, military marine, energy, natural resources, government, and industrial markets[180](index=180&type=chunk) - The Company completed the acquisition of Kobelt Manufacturing Co. Ltd. on February 14, 2025, and Katsa Oy on May 31, 2024, both included in the manufacturing segment[181](index=181&type=chunk)[182](index=182&type=chunk) - Financial statements are prepared in accordance with U.S. GAAP, and the Company accounts for business combinations using the acquisition method (ASC 805-10)[183](index=183&type=chunk)[187](index=187&type=chunk) - Revenue from contracts with customers is recognized using a five-step model, with performance obligations primarily consisting of product delivery and certain service obligations[208](index=208&type=chunk)[209](index=209&type=chunk) - The Company adopted ASU 2023-07, 'Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,' for annual disclosures in fiscal 2025[215](index=215&type=chunk) - The Company qualifies as a smaller reporting company and has scaled some of its disclosures accordingly[216](index=216&type=chunk) [Note B. Acquisitions](index=39&type=section&id=Note%20B.%20Acquisitions) This note details the acquisitions of Kobelt Manufacturing Co. Ltd. for **$17.5 million** and Katsa Oy for **$25.9 million**, both enhancing Twin Disc's portfolio and partially financed through new credit agreements - On February 14, 2025, Twin Disc acquired **100%** of Kobelt Manufacturing Co. Ltd., a Canadian manufacturer of controls, propulsion, steering, and braking systems for marine, oil and gas, and industrial markets[217](index=217&type=chunk) Kobelt Acquisition Financials (February 14, 2025) | Metric | Amount (in thousands) | |:---|:---| | Total Consideration | $17,476 | | Cash purchase price | $17,102 | | Earnout | $374 | | Goodwill | $2,806 | | Net Sales (since acquisition to June 30, 2025) | $4,870 | | Net Earnings (Loss) (since acquisition to June 30, 2025) | $(164) | - The Kobelt acquisition was partially financed through **$6.5 million** in borrowings under a new credit agreement[219](index=219&type=chunk) - On May 31, 2024, Twin Disc acquired **100%** of Katsa Oy, a Finnish manufacturer of custom-designed power transmission components and gearboxes for industrial and marine end-markets[234](index=234&type=chunk) Katsa Acquisition Financials (May 31, 2024) | Metric | Amount (in thousands) | |:---|:---| | Total Consideration | $25,884 | | Cash purchase price | $25,145 | | Final working capital adjustment | $739 | | Gain on Bargain Purchase | $3,724 | | Financing (new credit agreement) | $16,900 | | Acquisition-related costs (expensed) | $745 | - The fair value estimates for both acquisitions' assets and liabilities are provisional and pending final review, which could result in material adjustments to the financial statements[225](index=225&type=chunk)[242](index=242&type=chunk) [Note C. Inventories, Net](index=44&type=section&id=Note%20C.%20Inventories%2C%20Net) Inventories, primarily finished parts, work in process, and raw materials, increased to **$151.9 million**, with significant write-downs in both fiscal 2025 and 2024, and a growing obsolescence reserve Inventories, Net (in thousands) | Category | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Finished parts | $67,037 | $60,166 | | Work in process | $27,229 | $23,096 | | Raw materials | $57,685 | $47,222 | | **Total Inventories, net** | **$151,951** | **$130,484** | - A non-cash inventory write-down of **$1,579 thousand** was recorded in fiscal 2025 due to product rationalization of the industrial product line following the Katsa acquisition[251](index=251&type=chunk) - In fiscal 2024, inventory write-downs totaled **$2.1 million** and **$1.6 million** related to the sale and evaluation of the boat management system product line[250](index=250&type=chunk) - LIFO decrements decreased cost of goods sold by **$2,112 thousand** in fiscal 2025 and **$1,553 thousand** in fiscal 2024[252](index=252&type=chunk) Reserve for Inventory Obsolescence (in thousands) | Metric | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Reserve for inventory obsolescence | $16,016 | $12,693 | [Note D. Property, Plant and Equipment, Net](index=45&type=section&id=Note%20D.%20Property%2C%20Plant%20and%20Equipment%2C%20Net) Property, plant, and equipment, net of depreciation, increased to **$69.6 million** in fiscal 2025, with depreciation expense rising to **$10.0 million**, and one idle facility maintained at **$3.0 million** book value Property, Plant and Equipment, Net (in thousands) | Category | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Land | $3,381 | $3,062 | | Buildings | $47,438 | $44,833 | | Machinery and equipment | $212,611 | $189,913 | | Less: accumulated depreciation | $(193,854) | $(179,734) | | **Total Property, Plant and Equipment, net** | **$69,576** | **$58,074** | Depreciation Expense (in thousands) | Fiscal Year | Amount | |:---|:---| | 2025 | $10,042 | | 2024 | $6,707 | - The Company owns one permanently idle facility with a book value of **$3.0 million** at June 30, 2025 and 2024, with no impairment losses recorded in either fiscal year[255](index=255&type=chunk) [Note E. Goodwill and Intangible Assets, Net](index=45&type=section&id=Note%20E.%20Goodwill%20and%20Intangible%20Assets%2C%20Net) Goodwill increased to **$2.9 million** from the Kobelt acquisition, while definite-lived intangible assets totaled **$13.4 million** with a weighted average remaining useful life of approximately **7 years** Goodwill Carrying Amount (in thousands) | Metric | June 30, 2025 | |:---|:---| | Balance at June 30, 2024 | $- | | Acquisition (Kobelt) | $2,806 | | Translation adjustment | $86 | | **Balance at June 30, 2025** | **$2,892** | Intangible Assets, Net by Asset Type (in thousands) | Asset Type | Net Book Value (June 30, 2025) | |:---|:---| | Customer Relationships | $7,195 | | Technology Know-how | $1,834 | | Trade Names | $2,036 | | Other (mainly computer software) | $2,296 | | **Total Intangible Assets, net** | **$13,361** | Intangible Amortization Expense (in thousands) | Fiscal Year | Amount | |:---|:---| | 2025 | $3,959 | | 2024 | $3,273 | - The weighted average remaining useful life of the intangible assets is approximately **7 years**[258](index=258&type=chunk) [Note F. Accrued Liabilities](index=46&type=section&id=Note%20F.%20Accrued%20Liabilities) Accrued liabilities significantly increased to **$80.7 million** in fiscal 2025, primarily driven by a substantial rise in deferred revenue Accrued Liabilities (in thousands) | Category | June 30, 2025 | June 30, 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 | | **Total Accrued Liabilities** | **$80,655** | **$62,409** | [Note G. Warranty](index=48&type=section&id=Note%20G.%20Warranty) The warranty reserve increased to **$5.3 million** at June 30, 2025, reflecting current period expenses and adjustments exceeding payments for products warranted for 12 to 24 months - The Company warrants products against defective materials or workmanship, generally for periods ranging from **12 to 24 months**[260](index=260&type=chunk) Warranty Reserve Activity (in thousands) | Metric | FY2025 | FY2024 | |:---|:---|:---| | 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 was **$4,174 thousand** at June 30, 2025, and the long-term portion was **$1,084 thousand**[260](index=260&type=chunk) [Note H. Debt](index=48&type=section&id=Note%20H.%20Debt) Long-term debt totaled **$28.4 million** at June 30, 2025, following a refinanced Credit Agreement with Bank of Montreal, including a **$15.0 million Term Loan** and a **$50.0 million Revolving Credit Commitment**, subject to financial covenants Long-term Debt Composition (in thousands) | Category | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Revolving loans (expire April 2027) | $17,921 | $16,288 | | Term loan (due April 2027) | $13,500 | $9,500 | | Other | $25 | $23 | | Less: current maturities | $(3,000) | $(2,000) | | **Total long-term debt** | **$28,446** | **$23,811** | - On February 14, 2025, the Company entered into an amended and restated Credit Agreement with Bank of Montreal, refinancing its prior credit agreement[262](index=262&type=chunk) - The Credit Agreement includes a **$15.0 million Term Loan** and a **$50.0 million Revolving Credit Commitment**, both with a maturity date of April 1, 2027[263](index=263&type=chunk)[264](index=264&type=chunk) - Financial covenants include a Total Funded Debt to EBITDA ratio not exceeding **3.50 to 1.00**, a Fixed Charge Coverage Ratio not less than **1.10 to 1.00**, and a minimum Tangible Net Worth[267](index=267&type=chunk) - Borrowings are secured by substantially all of the Company's and Kobelt's personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property[268](index=268&type=chunk) - As of June 30, 2025, the Company had approximately **$32.1 million** of available borrowings under the Credit Agreement[281](index=281&type=chunk) - The Company uses an interest rate swap to hedge its Term Loan and a euro-denominated Revolving Loan as a net investment hedge[283](index=283&type=chunk)[284](index=284&type=chunk) [Note I. Lease Obligations](index=52&type=section&id=Note%20I.%20Lease%20Obligations) Total lease cost for fiscal 2025 was **$6.1 million**, with operating lease commitments of **$24.3 million** and finance lease commitments of **$7.7 million** over weighted average terms of **7.3** and **7.1 years**, respectively Lease Assets and Liabilities (in thousands) | Category | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Right-of-use operating lease assets | $17,250 | $16,622 | | Right-of-use finance lease assets | $5,794 | $5,210 | | Right-of-use operating lease liabilities, current | $3,393 | $2,521 | | Right-of-use operating lease liabilities, non-current | $14,357 | $14,376 | | Right-of-use finance lease liabilities, current | $1,014 | $713 | | Right-of-use finance lease liabilities, non-current | $5,212 | $4,795 | Components of Lease Expense (in thousands) | Category | FY2025 | FY2024 | |:---|:---|:---| | Finance lease cost | $1,373 | $1,119 | | 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** | Weighted Average Lease Terms and Discount Rates (June 30, 2025) | Lease Type | Remaining Lease Term (years) | Discount Rate | |:---|:---|:---| | Operating leases | 7.3 | 8.6% | | Finance leases | 7.1 | 6.8% | Future Minimum Rental Commitments (in thousands) | Fiscal Year | 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** | [Note J. Shareholders' Equity](index=53&type=section&id=Note%20J.%20Shareholders%27%20Equity) Total equity increased by **$9.3 million**, driven by a **$15.9 million** positive foreign currency translation adjustment, offsetting the net loss and dividend payments in fiscal 2025 Common Stock and Treasury Stock (Shares) | Metric | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Common stock outstanding | 14,150,581 | 13,995,024 | | Treasury stock | 482,181 | 637,778 | Cash Dividends per Share | Fiscal Year | Amount | |:---|:---| | 2025 | $0.16 | | 2024 | $0.12 | Accumulated Other Comprehensive Income (Loss) Components (in thousands) | Component | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Translation adjustments | $15,036 | $(849) | | Benefit plan adjustments, net of income taxes | $(11,461) | $(8,062) | | Net gain on cash flow hedge derivatives, net of income taxes | $284 | $504 | | Net (loss) gain on net investment hedge derivatives, net of income taxes | $(129) | $1,502 | | **Total Accumulated other comprehensive income (loss)** | **$3,730** | **$(6,905)** | [Note K. Business Segments and Foreign Operations](index=55&type=section&id=Note%20K.%20Business%20Segments%20and%20Foreign%20Operations) Marine and propulsion systems remained the largest product group, with Europe becoming the largest market, while Asia Pacific sales decreased, and both manufacturing and distribution segments showed increased profitability in fiscal 2025 - The Company has two reportable segments: manufacturing and distribution, with performance evaluated by the CEO based on net sales, gross profit, operating income (loss), and net earnings (loss)[299](index=299&type=chunk) Net Sales by Product Group (in thousands) | Product Group | FY2025 | FY2024 | YoY Change (FY25 vs FY24) | |:---|:---|:---|:---| | Industrial | $41,502 | $25,668 | +61.7% | | Land-based transmissions | $80,192 | $78,518 | +2.1% | | Marine and propulsion systems | $201,101 | $171,766 | +17.1% | | Other | $17,943 | $19,175 | -6.4% | | **Total** | **$340,738** | **$295,127** | **+15.5%** | Net Sales by Geographic Region (in thousands) | Region | FY2025 | FY2024 | YoY Change (FY25 vs FY24) | |:---|:---|:---|:---| | United States | $87,549 | $79,823 | +9.7% | | Netherlands | $52,735 | $46,162 | +14.2% | | China | $28,666 | $45,527 | -37.0% | | Finland | $24,618 | $- | N/A (new) | | Australia | $22,358 | $17,790 | +25.7% | | Italy | $10,420 | $16,814 | -38.0% | | Other countries | $114,392 | $89,011 | +28.5% | | **Total** | **$340,738** | **$295,127** | **+15.5%** | Segment Performance (in thousands) | Metric | Manufacturing (FY2025) | Manufacturing (FY2024) | Distribution (FY2025) | Distribution (FY2024) | |:---|:---|:---|:---|:---| | Net sales (external) | $235,646 | $165,982 | $105,092 | $129,145 | | Gross profit | $65,743 | $54,794 | $26,791 | $26,414 | | Operating income (loss) | $24,103 | $22,844 | $11,902 | $11,033 | [Note L. Stock-Based Compensation](index=59&type=section&id=Note%20L.%20Stock-Based%20Compensation) Total stock-based compensation expense for fiscal 2025 was **$4.1 million**, primarily from Performance Stock Awards, under the Amended and Restated 2021 Omnibus Incentive Plan - The Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan in fiscal 2025, reserving an aggregate of **1,636,550 shares** of common stock for issuance[307](index=307&type=chunk)[308](index=308&type=chunk) - Awards include Performance Stock Awards (PSAs), Performance Stock Unit Awards (PSUAs), Restricted Stock Awards (RS), and Restricted Stock Unit Awards (RSUs), granted to key employees, consultants, and non-employee directors[307](index=307&type=chunk) Stock-Based Compensation Expense (in thousands) | Award Type | FY2025 | FY2024 | |:---|:---|:---| | Performance Stock Awards (PSAs) | $1,951 | $1,648 | | Performance Stock Unit Awards (PSUAs) | $24 | $40 | | Restricted Stock Awards (RS) | $1,266 | $1,265 | | Restricted Stock Unit Awards (RSUs) | $866 | $496 | | **Total Compensation Expense** | **$4,107** | **$3,449** | - As of June 30, 2025, the Company had **$1,522 thousand** of unrecognized compensation expense related to unvested PSAs, **$33 thousand** for PSUAs, **$579 thousand** for RS, and **$692 thousand** for RSUs[313](index=313&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) [Note M. Engineering and Development Costs](index=61&type=section&id=Note%20M.%20Engineering%20and%20Development%20Costs) Total engineering and development costs increased to **$12.2 million** in fiscal 2025, with research and development expenses specifically rising to **$2.7 million** Engineering and Development Costs (in thousands) | Metric | FY2025 | FY2024 | |:---|:---|:---| | Research and development costs | $2,699 | $2,629 | | Total engineering and development costs | $12,236 | $9,843 | - These costs are primarily recorded within marketing, engineering and administrative expenses[318](index=318&type=chunk) [Note N. Pension and Other Postretirement Benefit Plans](index=61&type=section&id=Note%20N.%20Pension%20and%20Other%20Postretirement%20Benefit%20Plans) Pension plans had a funded status deficit of **$9.6 million** and other postretirement benefits a deficit of **$2.9 million** as of June 30, 2025, with expected contributions of **$0.7 million** and **$0.5 million** respectively in fiscal 2026 - The Company has non-contributory, qualified defined benefit pension plans for domestic and foreign employees, with domestic plans frozen for future accruals since July 31, 2009[319](index=319&type=chunk) - Unfunded, non-qualified retirement plans are provided for certain management employees and Directors[320](index=320&type=chunk) Funded Status of Benefit Plans (in thousands) | Plan Type | Benefit Obligation (June 30, 2025) | Fair Value of Assets (June 30, 2025) | Funded Status (June 30, 2025) | |:---|:---|:---|:---| | Pension Benefits | $66,424 | $56,860 | $(9,564) | | Other Postretirement Benefits | $2,870 | $- | $(2,870) | Net Periodic Benefit Cost (Income) (in thousands) | Plan Type | FY2025 | FY2024 | |:---|:---|:---| | Pension Benefits | $1,409 | $(163) | | Other Postretirement Benefits | $(90) | $(509) | Expected Contributions (FY2026, in thousands) | Plan Type | Amount | |:---|:---| | Defined benefit pension plans | $708 | | Other postretirement benefit plans | $467 | Pension Plan Weighted-Average Asset Allocations (June 30) | Asset Category | Target Allocation | 2025 | 2024 | |:---|:---|:---|:---| | Equity securities | 15% | 15% | 19% | | Debt securities | 75% | 78% | 71% | | Real estate | 10% | 7% | 10% | | **Total** | **100%** | **100%** | **100%** | [Note O. Income Taxes](index=67&type=section&id=Note%20O.%20Income%20Taxes) The Company reported a U.S. loss and foreign income in fiscal 2025, with an income tax expense of **$3.4 million** and a high effective tax rate of **190.4%**, maintaining a **$24.0 million** valuation allowance against deferred tax assets United States and Foreign (Loss) Income Before Income Taxes (in thousands) | Region | FY2025 | FY2024 | |:---|:---|:---| | United States | $(12,329) | $(6,213) | | Foreign | $14,098 | $21,580 | | **Total** | **$1,769** | **$15,367** | Provision (Benefit) for Income Taxes (in thousands) | Category | FY2025 | FY2024 | |:---|:---|:---| | Currently payable | $4,949 | $4,681 | | Deferred | $(1,581) | $(560) | | **Total Income Tax Expense** | **$3,368** | **$4,121** | Net Deferred Tax Asset (in thousands) | Metric | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Deferred tax assets | $31,582 | $30,157 | | Valuation allowance | $(23,964) | $(24,035) | | **Net Deferred Tax Assets** | **$7,618** | **$6,122** | | Deferred tax liabilities | $9,126 | $9,123 | | **Total net deferred tax liabilities** | **$(1,508)** | **$(3,001)** | - The effective tax rate for fiscal 2025 was **190.4%**, compared to **26.8%** for fiscal 2024[92](index=92&type=chunk) - The Company maintains a valuation allowance of **$23,964 thousand** (FY2025) because it is more likely than not that all domestic deferred tax assets will not be realized[344](index=344&type=chunk) Unrecognized Tax Benefits (in thousands) | Metric | June 30, 2025 | June 30, 2024 | |:---|:---|:---| | Unrecognized tax benefits, end of year | $644 | $766 | | Accrued interest and penalties | $6 | $68 | - The 'One Big Beautiful Bill Act,' signed on July 4, 2025, includes changes to federal tax law (e.g., R&D expensing, bonus depreciation) and US taxation of foreign activity, which are being evaluated for future impact[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) [Note P. Contingencies](index=70&type=section&id=Note%20P.%20Contingencies) Twin Disc is involved in litigation, but management believes the ultimate outcome will not materially impact the Company's financial results or cash flows - The Company is involved in litigation, but management believes the final disposition will not materially impact results of operations, financial position, or cash flows[352](index=352&type=chunk) [Note Q. Restructuring of Operations](index=70&type=section&id=Note%20Q.%20Restructuring%20of%20Operations) The Company continued restructuring in its Belgian operations, primarily workforce reduction, incurring **$369 thousand** in charges for fiscal 2025, with an accrued liability of **$39 thousand** - The Company continued restructuring plans in its Belgian operations during fiscal years 2025 and 2024, primarily involving workforce reduction to focus on core manufacturing processes[354](index=354&type=chunk) Restructuring Charges and Accrued Liability (in thousands) | Metric | FY2025 | FY2024 | |:---|:---|:---| | Total restructuring charges | $369 | $300 | | Accrued restructuring liability, June 30 | $39 | $- | [Note R. Earnings Per Share](index=71&type=section&id=Note%20R.%20Earnings%20Per%20Share) The Company reported a basic and diluted loss per share of **$(0.14)** in fiscal 2025, with potential common shares excluded from diluted EPS due to the anti-dilutive effect of the net loss Earnings Per Share Data | Metric | FY2025 | FY2024 | |:---|:---|:---| | 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 basic shares outstanding (in thousands) | 13,856 | 13,683 | | Weighted average diluted shares outstanding (in thousands) | 13,856 | 13,877 | - For fiscal 2025, **404.3 thousand** unvested PSAs, **10.5 thousand** unvested PSAUs, **121.0 thousand** unvested RS awards, and **55.0 thousand** unvested RSUs were excluded from diluted EPS calculation due to the Company reporting a net loss (anti-dilutive effect)[357](index=357&type=chunk) [Note S. Derivative Financial Instruments](index=71&type=section&id=Note%20S.%20Derivative%20Financial%20Instruments) Twin Disc uses derivative financial instruments, including interest rate swaps and a euro-denominated Revolving Loan as a net investment hedge, to manage market risks, with all derivatives recorded at fair value - The Company uses derivative financial instruments, such as interest rate swaps and foreign currency forward contracts, to manage exposure to market risks like currency fluctuations and interest rates[359](index=359&type=chunk) - Interest rate swap contracts are designated as cash flow hedges to manage variability in interest payments on SOFR-based indebtedness[360](index=360&type=chunk) Net Unrealized After-Tax Gains/Losses on Hedges (in thousands) | Hedge Type | FY2025 | FY2024 | |:---|:---|:---| | Cash Flow Hedges | $(284) | $(504) | | Net Investment Hedges | $129 | $(1,502) | - The euro-denominated Revolving Loan is designated as a net investment hedge to mitigate foreign currency exchange risk in euro-denominated net investments[363](index=363&type=chunk) - Derivative instruments are recorded at fair value using discounted cash flow analysis and observable market inputs (Level 2)[366](index=366&type=chunk) [Schedule II - Valuation and Qualifying Accounts](index=74&type=section&id=Schedule%20II%20-%20Valuation%20and%20Qualifying%20Accounts) [Schedule II - Valuation and Qualifying Accounts](index=74&type=section&id=Schedule%20II%20-%20Valuation%20and%20Qualifying%20Accounts) The schedule details increases in the allowance for credit losses to **$1.5 million** and inventory obsolescence reserve to **$16.0 million**, while the deferred tax valuation allowance remained substantial at **$24.0 million** Valuation and Qualifying Accounts (in thousands) | Description | Balance at Beginning of Period (FY2025) | Charged to Costs and Expenses (FY2025) | Adjustments (FY2025) | Balance at End of Period (FY2025) | |:---|:---|:---|:---|:---| | 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 | - Adjustments primarily represent amounts written-off during the year and foreign currency translation adjustments[371](index=371&type=chunk) [Exhibit Index](index=75&type=section&id=Exhibit%20Index) [Exhibit Index](index=75&type=section&id=Exhibit%20Index) This section lists all exhibits filed with the Form 10-K, including organizational documents, material contracts, and certifications, many incorporated by reference - The Exhibit Index lists various documents, including Restated Articles of Incorporation, Bylaws, and the Amended and Restated 2021 Omnibus Incentive Plan[374](index=374&type=chunk) - Material contracts include various Restricted Stock and Performance Stock Award Grant Agreements[374](index=374&type=chunk) - The Credit Agreement with Bank of Montreal, dated February 14, 2025, and related financing documents are included as exhibits[375](index=375&type=chunk) - Certifications pursuant to 18 U.S.C. Section 1350 (Sarbanes-Oxley Act) are also included[377](index=377&type=chunk) [Signatures](index=79&type=section&id=Signatures) [Signatures](index=79&type=section&id=Signatures) This section contains the required signatures for the Form 10-K report from executive officers and directors, all dated September 5, 2025 - The report is signed by John H. Batten (President and Chief Executive Officer), Michael C. Smiley (Chairman of the Board), and Jeffrey S. Knutson (Vice President – Finance, Chief Financial Officer, Treasurer and Secretary), among others[379](index=379&type=chunk)[380](index=380&type=chunk) - All signatures are dated September 5, 2025[379](index=379&type=chunk)[380](index=380&type=chunk)

Core Insights - Twin Disc's shares have increased by 44.3% since the earnings report for the quarter ended June 30, 2025, significantly outperforming the S&P 500 index, which gained only 0.8% during the same period [1] - The company reported a net income of 10 cents per share for the fourth quarter of fiscal 2025, a decrease from 53 cents per share in the prior-year quarter, despite a 14.5% year-over-year increase in sales to $96.7 million [2][3] Financial Performance - Net income attributable to Twin Disc fell sharply to $1.4 million from $7.4 million in the prior-year quarter, with EBITDA declining 40.4% to $7 million due to higher expenses and currency translation losses [3] - For fiscal 2025, the company reported a net loss of $1.9 million, or 14 cents per share, compared to earnings of nearly $11 million or 79 cents per share a year earlier, while revenue increased by 15.5% to $340.7 million [4] - Gross margin contracted by approximately 100 basis points to 27.2%, indicating ongoing cost pressures, and EBITDA for the year declined 28.3% to $19 million [4] Business Metrics - Gross profit for the quarter rose 19.7% to $30 million, with margins expanding by 130 basis points to 31%, supported by a favorable mix of marine and propulsion sales [5] - Segment performance varied, with Marine and Propulsion Systems sales increasing 12.2% to $53 million, Land-Based Transmissions up 4.5% to $26.1 million, and Industrial sales surging 82% to $13.1 million, aided by acquisitions [6] Backlog and Cash Flow - The company reported a strong six-month backlog of $150.5 million, up from $133.7 million in the prior quarter, indicating healthy demand across marine and industrial markets [7] - Operating cash flow for the year totaled $24 million, while free cash flow fell to $8.8 million due to higher capital expenditures [7] Management Commentary - CEO John H. Batten described the quarter as the strongest of the year, highlighting resilience in marine and propulsion markets and progress in electrification initiatives [8] - CFO Jeffrey S. Knutson noted strong integration progress and a healthy balance sheet, with total debt increasing to $31.4 million due to acquisitions, while cash reserves stood at $16.1 million [9] Challenges and Guidance - The decline in net income and EBITDA was attributed to foreign currency translation losses, stock-based compensation, and increased marketing and administrative expenses [11] - Management reaffirmed long-term targets through fiscal 2030, aiming for $500 million in revenue and gross margins of 30%, while focusing on defense demand and expanding hybrid and electric system capabilities [12] Strategic Acquisitions - Strategic acquisitions, including Katsa and Kobelt, played a significant role in Twin Disc's growth, contributing to industrial sales and diversifying the company's product and geographic reach [13]

Summary of Twin Disc (TWIN) FY Conference Call - August 27, 2025 Company Overview - **Company**: Twin Disc Inc - **Ticker**: TWIN - **Industry**: Power transmission provider, focusing on off-highway markets including marine and defense sectors - **Revenue**: Approximately $340 million with gross margins of 27.2% [6][19][20] Key Themes and Insights - **Market Diversification**: The company has shifted from a North America-centric model to a more diversified global presence, with Europe now being the largest market [7][8] - **Acquisitions**: Twin Disc has made three significant acquisitions in the last seven years, with a focus on integrating these companies into a unified operational model [4][19] - **Defense Market Growth**: There is a notable increase in defense-related projects, with a 15% contribution to the backlog, reflecting a 45% year-over-year growth [19][20] - **Hybridization Focus**: The company is investing in hybrid and electric solutions, positioning itself to meet the evolving demands of the marine and industrial markets [8][22][28] Financial Performance and Strategy - **Operational Efficiency**: The company has been enhancing margins and operational efficiencies post-COVID, aiming for a target of $500 million in revenue with 30% gross margins [25][43] - **Debt Management**: Twin Disc maintains a strong balance sheet with a debt-to-EBITDA ratio below 2, allowing for continued investment in acquisitions and organic growth [33][34] - **Market Positioning**: The company is seen as a leader in niche markets, providing solutions that larger competitors do not focus on [41][42] Acquisitions and Integration - **Recent Acquisitions**: The acquisitions of Katsa and Kobelt are expected to be accretive and strategically fit within the company's product offerings [33][36] - **Integration Success**: The integration of recent acquisitions has been smooth, with a focus on leveraging global sales and support networks to drive growth [37][46] Market Trends and Future Outlook - **Defense Spending**: The U.S. Department of Defense has increased spending by 13%, with NATO spending up 150%, creating a favorable environment for Twin Disc's products [19][20] - **Hybrid and Electric Market Potential**: The company anticipates significant growth in the hybrid and electric markets, with potential revenue increases of 5 to 10 times compared to traditional mechanical components [26][27] - **Operational Initiatives**: Continuous improvements in operational initiatives are expected to enhance margin performance and overall financial health [42][43] Additional Insights - **Seasonality**: The company experiences seasonal fluctuations, with the first fiscal quarter typically being the weakest due to shipping days and summer shutdowns in Europe [51][52] - **Global Manufacturing Footprint**: Twin Disc has a diverse manufacturing footprint, allowing flexibility in production to mitigate tariff impacts [31][32] - **Corporate Restructuring**: Efforts are underway to reduce corporate overhead by decentralizing management and increasing operational responsibility at the facility level [72] This summary encapsulates the key points discussed during the Twin Disc FY Conference Call, highlighting the company's strategic direction, market positioning, and financial outlook.

Financial Data and Key Metrics Changes - For the full year, the company achieved a top line growth of 15.5%, with sales reaching $340.7 million, compared to $295.1 million in the previous year [4][18] - In Q4, sales grew 14.5% year over year to $96.7 million, while organic net sales declined approximately 8.4% due to reduced activity in oil and gas markets [6][18] - EBITDA for Q4 was $7 million, down from $11.8 million in the prior year, reflecting non-operating impacts [21][24] - Net income for Q4 was $1.4 million or $0.10 per diluted share, compared to $7.4 million or $0.53 per diluted share last year [20] Business Line Data and Key Metrics Changes - Marine and propulsion systems sales grew 12.2% in Q4 to $53 million, driven by strong activity in work boats and government contracts [9] - Land-based transmissions revenue rose 4.5% year over year to $26.1 million in Q4, despite a decline in oil and gas shipments to China [10] - The industrial segment saw a significant increase, with Q4 sales rising 35% sequentially to $13.1 million, and 82% year over year [12] Market Data and Key Metrics Changes - The North American market led sequential sales growth, while the European market captured a greater proportion of total sales year over year [21][22] - Orders related to defense products grew approximately 45% versus fiscal 2024, now making up nearly 15% of the total backlog [7][22] Company Strategy and Development Direction - The company is focused on global footprint optimization, operational excellence, and targeted acquisitions to drive sustainable growth [14][24] - There is a commitment to lead in hybrid and electrification solutions, with ongoing investments in controls and systems integration [14][15] - The company aims to achieve $500 million in revenue and 30% gross margins by 2030, with a disciplined capital deployment strategy [16][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory, particularly in the defense market, fueled by increased defense spending [7][26] - The company is well-positioned to navigate macroeconomic uncertainty with flexibility and discipline, supported by a strong backlog of approximately $150 million [22][23] - Management noted that the supply chain disruptions are dissipating, which should support margin improvement moving forward [44] Other Important Information - The company generated positive free cash flow of $8.8 million for the year and maintained a conservative net leverage ratio of 0.8 times [22][24] - The company is focused on reducing inventory levels as a percentage of backlog, highlighting a commitment to working capital discipline [13] Q&A Session Summary Question: Can you walk us through where else across the mix we may be seeing particular strength? - Management indicated strength across the portfolio, particularly in defense and propulsion, with improvements noted in oil and gas markets as well [30][32] Question: Can you elaborate on the growth prospects in defense? - Management emphasized the need to ensure capacity to meet demand, particularly in light of NATO expansions and increased contracts for vehicles [34][36] Question: What are the commercial synergies from recent acquisitions? - Management highlighted the integration of sales agents and distributors to enhance market presence and drive growth in various regions [38][40] Question: Is margin improvement primarily volume-related? - Management confirmed that volume is a significant factor, along with cost reductions and operational efficiencies [69]

Financial Performance - Full year sales increased by 15.5% year-over-year to $340.7 million[8] - Organic sales increased by 1.0% year-over-year[8] - EBITDA was $19.0 million, including currency translation loss, stock-based compensation, and other items[8] - Operating Cash Flow reached $24.0 million[8] - Free cash flow amounted to $8.8 million[8] - The company's six-month backlog was $150.5 million, showing sequential growth[8] - Net debt to EBITDA leverage ratio increased from 0.2x in FY24 to 0.8x in FY25, primarily due to the acquisition of Kobelt[45, 46] Market and Strategic Highlights - Defense backlog increased by 45% year-over-year as a percentage of total major geographies backlog[11] - Defense accounts for approximately 15% of the total backlog[11] - Industrial sales increased by 82.0% year-over-year[23] - Industrial sales excluding Katsa and Kobelt increased 13.1% year-over-year[23]