Financial Analysis

T. ACQUISITION Kobelt Manufacturing Co., Ltd., Inc. On February 14, 2025, the Company completed the acquisition of 100% of the outstanding common stock of Kobelt. Based in Surrey, British Columbia, Kobelt is a Canadian manufacturer of controls, propulsion, steering, and braking systems to the marine, oil and gas, and industrial markets. This acquisition was pursuant to a Sale and Purchase Agreement (Purchase Agreement) entered into by Twin Disc Canada Holdings Ltd, a wholly-owned subsidiary of the Company, with the prior owners, on February 14, 2025. Immediately following the acquisition, Kobelt and Twin Disc Canada Holdings Ltd amalgamated to continue a wholly-owned subsidiary of the Company, retaining the Kobelt name. Under the terms of the Purchase Agreement, the Company paid an aggregate of approximately $17,236 in cash at closing, which included a base payment plus adjustments for net cash, working capital, and earnout. The Company paid an additional $516 for the net working capital adjustment. The amount is still subject to a final determination of the earnout calculation. The transaction is considered a taxable stock acquisition. The Company, in part, financed the payment of the cash consideration through borrowings of $6,500 under a credit agreement entered into on February 14, 2025 with Bank of Montreal (the Credit Agreement). The Credit Agreement is further discussed in Note G, Debt. Kobelt brings a complementary range of products that enhance and diversify the Comp …

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O. CONTINGENCIES The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, are not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Companys results of operations, financial position or cash flows, either individually or in the aggregate. Tariffs: On February 20, 2026, the U.S. Supreme Court invalidated tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). The ruling did not address the availability, timing or mechanics of any potential refunds related to tariffs previously collected, and the outcome of any related administrative or legal processes remains uncertain. Following the ruling, the U.S. administration implemented new tariffs under alternative statutory authority, including Section 122 of the Trade Act of 1974, which permits temporary import surcharges subject to statutory limits and duration requirements. In April 2026, the U.S. Court of International Trade (CIT) issued an order for the U.S. Customs and Border Protection (CBP) to treat the IEEPA Tariffs as unlawful and administer affected import entries accordingly. As a result of the order, the CBP must recalculate duties without the IEEPA tariffs and ensure that importers of record receive the benefit of the Supreme Court ruling in the form of refunds for such amounts paid and interest. On June 2, 2026, the Department of Justice filed an appeal with the U. …

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"G. DEBT Long-term debt consisted of the following at June 30: 2026 2025 Credit Agreement Debt Revolving loans (expire June 2031) $ - $ 17,921 Term loan (due June 2031) 29,786 13,500 Other 24 25 Subtotal 29,810 31,446 Less: current maturities (1,500 ) (3,000 ) Total long-term debt $ 28,310 $ 28,446 Net carrying value of term loan at June 30: 2026 2025 Term loan 30,000 13,500 Less: unamortized debt discount (134 ) - Less: unamortized debt issuance costs (80 ) - Net carrying value of term loan 29,786 13,500 Credit Agreement Debt : Current Credit Agreement On June 30, 2026, Twin Disc, Incorporated (the Company) entered into a Credit Agreement (the Credit Agreement) among the Company, as Borrower; Kobelt Manufacturing Co. Ltd. (""Kobelt""), as Guarantor; Bank of Montreal, as a Lender, Administrative Agent, Swing Line Lender, and L/C Issuer; and JPMorgan Chase Bank, N.A. (""Chase""), as a Lender. The Credit Agreement refinanced and replaced the credit agreement dated February 14, 2025 among the Company, Kobelt, and Bank of Montreal. Capitalized terms in this Annual Report that are not otherwise defined herein are defined in the Credit Agreement. Pursuant to the Credit Agreement, Bank of Montreal and Chase (the Lenders) made Term Loans to the Company in an aggregate principal amount of $30,000,000. The maturity date of the Term Loans is June 30, 2031, and the Company is required to make principal installments on the Term Loans of at least $375,000 per quarter, increasing to $562,50 …

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K. STOCK-BASED COMPENSATION In the first quarter of fiscal 2025, the Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (the Omnibus Plan), which was subsequently approved by the Companys shareholders. The Omnibus Plan amended and restated the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the 2021 LTI Plan), and effectively replaced the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the 2020 Directors' Plan). Benefits under the Omnibus Plan may be granted, awarded or paid in any one or a combination of stock options, stock appreciation rights, restricted stock awards, restricted stock units, cash-settled restricted stock units, performance stock awards, performance stock unit awards, performance unit awards, and dividend equivalent awards. The Omnibus Plan is designed to benefit key employees and consultants of the Company and its subsidiaries, as well as non-employee directors of the Company. There is reserved for issuance under the Plan an aggregate of 1,636,550 shares of the Companys common stock, which consists of the previously-approved 715,000 shares of common stock reserved for issuance under the 2021 LTI Plan prior to its amendment and restatement to become the Omnibus Plan; 521,550 shares of common stock that remained available for issuance under the 2020 Directors' Plan; and 400,000 newly authorized shares of common stock. Shares issued under the Omnibus Plan may be authorized and unis …

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D. 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 June 30, 2026, changes in the carrying amount of goodwill is summarized as follows: Net Book Value Rollforward Balance at June 30, 2025 $ 2,892 Translation adjustment (120 ) Balance at June 30, 2026 $ 2,772 At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization: Net Book Value Rollforward Net Book Value By Asset Type Gross Carrying Amount Accumulated Amortization / Impairment Net Book Value Customer Relationships Technology Know-how Trade Names Other Total Balance at June 30, 2024 $ 36,427 $ (23,741 ) $ 12,686 $ 6,720 $ 2,089 $ 1,520 $ 2,357 $ 12,686 Additions 3,471 - 3,471 1,187 908 628 748 3,471 Amortization - (3,959 ) (3,959 ) (1,341 ) (1,312 ) (281 ) (1,025 ) (3,959 ) Translation adjustment 3,505 (2,342 ) 1,163 629 149 169 216 1,163 Balance at June 30, 2025 43,403 (30,042 ) 13,361 7,195 1,834 2,036 2,296 13,361 Additions 3,825 - 3,825 - - - 3,825 3,825 Amortization - (2,878 ) (2,878 ) (1,305 ) (198 ) (307 ) (1,068 ) (2,878 ) Translation adjustment (1,091 ) 904 (187 ) (159 ) (27 ) (38 ) 37 (187 ) Balance at June 30, 2026 $ 46,137 $ (32,016 ) $ 14,121 $ 5,731 $ 1,609 $ 1,691 $ 5,090 $ 14,121 Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accel …

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N. INCOME TAXES United States and foreign income (loss) before income taxes and minority interest as of June 30 were as follows: As Adjusted 2026 2025 United States $ (5,948 ) $ (11,132 ) Foreign 19,544 14,098 $ 13,596 $ 2,966 The provision (benefit) for income taxes is comprised of the following: As Adjusted 2026 2025 Currently payable: Federal $ (331 ) $ (32 ) State 438 62 Foreign 3,965 4,919 4,072 4,949 Deferred: Federal $ (15,820 ) $ - State (2,760 ) (289 ) Foreign 534 (1,292 ) (18,046 ) (1,581 ) $ (13,974 ) $ 3,368 The components of the net deferred tax asset as of June 30 are summarized in the table below. As Adjusted 2026 2025 Deferred tax assets: Retirement plans and employee benefits $ 4,828 $ 5,065 Foreign tax credit carryforwards 1,502 9,639 Federal tax credits, net of ASU 2013-11 815 1,645 State net operating loss and other state credit carryforwards, net of ASU 2013-11 1,407 2,651 Reserves 1,100 1,053 Inventories 151 1,138 Research & experimental expenditure capitalization 2,068 1,118 Foreign net operating loss carryforwards 265 450 Accrued liabilities 8,943 620 Right of use assets - operating leases 3,875 4,629 Disallowed interest - 1,751 Capital loss carryforward - 108 Translation adjustment 1,094 1,417 Other assets 405 298 26,453 31,582 Valuation allowance (58 ) (16,502 ) $ 26,395 $ 15,080 Deferred tax liabilities: Inventories $ 1,601 $ 7,521 Property, plant and equipment 2,509 2,719 Intangible assets 1,152 1,058 Long term operating lease obligations 4,169 …

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M. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic employees hired prior to October 1, 2003, and certain foreign employees. Domestic plan benefits are based on years of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company froze future accruals under domestic defined benefit pension plans. In addition, the Company has unfunded, non-qualified retirement plans for certain management employees and Directors. In the case of management employees, benefits are based on an annual credit to a bookkeeping account, intended to restore the benefits that would have been earned under the qualified plans, but for the earnings limitations under the Internal Revenue Code. In the case of Directors, benefits are based on years of service on the Board. All benefits vest upon retirement from the Company. In addition to providing pension benefits, the Company provides other postretirement benefits, including healthcare and life insurance benefits for certain domestic retirees. All employees retiring after December 31, 1992, and electing to continue healthcare coverage through the Company's group plan, are required to pay 100% of the premium cost. The measurement date for the Companys pension and postretirement benefit pla …

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P. RESTRUCTURING OF OPERATIONS Restructuring expenses The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends in certain of the Companys markets since the fourth quarter of fiscal 2015. These programs primarily involved the reduction of workforce in several of the Companys manufacturing locations, under a combination of voluntary and involuntary programs. During the fourth quarter of fiscal 2021, the Company undertook a series of steps to accelerate its focus on its core competencies, improve its fixed cost structure, and monetize some of its under-utilized assets. The Company continued its restructuring plans with regard to its Belgian operations during fiscal year 2026 and 2025. A voluntary program was implemented to reduce the workforce. The action was taken to allow the Belgian operation to focus resources on core manufacturing processes, while allowing for savings on the outsourcing of non-core processes. Total restructuring charges relating to streamlining operations totaled $227 and $369 in fiscal year June 30, 2026 and June 30, 2025, respectively. The following is a roll-forward of restructuring activity: Accrued restructuring liability, June 30, 2025 $ 39 Additions 366 Payments, adjustments and write-offs during the year (227 ) Accrued restructuring liability, June 30, 2026 $ 177 …

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J. BUSINESS SEGMENTS AND FOREIGN OPERATIONS The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial, and military marine markets, energy and natural resources, government, and industrial markets. Net sales by product group for the years ended June 30 is summarized as follows: June 30, 2026 June 30, 2025 Industrial $ 46,067 $ 41,502 Land-based transmissions 89,698 80,192 Marine and propulsion systems 227,675 201,101 Other 17,830 17,943 Total $ 381,270 $ 340,738 Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets. The land-based transmission products include applications for oil field and natural gas, military, and airport rescue and firefighting. The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, and propellers for the global commercial marine, pleasure craft, and patrol boat markets. Other includes non-Twin Disc manufactured products sold through Company-owned distribution entities. Th …

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"TWIN DISC, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA) A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations --Twin Disc, Incorporated (Twin Disc, or the Company) was incorporated under the laws of the state of Wisconsin in 1918. Twin Disc designs, manufactures and sells marine and heavy duty off-highway power transmission equipment. The Company has manufacturing locations in the United States, Belgium, Canada, Finland, Italy, the Netherlands, and Switzerland. In addition to these countries, it has distribution locations in Singapore, China, Australia, New Zealand and Japan. Products offered include: marine transmissions, azimuth drives, surface drives, propellers and boat management systems as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, controls systems, and braking systems. The Company sells its products to customers primarily in the pleasure craft, commercial, and military marine markets, as well as in the energy and natural resources, government, military, and industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network. On February 14, 2025, the Company completed the acquisition of 100% of the outstanding common stock of Kobelt Manufacturing Co. Ltd. (Kobelt). Based in Surrey, British …

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I. SHAREHOLDERS' EQUITY The total number of shares of common stock outstanding at June 30, 2026 and 2025 was 14,423,539 and 14,150,581, respectively. At June 30, 2026 and 2025, treasury stock consisted of 209,263 and 482,181 shares of common stock, respectively. The Company issued 272,918 and 155,597 shares of treasury stock in fiscal 2026 and 2025, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded forfeitures of 2,195 and 0 shares of previously issued restricted stock in fiscal 2026 and 2025, respectively. The difference between the cost of treasury shares and the option price is recorded in common stock. Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open market purchases of its common stock. The Company did not make any open market purchases during the two most recent fiscal years. As of June 30, 2026 and 2025, 315,000 shares remain authorized for purchase. Cash dividends per share were $0.16 and $0.16 in fiscal 2026 and 2025. The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued. The Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock. The components of accumulated other comprehensive income (loss) included in equity as of June 30, 2026 and 2025 are as follows: 2026 2025 Translation adjustments $ 9,041 $ 15,036 Benefit plan adjustments, net of income taxes of ($ 298 ) …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing