Financial Analysis

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

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P. CONTINGENCIES The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, are not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Companys results of operations, financial position or cash flows, either individually or in the aggregate. …

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H. DEBT Long-term debt consisted of the following at June 30: 2025 2024 Credit Agreement Debt Revolving loans (expire April 2027) $ 17,921 $ 16,288 Term loan (due April 2027) 13,500 9,500 Other 25 23 Subtotal 31,446 25,811 Less: current maturities (3,000 ) (2,000 ) Total long-term debt $ 28,446 $ 23,811 Credit Agreement Debt : Current Credit Agreement On February 14, 2025, the Company entered into an amended and restated Credit Agreement (the Credit Agreement) with Bank of Montreal (the Bank) that refinances and replaces the credit agreement dated as of June 29, 2018, as amended, between the Company and BMO Harris Bank, N.A. (the Prior Credit Agreement). There were no significant financing costs associated with the credit agreement. Pursuant to the Credit Agreement, the Bank made a Term Loan to the Company in the principal amount of $15.0 million, consisting of an assignment of a term loan under the Prior Credit Agreement from BMO to the Bank with a remaining principal of $8.5 million and an additional advance of $6.5 million. The maturity date of the Term Loan is April 1, 2027, and the Company is required to make principal installments on the Term Loan of at least $0.75 million per quarter. Under the Credit Agreement, the Company is restricted in making dividend payments beyond $5 million in any fiscal year. In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrow …

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L. STOCK-BASED COMPENSATION In the first quarter of fiscal 2025, the Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (the Omnibus Plan), which was subsequently approved by the 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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E. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill represents the excess of the consideration transferred net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed. On February 14, 2025, as discussed in Note B, the Company acquired goodwill in the estimated amount of $2,806 and intangible assets in the estimated amount of $2,847 as part of the acquisition of Kobelt. As of June 30, 2025, changes in the carrying amount of goodwill is summarized as follows: Net Book Value Rollforward Balance at June 30, 2024 $ - Acquisition 2,806 Translation adjustment 86 Balance at June 30, 2025 $ 2,892 At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization: Net Book Value Rollforward Net Book Value By Asset Type Gross Carrying Amount Accumulated Amortization / Impairment Net Book Value Customer Relationships Technology Know-how Trade Names Other Total Balance at June 30, 2023 $ 31,925 $ (19,288 ) $ 12,637 $ 6,553 $ 2,422 $ 668 $ 2,994 $ 12,637 Additions 5,382 (1,894 ) 3,488 1,519 987 857 125 3,488 Reduction (714 ) 714 - - - - - - Amortization - (3,273 ) (3,273 ) (1,245 ) (1,280 ) - (748 ) (3,273 ) Translation adjustment (166 ) - (166 ) (107 ) (40 ) (5 ) (14 ) (166 ) Balance at June 30, 2024 36,427 (23,741 ) 12,686 6,720 2,089 1,520 2,357 12,686 Additions 3,471 - 3,471 1,187 908 628 748 3,471 Amortization - (3,959 ) (3,959 ) (1,341 ) (1,312 ) (281 ) (1,025 ) (3,959 ) Translation adjustment 3,505 …

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O. INCOME TAXES United States and foreign (loss) income before income taxes and minority interest as of June 30 were as follows: 2025 2024 United States $ (12,329 ) $ (6,213 ) Foreign 14,098 21,580 $ 1,769 $ 15,367 The provision (benefit) for income taxes is comprised of the following: 2025 2024 Currently payable: Federal $ (32 ) $ 7 State 62 66 Foreign 4,919 4,608 4,949 4,681 Deferred: Federal $ - $ 10 State (289 ) (2 ) Foreign (1,292 ) (568 ) (1,581 ) (560 ) $ 3,368 $ 4,121 The components of the net deferred tax asset as of June 30 are summarized in the table below. 2025 2024 Deferred tax assets: Retirement plans and employee benefits $ 5,065 $ 4,683 Foreign tax credit carryforwards 9,639 8,347 Federal tax credits, net of ASU 2013-11 1,645 1,683 State net operating loss and other state credit carryforwards, net of ASU 2013-11 2,651 2,226 Federal net operating loss - 4,042 Reserves 1,053 931 Inventories 1,138 93 Research & experimental expenditure capitalization 1,118 816 Foreign net operating loss carryforwards 450 52 Accruals 620 1,081 Right of use assets - operating leases 4,629 4,038 Disallowed interest 1,751 1,384 Capital loss carryforward 108 108 Translation adjustment 1,417 565 Other assets 298 108 31,582 30,157 Valuation allowance (23,964 ) (24,035 ) $ 7,618 $ 6,122 Deferred tax liabilities: Inventories $ 59.0 $ - Property, plant and equipment 2,719 673 Intangible assets 1,058 1,010 Long term operating lease obligations 4,917 4,034 Hedging 11 445 Step-up on fair …

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"Recently Issued Not Yet Adopted Accounting Standards -- In November 2024, the Financial Accounting Standards Board (""FASB"") issued Accounting Standards Update (""ASU"") No. 2024 - 03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (ASU 2024 - 03 ) to expand expense disclosures by requiring disaggregated disclosure of certain income statement expense line items, including those that contain purchases of inventory, employee compensation, depreciation and amortization. ASU 2024 - 03 is effective for fiscal years beginning after December 15, 2026, or the Companys fiscal 2028, and subsequent interim periods, with early adoption permitted. The amendments should be applied prospectively, but retrospective application is permitted. The Company is currently assessing the impact of the requirements on our Condensed Consolidated Financial Statements. In December 2023, the FASB issued guidance ASU 2023 - 09, Improvements to Income Tax Disclosures (ASU 2023 - 09 ), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) disaggregated between domestic an …

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N. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has non-contributory, qualified defined benefit pension plans covering substantially all domestic employees hired prior to October 1, 2003, and certain foreign employees. Domestic plan benefits are based on years of service, and, for salaried employees, on average compensation for benefits earned prior to January 1, 1997, and on a cash balance plan for benefits earned from January 1, 1997 through July 31, 2009, at which time the Company froze future accruals under domestic defined benefit pension plans. 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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K. BUSINESS SEGMENTS AND FOREIGN OPERATIONS The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, energy and natural resources, government, and industrial markets. Net sales by product group for the years ended June 30 is summarized as follows: 2025 2024 Industrial $ 41,502 $ 25,668 Land-based transmissions 80,192 78,518 Marine and propulsion systems 201,101 171,766 Other 17,943 19,175 Total $ 340,738 $ 295,127 Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets. The land-based transmission products include applications for oil field and natural gas, military and airport rescue and firefighting. The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, and propellers for the global commercial marine, pleasure craft and patrol boat markets. Other includes non-Twin Disc manufactured product sold through Company-owned distribution entities. The Company has two repo …

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

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J. SHAREHOLDERS' EQUITY The total number of shares of common stock outstanding at June 30, 2025 and 2024 was 14,150,581 and 13,995,024, respectively. At June 30, 2025 and 2024, treasury stock consisted of 482,181 and 637,778 shares of common stock, respectively. The Company issued 155,597 and 176,956 shares of treasury stock in fiscal 2025 and 2024, respectively, to fulfill its obligations under its incentive compensation plans. The Company also recorded forfeitures of 0 and 2,413 shares of previously issued restricted stock in fiscal 2025 and 2024, respectively. The difference between the cost of treasury shares and the option price is recorded in common stock. Under an authorization given by the Board of Directors on July 27, 2012, the Company is permitted to make open market purchases of its common stock. The Company did not make any open market purchases during the two most recent fiscal years. As of June 30, 2025 and 2024, 315,000 shares remain authorized for purchase. Cash dividends per share were $0.16 and $0.12 in fiscal 2025 and 2024. The Company is authorized to issue 200,000 shares of preferred stock, none of which have been issued. The Company has designated 150,000 shares of the preferred stock as Series A Junior Preferred Stock. The components of accumulated other comprehensive income (loss) included in equity as of June 30, 2025 and 2024 are as follows: 2025 2024 Translation adjustments $ 15,036 $ (849 ) Benefit plan adjustments, net of income taxes of $( 322 ) …

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