TWIN DISC INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

The unaudited condensed consolidated financial statements have been prepared by Twin Disc, Incorporated (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include adjustments, consisting primarily of normal recurring items, necessary for a fair statement of results for each period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to make the information presentednot misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form10**-K for June 30, 2023.The year-end condensed consolidated balance sheet data was derived from audited financial statements but doesnot include all disclosures required by accounting principles generally accepted in the United States.

The Company's reporting period ends on the last Friday of the quarterly calendar period. The Company's fiscal year ends on* June 30,regardless of the day of the week on which June 30*falls.

Change in Accounting Method

During thefourth quarter of fiscal year2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for the Company’s pension and postretirement benefit plans (the “Accounting change”). Prior to the Accounting change, actuarial gains and losses were recognized as a component of Accumulated other comprehensive income (loss) upon annual remeasurement and were amortized into earnings in future periods when they exceeded the accounting corridor, a defined range within which amortization of net gains and losses isnot required. Under the Accounting change, the accounting corridor of10% of the greater of the projected benefit obligation and plan assets was modified to add full, immediate recognition above asecond 20% threshold. Although the decision to make the Accounting change occurred in thefourth quarter of fiscal year2023, the actual accounting method change was applied to all calculations for fiscal year end2023, and retroactively applied to all other amounts presented in this Form10-Q.

Under the new accounting method, actuarial gains and losses are recognized in net periodic benefit cost through a modified mark-to-market (expense) benefit upon annual remeasurement in thefourth quarter, or on an interim basis as triggering events warrant remeasurement. The method for recognizing prior service credits (charges) as a component of Accumulated other comprehensive income (loss) and amortized into earnings in future periods didnot change. With respect to the recognition of actuarial gains and losses, while the historical principle was acceptable, the Company believes the Accounting change is preferable as it better aligns with fair value principles by recognizing the effects of economic and interest rate changes in plan assets and liabilities in the year in which the gains and losses are incurred to the degree such accumulated gains and losses exceed the new20% threshold in addition to amortizing the amounts between the10% and20% thresholds over time. The Accounting change has been applied retrospectively to prior years and amounts presented.

See Notes G, K, M and P for further information regarding the impact of the Accounting change on the Company’s current and prior consolidated financial statements.

Recently IssuedNot* Yet Adopted Accounting Standards*

In* December 2023,the FASB issued guidance ASU2023*-09, Improvements to Income Tax Disclosures(“ASU2023-09”), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater thanfive 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) each disaggregated between domestic and foreign. ASU2023-09 is effective for annual periods beginning after* December 15, 2024.*The Company is currently evaluating the impact of adopting this standard on its financial statement disclosures.

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Recently Adopted Accounting Standards

In* June 2016,the FASB issued updated guidance (ASU2016*-13) and also issued subsequent amendments to the initial guidance under ASU2018-19, ASU2019-04, ASU2019-05, and ASU2019-10 (collectively ASC326). ASC326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. The amendments in this guidance are effective for filers, excluding smaller reporting companies, for fiscal years beginning after* December 15, 2019,and for smaller reporting companies for fiscal years beginning after December 15, 2022 (the Company’s fiscal2024*), with early adoption permitted for certain amendments. ASC326 must be adopted by applying a cumulative effect adjustment to retained earnings. The adoption of this guidance didnot have a material impact on the Company’s financial statements.

Special Note Regarding Smaller Reporting Company Status

Under SEC Release33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company and accordingly, it has scaled some of its disclosures of financial and non-financial information in this quarterly report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.

The major classes of inventories were as follows:

In thefirst quarter of fiscal year2024, the Company entered into an agreement to sell most of its boat management system product line located atone of its subsidiaries in Italy. The sale amount was below cost and resulted in the Company recognizing an inventory write-down of $2.1 million. The Company also evaluated its other boat management system inventory,not associated with the sale. This evaluation resulted in the Company recognizing an additional inventory write-down of $1.6 million for inventory located in the U.S. These write-downs were partially offset by certain liabilities transferred to the buyer at the time of sale. The sale was completed in thesecond quarter of fiscal year2024.

The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its suppliers. However, its warranty obligation is affected by product failure rates, the number of units affected by the failure and the expense involved in satisfactorily addressing the situation. The warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. When evaluating the adequacy of the reserve for warranty costs, management takes into consideration the term of the warranty coverage, historical claim rates and costs of repair, knowledge of the type and volume of new products and economic trends. While we believe the warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable in the future could differ materially from what actually transpires. The following is a listing of the activity in the warranty reserve for the quarters ended* March 29, 2024and March 31, 2023:*

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The current portion of the warranty accrual ($4,052 and $3,503 as of* March 29, 2024and March 31, 2023,respectively) is reflected in accrued liabilities, while the long-term portion ($843 and $515 as of March 29, 2024and March 31, 2023,*respectively) is included in other long-term liabilities on the consolidated balance sheets.

The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, isnot presently determinable. Management believes that final disposition of such litigation willnot have a material impact on the Company’s results of operations, financial position, or cash flows.

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, as well as in the energy and natural resources, government, 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.

The Company hastwo reportable segments: manufacturing and distribution. These segment structures reflect the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices. Management evaluates the performance of its segments based on net income.

Information about the Company’s segments is summarized as follows:

Disaggregated revenue:

The following tables presents details deemed most relevant to the users of the financial statements for the quarters ended* March 29, 2024and March 31, 2023.*

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Net sales by product group for the quarter ended* March 29, 2024*is summarized as follows:

Net sales by product group for the quarter ended* March 31, 2023*is summarized as follows:

Net Sales by product group for thethree quarters ended* March 29, 2024*is summarized as follows:

Net Sales by product group for thethree quarters ended* March 31, 2023*is summarized as follows:

Performance Stock Awards (“PSA”)

During thefirst three quarters of fiscal2024 and2023, the Company granted a target number of 119.3 and 118.1 PSAs, respectively, to various employees of the Company, including executive officers. The fiscal2024 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative earnings before interest, taxes, depreciation, and amortization ("EBITDA", as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending* June 30, 2026.*These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 238.7.

The fiscal2023 PSAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSA Grant Agreement), in the cumulative three fiscal year period ending* June 30, 2025.*These PSAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 234.2.

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There were 329.9 and 437.9 unvested PSAs outstanding at* March 29, 2024and March 31, 2023,respectively. The fair value of the PSAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. Compensation expense of $326 and $307 was recognized for the quarters ended March 29, 2024and March 31, 2023,respectively, related to PSAs. Compensation expense of $704 and $903 was recognized for thethree* quarters ended* March 29, 2024and March 31, 2023,respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at March 29, 2024was $11.48. At March 29, 2024,the Company had $1,652 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal2024* and2023 awards. The total fair value of PSAs vested as of* March 29, 2024and March 31, 2023*was $0.

Performance Stock Unit Awards (“PSUA”)

The PSUAs entitle an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date. During thefirst three quarters of fiscal2024 and2023 , the Company granted a target number of 10.5 and 0 PSUAs, respectively, to various individuals in the Company. The fiscal2024 PSUAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSUA Grant Agreement), in the cumulativethree fiscal year period ending* June 30, 2026.*These PSUAs are subject to adjustment if the Company’s return on invested capital and cumulative EBITDA falls below or exceeds the specified target objective, and the maximum number of performance shares that can be awarded if the target objective is exceeded is 20.9.

There were 10.5 and 0 unvested PSUAs outstanding at* March 29, 2024and March 31, 2023,respectively. The fair value of the PSUAs (on the date of grant) is expensed over the performance period for the shares that are expected to ultimately vest. Compensation expense of $11 and $0 was recognized for the quarters ended March 29, 2024and March 31, 2023,respectively, related to PSUAs. Compensation expense of $29 and $0 was recognized for thethree* quarters ended* March 29, 2024and March 31, 2023,respectively, related to PSUAs. The weighted average grant date fair value of the unvested awards at March 29, 2024was $12.15. At March 29, 2024,the Company had $98 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective were achieved for the fiscal2024* awards. The total fair value of PSUAs vested as of* March 29, 2024and March 31, 2023*was $0.

Restricted Stock Awards (“RS”)

The Company has unvested RS awards outstanding that will vest if certain service conditions are fulfilled. The fair value of the RS grants is recorded as compensation expense over the vesting period, which is generally 1 to 3 years. During thefirst three quarters of fiscal2024 and2023, the Company granted 117.2 and 180.0 service based restricted shares, respectively, to employees and non-employee directors. There were 246.6 and 308.6 unvested shares outstanding at* March 29, 2024and March 31, 2023,respectively. A total of 2.4 and 0 shares of restricted stock were forfeited during thethree* quarters ended* March 29, 2024and March 31, 2023,respectively. Compensation expense of $330 and $313 was recognized for the quarters ended March 29, 2024and March 31, 2023,respectively. Compensation expense of $953 and $1,007 was recognized for thethree* quarters ended* March 29, 2024and March 31, 2023,respectively. The total fair value of restricted stock grants vested as of March 29, 2024and March 31, 2023was $2,196 and $1,699, respectively. As of March 29, 2024,*the Company had $1,568 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

Restricted Stock Unit Awards (“RSU”)

The RSUs entitles an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally three years from the date of grant or when performance conditions have been met. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. During thefirst three quarters of fiscal2024 and2023, the Company granted 7.1 and 72.4 of employment based RSUs, respectively. There were 135.0 and 130.2 unvested RSUs outstanding at* March 29, 2024and March 31, 2023,respectively. Compensation expense of $124 and $116 was recognized for the quarters ended March 29, 2024and March 31, 2023,respectively. Compensation expense of $372 and $340 was recognized for thethree* quarters ended* March 29, 2024and March 31, 2023,respectively. The total fair value of RSUs vested as of March 29, 2024and March 31, 2023was $25 and $40, respectively. The weighted average grant date fair value of the unvested awards at March 29, 2024was $10.97. As of March 29, 2024,*the Company had $412 of unrecognized compensation expense related to RSUs which will be recognized over the next three years.

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The Company has non-contributory, qualified defined benefit plans covering substantially all domestic employees hired prior to* October 1, 2003*and certain foreign employees. Additionally, the Company provides healthcare and life insurance benefits for certain domestic retirees.

As discussed in Note A, during thefourth quarter of fiscal year2023, the Company changed its accounting method related to the recognition of actuarial gains and losses for its pension and postretirement benefit plans. Under the new method, actuarial gains and losses are recognized in net periodic benefit costs upon annual remeasurement in thefourth quarter, or on an interim basis as triggering events warrant remeasurement. These changes have been applied retrospectively to prior years presented below. See Notes A, K, M, and P for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements.

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

The service cost component is included in cost of goods sold and marketing, engineering, and administrative expenses. All other components of net periodic benefit cost are included in other (income) expense, net.

The Company expects to contribute approximately $662 to its pension plans in fiscal2024. As of* March 29, 2024,*$634 in contributions to the pension plans have been made.

The Company has reclassified ($191) (net of $10 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended* March 29, 2024,and ($29) (net of $1 in taxes) during the quarter ended March 31, 2023.The Company has reclassified ($470) (net of $2 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during thethree* quarters ended* March 29, 2024,and $(1,240) (net of $5 in taxes) during thethree* quarters ended* March 31, 2023.*These reclassifications are included in the computation of net periodic benefit cost.

The Company computes its effective tax rate each quarter consistent with the requirements of ASC740-270-25. However, due to historic domestic losses and the full domestic valuation allowance, the Company has removed the loss jurisdiction for whichno tax benefit* maybe recorded from the Annual Effective Tax Rate ("AETR") calculations consistent with ASC740*-270-30-30.

The Company recorded an overall effective tax rate of 9.3% and 14.0% for the quarters ended* March 29, 2024and March 31, 2023,respectively and an overall effective tax rate of 41.0% and 38.2% for thethree* quarters ended* March 29, 2024and March 31, 2023.Year-to-date foreign earnings were $14,916 and $8,207, with corresponding income tax expense of $2,599 and $2,303 for the period ended March 29, 2024and March 31, 2023.The foreign effective tax rate for the period ended March 29, 2024incudes a total discrete benefit of ($834*), of which ($786) related to a favorable tax ruling related to operations in the Netherlands.

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Year-to-date domestic earnings were ($8,557) and ($2,063), with corresponding income tax expense of $7 and $47 for thethree quarters ended* March 29, 2024and March 31, 2023.*

As of* March 29, 2024,*the following acquired intangible assets have definite useful lives and are subject to amortization:

Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accelerated, as appropriate, over the estimated useful lives of the assets.

The weighted average remaining useful life of the intangible assets included in the table above is approximately5 years.

Intangible amortization expense was $822 and $738 for the quarters ended* March 29, 2024,and March 31, 2023,respectively. Intangible amortization expense was $2,458 and $2,140 for thethree* quarters ended* March 29, 2024,and March 31, 2023,respectively. Estimated intangible amortization expense for the remainder of fiscal2024* and each of the nextfive fiscal years is as follows:

Long-term debt at* March 29, 2024and June 30, 2023*consisted of the following:

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Credit Agreement Debt:On June 29, 2018,the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the“2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amountnot to exceed $35.0 million and the Company may,from time to time prior to the maturity date, enter into Revolving Loans in amountsnot to exceed, in the aggregate, $50.0 million (the “Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended the maturity date of the Term Loan to* April 1, 2027,and require the Company to make principal installment payments on the Term Loan of $0.5 million per quarter. In addition, under subsequent amendments to the Credit Agreement, BMO’s Revolving Credit Commitment is currently $45.0 million. The Credit Agreement also allows the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans. Under the Credit Agreement, the Company may**not* pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement currently runs through* April 1, 2027.*

Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate (“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that arenot timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Currently, the Applicable Margins are between 2.00% and 3.50% for Revolving Loans and Letters of Credit;2.125% and 3.625% for Term Loans; and 0.15% and 0.30% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio* maynot* exceed 3.50 to1.00, and the Company’s Fixed Charge Coverage Ratio* maynot* be less than 1.10 to1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for the Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank. The Company’s Tangible Net Worth* may**not* be less than $100.0 million plus50% of positive Net Income for each fiscal year ending on or after* June 30, 2023.*

Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreednot to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement.

The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. The Bank* may**not* provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.

Upon the occurrence of an Event of Default, BMO* maytake the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, BMO maytake thethree* actions listed above without notice to the Company.

On* April 1, 2024,the Company entered into AmendmentNo.* 10 to Credit Agreement (the “Tenth Amendment”) that amended and extended the Credit Agreement. The Tenth Amendment increased the Revolving Credit Commitment from $40.0 million to $45.0 million, and also increased the Borrowing Base for Revolving Loans from the sum of (a)85% of outstanding unpaid Eligible Receivable and (b) the lesser of $30.0 million and 50% of Eligible Inventory to the sum of (a)85% of outstanding unpaid Eligible Receivables and (b) the lesser of $35.0 million (reduced to $32.5 million beginning with thefirst quarter of the2026 fiscal year) and 60% of Eligible Inventory (reduced to 55% of Eligible Inventory beginning with thethird quarter of the2025 fiscal year, and 50% of Eligible Inventory beginning with thefirst quarter of the2026 fiscal year).

The Company intends to use the increased borrowing capacity under the Credit Agreement to help finance its previously announced proposed acquisition of Katsa Oy by TD Finland Holding Oy, a wholly-owned subsidiary of the Company. The Tenth Amendment specifically permits the Company to use Revolving Loans for the Katsa Oy acquisition. In addition, in determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for the Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank.

The Tenth Amendment also extended the Credit Agreement through* April 1, 2027and extended the maturity date of the Term Loan and the Term Loan Commitment Date to April 1, 2027.Prior to the Tenth Amendment, the Credit Agreement was scheduled to terminate as of June 30, 2025,and the Term Loan and Term Loan Commitment Date were scheduled to mature/terminate on March 4, 2026.*

The Tenth Amendment also increased the Applicable Margins under the Credit Agreement for purposes of determining interest rates on Revolving Loans, Letters of Credit, Term Loans, and the Unused Revolving Credit Commitment. Prior to the Tenth Amendment, the Applicable Margins were between 1.25% and 2.75% for Revolving Loans and Letters of Credit;1.375% and 2.875% for Term Loans; and.10% and.15% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). Under the Tenth Amendment, the Applicable Margins are between 2% and 3.5% for Revolving Loans and Letters of Credit;2.125% and 3.625% for Term Loans; and.15% and.3% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Tenth Amendment also increased the amount of Restricted Payments that the Company* may*make in the form of cash dividends, distributions, purchases, redemptions, or other acquisitions of its common stock from $3.0 million to $5.0 million in any fiscal year.

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

As of* March 29, 2024,*current maturities include $2.0 million of term loan payments due within the coming year.

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**Other:**Other long-term debt pertains mainly to a financing arrangement in Europe. These liabilities carry terms ofthree tofive years and implied interest rates ranging from 7% to 25%. A total amount of $10 in principal was paid on these liabilities during the current fiscal year.

During the quarters ended* March 29, 2024,*the average interest rate was 6.83% on the Term Loan, and 5.12% on the Revolving Loans.

As of* March 29, 2024,*the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $37,016, and the Company had approximately $29,694 of available borrowings. In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

The Company’s borrowings described above approximate fair value at* March 29, 2024and June 30, 2023.If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level2* in the fair value hierarchy.

The Company is party to an interest rate swap arrangement with Bank of Montreal, with an initial notional amount of $20,000 and a maturity date of* March 4, 2026to hedge the Term Loan. As of March 29, 2024,the notional amount was $10,000. This swap has been designated as a cash flow hedge under ASC815,* Derivatives and Hedging. This swap is included in the disclosures in Note O, Derivative Financial Instruments.

During thefourth quarter of fiscal2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies. Effective upon the designation, all changes in the fair value of the euro revolver are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note O, Derivative Financial Instruments.

The Company, from time to time, makes open market purchases of its common stock under authorizations given to it by the Board of Directors, of which 315.0 shares as of* March 29, 2024remain authorized for purchase. The Company didnot make any open market purchases of its shares during the quarters ended March 29, 2024and March 31, 2023.*

As of* July 1, 2022,*the cumulative effect of the Accounting change resulted in $25.1 million decrease to retained earnings and a corresponding $25.1 million increase to accumulated other comprehensive loss, both net of tax of $0 ($7.9 million in deferred tax asset offset by $7.9 million valuation allowance).

See Notes A, G, M, and P for further information regarding the impact of the Accounting change on the Company’s prior year consolidated financial statements.

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The following is a reconciliation of the Company’s equity balances for thethree fiscal quarters of2024 and2023:

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Reconciliations for the changes in accumulated other comprehensive loss, net of tax, by component for the quarters ended* March 29, 2024and March 31, 2023*are as follows:

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended* March 29, 2024*are as follows:

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Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended* March 31, 2023*is as follows:

To improve its fixed cost structure and monetize some of its under-utilized assets, the Company commenced the active marketing of several of its real estate properties. Such actions required the Company to reclassify these assets from Property, Plant and Equipment to Assets Held for Sale, at fair value less costs to sell, or net book value, whichever is lower. Fair value was determined using real estate broker estimates and would be classified as Level3 in the fair value hierarchy. This assessment of fair value resulted in the Company recognizing a write-down of the carrying value of its former corporate headquarters by $4,267 in thefourth quarter of fiscal2021.

In thefirst quarter of fiscal2023, the Company commenced the active marketing of an additional real estate property located in Nivelles, Belgium. This action required the Company to reclassify these assets from Property, Plant, and Equipment to Assets Held for Sale, at fair value less costs to sell or net book value, whichever is lower. Fair value was determined using real estate broker estimates and would be classified as Level3 in the fair value hierarchy. The real estate property's fair value less costs to sell exceeded its net book value. The Company reclassified the property's net book value of $2,801 from Property, Plant, and Equipment to Assets Held for Sale.

In thesecond quarter of fiscal2023, the Company completed the sale of the real estate property located in Belgium and received $7,150 in proceeds, net of fees and recorded a gain of $4,161 in other operating income.

In thefirst quarter of fiscal2024, the Company entered into an agreement to sell certain machinery assets, inventory, and legal relationships of its boat management systems product line. This action required the Company to reclassify these assets from Property, Plant and Equipment and Inventory to Assets Held for Sale, at fair value less costs to sell, or net book value, whichever is lower. The fair value of the machinery assets was determined using local internal specialists. The machinery assets’ fair value less costs to sell exceeded its net book value. The boat management systems inventory was valued at the lower of cost or net realizable value. Net realizable value was determined using the offer amount from the buyer less costs to sell. This assessment resulted in the Company recognizing a write-down of the carrying value of its boat management systems inventory of*$2.1* million. The write-down was classified in the income statement as a component of cost of goods sold. The agreement closed* October 30, 2023.*

The Company calculates basic earnings per share based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period. The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect. Certain restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company and are therefore included in computing earnings per share pursuant to thetwo-class method.

As discussed in Note A, during thefourth quarter of2023, the Company changed its Accounting method related to the recognition of actuarial gains and losses for its pension plans. Under the new method, actuarial gains and losses are recognized in net periodic benefit costs upon annual remeasurement in thefourth quarter, or on an interim basis as triggering events warrant remeasurement. These changes have been applied retrospectively to prior years. See Notes A, G, K, and P for further information regarding the impact of the change in accounting principle on the Company’s consolidated financial statements.

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The components of basic and diluted earnings per share were as follows:

The following potential common shares were excluded from diluted EPS for thethree quarters ended* March 29, 2024*because they were anti-dilutive:224.6 related to the Company’s unvested PSAs,10.5 related to the Company’s unvested PSAUs,153.9 related to the Company’s unvested RS awards, and 51.0 related to the Company’s unvested RSUs.

The following potential common shares were excluded from diluted EPS for thethree quarters ended* March 31, 2023*because they were anti-dilutive:355.5 related to the Company’s unvested PSAs,191.6 related to the Company’s unvested RS awards, and 59.5 related to the Company’s unvested RSUs.

The Company leases certain office and warehouse space, as well as production and office equipment.

The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and* mayinclude options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically donot* provide an implicit rate, the Company primarily uses an incremental borrowing rate based upon the information available at lease commencement. In determining the incremental borrowing rate, the Company considers its current borrowing rate, the term of the lease, and the economic environments where the lease activity is concentrated. Some of the Company’s leases contain non-lease components (e.g., common area, other maintenance costs, etc.) that relate to the lease components of the agreement. Non-lease components and the lease components to which they relate are accounted for as a single lease component.

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The following table provides a summary of leases recorded on the condensed consolidated balance sheet.

The components of lease expense were as follows:

Other information related to leases was as follows:

Approximate future minimum rental commitments under non-cancellable leases as of* March 29, 2024*were as follows:

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From time to time, the Company enters into derivative instruments to manage volatility arising from risks relating to interest rates and foreign currency exchange rates. The Company doesnot purchase, hold, or sell derivative financial instruments for trading purposes. The Company’s practice is to terminate derivative transactions if the underlying asset or liability matures or is sold or terminated, or if it determines the underlying forecasted transaction isno longer probable of occurring.

The Company reports all derivative instruments on its condensed consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes.

Interest Rate Swap Contracts

The Company hasone outstanding interest rate swap contract as of* March 29, 2024,with a notional amount of $10,000. It has been designated as a cash flow hedge in accordance with ASC815,* Derivatives and Hedging.

The primary purpose of the Company’s cash flow hedging activities is to manage the potential changes in value associated with interest payments on the Company’s SOFR-based indebtedness. The Company records gains and losses on interest rate swap contracts qualifying as cash flow hedges in accumulated other comprehensive loss to the extent that these hedges are effective and until the Company recognizes the underlying transactions in net earnings, at which time these gains and losses are recognized in interest expense on its condensed consolidated statements of operations and comprehensive income. Cash flows from derivative financial instruments are classified as cash flows from financing activities on the consolidated statements of cash flows. These contracts generally have original maturities of greater thantwelve months.

Net unrealized after-tax gains related to cash flow hedging activities that were included in accumulated other comprehensive loss were $539 and $688 as of* March 29, 2024,and June 30, 2023,*respectively. The unrealized amounts in accumulated other comprehensive loss will fluctuate based on changes in the fair value of open contracts during each reporting period.

The Company estimates that $230 of net unrealized losses related to cash flow hedging activities included in accumulated other comprehensive loss will be reclassified into earnings within the nexttwelve months.

Derivatives Designated as Net Investment Hedges

The Company is exposed to foreign currency exchange rate risk related to its investment in net assets in foreign countries. During thefourth quarter of fiscal2021, the Company designated its euro denominated Revolving Loan, with a notional amount of€13,000, as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign subsidiaries. All changes in the fair value of the euro revolver were then recorded in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. Net unrealized after-tax income related to net investment hedging activities that were included in accumulated other comprehensive loss were ($1,348) and ($1,272) as of* March 29, 2024and June 30, 2023,*respectively.

Fair Value of Derivative Instruments

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

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income for the quarters ended* March 29, 2024and March 31, 2023,*respectively, was as follows:

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The following tables summarize the effects of the Accounting change described in Note A on the Company’s condensed consolidated statement of operations and comprehensive income, statement of cash flows and statement of changes in equity for the quarter ended and thethree quarters ended* March 31, 2023and condensed consolidated balance sheet as of March 31, 2023.*

CONDENSED CONSOLIDATED STATEMENT OF OPERATION AND COMPREHENSIVE INCOME

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CONDENSED CONSOLIDATED CONDENSED BALANCE SHEET

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY