TWIN DISC INC

Previous wording

Net sales for the second quarter increased 15.2%, or $9.6 million, to $73.0 million from $63.4 million in the same quarter a year ago. The Company has benefited from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024. With the easing of global supply chain disruptions, along with improving operational performance, the Company has been able to improve delivery results. Global sales of marine and propulsion products improved 28.7% from the prior year, while shipments of off-highway transmission products improved by 8.1%. Shipments of industrial products declined by 13.1%, with a slow-down in the domestic housing and construction markets. The Asia Pacific region enjoyed the most significant sales improvement ($7.1 million or 56.1%) due to improved shipments of oil and gas transmissions into China, an improved demand for commercial marine products and continued strength in pleasure craft demand in Australia. The European region also saw a significant increase ($5.3 million or 26.5%), with improved operational performance at our facilities in Belgium and the Netherlands, coupled with continued strong demand. Sales into North America decreased 20.5%, or $5.3 million, primarily due to some softening in aftermarket demand in the oil and gas market. Currency translation had a favorable impact on second quarter fiscal 2024 sales compared to the second quarter of the prior year totaling $2.1 million primarily due to the strengthening of the euro against the U.S. dollar.

Current wording

Net sales for the third quarter increased 0.5%, or $0.4 million, to $74.2 million from $73.8 million in the same quarter a year ago. The Company has benefited from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024. With the some stabilization in the global supply chain, along with improving operational performance, the Company has been able to improve overall delivery results. Global sales of marine and propulsion products improved 3.2% from the prior year, while shipments of off-highway transmission products declined slightly (2.5%). Shipments of industrial products declined by 14.7%, with a slow-down in the domestic housing and construction markets, as well as weakness in European market demand. The European region enjoyed the most significant sales improvement ($2.1 million or 8.9%) due to improved shipments Veth propulsion products for European applications. The Asia Pacific region also saw a slight increase ($0.1 million or 0.4%), with improved demand in the commercial marine market, partially offset by timing of oil and gas shipments into China. Sales into North America decreased 19.3%, or $5.2 million, primarily due to some softening in aftermarket demand in the oil and gas market and weaker demand for industrial products. Currency translation had a slightly favorable impact on third quarter fiscal 2024 sales compared to the third quarter of the prior year totaling $0.1 million.

Previous wording

Sales at our manufacturing segment increased 3.2%, or $1.8 million, versus the same quarter last year. The U.S. manufacturing operations experienced a 5.6%, or $1.7 million, decrease in sales versus the second fiscal quarter of 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets. The Company’s operation in the Netherlands saw increased revenue of $3.6 million (27.3%) compared to the second fiscal quarter of 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past few quarters, along with a favorable currency impact and improved supply chain performance. Similarly, the Company’s Belgian operation saw an increase compared to the prior year second quarter (35.1% or $1.8 million), with a favorable translation effect and improved delivery performance driven by operational and supply chain execution. The Company’s Italian manufacturing operations were down $2.0 million (29.2%) compared to the second quarter of fiscal 2023, primarily due to the sale of the BCS business during the quarter. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.1 million (6.2%) compared to the prior year second quarter.

Current wording

Sales at our manufacturing segment decreased 1.9%, or $1.2 million, versus the same quarter last year. The U.S. manufacturing operations experienced a 9.4%, or $3.1 million, decrease in sales versus the third fiscal quarter of 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets. The Company’s operation in the Netherlands saw dramatically increased revenue of $4.9 million (32.8%) compared to the third fiscal quarter of 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past few quarters, along with improved supply chain performance. Similarly, the Company’s Belgian operation saw an increase compared to the prior year third quarter (12.9% or $0.9 million), with improved delivery performance driven by operational and supply chain execution. The Company’s Italian manufacturing operations were down $4.1 million (51.9%) compared to the third quarter of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.2 million (13.9%) compared to the prior year third quarter.

Previous wording

Our distribution segment experienced an increase in sales of $11.5 million (44.8%) in the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023. The Company’s Asian distribution operations in Singapore, China and Japan were up 60.4% or $4.4 million from the prior year on improving deliveries for energy related products in China. The Company’s North America distribution operation saw a 26.3% ($1.7 million) increase on strong demand for marine products from the European operations. The Company’s European distribution operation saw a significant increase ($2.1 million or 41.9%) on strong demand, a favorable currency impact and improved supply of product. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue (29.4% or $2.1 million) from the prior year second fiscal quarter, primarily due to continued strong demand for pleasure craft products in the region.

Current wording

Our distribution segment experienced an increase in sales of $3.1 million (9.2%) in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. The Company’s Asian distribution operations in Singapore, China and Japan were up 1.2% or $0.2 million from the prior year on improved commercial marine demand, partially offset by reduced deliveries for energy related products in China. The Company’s North America distribution operation saw a 7.9% ($0.7 million) increase on strong demand for marine products manufactured by the European operations. The Company’s European distribution operation saw a significant increase ($1.5 million or 29.1%) on strong demand and improved supply of product. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a decrease in revenue (9.7% or $0.7 million) from the prior year third fiscal quarter, primarily due to softer demand for pleasure craft products in the region following record levels in the prior year.

Previous wording

Gross profit as a percentage of sales for the second quarter of fiscal 2024 improved to 28.3%, compared to 26.9% for the same period last year. The improvement in the current year second quarter compared to the prior year result was primarily volume related, with margin conversion of 37.7% on the additional revenue. The mix impact for the quarter was essentially neutral.

Current wording

Gross profit as a percentage of sales for the third quarter of fiscal 2024 improved to 28.2%, compared to 26.1% for the same period last year. The improvement in the current year third quarter compared to the prior year result was primarily driven by price realization and cost reductions, with a slightly positive mix impact. The mix impact for the quarter was essentially neutral.

Previous wording

For the fiscal 2024 second quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.5%, compared to 25.2% for the fiscal 2023 second quarter. ME&A expenses increased $1.2 million (7.3%) versus the same period last fiscal year. The increase in ME&A spending for the quarter was comprised of higher wages and benefits ($0.7 million), travel costs ($0.2 million), software maintenance ($0.1 million), product development ($0.1 million) and a positive currency translation impact ($0.3 million). These increases were partially offset by lower professional fees ($0.4 million). The increases were driven by inflationary impacts and investment in resources to support our hybrid electric strategy.

Current wording

For the fiscal 2024 third quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.2%, compared to 19.8% for the fiscal 2023 third quarter. ME&A expenses increased $2.6 million (17.6%) versus the same period last fiscal year. The increase in ME&A spending for the quarter was comprised of higher wages and benefits ($0.5 million), increased global bonus expense ($0.4 million), travel costs ($0.3 million), lease expense ($0.2 million), higher professional fees ($0.5 million, driven by acquisition activities), along with other inflationary increases. The increases were driven by investments to drive growth (resources to support our hybrid electric strategy), corporate development and other inflationary impacts.

Previous wording

The Company incurred minor restructuring charges during the second quarter of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Current wording

The Company incurred minor restructuring charges during the third quarter of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Previous wording

Interest expense was down slightly to $0.4 million in the second quarter of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Current wording

Interest expense was down slightly to $0.3 million in the third quarter of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Previous wording

Other expense, net of $0.4 million for the second fiscal quarter was primarily attributable to a currency loss, partially offset by a pension benefit.

Current wording

Other income, net of $1.0 million for the third fiscal quarter was primarily attributable to a currency gains and a pension benefit.

Previous wording

The fiscal 2024 second quarter effective tax rate was 64.0% compared to 26.3% in the prior fiscal year second quarter. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the increase to the effective tax rate.

Current wording

The fiscal 2024 third quarter effective tax rate was 10.6% compared to 14.0% in the prior fiscal year third quarter. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the reduced effective tax rate for both periods.

Previous wording

Comparison of the First Half of Fiscal 2024 with the First Half of Fiscal 2023

Current wording

Comparison of the First Three Quarters of Fiscal 2024 with the First Three Quarters of Fiscal 2023

Previous wording

Net sales for the first half increased 14.5%, or $17.3 million, to $136.5 million from $119.3 million in the same period a year ago. The Company has continued to benefit from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024. With the easing of global supply chain disruptions, along with improving operational performance, the Company has been able to improve delivery results compared to the prior year. Global sales of marine and propulsion products improved 26.8% from the prior year, while shipments of off-highway transmission products improved by 12.5%. Shipments of industrial products declined by 16.0%, with a slow-down in the domestic housing and construction markets. The Asia Pacific region enjoyed the most significant sales improvement ($14.5 million or 57.5%) due to improved shipments of oil and gas transmissions into China, an improved demand for commercial marine products and continued strength in pleasure craft demand in Australia. The European region also saw a significant increase ($11.4 million or 32.2%), with improved operational performance at our facilities in Belgium and the Netherlands, coupled with continued strong demand. Sales into North America decreased 18.9%, or $9.2 million, primarily due to some softening in aftermarket demand in the oil and gas market. Currency translation had a favorable impact on first half fiscal 2024 sales compared to the first half of the prior year totaling $4.4 million primarily due to the strengthening of the euro against the U.S. dollar.

Current wording

Net sales for the first three quarters increased 9.2%, or $17.7 million, to $210.7 million from $193.0 million in the same period a year ago. The Company has continued to benefit from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024. With the easing of global supply chain disruptions, along with improving operational performance, the Company has been able to improve delivery results compared to the prior year. Global sales of marine and propulsion products improved 17.3% from the prior year, while shipments of off-highway transmission products improved by 6.7%. Shipments of industrial products declined by 15.5%, with a slow-down in the domestic housing and construction markets. The Asia Pacific region enjoyed the most significant sales improvement ($14.5 million or 34.1%) due to improved shipments of oil and gas transmissions into China, an improved demand for commercial marine products and continued strength in pleasure craft demand in Australia. The European region also saw a significant increase ($13.5 million or 23.0%), with improved operational performance at our facilities in Belgium and the Netherlands, coupled with continued strong demand. Sales into North America decreased 19.1%, or $14.4 million, primarily due to some softening in aftermarket demand in the oil and gas market. Currency translation had a favorable impact on first three quarters of fiscal 2024 sales compared to the same period in the prior year totaling $4.5 million primarily due to the strengthening of the euro against the U.S. dollar.

Previous wording

Sales at our manufacturing segment increased 6.8%, or $7.2 million, versus the same period last year. The U.S. manufacturing operations experienced a 6.9%, or $4.1 million, decrease in sales versus the first half of fiscal 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets. The Company’s operation in the Netherlands saw increased revenue of $11.2 million (54.1%) compared to the first half of fiscal 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past several quarters, along with a favorable currency impact and improved supply chain performance. Similarly, the Company’s Belgian operation saw an increase compared to the prior fiscal year first half (28.8% or $2.7 million), with a favorable translation effect and improved delivery performance driven by operational and supply chain execution. The Company’s Italian manufacturing operations were down $2.7 million (21.4%) compared to the first half of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.1 million (4.2%) compared to the prior fiscal year first half.

Current wording

Sales at our manufacturing segment increased 3.5%, or $5.9 million, versus the same period last year. The U.S. manufacturing operations experienced a 7.8%, or $7.2 million, decrease in sales versus the first three quarters of fiscal 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets. The Company’s operation in the Netherlands saw increased revenue of $16.1 million (45.2%) compared to the first three quarters of fiscal 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past several quarters, along with a favorable currency impact and improved supply chain performance. Similarly, the Company’s Belgian operation saw an increase compared to the prior fiscal year first three quarters (21.5% or $3.6 million), with a favorable translation effect and improved delivery performance driven by operational and supply chain execution. The Company’s Italian manufacturing operations were down $6.9 million (33.2%) compared to the first three quarters of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.3 million (7.3%) compared to the prior fiscal year first three quarters.

Previous wording

Our distribution segment experienced an increase in sales of $20.2 million (40.5%) in the first half of fiscal 2024 compared to the first half of fiscal 2023. The Company’s Asian distribution operations in Singapore, China and Japan were up 88.9% or $14.0 million from the prior year on improving deliveries for energy related products in China and strong commercial marine demand in the region. The Company’s North America distribution operation saw a 10.4% ($1.2 million) increase on strong domestic demand for marine products from the European operations. The Company’s European distribution operation saw a significant increase ($2.2 million or 26.1%) on strong demand, a favorable currency impact and improved supply of product. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue (6.8% or $0.9 million) from the prior year first half, primarily due to continued strong demand for pleasure craft products in the region.

Current wording

Our distribution segment experienced an increase in sales of $23.4 million (27.95%) in the first three quarters of fiscal 2024 compared to the first three quarters of fiscal 2023. The Company’s Asian distribution operations in Singapore, China and Japan were up 48.6% or $14.1 million from the prior year on improving deliveries for energy related products in China and strong commercial marine demand in the region. The Company’s North America distribution operation saw a 9.3% ($1.9 million) increase on strong domestic demand for marine products from the European operations. The Company’s European distribution operation saw a significant increase ($3.8 million or 27.9%) on strong demand, a favorable currency impact and improved supply of product. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue (1.2% or $0.3 million) from the prior year first three quarters, primarily due to continued strong demand for pleasure craft products in the region.

Previous wording

Gross profit as a percentage of sales for the first half of fiscal 2024 improved to 27.3%, compared to 25.4% for the same period last year. The improvement in the first half of the current year compared to the prior year result was primarily volume related, along with a positive mix impact due to additional oil and gas units shipped in the current year. These favorable movements were partially offset by the negative impact of the sale of the BCS business that was recorded in the first quarter of fiscal 2024.

Current wording

Gross profit as a percentage of sales for the first three quarters of fiscal 2024 improved to 27.6%, compared to 25.7% for the same period last year. The improvement in the first three quarters of the current year compared to the prior year result was primarily volume related, along with a positive mix impact due to additional oil and gas units shipped in the current year. These favorable movements were partially offset by the negative impact of the sale of the BCS business that was recorded in the first quarter of fiscal 2024.

Previous wording

For the fiscal 2024 first half, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 24.9%, compared to 26.0% for the fiscal 2023 first half. ME&A expenses increased $3.0 million (9.7%) versus the same period last fiscal year. The increase in ME&A spending for the first half was comprised of higher wages and benefits ($1.4 million), travel costs ($0.5 million), software maintenance ($0.3 million), product development ($0.3 million) and a positive currency translation impact ($0.5 million). These increases were partially offset by lower bad debt expense ($0.2 million). The increases were driven by inflationary impacts and investment in resources to support our hybrid electric strategy.

Current wording

For the fiscal 2024 first three quarters, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 24.3%, compared to 23.7% for the fiscal 2023 first three quarters. ME&A expenses increased $5.6 million (12.2%) versus the same period last fiscal year. The increase in ME&A spending for the first three quarters was comprised of higher wages and benefits ($1.4 million), travel costs ($0.7 million), software maintenance ($0.3 million), product development ($0.3 million), global bonus expense ($0.9 million), professional fees ($0.4 million), lease expense ($0.3 million), depreciation and amortization ($0.6 million) and a positive currency translation impact ($0.5 million). The increases were driven by inflationary impacts and investment in resources to support our hybrid electric strategy.

Previous wording

The Company incurred minor restructuring charges during the first half of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Current wording

The Company incurred minor restructuring charges during the first three quarters of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Previous wording

Interest expense was down slightly to $0.8 million in the first half of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Current wording

Interest expense was down 37.6% to $1.0 million in the first three quarters of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Previous wording

Other expense of $0.3 million for the first half of fiscal 2024 was primarily attributable to a currency loss, partially offset by a pension benefit.

Current wording

Other income of $0.6 million for the first three quarters of fiscal 2024 was primarily attributable to a pension benefit, partially offset by a currency loss.

Previous wording

The fiscal 2024 first half effective tax rate was 107.1% compared to 80.5% in the prior fiscal year comparable period. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the increase to the effective tax rate.

Current wording

The fiscal 2024 first three quarters effective tax rate was 41.9% compared to 38.2% in the prior fiscal year comparable period. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the increase to the effective tax rate.

Previous wording

As of December 29, 2023, the Company had net working capital of $119.0 million, which represents a decrease of $0.6 million, or 0.5%, from the net working capital of $119.6 million as of June 30, 2023.

Current wording

As of March 29, 2024, the Company had net working capital of $119.9 million, which represents an increase of $0.3 million, or 0.2%, from the net working capital of $119.6 million as of June 30, 2023.

Previous wording

Cash increased by $7.8 million to $21.0 million as of December 29, 2023, versus $13.3 million as of June 30, 2023. As of December 29, 2023, the majority of the cash is at the Company’s overseas operations in Europe ($5.5 million) and Asia-Pacific ($10.8 million).

Current wording

Cash increased by $10.6 million to $23.8 million as of March 29, 2024, versus $13.3 million as of June 30, 2023. As of March 29, 2024, the majority of the cash is at the Company’s overseas operations in Europe ($5.6 million) and Asia-Pacific ($10.4 million). The Company had $7.9 million of domestic cash available at March 29, 2024 in anticipation of the closing of the Katsa Oy acquisition announced in March.

Previous wording

Trade receivables of $41.4 million were down $13.3 million, or 24.3%, when compared to last fiscal year-end. The impact of foreign currency translation was to increase accounts receivable by $1.2 million versus June 30, 2023. As a percent of sales, trade receivables finished at 56.8% in the second quarter of fiscal 2024 compared to 62.2% for the comparable period in fiscal 2023 and 65.2% for the fourth quarter of fiscal 2023.

Current wording

Trade receivables of $41.0 million were down $13.8 million, or 25.2%, when compared to last fiscal year-end. The impact of foreign currency translation was to decrease accounts receivable by $0.2 million versus June 30, 2023. As a percent of sales, trade receivables finished at 55.2% in the third quarter of fiscal 2024 compared to 60.2% for the comparable period in fiscal 2023 and 65.2% for the fourth quarter of fiscal 2023.

Previous wording

Inventories were essentially unchanged versus June 30, 2023. The impact of foreign currency translation was to increase inventories by $3.9 million versus June 30, 2023. This increase was essentially offset by the sale of the BCS business, reducing inventory by $3.8 million. Other entity movements were offsetting, with increases at our operations in the Netherlands (driven by anticipated growth in the second half) and Australia (timing of purchases and a new product introduction) being offset by reductions at our distribution operations in Singapore, China and the US. On a consolidated basis, as of December 29, 2023, the Company’s backlog of orders to be shipped over the next six months approximates $125.2 million, compared to $119.2 million at June 30, 2023 and $124.0 million at December 30, 2022. As a percentage of six-month backlog, inventory has decreased from 111% at June 30, 2023 to 105% at December 29, 2023.

Current wording

Inventories were reduced by $2.1 million (1.6%) versus June 30, 2023. The impact of foreign currency translation was to decrease inventories by $0.9 million versus June 30, 2023. The remaining decrease was essentially the result of the sale of the BCS business, reducing inventory by $3.8 million. The operation in the Netherlands reported an offsetting increase driven by continued growth in backlog and the need for inventory to support growth. Much of this inventory, however, is funded through customer advance payments upon receipt of the order. On a consolidated basis, as of March 29, 2024, the Company’s backlog of orders to be shipped over the next six months approximates $130.5 million, compared to $119.2 million at June 30, 2023 and $127.7 million at March 31, 2023. As a percentage of six-month backlog, inventory has decreased from 111% at June 30, 2023 to 100% at March 29, 2024.

Previous wording

Net property, plant and equipment increased $1.6 million (4.4%) to $40.3 million versus $38.7 million at June 30, 2023. The Company had capital spending of $5.4 million in the first half and a favorable exchange impact of $0.5 million. These increases were offset by depreciation ($3.4 million) and the impact of the sale of the BCS business. Capital spending occurring in the first half was primarily related to replacement capital. In total, the Company expects to invest between $9 and $11 million in capital assets in fiscal 2024. The Company continues to review its capital plans based on overall market conditions and availability of capital, and may make changes to its capital plans accordingly. The Company’s capital program is focused on modernizing key core manufacturing, assembly and testing processes and improving efficiencies at its facilities around the world.

Current wording

Net property, plant and equipment increased $2.0 million (5.1%) to $40.6 million versus $38.7 million at June 30, 2023. The Company had capital spending of $7.6 million in the first three quarters. This increase was partially offset by depreciation ($5.0 million) and the impact of the sale of the BCS business. Capital spending occurring in the first three quarters was primarily related to replacement capital. In total, the Company expects to invest between $9 and $11 million in capital assets in fiscal 2024. The Company continues to review its capital plans based on overall market conditions and availability of capital and may make changes to its capital plans accordingly. The Company’s capital program is focused on modernizing key core manufacturing, assembly and testing processes and improving efficiencies at its facilities around the world.

Previous wording

Accounts payable as of December 29, 2023 of $32.6 million was down $3.9 million, or 10.7%, from June 30, 2023. The impact of foreign currency translation was to increase accounts payable by $1.1 million versus June 30, 2023. The remaining decrease is primarily related to the reduced purchasing activities in light of stable demand and inventory reduction efforts.

Current wording

Accounts payable as of March 29, 2024 of $33.2 million was down $3.3 million, or 9.0%, from June 30, 2023. The impact of foreign currency translation was to decrease accounts payable by $0.3 million versus June 30, 2023. The remaining decrease is primarily related to the reduced purchasing activities in light of stable demand and inventory reduction efforts.

Previous wording

Total borrowings and long-term debt as of December 29, 2023 decreased $0.9 million to $17.7 million versus $18.6 million at June 30, 2023. During the first half, the Company reported positive free cash flow of $10.6 million (defined as operating cash flow less acquisitions of fixed assets), driven by positive operating results and working capital performance, partially offset by the payment of a bonus accrual and capital spending. The Company ended the quarter with total debt, net of cash, of ($3.3) million, compared to $5.4 million at June 30, 2023, for a net improvement of $8.7 million.

Current wording

Total borrowings and long-term debt as of March 29, 2024 decreased $1.6 million to $17.0 million versus $18.6 million at June 30, 2023. During the first three quarters, the Company reported positive free cash flow of $14.7 million (defined as operating cash flow less acquisitions of fixed assets), driven by positive operating results and working capital performance, partially offset by the payment of a bonus accrual and capital spending. The Company ended the quarter with total debt, net of cash, of ($6.8) million, compared to $5.4 million at June 30, 2023, for a net improvement of $12.2 million.

Previous wording

Total equity increased $0.2 million, or 0.1%, to $145.3 million as of December 29, 2023. The net loss during the first half decreased equity by $0.1 million, offset by a favorable foreign currency translation of $2.2 million and the payment of a dividend ($0.6 million). The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.5 million. The net remaining decrease in equity primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans, along with the unrealized gain on cash flow hedges.

Current wording

Total equity increased $1.4 million, or 0.1%, to $146.9 million as of March 29, 2024. The net income during the first three quarters increased equity by $3.6 million, offset by an unfavorable foreign currency translation of $0.9 million and the payment of a dividend ($1.2 million). The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.5 million. The net remaining decrease in equity primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans, along with the unrealized gain on cash flow hedges.

Previous wording

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 amount not to exceed $35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not 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 March 4, 2026, 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 $40.0 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 $3.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement currently runs through June 30, 2025.

Current wording

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 amount not to exceed $35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not 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.

Previous wording

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 are not 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 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).

Current wording

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 are not 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).

Previous wording

The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. The Company’s Tangible Net Worth may not be less than $100 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

Current wording

The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. 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 plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

Previous wording

Upon the occurrence of an Event of Default, BMO may take 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, the Bank may take the three actions listed above without notice to the Company.

Current wording

Upon the occurrence of an Event of Default, BMO may take 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 may take the three actions listed above without notice to the Company.