TWIN DISC INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(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, 2024.The prior 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 condensed consolidated financial statements and information presented herein include the financial results of Kobelt Manufacturing Co. Ltd. (“Kobelt”). 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. The provisional fair value estimates of Kobelt's property, plant and equipment, net and intangible assets, net, are pending final review by the Company, and Kobelt is included in the Company's manufacturing segment.

The condensed consolidated financial statements and information presented herein include the financial results of Katsa Oy (“Katsa”). On* May 31, 2024,*the Company completed the acquisition of 100% of the outstanding common stock of Katsa. Based in Finland, Katsa is a European manufacturer of custom-designed, high-quality power transmission components and gearboxes for industrial and marine end-markets for a broad range of end market applications. Katsa also provides a wide range of after-sales services, including spare part deliveries, reverse engineering, modeling, and gearbox refurbishment. Katsa is included in the Company's manufacturing segment.

The Company’s condensed consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly owned domestic and foreign subsidiaries, with the exception of our investment in Twin Disc Nico LTD., which is 66% owned by the Company. 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 30falls. One foreign subsidiary is included based on a fiscal year ending May 31,*to facilitate prompt reporting of consolidated results. All significant intercompany transactions have been eliminated.

Certain prior year immaterial amounts have been reclassified to conform with the current year's presentation. The changes didnot have a material impact on the Company's condensed consolidated financial position, results of operations, or cash flows in any of the periods presented.

Recently IssuedNot* Yet Adopted Accounting Standards*

In* November 2024,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures” (“ASU2024*-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. ASU2024-03 is effective for fiscal years beginning after* December 15, 2026,or the Company’s fiscal2028,* 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. The Company is currently evaluating the impact of adopting this standard on its financial statement disclosures.

In* November 2023,the FASB issued guidance ASU2023*-07, "Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. The Company expects to adopt the new annual disclosures as required for fiscal2025 and the interim disclosures as required beginning with thefirst quarter of fiscal2026.

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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) 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.

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.

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, 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 as 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 $16,586 in cash at closing, which included a base payment plus adjustments for net cash, working capital, and earnout. This amount was subject to a final determination of working capital adjustments and 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 BMO Harris Bank N.A. (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 Company's portfolio, reinforcing Twin Disc’s position as a global leader in power transmission solutions. Kobelt's in-house foundry and expertise in bronze die casting, precision machining, assembly and testing ensure complete quality control, which aligns perfectly with the Company's commitment to engineering excellence.

With over60 years of experience designing and manufacturing high-quality products, Kobelt is a well-suited addition to the Twin Disc family. This acquisition opens new opportunities for growth and partnerships, leveraging the Company's global sales and service teams to drive even greater success.

Since the acquisition date, the Company included in its condensed consolidated statement of operations and comprehensive income (loss) net sales and earnings for Kobelt of $1,229 and ($160), respectively.

Purchase Price Allocation

The acquisition of Kobelt met the criteria for a business combination to be accounted for using the acquisition method under ASC805, Business Combinations (“ASC805”), with the Company identified as the legal and the accounting acquirer. The Company recognized approximately $0.7 million of acquisition-related costs which were expensed in the consolidated statement of operations for the quarter ended* March 28, 2025.*

The following table details the allocation of the purchase price of the assets acquired and liabilities assumed in connection with the acquisition of Kobelt.

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Fair Value Estimate of Assets Acquired and Liabilities Assumed

The Company is continuing its review of the fair value estimate of assets acquired and liabilities assumed during the measurement period, which will conclude as soon as the necessary information regarding the facts and circumstances that existed as of the acquisition date is obtained, or otherwisenot available. This measurement period willnot exceedone year from the acquisition date. At the effective date of the acquisition, the assets acquired and liabilities assumed are required to be measured at fair value. The fair value estimates are pending completion of some elements, including the finalization of an independent appraisal and final review by the Company. Accordingly, until the fair values are final, there could be material adjustments to the Company’s consolidated financial statements, including changes to depreciation and amortization expense related to the valuation of property and equipment and intangible assets acquired and their respective useful lives, among other adjustments.

Upon the final determination of the fair value of assets acquired and liabilities assumed, the excess of the purchase price over such fair values is allocated to goodwill.

The final determination of the purchase price, fair values and resulting goodwill* may*differ significantly from what is reflected in these consolidated financial statements.

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The following summarizes the preliminary estimate of fair value of the assets acquired and liabilities assumed at the acquisition date:

The following information provides further details about the preliminary estimated net step-up in fair value and/or the estimated fair value at the acquisition date for some key balance sheet items.

(a) Accounts receivable represent contractual amounts receivable from customers. The amounts approximate fair value.

(b) Inventory consists of:

(c) The value of property, plant and equipment is estimated at:

(d) Intangible assets consist of:

(e) The amounts approximate fair value.

(f) The Company recorded goodwill of $2,131 associated with the acquisition. The fair value of the purchase price of the business exceeded the fair value of the identifiable assets acquired and liabilities assumed. The weighted average remaining useful life of the intangible assets included in the table above is approximately 17.4 years.

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The major classes of inventories were as follows:

In thesecond quarter of fiscal year2025, the Company completed a product rationalization evaluation on its industrial product offerings. As a result of the evaluation, an inventory write-down on certain industrial products, totaling $1.6 million, was recorded.

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 the 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 28, 2025and March 29, 2024:*

The current portion of the warranty accrual ($3,641 and $4,052 as of* March 28, 2025and March 29, 2024,respectively) is reflected in accrued liabilities, while the long-term portion ($1,057 and $843 as of March 28, 2025and March 29, 2024,*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.

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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 earnings.

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

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended* March 28, 2025and March 29, 2024.*

Net sales by product group for the quarter ended* March 28, 2025*is summarized as follows:

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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 thethree quarters ended* March 28, 2025*is summarized as follows:

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

In thefirst quarter of fiscal2025, the Company adopted the Twin Disc, Incorporated Amended and Restated2021 Omnibus Incentive Plan (the “Omnibus Plan”), which was subsequently approved by the Company’s shareholders. The Omnibus Plan amended and restated the Twin Disc, Incorporated2021 Long-Term Incentive Plan (the*“2021* LTI Plan”), and effectively replaced the Twin Disc, Incorporated2020 Stock Incentive Plan for Non-Employee Directors (the*“2020* Directors' Plan”). Benefits under the Omnibus Plan* maybe granted, awarded or paid in anyone* 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 Company’s common stock, which consists of the previously-approved 715,000 shares of common stock reserved for issuance under the2021 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 the2020 Directors' Plan; and 400,000 newly authorized shares of common stock. Shares issued under the Omnibus Plan* may*be authorized and unissued shares or shares reacquired by the Company in the open market or a combination of both. The aggregate amount is subject to proportionate adjustments for stock dividends, stock splits and similar changes.

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Performance Stock Awards (“PSA”)

During thefirst three quarters of fiscal2025 and2024, the Company granted a target number of 116.1 and 119.3 PSAs, respectively, to various employees of the Company, including executive officers.

The fiscal2025 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, 2027.*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 232.2.

The fiscal2024 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, 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.

There were 350.0 and 329.9 unvested PSAs outstanding at* March 28, 2025and March 29, 2024,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 $376 and $326 was recognized for the quarters ended March 28, 2025and March 29, 2024,respectively, related to PSAs. Compensation expense of $1,296 and $704 was recognized for thethree* quarters ended* March 28, 2025and March 29, 2024,respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at March 28, 2025was $10.85. At March 28, 2025,the Company had $1,919 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal2025,* 2024 and2023 awards. The total fair value of PSAs vested as of* March 28, 2025and March 29, 2024*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 fiscal2025 and2024 , the Company granted a target number of 0 and 10.5 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 10.5 unvested PSUAs outstanding at* March 28, 2025and March 29, 2024,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 $22 and $11 was recognized for the quarters ended March 28, 2025and March 29, 2024,respectively, related to PSUAs. Compensation expense of $33 and $29 was recognized for thethree* quarters ended* March 28, 2025and March 29, 2024,respectively, related to PSUAs. The weighted average grant date fair value of the unvested awards at March 28, 2025was $12.15. At March 28, 2025,the Company had $55 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal2024* awards. The total fair value of PSUAs vested as of* March 28, 2025and March 29, 2024*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 fiscal2025 and2024, the Company granted 45.8 and 117.2 service based restricted shares, respectively, to employees and non-employee directors. There were 251.3 and 246.6 unvested shares outstanding at* March 28, 2025and March 29, 2024,respectively. A total of 0 and 2.4 shares of restricted stock were forfeited during thethree* quarters ended* March 28, 2025and March 29, 2024,respectively. Compensation expense of $321 and $330 was recognized for the quarters ended March 28, 2025and March 29, 2024,respectively. Compensation expense of $949 and $953 was recognized for thethree* quarters ended* March 28, 2025and March 29, 2024,respectively. The total fair value of restricted stock grants vested as of March 28, 2025and March 29, 2024was $454 and $2,196, respectively. As of March 28, 2025,*the Company had $877 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

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Restricted Stock Unit Awards (“RSU”)

The RSUs 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, 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 fiscal2025 and2024, the Company granted 77.4 and 7.1 of employment based RSUs, respectively. There were 156.9 and 135.0 unvested RSUs outstanding at* March 28, 2025and March 29, 2024,respectively. Compensation expense of $137 and $124 was recognized for the quarters ended March 28, 2025and March 29, 2024,respectively. Compensation expense of $327 and $372 was recognized for thethree* quarters ended* March 28, 2025and March 29, 2024,respectively. The total fair value of restricted stock units vested as of March 28, 2025and March 29, 2024was $701 and $25, respectively. The weighted average grant date fair value of the unvested awards at March 28, 2025was $10.66. As of March 28, 2025,*the Company had $852 of unrecognized compensation expense related to restricted stock which will be recognized over the next three years.

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.

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 (expense) income, net.

The Company expects to contribute approximately $671 to its pension plans in fiscal2025. As of* March 28, 2025,*$592 in contributions to the pension plans have been made.

The Company has reclassified $201 (net of $5 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during the quarter ended* March 28, 2025,and ($191) (net of $10 in taxes) during the quarter ended March 29, 2024.These reclassifications are included in the computation of net periodic benefit cost. The Company has reclassified ($1,246) (net of $3 in taxes) of benefit plan adjustments from accumulated other comprehensive loss during thethree* quarters ended* March 28, 2025,and ($470) (net of $2 in taxes) during thethree* quarters ended* March 29, 2024.*These reclassifications are included in the computation of net periodic benefit cost.

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Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with the estimated Annual Effective Tax Rate (AETR). Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. To calculate its AETR, an entity must estimate its ordinary income or loss and the related tax expense or benefit for its full fiscal year. In situations in which an entity is in a loss position and recognizes a full valuation allowance, the guidance in ASC740-270-25-9 applies. Due to continued historical domestic losses and uncertain future domestic earnings, the Company continues to recognize a full domestic valuation allowance.

Permanent differences continue to fluctuate and are significant compared to projected ordinary income. Therefore, per ASC guidance, the fully valued domestic entity was removed from the annualized effective rate calculation. Because of the full U.S. valuation allowance, the U.S. entity* mayonly recognize tax expense (benefit) recorded for ASC740*-10 adjustments.

Due to the full US valuation allowance currently in place,no tax benefit can be recognized on the domestic losses.

Goodwill represents the excess of the consideration transferred net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed.

The Company reviews goodwill for impairment on a reporting unit basis annually as of the end of the fiscal year, and whenever events or circumstances (“triggering events”) indicate that the carrying value of goodwill* may**not* be recoverable. The Company monitors for interim triggering events on an ongoing basis. Such triggering events include unfavorable operating results and macroeconomic trends.

The fair value of reporting units is primarily driven by projected growth rates and operating results under the income approach using a discounted cash flow model, which applies an appropriate market-participant discount rate, and consideration of other market approach data from guideline public companies. If declining actual operating results or future operating results become indicative that the fair value of the Company’s reporting units has declined below their carrying values, an interim goodwill impairment test* mayneed to be performed and may*result in a non-cash goodwill impairment charge.

On* February 14, 2025,as discussed in Note B, the Company acquired goodwill in the estimated amount of $2,131 and intangible assets in the estimated amount of $2,847 as part of the acquisition of Kobelt. These estimates are preliminary and are pending completion of several elements, including finalization of an independent valuation of fair value of the assets acquired and liabilities assumed and final review by the Company’s management. The final determination of fair values and resulting goodwill may*differ significantly from what is currently reflected.

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As of* March 28, 2025,*changes in the carrying amount of goodwill is summarized as follows:

For the quarter ended* March 28. 2025,the Company performed a review of potential triggering events, and concluded there wereno* triggering events that indicated that the fair value of its reporting units hadnot more likely thannot declined to below their carrying values at* March 28, 2025.The Company will perform an annual impairment test for its new and stand-alone reporting unit, Kobelt, as of June 30, 2025.*

As of* March 28, 2025,*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 approximately8 years.

Intangible amortization expense was $915 and $822 for the quarters ended* March 28, 2025,and March 29, 2024,respectively. Intangible amortization expense was $2,721 and $2,458 for thethree* quarters ended* March 28, 2025,and March 29, 2024,respectively. Estimated intangible amortization expense for the remainder of fiscal2025* and each of the nextfive fiscal years and thereafter is as follows:

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Long-term debt at* March 28, 2025and June 30, 2024*consisted of the following:

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 acquisition, as well as pro-forma EBITDA of Katsa 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.

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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 used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Katsa by TD Finland Holding Oy, a wholly-owned subsidiary of the Company. The Tenth Amendment specifically permitted the Company to use Revolving Loans for the Katsa 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 acquisition, as well as pro-forma EBITDA of Katsa 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.*

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.

On* February 14, 2025,the Company entered into a Credit Agreement (the “New 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.

Pursuant to the New Agreement, the Bank made a Term Loan to the Company in the principal amount of $15 million, consisting of as assignment of a term loan under the 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 $0.750 million per quarter. Under the new 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 amountsnot* to exceed, in the aggregate and subject to a Borrowing Base, $50 million (the “Revolving Credit Commitment”). The Borrowing Base is the sum of (a)85% of outstanding unpaid Eligible Receivables and (b) the lesser of $40 million for each fiscal month ending on or prior to* August 31, 2025 (reduced to $35 million for each fiscal month ending on or prior to August 31, 2026,and further reduced to $32.5 million for each fiscal month ending thereafter) and 60% of Eligible Inventory for each fiscal month ending on or prior to August 31, 2025 (reduced to 55% of Eligible Inventory for each fiscal month ending on or prior to February 28, 2026,and 50% of Eligible Inventory for each fiscal month ending thereafter). The New Agreement also allows the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, would become Revolving Loans. Under the New 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 New Agreement runs through* April 1, 2027.*

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The Company used the increased borrowing capacity under the New Agreement to help finance its acquisition of Kobelt Manufacturing Co. Ltd. (“Kobelt”), as described elsewhere in this current report. Kobelt is included as a Borrower under the New Agreement, and* may*borrow directly under the New Agreement up to the lesser of the Revolving Credit Commitment or $25 million. For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included. 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 each of the Company’s Kobelt Acquisition and the Company’s prior Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy and Kobelt as permitted by the Bank.

Interest rates under the New Agreement are based on the secured overnight financing rate (“SOFR”), the euro interbank offered rate (the “EURIBO Rate”), or the Canadian Overnight Repo Rate Average (the “CORRA”). Loans under the New Agreement are designated as either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin; “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin; “Term CORRA Loans,” which accrue interest at an Adjusted Term CORRA plus an Applicable Margin; “Daily Compounded CORRA Loans,” which accrue interest at a Daily Compounded CORRA plus an Applicable Margin; or Canadian Prime Rate Loans,” which accrue interest at the Canadian Prime Rate plus an Applicable Margin. 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).

Borrowings under the New Agreement are secured by substantially all of the Company’s, including Kobelt’s, personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 65% of its equity interests in certain foreign subsidiaries. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment to the Bank of certain agreements previously entered into between the Company and the Bank in connection with an* April 22, 2016credit agreement between the Company and the Bank, and further amended such agreements pursuant to the terms of the New Agreement. Specifically, the Company amended and agreed to the assignment to the Bank of a Security Agreement, IP Security Agreement, Pledge Agreement, Perfection Certificate, and Assignment as to Liens and Encumbrances. The Company also amended and assigned to the Bank a Negative Pledge Agreement, pursuant to which it agreednot* to sell, lease or otherwise encumber real estate that it owns except as permitted by the New Agreement and the Negative Pledge Agreement. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt, described in Item8.01 below.

Upon the occurrence of an Event of Default, the Bank* maytake the following actions upon written notice to the Company: (1) terminate its remaining obligations under the New Agreement; (2) declare all amounts outstanding under the New 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 the Bank determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, the Bank maytake thethree* actions listed above without notice to the Company.

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

As of* March 28, 2025,*current maturities include $3,000 of term loan payments due within the coming year.

**Other:*During the quarter ended March 28, 2025,*the average interest rate was 6.95% on the Term Loan, and 5.74% on the Revolving Loans.

As of* March 28, 2025,*the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $47,322, and the Company had approximately $21,571 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.

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The Company’s borrowings described above approximate fair value at* March 28, 2025and June 30, 2024.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 28, 2025,the notional amount was $8,500. This swap has been designated as a cash flow hedge under ASC815,* Derivatives and Hedging. This swap is included in the disclosures in Note P, 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 P, 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 28, 2025remain authorized for purchase. The Company didnot make any open market purchases of its shares during the quarters ended March 28, 2025and March 29, 2024.*

The following is a reconciliation of the Company’s equity balances for the quarters ended* March 28, 2025and March 29, 2024:*

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Reconciliations for the changes in accumulated other comprehensive loss, net of tax, by component for the quarters ended* March 28, 2025and 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 28, 2025*are as follows:

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

Restructuring expenses

The Company has implemented various restructuring programs in response to unfavorable macroeconomic trends in certain of the Company’s markets since thefourth quarter of fiscal2015. These programs primarily involved the reduction of workforce in several of the Company’s manufacturing locations, under a combination of voluntary and involuntary programs. During thefourth quarter of fiscal2021, the Company undertook a series of steps to accelerate its focus on its core competencies, improve its fixed cost structure, and monetize some of its under-utilized assets.

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The Company continued its restructuring plans with regard to its Belgian operations during fiscal year2025 and2024. A voluntary program was implemented to reduce the workforce. The action was taken to allow the Belgian operation to focus resources on core manufacturing processes, while allowing for savings on the outsourcing of non-core processes.

Total restructuring charges relating to streamlining operations totaled $287 and $139 in the quarters ending* March 28, 2025and March 29, 2024,respectively. Total restructuring charges relating to streamlining operations totaled to $355 and $207 in thethree* quarters ending* March 28, 2025and March 29, 2024,*respectively.

The following is a roll-forward of restructuring activity:

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.

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

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The following potential common shares were excluded from diluted EPS for thethree quarters ended* March 28, 2025*as the Company reported a net loss:404.3 related to the Company’s unvested PSAs,10.5 related to the Company’s unvested PSAUs,103.2 related to the Company’s unvested RS awards, and 38.2 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:

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Approximate future minimum rental commitments under non-cancellable leases as of* March 28, 2025*were as follows:

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 28, 2025,with a notional amount of $8,500. 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 (loss). 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 $314 and$504 as of* March 28, 2025,and June 30, 2024,*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 $104 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 $1,332 and $1,502 as of* March 28, 2025and June 30, 2024,*respectively.

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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 (loss) for the quarters ended* March 28, 2025and March 29, 2024,*respectively, was as follows:

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