TWIN DISC INC

Previous wording

Sales for our manufacturing segment increased 2.8%, or $6.8 million, versus the same period last year. The largest improvement was seen at the Company’s Veth propulsion operation in the Netherlands, which experienced a 39.1% increase in sales compared to fiscal 2023, including a $2.0 million favorable currency translation impact. The primary driver for this increase was growing demand for the Company’s innovative propulsion solutions around the globe, along with improving supply chain and operational performance. The Company’s domestic manufacturing operation experienced a 4.7% decrease in sales in fiscal 2024, driven by 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 Italian manufacturing operations reported a 40.5% decrease in sales from fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Belgian manufacturing operation saw a 17.9% increase in sales from fiscal 2023 with a favorable translation effect and improved delivery performance driven by operational and supply chain execution. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 4.8% increase in sales compared to fiscal 2023, primarily due to a recovering European marine market.

Current wording

Excluding the impact of the Katsa and Kobelt acquisitions, sales for our manufacturing segment decreased 2.5%, or $7.5 million, versus the same period last year. The largest improvement was seen at the Company’s Veth propulsion operation in the Netherlands, which experienced a 12.3% increase in sales compared to fiscal 2024. The primary driver for this increase was growing demand through market and geographic penetration for the Company’s innovative propulsion solutions around the globe, along with improving supply chain and operational performance. The Company’s domestic manufacturing operation experienced a 1.8% decrease in sales in fiscal 2025, driven by some softening demand for oil and gas transmissions in China. The Company’s Italian manufacturing operations reported a 29.7% decrease in sales from fiscal 2024, primarily due to the sale of the BCS business during fiscal 2024. The Company’s Belgian manufacturing operation saw an 18.4% decrease in sales from fiscal 2024 with softer demand in the European marine markets. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 3.9% increase in sales compared to fiscal 2024, primarily due to a strengthening European propulsion market.

Previous wording

Sales for our distribution segment were up 22.1%, or $27.0 million, compared to fiscal 2023, with improving global demand and product delivery from the manufacturing operations. The Company’s Asian distribution operations in Singapore, China and Japan experienced a 31.4% increase in sales 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 6.9% increase on strong domestic demand for marine products from the European operations. The Company’s European distribution operation saw a significant increase (25.2%) 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 of 4.8%, primarily due to continued strong demand for pleasure craft products in the region.

Current wording

Sales for our distribution segment were down 8.6%, or $12.4 million, compared to fiscal 2024. The Company’s Asian distribution operations in Singapore, China and Japan experienced a 6.7% decrease in sales on softening demand for energy related products in China. The Company’s North American distribution operation saw a 26.9% decrease on weaker domestic demand for marine products from the European operations. The Company’s European distribution operation was essentially flat with the prior year. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a slight decrease in revenue (0.7%) on consistent demand for pleasure craft products in the region.

Previous wording

Net sales for the Company’s marine transmission and propulsion systems were up 16.2% in fiscal 2024 compared to the prior fiscal year. This increase reflects generally strong market conditions, continued global growth of the Veth product and a general easing of supply chain constraints during the fiscal year. In the off-highway transmission market, the year-over-year increase of 7.5% can be attributed primarily to strength in North American aftermarket product sales for the oil and gas industry, historically high demand for the Company’s ARFF (airport rescue and firefighting) transmission and sales of the Company’s pressure pumping transmission systems into China. The decrease experienced in the Company’s industrial products of 13.8% was a function of weaker demand in the North American construction and recycling markets.

Current wording

Net sales for the Company’s marine transmission and propulsion systems were up 17.1% in fiscal 2025 compared to the prior fiscal year. This increase reflects generally strong market conditions, continued global growth of the Veth product, the addition of the Katsa and Kobelt product lines and a general easing of supply chain constraints during the fiscal year. In the off-highway transmission market, the year-over-year increase of 2.1% can be attributed primarily to the historically high demand for the Company’s ARFF (airport rescue and firefighting) transmissions. The increase experienced in the Company’s industrial products of 61.8% was a function of stronger demand in the North American construction and recycling markets, along with the addition of the Katsa and Kobelt product lines.

Previous wording

Geographically, sales to the U.S. and Canada declined 21% in fiscal 2024 compared to fiscal 2023, representing 28% of consolidated sales for fiscal 2024 compared to 36% in fiscal 2023. The decrease is primarily due to the weaker domestic demand for oil and gas related units, along with a decline in industrial product demand. Sales into the Asia Pacific market improved 27% compared to fiscal 2023 and represented approximately 28% of sales in fiscal 2024, compared to 25% in fiscal 2023. The increase in fiscal 2024 reflects increased demand for commercial marine and patrol craft related products, a continued strong Australian pleasure craft market and stable demand for the Company’s oil and gas transmissions by the Chinese market. Sales into the European market improved approximately 17% from fiscal 2023 levels while accounting for 33% of consolidated net sales in fiscal 2024 compared to 33% of net sales in fiscal 2023. The region enjoyed strong demand for the Company’s Veth propulsion products, driving much of the fiscal 2024 growth. See Note J, Business Segments and Foreign Operations, of the notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations.

Current wording

Geographically, sales to the U.S. and Canada improved 10% in fiscal 2025 compared to fiscal 2024, representing 27% of consolidated sales for fiscal 2025 compared to 28% in fiscal 2024. The increase is primarily due to the addition of Kobelt, improving Veth demand in the region and recovering industrial sales. Sales into the Asia Pacific market decreased 20% compared to fiscal 2024 and represented approximately 22% of sales in fiscal 2025, compared to 32% in fiscal 2024. The decrease in fiscal 2025 reflects softening demand for the Company’s oil and gas transmissions in the Chinese market. Sales into the European market improved approximately 40% from fiscal 2024 levels while accounting for 41% of consolidated net sales in fiscal 2025 compared to 33% of net sales in fiscal 2024. The addition of Katsa revenue in fiscal 2025, along with strong demand for the Company’s Veth propulsion products, drove much of the fiscal 2025 growth. See Note K, Business Segments and Foreign Operations, of the notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations.

Previous wording

In fiscal 2024, gross profit improved $9.0 million, or 12.1%, to $83.3 million on a sales increase of $18.2 million. Gross profit as a percentage of sales increased 140 basis points in fiscal 2024 to 28.2%, compared to 26.8% in fiscal 2023.

Current wording

In fiscal 2025, gross profit improved $9.4 million, or 11.3%, to $92.7 million on a sales increase of $45.6 million. Gross profit as a percentage of sales decreased 100 basis points in fiscal 2025 to 27.2%, compared to 28.2% in fiscal 2024.

Previous wording

There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2024. Gross profit for the year was primarily impacted by improved volumes (approximately $4.9 million) and a more favorable product mix (approximately $2.1 million). This was driven by the global economic recovery that started in fiscal 2021 following the impact of the COVID-19 pandemic and an increase in the sales of high-margin oil and gas transmissions. The remaining increase ($2.0 million) is the result of price realization, cost reduction efforts and improved productivity at our operating facilities.

Current wording

There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2025. Gross profit for the year was primarily impacted by improved volumes (approximately $12.9 million). This was offset by a less favorable product mix (approximately $3.1 million), primarily related to weaker demand for oil and gas related products. The company also recorded purchase accounting amortization in cost of goods sold totaling $0.9 million in fiscal 2025. The remaining increase ($0.5 million) is the result of price realization, cost reduction efforts and improved productivity at our operating facilities.

Previous wording

Marketing, engineering, and administrative (ME&A) expenses of $71.6 million were up $9.4 million, or 15.1%, in fiscal 2024 compared to the prior fiscal year. As a percentage of sales, ME&A expenses increased to 24.3% of sales versus 22.5% of sales in fiscal 2023. The increase in ME&A spending in fiscal 2024 compared to the prior year was driven increased salaries and benefits ($1.9 million), global bonus expense ($1.8 million), travel and entertainment ($0.9 million), stock compensation expense ($0.6 million), professional fees ($0.6 million), lease expense ($0.5 million), a transfer tax payment related to the Katsa acquisition ($0.4 million), commission and marketing expense ($0.4 million), depreciation and amortization ($0.7 million), a currency exchange driven increase ($0.4 million) and other inflationary and volume related increases ($1.2 million).

Current wording

Marketing, engineering, and administrative (ME&A) expenses of $82.4 million were up $10.8 million, or 15.1%, in fiscal 2025 compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased to 24.2% of sales versus 24.3% of sales in fiscal 2024. The increase in ME&A spending in fiscal 2025 compared to the prior year was primarily driven by the addition of the Katsa and Kobelt operations ($8.6 million). The remaining increase was driven by an inflationary increase to salaries and benefits ($1.5 million), stock compensation expense ($0.7 million), professional fees ($1.3 million), and a legal settlement ($0.4 million). These increases were partially offset by reductions to the global bonus expense ($1.0 million), bad debt expense ($0.3 million) and other cost savings ($0.4 million).

Previous wording

During the course of fiscal 2024 and fiscal 2023 the Company incurred $0.2 million and $0.2 million in restructuring charges, respectively. These charges relate to a continued restructuring program at the Company’s Belgian operation to focus resources on core manufacturing process, while allowing for savings on the outsourcing of non-core processes.

Current wording

During the course of fiscal 2025 and fiscal 2024 the Company incurred $0.4 million and $0.2 million in restructuring charges, respectively. These charges relate to a continued restructuring program at the Company’s Belgian operation to focus resources on core manufacturing process, while allowing for savings on the outsourcing of non-core processes.

Previous wording

Interest expense of $1.4 million for fiscal 2024 was $0.8 million lower than fiscal 2023 due to a decreased average balance, partially offset by an increased average interest rate on the domestic revolver.

Current wording

Interest expense of $2.6 million for fiscal 2025 was $1.2 million higher than fiscal 2024 due to an increased average balance following the two completed acquisitions.

Previous wording

In fiscal 2024, other income, net, of $5.3 million increased by $4.7 million from the prior fiscal year other income, net, of $0.7 million. This change is primarily due to the impact of a bargain purchase gain related to the acquisition of Katsa ($3.7 million). See Note B, Acquisition of Katsa Oy, of the notes to the consolidated financial statements for a full description of this acquisition.

Current wording

In fiscal 2025, other expense, net, of $5.5 million increased by $10.8 million from the prior fiscal year other income, net, of $5.3 million. This change is primarily due to an increase in currency translation losses ($5.2 million), an increase in defined benefit pension amortization ($2.0 million) and the prior year impact of a bargain purchase gain related to the acquisition of Katsa ($3.7 million).

Previous wording

The effective tax rate for fiscal 2024 is 26.8% compared to 26.2% for fiscal 2023.

Current wording

The effective tax rate for fiscal 2025 is 190.4% compared to 26.8% for fiscal 2024.

Previous wording

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, the company recorded in fiscal year 2024 and 2023, the valuation allowance of $24.0 million and $22.3 million, respectively.

Current wording

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, the Company takes into account such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, the company recorded in fiscal year 2025 and 2024, the valuation allowance of $24.0 million and $24.0 million, respectively.

Previous wording

As of June 30, 2024, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog), which includes the impact of the Katsa acquisition, was $133.7 million or approximately 12% higher than the six-month backlog of $119.2 million as of June 30, 2023. The increased backlog is primarily attributable to continued strength in order rates throughout the fiscal year, along with the addition of Katsa backlog ($12.6 million). These increases were partially offset by a reduction in past due orders resulting from improved operational performance and the elimination of the BCS backlog ($5.3 million) due to the sale of that business during the fiscal year.

Current wording

As of June 30, 2025, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog) was $150.5 million or approximately 13% higher than the six-month backlog of $133.7 million as of June 30, 2024. The increased backlog is primarily attributable to continued strength in order rates throughout the fiscal year, led by continued growth in demand for the Veth product, along with the addition of Kobelt backlog ($2.8 million).

Previous wording

The net cash used by investing activities for fiscal 2024 primarily represents the acquisition of Katsa ($23.2 million) and the acquisition of property, plant and equipment ($8.7 million). The capital spending amount reflects a return to somewhat normalized capital spending levels, still somewhat hampered by extended lead times on equipment resulting from global supply chain challenges.

Current wording

The net cash used by investing activities for fiscal 2025 primarily represents the acquisition of Kobelt ($17.2 million) and the acquisition of property, plant and equipment ($15.2 million). The capital spending amount reflects a significant increase from the prior year, driven by the additional capital needs of Katsa and the timing of machine tool deliveries.

Previous wording

The net cash provided by financing activities relates primarily to borrowings of long-term debt ($7.4 million) impacted by the Katsa acquisition, along with payments for dividends ($1.7 million), withholding taxes on stock compensation ($1.8 million), payments on finance lease obligations ($0.9 million) and dividends paid to a non-controlling interest ($0.3 million). During fiscal 2024, the Company did not purchase any shares as part of its Board-authorized stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan.

Current wording

The net cash used by financing activities relates primarily to payments for dividends ($2.6 million), payments on finance lease obligations ($1.1 million) and payments on stock compensation withholding taxes ($1.3 million). These uses were partially offset by incremental borrowings of $4.0 million. During fiscal 2025, the Company did not purchase any shares as part of its Board-authorized stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan.

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 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.

Current wording

In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $50.0 million (the “Revolving Credit Commitment”). The Borrowing Base is the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $40.0 million for each fiscal month ending on or prior to August 31, 2025 (reduced to $35.0 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 Credit 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 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 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 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).

Current wording

Interest rates under the Credit 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 Credit 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).

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. 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 plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

Current wording

The Credit Agreement 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 each of the Company’s Kobelt Acquisition and the Company’s prior Katsa acquisition, as well as pro-forma EBITDA of Katsa and Kobelt 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, 2024.

Previous wording

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 the 2016 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 agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement.

Current wording

Borrowings under the Credit Agreement secured by substantially all of the Company’s and 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, 2016 credit agreement between the Company and the Bank, and further amended such agreements pursuant to the terms of the Credit 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 agreed not 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 also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt. Borrowings under the Credit Agreement are also required to be guaranteed by each U.S. subsidiary of the Company.

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, BMO may take the three actions listed above without notice to the Company.

Current wording

Upon the occurrence of an Event of Default, the Bank 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 the Bank 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.

Previous wording

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

Current wording

The Company remains in compliance with its liquidity and other covenants under the Credit Agreement.

Previous wording

The Company’s balance sheet remains strong, there are no material off-balance-sheet arrangements, and it continues to have sufficient liquidity for its near-term needs. The Company had approximately $26.5 million of available borrowings under the Credit Agreement as of June 30, 2024. The Company expects to continue to generate enough cash from operations, as well as its credit facilities, to meet its operating and investing needs. As of June 30, 2024, the Company also had cash of $20.1 million, primarily at its overseas operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. In fiscal 2025, the Company expects to contribute $0.5 million to its defined benefit pension plans, the minimum contribution required.

Current wording

The Company’s balance sheet remains strong, there are no material off-balance-sheet arrangements, and it continues to have sufficient liquidity for its near-term needs. The Company had approximately $32.1 million of available borrowings under the Credit Agreement as of June 30, 2025. The Company expects to continue to generate enough cash from operations, as well as its credit facilities, to meet its operating and investing needs. As of June 30, 2025, the Company also had cash of $16.1 million, primarily at its overseas operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company. In fiscal 2026, the Company expects to contribute $0.7 million to its defined benefit pension plans, the minimum contribution required.

Previous wording

Net working capital decreased $0.5 million, or 0.4%, during fiscal 2024 and the current ratio (calculated as total current assets divided by total current liabilities) remained flat at 2.2 for both June 30, 2024 and June 30, 2023. The decrease in net working capital was primarily the result of an increase to trade payables ($3.9 million), accrued salaries ($2.9 million) and accrued liabilities ($10.9 million), along with a decrease to other current assets ($2.9 million – related to reclassification of assets held for sale of $3.0 million). These reductions were partially offset by increases to cash ($6.8 million) and trade receivables ($2.5 million). The working capital movements are largely a result of the Katsa acquisition and growing demand and supply chain imbalances, along with successful efforts to drive inventory reduction. Excluding the Katsa acquisition, inventory decreased by $11.5 million from the end of fiscal 2023.

Current wording

Net working capital increased $1.0 million, or 0.8%, during fiscal 2025 and the current ratio (calculated as total current assets divided by total current liabilities) decreased to 2.0 at June 30, 2025 compared to 2.2 for June 30, 2024. The increase in net working capital was primarily the result of an increase to inventory ($21.5 million) and trade receivables ($6.7 million). These increases were partially offset by increases in trade payables ($6.2 million) and accrued liabilities ($18.2 million).

Previous wording

The Company expects capital expenditures to be approximately $14 million - $16 million in fiscal 2025. These anticipated expenditures reflect the Company’s plans to invest in modern equipment to drive efficiencies, quality improvements and cost reductions.

Current wording

The Company expects capital expenditures to be approximately $17 million - $19 million in fiscal 2026. These anticipated expenditures reflect the Company’s plans to invest in modern equipment to drive growth, efficiencies, quality improvements and cost reductions.

Previous wording

The Company's significant contractual obligations as of June 30, 2024 are discussed in Note I “Lease Obligations” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2023 Annual Report on Form 10-K. There are no material undisclosed guarantees. As of June 30, 2024, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment, which generally have terms of less than 90 days. The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note N “Pension and Other Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2024 Annual Report on Form 10-K. Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.5 million in fiscal 2025 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured. In fiscal 2025, the Company expects to contribute $0.5 million to its defined benefit pension plans, the minimum contribution required.

Current wording

The Company's significant contractual obligations as of June 30, 2025 are discussed in Note I “Lease Obligations” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2025 Annual Report on Form 10-K. There are no material undisclosed guarantees. As of June 30, 2025, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment, which generally have terms of less than 90 days. The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note N “Pension and Other Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2025 Annual Report on Form 10-K. Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.5 million in fiscal 2026 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured. In fiscal 2026, the Company expects to contribute $0.7 million to its defined benefit pension plans, the minimum contribution required.

Previous wording

The Company provides a wide range of benefits to employees and retired employees, including pensions and postretirement health care coverage. Plan assets and obligations are recorded annually based on the Company’s measurement date utilizing various actuarial assumptions such as discount rates, expected return on plan assets, compensation increases, retirement and mortality tables, and health care cost trend rates as of that date. The approach used to determine the annual assumptions are as follows:

Current wording

The Company provides a wide range of benefits to employees and retired employees, including pensions and postretirement health care coverage. Plan assets and obligations are recorded annually based on the Company’s measurement date utilizing discount rates as the significant assumption in determining the obligation as of that date. The approach used to determine the discount rates is based on the Willis Towers Watson BOND:Link model at June 30, 2025 as applied to the expected payouts from the pension plans. This yield curve is made up of Corporate Bonds rated AA or better.

Previous wording

Measurements of net periodic benefit cost are based on the assumptions used for the previous year-end measurements of assets and obligations. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions when appropriate. The effects of the modifications are recorded currently or amortized over future periods. Based on information provided by its independent actuaries and other relevant sources, the Company believes that the assumptions used are reasonable; however, changes in these assumptions could impact the Company’s financial position, results of operations or cash flows.

Current wording

Measurements of net periodic benefit cost are based on the assumptions used for the previous year-end measurements of assets and obligations. The Company reviews its discount rates on an annual basis and makes modifications when appropriate. The effects of the modifications are recorded currently or amortized over future periods. Based on information provided by its independent actuaries and other relevant sources, the Company believes that the discount rates used are reasonable; however, changes in the discount rates could impact the Company’s financial position, results of operations or cash flows.

Previous wording

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, the Company considers such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. Based on the above criteria the Company has determined that a full valuation allowance is appropriate as relates to its domestic operations. A full domestic valuation allowance of $24.0 million has been recognized at June 30, 2024. The recognition of a valuation allowance does not affect the availability of the tax credits as the Company realizes earnings.

Current wording

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is required, several factors are considered (e.g., prior earnings history, carry-back and carry-forward periods, etc.) but the most significant factors are expected future earnings that could potentially enhance the likelihood of realization of a deferred tax asset and tax strategies. Based on the above criteria the Company has determined that a full valuation allowance is appropriate as relates to its domestic operations. A full domestic valuation allowance of $24.0 million has been recognized at June 30, 2025. The recognition of a valuation allowance does not affect the availability of the tax credits as the Company realizes earnings.