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, 2025.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 Company’s condensed consolidated financial statements include the accounts of Twin Disc, Incorporated and its wholly-owned domestic and foreign subsidiaries. The Company's reporting period ends on the last Friday of the quarterly calendar period. The Company's fiscal year ends on* June 30,regardless of the day of the week on which June 30*falls. All significant intercompany transactions have been eliminated.

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, Canada, Kobelt is a manufacturer of controls, propulsion, steering, and braking systems to the marine, oil and gas, and industrial markets. Kobelt is included in the Company's manufacturing segment.

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 its Condensed Consolidated Financial Statements.

Recently Adopted Accounting Standards

In* December 2023,the FASB issued guidance ASU2023*-09, Improvements to Income Tax Disclosures (“ASU2023-09”), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater thanfive percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) disaggregated between domestic and foreign. This change is effective for annual periods beginning after* December 15, 2024.The Company will adopt the guidance for its2026* annual report filed on Form10-K, which will result in additional disclosures related to income tax butnot impact the Company’s results of operations or financial position.

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 adopted the new annual disclosures as required for fiscal2025 and adopted the interim disclosures as required beginning with thefirst quarter of fiscal2026.

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Special Note Regarding Smaller Reporting Company Status

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

The Company reported the following contract assets and liabilities, which are presented within trade accounts receivable, net, other current assets, and accrued liabilities on the condensed consolidated balance sheets. Deferred revenue represents billings in excess of cost based on milestone billings in the contract.

The Company’s contracts are generally short term in nature, and therefore, the amount included in contract liabilities at each quarter is generally recognized as revenue within the next year.

The major classes of inventories were as follows:

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 as of* March 27, 2026and June 30, 2025:*

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The current portion of the warranty accrual ($3,763 and $4,174 as of* March 27, 2026and June 30, 2025,respectively) is reflected in accrued liabilities, while the long-term portion ($929 and $1,083 as of March 27, 2026and June 30, 2025,*respectively) is included in other long-term liabilities on the condensed consolidated balance sheets.

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

The Company and its subsidiaries are engaged in the manufacture and sale of marine and heavy duty off-highway power transmission equipment. Principal products include marine transmissions, azimuth drives, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and controls systems. The Company sells to both domestic and foreign customers in a variety of market areas, principally pleasure craft, commercial and military marine markets, energy and natural resources, government, and industrial markets.

The Company hastwo reportable segments: manufacturing and distribution. Its segment structure reflects the way the chief operating decision-maker (“CODM”) makes operating decisions and manages the growth and profitability of the business. It also corresponds with the CODM’s approach of allocating resources and assessing the financial performance of its segments. The Company’s CODM is the Chief Executive Officer, who reviews financial information presented on a consolidated basis. 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. The CODM evaluates the performance of its segments based on net sales, gross profit, operating income (loss), and net income (loss).

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The following table presents the selected financial information with respect to the Company’s reportable segments as of the quarter ended* March 27, 2026:*

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The following table presents the selected financial information with respect to the Company’s reportable segments as of the quarter ended* March 28, 2025:*

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The following table presents the selected financial information with respect to the Company’s reportable segments as of thethree quarters ended* March 27, 2026:*

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The following table presents the selected financial information with respect to the Company’s reportable segments as of thethree quarters ended* March 28, 2025:*

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended* March 27, 2026and March 28, 2025.*

Net sales by product group for the quarter ended* March 27, 2026*is summarized as follows:

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

Net sales by product group for thethree quarters ended* March 27, 2026*is summarized as follows:

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

Industrial products include clutches, power take-offs and pump drives sold to the agriculture, recycling, construction and oil and gas markets. The land-based transmission products include applications for oil field and natural gas, military and airport rescue and firefighting. The marine and propulsion systems include marine transmission, azimuth drives, controls, surface drives, and propellers for the global commercial marine, pleasure craft and patrol boat markets. Other products include non-Twin Disc manufactured product sold through Company-owned distribution entities.

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 (including officers) of the Company and its subsidiaries, as well as non-employee directors and consultants of the Company.

There is reserved for issuance under the Plan an aggregate of 1,636.6 shares of the Company’s common stock, which consists of the previously-approved 715.0 shares of common stock reserved for issuance under the2021 LTI Plan prior to its amendment and restatement to become the Omnibus Plan;521.6 shares of common stock that remained available for issuance under the2020 Directors' Plan; and 400.0 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 fiscal2026 and2025, the Company granted a target number of 166.5 and 116.1 PSAs, respectively, to various employees and consultants of the Company, including executive officers.

The fiscal2026 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, 2028.*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 333.1.

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.

There were 396.4 and 350.0 unvested PSAs outstanding at* March 27, 2026and March 28, 2025,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 $369 and $376 was recognized for the quarters ended March 27, 2026and March 28, 2025,respectively, related to PSAs. Compensation expense of $1,202 and $1,411 was recognized for thethree* quarters ended* March 27, 2026and March 28, 2025,respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at March 27, 2026was $11.12. At March 27, 2026,the Company had $1,912 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal2026* and2025 awards. The total fair value of PSAs vested as of* March 27, 2026and March 28, 2025*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. The PSUAs granted in fiscal2024 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 8.0 and 10.5 unvested PSUAs outstanding at* March 27, 2026and March 28, 2025,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 $8 and $11 was recognized for the quarters ended March 27, 2026and March 28, 2025,respectively, related to PSUAs. Compensation expense of $25 and $33 was recognized for thethree* quarters ended* March 27, 2026and March 28, 2025,respectively, related to PSUAs. The weighted average grant date fair value of the unvested awards at March 27, 2026was $12.15. At March 27, 2026,the Company had $8 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 27, 2026and March 28, 2025*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 fiscal2026 and2025, the Company granted 148.4 and 45.8 service based restricted shares, respectively, to employees and non-employee directors and consultants. There were 224.3 and 251.3 unvested shares outstanding at* March 27, 2026and March 28, 2025,respectively. A total of 2.1 and 0 shares of restricted stock were forfeited during thethree* quarters ended* March 27, 2026and March 28, 2025,respectively. Compensation expense of $298 and $321 was recognized for the quarters ended March 27, 2026and March 28, 2025,respectively. Compensation expense of $900 and $949 was recognized for thethree quarters ended March 27, 2026and March 28, 2025,respectively. The total fair value of restricted stock grants vested as of March 27, 2026and March 28, 2025was $1,849 and $454, respectively. As of March 27, 2026,*the Company had $1,194 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, generallythree 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 fiscal2026 and2025, the Company granted 0 and 77.4 of employment based RSUs, respectively. There were 79.2 and 156.9 unvested RSUs outstanding at* March 27, 2026and March 28, 2025,respectively. Compensation expense of $85 and $135 was recognized for the quarters ended March 27, 2026and March 28, 2025,respectively. Compensation expense of 341 and $327 was recognized for thethree* quarters ended* March 27, 2026and March 28, 2025,respectively. The total fair value of restricted stock units vested as of March 27, 2026and March 28, 2025was $33 and $701, respectively. The weighted average grant date fair value of the unvested awards at March 27, 2026was $12.84. As of March 27, 2026,*the Company had $435 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 (gain) are included in other income (expense), net.

The Company expects to contribute approximately $702 to its pension plans in fiscal2026. As of* March 27, 2026,*the amount of $544 in contributions to the pension plans have been made.

The Company has reclassified $477 (net of $146 in taxes) of benefit plan adjustments from accumulated other comprehensive income (loss) during the quarter ended* March 27, 2026,and $201 (net of $5 in taxes) of benefit plan adjustments from accumulated other comprehensive income (loss) during the quarter ended March 28, 2025.These reclassifications are included in the computation of net periodic benefit cost (gain). The Company has reclassified $1,749 (net of $146 in taxes) of benefit plan adjustments from accumulated other comprehensive income (loss) during thethree* quarters ended* March 27, 2026,and ($1,246) (net of $3 in taxes) of benefit plan adjustments from accumulated other comprehensive income (loss) during thethree* quarters ended* March 28, 2025.*These reclassifications are included in the computation of net periodic benefit cost (gain).

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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 ASC740-270-30-36a applies. The Company maintains valuation allowances when it is more likely thannot that all or a portion of a deferred tax asset willnot be realized. 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. In addition, all other available positive and negative evidence is taken into consideration, including impacts of tax reform.

The Company has evaluated the realizability of deferred tax assets and concluded that the U.S. and state valuation allowance isno longer required and was released* December 26, 2025.The Company is expected to be in a cumulativethree* year income position at the end of the year, and expects to be profitable in future periods. This release relates to both projections of future income and a significant tax planning action for the current year which constitutes a significant unusual or infrequently occurring tax only item, the tax effects of which have been excluded from the estimated AETR as per ASC740-270. The Company recognized $22.8 million of the related $23.9 million domestic valuation allowance release tax benefit as a discrete item during thesecond quarter of the current fiscal year.

The Company continues to maintain a valuation allowance in an immaterial foreign jurisdiction, due to continued losses and uncertain future earnings. Permanent differences continue to fluctuate and are significant compared to projected ordinary income. Therefore, per ASC guidance, the immaterial foreign jurisdiction was removed from the annualized effective rate calculation. Because of the foreign valuation allowance, the entity* mayonly recognize tax expense / benefit recorded for ASC740*-10 adjustments.

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

As of* March 27, 2026,*changes in the carrying amount of goodwill are summarized as follows:

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As of* March 27, 2026,*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 approximately 7 years.

Intangible amortization expense was $765 and $915 for the quarters ended* March 27, 2026,and March 28, 2025,respectively. Intangible amortization expense was $2,114 and $2,721 for thethree* quarters ended* March 27, 2026,and March 28, 2025,respectively. Estimated intangible amortization expense for the remainder of fiscal2026* and each of the nextfive fiscal years and thereafter is as follows:

Long-term debt at* March 27, 2026and June 30, 2025*consisted of the following:

Credit Agreement Debt:

Current Credit Agreement

On* February 14, 2025,the Company entered into an amended and restated Credit Agreement (the “Credit Agreement”) with Bank of Montreal (the “Bank”) that refinances and replaces the credit agreement dated as of June 29, 2018,as amended, between the Company and BMO Harris Bank, N.A. (the “Prior Credit Agreement”). There wereno* significant financing costs associated with the credit agreement.

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Pursuant to the Credit Agreement, the Bank made a Term Loan to the Company in the principal amount of $15.0 million, consisting of an assignment of a term loan under the Prior Credit Agreement from BMO to the Bank with a remaining principal of $8.5 million and an additional advance of $6.5 million. The maturity date of the Term Loan is* April 1, 2027,*and the Company is required to make principal installments on the Term Loan of at least $0.75 million per quarter.

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, $50.0 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.*

The Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Kobelt. Kobelt is included as a Borrower under the Credit Agreement, and* may*borrow directly under the Credit Agreement up to the lesser of the Revolving Credit Commitment or $25.0 million. For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included.

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 (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 earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio).

The Credit Agreement 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 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 plus50% of positive Net Income for each fiscal year ending on or after* June 30, 2024.*

Borrowings under the Credit Agreement are 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, 2016credit 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 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 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.

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 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 maytake thethree* actions listed above without notice to the Company.

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Prior Credit Agreement

The Prior Credit Agreement, which was replaced by the Credit Agreement on* February 14, 2025,provided for the assignment and assumption of the previously existing loans under a2016* credit agreement between the Company and Bank of Montreal (as amended, the*“2016* Credit Agreement”) into a term loan (the “Prior Term Loan”) and revolving credit loans (each a “Prior Revolving Loan” and, collectively, the “Prior Revolving Loans,” and, together with the Prior Term Loan, the “Prior Loans”). Pursuant to the Prior Credit Agreement, BMO agreed to make the Prior Term Loan to the Company in a principal amountnot to exceed $35.0 million and the Company could, from time to time prior to the maturity date, enter into Prior Revolving Loans in amountsnot to exceed, in the aggregate, $50.0 million (the “Prior Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Prior Credit Agreement reduced the Prior Term Loan to $20.0 million, extended the maturity date of the Prior Term Loan to* April 1, 2027,*and required the Company to make principal installment payments on the Prior Term Loan of $0.5 million per quarter. Subsequent amendments to the Prior Credit Agreement (prior to the Tenth Amendment to the Prior Credit Agreement discussed below) incrementally decreased BMO’s Prior Revolving Credit Commitment to $40.0 million. The Prior Credit Agreement also allowed the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Prior Revolving Loans. Under the Prior Credit Agreement, the Company was prohibited from paying cash dividends on its common stock in excess of $5.0 million in any fiscal year.

Under the Prior Credit Agreement as amended, interest rates were based on either the SOFR or the EURIBO Rate. Prior Loans were designated either as “SOFR Loans,” which accrued interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrued interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that werenot timely reimbursed to the Bank bore interest at a Base Rate plus an Applicable Margin. The Company also paid a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Immediately prior to* February 14, 2025,*the Applicable Margins were between 2% and 3.5% for Prior Revolving Loans and Letters of Credit;2.125% and 3.625% for Prior Term Loans; and 0.15% and 0.3% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Prior Credit Agreement, as amended, required the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio couldnot exceed 3.50 to1.00, and the Company’s Fixed Charge Coverage Ratio couldnot be less than 1.10 to1.00. In determining whether the Company was in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA included 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 couldnot be less than $100.0 million plus50% of positive Net Income for each fiscal year ending on or after* June 30, 2024.*

Borrowings under the Prior Credit Agreement were secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company had also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company had 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 had 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 couldnot 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 Prior Credit Agreement.

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Upon the occurrence of an Event of Default, BMO could take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Prior Credit Agreement; (2) declare all amounts outstanding under the Prior 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 could take thethree actions listed above without notice to the Company.

On* April 1, 2024,the Company had entered into AmendmentNo.* 10 to Prior Credit Agreement (the “Tenth Amendment”) that amended and extended the Prior Credit Agreement. The Tenth Amendment increased the Prior Revolving Credit Commitment from $40.0 million to $45.0 million, and also increased the Borrowing Base for Prior 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 Tenth Amendment 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 Prior 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 included 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 Prior Credit Agreement through* April 1, 2027and extended the maturity date of the Prior Term Loan and the Prior Term Loan Commitment Date to April 1, 2027.*

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

The Company's credit agreement with its lender is scheduled to expire on* April 1, 2027.*If the Company is unable to refinance or negotiate an extension of the maturity date, this could present an operating risk.

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

As of* March 27, 2026,*current maturities include $3,000 of term loan payments due within the coming year.

**Other:*During the quarter ended March 27, 2026,*the average interest rate was 6.41% on the Term Loan, and 5.34% on the Revolving Loans.

As of* March 27, 2026,*the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $42,912, and the Company had approximately $9,797 available borrowings. In addition to the Credit Agreement, the Company has established unsecured lines of credit that are used from time to time to secure certain performance obligations by the Company.

The Company’s borrowings described above approximate fair value at* March 27, 2026and June 30, 2025.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’s interest rate swap matured on* March 4, 2026,and wasnot* renewed. The Company hadno interest rate swaps designated as cash flow hedges outstanding at* March 27, 2026.The maturity didnot* have a material impact on our condensed consolidated financial statements.

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 income (loss) along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note O, Derivative Financial Instruments.

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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 27, 2026remain authorized for purchase. The Company didnot make any open market purchases of its shares during the quarters ended March 27, 2026and March 28, 2025.*

The following is a reconciliation of the Company’s equity balances for thefirst three fiscal quarters of2026 and2025:

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Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for thethree quarters ended* March 27, 2026and March 28, 2025*are as follows:

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Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended* March 27, 2026*are as follows:

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended* March 28, 2025*is as follows:

The Company calculates basic earnings per share (“EPS”) based upon the weighted average number of common shares outstanding during the period, while the calculation of diluted EPS includes the dilutive effect of potential common shares outstanding during the period. The calculation of diluted EPS 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 EPS pursuant to thetwo-class method.

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The components of basic and diluted EPS were as follows:

The following potential common shares were excluded from diluted EPS for the quarter andthree quarters ended* March 28, 2025*as the Company reported a net loss:350.0 related to the Company’s unvested PSAs,10.5 related to the Company’s unvested PSUAs,251.3 related to the Company’s unvested RS awards, and 156.9 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 sheets.

The components of lease expense were as follows:

Other information related to leases was as follows:

Approximate future minimum rental commitments under non-cancellable leases as of* March 27, 2026*were as follows:

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

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

Interest Rate Swap Contracts

During the quarter, the Company hadone interest rate swap contract that matured on* March 4, 2026,with a notional amount of $6,500. It had 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 condensed consolidated statements of cash flows. These contracts generally have original maturities of greater thantwelve months.

Net unrealized after-tax gain (loss) related to cash flow hedging activities that were included in accumulated other comprehensive income (loss) were $213 and $284 as of* March 27, 2026,and June 30, 2025,*respectively. The unrealized amounts in accumulated other comprehensive income (loss) will fluctuate based on changes in the fair value of open contracts during each reporting period.

Derivatives Designated as Net Investment Hedges

The Company is exposed to foreign currency exchange risk related to its investment in net assets in foreign countries. As discussed in Note K, Long-term Debt, 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 income (loss) along with the foreign currency translation adjustments on those foreign investments. Net unrealized after-tax gains (loss) related to net investment hedging activities that were included in accumulated other comprehensive income (loss) were $203 and ($129) as of* March 27, 2026and June 30, 2025,*respectively.

Fair Value of Derivative Instruments

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

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The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended* March 27, 2026and March 28, 2025,*respectively, was as follows: