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, 2026.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.

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.

Recently Adopted Accounting Standards

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.

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 has adopted ASU2023*-09 on a prospective basis for its2026 annual report filed on Form10-K, which resulted in additional disclosures related to income tax but didnot impact the Company’s results of operations or financial position.

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.

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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, respectively. Deferred revenue represents billings in excess of cost based on milestone billings in the contract and customer deposits represent cash received from customers before performance obligations are fulfilled.

The Company’s contracts are generally short term in nature, and therefore, the amount included in contract liabilities at the beginning of the year was recognized as revenue in the reporting period.

The major classes of inventories were as follows:

During thefourth quarter of2026, the Company changed its methodology for valuing the majority of inventories located in the United States to thefirst-in,first-out (“FIFO”) cost method from the last-in,first-out (“LIFO”) cost method. The Company concluded that the FIFO basis of accounting is preferable as it provides a better matching of costs and revenues, more closely resembles the physical flow of inventory, better reflects the acquisition cost of inventory on the balance sheet, and results in improved comparability with industry peers.

The following tables reflect the effect of the change in accounting method on the condensed consolidated balance sheet and statement of changes in equity for the year ended* June 30, 2026:*

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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* September 25, 2026and September 26, 2025:*

The current portion of the warranty accrual ($4,213 and $3,930 as of* September 25, 2026and September 26, 2025,respectively) is reflected in accrued liabilities, while the long-term portion ($887 and $964 as of September 25, 2026and September 26, 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, arenot 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, either individually or in the aggregate.

Tariffs:

On* February 20, 2026,the U.S. Supreme Court invalidated tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). The ruling didnot* address the availability, timing or mechanics of any potential refunds related to tariffs previously collected, and the outcome of any related administrative or legal processes remains uncertain. Following the ruling, the U.S. administration implemented new tariffs under alternative statutory authority, including Section122 of the Trade Act of1974, which permits temporary import surcharges subject to statutory limits and duration requirements. In* April 2026,the U.S. Court of International Trade (“CIT”) issued an order for the U.S. Customs and Border Protection (“CBP”) to treat the IEEPA Tariffs as unlawful and administer affected import entries accordingly. As a result of the order, the CBP must recalculate duties without the IEEPA tariffs and ensure that importers of record receive the benefit of the Supreme Court ruling in the form of refunds for such amounts paid and interest. On June 2, 2026,the Department of Justice filed an appeal with the U.S. Court of Appeals for the Federal Circuit challenging the CIT's order requiring CBP to provide refunds of IEEPA tariffs on a broad, nationwide basis. Multiple legal challenges to the Section122* tariffs have been filed as well, and on* May 7, 2026,the U.S. Court of International Trade ruled that the Section122* tariffs are unlawful; however, the court's injunction applies only to the named plaintiffs, and the tariffs remain in effect for all other importers pending appeal.

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The Company is evaluating the impact of the Supreme Court ruling and the subsequent order issued by the CIT, and is monitoring related developments from the CBP regarding its plan to process refunds to importers of record, including the launch on* April 20, 2026of the CBP's Consolidated Administration and Processing of Entries (“CAPE”) system for submitting refund claims, as well as the administration’s decision on whether ornot* to appeal the CIT’s order. As of* September 25, 2026,the Company hasnot* recorded a receivable related to potential refunds for IEEPA Tariffs paid by the Company. The ultimate resolution of this matter, including the administration’s decision to appeal the CIT’s order, the extent and manner in which costs previously incurred and paid* may*be recoverable through the CBP, and the timing of any potential recovery remains uncertain.

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 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 for thetwo reportable 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. The CODM evaluates the performance of its segments based on net sales, gross profit (loss), operating income (loss), and net earnings (loss).

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The following table presents the selected financial information with respect to the Company’s reportable segments for the period ended* September 25, 2026:*

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The following table presents the selected financial information with respect to the Company’s reportable segments for the period ended* September 26, 2025:*

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended* September 25, 2026and September 26, 2025.*

Net sales by product group for the quarter ended* September 25, 2026*is summarized as follows:

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Net sales by product group for the quarter ended* September 26, 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 includes non-Twin Disc manufactured products 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 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 1,636.6 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.

Performance Stock Awards (“PSA”)

During thefirst quarter of fiscal2027 and2026, the Company granted a target number of 70.8 and 166.5 PSAs, respectively, to various employees and consultants of the Company, including executive officers.

The fiscal2027 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, 2029.*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 141.7. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

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. Based upon actual results to date, the Company is currently accruing compensation expense for these PSAs.

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There were 351.2 and 396.9 unvested PSAs outstanding at* September 25, 2026and September 26, 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 $635 and $378 was recognized for the quarters ended September 25, 2026and September 26, 2025,respectively, related to PSAs. The weighted average grant date fair value of the unvested awards at September 25, 2026was $13.38. At September 25, 2026,the Company had $2,890 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal2027* and2026 awards. The total fair value of PSAs vested as of* September 25, 2026and September 26, 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. There wereno PSUAs granted during thefirst quarter of fiscal2027and 2026.

There were 0.0 and 8.0 unvested PSUAs outstanding at* September 25, 2026and September 26, 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 $41 and $8 was recognized for the quarters ended September 25, 2026and September 26, 2025,respectively, related to PSUAs. The weighted average grant date fair value of the unvested awards at September 25, 2026was $0. At September 25, 2026,the Company had $0 of unrecognized compensation expense related to the unvested shares that would vest if the specified target objective was achieved for the fiscal2025* awards. The total fair value of PSUAs vested as of* September 25, 2026and September 26, 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 quarter of fiscal2027 and2026, the Company granted 47.8 and 113.2 service based restricted shares, respectively. There were 194.3 and 233.2 unvested shares outstanding at* September 25, 2026and September 26, 2025,respectively. A total of 0.0 and 2.2 shares of restricted stock were forfeited during the quarters ended September 25, 2026and September 26, 2025,respectively. Compensation expense of $308 and $305 was recognized for the quarters ended September 25, 2026and September 26, 2025,respectively. The total fair value of restricted stock grants vested as of September 25, 2026and September 26, 2025was $1,755 and $1,156, respectively. As of September 25, 2026,the Company had $1,748 of unrecognized compensation expense related to restricted stock which will be recognized over the nextthree* years.

Restricted Stock Unit Awards (“RSU”)

The RSUs entitles an individual to shares of common stock of the Company or cash in lieu of shares of Company common stock if specific terms and conditions or restrictions are met through a specified date, generally three years from the date of grant or when performance conditions have been met. The fair value of the RSUs (on the date of grant) is recorded as compensation expense over the vesting period. There wereno employment based RSUs granted during thefirst quarter of fiscal2027 and2026. There were 79.2 and 73.8 unvested RSUs outstanding at* September 25, 2026and September 26, 2025,respectively. Compensation expense of $79 and $171 was recognized for the quarters ended September 25, 2026and September 26, 2025,respectively. The total fair value of restricted stock units vested as of September 25, 2026and September 26, 2025was $124 and $33, respectively. The weighted average grant date fair value of the unvested awards at September 25, 2026was $13.13. As of September 25, 2026,*the Company had $269 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.

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The Company expects to contribute approximately $1,975 to its pension plans in fiscal2027. As of* September 25, 2026,*the amount of $1,043 in contributions to the pension plans have been made.

The Company has reclassified $27 (net of $9 in taxes) of benefit plan adjustments from accumulated other comprehensive income (loss) during the quarter ended* September 25, 2026,and $632 (net of $1 in taxes) during the quarter ended September 26, 2025.*These reclassifications are included in the computation of net periodic benefit cost (gain).

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 methodology, the Company applies an estimated annual income tax rate to year-to-date ordinary earnings to derive its interim income tax provision. 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.

The Company previously maintained a valuation allowance against certain domestic deferred tax assets. Based on management's assessment that realization of the related deferred tax assets is more likely thannot, the domestic valuation allowance was released during thesecond quarter of fiscal2026. As of the current reporting date,no domestic valuation allowance is recorded.

During fiscal2026, the Company changed its method of accounting for inventory costing for U.S. operations from the last-in,first-out ("LIFO") method to thefirst-in,first-out ("FIFO") method. The change was applied retrospectively and all periods presented reflect the FIFO method. Because the Company remained in a domestic valuation allowance position through thefirst quarter of fiscal2026, the accounting method change hadno impact on income tax expense during that period.

The Company continues to maintain a valuation allowance in certain immaterial foreign jurisdictions due to continued losses and uncertain future earnings. Permanent differences continue to fluctuate and are significant compared to projected ordinary income. Accordingly, these jurisdictions are excluded from the annualized effective tax rate, and tax expense or benefit is recognized discretely as items are incurred.

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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* September 25, 2026,*changes in the carrying amount of goodwill are summarized as follows:

As of* September 25, 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.

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Intangible amortization expense was $672 and $667 for the quarters ended* September 25, 2026,and September 26, 2025,respectively. Estimated intangible amortization expense for the remainder of fiscal2027* and each of the nextfive fiscal years is as follows:

Long-term debt at* September 25, 2026and June 30, 2026*consisted of the following:

Credit Agreement Debt:

Current Credit Agreement

On* June 30, 2026,Twin Disc, Incorporated (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) among the Company, as Borrower; Kobelt Manufacturing Co. Ltd. ("Kobelt"), as Guarantor; Bank of Montreal, as a Lender, Administrative Agent, Swing Line Lender, and L/C Issuer; and JPMorgan Chase Bank, N.A. ("Chase"), as a Lender. The Credit Agreement refinanced and replaced the credit agreement dated February 14, 2025among the Company, Kobelt, and Bank of Montreal. Capitalized terms that arenot* otherwise defined herein are defined in the Credit Agreement.

Pursuant to the Credit Agreement, Bank of Montreal and Chase (the “Lenders”) made Term Loans to the Company in an aggregate principal amount of $30.0 million. The maturity date of the Term Loans is* June 30, 2031,and the Company is required to make principal installments on the Term Loans of at least $375 per quarter, increasing to $562 per quarter for the quarter ending on or about September 30, 2028,and $750 per quarter for the quarter ending on or about September 30, 2030.*

The Credit Agreement also allows the Company to enter into Revolving Loans with the Lenders from time to time prior to* June 30, 2031 (the “Revolving Credit Termination Date”) in amountsnot* to exceed $60.0 million (the “Revolving Credit Commitment”). The Revolving Credit Commitment includes a $5.0 million sublimit for Swing Loans and a $4.0 million sublimit for Letters of Credit that* may*be requested by the Company from time to time until the Revolving Credit Termination Date. Each Swing Loan or Letter of Credit provided pursuant to the terms of the Credit Agreement shall be a Revolving Loan provided under the Revolving Credit Commitment.

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Interest rates under the Credit Agreement are based on the secured overnight financing rate (“SOFR”), the euro interbank offered rate (the “EURIBO Rate”), the Canadian Overnight Repo Rate Average (the “CORRA”), or a Base Rate based on the highest of the prime rate, federal funds rate, or Term SOFR. Loans under the Credit Agreement are designated as either as SOFR Loans, which accrue interest at a Term SOFR plus an Applicable Margin; Base Rate Loans, which accrue interest at the Base Rate 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 Margin for Loans is between 1.50% and 3.00%, and the Applicable Margin for the Unused Revolving Credit Commitment is between 0.15% and 0.30% (each depending on the Company’s Total Funded Debt to EBITDA ratio). The Term Loan has been designated as a SOFR Loan.

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 an Amended and Restated Security Agreement, Amended and Restated IP Security Agreement, Amended and Restated Pledge Agreement, and Amended and Restated Perfection Certificate with the Administrative Agent, and the Company entered into an Amended and Restated Agreement as to Liens and Encumbrances and an Amended and Restated Negative Pledge Agreement with the Administrative Agent with regard to the Company’s real property.

Upon the occurrence of an Event of Default, the Administrative Agent* may*take the following actions upon written notice to the Company: (1) terminate the remaining Commitments and all obligations of the Lenders under the Credit Agreement; (2) declare the principal and accrued interest of all Loans outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize the outstanding L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations. If such Event of Default is due to the Company’s bankruptcy, the actions and obligations listed above shall occur without notice to the Company.

Prior Credit Agreement

On* February 14, 2025,the Company entered into an amended and restated Credit Agreement (the“2025* Credit Agreement”) with Bank of Montreal (the “Bank”) that refinanced and replaced the credit agreement dated as of* June 29, 2018,as amended, between the Company and BMO Harris Bank, N.A. (the“2018* Credit Agreement”).

Pursuant to the2025 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 the2018 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 was* April 1, 2027,*and the Company is required to make principal installments on the Term Loan of at least $0.75 million per quarter.

Under the2025 Credit Agreement, the Company was able to 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). The2025* Credit Agreement allowed the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, became Revolving Loans. Under the2025 Credit Agreement, the Company couldnot pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the2025 Credit Agreement ran through* April 1, 2027.*

The Company used the increased borrowing capacity under the2025 Credit Agreement to help finance its acquisition of Kobelt. Kobelt was included as a Borrower under the2025 Credit Agreement, and was permitted to borrow directly under the2025 Credit Agreement up to the lesser of the Revolving Credit Commitment or $25.0 million. For purposes of determining the Borrowing Base under the2025 Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt were included.

Interest rates under the2025 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 the2025 Credit Agreement were designated as either as “SOFR Loans,” which accrued interest at an Adjusted Term SOFR plus an Applicable Margin; “Eurodollar Loans,” which accrued interest at the EURIBO Rate plus an Applicable Margin; “Term CORRA Loans,” which accrued interest at an Adjusted Term CORRA plus an Applicable Margin; “Daily Compounded CORRA Loans,” which accrued interest at a Daily Compounded CORRA plus an Applicable Margin; or Canadian Prime Rate Loans,” which accrued interest at the Canadian Prime Rate plus an Applicable Margin. The Applicable Margins were 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).

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The2025 Credit Agreement 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 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 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 the2025 Credit Agreement were 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 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 consented 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 the2025* 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 the2025 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 the2025 Credit Agreement were also required to be guaranteed by each U.S. subsidiary of the Company.

Upon the occurrence of an Event of Default, the Bank could take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the2025 Credit Agreement; (2) declare all amounts outstanding under the2025 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 determined a greater amount was necessary. If such Event of Default were due to the Company’s bankruptcy, the Bank could take thethree actions listed above without notice to the Company.

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

As of* September 25, 2026,*current maturities include $1,500 of term loan payments due within the coming year.

**Other:*During the quarter ended September 25, 2026,*the average interest rate was 5.31% on the Term Loan, and 5.14% on the Revolving Loans.

The Company’s borrowings described above approximate fair value at* September 25, 2026and June 30, 2026.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* June 30, 2026.The maturity didnot* have a material impact on our consolidated financial statements.

On* June 30, 2026,*the Company refinanced and replaced its Credit Agreement. As part of the refinance of the credit agreement the Revolving Loan designated in euro was paid in full.

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* September 25, 2026remain authorized for purchase. The Company didnot* make any open market purchases of its shares during the quarters ended* September 25, 2026and September 26, 2025.*

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The following is a reconciliation of the Company’s equity balances for thefirst fiscal quarters of2027 and2026:

Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended* September 25, 2026and September 26, 2025*are as follows:

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Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended* September 25, 2026*are as follows:

Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended* September 26, 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 ended* September 26, 2025*as the Company reported a net loss:229.9 related to the Company’s unvested PSAs,8.0 related to the Company’s unvested PSUA awards,233.2 related to the Company’s unvested RS awards, and 79.2 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 sheets.

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* September 25, 2026*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 hadone interest rate swap contract that matured as of* 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 income (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 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.

Derivatives Designated as Net Investment Hedges

On* June 30, 2026,*the Company refinanced and replaced its Credit Agreement as discussed in Note K, Long-term Debt, of the notes to the condensed consolidated financial statements. As part of the refinance of the credit agreement the Revolving Loan designated in euro was paid in full.

The Company is exposed to foreign currency exchange 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 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 $0 and $0 as of* September 25, 2026and June 30, 2026,*respectively.

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Fair Value of Derivative Instruments

The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended* September 25, 2026and September 26, 2025,*respectively, was as follows: