UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
For the quarter ended
Commission File Number
TWIN DISC, INCORPORATED
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (I.R.S. Employer |
| Incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
At October 23, 2025, the registrant had
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
| September 26, 2025 | June 30, 2025 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Trade accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right-of-use assets operating lease assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Deferred income taxes | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt | $ | $ | ||||||
| Current maturities of right-of-use operating lease obligations | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Right-of-use lease obligations | ||||||||
| Accrued retirement benefits | ||||||||
| Deferred income taxes | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Twin Disc, Incorporated shareholders' equity: | ||||||||
| Preferred shares authorized: ; issued: ; par value | ||||||||
| Common shares authorized: ; issued: ; par value | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss) | ||||||||
| Less treasury stock, at cost ( and shares, respectively) | ||||||||
| Total Twin Disc, Incorporated shareholders' equity | ||||||||
| Noncontrolling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The notes to condensed consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| For the Quarter-Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| Net sales | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Marketing, engineering and administrative expenses | ||||||||
| Income (loss) from operations | ( | ) | ||||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income (expense), net | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Income (loss) before income taxes and noncontrolling interest | ( | ) | ||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||
| Net income (loss) | ( | ) | ( | ) | ||||
| Less: Net income (loss) attributable to noncontrolling interest, net of tax | ( | ) | ||||||
| Net income (loss) attributable to Twin Disc, Incorporated | $ | ( | ) | $ | ( | ) | ||
| Dividends per share | $ | $ | ||||||
| Earnings (loss) per share data: | ||||||||
| Basic earnings (loss) per share attributable to Twin Disc, Incorporated common shareholders | $ | ( | ) | $ | ( | ) | ||
| Diluted earnings (loss) per share attributable to Twin Disc, Incorporated common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding data: | ||||||||
| Basic shares outstanding | ||||||||
| Diluted shares outstanding | ||||||||
| Comprehensive income (loss) | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Benefit plan adjustments, net of income taxes of $1 and $11, respectively | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Unrealized gain (loss) on hedges, net of income taxes of $0 and $0, respectively | ( | ) | ||||||
| Comprehensive income (loss) | ( | ) | ||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interest | ||||||||
| Comprehensive income (loss) attributable to Twin Disc, Incorporated | $ | ( | ) | $ | ||||
The notes to condensed consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| For the Quarter Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Provision for deferred income taxes | ( | ) | ( | ) | ||||
| Stock compensation expense and other non-cash changes, net | ||||||||
| Net change in operating assets and liabilities | ( | ) | ( | ) | ||||
| Net cash provided (used) by operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of property, plant, and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property, plant, and equipment | ||||||||
| Other, net | ( | ) | ( | ) | ||||
| Net cash provided (used) by investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings under revolving loan arrangements | ||||||||
| Repayments of revolving loan arrangements | ( | ) | ( | ) | ||||
| Dividends paid to shareholders | ( | ) | ( | ) | ||||
| Payments of finance lease obligations | ( | ) | ( | ) | ||||
| Cash used in net share settlement of restricted stock units | ( | ) | ||||||
| Payments of withholding taxes on stock compensation | ( | ) | ( | ) | ||||
| Net cash provided (used) by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash: | ||||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
The notes to condensed consolidated financial statements are an integral part of these statements.
TWIN DISC, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| A. | Basis of Presentation and Other Information |
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 presented not 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 Form 10-K for June 30, 2025. The prior year-end condensed consolidated balance sheet data was derived from audited financial statements but does not 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
Recently Issued Not 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” (“ASU 2024-03”) 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. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, or the Company’s fiscal 2028, 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 December 2023, the FASB issued guidance ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five 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 its 2026 annual report filed on Form 10-K, which will result in additional disclosures related to income tax but not impact the Company’s results of operations or financial position.
In November 2023, the FASB issued guidance ASU 2023-07, "Segment Reporting (Topic 280): 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 fiscal 2025 and adopted the interim disclosures as required beginning with the first quarter of fiscal 2026.
Special Note Regarding Smaller Reporting Company Status
Under SEC Release 33-10513; 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.
| B. | Revenue |
The Company reported the following contract assets and liabilities, which are presented within trade accounts receivable, net and accrued liabilities on the condensed balance sheets. Deferred revenue represents billings in excess of cost based on milestone billings in the contract.
| Contract Assets | Contract Liabilities | ||||||||||||
| Cost in Excess | Trade Accounts | Total Contract | Customer | Deferred | Total Contract | ||||||||
| of Billings, Net | Receivable, Net | Assets | Deposits | Revenue | Liabilities | ||||||||
| June 30, 2024 | $ | $ | $ | $ | $ | $ | |||||||
| June 30, 2025 | |||||||||||||
| September 26, 2025 | $ | $ | $ | $ | $ | $ | |||||||
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.
| C. | Inventories, Net |
The major classes of inventories were as follows:
| September 26, 2025 | June 30, 2025 | |||||||
| Inventories: | ||||||||
| Finished parts | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
| D. | Warranty |
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 26, 2025 and September 27, 2024:
| For the Quarter Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| Reserve balance, beginning of period | $ | $ | ||||||
| Current period expense and adjustments | ||||||||
| Payments or credits to customers | ( | ) | ( | ) | ||||
| Translation | ||||||||
| Reserve balance, end of period | $ | $ | ||||||
The current portion of the warranty accrual ($
| E. | Contingencies |
The Company is involved in litigation of which the ultimate outcome and liability to the Company, if any, is not presently determinable. Management believes that final disposition of such litigation will not have a material impact on the Company’s results of operations, financial position or cash flows.
| F. | Business Segments |
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 has 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 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).
The following table presents the selected financial information with respect to the Company’s reportable segments as of September 26, 2025:
| Manufacturing | Distribution | Corporate | Elimination and adjustments | Consolidated | ||||||||||||||||
| Net sales: | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Intra-segment sales | ( | ) | ( | ) | ||||||||||||||||
| Inter-segment sales | ( | ) | ( | ) | ||||||||||||||||
| Total consolidated net sales | ||||||||||||||||||||
| Cost of goods sold: | ||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||
| Intra-segment cost of goods sold | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Inter-segment cost of goods sold | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total consoldiated cost of goods sold | ( | ) | ||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Marketing, engineering and administrative expenses | ||||||||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income | ( | ) | ||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Total consolidated other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Pretax earnings (loss) | ( | ) | ( | ) | ||||||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Minority interest | ||||||||||||||||||||
| Net income (loss) attributable to Twin Disc, Incorporated | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||
| Total consolidated assets | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Expenditures for segment assets | ||||||||||||||||||||
The following table presents the selected financial information with respect to the Company’s reportable segments as of September 27, 2024:
| Manufacturing | Distribution | Corporate | Elimination and adjustments | Consolidated | ||||||||||||||||
| Net sales: | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Intra-segment sales | ( | ) | ( | ) | ||||||||||||||||
| Inter-segment sales | ( | ) | ( | ) | ||||||||||||||||
| Total consolidated net sales | ||||||||||||||||||||
| Cost of goods sold: | ||||||||||||||||||||
| Cost of goods sold | $ | |||||||||||||||||||
| Intra-segment cost of goods sold | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Inter-segment cost of goods sold | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total consoldiated cost of goods sold | ( | ) | ||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Marketing, engineering and administrative expenses | ||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income | ( | ) | ||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Total consolidated other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Pretax earnings (loss) | ( | ) | ( | ) | ||||||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||||||
| Minority interest | ( | ) | ( | ) | ||||||||||||||||
| Net income (loss) attributable to Twin Disc, Incorporated | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||
| Total consolidated assets | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Expenditures for segment assets | ||||||||||||||||||||
Disaggregated revenue:
The following table presents details deemed most relevant to the users of the financial statements for the quarters ended September 26, 2025 and September 27, 2024.
Net sales by product group for the quarter ended September 26, 2025 is summarized as follows:
| Elimination of | ||||||||||||||||
| Manufacturing | Distribution | Intercompany Sales | Total | |||||||||||||
| Industrial | $ | $ | $ | ( | ) | $ | ||||||||||
| Land-based transmissions | ( | ) | ||||||||||||||
| Marine and propulsion systems | ( | ) | ||||||||||||||
| Other | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
Net sales by product group for the quarter ended September 27, 2024 is summarized as follows:
| Elimination of | ||||||||||||||||
| Manufacturing | Distribution | Intercompany Sales | Total | |||||||||||||
| Industrial | $ | $ | $ | ( | ) | $ | ||||||||||
| Land-based transmissions | ( | ) | ||||||||||||||
| Marine and propulsion systems | ( | ) | ||||||||||||||
| Other | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
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 include non-Twin Disc manufactured product sold through Company-owned distribution entities.
| G. | Stock-Based Compensation |
In the first quarter of fiscal 2025, the Company adopted the Twin Disc, Incorporated Amended and Restated 2021 Omnibus Incentive Plan (the “Omnibus Plan”), which was subsequently approved by the Company’s shareholders. The Omnibus Plan amended and restated the Twin Disc, Incorporated 2021 Long-Term Incentive Plan (the “2021 LTI Plan”), and effectively replaced the Twin Disc, Incorporated 2020 Stock Incentive Plan for Non-Employee Directors (the “2020 Directors' Plan”). Benefits under the Omnibus Plan may be granted, awarded or paid in any one 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 of the Company.
There is reserved for issuance under the Plan an aggregate of
Performance Stock Awards (“PSA”)
During the first quarter of fiscal 2026 and 2025, the Company granted a target number of
The fiscal 2026 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 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
The fiscal 2025 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 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
There were
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 fiscal 2024 PSUAs will vest if the Company achieves performance-based target objectives relating to average return on invested capital and cumulative EBITDA (as defined in the PSUA Grant Agreement), in the cumulative three 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
There were
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 to years. During the first quarter of fiscal 2026 and 2025, the Company granted
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. During the first quarter of fiscal 2026 and 2025, the Company granted
| H. | Pension and Other Postretirement Benefit Plans |
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.
| For the Quarter Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| Pension Benefits: | ||||||||
| Service cost | $ | $ | ||||||
| Prior Service cost | ||||||||
| Interest cost | ||||||||
| Expected return on plan assets | ( | ) | ( | ) | ||||
| Amortization of transition obligation | ||||||||
| Amortization of prior service cost (benefit) | ||||||||
| Amortization of actuarial net loss (gain) | ||||||||
| Net periodic benefit cost (gain) | $ | $ | ||||||
| Postretirement Benefits: | ||||||||
| Service cost | $ | $ | ||||||
| Interest cost | ||||||||
| Amortization of prior service cost (benefit) | ( | ) | ||||||
| Amortization of actuarial net loss (gain) | ( | ) | ( | ) | ||||
| Net periodic benefit cost (gain) | $ | $ | ( | ) | ||||
The Company expects to contribute approximately $
The Company has reclassified $
| I. | Income Taxes |
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 ASC 740-270-30-36a applies. Due to continued historical domestic and foreign immaterial jurisdiction losses and uncertain future earnings, the company continues to recognize a full valuation allowance for these entities. Permanent differences continue to fluctuate and are significant compared to projected ordinary income. Therefore, per ASC guidance, the fully valued domestic entity and the immaterial foreign jurisdiction was removed from the annualized effective rate calculation. Because of the full U.S. and foreign immaterial jurisdiction valuation allowance, these entities may only recognize tax benefit (expense) recorded for ASC 740-10 adjustments.
| For the Quarter-Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| Foreign earnings (loss) , before income taxes of $ and $, respectively | $ | $ | ||||||
| Domestic and immaterial foreign jurisdiction earnings (loss), before income taxes of ($) and ($), respectively | ( | ) | ( | ) | ||||
| Income (loss) before income taxes and noncontrolling interest | $ | $ | ( | ) | ||||
| Income tax benefit (expense) | $ | ( | ) | $ | ( | ) | ||
| Effective income tax rate | % | - | % | |||||
Due to the full U.S. and immaterial foreign jurisdiction allowance currently in place, no tax benefit can be recognized on the losses within those jurisdictions.
A discrete benefit was recorded during the period of ($
During the quarter ended September 26, 2025, the Company recorded a discrete tax expense of $
On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was enacted and signed into law. The Act restores and makes permanent a number of corporate tax provisions, such as full expensing for U.S.-based research and development expenditures and capital investments, as well as certain changes to the U.S. taxation of foreign activity. The Company has evaluated the impact of the provisions and determined that while the legislation impacts the timing of certain tax deductions, it does not result in a material impact to the Company's effective tax rate.
| J. | Goodwill and Intangible Assets, Net |
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 26, 2025, changes in the carrying amount of goodwill is summarized as follows:
| Net Book Value Rollforward | ||||
| Balance at June 30, 2025 | ||||
| Translation adjustment | ( | ) | ||
| Balance at September 26, 2025 | $ | |||
As of September 26, 2025, the following acquired intangible assets have definite useful lives and are subject to amortization:
| Net Book Value Rollforward | Net Book Value By Asset Type | |||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization / Impairment | Net Book Value | Customer Relationships | Technology Know-how | Trade Name | Other | Total | |||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Additions | ||||||||||||||||||||||||||||||||
| Amortization | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Translation adjustment | ( | ) | 200 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance at September 26, 2025 | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
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
Intangible amortization expense was $
| Fiscal Year | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| $ |
| K. | Long-term Debt |
Long-term debt at September 26, 2025 and June 30, 2025 consisted of the following:
| September 26, 2025 | June 30, 2025 | |||||||
| Credit Agreement Debt | ||||||||
| Revolving loans (expire April 2027) | $ | $ | ||||||
| Term loan (due April 2027) | ||||||||
| Other | ||||||||
| Subtotal | ||||||||
| Less: current maturities | ( | ) | ( | ) | ||||
| Total long-term debt | $ | $ | ||||||
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 were no significant financing costs associated with the credit agreement.
Pursuant to the Credit Agreement, the Bank made a Term Loan to the Company in the principal amount of $
In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $
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 $
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
The Credit Agreement requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed
Borrowings under the Credit Agreement secured by substantially all of the Company’s and Kobelt’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged
Upon the occurrence of an Event of Default, the Bank may take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to
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 a 2016 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 amount not to exceed $
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 were not 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
The Prior Credit Agreement, as amended, required the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio could not exceed
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
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 could not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Prior Credit Agreement.
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
On April 1, 2024, the Company had entered into Amendment No. 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 $
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 $
The Tenth Amendment also extended the Prior Credit Agreement through April 1, 2027 and 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
The Company remains in compliance with its liquidity and other covenants.
As of September 26, 2025, current maturities include $
Other: During the quarter ended September 26, 2025, the average interest rate was
As of September 26, 2025, the Company’s borrowing capacity on the Revolving Loans under the terms of the Credit Agreement was $
The Company’s borrowings described above approximate fair value at September 26, 2025 and June 30, 2025. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.
The Company is party to an interest rate swap arrangement with Bank of Montreal, with an initial notional amount of $
During the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan as a net investment hedge to mitigate the risk of variability in its euro denominated net investments in wholly-owned foreign companies. Effective upon the designation, all changes in the fair value of the euro revolver are reported in accumulated other comprehensive loss along with the foreign currency translation adjustments on those foreign investments. This net investment hedge is included in the disclosures in Note O, Derivative Financial Instruments.
| L. | Shareholders’ Equity |
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
The following is a reconciliation of the Company’s equity balances for the first fiscal quarters of 2026 and 2025:
| Twin Disc, Inc. Shareholders’ Equity | ||||||||||||||||||||||||
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non- Controlling Interest | Total Equity | |||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends paid to shareholders | ( | ) | ( | ) | ||||||||||||||||||||
| Translation adjustments | ( | ) | ( | ) | ||||||||||||||||||||
| Benefit plan adjustments, net of tax | ||||||||||||||||||||||||
| Unrealized gain (loss) on hedges, net of tax | ||||||||||||||||||||||||
| Compensation expense | ||||||||||||||||||||||||
| Stock awards, net | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 26, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Twin Disc, Inc. Shareholders’ Equity | ||||||||||||||||||||||||
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non- Controlling Interest | Total Equity | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Dividends paid to shareholders | ( | ) | ( | ) | ||||||||||||||||||||
| Translation adjustments | ||||||||||||||||||||||||
| Benefit plan adjustments, net of tax | ||||||||||||||||||||||||
| Unrealized gain (loss) on hedges, net of tax | ( | ) | ( | ) | ||||||||||||||||||||
| Compensation expense | ||||||||||||||||||||||||
| Stock awards, net | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, September 27, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||
Reconciliations for the changes in accumulated other comprehensive income (loss), net of tax, by component for the quarters ended September 26, 2025 and September 27, 2024 are as follows:
| Translation Adjustment | Benefit Plan Adjustment | Cash Flow Hedges | Net Investment Hedges | |||||||||||||
| Balance, June 30, 2025 | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Translation adjustment during the quarter | ( | ) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | ( | ) | ||||||||||||||
| Net current period other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balance, September 26, 2025 | $ | $ | ( | ) | $ | $ | ||||||||||
| Translation Adjustment | Benefit Plan Adjustment | Cash Flow Hedges | Net Investment Hedges | |||||||||||||
| Balance, June 30, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Translation adjustment during the quarter | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Net current period other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Balance, September 27, 2024 | $ | $ | ( | ) | $ | $ | ||||||||||
Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 26, 2025 are as follows:
| Amount Reclassified | ||||
| Changes in benefit plan items | ||||
| Actuarial loss (gain) | $ | (a) | ||
| Transition asset and prior service cost (benefit) | (a) | |||
| Total amortization | ||||
| Income taxes | ||||
| Total changes, net of tax | $ | |||
Reconciliation for the changes in benefit plan adjustments, net of tax for the quarter ended September 27, 2024 is as follows:
| Amount Reclassified | |||||
| Changes in benefit plan items | |||||
| Actuarial loss (gain) | (a) | ||||
| (a)Transition asset and prior service cost (benefit) | ( | ) (a) | |||
| Total amortization | |||||
| Income taxes | ( | ) | |||
| Total changes, net of tax | $ | ||||
| (a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension benefit cost (gain) (see Note H, "Pension and Other Postretirement Benefit Plans" for further details). |
| M. | Earnings Per Share |
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 the two-class method.
The components of basic and diluted EPS were as follows:
| September 26, 2025 | September 27, 2024 | |||||||
| Basic: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Less: Net income (loss) attributable to noncontrolling interest, net of tax | ( | ) | ||||||
| Net income (loss) attributable to Twin Disc, Incorporated | ( | ) | ( | ) | ||||
| Weighted average shares outstanding - basic | ||||||||
| Basic earnings (loss) per share: | ||||||||
| Basic earnings (loss) per share attributable to Twin Disc, Incorporated common shareholders | $ | ( | ) | $ | ( | ) | ||
| Diluted: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Less: Net income (loss) attributable to noncontrolling interest, net of tax | ( | ) | ||||||
| Net income (loss) attributable to Twin Disc, Incorporated | ( | ) | ( | ) | ||||
| Weighted average shares outstanding - basic | ||||||||
| Effect of dilutive stock awards | ||||||||
| Weighted average shares outstanding - diluted | ||||||||
| Diluted earnings (loss) per share: | ||||||||
| Diluted earnings (loss) per share attributable to Twin Disc, Incorporated common shareholders | $ | ( | ) | $ | ( | ) | ||
The following potential common shares were excluded from diluted EPS for the quarter ended September 26, 2025 as the Company reported a net loss:
The following potential common shares were excluded from diluted EPS for the quarter ended September 27, 2024 as the Company reported a net loss:
| N. | Lease Liabilities |
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 may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. As its lease agreements typically do not 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.
The following table provides a summary of leases recorded on the condensed consolidated balance sheets.
| Condensed Consolidated | September 26, 2025 | June 30, 2025 | |||||||
| Lease Assets | |||||||||
| Right-of-use operating lease assets | Right-of-use operating lease assets | $ | $ | ||||||
| Right-of-use finance lease assets |
| ||||||||
| Lease Liabilities | |||||||||
| Right-of-use operating lease liabilities, current | Current maturities of right-of-use operating lease obligations | $ | $ | ||||||
| Right-of-use operating lease liabilities, non-current | Right-of-use lease obiligations | ||||||||
| Right-of-use finance lease liabilities, current |
| ||||||||
| Right-of-use finance lease liabilities, non-current |
| $ | $ | ||||||
The components of lease expense were as follows:
| For the Quarter Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Operating lease cost | ||||||||
| Short-term lease cost | ||||||||
| Variable lease cost | ||||||||
| Total lease cost | ||||||||
| Less: Sublease income | ( | ) | ( | ) | ||||
| Net lease cost | $ | $ | ||||||
Other information related to leases was as follows:
| For the Quarter Ended | ||||||||
| September 26, 2025 | September 27, 2024 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from finance leases | ||||||||
| Financing cash flows from finance leases | ||||||||
| Right-of-use-assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted average remaining lease term (years): | ||||||||
| Operating leases | ||||||||
| Finance lease | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Approximate future minimum rental commitments under non-cancellable leases as of September 26, 2025 were as follows:
| Operating Leases | Finance Leases | |||||||
| 2026 | $ | $ | ||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| 2031 | ||||||||
| Thereafter | ||||||||
| Total future lease payments | ||||||||
| Less: Amount representing interest | ( | ) | ( | ) | ||||
| Present value of future payments | $ | $ | ||||||
| O. | Derivative Financial Instruments |
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 does not 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 is no 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 has outstanding interest rate swap contract as of September 26, 2025, with a notional amount of $
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 than twelve months.
Net unrealized after-tax gains (loss) related to cash flow hedging activities that were included in accumulated other comprehensive income (loss) were $
The Company estimates that $
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 the fourth quarter of fiscal 2021, the Company designated its euro denominated Revolving Loan, with a notional amount of 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 $
Fair Value of Derivative Instruments
The fair value of derivative instruments included in the condensed consolidated balance sheets were as follows:
| Condensed Consolidated | |||||||||
| Balance Sheets Location | September 26, 2025 | June 30, 2025 | |||||||
| Derivative designated as hedge: | |||||||||
| Interest rate swap | Other current assets | $ | $ | ||||||
The impact of the Company’s derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended September 26, 2025 and September 27, 2024, respectively, was as follows:
| Condensed Consolidated Statements | |||||||||
| of Operations and Comprehensive | For the Quarter Ended | ||||||||
| Income (Loss) Location | September 26, 2025 | September 27, 2024 | |||||||
| Derivative designated as hedge: | |||||||||
| Interest rate swap | Interest expense | $ | $ | ||||||
| Interest rate swap | Unrealized gain (loss) on hedges | ( | ) | ( | ) | ||||
| Net investment hedge | Unrealized gain (loss) on hedges | ( | ) | ||||||
Item 2. Management Discussion and Analysis
In the financial review that follows, we discuss our results of operations, financial condition and certain other information. This discussion should be read in conjunction with our condensed consolidated financial statements as of September 26, 2025, and related notes, as reported in Item 1 of this Quarterly Report.
Some of the statements in this Quarterly Report on Form 10-Q are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include the Company’s description of plans and objectives for future operations and assumptions behind those plans. The words “anticipates,” “believes,” “intends,” “estimates,” and “expects,” or similar anticipatory expressions, usually identify forward-looking statements. In addition, goals established by the Company should not be viewed as guarantees or promises of future performance. There can be no assurance the Company will be successful in achieving its goals.
In addition to the assumptions and information referred to specifically in the forward-looking statements, other factors, including but not limited to those factors discussed under Item 1A, Risk Factors, of the Company’s Annual Report filed on Form 10-K for June 30, 2025, as supplemented in this Quarterly Report, could cause actual results to be materially different from what is expressed or implied in any forward-looking statement.
Results of Operations
| (In thousands) |
||||||||||||||||
| Quarter Ended |
||||||||||||||||
| September 26, 2025 |
% of Net Sales |
September 27, 2024 |
% of Net Sales |
|||||||||||||
| Net sales |
$ | 79,996 | $ | 72,897 | ||||||||||||
| Cost of goods sold |
57,062 | 53,575 | ||||||||||||||
| Gross profit |
22,934 | 28.7 | % | 19,322 | 26.5 | % | ||||||||||
| Marketing, engineering and administrative expenses |
20,699 | 25.9 | % | 19,487 | 26.7 | % | ||||||||||
| Income (loss) from operations |
$ | 2,235 | 2.8 | % | $ | (165 | ) | -0.2 | % | |||||||
Comparison of the First Quarter of Fiscal 2026 with the First Quarter of Fiscal 2025
Net sales for the first quarter increased 9.7%, or $7.1 million, to $80.0 million from $72.9 million in the same quarter a year ago. The acquisition of Kobelt, completed in the third quarter of fiscal 2025, contributed $3.1 million of additional revenue in the quarter. The remaining increase primarily reflects continued growth in demand for the company’s Veth propulsion systems. Global sales of marine and propulsion products improved 14.6% from the prior year, largely on the strength of the Veth product demand. Sales of industrial products improved 13.2% from the prior year first quarter, with a significant contribution from the Kobelt acquisition. Shipments of off-highway transmission products improved slightly (1.5%), with generally stable demand across end markets. The North American region saw a significant increase in revenue ($8.7 million or 48.9%) thanks to the acquisition of Kobelt and expansion of Veth product sales into the region. Sales into Europe increased 6.8%, or $2.0 million, on growing demand for the Veth product. The Asia Pacific region declined 14.5%, or $2.4 million, on weaker commercial marine demand and reduced shipments of oilfield transmissions into China. Currency translation had a favorable impact on first quarter fiscal 2026 sales compared to the first quarter of the prior year totaling $3.2 million primarily due to the strengthening of the euro against the U.S. dollar.
Sales at our manufacturing segment increased 17.0%, or $10.7 million, versus the same quarter last year. The Company’s new Canadian acquisition, Kobelt, contributed $3.1 million of incremental revenue. The U.S. manufacturing operations experienced a 1.4%, or $0.4 million, decrease in sales versus the first fiscal quarter of 2025, driven by a reduction in aftermarket demand. The Company’s operation in the Netherlands saw increased revenue of $6.8 million (43.6%) compared to the first fiscal quarter of 2025, as this operation continues to ramp up production to meet record demand for its propulsion systems. The Company’s Finnish operation saw an increase in revenue ($0.7 million or 7.7%) as demand for European defense applications continues to improve. The Company’s Belgian operation saw a decrease compared to the prior year first quarter (16.2% or $0.8 million), with weaker demand for its marine transmission products. The Company’s Italian manufacturing operation was up $0.6 million (16.7%) compared to the first quarter of fiscal 2025, due primarily to some strengthening demand for marine products in the region. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.7 million (44.4%) compared to the prior year first quarter.
Our distribution segment experienced a decrease in sales of $7.8 million (26.4%) in the first quarter of fiscal 2026 compared to the first quarter of fiscal 2025. The Company’s Asian distribution operations in Singapore, China and Japan were down 24.7% or $2.9 million from the prior year on reduced demand for commercial marine products. The Company’s North America distribution operation saw a $2.1 million decrease (41.6%) on reduced demand for European produced goods, somewhat impacted by the changing tariff structure. Similarly, the Company’s European distribution operation saw a significant decrease ($2.5 million or 45.5%) on reduced activity in commercial marine projects. The Company’s distribution operation in Australia and New Zealand, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a slight decrease in revenue (3.0% from the prior year first fiscal quarter), on relatively stable demand.
Gross profit as a percentage of sales for the first quarter of fiscal 2026 improved to 28.7%, compared to 26.5% for the same period last year. The improvement in the current year first quarter compared to the prior year result reflects the impact of additional volume and the success of margin improvement initiatives across the manufacturing operations.
For the fiscal 2026 first quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 25.9%, compared to 26.7% for the fiscal 2025 first quarter. ME&A expenses increased $1.2 million (6.2%) over the same period last fiscal year. The increase in ME&A spending for the quarter was comprised of the addition of Kobelt ($0.6 million) and a currency translation impact ($0.5 million).
Interest expense was up $0.2 million to $0.8 million in the first quarter of fiscal 2026, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.
Other expense of $0.9 million for the first fiscal quarter was primarily attributable to a currency loss ($0.2 million) and pension amortization expense ($0.7 million).
The fiscal 2026 first quarter effective tax rate was 172.2% compared to (29.2%) in the prior fiscal year first quarter. The full domestic valuation allowance provides for a very volatile effective tax rate. This, along with the mix of foreign earnings by jurisdiction, resulted in the change to the effective tax rate.
Financial Condition, Liquidity and Capital Resources
Comparison between September 26, 2025 and June 30, 2025
As of September 26, 2025, the Company had net working capital of $132.3 million, which represents an increase of $11.2 million, or 9.3%, from the net working capital of $121.1 million as of June 30, 2025.
Cash decreased by $1.9 million to $14.2 million as of September 26, 2025, versus $16.1 million as of June 30, 2025. As of September 26, 2025, the majority of the cash is at the Company’s overseas operations in Europe ($4.4 million) and Asia-Pacific ($9.1 million).
Trade receivables of $63.9 million were up $5.0 million, or 8.5%, when compared to last fiscal year-end. The impact of foreign currency translation was to decrease accounts receivable by $0.4 million versus June 30, 2025. As a percent of sales, trade receivables finished at 79.9% in the first quarter of fiscal 2026 compared to 70.7% for the comparable period in fiscal 2025 and 61.0% for the fourth quarter of fiscal 2025.
Inventories increased by $6.3 million, or 4.2%, versus June 30, 2025 to $158.3 million. The impact of foreign currency translation was to decrease inventories by $1.1 million versus June 30, 2025. The largest increase came at our domestic operation ($3.9 million) due to delayed shipments. Our operation in the Netherlands increased $1.3 million in support of growing backlog for the Veth product, also impacted by delayed shipment of a large project. The Singapore distribution entity experienced a $2.0 million increase related to customer delays of deliveries on oilfield transmissions into China. Our operation in Finland saw a $1.3 million increase driven by growing demand for product in the defense market. Our Australian distribution operation saw a $1.0 million decrease in inventory. On a consolidated basis, as of September 26, 2025, the Company’s backlog of orders to be shipped over the next six months approximates $163.3 million, compared to $150.5 million at June 30, 2025 and $144.3 million at September 27, 2024. As a percentage of six-month backlog, inventory has decreased from 101% at June 30, 2025 to 97% at September 26, 2025.
Net property, plant and equipment increased $0.6 million (0.8%) to $70.2 million versus $69.6 million at June 30, 2025. The Company had capital spending of $3.4 million in the quarter. This increase was offset by depreciation of $2.3 million and an unfavorable exchange impact of $0.3 million. Capital spending occurring in the first quarter was primarily related to replacement capital, along with capital to drive growth and operating efficiencies. In total, the Company expects to invest between $15 and $17 million in capital assets in fiscal 2026. The Company continues to review its capital plans based on overall market conditions and availability of capital, and may make changes to its capital plans accordingly. The Company’s capital program is focused on modernizing key core manufacturing, assembly and testing processes and improving efficiencies at its facilities around the world.
Accounts payable as of September 26, 2025 of $37.1 million was down $1.7 million, or 4.3%, from June 30, 2025. The impact of foreign currency translation was to decrease accounts payable by $0.3 million versus June 30, 2025. The remaining decrease is primarily related to the normal timing of inventory receipts and payments within the quarter.
Total borrowings and long-term debt as of September 26, 2025 increased $12.3 million to $43.7 million versus $31.4 million at June 30, 2025. During the first quarter, the Company reported negative free cash flow of $11.0 million (defined as operating cash flow less acquisitions of fixed assets), driven by unfavorable working capital movement related primarily to inventory, the payment of the annual bonus for fiscal 2025, timing of trade receivable receipts and capital spending. The Company ended the quarter with total debt, net of cash, of $29.5 million, compared to $15.3 million at June 30, 2025, for a net degradation of $14.2 million.
Total equity decreased $3.5 million, or 2.1%, to $160.9 million as of September 26, 2025. The net loss during the first quarter decreased equity by $0.4 million, along with an unfavorable foreign currency translation of $2.4 million. The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.8 million. The quarterly dividend decreased equity by $0.6 million. The net remaining increase in equity of $0.7 million primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans, along with the unrealized gain on cash flow hedges.
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”).
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. Under the Credit Agreement, the Company is restricted in making dividend payments beyond $5 million in any fiscal year.
In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $50.0 million (the “Revolving Credit Commitment”). The Borrowing Base is the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $40.0 million for each fiscal month ending on or prior to August 31, 2025 (reduced to $35.0 million for each fiscal month ending on or prior to August 31, 2026, and further reduced to $32.5 million for each fiscal month ending thereafter) and 60% of Eligible Inventory for each fiscal month ending on or prior to August 31, 2025 (reduced to 55% of Eligible Inventory for each fiscal month ending on or prior to February 28, 2026, and 50% of Eligible Inventory for each fiscal month ending thereafter). The Credit Agreement also allows the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement runs through April 1, 2027.
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 Average (the “CORRA”). Loans under the Credit Agreement are designated as either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin; “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin; “Term CORRA Loans,” which accrue interest at an Adjusted Term CORRA plus an Applicable Margin; “Daily Compounded CORRA Loans,” which accrue interest at a Daily Compounded CORRA plus an Applicable Margin; or Canadian Prime Rate Loans,” which accrue interest at the Canadian Prime Rate plus an Applicable Margin. The Applicable Margins are between 2% and 3.5% for Revolving Loans and Letters of Credit; 2.125% and 3.625% for Term Loans; and .15% and .3% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).
The Credit Agreement requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for each of the Company’s Kobelt Acquisition and the Company’s prior Katsa acquisition, as well as pro-forma EBITDA of Katsa and Kobelt as permitted by the Bank. The Company’s Tangible Net Worth may not be less than $100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2024.
Borrowings under the Credit Agreement secured by substantially all of the Company’s and Kobelt’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 65% of its equity interests in certain foreign subsidiaries. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment to the Bank of certain agreements previously entered into between the Company and the Bank in connection with an April 22, 2016 credit agreement between the Company and the Bank, and further amended such agreements pursuant to the terms of the Credit Agreement. Specifically, the Company amended and agreed to the assignment to the Bank of a Security Agreement, IP Security Agreement, Pledge Agreement, Perfection Certificate, and Assignment as to Liens and Encumbrances. The Company also amended and assigned to the Bank a Negative Pledge Agreement, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt. Borrowings under the Credit Agreement are also required to be guaranteed by each U.S. subsidiary of the Company.
Upon the occurrence of an Event of Default, the Bank may take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if the Bank determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, the Bank may take the three actions listed above without notice to the Company.
The Company remains in compliance with its liquidity and other covenants.
Management believes that available cash, the Credit Agreement, the unsecured lines of credit, cash generated from future operations, and potential access to debt markets will be adequate to fund the Company's cash and capital requirements for the foreseeable future.
Other significant contractual obligations as of September 26, 2025 are disclosed in Note N "Lease Liabilities" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. There are no material undisclosed guarantees. As of September 26, 2025, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant, and equipment, which generally have terms of less than 90 days. The Company has long-term obligations related to its postretirement plans which are discussed in detail in Note H "Pension and Other Postretirement Benefit Plans” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1of this Quarterly Report on Form 10-Q. Postretirement medical claims are paid by the Company as they are submitted. In fiscal 2026, the Company expects to contribute $0.5 million to postretirement benefits based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured. In fiscal 2026, the Company expects to contribute $0.7 million to its defined benefit pension plans. The Company does not have any material off-balance sheet arrangements.
New Accounting Releases
See Note A, Basis of Presentation, to the condensed consolidated financial statements for a discussion of recently issued accounting standards.
Critical Accounting Policies
The preparation of this Quarterly Report requires management’s judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
The Company’s critical accounting policies are described in Item 7 of the Company’s Annual Report filed on Form 10-K for June 30, 2025. There have been no significant changes to those accounting policies subsequent to June 30, 2025.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is electing not to provide this disclosure due to its status as a Smaller Reporting Company.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). During the most recent fiscal quarter, no changes were made which have materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in several product liability or related claims which are considered either adequately covered by appropriate liability insurance or involving amounts not deemed material to the business or financial condition of the Company.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in response to Item 1A to Part I of our 2025 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| (a) |
Unregistered Sales of Equity Securities |
There were no securities of the Company sold by the Company during the quarter ended September 26, 2025, which were not registered under the Securities Act of 1933, in reliance upon an exemption from registration provided by Section 4 (2) of the Act.
| (b) |
Use of Proceeds |
Not applicable.
| (c) |
Issuer Purchases of Equity Securities |
Issuer Purchases of Equity Securities
| Period |
(a) Total Number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
|||||||||
| July 1, – July 25, 2025 |
0 | NA |
0 | 315,000 | |||||||||
| July 26 – August 29, 2025 |
186,784 | NA |
0 | 315,000 | |||||||||
| August 30 – September 26, 2025 |
0 | NA |
0 | 315,000 | |||||||||
| Total |
186,784 | NA |
0 | 315,000 | |||||||||
The amounts shown in Column (a) above represent shares of common stock delivered to the Company as payment of withholding taxes due on the vesting of restricted stock and performance stock issued under the Twin Disc, Incorporated 2021 Long-Term Incentive Compensation Plans.
On February 1, 2008, the Board of Directors authorized the purchase of up to 500,000 shares of Common Stock at market values, of which 250,000 shares were purchased during fiscal 2009 and 125,000 shares were purchased during fiscal 2012. On July 27, 2012, the Board of Directors authorized the purchase of an additional 375,000 shares of Common Stock at market values. This authorization has no expiration. During the second quarter of fiscal 2013, the Company purchased 185,000 shares under this authorization. The Company did not make any purchases during the quarter ended September 26, 2025. As of September 26, 2025, 315,000 shares remain authorized for purchase.
The discussion of limitations upon the payment of dividends as a result of the Credit Agreement between the Company and BMO Harris Bank, N.A., as discussed in Part I, Item 2, "Management's Discussion and Analysis " under the heading "Financial Condition, Liquidity and Capital Resources," is incorporated herein by reference.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
Item 6. Exhibits
| 31a |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31b |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32a |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32b |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Schema |
| 101.CAL |
Inline XBRL Calculation Linkbase |
| 101.DEF |
Inline XBRL Definition Linkbase |
| 101.LAB |
Inline XBRL Label Linkbase |
| 101.PRE |
Inline XBRL Presentation Linkbase |
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TWIN DISC, INCORPORATED |
|
| (Registrant) |
|
| Date: November 5, 2025 |
/s/ JEFFREY S. KNUTSON |
| Jeffrey S. Knutson |
|
| Vice President – Finance, Chief Financial Officer, Treasurer and Secretary |
|
| Chief Accounting Officer |