# Twin Disc Inc: Form 10-Q for the period ended Mar 28, 2025

- Company: [Twin Disc Inc](/companies/twin.md) (CIK 100378)
- Form: 10-Q
- Filed: 2025-05-07
- Accepted by EDGAR: May 7, 2025, 08:31 ET
- Period: 2025-03-28
- Accession: 0001437749-25-014928
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/100378/000143774925014928/twin20250328_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/100378/000143774925014928/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Gross profit | 3 months, 2024-12-28 to 2025-03-28 | $21.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-07-01 to 2025-03-28 | $62.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-12-28 to 2025-03-28 | $19.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-07-01 to 2025-03-28 | $57.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-12-28 to 2025-03-28 | $1.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-07-01 to 2025-03-28 | $4.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-12-28 to 2025-03-28 | $660.0k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-07-01 to 2025-03-28 | $1.8m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-12-28 to 2025-03-28 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-07-01 to 2025-03-28 | $3.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-12-28 to 2025-03-28 | −$1.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-07-01 to 2025-03-28 | −$3.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-12-28 to 2025-03-28 | −$0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-07-01 to 2025-03-28 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-12-28 to 2025-03-28 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-07-01 to 2025-03-28 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-12-28 to 2025-03-28 | 13,895,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-07-01 to 2025-03-28 | 13,841,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-07-01 to 2025-03-28 | $7.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-07-01 to 2025-03-28 | $7.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-07-01 to 2025-03-28 | $1.7m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2025-03-28 | $16.2m | us-gaap:Cash |
| Current assets | at 2025-03-28 | $232.0m | us-gaap:AssetsCurrent |
| Total assets | at 2025-03-28 | $332.9m | us-gaap:Assets |
| Current liabilities | at 2025-03-28 | $109.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2025-03-28 | $182.7m | us-gaap:Liabilities |
| Long-term debt | at 2025-03-28 | $37.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2025-03-28 | $3.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2025-03-28 | $149.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,641 characters.

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 consolidated financial statements as of March 28, 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, 2024, 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

|  | Quarter Ended March 28, 2025 | % of Net Sales | March 29, 2024 | % of Net Sales | Three Quarters Ended March 28, 2025 | % of Net Sales | March 29, 2024 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $81,242 |  | $74,161 |  | $244,060 |  | $210,709 |  |
| Cost of goods sold | 59,536 |  | 53,221 |  | 179,773 |  | 149,377 |  |
| Cost of goods sold - other | - |  | - |  | 1,579 |  | 3,099 |  |
| Gross profit | 21,706 | 26.7% | 20,940 | 28.2% | 62,708 | 25.7% | 58,233 | 27.6% |
| Marketing, engineering and administrative expenses | 19,472 | 24.0% | 17,199 | 23.2% | 57,811 | 23.7% | 51,268 | 24.3% |
| Restructuring expense | 287 | 0.4% | 139 | 0.2% | 355 | 0.1% | 207 | 0.1% |
| Income from operations | $1,947 | 2.4% | $3,602 | 4.9% | $4,542 | 1.9% | $6,758 | 3.2% |

#### Comparison of the Third Quarter of Fiscal 2025 with the Third Quarter of Fiscal 2024

Net sales for the third quarter increased 9.5%, or $7.1 million, to $81.2 million from $74.2 million in the same quarter a year ago. The acquisition of Katsa Oy, completed in the fourth quarter of fiscal 2024, contributed $7.1 million of additional revenue in the quarter. In addition, the acquisition of Kobelt, completed in the current quarter, contributed $1.2 million of additional revenue. The remaining decrease of $1.2 million primarily reflects weaker demand for oil and gas transmissions in China, along with some softening in North American commercial marine activity, partially offset by continued growth in demand for the company’s Veth propulsion systems. Global sales of marine and propulsion products improved 9.0% from the prior year, while shipments of industrial products improved by 56.2%. Shipments of off-highway transmission products declined by 6.9%, with reduced Chinese demand for oil and gas transmissions. The European region saw a significant increase in revenue ($9.1 million or 35.8%) thanks primarily to the acquisition of Katsa and continued growth of the Veth product line. Sales into North America and Asia were essentially flat with the prior period quarter. Currency translation had an unfavorable impact on third quarter fiscal 2025 sales compared to the third quarter of the prior year totaling $2.5 million primarily due to the strengthening of the US dollar against the euro, Singapore dollar and Australian dollar.

Sales at our manufacturing segment increased 12.8%, or $8.2 million, versus the same quarter last year. The Company’s recent acquisition, Katsa Oy, in Finland contributed $7.1 million of incremental revenue. The acquisition of Kobelt within the quarter contributed $1.2 million of incremental revenue. The U.S. manufacturing operations were essentially flat, showing a 1.2% decline from the prior third quarter, with consistent demand for airport rescue and firefighting (“ARFF”), marine and industrial products. The Company’s operation in the Netherlands saw increased revenue of $3.4 million (17.4%) compared to the third fiscal quarter of 2024, as this operation continues to experience record demand for its propulsion systems. The Company’s Belgian operation saw a decrease compared to the prior year third quarter (27.9% or $2.2 million), with weaker demand for its marine transmission products. The Company’s Italian manufacturing operations were down $0.8 million (14.4%) compared to the third quarter of fiscal 2024, due to weaker demand for industrial and commercial 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 down $0.1 million (9.7%) compared to the prior year third quarter.

Our distribution segment experienced a decrease in sales of $5.3 million (14.9%) in the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024. The Company’s Asian distribution operations in Singapore, China and Japan were down 8.9% or $1.2 million from the prior year on reduced Chinese demand for oil and gas transmissions. The Company’s North America distribution operation also saw a decrease ($3.9 million or 43.4%) on some softening in North American demand for commercial marine products. The Company’s European distribution operation saw a decline ($0.6 million or 8.2%) on a weaker shipments of 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 an increase in revenue of 5.9% from the prior year third fiscal quarter), primarily due to improved pleasure craft demand.

Gross profit as a percentage of sales for the third quarter of fiscal 2025 declined to 26.7%, compared to 28.2% for the same period last year. The shortfall to the prior year gross profit percentage is attributed primarily to a less favorable product mix, along with purchase accounting amortization related to Katsa and Kobelt.

For the fiscal 2025 third quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 24.0%, compared to 23.2% for the fiscal 2024 third quarter. ME&A expenses increased $2.3 million (13.2%) over the same period last fiscal year. The increase in ME&A spending for the quarter was comprised of the addition of Katsa and Kobelt ($1.7 million), an inflationary increase to wages ($0.6 million) and an increase in professional fees ($0.5 million). These increases were offset by a decrease in global bonus expense ($0.1 million), telephone expense ($0.1 million) and the impact of currency translation ($0.4 million).

Interest expense was up $0.4 million to $0.7 million in the third quarter of fiscal 2025, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other expense (benefit) of $1.6 million for the third fiscal quarter was primarily attributable to a currency loss ($1.3 million) resulting from the weakening of the US dollar against the euro, along with pension amortization expense ($0.2 million).

The fiscal 2025 third quarter effective tax rate was (407.9%) compared to 9.3% in the prior fiscal year third quarter. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the change to the effective tax rate, which becomes very volatile when pre-tax results are very close to breakeven.

#### Comparison of the First Nine Months of Fiscal 2025 with the First Nine Months of Fiscal 2024

Net sales for the first nine months increased 15.8%, or $33.4 million, to $244.1 million from $210.7 million in the same period a year ago. The acquisition of Katsa Oy, completed in the fourth quarter of fiscal 2024, contributed $26.3 million of additional revenue in the first nine months, while the recently announced acquisition of Kobelt contributed $1.2 million. This was partially offset by the sale of the boat management system product line in the prior year, reducing revenue by $2.6 million in the period. The remaining increase of $8.5 million primarily reflects continued growth in demand for the company’s Veth propulsion systems, along with improved shipments of the Company’s products for the ARFF market. Global sales of marine and propulsion products improved 16.1% from the prior year, driven by strong demand for the Veth product. Shipments of industrial products improved by 53.7%, driven by the addition of Katsa. Shipments of off-highway transmission products improved by just 1.0%, with improving ARFF shipments being offset by weaker Chinese demand for oil and gas transmissions. The European region saw a significant increase in revenue ($28.7 million or 39.6%) thanks primarily to the acquisition of Katsa and continued growth of the Veth product. Sales into North America increased 2.4%, or $1.5 million, on improved industrial and commercial marine shipments in the first half of the fiscal year. The Asia Pacific region decreased 4.7%, or $2.7 million, on weaker demand for oilfield transmissions into China in the first fiscal quarter. Currency translation had an unfavorable impact on the first nine months of fiscal 2025 sales compared to the comparable period of the prior year totaling $1.5 million primarily due to the weakening of the euro, Singapore dollar and Australian dollar against the U.S. dollar.

Sales at our manufacturing segment increased 18.4%, or $33.1 million, versus the same period last year. The Company’s new acquisition, Katsa Oy, in Finland contributed $26.3 million of incremental revenue, while the recently announced acquisition of Kobelt contributed $1.2 million. The U.S. manufacturing operations experienced a 3.5%, or $3.0 million, increase in sales versus the first nine months of fiscal 2024, with improvement in demand for ARFF and industrial products. The Company’s operation in the Netherlands saw increased revenue of $12.4 million (23.9%) compared to the first nine months of fiscal 2024, as this operation continues to experience record demand for its propulsion systems and has begun to increase capacity to satisfy the growing demand. The Company’s Belgian operation saw a decrease compared to the prior year first half (19.9% or $4.0 million), with weaker demand for its marine transmission products. The Company’s Italian manufacturing operations were down $3.3 million (22.3%) compared to the first nine months of fiscal 2024, due primarily to the sale of the boat management product line in the prior year, along with weaker European demand for industrial and commercial marine products. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.1 million (2.5%) compared to the prior year comparable period.

Our distribution segment experienced a decrease in sales of $8.0 million (7.7%) in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. The Company’s Asian distribution operations in Singapore, China and Japan were down 6.7% or $2.9 million from the prior year on weaker demand for oilfield transmissions into China. The Company’s North America distribution operation saw a decrease ($5.8 million or 26.4%) on some softening in North American demand for commercial marine products. The Company’s European distribution operation saw an increase ($0.6 million or 3.7%) on stronger shipments of 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 decrease in revenue of 0.1% from the prior year comparable period, on stable demand.

Gross profit as a percentage of sales for the first nine months of fiscal 2025 declined to 25.7%, compared to 27.6% for the same period last year. The current year includes the impact of a non-cash inventory write-down of $1.6 million. This write-down reflects the results of a product rationalization exercise of the Company’s industrial product line following the acquisition of Katsa. Excluding this adjustment, the first nine months gross profit percent was 26.3%. The remaining shortfall to the prior year gross profit percentage is attributed to a less favorable product mix, along with purchase accounting amortization related to Katsa.

For the fiscal 2025 first nine months, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.7%, compared to 24.3% for the first nine months of fiscal 2024. ME&A expenses increased $6.5 million (12.8%) over the same period last fiscal year. The increase in ME&A spending for the first nine months was comprised of the addition of Katsa and Kobelt ($4.7 million), a catch-up adjustment to non-cash stock compensation ($0.6 million), a legal settlement ($0.4 million), an increase in professional fees ($0.9 million) and other inflation related increases ($0.6 million). These increases were offset by a decrease in global bonus expense ($0.7 million).

Interest expense was up $0.7 million to $1.8 million in the first nine months of fiscal 2025, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Other expense of $2.5 million for the first nine months was primarily attributable to a currency loss ($1.9 million), along with pension amortization expense ($0.7 million).

The fiscal 2025 first nine month effective tax rate was 1,469.0% compared to 41.0% in the prior fiscal year comparable period. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the change to the effective tax rate. This rate becomes very volatile when pre-tax results are very close to breakeven.

### Financial Condition, Liquidity and Capital Resources

#### Comparison between March 28, 2025 and June 30, 2024

As of March 28, 2024, the Company had net working capital of $123.1 million, which represents an increase of $3.0 million, or 2.5%, from the net working capital of $120.1 million as of June 30, 2024.

Cash decreased by $3.8 million to $16.2 million as of March 28, 2025, versus $20.1 million as of June 30, 2024. As of March 28, 2025, the majority of the cash is at the Company’s overseas operations in Europe ($4.8 million) and Asia-Pacific ($11.2 million).

Trade receivables of $57.3 million were up $5.1 million, or 9.8%, when compared to last fiscal year-end. The impact of foreign currency translation was to decrease accounts receivable by $0.2 million versus June 30, 2024. As a percent of sales, trade receivables finished at 70.5% in the third quarter of fiscal 2025 compared to 55.2% for the comparable period in fiscal 2024 and 61.8% for the fourth quarter of fiscal 2024. The current quarter was unfavorably impacted by timing of sales within the quarter, heavily weighted toward the end of the quarter.

Inventories increased by $7.5 million, or 5.7%, versus June 30, 2024 to $138.0 million. The impact of foreign currency translation was to decrease inventories by $0.6 million versus June 30, 2024. The largest increase is the result of the Kobelt acquisition during the quarter ($6.0 million). The Singapore distribution entity experienced a $2.4 million increase primarily related to customer delays of deliveries on oilfield transmissions into China. Additional increases were seen at our US distribution operation ($1.6 million) and Australia ($0.6 million). Offsetting decreases came at our operations in the United States ($1.9 million), favorably impacted by the non-cash write down of industrial inventory in the second fiscal quarter ($1.6 million). Our operation in Finland saw a decrease ($1.7 million) on a softening in demand during the quarter. The global operations team is focused on driving inventory improvements in the second half and beyond. On a consolidated basis, as of March 28, 2025, the Company’s backlog of orders to be shipped over the next six months approximates $133.7 million, compared to $133.7 million at June 30, 2024 and $130.5 million at March 29, 2024. As a percentage of six-month backlog, inventory has increased from 98% at June 30, 2024 to 103% at March 28, 2025.

Net property, plant and equipment increased $5.6 million (9.6%) to $63.7 million versus $58.1 million at June 30, 2024. The Company had capital spending of $7.5 million in the first three quarters, along with the impact of the Kobelt acquisition ($5.0 million). This increase was offset by depreciation of $6.2 million and an unfavorable exchange impact ($0.9 million). Capital spending occurring in the first nine months was primarily related to replacement capital, along with capital to drive growth and operating efficiencies. In total, the Company expects to invest between $10 and $12 million in capital assets in fiscal 2025. 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 March 28, 2025 of $31.6 million was down $1.0 million, or 3.1%, from June 30, 2024. The impact of foreign currency translation was essentially neutral to accounts payable. The decrease is primarily related to reduced purchasing activity toward the end of the quarter.

Total borrowings and long-term debt as of March 28, 2025 increased $15.0 million to $40.8 million versus $25.8 million at June 30, 2024. The increase is primarily related to the acquisition of Kobelt in the quarter ($16.7 million). During the first nine months, the Company reported positive free cash flow of $0.5 million (defined as operating cash flow less acquisitions of fixed assets), driven by improved earnings. The Company ended the quarter with total debt, net of cash, of $24.5 million, compared to $5.7 million at June 30, 2024, for a net increase of $18.8 million.

Total equity decreased $4.9 million, or 3.1%, to $150.2 million as of March 28, 2025. The net loss during the first nine months decreased equity by $3.1 million, while other decreases related to dividends paid to shareholders of $1.7 million. The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.9 million. The net remaining decrease in equity of $1.0 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 loss on cash flow hedges.

On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $50.0 million (the “Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended the maturity date of the Term Loan to April 1, 2027, and require the Company to make principal installment payments on the Term Loan of $0.5 million per quarter. In addition, under subsequent amendments to the Credit Agreement, BMO’s Revolving Credit Commitment is currently $45.0 million. The Credit Agreement also allows the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement currently runs through April 1, 2027.

Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate (“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that are not timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Currently, the Applicable Margins are between 2.00% and 3.50% for Revolving Loans and Letters of Credit; 2.125% and 3.625% for Term Loans; and 0.15% and 0.30% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for the Katsa acquisition, as well as pro-forma EBITDA of Katsa as permitted by the Bank. The Company’s Tangible Net Worth may not be less than $100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement.

The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. The Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.

Upon the occurrence of an Event of Default, BMO may take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company.

On April 1, 2024, the Company entered into Amendment No. 10 to Credit Agreement (the “Tenth Amendment”) that amended and extended the Credit Agreement. The Tenth Amendment increased the Revolving Credit Commitment from $40.0 million to $45.0 million, and also increased the Borrowing Base for Revolving Loans from the sum of (a) 85% of outstanding unpaid Eligible Receivable and (b) the lesser of $30.0 million and 50% of Eligible Inventory to the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $35.0 million (reduced to $32.5 million beginning with the first quarter of the 2026 fiscal year) and 60% of Eligible Inventory (reduced to 55% of Eligible Inventory beginning with the third quarter of the 2025 fiscal year, and 50% of Eligible Inventory beginning with the first quarter of the 2026 fiscal year).

The Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Katsa by TD Finland Holding Oy, a wholly-owned subsidiary of the Company. The Tenth Amendment specifically permitted the Company to use Revolving Loans for the Katsa acquisition. In addition, in determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for the Katsa acquisition, as well as pro-forma EBITDA of Katsa as permitted by the Bank.

The Tenth Amendment also extended the Credit Agreement through April 1, 2027 and extended the maturity date of the Term Loan and the Term Loan Commitment Date to April 1, 2027.

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

The Tenth Amendment also increased the amount of Restricted Payments that the Company may make in the form of cash dividends, distributions, purchases, redemptions, or other acquisitions of its common stock from $3.0 million to $5.0 million in any fiscal year.

On February 14, 2025, the Company entered into a Credit Agreement (the “New Agreement”) with Bank of Montreal (the “Bank”) that refinances and replaces the credit agreement dated as of June 29, 2018, as amended between the Company and BMO.

Pursuant to the New Agreement, the Bank made a Term Loan to the Company in the principal amount of $15 million, consisting of as assignment of a term loan under the Credit Agreement from BMO to the Bank with a remaining principal of $8.5 million and an additional advance of $6.5 million. The maturity date of the Term Loan is April 1, 2027, and the Company is required to make principal installments on the Term Loan of at least $0.750 million per quarter. Under the new agreement, the Company is restricted in making dividend payments beyond $5 million in any fiscal year.

In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $50 million (the “Revolving Credit Commitment”). The Borrowing Base is the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $40 million for each fiscal month ending on or prior to August 31, 2025 (reduced to $35 million for each fiscal month ending on or prior to August 31, 2026, and further reduced to $32.5 million for each fiscal month ending thereafter) and 60% of Eligible Inventory for each fiscal month ending on or prior to August 31, 2025 (reduced to 55% of Eligible Inventory for each fiscal month ending on or prior to February 28, 2026, and 50% of Eligible Inventory for each fiscal month ending thereafter). The New Agreement also allows the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, would become Revolving Loans. Under the New Agreement, the Company may not pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the New Agreement runs through April 1, 2027.

The Company used the increased borrowing capacity under the New Agreement to help finance its acquisition of Kobelt Manufacturing Co. Ltd. (“Kobelt”), as described elsewhere in this current report. Kobelt is included as a Borrower under the New Agreement, and may borrow directly under the New Agreement up to the lesser of the Revolving Credit Commitment or $25 million. For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included. In addition, in determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for each of the Company’s Kobelt Acquisition and the Company’s prior Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy and Kobelt as permitted by the Bank.

Interest rates under the New Agreement are based on the secured overnight financing rate (“SOFR”), the euro interbank offered rate (the “EURIBO Rate”), or the Canadian Overnight Repo Rate Average (the “CORRA”). Loans under the New Agreement are designated as either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin; “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin; “Term CORRA Loans,” which accrue interest at an Adjusted Term CORRA plus an Applicable Margin; “Daily Compounded CORRA Loans,” which accrue interest at a Daily Compounded CORRA plus an Applicable Margin; or Canadian Prime Rate Loans,” which accrue interest at the Canadian Prime Rate plus an Applicable Margin. The Applicable Margins are between 2% and 3.5% for Revolving Loans and Letters of Credit; 2.125% and 3.625% for Term Loans; and .15% and .3% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

Borrowings under the New Agreement are secured by substantially all of the Company’s 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 New Agreement. Specifically, the Company amended and agreed to the assignment to the Bank of a Security Agreement, IP Security Agreement, Pledge Agreement, Perfection Certificate, and Assignment as to Liens and Encumbrances. The Company also amended and assigned to the Bank a Negative Pledge Agreement, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the New Agreement and the Negative Pledge Agreement. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Kobelt, described in Item 8.01 below.

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 New Agreement; (2) declare all amounts outstanding under the New Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if the Bank determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, the Bank may take the three actions listed above without notice to the Company.

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

Other significant contractual obligations as of March 28, 2025 are disclosed in Note O "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 March 28, 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 2025, 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 2025, 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.

Management believes that available cash, the New 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.

#### 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, 2024. There have been no significant changes to those accounting policies subsequent to June 30, 2024.

## Controls and procedures

As filed, 1,482 characters.

(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.

## Risk factors

As filed, 1,974 characters.

The Company is providing the following additional risk factor to supplement the risk factors contained in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

**Additional tariffs on product imported to the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.**

The Company’s business is subject to risks related to tariffs and other trade policies put in place by the U.S. or other countries. In 2025, the U.S. government announced the intention to impose additional tariffs on certain goods imported from numerous countries, and multiple nations, including China, responded with reciprocal tariffs and other trade actions.

The recent enactment of tariffs by the U.S. government, along with the unpredictability of the rates, poses a significant risk to our business operations and may materially increase our costs and reduce our margins. The tariffs may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales volume. The Company is actively monitoring the impact of any tariffs that become effective, as well as potential retaliatory tariffs imposed by other countries. The Company is currently analyzing strategies that can be taken to moderate or minimize the effects of these trade actions, including evaluating the country of origin for sourcing product into the U.S., negotiating with suppliers and adjusting our pricing strategies. However, there can be no assurance that these measures will be successful, or that they will offset the negative impact of the tariffs on our business.

Given the uncertainty regarding scope and duration of the current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain but could be material.

Filed May 7, 2025.
Source: SEC EDGAR, the filing index for accession 0001437749-25-014928. Last ingested by Listed: Nov 4, 2026, 08:34 ET. No prices; not investment advice.