twin20240930

twin20240930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 27, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-7635

TWIN DISC, INCORPORATED

(Exact name of registrant as specified in its charter)

Wisconsin	39-0667110
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

222 East Erie Street, Suite 400, Milwaukee, Wisconsin 53202

(Address of principal executive offices)

(262) 638-4000

(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
Common Stock (No Par Value)	TWIN	The NASDAQ Stock Market LLC

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.

Yes ☑ No ☐

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). Yes ☑ No ☐

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 ☐	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 ☐ No ☑

At October 20, 2024, the registrant had 14,104,256 shares of its common stock outstanding.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

TWIN DISC, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

	September 27, 2024			June 30, 2024
ASSETS
Current assets:
Cash	$	16,711		$	20,070
Trade accounts receivable, net		51,513			52,207
Inventories, net		143,865			130,484
Other current assets		18,158			16,870
Total current assets		230,247			219,631

Property, plant and equipment, net		58,959			58,074
Right-of-use operating lease assets		16,700			16,622
Intangible assets, net		12,291			12,686
Deferred income taxes		2,674			2,339
Other assets		2,676			2,706

Total assets	$	323,547		$	312,058

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,000		$	2,000
Accounts payable		31,106			32,586
Accrued liabilities		70,263			64,930
Total current liabilities		103,369			99,516

Long-term debt		27,794			23,811
Right-of-use lease obligations		14,506			14,376
Accrued retirement benefits		7,867			7,854
Deferred income taxes		5,751			5,340
Other long-term liabilities		6,241			6,107
Total liabilities		165,528			157,004

Twin Disc, Incorporated shareholders' equity:
Preferred shares authorized: 200,000; issued: none; no par value		-			-
Common shares authorized: 30,000,000; issued: 14,632,802; no par value		39,902			41,798
Retained earnings		126,257			129,592
Accumulated other comprehensive loss		(516	)		(6,905	)
		165,643			164,485
Less treasury stock, at cost (528,546 and 637,778 shares, respectively)		8,112			9,783

Total Twin Disc, Incorporated shareholders' equity		157,531			154,702

Noncontrolling interest		488			352
Total equity		158,019			155,054

Total liabilities and equity	$	323,547		$	312,058

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 27, 2024			September 29, 2023
Net sales	$	72,897		$	63,554
Cost of goods sold		53,575			43,818
Cost of goods sold - Sale of boat management system product line and related inventory		-			3,099
Gross profit		19,322			16,637

Marketing, engineering and administrative expenses		19,487			16,917
Loss from operations		(165	)		(280	)

Other Income (expense):
Interest expense		(636	)		(394	)
Other (expense) income, net		(1,344	)		137
		(1,980	)		(257	)
Loss before income taxes and noncontrolling interest		(2,145	)		(537	)

Income tax expense		627			546
Net loss		(2,772	)		(1,083	)
Less: Net loss (income) attributable to noncontrolling interest, net of tax		7			(90	)
Net loss attributable to Twin Disc, Incorporated	$	(2,765	)	$	(1,173	)


Dividends per share	$	0.04		$	-

Loss per share data:
Basic loss per share attributable to Twin Disc, Incorporated common shareholders	$	(0.20	)	$	(0.09	)
Diluted loss per share attributable to Twin Disc, Incorporated common shareholders	$	(0.20	)	$	(0.09	)

Weighted average shares outstanding data:
Basic shares outstanding		13,778			13,527
Diluted shares outstanding		13,778			13,527

Comprehensive income (loss)
Net loss	$	(2,772	)	$	(1,083	)
Benefit plan adjustments, net of income taxes of $11 and $5, respectively		221			(171	)
Foreign currency translation adjustment		7,164			(3,036	)
Unrealized (loss) gain on hedges, net of income taxes of $0 and 0, respectively		(853	)		216
Comprehensive income (loss)		3,760			(4,074	)
Less: Comprehensive income attributable to noncontrolling interest		136			150

Comprehensive income (loss) attributable to Twin Disc, Incorporated	$	3,624		$	(4,224	)

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 27,			September 29,
	2024			2023

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,772	)	$	(1,083	)
Adjustments to reconcile net loss to net cash (used) provided by operating activities:
Depreciation and amortization		3,238			2,488
Gain on sale of assets		(9	)		(16	)
Loss on sale of boat management product line and related inventory		-			3,099
Restructuring expenses		-			(57	)
Provision for deferred income taxes		(361	)		97
Stock compensation expense and other non-cash changes, net		1,025			1,140
Net change in operating assets and liabilities		(5,465	)		4,134

Net cash (used) provided by operating activities		(4,344	)		9,802

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment		(2,362	)		(3,690	)
Proceeds from sale of fixed assets		9			-
Other, net		(369	)		45

Net cash used by investing activities		(2,722	)		(3,645	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving loan arrangements		30,090			27,184
Repayments of revolving loan arrangements		(26,791	)		(23,423	)
Repayments of other long-term debt		-			(508	)
Dividends paid to shareholders		(570	)		-
Payments of right-of-use finance lease obligations		(546	)		(847	)
Payments of withholding taxes on stock compensation		(1,249	)		(1,763	)

Net cash provided by financing activities		934			643

Effect of exchange rate changes on cash		2,773			365

Net change in cash		(3,359	)		7,165

Cash:
Beginning of period		20,070			13,263

End of period	$	16,711		$	20,428

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, 2024. 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 condensed consolidated financial statements and information presented herein include the financial results of Katsa Oy (“Katsa”). On May 31, 2024, the Company completed the acquisition of 100% of the outstanding common stock of Katsa. Based in Finland, Katsa is a European manufacturer of custom-designed, high-quality power transmission components and gearboxes for industrial and marine end-markets for a broad range of end market applications. Katsa also provides a wide range of after-sales services, including spare part deliveries, reverse engineering, modeling, and gearbox refurbishment. The provisional fair value estimates of Katsa's property, plant and equipment, net, intangible assets, net, and deferred income taxes are pending final review by the Company, and Katsa is included in the Company's manufacturing segment.

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. One foreign subsidiary is included based on a fiscal year ending May 31, to facilitate prompt reporting of consolidated results. All significant intercompany transactions have been eliminated.

Recently Issued Not Yet Adopted Accounting Standards

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 expects to adopt the new annual disclosures as required for fiscal 2025 and the interim disclosures as required beginning with the first quarter of fiscal 2026.

In December 2023, the FASB issued guidance ASU 2023-09, "Improvements to Income Tax Disclosures," 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. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of adopting this standard on its financial statement disclosures.

Recently Adopted Accounting Standards

In June 2016, the FASB issued updated guidance (ASU 2016-13) and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10 (collectively ASC 326). ASC 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward- looking information to calculate credit loss estimates. The amendments in this guidance are effective for filers, excluding smaller reporting companies, for fiscal years beginning after December 15, 2019, and for smaller reporting companies for fiscal years beginning after December 15, 2022 (the Company’s fiscal 2024), with early adoption permitted for certain amendments. ASC 326 must be adopted by applying a cumulative effect adjustment to retained earnings. The adoption of this guidance did not have a material impact on the Company’s financial statements.

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.	Inventories

The major classes of inventories were as follows:

	September 27, 2024		June 30, 2024
Inventories:
Finished parts	$	65,318	$	60,166
Work in process		28,000		23,096
Raw materials		50,547		47,222
	$	143,865	$	130,484

In the first quarter of fiscal year 2024, the Company entered into an agreement to sell most of its boat management system product line located at one of its subsidiaries in Italy. The sale amount was below cost and resulted in the Company recognizing an inventory write-down of $2.1 million. The Company also evaluated its other boat management system inventory, not associated with the sale. The evaluation resulted in the Company recognizing an additional inventory write-down of $1.6 million for inventory located in the U.S. These write-downs were partially offset by certain liabilities transferred to the buyer at the time of the sale. The sale was completed in the second quarter of fiscal year 2024.

C.	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 27, 2024 and September 29, 2023:

	For the Quarter Ended
	September 27, 2024			September 29, 2023
Reserve balance, beginning of period	$	4,220		$	3,476
Current period expense and adjustments		837			1,516
Payments or credits to customers		(821	)		(821	)
Translation		214			(11	)
Reserve balance, end of period	$	4,450		$	4,160

The current portion of the warranty accrual ($3,452 and $3,409 as of September 27, 2024 and September 29, 2023, respectively) is reflected in accrued liabilities, while the long-term portion ($998 and $751 as of September 27, 2024 and September 29, 2023, respectively) is included in other long-term liabilities on the condensed consolidated balance sheets.

D.	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.

E.	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, as well as in the energy and natural resources, government and industrial markets. The Company's worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network.

The Company has two reportable segments: manufacturing and distribution. These segment structures reflect the way management makes operating decisions and manages the growth and profitability of the business. It also corresponds with management’s approach of allocating resources and assessing the performance of its segments. The accounting practices of the segments are the same as those described in the summary of significant accounting policies. Transfers among segments are at established inter-company selling prices. Management evaluates the performance of its segments based on net (loss) income.

Information about the Company’s segments is summarized as follows:

	For the Quarter Ended
	September 27, 2024			September 29, 2023
Net sales
Manufacturing segment sales	$	63,318		$	54,537
Distribution segment sales		29,583			32,853
Inter/Intra segment elimination – manufacturing		(13,372	)		(20,184	)
Inter/Intra segment elimination – distribution		(6,632	)		(3,652	)
	$	72,897		$	63,554
Net (loss) income attributable to Twin Disc
Manufacturing segment net income	$	1,869		$	1,558
Distribution segment net income		951			1,006
Corporate and eliminations		(5,585	)		(3,737	)
	$	(2,765	)	$	(1,173	)

Assets	September 27, 2024			June 30, 2024
Manufacturing segment assets	$	474,502		$	443,149
Distribution segment assets		63,108			73,033
Corporate assets and elimination of intercompany assets		(214,063	)		(204,124	)
	$	323,547		$	312,058

Disaggregated revenue:

The following table presents details deemed most relevant to the users of the financial statements for the quarters ended September 27, 2024 and September 29, 2023.

Net sales by product group for the quarter ended September 27, 2024 is summarized as follows:

					Elimination of
	Manufacturing		Distribution		Intercompany Sales			Total
Industrial	$	8,797	$	1,053	$	(681	)	$	9,169
Land-based transmissions		18,153		3,563		(4,432	)		17,284
Marine and propulsion systems		36,347		20,331		(14,578	)		42,100
Other		21		4,636		(313	)		4,344

SEC Form 10-Q filed by Twin Disc Incorporated