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TWIN DISC INC

TWIN DISC INCTWINEarnings & Financial Report

Nasdaq · Industrials · General Industrial Machinery & Equipment

Twin Disc, Inc. designs, manufactures, and distributes power transmission equipment for a wide range of applications, including marine, off-road vehicle, and industrial. The company was founded in 1918 to manufacture clutches for farm tractors. It is now a worldwide company with subsidiaries or sales offices in Asia, Europe, North America, Oceania, and South America.

What changed in TWIN DISC INC's 10-K — 2023 vs 2024

Top changes in TWIN DISC INC's 2024 10-K

148 paragraphs added · 140 removed · 99 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Item 1. Business Twin Disc, Incorporated (“Twin Disc”, or the “Company”) was incorporated under the laws of the state of Wisconsin in 1918. Twin Disc designs, manufactures and sells marine and heavy duty off‑highway power transmission equipment. The Company has manufacturing locations in the United States, Belgium, Italy, Switzerland and the Netherlands.
Item 1. Business Twin Disc, Incorporated (“Twin Disc”, or the “Company”) was incorporated under the laws of the state of Wisconsin in 1918. Twin Disc designs, manufactures and sells marine and heavy duty off‑highway power transmission equipment. The Company has manufacturing locations in the United States, Belgium, Finland, Italy, the Netherlands, and Switzerland.
In addition to these countries, it has distribution locations in Singapore, China, Australia and Japan. Products offered 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.
In addition to these countries, it has distribution locations in Singapore, China, Australia, New Zealand, and Japan. Products offered 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.
A summary of financial data by segment, geographic area, and classes of products that accounted for more than 10% of consolidated sales revenues for the years ended June 30, 2023 and 2022 appears in Note J, Business Segments and Foreign Operations, to the consolidated financial statements. The Company’s website address is www.twindisc.com.
A summary of financial data by segment, geographic area, and classes of products that accounted for more than 10% of consolidated sales revenues for the years ended June 30, 2024 and 2023 appears in Note K, Business Segments and Foreign Operations, to the consolidated financial statements. The Company’s website address is www.twindisc.com.
The Company believes that its continued success is a direct result of its talent. As such, the Company strives to be an employer of choice in every community in which it operates. It does this by fostering a fair, respectful, inclusive and safe work environment and culture shaped with its core values of customer focus, integrity, accountability, teamwork, and innovation.
As such, the Company strives to be an employer of choice in every community in which it operates. It does this by fostering a fair, respectful, inclusive and safe work environment and culture shaped with its core values of customer focus, integrity, accountability, teamwork, and innovation.
Unfilled open orders for the next six months of $119.2 million at June 30, 2023 compares to $101.2 million at June 30, 2022. Since orders are subject to cancellation and rescheduling by the customer, the six‑month order backlog is considered more representative of operating conditions than total backlog.
Unfilled open orders for the next six months of $133.7 million, including the impact of the acquisition of Katsa, at June 30, 2024 compares to $119.2 million at June 30, 2023. Since orders are subject to cancellation and rescheduling by the customer, the six‑month order backlog is considered more representative of operating conditions than total backlog.
Research and development costs charged to operations totaled $2.5 million and $1.6 million in fiscal 2023 and 2022, respectively. Total engineering and development costs were $8.7 million and $8.8 million in fiscal 2023 and 2022, respectively.
Research and development costs charged to operations totaled $2.6 million and $2.5 million in fiscal 2024 and 2023, respectively.
The products described above have accounted for more than 90% of revenues in each of the last three fiscal years. Most of the Company's products are machined from cast iron, forgings, cast aluminum and bar steel which generally are available from multiple sources and which are believed to be in adequate supply.
Most of the Company's products are machined from cast iron, forgings, cast aluminum and bar steel which generally are available from multiple sources and which are believed to be in adequate supply.
The Company’s top ten customers accounted for approximately 47% and 50% of the Company's consolidated net sales during the years ended June 30, 2023 and June 30, 2022, respectively. Included in the Company’s top ten customers, there was one customer, an authorized distributor of the Company, that accounted for 10% of consolidated net sales in fiscal year 2023.
The Company’s top ten customers accounted for approximately 43% and 47% of the Company's consolidated net sales during the years ended June 30, 2024 and June 30, 2023, respectively. No individual customer accounted for 10% of consolidated net sales in fiscal year 2024.
Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not anticipated to have a material effect on capital expenditures, earnings or the competitive position of the Company. 4 The number of persons employed by the Company at June 30, 2023 and June 30, 2022 was 739 and 761, respectively.
Total engineering and development costs were $9.8 million and $8.7 million in fiscal 2024 and 2023, respectively. 4 Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not anticipated to have a material effect on capital expenditures, earnings or the competitive position of the Company.
Added
The products described above have accounted for more than 90% of revenues in each of the last three fiscal years. On May 31, 2024, the Company completed the acquisition of 100% of the outstanding common stock of Katsa Oy (“Katsa”).
Added
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.
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The number of persons employed by the Company at June 30, 2024 and June 30, 2023 was 910, including the impact of the acquisition of Katsa, and 739, respectively. The Company believes that its continued success is a direct result of its talent.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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If this were to occur, future sales levels and costs of doing business, and therefore profitability, could be adversely affected. 7 The ability to service the requirements of debt depends on the ability to generate cash and/or refinance its indebtedness as it becomes due, and depends on many factors, some of which are beyond the Company ’ s control.
If this were to occur, future sales levels and costs of doing business, and therefore profitability, could be adversely affected. The ability to service the requirements of debt depends on the ability to generate cash and/or refinance its indebtedness as it becomes due, and depends on many factors, some of which are beyond the Company ’ s control.
Given that it procures many of the raw materials that it uses to create its products directly or indirectly from outside of the United States, the imposition of tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of such raw materials, which could hurt its competitive position and adversely impact its business, financial condition and results of operations.
Given that it procures many of the raw materials that it uses to create its products directly or indirectly from outside of the U.S., the imposition of tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of such raw materials, which could hurt its competitive position and adversely impact its business, financial condition and results of operations.
Based on its annual financial plan, the Company believes that it will generate sufficient cash flow levels throughout fiscal 2024 to meet the required financial covenants under the agreements. However, as with all forward-looking information, there can be no assurance that the Company will achieve the planned results in future periods.
Based on its annual financial plan, the Company believes that it will generate sufficient cash flow levels throughout fiscal 2025 to meet the required financial covenants under the agreements. However, as with all forward-looking information, there can be no assurance that the Company will achieve the planned results in future periods.
The Company’s three-year revolving credit facility expiring June 2025 is secured by certain personal property assets such as accounts receivable, inventory, and machinery and equipment. Under this agreement, the Company’s borrowing capacity is based on the eligible balances of these assets and it is required to maintain sufficient asset levels at all times to secure its outstanding borrowings.
The Company’s three-year revolving credit facility expiring April 2027 is secured by certain personal property assets such as accounts receivable, inventory, and machinery and equipment. Under this agreement, the Company’s borrowing capacity is based on the eligible balances of these assets and it is required to maintain sufficient asset levels at all times to secure its outstanding borrowings.
Failure to obtain relief from financial covenant violations or to obtain alternative financing, if necessary, would have a material adverse impact on the Company. As of June 30, 2023, the Company had a borrowing capacity that exceeded its outstanding loan balance (see Note G, Debt, of the notes to the consolidated financial statements).
Failure to obtain relief from financial covenant violations or to obtain alternative financing, if necessary, would have a material adverse impact on the Company. As of June 30, 2024, the Company had a borrowing capacity that exceeded its outstanding loan balance (see Note H, Debt, of the notes to the consolidated financial statements).
The Company faces risks associated with its international sales and operations that could adversely affect its business, results of operations or financial condition. Sales to customers outside the United States approximated 65% of the Company’s consolidated net sales for fiscal 2023. The Company has international manufacturing operations in Belgium, Italy, the Netherlands and Switzerland.
The Company faces risks associated with its international sales and operations that could adversely affect its business, results of operations or financial condition. Sales to customers outside the United States approximated 73% of the Company’s consolidated net sales for fiscal 2024. The Company has international manufacturing operations in Belgium, Finland, Italy, the Netherlands and Switzerland.
In March 2020, the World Health Organization (“WHO”) declared that a new strain of coronavirus that originated in Wuhan, China, and has rapidly spread around the world (“COVID-19”) is a pandemic that poses significant risk to the international community.
In March 2020, the World Health Organization (“WHO”) declared that a new strain of coronavirus that originated in Wuhan, China, and had rapidly spread around the world (“COVID-19”) was a pandemic that posed significant risk to the international community.
In addition, the Company has international distribution operations in Singapore, China, Australia, Japan, Italy, Belgium, and India.
In addition, the Company has international distribution operations in Australia, New Zealand, Belgium, China, Italy, Japan, and Singapore.
Any interruption in production capability could require the Company to make substantial capital expenditures to remedy the situation, which could negatively affect its profitability and financial condition.
Interruptions in production would increase costs and reduce sales. Any interruption in production capability could require the Company to make substantial capital expenditures to remedy the situation, which could negatively affect its profitability and financial condition.
At June 30, 2023 and 2022, the allowance totaled $22.3 million and $23.1 million, respectively. Taxing authority challenges and changes to tax laws may lead to tax payments exceeding current reserves. The Company is subject to ongoing tax examinations in various jurisdictions. As a result, the Company may record incremental tax expense based on expected outcomes of such matters.
Taxing authority challenges and changes to tax laws may lead to tax payments exceeding current reserves. The Company is subject to ongoing tax examinations in various jurisdictions. As a result, the Company may record incremental tax expense based on expected outcomes of such matters.
If operations at this facility were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, adverse weather conditions, labor force disruptions or other reasons, the Company’s business and results of operations could be adversely affected. Interruptions in production would increase costs and reduce sales.
The majority of the Company’s manufacturing, based on fiscal 2024 sales, came from its facility in Racine, Wisconsin. If operations at this facility were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, adverse weather conditions, labor force disruptions or other reasons, the Company’s business and results of operations could be adversely affected.
Significant long-term fluctuations in relative currency values, in particular a significant change in the exchange rate between the U.S. dollar and the euro, could have an adverse effect on the Company’s profitability and financial condition. The Company continues to be adversely affected by the economic disruptions caused by the global coronavirus pandemic.
Significant long-term fluctuations in relative currency values, in particular a significant change in the exchange rate between the U.S. dollar and the euro, could have an adverse effect on the Company’s profitability and financial condition.
Retaliatory actions by other countries could result in increases in the price of its products, which could limit demand for such products, hurt its global competitive position and have a material adverse effect on the Company’s business, financial condition and results of operations. 6 If the Company were to lose business with any key customers, the Company ’ s business would be adversely affected.
In addition, the Company sells a significant proportion of its products to customers outside of the U.S. Retaliatory actions by other countries could result in increases in the price of its products, which could limit demand for such products, hurt its global competitive position and have a material adverse effect on the Company’s business, financial condition and results of operations.
Although there was only one customer that accounted for 10% or more of consolidated net sales in fiscal 2023, deterioration of a business relationship with one or more of the Company’s significant customers would cause its sales and profitability to be adversely affected.
If the Company were to lose business with any key customers, the Company ’ s business would be adversely affected. Although no individual customer accounted for 10% or more of consolidated net sales in fiscal 2024, deterioration of a business relationship with one or more of the Company’s significant customers would cause its sales and profitability to be adversely affected.
Although the Company’s accounts receivable are dispersed among a large customer base, a significant change in the liquidity or financial position of any one of its largest customers could have a material adverse impact on the collectability of its accounts receivable and future operating results.
Although the Company’s accounts receivable are dispersed among a large customer base, a significant change in the liquidity or financial position of any one of its largest customers could have a material adverse impact on the collectability of its accounts receivable and future operating results. 6 The termination of relationships with the Company ’ s suppliers, or the inability of such suppliers to perform, could disrupt its business and have an adverse effect on its ability to manufacture and deliver products.
Future changes in tax law in the United States or the various jurisdictions in which the Company operates and income tax holidays could have a material impact on the Company’s effective tax rate, foreign rate differential, future income tax expense and cash flows.
Future changes in tax law in the United States or the various jurisdictions in which the Company operates and income tax holidays could have a material impact on the Company’s effective tax rate, foreign rate differential, future income tax expense and cash flows. 9 Security breaches and other disruptions could compromise the Company ’ s information system and expose the Company to liabilities, which would cause its business and reputation to suffer.
The Company is aware of the requirements of the PPP Loan and believes it is within the eligibility threshold and has used the loan proceeds in accordance with PPP loan forgiveness requirements. It has retained all necessary documentation in support of its eligibility, including gross receipts calculations, supporting payroll expenses and related information.
It has retained all necessary documentation in support of its eligibility, including gross receipts calculations, supporting payroll expenses and related information. However, no assurance is provided that the Company will satisfy fully all the requirements of an audit.
Such changes could result in material non-cash expenses in the period in which the changes are made and could have a material adverse impact on the Company’s results of operations and financial condition. In fiscal 2021, the Company recorded a 100% allowance on its domestic deferred tax assets, totaling $15.9 million.
Such changes could result in material non-cash expenses in the period in which the changes are made and could have a material adverse impact on the Company’s results of operations and financial condition. At June 30, 2024 and 2023, the allowance totaled $24.0 million and $22.3 million, respectively.
The Company remains unable to estimate the full extent or nature of the impact of COVID-19. 5 Certain of the Company ’ s products are directly or indirectly used in oil exploration and oil drilling and are thus dependent upon the strength of those markets and oil prices.
Management continues to monitor the global situation and its effect on financial condition, liquidity, operations, suppliers, industry and workforce. 5 Certain of the Company ’ s products are directly or indirectly used in oil exploration and oil drilling and are thus dependent upon the strength of those markets and oil prices.
It obtained formal forgiveness of the full amount of the loan on June 16, 2021, and accounted for the forgiveness as income from extinguishment of loan in its statement of operations for the year ended June 30, 2021.
It obtained formal forgiveness of the full amount of the loan on June 16, 2021, and accounted for the forgiveness as income from extinguishment of loan in its statement of operations for the year ended June 30, 2021. 8 While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the Small Business Administration (“SBA”) for a period of six years after forgiveness.
A material disruption at the Company ’ s manufacturing facility in Racine, Wisconsin could adversely affect its ability to generate sales and meet customer demand. The majority of the Company’s manufacturing, based on fiscal 2023 sales, came from its facility in Racine, Wisconsin.
These challenges, together with other challenges associated with operating an international business, may adversely affect our ability to recognize revenue and our other operating results. 7 A material disruption at the Company ’ s manufacturing facility in Racine, Wisconsin could adversely affect its ability to generate sales and meet customer demand.
If these events were to transpire, they could have a material adverse effect on the Company’s business, results of operations and financial condition. 8 The Company carries a significant amount of intangible assets, but it may never fully realize the full value of these assets.
If these events were to transpire, they could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has made certain assumptions relating to the acquisition of Katsa in its forecasts that may prove to be materially inaccurate. The integration of Katsa into the Company’s business processes is ongoing.
The termination of relationships with the Company ’ s suppliers, or the inability of such suppliers to perform, could disrupt its business and have an adverse effect on its ability to manufacture and deliver products. The Company relies on raw materials, component parts, and services supplied by outside third parties.
The Company relies on raw materials, component parts, and services supplied by outside third parties.
While the loan has been formally forgiven, under the terms of the PPP Loan, the Company remains subject to an audit by the Small Business Administration (“SBA”) for a period of six years after forgiveness. The audit is intended to confirm the Company’s eligibility for the PPP loan and the appropriateness of the PPP loan forgiveness.
The audit is intended to confirm the Company’s eligibility for the PPP loan and the appropriateness of the PPP loan forgiveness. The Company is aware of the requirements of the PPP Loan and believes it is within the eligibility threshold and has used the loan proceeds in accordance with PPP loan forgiveness requirements.
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Management continues to monitor the global situation and its effect on financial condition, liquidity, operations, suppliers, industry and workforce.
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The Company could be materially adversely affected by the effects of health pandemics or epidemics in regions where we or third parties on which we rely have business operations.
Removed
In addition, the Company sells a significant proportion of its products to customers outside of the United States.
Added
The Company’s international sales and operations are subject to a number of risks, including: political and social attitudes, laws, rules, regulations, and policies within countries that favor local companies over US companies, including government-supported efforts to promote local competitors; currency exchange rate fluctuations; global trade issues and uncertainties with respect to trade policies, including tariffs, trade sanctions, and international trade disputes, and the ability to obtain required import and export licenses; differing legal systems and standards of trade which may not honor our intellectual property rights, and which may place us at a competitive disadvantage; multiple conflicting and changing governmental laws and regulations, including varying labor laws and tax regulations; reliance on various information systems and information technology to conduct our business, making us vulnerable to cyberattacks by third parties or breaches due to employee error, misuse, or other causes, that could result in business disruptions, loss of or damage to our intellectual property and confidential information (and that of our customers and other business partners), reputational harm, transaction errors, processing inefficiencies, or other adverse consequences; regional or global economic downturns or recessions, varying foreign government support, unstable political environments, and other changes in foreign economic conditions; difficulties in managing a global enterprise, including staffing, managing distributors and representatives, and repatriating cash and dividends; longer sales cycles and difficulties in collecting accounts receivable; and different customs and ways of doing business.
Removed
The Company’s international sales and operations are subject to a number of risks, including: currency exchange rate fluctuations export and import duties, changes to import and export regulations, and restrictions on the transfer of funds, including dividends problems with the transportation or delivery of its products issues arising from cultural or language differences potential social and labor unrest as well as public health and political crises longer payment cycles and greater difficulty in collecting accounts receivables compliance with trade and other laws in a variety of jurisdictions changes in tax law compliance with the Foreign Corrupt Practices Act These factors could adversely affect the Company’s business, results of operations or financial condition.
Added
To date, our operations have not been materially adversely affected by global conflicts including Russia’s invasion of Ukraine, the current Israel/Palestine conflict, or the recent attacks on merchant ships in the Red Sea.
Removed
However, no assurance is provided that the Company will satisfy fully all the requirements of an audit.
Added
However, further escalation of these or other conflicts could result in, among other negative consequences, a disruption to the global economy and supply chain leading to a shortage of parts, materials and services needed to manufacture and timely deliver our products.
Removed
The Company recorded significant non-cash goodwill impairment charges in fiscal 2020, as well as in prior fiscal years. As part of the acquisition of Veth Propulsion in July 2018, the Company acquired goodwill and intangible assets in the form of customer relationships, technology and knowhow and tradenames.
Added
Any such shortages could negatively impact our suppliers’ ability to meet our demand requirements and, in turn, our ability to satisfy our customer demand.
Removed
In fiscal 2020, due to its assessment of the adverse economic consequences of the COVID-19 outbreak and the negative trends in its markets as explained in Note D, Intangible Assets, the Company recorded significant impairment charges, writing off all the goodwill in its books, as well as writing down some intangibles and other assets.
Added
While the integration is currently proceeding as planned, the Company has made certain longer term assumptions relating to the forecast level of synergies and associated costs of the acquisition of Katsa that may be inaccurate based on the information that was available to the Company or as a result of the failure to realize the expected benefits of the acquisition, higher than expected integration costs, unknown liabilities and global economic and business conditions that may adversely affect the combined Company following the completion of the acquisition.
Removed
In fiscal 2017 and 2016, when the Company’s markets were significantly adversely affected by the global oil and gas decline, it recorded significant impairment charges related to two of its prior acquisitions. Any deterioration in the industries or businesses of the Company may trigger future non-cash impairment charges, which may have a material adverse effect to the Company’s financial results.
Added
The combination of the businesses will require significant management attention, and the Company may incur significant additional integration costs because of integration difficulties and other challenges. As a result of the acquisition of Katsa, the Company carries a significant amount of intangible assets, but it may never fully realize the full value of these assets.
Removed
Security breaches and other disruptions could compromise the Company ’ s information system and expose the Company to liabilities, which would cause its business and reputation to suffer.
Added
The full accounting for the acquisition, including the purchase price allocation, is pending final review by the Company. The Company recorded intangible assets, including customer relationships, technology know-how, trade name, and computer software.
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Amortizable intangible assets are periodically reviewed for possible impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.
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Impairment may result from, among other things, (i) a decrease in its expected net earnings; (ii) adverse equity market conditions; (iii) a decline in current market multiples; (iv) a decline in its common stock price; (v) a significant adverse change in legal factors or business climates; (vi) an adverse action or assessment by a regulator; (vii) heightened competition; (viii) strategic decisions made in response to economic or competitive conditions; or (ix) a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of.
Added
In the event that it determines that events or circumstances exist that indicate that the carrying value of identifiable intangible assets may no longer be recoverable, it might have to recognize a non-cash impairment of identifiable intangible assets, which could have a material adverse effect on the Company’s consolidated financial condition or results of operations.

Item 2. Properties

Properties — owned and leased real estate

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Distribution Segment The Company also has operations in the following locations, all of which are leased and are used for sales offices, warehousing and light assembly or product service: Brisbane, Queensland, Australia Guangzhou, China Perth, Western Australia, Australia Chennai, India Gold Coast, Queensland, Australia Coimbatore, India Singapore Saitama City, Japan Shanghai, China The Company believes its properties are well maintained and adequate for its present and anticipated needs.
Distribution Segment The Company also has operations in the following locations, all of which are leased and are used for sales offices, warehousing and light assembly or product service: Brisbane, Queensland, Australia Guangzhou, China Perth, Western Australia, Australia Chennai, India Gold Coast, Queensland, Australia Coimbatore, India Singapore Saitama City, Japan Shanghai, China Auckland, New Zealand 10 The Company believes its properties are well maintained and adequate for its present and anticipated needs.
One of the Racine facilities is classified as an asset held for sale. The Company leases additional manufacturing, assembly and office facilities in, Sturtevant, Wisconsin; Lufkin, Texas; Limite sull’Arno, Italy; Papendrecht, Netherlands; Nivelles, Belgium; Novazzano, Switzerland; and Decima, Italy.
The Company leases additional manufacturing, assembly and office facilities in, Sturtevant, Wisconsin; Lufkin, Texas; Papendrecht, Netherlands; Nivelles, Belgium; Novazzano, Switzerland; Decima, Italy; and Tampere, Finland.
Item 2. Properties The Company leases a facility in Milwaukee, Wisconsin, U.S.A., which serves as its corporate headquarters. 9 Manufacturing Segment The Company owns two manufacturing, assembly and office facilities in Racine, Wisconsin, U.S.A., and one in Decima, Italy. The aggregate floor space of these three plants approximates 580,000 square feet.
Item 2. Properties The Company leases a facility in Milwaukee, Wisconsin, U.S.A., which serves as its corporate headquarters. Manufacturing Segment The Company owns two facilities in Racine, Wisconsin, U.S.A. One facility is for manufacturing, assembly, and office purposes, and the other facility is the former corporate headquarters that is now classified as an idle asset.
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The Company also owns three facilities in Finland (two in Tampere and one in Ikaalinen) and one facility in Italy (Decima). These facilities are for manufacturing, assembly and office purposes. The aggregate floor space of these facilities approximates 739,200 square feet.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Name Age Position John H. Batten 58 President and Chief Executive Officer Jeffrey S. Knutson 58 Vice President – Finance, Chief Financial Officer, Treasurer and Secretary Officers are elected annually by the Board of Directors at the Board meeting held in conjunction with each Annual Meeting of the Shareholders.
Name Age Position John H. Batten 59 President and Chief Executive Officer Jeffrey S. Knutson 59 Vice President – Finance, Chief Financial Officer, Treasurer and Secretary Officers are elected annually by the Board of Directors at the Board meeting held in conjunction with each Annual Meeting of the Shareholders.
Item 4. Mine Safety Disclosures Not applicable. Information About Our Executive Officers Pursuant to General Instruction G(3) of Form 10‑K, the following list is included as an unnumbered Item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 26, 2023.
Item 4. Mine Safety Disclosures Not applicable. Information About Our Executive Officers Pursuant to General Instruction G(3) of Form 10‑K, the following list is included as an unnumbered Item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held on October 31, 2024.
Knutson was appointed Corporate Secretary in June 2013, and was Corporate Controller from his appointment in October 2005 until August 2015. Mr. Knutson joined the Company in February 2005 as Controller of North American Operations. Prior to joining Twin Disc, Mr.
Knutson was appointed Corporate Secretary in June 2013, and was Corporate Controller from his appointment in October 2005 until August 2015. Mr. Knutson joined the Company in February 2005 as Controller of North American Operations. Prior to joining Twin Disc, Mr. Knutson held Operational Controller positions with Tower Automotive (since August 2002) and Rexnord Corporation (since November 1998). PART II
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Knutson held Operational Controller positions with Tower Automotive (since August 2002) and Rexnord Corporation (since November 1998). 10 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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 fiscal 2022 and 2023.
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 fiscal 2023 and 2024.
As of June 30, 2023, 315,000 shares remain authorized for purchase. Item 6. Reserved
As of June 30, 2024, 315,000 shares remain authorized for purchase. Item 6. Reserved
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 April 1, 2023 – April 28, 2023 0 NA 0 315,000 April 29, 2023 – May 26, 2023 0 NA 0 315,000 May 2, 2023 - June 30, 2023 0 NA 0 315,000 Total 0 NA 0 315,000 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.
As of August 2, 2024, shareholders of record numbered 310. 11 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 March 30, 2024 – April 26, 2024 0 NA 0 315,000 April 27, 2024 – May 31, 2024 0 NA 0 315,000 June 1, 2024 - June 30, 2024 0 NA 0 315,000 Total 0 NA 0 315,000 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.
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock is traded on the NASDAQ Global Select Market under the symbol TWIN. There were no dividend payments made in the fiscal years ended June 30, 2023 and 2022.
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock is traded on the NASDAQ Global Select Market under the symbol TWIN. The declaration and payment of future dividends, as well as the amount thereof, are subject to the discretion of our Board of Directors.
Removed
For information regarding the Company’s equity-based compensation plans, see the discussion under Item 12 of this report. As of August 4, 2023, shareholders of record numbered 331.
Added
The amount and size of any future dividends will depend upon our future results of operations, financial condition, capital levels, cash requirements and other factors. There can be no assurance that we will declare and pay dividends in the future. For information regarding the Company’s equity-based compensation plans, see the discussion under Item 12 of this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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This yield curve is made up of Corporate Bonds rated AA or better. ● Expected Return on Plan Assets – based on the expected long-term average rate of return on assets in the pension funds, which is reflective of the current and projected asset mix of the funds and considers historical returns earned on the funds. ● Compensation Increase – reflect the long-term actual experience, the near-term outlook and assumed inflation. ● Retirement and Mortality Rates – based upon the Society of Actuaries PRI-2012 base tables for annuitants and non-annuitants, adjusted for generational mortality improvement based on the Society of Actuaries modified MP-2021 projection scale. ● Health Care Cost Trend Rates – developed based upon historical cost data, near-term outlook and an assessment of likely long-term trends.
This yield curve is made up of Corporate Bonds rated AA or better. ● Expected Return on Plan Assets – based on the expected long-term average rate of return on assets in the pension funds, which is reflective of the current and projected asset mix of the funds and considers historical returns earned on the funds. ● Compensation Increase – reflect the long-term actual experience, the near-term outlook and assumed inflation. 18 ● Retirement and Mortality Rates – based upon the Society of Actuaries PRI-2012 base tables for annuitants and non-annuitants, adjusted for generational mortality improvement based on the Society of Actuaries modified MP-2021 projection scale. ● Health Care Cost Trend Rates – developed based upon historical cost data, near-term outlook and an assessment of likely long-term trends.
There can be no assurance that actual results will not differ from those estimates. 16 The Company’s significant accounting policies are described in Note A, Significant Accounting Policies, of the notes to the consolidated financial statements. Not all of these significant accounting policies require management to make difficult, subjective, or complex judgments or estimates.
There can be no assurance that actual results will not differ from those estimates. The Company’s significant accounting policies are described in Note A, Significant Accounting Policies, of the notes to the consolidated financial statements. Not all of these significant accounting policies require management to make difficult, subjective, or complex judgments or estimates.
Under the accounting method change, accumulated actuarial gains and losses as determined upon the annual remeasurement of projected benefit obligation and plan assets are recognized sooner in earnings through net periodic benefit cost within Other Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income (Loss).
Under the accounting method change, accumulated actuarial gains and losses as determined upon the annual remeasurement of projected benefit obligation and plan assets are recognized sooner in earnings through net periodic benefit cost within Other Income (Expense) on the Consolidated Statement of Operations and Comprehensive Income.
During fiscal 2023, the Company did not purchase any shares as part of its Board-authorized stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan. Future Liquidity and Capital Resources On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A.
During fiscal 2024, the Company did not purchase any shares as part of its Board-authorized stock repurchase program. The Company has 315,000 shares remaining under its authorized stock repurchase plan. Future Liquidity and Capital Resources On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 based on its public float as of the last business day of the second quarter of fiscal 2023.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 based on its public float as of the last business day of the second quarter of fiscal 2024.
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 $3.0 million in any fiscal year.
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.
As of June 30, 2023, 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.
As of June 30, 2024, 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 approach used to determine the annual assumptions are as follows: ● Discount Rate – based on the Willis Towers Watson BOND:Link model at June 30, 2023 as applied to the expected payouts from the pension plans.
The approach used to determine the annual assumptions are as follows: ● Discount Rate – based on the Willis Towers Watson BOND:Link model at June 30, 2024 as applied to the expected payouts from the pension plans.
Contractual Obligations The Company's significant contractual obligations as of June 30, 2023 are discussed in Note H “Lease Obligations” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2023 Annual Report on Form 10-K. There are no material undisclosed guarantees.
Contractual Obligations The Company's significant contractual obligations as of June 30, 2024 are discussed in Note I “Lease Obligations” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2023 Annual Report on Form 10-K. There are no material undisclosed guarantees.
The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note M “Pension and Other Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2023 Annual Report on Form 10-K.
The Company also has long-term obligations related to its postretirement plans which are discussed in detail in Note N “Pension and Other Postretirement Benefit Plans” in the Notes to Consolidated Financial Statements in Part II, Item 8 of this 2024 Annual Report on Form 10-K.
Gross profit for the year was primarily impacted by improved volumes (approximately $9.6 million) and a more favorable product mix (approximately $1.5 million). This was driven by the global economic recovery that started in fiscal 2021 following the impact of the COVID-19 pandemic and an increase in the sales of high-margin oil and gas transmissions and parts.
Gross profit for the year was primarily impacted by improved volumes (approximately $4.9 million) and a more favorable product mix (approximately $2.1 million). This was driven by the global economic recovery that started in fiscal 2021 following the impact of the COVID-19 pandemic and an increase in the sales of high-margin oil and gas transmissions.
Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.7 million in fiscal 2024 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured.
Postretirement medical claims are paid by the Company as they are submitted, and they are anticipated to be $0.5 million in fiscal 2025 based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured.
Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended the maturity date of the Term Loan to March 4, 2026, 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 $40.0 million.
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 Company expects capital expenditures to be approximately $9 million - $11 million in fiscal 2024. These anticipated expenditures reflect the Company’s plans to invest in modern equipment to drive efficiencies, quality improvements and cost reductions.
The Company expects capital expenditures to be approximately $14 million - $16 million in fiscal 2025. These anticipated expenditures reflect the Company’s plans to invest in modern equipment to drive efficiencies, quality improvements and cost reductions.
The term of the Revolving Loans under the Credit Agreement currently runs through June 30, 2025. 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”).
The term of the Revolving Loans under the Credit Agreement currently runs through April 1, 2027. 15 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”).
Gross profit as a percentage of sales decreased 150 basis points in fiscal 2023 to 26.8%, compared to 28.3% in fiscal 2022. There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2023.
Gross profit as a percentage of sales increased 140 basis points in fiscal 2024 to 28.2%, compared to 26.8% in fiscal 2023. There were a number of factors that impacted the Company’s overall gross profit rate in fiscal 2024.
Interest Expense Interest expense of $2.3 million for fiscal 2023 was $0.2 million higher than fiscal 2022 due to an increased average interest rate, partially offset by a lower average balance on the domestic revolver.
Interest Expense Interest expense of $1.4 million for fiscal 2024 was $0.8 million lower than fiscal 2023 due to a decreased average balance, partially offset by an increased average interest rate on the domestic revolver.
Currently, the Applicable Margins are 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). The Credit Agreement, as amended, requires the Company to meet certain financial covenants.
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.
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.
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.
See Note J, Business Segments and Foreign Operations, of the notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations. Gross Profit In fiscal 2023, gross profit improved $5.5 million, or 8.0%, to $74.3 million on a sales increase of $34.0 million.
See Note J, Business Segments and Foreign Operations, of the notes to the consolidated financial statements for more information on the Company’s business segments and foreign operations. 13 Gross Profit In fiscal 2024, gross profit improved $9.0 million, or 12.1%, to $83.3 million on a sales increase of $18.2 million.
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. 15 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.
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.
Currency translation had an unfavorable impact on fiscal 2023 sales compared to the prior year totaling $11.5 million, primarily due to the weakening of the euro and Australian dollar against the U.S. dollar. Sales for our manufacturing segment increased 12.2%, or $26.6 million, versus the same period last year.
Currency translation had a favorable impact on fiscal 2024 sales compared to the prior year totaling $3.7 million, primarily due to the strengthening of the euro against the U.S. dollar. Sales for our manufacturing segment increased 2.8%, or $6.8 million, versus the same period last year.
Other Matters Critical Accounting Policies and Estimates The preparation of this Annual 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.
In fiscal 2025, the Company expects to contribute $0.5 million to its defined benefit pension plans, the minimum contribution required. 17 Other Matters Critical Accounting Policies and Estimates The preparation of this Annual 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.
These charges relate to a continued restructuring program at the Company’s Belgian operation to focus resources on core manufacturing process, while allowing for savings on the outsourcing of non-core processes.
Restructuring of Operations During the course of fiscal 2024 and fiscal 2023 the Company incurred $0.2 million and $0.2 million in restructuring charges, respectively. These charges relate to a continued restructuring program at the Company’s Belgian operation to focus resources on core manufacturing process, while allowing for savings on the outsourcing of non-core processes.
Based on the above criteria the Company has determined that a full valuation allowance is appropriate as relates to its domestic operations. A full domestic valuation allowance of $22.3 million has been recognized at June 30, 2023.
Based on the above criteria the Company has determined that a full valuation allowance is appropriate as relates to its domestic operations. A full domestic valuation allowance of $24.0 million has been recognized at June 30, 2024. The recognition of a valuation allowance does not affect the availability of the tax credits as the Company realizes earnings.
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. These statements are based on management’s current expectations that are based on assumptions that are subject to risks and uncertainties.
The words “anticipates,” “believes,” “intends,” estimates,” and “expects,” or similar anticipatory expressions, usually identify forward-looking statements. These statements are based on management’s current expectations that are based on assumptions that are subject to risks and uncertainties. Actual results may vary because of variations between these assumptions and actual performance.
The largest improvement was seen at the Company’s Veth propulsion operation in the Netherlands, which experienced a 17.1% increase in sales compared to fiscal 2022 despite a $3.2 million unfavorable currency translation impact. The primary driver for this increase was growing demand for the Company’s innovative propulsion solutions around the globe, partially offset by supply chain challenges limiting shipments.
The largest improvement was seen at the Company’s Veth propulsion operation in the Netherlands, which experienced a 39.1% increase in sales compared to fiscal 2023, including a $2.0 million favorable currency translation impact. The primary driver for this increase was growing demand for the Company’s innovative propulsion solutions around the globe, along with improving supply chain and operational performance.
The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems primarily for the pleasure craft market, saw a 14.4% sales increase, driven by strong demand for the Company’s product in the pleasure craft market.
The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue of 4.8%, primarily due to continued strong demand for pleasure craft products in the region.
Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, a valuation allowance in the amount of $15.9 million, was included in income tax expense (benefit) on the consolidated statement of operations, for fiscal year 2021.
Management believes that it is more likely than not that the results of future operations will not generate sufficient taxable income and foreign source income to realize all the domestic deferred tax assets, therefore, the company recorded in fiscal year 2024 and 2023, the valuation allowance of $24.0 million and $22.3 million, respectively.
Fiscal 2023 Compared to Fiscal 2022 Net Sales Net sales for fiscal 2023 increased 14.0%, or $34.1 million, to $277.0 million from $242.9 million in fiscal 2022. The Company continued to experience growing demand across most of the markets served, following the unfavorable impact of the COVID-19 crisis on the Company’s global markets in fiscal 2020 and 2021.
The Company continued to experience stable or growing demand across most of the markets served, following the unfavorable impact of the COVID-19 crisis on the Company’s global markets in fiscal 2020 and 2021.
In the off-highway transmission market, the year-over-year increase of 12.5% can also be attributed primarily to the global recovery following the impact of the COVID-19 pandemic, with particular strength in North American aftermarket product sales for the oil and gas industry. Sale of the Company’s pressure pumping transmission systems into China also remains strong.
In the off-highway transmission market, the year-over-year increase of 7.5% can be attributed primarily to strength in North American aftermarket product sales for the oil and gas industry, historically high demand for the Company’s ARFF (airport rescue and firefighting) transmission and sales of the Company’s pressure pumping transmission systems into China.
Accordingly, the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved. The Company assumes no obligation, and disclaims any obligation, to publicly update or revise any forward-looking statements to reflect subsequent events, new information, or otherwise.
Accordingly, the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved.
The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 16.4% increase in sales compared to fiscal 2022, primarily due to a recovering European marine market. 12 Sales for our distribution segment were up 14.3%, or $15.2 million, compared to fiscal 2022, with improving global demand and product delivery from the manufacturing operations.
The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 4.8% increase in sales compared to fiscal 2023, primarily due to a recovering European marine market.
The Company has begun to make progress on its inventory reduction initiatives, driving a $4.9 million decrease during the second half of fiscal 2023. The net cash used by investing activities for fiscal 2023 primarily represents capital spending of $7.9 million, partially offset by the sales of fixed assets totaling $7.2 million.
The Company has begun to make significant progress on its inventory reduction initiatives, driving a $12.0 million decrease (excluding the Katsa acquisition) during the second half of fiscal 2024. The net cash used by investing activities for fiscal 2024 primarily represents the acquisition of Katsa ($23.2 million) and the acquisition of property, plant and equipment ($8.7 million).
The increase in fiscal 2023 reflects a continued strong Australian pleasure craft market, continued demand for the Company’s oil and gas transmissions by the Chinese market and a general economic recovery following the COVID-19 pandemic.
The increase in fiscal 2024 reflects increased demand for commercial marine and patrol craft related products, a continued strong Australian pleasure craft market and stable demand for the Company’s oil and gas transmissions by the Chinese market.
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. 11 Note on Forward-Looking Statements This report contains statements (including but not limited to certain statements in Items 1, 3, and 7) that are forward-looking as defined by the Securities and Exchange Commission in its rules, regulations and releases.
Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.
The recognition of a valuation allowance does not affect the availability of the tax credits as the Company realizes earnings. 18 Recently Issued Accounting Standards See Note A, Significant Accounting Policies, of the notes to the consolidated financial statements for a discussion of recently issued accounting standards.
Recently Issued Accounting Standards See Note A, Significant Accounting Policies, of the notes to the consolidated financial statements for a discussion of recently issued accounting standards.
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. The Company’s Tangible Net Worth may not be less than $100 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.
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.
The Company had approximately $33.0 million of available borrowings under the Credit Agreement as of June 30, 2023. The Company expects to continue to generate enough cash from operations, as well as its credit facilities, to meet its operating and investing needs. As of June 30, 2023, the Company also had cash of $13.3 million, primarily at its overseas operations.
The Company expects to continue to generate enough cash from operations, as well as its credit facilities, to meet its operating and investing needs. As of June 30, 2024, the Company also had cash of $20.1 million, primarily at its overseas operations. These funds, with some restrictions and tax implications, are available for repatriation as deemed necessary by the Company.
The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change.
Income Taxes The effective tax rate for fiscal 2024 is 26.8% compared to 26.2% for fiscal 2023. 14 The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized.
In fiscal year 2023 and 2022, the valuation allowance was $22.3 million and $23.1 million, respectively. Order Rates As of June 30, 2023, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog) was $119.2 million or approximately 18% higher than the six-month backlog of $101.2 million as of June 30, 2022.
Order Rates As of June 30, 2024, the Company’s backlog of orders scheduled for shipment during the next six months (six-month backlog), which includes the impact of the Katsa acquisition, was $133.7 million or approximately 12% higher than the six-month backlog of $119.2 million as of June 30, 2023.
Net working capital decreased $3.8 million, or 3.0%, during fiscal 2023 and the current ratio (calculated as total current assets divided by total current liabilities) decreased from 2.5 at June 30, 2022 to 2.2 at June 30, 2023.
In fiscal 2025, the Company expects to contribute $0.5 million to its defined benefit pension plans, the minimum contribution required. Net working capital decreased $0.5 million, or 0.4%, during fiscal 2024 and the current ratio (calculated as total current assets divided by total current liabilities) remained flat at 2.2 for both June 30, 2024 and June 30, 2023.
The Company intends that such forward-looking statements qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995.
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. The Company intends that such forward-looking statements qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995.
The increase in ME&A spending in fiscal 2023 compared to the prior year was driven by the incremental impact of prior year COVID subsidies ($2.1 million), increased professional fees ($0.7 million), increased salaries and benefits ($0.8 million), increased marketing activities ($0.9 million), higher travel expense ($0.7 million) and increased stock-based compensation ($0.6 million).
The increase in ME&A spending in fiscal 2024 compared to the prior year was driven increased salaries and benefits ($1.9 million), global bonus expense ($1.8 million), travel and entertainment ($0.9 million), stock compensation expense ($0.6 million), professional fees ($0.6 million), lease expense ($0.5 million), a transfer tax payment related to the Katsa acquisition ($0.4 million), commission and marketing expense ($0.4 million), depreciation and amortization ($0.7 million), a currency exchange driven increase ($0.4 million) and other inflationary and volume related increases ($1.2 million).
Other Income, Net In fiscal 2023, other income, net, of $0.7 million declined by $3.0 million from the prior fiscal year other income, net, of $3.7 million. This change is primarily due to the impact of currency movements related to the euro. Income Taxes The effective tax rate for fiscal 2023 is 26.2% compared to 14.5% for fiscal 2022.
Other Income, Net In fiscal 2024, other income, net, of $5.3 million increased by $4.7 million from the prior fiscal year other income, net, of $0.7 million. This change is primarily due to the impact of a bargain purchase gain related to the acquisition of Katsa ($3.7 million).
The capital spending amount reflects a return to somewhat normalized capital spending levels, somewhat hampered by extended lead times on equipment resulting from global supply chain challenges. 14 The net cash used by financing activities relates primarily to repayments of long-term debt ($18.2 million), along with payments for withholding taxes on stock compensation ($0.5 million), payments on finance lease obligations ($0.6 million) and dividends paid to a non-controlling interest ($0.2 million).
The net cash provided by financing activities relates primarily to borrowings of long-term debt ($7.4 million) impacted by the Katsa acquisition, along with payments for dividends ($1.7 million), withholding taxes on stock compensation ($1.8 million), payments on finance lease obligations ($0.9 million) and dividends paid to a non-controlling interest ($0.3 million).
Liquidity and Capital Resources Fiscal Years 2023 and 2022 The net cash provided by operating activities in fiscal 2023 totaled $22.9 million, an improvement of $31.2 million from the prior fiscal year cash used by operating activities of $8.3 million.
The net cash provided by operating activities in fiscal 2024 totaled $33.8 million, an improvement of $10.9 million from the prior fiscal year cash provided by operating activities of $22.9 million. The positive movement in operating cash flow was created primarily by a strong earnings result and favorable working capital movements.
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’s balance sheet remains strong, there are no material off-balance-sheet arrangements, and it continues to have sufficient liquidity for its near-term needs.
The Company’s balance sheet remains strong, there are no material off-balance-sheet arrangements, and it continues to have sufficient liquidity for its near-term needs. The Company had approximately $26.5 million of available borrowings under the Credit Agreement as of June 30, 2024.
Marketing, Engineering and Administrative (ME&A) Expenses Marketing, engineering, and administrative (ME&A) expenses of $62.2 million were up $2.2 million, or 3.6%, in fiscal 2023 compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased to 22.5% of sales versus 24.7% of sales in fiscal 2022.
As a percentage of sales, ME&A expenses increased to 24.3% of sales versus 22.5% of sales in fiscal 2023.
Sales into the European market improved approximately 11% from fiscal 2022 levels while accounting for 30% of consolidated net sales in fiscal 2023 compared to 31% of net sales in fiscal 2022. The region enjoyed strong demand across the end markets served, limited somewhat by supply chain challenges, but overcoming an unfavorable currency exchange impact.
Sales into the European market improved approximately 17% from fiscal 2023 levels while accounting for 33% of consolidated net sales in fiscal 2024 compared to 33% of net sales in fiscal 2023. The region enjoyed strong demand for the Company’s Veth propulsion products, driving much of the fiscal 2024 growth.
Net sales for the Company’s marine transmission, propulsion and boat management systems were up 17.2% in fiscal 2023 compared to the prior fiscal year.
Net sales for the Company’s marine transmission and propulsion systems were up 16.2% in fiscal 2024 compared to the prior fiscal year. This increase reflects generally strong market conditions, continued global growth of the Veth product and a general easing of supply chain constraints during the fiscal year.
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 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.
The increased backlog is primarily attributable to the improvement in order rates throughout the fiscal year resulting from the global economic recovery following the negative impact of the COVID-19 pandemic.
The increased backlog is primarily attributable to continued strength in order rates throughout the fiscal year, along with the addition of Katsa backlog ($12.6 million).
Sales into the Asia Pacific market improved 13% compared to fiscal 2022 and represented approximately 23% of sales in fiscal 2023, compared to 23% in fiscal 2022.
The decrease is primarily due to the weaker domestic demand for oil and gas related units, along with a decline in industrial product demand. Sales into the Asia Pacific market improved 27% compared to fiscal 2023 and represented approximately 28% of sales in fiscal 2024, compared to 25% in fiscal 2023.
While market demand was strong through the year, supply chain challenges again limited the Company’s ability to deliver product during the fiscal year. The Company noted improving supply chain performance through the year, delivering sequential revenue improvements through the four quarters of fiscal 2023.
With improving operation execution through the year, including a focus on finding solutions to solve supply chain disruptions, the Company was able to deliver sequential revenue improvements through the four quarters of fiscal 2024.
The decrease in net working capital was primarily the result of an increase to trade payables ($8.0 million) and accrued liabilities ($11.0 million) resulting from growing demand and supply chain imbalances. Offsetting these movement were increases to trade receivables ($9.3 million - due to increased sales volume in the fourth quarter) and inventory ($4.8 million).
The decrease in net working capital was primarily the result of an increase to trade payables ($3.9 million), accrued salaries ($2.9 million) and accrued liabilities ($10.9 million), along with a decrease to other current assets ($2.9 million – related to reclassification of assets held for sale of $3.0 million).
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Accordingly, it has scaled some of its disclosures of financial and non-financial information in this annual report.
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Note on Forward-Looking Statements This report contains statements (including but not limited to certain statements in Items 1, 3, and 7) that are forward-looking as defined by the Securities and Exchange Commission in its rules, regulations and releases. Forward-looking statements include the Company’s description of plans and objectives for future operations and assumptions behind those plans.
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Actual results may vary because of variations between these assumptions and actual performance. 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.
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The Company assumes no obligation, and disclaims any obligation, to publicly update or revise any forward-looking statements to reflect subsequent events, new information, or otherwise. 12 Fiscal 2024 Compared to Fiscal 2023 Net Sales The Katsa acquisition closed on May 31, 2024, and the Company reports its operations on a one-month lag.
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The Company’s domestic manufacturing operation experienced a 9.6% increase in sales in fiscal 2023, driven by continued strong demand across the product portfolio, with particular strength in demand for oil and gas related products for both new construction and rebuilds.
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Therefore, only the opening balance sheet and a bargain purchase gain impact the fiscal year 2024 results. Net sales for fiscal 2024 increased 6.6%, or $18.2 million, to $295.1 million from $277.0 million in fiscal 2023.
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The Company’s Italian manufacturing operations reported a 14.4% increase in sales from fiscal 2022, despite an unfavorable currency translation impact, thanks to recovering European markets following the negative impact of the COVID-19 pandemic.
Added
The Company’s domestic manufacturing operation experienced a 4.7% decrease in sales in fiscal 2024, driven by some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets.
Removed
The Company’s Belgian manufacturing operation saw a 12.3% increase in sales from fiscal 2022 despite an unfavorable foreign exchange impact, with strength in the global marine markets it serves.
Added
The Company’s Italian manufacturing operations reported a 40.5% decrease in sales from fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Belgian manufacturing operation saw a 17.9% increase in sales from fiscal 2023 with a favorable translation effect and improved delivery performance driven by operational and supply chain execution.
Removed
The Company’s Asian distribution operation in Singapore, China and Japan experienced a 7.4% increase in sales due to the recovering global demand following the impacts of COVID-19 and continued strength in Chinese demand for oil and gas related products.
Added
Sales for our distribution segment were up 22.1%, or $27.0 million, compared to fiscal 2023, with improving global demand and product delivery from the manufacturing operations. The Company’s Asian distribution operations in Singapore, China and Japan experienced a 31.4% increase in sales on improving deliveries for energy related products in China and strong commercial marine demand in the region.
Removed
The Company’s European distribution operation saw a slight increase in sales of 2.1%, as improving demand was offset by an unfavorable currency translation impact and supply chain challenges limiting shipment of goods from the production operations.
Added
The Company’s North America distribution operation saw a 6.9% increase on strong domestic demand for marine products from the European operations. The Company’s European distribution operation saw a significant increase (25.2%) on strong demand, a favorable currency impact and improved supply of product.
Removed
The Company’s North American distribution operation experienced significant revenue growth of 35.7% as supply chain challenges eased somewhat, allowing for a catch-up in deliveries against a strong demand backdrop.
Added
The decrease experienced in the Company’s industrial products of 13.8% was a function of weaker demand in the North American construction and recycling markets. Geographically, sales to the U.S. and Canada declined 21% in fiscal 2024 compared to fiscal 2023, representing 28% of consolidated sales for fiscal 2024 compared to 36% in fiscal 2023.
Removed
This increase reflects a general strengthening of the global economy following the negative impact of the COVID-19 pandemic in fiscal 2022, continued global growth of the Veth product and a general easing of supply chain constraints during the second half of the fiscal year.
Added
The remaining increase ($2.0 million) is the result of price realization, cost reduction efforts and improved productivity at our operating facilities. Marketing, Engineering and Administrative (ME&A) Expenses Marketing, engineering, and administrative (ME&A) expenses of $71.6 million were up $9.4 million, or 15.1%, in fiscal 2024 compared to the prior fiscal year.
Removed
The decrease experienced in the Company’s industrial products of 7.2% was a function of a stronger fiscal 2022 driven by the catch-up in demand after a pause during the COVID-19 pandemic, along with a softening in order rates during the second half of the fiscal year.
Added
See Note B, Acquisition of Katsa Oy, of the notes to the consolidated financial statements for a full description of this acquisition.
Removed
Geographically, sales to the U.S. and Canada improved 22% in fiscal 2023 compared to fiscal 2022, representing 38% of consolidated sales for fiscal 2023 compared to 36% in fiscal 2022. The increase is primarily due to the continuing economic recovery following the COVID-19 pandemic, with strong demand experienced across the markets served by the Company.
Added
Changes in valuation allowances from period to period are included in the tax provision in the period of change.
Removed
The Company experienced a negative impact to margins from inflationary cost pressures, primarily through the first three quarters of the fiscal year ($3.7 million). In addition, the prior year result included the net favorable impact on margins from the recording of benefits related to COVID-19 relief programs of the U.S. and the Netherlands, totaling $2.0 million.
Added
These increases were partially offset by a reduction in past due orders resulting from improved operational performance and the elimination of the BCS backlog ($5.3 million) due to the sale of that business during the fiscal year.

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