Note B - Inventories, Net

12 Months Ended

Jun. 30, 2026

B. INVENTORIES, NET

The major classes of inventories at June 30 were as follows:

			As Adjusted
	2026		2025
Finished parts	$	79,297	$	99,171
Work in process		38,830		27,229
Raw materials		59,901		57,685
	$	178,028	$	184,085

The second quarter of fiscal year 2025 includes the impact of a non-cash inventory write-down of $1,579. This write-down reflects the results of a product rationalization exercise of the Company’s industrial product line following the acquisition of Katsa.

The Company had reserves for inventory obsolescence of $16,190 and $16,016 at June 30, 2026 and 2025, respectively.

Inventories are valued at the lower of cost or net realizable value, which includes an estimate for excess and obsolete inventory. Cost is determined by the first‑in, first‑out (FIFO) basis or average cost methods. Management specifically identifies obsolete products and analyzes historical usage, forecasted production based on future orders, demand forecasts, and economic trends, among others, when evaluating the adequacy of the reserve for excess and obsolete inventory.

During the fourth quarter of 2026, the Company changed its methodology for valuing the majority of inventories located in the United States to the FIFO cost method from the last-in, first-out (“LIFO”) cost method. The Company concluded that the FIFO basis of accounting is preferable as it provides a better matching of costs and revenues, more closely resembles the physical flow of inventory, better reflects the acquisition cost of inventory on the balance sheet, and results in improved comparability with industry peers.

The effects of this change in accounting method have been retrospectively applied to all periods presented and a cumulative effect adjustment was recorded to increase the July 1, 2024 inventory and retained earnings by $30,937, net of tax. The Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended June 30, 2025, Consolidated Statements of Cash Flows for the years ended June 30, 2025, and the Consolidated Balance Sheets as of June 30, 2025, have been retrospectively adjusted to reflect the change in accounting principle. See Note S, 2025 Impact of Accounting Method Change, of the notes to the consolidated financial statements for additional information.

The following tables reflect the effect of the change in accounting method on the consolidated financial statements as of and for the year ended June 30, 2026:

Consolidated Statements of Operations and Comprehensive Income (Loss)	As Computed Under Previous Method		Effect of Accounting Change			As Reported Under New Method
Cost of goods sold	$	279,197	$	(487	)	$	278,710
Gross profit		102,073		487			102,560
Income (loss) from operations		17,473		487			17,960
Income (loss) before income taxes and noncontrolling interest		13,109		487			13,596
Income tax benefit (expense)		21,322		(7,348	)		13,974
Net income (loss)		34,659		(7,089	)		27,570
Net income (loss) attributable to Twin Disc, Incorporated		34,166		(7,089	)		27,077

Comprehensive income (loss)
Net income (loss)	$	34,659	$	(7,089	)	$	27,570
Comprehensive income (loss)		31,083		(7,089	)		23,994
Comprehensive income (loss) attributable to Twin Disc, Incorporated		30,724		(7,089	)		23,635

Earnings (loss) per share data:
Basic earnings (loss) per share attributable to Twin Disc, Incorporated common shareholders	$	2.42	$	(0.50	)	$	1.92
Diluted earnings (loss) per share attributable to Twin Disc, Incorporated common shareholders	$	2.34	$	(0.49	)	$	1.86

Weighted average shares outstanding data:
Basic shares outstanding		14,119		-			14,119
Diluted shares outstanding		14,586		-			14,586

Consolidated Balance Sheets	As Computed Under Previous Method		Effect of Accounting Change			As Reported Under New Method
Inventories, net	$	145,407	$	32,621		$	178,028
Deferred income tax assets		28,669		(7,576	)		21,093
Retained earnings		157,295		25,045			182,340

Consolidated Statements of Cash Flows	As Computed Under Previous Method			Effect of Accounting Change			As Reported Under New Method
Cash flows from operating activities:
Net income (loss)	$	34,659		$	(7,089	)	$	27,570
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Changes in operating assets and liabilities, net of acquired business
Inventories, net		3,778			(487	)		3,291
Provision for deferred income taxes		(25,622	)		7,576			(18,046	)
Net cash provided (used) by operating activities		22,899			-			22,899

Consolidated Statements of Changes in Equity	As Computed Under Previous Method			Effect of Accounting Change			As Reported Under New Method
Retained earnings
Balance at June 30, 2025	$	125,414		$	32,134		$	157,548
Net income (loss) attributable to Twin Disc, Incorporated		34,166			(7,089	)		27,077
Dividends paid to shareholders and non-controlling interest		(2,285	)					(2,285	)
Balance at June 30, 2026	$	157,295		$	25,045		$	182,340