A.	Basis of Presentation

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 all adjustments, consisting only 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. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report filed on Form

-K for

June

30,

2016.

The year-end condensed 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.

New Accounting Releases

March

2017,

the Financial Accounting Standards Board (“FASB”) issued guidance (ASU

2017

07)

intended to improve the presentation of net periodic pension cost and net periodic postretirement cost. This guidance requires that an employer report the service costs component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside the subtotal of income from operations. The amendments in this guidance are effective for annual periods, and interim periods within those annual periods, beginning after

December

15,

2017,

(the Company’s fiscal

2019),

with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.

January

2017,

the FASB issued guidance (ASU

2017

04)

to simplify the accounting for goodwill impairment. The guidance removes Step

of the goodwill impairment test, which requires a hypothetical purchase price allocation. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2019

(the Company’s fiscal

2021),

with early adoption permitted. The Company has decided to early adopt this guidance during the

third

quarter of fiscal

2017

and applied the new guidance in performing its goodwill impairment test. See Note I, “Goodwill and Other Intangibles” for further details.

October

2016,

the FASB issued updated guidance (ASU

2016

16)

that changes the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2017

(the Company’s fiscal

2019),

with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.

August

2016,

the FASB issued updated guidance (ASU

2016

15)

that addresses

eight

specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2017

(the Company’s fiscal

2019),

with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.

March

2016,

the FASB issued updated guidance (ASU

2016

09)

intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2016

(the Company’s fiscal

2018),

with early adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.

February

2016,

the FASB issued guidance (ASU

2016

02)

which replaces the existing guidance for leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than

months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The guidance is effective for fiscal years beginning after

December

15,

2018

(the Company’s fiscal

2020),

including interim periods within those fiscal years and requires retrospective application.

The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.

July

2015,

the FASB issued guidance (ASU

2015

11)

intended to simplify the measurement of inventory and to closely align with International Financial Reporting Standards. Current guidance requires inventories to be measured at the lower of cost or market. Under this new guidance, inventories other than those measured under last in

first

out (“LIFO”) are to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is to be applied prospectively, and is effective for fiscal years beginning after

December

15,

2016

(the Company’s fiscal

2018).

The adoption of this guidance is not expected to have a material impact on the Company’s financial statements and disclosures.

August

2014,

the FASB issued updated guidance (ASU

2014

15)

intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The amendments in this guidance are effective for annual periods ending after

December

15,

2016

(the Company’s fiscal

2017),

and for annual periods and interim periods thereafter. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements and disclosures.

May

2014,

the FASB issued updated guidance (ASU

2014

09)

on revenue from contracts with customers. This revenue recognition guidance supersedes existing guidance, including most industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance identifies steps to apply in achieving this principle. This updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2017

(the Company’s fiscal

2019).

The Company is currently evaluating the potential impact of this guidance on the Company’s financial statements and disclosures.