2. Adoption of New Accounting Standards

Adoption of New Revenue Standard

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) that supersedes ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts (“legacy GAAP”). Subsequently, the FASB issued several updates to ASU 2014-09, which are pending content or otherwise codified in Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”). ASC 606 also includes new guidance on costs related to a contract, which is codified in ASC Subtopic 340-40 (“ASC 340-40”). The Company adopted ASC 606 using the modified retrospective method (“method”) effective as of January 1, 2018 (“date of initial application”). Under this method, the cumulative effect of the adoption of ASC 606 is recognized as an adjustment to retained earnings on the date of initial application (“Transition Adjustment”), and the comparative financial statements for prior periods are not adjusted and continue to be reported under legacy GAAP. The Transition Adjustment was an after tax decrease to retained earnings of approximately $277.0. Financial information for 2018 and 2017 is presented under ASC 606 and under legacy GAAP, respectively. The tables below reflect adjusted 2018 financial statement amounts as if the Company had been reporting under legacy GAAP for items that are materially different.

The adoption of ASC 606 does not impact the Company's cash flows or the underlying economics of the Company's contracts with customers. However, the pattern and timing of revenue and profit recognition, as well as financial statement presentation and disclosures, has changed.

The significant changes and the qualitative and quantitative impact of the adoption of ASC 606 are noted below:

a.Revenue from Contracts with Customers

The Company no longer uses the units-of-delivery method, and the historical use of contract blocks to define contracts for accounting purposes has been replaced by accounting contracts as identified under ASC 606. The Company's accounting contracts under ASC 606 are for the specific number of units for which orders have been received, which is typically for fewer units than what was used to define contract blocks under legacy GAAP. In most of the Company's contracts, the customer has options or requirements to purchase additional products and services.

b.Deferred Production Costs

Under legacy GAAP, certain production costs were deferred over the life of the contract block, which is not permitted under ASC 606. Accordingly, deferred production costs of $640.3 (pretax), net of previously recognized forward loss reserves of $364.0 (pretax), were eliminated, resulting in a decrease to retained earnings in the Transition Adjustment.

c.Contract Assets and Contract Liabilities

Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. Contract assets in the amount of $342.0 were established in the Transition Adjustment.

Contract liabilities primarily represent cash received that is in excess of revenues recognized and is contingent upon the satisfaction of performance obligations. For certain contracts, the allocation of consideration to the performance obligations results in a deferral of revenue that was previously recognized under legacy GAAP. Contract liabilities in the amount of $113.0 were established in the Transition Adjustment, which reflects consideration received prior to the date of initial application that is in excess of the standalone selling price. This liability includes an allocation of consideration to future units, including those under options that the Company believes are likely to be exercised, with prices that are lower than standalone selling price. This liability will be recognized earlier if the options are not fully exercised, or immediately if the contract is terminated prior to the options being fully exercised.

d.Contract Costs

The Company’s accounting for preproduction, tooling, and certain other costs has not changed since these costs generally do not fall within the scope of ASC 340-40. Incurred production costs for anticipated contracts (satisfaction of performance obligations, which have commenced because the Company expects the customer to exercise options) continue to be classified as inventory.

e. Practical expedients

The Company has adopted ASC 606 only for contracts that were not substantially completed under legacy GAAP on the date of initial application. For these contracts, the Company has reflected the aggregate effect of all modifications executed prior to the date of initial application when identifying satisfied and unsatisfied performance obligations, for determining the transaction price and for allocating the transaction price.

The following tables summarize the impacts of adopting ASC Topic 606 on the Company’s consolidated financial statements for the twelve months ended December 31, 2018.



	For the Twelve Months Ended
	As Reported			Impact of Adoption of			As Adjusted
	December 31, 2018			ASC Topic 606			December 31, 2018
Revenue	$	7,222.0		133.8			$	7,355.8
Cost of sales	6,135.9			277.5			6,413.4
Income tax provision	(139.8		)	32.3			(107.5		)
Net income	617.0			(111.5		)	505.5

Earnings per share
Basic	$	5.71		$	(1.03	)	$	4.68
Diluted	$	5.65		$	(1.02	)	$	4.63



	As Reported			Impact of Adoption of			As Adjusted
	December 31, 2018			ASC Topic 606			December 31, 2018
Assets
Accounts receivable, net	$	545.1		$	102.8		$	647.9
Contract assets, short-term	469.4			(469.4		)	—
Inventory, net	1,012.6			378.9			1,391.5
Other current assets	48.3			41.7			90.0
Contract assets, long-term	54.1			(54.1		)	—
Other assets	288.2			(70.5		)	217.7
Total assets	5,685.9			(70.6		)	5,615.3
Liabilities
Accrued expenses	313.1			(5.8		)	307.3
Contract liabilities, short-term	157.9			(157.9		)	—
Forward loss provision, short-term	12.4			(12.4		)	—
Deferred revenue and other deferred credits, short-term	20.0			130.3			150.3
Other current liabilities	58.2			259.8			318.0
Contract liabilities, long-term	369.8			(369.8		)	—
Forward loss provision, long-term	170.6			(170.6		)	—
Deferred revenue and other deferred credits	31.2			93.6			124.8
Stockholders' Equity
Accumulated other comprehensive loss	(196.6		)	(3.4		)	(200.0		)
Retained earnings	2,713.2			165.5			2,878.7
Total liabilities and equity	5,685.9			(70.6		)	5,615.3

Adoption of ASU 2017-07

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 requires entities to report the service cost component of net periodic pension and net periodic postretirement benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Further, ASU 2017-07 requires the other components of net periodic pension and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. The Company adopted the requirements of ASU 2017-07 on January 1, 2018, using the retrospective transition method.

Prior period information has been reclassified as a result of the Company's adoption of ASU 2017-07 on a retrospective basis in 2018. In accordance with the adoption of this guidance, prior year amounts related to the components of net periodic pension and postretirement benefit cost other than service costs have been reclassified from cost of sales and selling, general and administrative expense to other income (expense) within the consolidated statement of operations for all periods presented. The reclassifications are as follows:



	For the Twelve Months Ended						For the Twelve Months Ended
	As Reported		Impact of Adoption of		As Adjusted		As Reported			Impact of Adoption of			As Adjusted
	December 31, 2017		ASU 2017-07		December 31, 2017		December 31, 2016			ASU 2017-07			December 31, 2016
Cost of sales	$	6,162.5	$	32.8	$	6,195.3	$	5,803.6		$	(3.3	)	$	5,800.3
Selling, general and administrative	200.3		4.4		204.7		228.3			2.6			230.9
Other income, net	7.2		37.2		44.4		(7.3		)	(0.7		)	(8.0		)

Adoption of ASU 2016-18

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU 2016-18”), which addresses classification and presentation of changes in restricted cash on the statement of cash flows. The standard requires a reconciliation of the beginning-of-period and end-of-period total amounts shown on the statement of cash flows to include in cash and cash equivalents amounts generally described as restricted cash and restricted cash equivalents. The ASU does not define restricted cash or restricted cash equivalents, but an entity will need to disclose the nature of the restrictions. The Company adopted ASU 2016-18 on January 1, 2018. Below is a reconciliation of cash, cash equivalents, and restricted cash. Long-term restricted cash is included in Other Assets on the Company's condensed consolidated balance sheet.



Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
	For the Twelve Months Ended
	December 31, 2018		December 31, 2017
Cash and cash equivalents, beginning of the period	$	423.3	$	697.7
Restricted cash, short-term, beginning of the period	2.2		—
Restricted cash, long-term, beginning of the period	20.0		20.0
Cash, cash equivalents, and restricted cash, beginning of the period	$	445.5	$	717.7

Cash and cash equivalents, end of the period	$	773.6	$	423.3
Restricted cash, short-term, end of the period	0.3		2.2
Restricted cash, long-term, end of the period	20.2		20.0
Cash, cash equivalents, and restricted cash, end of the period	$	794.1	$	445.5