Adoption of Revenue Recognition Guidance

The Company adopted the new revenue recognition guidance effective January 1, 2018, using the modified retrospective method, with the cumulative effect recognized as of January 1, 2018. The primary impact of the new guidance was a change in the timing of revenue recognition on certain long-term contracts in the Company’s Aerospace and Defense segment. The adoption of the new revenue recognition guidance did not impact revenue recognized within the Company's Real Estate segment. The new guidance does not change the total sales or operating income on the related customer contracts, only the timing of when sales and operating income are recognized. Under this new guidance, the Company discontinued the use of the unit-of-delivery revenue recognition method on certain customer contracts and re-measured the performance obligations using the cost-to-cost method. The unit-of-delivery method was utilized for 48% of net sales for the year ended December 31, 2017. The cumulative favorable impact of the adoption was $37.6 million of net income which was recorded to stockholders' equity.

Further, as the Company’s adoption of the guidance accelerated the timing of revenue recognition on some of the Company's contracts, the adoption resulted in a $0.6 billion reduction in the Company's remaining performance obligations, also referred to as backlog, as of December 31, 2017.

The following tables summarize the effect of adoption of the new revenue recognition standard on the Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2018.

Condensed Consolidated Statement of Operations

(Unaudited)



	Three months ended June 30, 2018
	As Reported			Effect of Adoption			Amounts Excluding Effect of Adoption
	(In millions, except per share amounts)
Net sales	$	467.2		$	9.4		$	476.6
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	369.5			12.9			382.4
Selling, general and administrative expense	11.1			—			11.1
Depreciation and amortization	17.7			—			17.7
Other expense, net	0.9			—			0.9
Total operating costs and expenses	399.2			12.9			412.1
Operating income	68.0			(3.5		)	64.5
Non-operating (income) expense:
Retirement benefits expense	14.4			—			14.4
Interest income	(2.0		)	—			(2.0		)
Interest expense	8.3			—			8.3
Total non-operating expense, net	20.7			—			20.7
Income before income taxes	47.3			(3.5		)	43.8
Income tax provision	12.5			(1.1		)	11.4
Net income	$	34.8		$	(2.4	)	$	32.4
Earnings Per Share of Common Stock
Basic
Basic net income per share	$	0.46		$	(0.03	)	$	0.43
Diluted
Diluted net income per share	$	0.45		$	(0.03	)	$	0.42
Weighted average shares of common stock outstanding, basic	73.9			—			73.9
Weighted average shares of common stock outstanding, diluted	75.1			—			75.1

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)



	Three months ended June 30, 2018
	As Reported		Effect of Adoption			Amounts Excluding Effect of Adoption
	(In millions)
Net income	$	34.8	$	(2.4	)	$	32.4
Other comprehensive income:
Amortization of actuarial losses and prior service credits, net of income taxes	12.5		—			12.5
Comprehensive income	$	47.3	$	(2.4	)	$	44.9

Condensed Consolidated Statement of Operations

(Unaudited)



	Six months ended June 30, 2018
	As Reported			Effect of Adoption			Amounts Excluding Effect of Adoption
	(In millions, except per share amounts)
Net sales	$	959.2		$	(13.2	)	$	946.0
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)	796.3			(1.8		)	794.5
Selling, general and administrative expense	17.8			—			17.8
Depreciation and amortization	35.4			—			35.4
Other expense, net	2.1			—			2.1
Total operating costs and expenses	851.6			(1.8		)	849.8
Operating income	107.6			(11.4		)	96.2
Non-operating (income) expense:
Retirement benefits expense	28.8			—			28.8
Interest income	(3.6		)	—			(3.6		)
Interest expense	16.4			—			16.4
Total non-operating expense, net	41.6			—			41.6
Income before income taxes	66.0			(11.4		)	54.6
Income tax provision	17.2			(3.1		)	14.1
Net income	$	48.8		$	(8.3	)	$	40.5
Earnings Per Share of Common Stock
Basic
Basic net income per share	$	0.65		$	(0.11	)	$	0.54
Diluted
Diluted net income per share	$	0.64		$	(0.11	)	$	0.53
Weighted average shares of common stock outstanding, basic	73.8			—			73.8
Weighted average shares of common stock outstanding, diluted	75.0			—			75.0

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)



	Six months ended June 30, 2018
	As Reported		Effect of Adoption			Amounts Excluding Effect of Adoption
	(In millions)
Net income	$	48.8	$	(8.3	)	$	40.5
Other comprehensive income:
Amortization of actuarial losses and prior service credits, net of income taxes	25.0		—			25.0
Comprehensive income	$	73.8	$	(8.3	)	$	65.5

Condensed Consolidated Balance Sheet

(Unaudited)



	As of June 30, 2018
	As Reported			Effect of Adoption			Amounts Excluding Effect of Adoption
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	514.7		$	—		$	514.7
Marketable securities	44.9			—			44.9
Accounts receivable	134.6			(55.9		)	78.7
Contract assets	253.1			19.5			272.6
Other current assets, net	123.2			(10.5		)	112.7
Total Current Assets	1,070.5			(46.9		)	1,023.6
Noncurrent Assets
Property, plant and equipment, net	357.8			—			357.8
Recoverable environmental remediation costs	225.8			—			225.8
Deferred income taxes	255.5			(117.4		)	138.1
Goodwill	161.3			—			161.3
Intangible assets	78.7			—			78.7
Other noncurrent assets, net	260.5			—			260.5
Total Noncurrent Assets	1,339.6			(117.4		)	1,222.2
Total Assets	$	2,410.1		$	(164.3	)	$	2,245.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	30.4		$	—		$	30.4
Accounts payable	104.1			—			104.1
Reserves for environmental remediation costs	34.6			—			34.6
Contract liabilities	185.3			13.9			199.2
Other current liabilities	313.0			(132.3		)	180.7
Total Current Liabilities	667.4			(118.4		)	549.0
Total Noncurrent Liabilities	1,522.6			—			1,522.6
Total Liabilities	2,190.0			(118.4		)	2,071.6
Stockholders’ Equity
Common stock	7.4			—			7.4
Other capital	509.4			—			509.4
Treasury stock at cost	(64.5		)	—			(64.5		)
Retained earnings (accumulated deficit)	15.4			(45.9		)	(30.5		)
Accumulated other comprehensive loss, net of income taxes	(247.6		)	—			(247.6		)
Total Stockholders’ Equity	220.1			(45.9		)	174.2
Total Liabilities and Stockholders’ Equity	$	2,410.1		$	(164.3	)	$	2,245.8

Condensed Consolidated Statement of Cash Flows

(Unaudited)



	Six months ended June 30, 2018
	As Reported			Effect of Adoption			Amounts Excluding Effect of Adoption
	(In millions)
Operating Activities
Net income	$	48.8		$	(8.3	)	$	40.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35.4			—			35.4
Amortization of debt discount and deferred financing costs	4.4			—			4.4
Stock-based compensation	6.7			—			6.7
Retirement benefits, net	6.7			—			6.7
Insurance proceeds	(1.9		)	—			(1.9		)
Other, net	(0.1		)	—			(0.1		)
Changes in assets and liabilities:
Accounts receivable	(40.7		)	26.5			(14.2		)
Contract assets	(7.5		)	3.0			(4.5		)
Other current assets, net	16.3			0.4			16.7
Recoverable environmental remediation costs	5.3			—			5.3
Other noncurrent assets	(1.5		)	—			(1.5		)
Accounts payable	(9.7		)	—			(9.7		)
Contract liabilities	(58.1		)	(19.5		)	(77.6		)
Other current liabilities	21.8			1.0			22.8
Deferred income taxes	2.3			(3.1		)	(0.8		)
Reserves for environmental remediation costs	(7.7		)	—			(7.7		)
Other noncurrent liabilities and other	4.0			—			4.0
Net Cash Provided by Operating Activities	24.5			—			24.5
Investing Activities
Purchases of marketable securities	(44.7		)	—			(44.7		)
Sales of marketable securities	20.1			—			20.1
Insurance proceeds	1.9			—			1.9
Capital expenditures	(12.2		)	—			(12.2		)
Net Cash Used in Investing Activities	(34.9		)	—			(34.9		)
Financing Activities
Debt repayments	(10.3		)	—			(10.3		)
Repurchase of shares for withholding taxes and option costs under employee equity plans	(2.1		)	—			(2.1		)
Proceeds from shares issued under equity plans	2.5			—			2.5
Net Cash Used in Financing Activities	(9.9		)	—			(9.9		)
Net Decrease in Cash and Cash Equivalents	(20.3		)	—			(20.3		)
Cash and Cash Equivalents at Beginning of Period	535.0			—			535.0
Cash and Cash Equivalents at End of Period	$	514.7		$	—		$	514.7

The following table summarizes the reclassifications to the December 31, 2017, balance sheet to conform to the current year’s presentation.



	As Reported		Reclassifications due to Adoption			As Adjusted
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	535.0	$	—		$	535.0
Marketable securities	20.0		—			20.0
Accounts receivable	215.5		(151.0		)	64.5
Inventories	136.4		(136.4		)	—
Contract assets	—		268.1			268.1
Other current assets, net	109.8		19.3			129.1
Total Current Assets	1,016.7		—			1,016.7
Total Noncurrent Assets	1,242.0		—			1,242.0
Total Assets	$	2,258.7	$	—		$	2,258.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	25.0	$	—		$	25.0
Accounts payable	100.9		—			100.9
Reserves for environmental remediation costs	35.2		—			35.2
Contract liabilities	—		276.8			276.8
Advance payments on contracts	237.8		(237.8		)	—
Other current liabilities	195.9		(39.0		)	156.9
Total Current Liabilities	594.8		—			594.8
Total Noncurrent Liabilities	1,561.5		—			1,561.5
Total Liabilities	2,156.3		—			2,156.3
Stockholders’ Equity
Total Stockholders’ Equity	102.4		—			102.4
Total Liabilities and Stockholders’ Equity	$	2,258.7	$	—		$	2,258.7

The following table summarizes the reclassifications to the six months ended June 30, 2017, statement of cash flows to conform to the current year’s presentation.



	As Reported			Reclassifications due to Adoption			As Adjusted
	(In millions)
Operating Activities
Net income	$	30.2		$	—		$	30.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35.4			—			35.4
Amortization of debt discount and deferred financing costs	4.2			—			4.2
Stock-based compensation	10.2			—			10.2
Retirement benefits, net	15.4			—			15.4
Other, net	0.3			—			0.3
Changes in assets and liabilities, net of effects from acquisition in 2017:
Accounts receivable	(87.8		)	37.5			(50.3		)
Inventories	20.7			(20.7		)	—
Contract assets	—			(9.7		)	(9.7		)
Other current assets, net	19.3			(7.1		)	12.2
Recoverable environmental remediation costs	10.1			—			10.1
Other noncurrent assets	(31.5		)	—			(31.5		)
Accounts payable	12.6			—			12.6
Contract liabilities	—			(43.0		)	(43.0		)
Advance payments on contracts	(49.0		)	49.0			—
Other current liabilities	19.6			(6.0		)	13.6
Deferred income taxes	15.9			—			15.9
Reserves for environmental remediation costs	(10.8		)	—			(10.8		)
Other noncurrent liabilities and other	22.9			—			22.9
Net Cash Provided by Operating Activities	37.7			—			37.7
Investing Activities
Net Cash Used in Investing Activities	(21.1		)	—			(21.1		)
Financing Activities
Net Cash Used in Financing Activities	(13.3		)	—			(13.3		)
Net Increase in Cash and Cash Equivalents	3.3			—			3.3
Cash and Cash Equivalents at Beginning of Period	410.3			—			410.3
Cash and Cash Equivalents at End of Period	$	413.6		$	—		$	413.6