Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

We adopted Accounting Standards Update, or ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," on November 30, 2017 in connection with our acquisition of Ceilings Plus, which eliminates Step 2 from the goodwill impairment test. Under the new standard, an impairment charge would be recognized for the amount by which the carrying value exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The adoption did not have an impact on our consolidated financial statements.

We adopted ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” on January 1, 2017. This ASU simplifies certain aspects of accounting for employee share-based payments. Upon adoption, we recorded to retained earnings a $25 million cumulative-effect adjustment for previously unrecognized excess tax benefits and an immaterial cumulative-effect adjustment for the reversal of cumulative forfeiture estimates to record forfeitures as they occur.

Recently Issued Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board, or FASB, issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The new standard will be effective for us on January 1, 2019. We do not expect the adoption of ASU 2017-12 to have a significant impact to our consolidated financial statements or disclosures.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which will require us to disaggregate and present current service cost along with other current compensation costs for employees while presenting other net benefit cost components below operating profit. In addition, only the service cost component of net benefit cost is eligible for capitalization in our inventory and fixed assets. We will retrospectively adopt the standard on January 1, 2018 for the presentation of service cost using the practical expedient and prospectively adopt the capitalization of only service cost into inventory and fixed assets. Select line items from our consolidated statements of income for the years ended December 31, 2017 and 2016 which reflect the changes in presentation of net benefit costs are as follows:



(millions)	Year ended December 31, 2017				Year ended December 31, 2016
	After Adoption		As Reported		After Adoption			As Reported
Gross profit	$	656	$	665	$	700		$	705
Operating profit	353		367		396			394
Other net periodic postretirement benefit (costs)	14		—		(2		)	—
Net income	88		88		510			510

We do not expect the adoption of ASU 2017-07 to have a significant impact on our other financial statements.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business in order to assist in the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We will prospectively adopt the standard on January 1, 2018. The impact of our adoption of ASU 2017-01 will be dependent on the nature of future acquisitions or dispositions, if any.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We will adopt the standard on January 1, 2018 using the retrospective approach. The adoption will result in a $9 million reduction of our net cash provided by investing activities on our consolidated statement of cash flows for the year ended December 31, 2016.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which supersedes existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. We will adopt the new standard on January 1, 2019 using the modified retrospective approach. As a result of the new standard, we will implement a new lease accounting system, new processes and accounting policies. Further, we anticipate the adoption of ASU 2016-02 will have a significant impact to our consolidated balance sheets and disclosures. We are currently finalizing our accounting policies and analyzing our lease population and, thus, we are unable to quantify the financial statement impact at this time.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to 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. Subsequently, the FASB has issued various ASUs to provide further clarification around certain aspects of Topic 606. We will adopt, via the modified retrospective approach, the standard on January 1, 2018 using practical expedients. With our adoption of the new revenue guidance, we will modify the point in time at which we record revenue to be upon shipment for most of our customers and will record an adjustment to opening retained earnings of $2 million. The adoption will not have a significant impact to our consolidated financial statements. However, we will expand our disclosures to include disaggregation of revenue and discussion on the satisfaction of our performance obligations.