In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance (Accounting Standard Codification (ASC) 606) to provide a single, comprehensive revenue recognition model for all contracts with customers, Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance requires an entity 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. The standard supersedes all existing U.S. GAAP guidance on revenue recognition and is expected to require the use of more judgment and result in additional disclosures.

The Company adopted the new guidance on October 1, 2018 following the modified retrospective method of transition. The Company applied the new guidance to contracts that were not completed at the date of initial adoption, resulting in a reduction of retained earnings by $60.4 million, after-tax, at that date. For contracts that were modified prior to October 1, 2018, the Company considered the aggregate impact of all modifications that occurred prior to the effective date of the standard for purposes of identifying performance obligations, determining transaction price and allocating transaction price to performance obligations. Prior period comparative information was not recast to reflect the impact of the new guidance and therefore continues to be reported under the accounting guidance in effect during those periods.

Under the new guidance, the majority of the Company’s contracts with the U.S. government follow an over time model that uses the cost-to-cost method to measure performance. Previously the Company had recognized revenue from these contracts on the percentage of completion method using either the cost-to-cost or the units-complete method. In addition, the new guidance changes the definition of a contract, resulting in the Company no longer considering unexercised government options in the measurement of completion and profitability. The new guidance is expected to result in additional volatility in the Company’s earnings based upon the date of receipt of contract orders.

In the fire & emergency segment, the point in time at which “control transfers” to the customer differs from when the Company no longer maintains “risk of loss”, which under the new guidance delays the point in time at which the Company will recognize revenue on contracts for which the end user, rather than the Company’s dealer, is the Company’s customer. In the commercial segment, the Company builds certain units on chassis owned by the end customer. Revenue related to these arrangements moved from a “point in time” revenue recognition model to an “over time” model that is measured using the cost-to-cost method of percentage-of-completion as the Company is enhancing a customer asset. In addition, under the new guidance, the Company defers revenue, including the estimated profit, for service warranties instead of recording a liability for estimated costs.

See Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company’s revenue recognition method under the new revenue guidance.

The cumulative effect of initially applying the new revenue recognition guidance to the Company’s Condensed Consolidated Financial Statements as of October 1, 2018 was as follows (in millions):

	Balance as of September 30, 2018		Cumulative Impact from Adopting New Revenue Standard			Balance as of October 1, 2018
Assets
Receivables, net	$	1,286.2	$	(13.5	)	$	1,272.7
Unbilled receivables, net		235.4		74.3			309.7
Inventories, net		1,227.7		(75.9	)		1,151.8
Other current assets		66.0		0.3			66.3
Total current assets		3,269.9		(14.8	)		3,255.1
Other long-term assets		65.9		18.7			84.6
Total assets		5,294.2		3.9			5,298.1

Liabilities and Shareholders’ Equity
Customer advances	$	444.9	$	27.2		$	472.1
Other current liabilities		275.8		6.4			282.2
Total current liabilities		1,690.1		33.6			1,723.7
Other long-term liabilities		272.6		30.7			303.3
Retained earnings		2,007.9		(60.4	)		1,947.5
Total shareholders’ equity		2,513.5		(60.4	)		2,453.1
Total liabilities and shareholders’ equity		5,294.2		3.9			5,298.1

The impact from adopting the new revenue recognition guidance on the Company’s Condensed Consolidated Financial Statements as of and for the three and nine months ended June 30, 2019 was as follows (in millions):

	Three Months Ended June 30, 2019
	As Reported			Previous Accounting Guidance			Impact of New Revenue Recognition Standard
Condensed Consolidated Statement of Income
Net sales	$	2,392.7		$	2,366.5		$	26.2
Cost of sales		1,958.8			1,920.4			38.4
Gross income	$	433.9		$	446.1		$	(12.2	)

Operating income	$	257.8		$	270.0		$	(12.2	)

Income before income taxes and earnings (losses) of unconsolidated affiliates	$	245.9		$	258.1		$	(12.2	)
Provision for income taxes		53.7			56.9			(3.2	)
Income before earnings (losses) of unconsolidated affiliates		192.2			201.2			(9.0	)
Equity in earnings (losses) of unconsolidated affiliates		(0.3	)		(0.3	)		—
Net income	$	191.9		$	200.9		$	(9.0	)

Earnings per share:
Basic	$	2.74		$	2.87		$	(0.13	)
Diluted		2.72			2.85			(0.13	)

	Nine Months Ended June 30, 2019
	As Reported		Previous Accounting Guidance		Impact of New Revenue Recognition Standard
Condensed Consolidated Statement of Income
Net sales	$	6,186.3	$	6,106.5	$	79.8
Cost of sales		5,066.2		5,006.2		60.0
Gross income	$	1,120.1	$	1,100.3	$	19.8

Operating income	$	593.9	$	574.1	$	19.8

Income before income taxes and earnings (losses) of unconsolidated affiliates	$	558.8	$	539.0	$	19.8
Provision for income taxes		129.6		125.2		4.4
Income before earnings (losses) of unconsolidated affiliates		429.2		413.8		15.4
Equity in earnings (losses) of unconsolidated affiliates		0.2		0.2		—
Net income	$	429.4	$	414.0	$	15.4

Earnings per share:
Basic	$	6.11	$	5.89	$	0.22
Diluted		6.05		5.83		0.22

	June 30, 2019
	As Reported		Previous Accounting Guidance		Impact of New Revenue Recognition Standard
Condensed Consolidated Balance Sheet
Assets
Receivables, net	$	1,263.9	$	1,271.1	$	(7.2	)
Unbilled receivables, net		501.1		403.1		98.0
Inventories, net		1,361.4		1,452.2		(90.8	)
Other current assets		82.6		82.7		(0.1	)
Total current assets		3,361.2		3,361.3		(0.1	)
Other long-term assets		124.4		110.1		14.3
Total assets		5,446.4		5,432.2		14.2

Liabilities and Shareholders’ Equity
Customer advances	$	434.6	$	437.7	$	(3.1	)
Other current liabilities		333.8		311.9		21.9
Total current liabilities		1,687.5		1,668.7		18.8
Other long-term liabilities		343.3		302.9		40.4
Retained earnings		2,373.4		2,418.4		(45.0	)
Total shareholders’ equity		2,596.9		2,641.9		(45.0	)
Total liabilities and shareholders’ equity		5,446.4		5,432.2		14.2

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. The standard requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset when the transfer occurs as opposed to when the asset is transferred to an outside party. The standard does not apply to intra-entity transfers of inventory. The Company adopted ASU 2016-16 on October 1, 2018 following the modified retrospective approach through a cumulative effect adjustment, which resulted in an increase to retained earnings of $44.5 million.

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. The standard requires that an entity report the service cost component of net periodic pension and postretirement cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The remaining components of net benefit costs are required to be presented in the income statement separately from the service component and outside a subtotal of income from operations. The amendment further allows only the service cost component of net periodic pension and postretirement costs to be eligible for

capitalization, when applicable. The Company adopted ASU 2017-07 on October 1, 2018. The impact of this standard was a reclassification of $0.8 million and $2.0 million of other components of net periodic pension cost to “Miscellaneous, net” on the Condensed Consolidated Statement of Income for the three and nine months ended June 30, 2018, respectively. The Company utilized a practical expedient included in the ASU which allowed the Company to use amounts previously disclosed in its Employee Benefit Plans footnote for the prior period as the estimation basis for applying the required retrospective presentation requirements.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act enacted in the United States in December 2017 (the “Tax Reform Act”), thereby eliminating the resulting stranded tax effect. The Company adopted ASU 2018-02 on October 1, 2018. The Company increased retained earnings by $9.1 million upon adoption of ASU 2018-02 to eliminate the tax effects stranded in accumulated other comprehensive income resulting from the Tax Reform Act.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and has since issued amendments to this standard, which requires lessees to reflect most leases on their balance sheet as lease liabilities with corresponding right-of-use assets, while leaving presentation of lease expense in the statement of income largely unchanged. The standard also eliminates the real-estate specific provisions that exist under current U.S. GAAP and modifies the classification criteria and accounting lessors must apply to sales-type and direct financing leases. Entities have the option to adopt the new guidance using a modified retrospective approach through a cumulative effect adjustment to retained earnings applied either to the beginning of the earliest period presented or the beginning of the period of adoption. In addition, the new guidance provides for certain practical expedients. The Company will be required to adopt ASU 2016-02 and related amendments to the standard as of October 1, 2019.

The Company is currently evaluating its lease landscape to assess the effect of the new guidance on the Company’s consolidated financial statements. It is also focused on designing new processes, controls and a system solution to support the Company’s implementation and compliance with the requirements of the new standard. The Company plans to adopt the new guidance effective October 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires a change in the measurement approach for credit losses on financial assets measured on an amortized cost basis from an incurred loss method to an expected loss method, thereby eliminating the requirement that a credit loss be considered probable to impact the valuation of a financial asset measured on an amortized cost basis. The standard requires the measurement of expected credit losses to be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast that affects the collectability of the related financial asset. The Company will be required to adopt ASU 2016-13 as of October 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-13 on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The standard simplifies the measurement of goodwill impairment by eliminating the requirement that an entity compute the implied fair value of goodwill based on the fair values of its assets and liabilities to measure impairment. Instead, goodwill impairment will be measured as the difference between the fair value of the reporting unit and the carrying value of the reporting unit. The standard also clarifies the treatment of the income tax effect of tax deductible goodwill when measuring goodwill impairment loss. The Company will be required to adopt ASU 2017-04 as of October 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2017-04 on the Company’s consolidated financial statements.