NEW ACCOUNTING STANDARDS

Adoption of New Accounting Standards

In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-07, Compensation-Retirement Benefits (Topic 715) (“new pension standard”). The new pension standard improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The Company adopted this standard in the first quarter of 2018 utilizing the full retrospective method. As a result of the adoption, all components other than service cost were reclassified from Cost of sales and Selling, general and administrative to Other, net in the Consolidated Statements of Operations and Comprehensive Income.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The objective of this update is to provide additional guidance and reduce diversity in practice when classifying certain transactions within the statement of cash flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted these standards in the first quarter of 2018 utilizing the retrospective transition method. The impacts of the new standards relate to the presentation of restricted cash as well as certain cash flows related to an accounts receivable sale program that was terminated in the first quarter of 2018. Refer to Note D, Accounts and Notes Receivable, for further discussion.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“new revenue standard”). The new revenue standard outlines a comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The new model provides a five-step analysis in determining when and how revenue is recognized. The core principle of the new guidance is that a company 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 standard allows for initial application to be performed retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. During 2016, the FASB clarified the implementation guidance on principal versus agent, identifying performance obligations, licensing, and collectability, and made technical corrections on various topics.

The Company adopted the new revenue standard in the first quarter of 2018 using the full retrospective method. Accordingly, certain prior period amounts have been recast to reflect the financial results of the Company in accordance with the new revenue standard. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings for the earliest balance sheet period presented.

As a result of the adoption of the new revenue standard, outbound freight is recorded as a component of cost of sales as opposed to a reduction of net sales. The new revenue standard also requires companies to record an asset for anticipated customer return of inventory and a sales return reserve at the gross amount of the initial sale, rather than at the net margin amount. Additionally, certain sales to distributors subject to a guarantee with a third-party financier that were previously deferred are now recognized upon shipment in accordance with the new revenue standard and the associated short-term and long-term accounts receivable and short-term and long-term debt balances have been recast. Lastly, for certain product warranties provided to customers that meet the criteria of a service-type warranty, a portion of consideration paid by customers must now be deferred and recognized as revenue over the anticipated service warranty period.

As a result of the adoption of the new revenue and pension standards, certain amounts in the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2017 have been recast, as follows:



(Millions of Dollars, except per share amounts)	Three months ended September 30, 2017¹		Adoption of ASU 2014-09		Adoption of ASU 2017-07			Three months ended September 30, 2017
Net Sales	$	3,298.6	$	60.8	$	—		$	3,359.4
Cost of sales	$	2,046.5	$	59.9	$	—		$	2,106.4
Selling, general and administrative	$	758.4	$	—	$	5.0		$	763.4
Provision for doubtful accounts	$	5.0	$	0.5	$	—		$	5.5
Other, net	$	65.5	$	—	$	(5.0	)	$	60.5
Earnings before income taxes	$	354.0	$	0.4	$	—		$	354.4
Income taxes	$	79.8	$	0.1	$	—		$	79.9
Net earnings attributable to common shareowners	$	274.2	$	0.3	$	—		$	274.5
Diluted earnings per share of common stock	$	1.80	$	—	$	—		$	1.80

¹As previously reported in the Company's Form 10-Q for the quarterly period ended September 30, 2017.



(Millions of Dollars, except per share amounts)	Nine months ended September 30, 2017¹		Adoption of ASU 2014-09		Adoption of ASU 2017-07			Nine months ended September 30, 2017
Net Sales	$	9,333.7	$	168.7	$	—		$	9,502.4
Cost of sales	$	5,804.1	$	165.5	$	0.5		$	5,970.1
Selling, general and administrative	$	2,168.8	$	—	$	15.2		$	2,184.0
Provision for doubtful accounts	$	18.0	$	1.4	$	—		$	19.4
Other, net	$	232.0	$	—	$	(15.7	)	$	216.3
Earnings before income taxes	$	1,184.3	$	1.8	$	—		$	1,186.1
Income taxes	$	239.8	$	0.5	$	—		$	240.3
Net earnings attributable to common shareowners	$	944.5	$	1.3	$	—		$	945.8
Diluted earnings per share of common stock	$	6.21	$	0.01	$	—		$	6.22

¹As previously reported in the Company's Form 10-Q for the year-to-date period ended September 30, 2017.

As a result of the adoption of the new revenue standard, certain balances as of December 30, 2017 in the Condensed Consolidated Balance Sheets have been recast, as follows:



(Millions of Dollars)	Balance at December 30, 2017¹			Adoption of ASU 2014-09			Balance at December 30, 2017
ASSETS
Accounts and notes receivable, net	$	1,635.9		$	(7.2	)	$	1,628.7
Other assets	$	487.8		$	24.9		$	512.7

LIABILITIES AND SHAREOWNERS' EQUITY
Current maturities of long-term debt	$	983.4		$	(5.9	)	$	977.5
Accrued expenses	$	1,352.1		$	35.6		$	1,387.7
Long-term debt	$	2,843.0		$	(14.8	)	$	2,828.2
Deferred taxes	$	434.2		$	1.9		$	436.1
Other liabilities	$	2,511.1		$	(4.1	)	$	2,507.0
Retained earnings²	$	5,990.4		$	8.3		$	5,998.7
Accumulated other comprehensive loss	$	(1,585.9	)	$	(3.2	)	$	(1,589.1	)

¹As previously reported in the Company's Form 10-K for the year ended December 30, 2017.

²Adjustment includes the cumulative effect of the adoption of $4.3 million for periods prior to fiscal year 2016.

As a result of the adoption of the new revenue and cash flows standards, certain amounts for the three and nine months ended September 30, 2017 in the Condensed Consolidated Statements of Cash Flows have been recast, as follows:



(Millions of Dollars)	Three months ended September 30, 2017¹			Adoption of ASU 2014-09			Adoption of ASU 2016-15 & 2016-18			Three months ended September 30, 2017
OPERATING ACTIVITIES
Net earnings	$	274.2		$	0.3		$	—		$	274.5
Changes in working capital	$	(214.9	)	$	(0.7	)	$	(241.3	)	$	(456.9	)
Changes in other assets and liabilities	$	173.7		$	0.4		$	—		$	174.1
Cash provided by (used in) operating activities	$	356.9		$	—		$	(241.3	)	$	115.6
INVESTING ACTIVITIES
Proceeds from deferred purchase price receivable	$	—		$	—		$	241.3		$	241.3
Cash used in investing activities	$	(273.5	)	$	—		$	241.3		$	(32.2	)

Change in cash, cash equivalents and restricted cash	$	(56.2	)	$	—		$	—		$	(56.2	)
Cash, cash equivalents and restricted cash, beginning of period	$	539.5		$	—		$	—		$	539.5
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	483.3		$	—		$	—		$	483.3

¹As previously reported in the Company's Form 10-Q for the quarterly period ended September 30, 2017.



(Millions of Dollars)	Nine months ended September 30, 2017¹			Adoption of ASU 2014-09			Adoption of ASU 2016-15 & 2016-18			Nine months ended September 30, 2017
OPERATING ACTIVITIES
Net earnings	$	944.5		$	1.3		$	—		$	945.8
Changes in working capital	$	(784.2	)	$	(0.6	)	$	(469.1	)	$	(1,253.9	)
Changes in other assets and liabilities	$	234.6		$	(0.7	)	$	(45.4	)	$	188.5
Cash provided by (used in) operating activities	$	467.8		$	—		$	(514.5	)	$	(46.7	)
INVESTING ACTIVITIES
Proceeds from deferred purchase price receivable	$	—		$	—		$	469.1		$	469.1
Cash used in investing activities	$	(2,143.7	)	$	—		$	469.1		$	(1,674.6	)

Change in cash, cash equivalents and restricted cash	$	(648.5	)	$	—		$	(45.4	)	$	(693.9	)
Cash, cash equivalents and restricted cash, beginning of period	1,131.8			$	—		$	45.4		$	1,177.2
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	483.3		$	—		$	—		$	483.3

¹As previously reported in the Company's Form 10-Q for the year-to-date period ended September 30, 2017.

In December 2017, the U.S. Securities and Exchange Commission ("SEC") staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Act”). SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740, Income Taxes, (the "measurement period"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it can determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately before the enactment of the Act. The measurement period for accounting for the Act begins in the period of enactment and ends when an entity has obtained, prepared and analyzed the information necessary to complete the accounting requirements under ASC 740, but in no event can the measurement period extend beyond one year. Any provisional amount or adjustment to a provisional amount included in a company’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense or benefit in the reporting period the amounts are determined. Refer to Note P, Income Taxes, for further discussion.

In August 2017, the FASB issued ASU 2017-12, Derivatives And Hedging (Topic 815): Targeted Improvements to Accounting for Hedge Activities. The new standard amends the hedge accounting recognition and presentation requirements in ASC 815. As permitted by ASU 2017-12, the Company early adopted this standard in the first quarter of 2018 on a prospective basis. Refer to Note A, Significant Accounting Policies, for the updated financial instruments policy related to the adoption of this standard.

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610). The new standard provides guidance for recognizing gains and losses of nonfinancial assets in contracts with non-customers. The Company adopted this standard in the first quarter of 2018 and it did not have an impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. The Company adopted this standard prospectively in the first quarter of 2018.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The new standard eliminates the exception to the principle in ASC 740, for all intra-entity sales of assets other than inventory, to be deferred, until the transferred asset is sold to a third party or otherwise recovered through use. The Company adopted this standard in the first quarter of 2018 and it did not have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this standard in the first quarter of 2018 and it did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In August 2018, the SEC issued Disclosure Update and Simplification Release (“DUSTR”) modifying various disclosure requirements. The amendments are effective for all filings made on or after November 5, 2018. However, the SEC staff has provided an extended transition period for companies to comply with the new interim disclosure requirement to provide a reconciliation of changes in shareholders’ equity (either in a separate statement or note to the financial statements). The extended transition period allows companies to first present the reconciliation of changes in shareholders' equity in its Form 10-Q for the first quarter that begins after the effective date of November 5, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adopting the new guidance as well as the impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20). The standard modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The standard modifies disclosure requirements of fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adopting the new guidance as well as the impact it may have on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). The new guidance permits, but does not require, companies to reclassify the stranded tax effects of the Act on items within accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company does not plan to reclassify these stranded tax effects and therefore, does not expect this standard to have an impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. This ASU will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the timing of its adoption of this standard.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). The new standard amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("new lease standard"). The objective of the new lease standard is to increase transparency and comparability among organizations by requiring recognition of all lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Targeted Improvements, Leases (Topic 842), which provide clarification on how to apply certain aspects of the new lease standard and allow entities to initially apply the standards from the adoption date. All three standards are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company expects to utilize the new transition method to apply the standards from the adoption date effective the first quarter of 2019. The Company will record lease liabilities and right-of-use assets on its consolidated balance sheets upon adoption, but does not expect the standards to impact its consolidated statements of operations or retained earnings.