Recently Adopted Accounting Guidance

In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-12, "Derivatives and Hedging," which modifies the presentation and disclosure of hedging results and provides partial relief on the timing of certain aspects of hedge documentation including the elimination of the requirement to recognize hedge ineffectiveness separately in earnings. We elected to early adopt this standard on January 1, 2018 using the modified retrospective approach. We recorded a cumulative adjustment for previously recognized ineffectiveness to retained earnings at January 1, 2018. This did not result in a material impact to our financial statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits," which requires that an employer report the service cost component of net periodic pension costs in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension costs to be presented in the statement of operations separately from the service cost component and outside a subtotal of income from operations. On January 1, 2018 we retrospectively adopted this standard, which resulted in a reclassification on the condensed consolidated statements of operations of a benefit of $0.1 million and a loss of $0.4 million for the three and nine months ended September 30, 2017, respectively, from income from operations to other expense, net.

On January 1, 2018, we adopted ASU 2017-01, "Clarifying the Definition of a Business," which sets forth the accounting guidance that assists in the determination of whether a set of transferred assets and activities is a business. This new guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business; whereas, if the threshold is not met, the entity evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue guidance.

On January 1, 2018, we adopted ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which requires equity investments in unconsolidated entities, excluding those accounted for using the equity method of accounting, to be remeasured at exit price fair value, with changes recorded in the statement of operations. This standard was adopted using the modified retrospective application resulting in a cumulative adjustment to retained earnings at January 1, 2018. This did not result in a material impact to our financial statements.

On January 1, 2018, we adopted ASU 2014-09, "Revenue from Contracts with Customers,” and all related amendments comprising ASC 606 (the “new revenue standard”), electing to use the modified retrospective method. We also elected to apply certain practical expedients, including the application of the modified retrospective method to open contracts at December 31, 2017. Comparative information has not been recasted and continues to be reported under historical U.S. GAAP in effect to those applicable periods. The following table summarizes the cumulative effect made to our condensed consolidated balance sheet as a result of the adoption to this standard.



	December 31, 2017			Adjustments due to ASU 2014-09			January 1, 2018
Assets
Inventories	$	608.6		$	(22.7	)	$	585.9
Prepaid expenses and other ⁽¹⁾	63.9			41.7			105.6
Other assets ⁽²⁾	428.6			(1.9		)	426.7

Liabilities
Other accrued liabilities ⁽³⁾	$	489.6		$	1.9		$	491.5
Deferred income taxes	152.9			3.0			155.9

Equity
Accumulated deficit	$	(21.4	)	$	12.1		$	(9.3	)
Noncontrolling interests	131.7			0.1			131.8


(1)	Includes the impact to contract assets resulting from the modified retrospective adoption of the new revenue standard.


(2)	Includes the impacts to deferred income taxes resulting from the modified retrospective adoption of the new revenue standard.


(3)	Includes the impacts of estimated variable consideration on certain arrangements in our refinish end-market.

The impacts to the balance sheet as of the adoption date represent the acceleration of revenue for certain arrangements, primarily within our light vehicle end-market, for which we determined our performance obligation has been satisfied, as discussed further in Note 3. Specifically, we concluded that the transfer of control to the customer, as defined under the new revenue standard, occurs at a date prior to consumption. Additionally, certain costs historically reported in selling, general and administrative expenses under historical U.S. GAAP related to technical support services that are not considered material in the context of our contracts with certain customers are now reported within cost of goods sold on the condensed consolidated statements of operations, as they represent costs incurred in satisfaction of performance obligations. See Note 3 for further discussion.

Accounting Guidance Issued But Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which eliminates the second step in the goodwill impairment test requiring an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. This standard is not expected to have a material impact on our financial statements unless an impairment indicator is identified in our reporting units.

In February 2016, the FASB issued ASU 2016-02, "Leases," which, together with amendments comprising ASC 842, requires lessees to identify arrangements that should be accounted for as leases and generally recognize, for operating and finance leases with terms exceeding twelve months, a right-of-use asset (or "ROU") and lease liability on the balance sheet. In addition to this main provision, this standard included a number of additional changes to lease accounting. This standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted prior to this date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either its effective date or the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We will adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. As a result, historical financial information will not be updated and the disclosures required under the new standard will not be provided as of and for periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. We expect to elect the package of practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify, meaning we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases (leases with a term of less than 12 months from lease commencement) of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for certain leases, including our leases of vehicles and equipment.

The Company is in process of implementing an outsourced software solution to support the ongoing accounting requirements that this standard will have on our consolidated financial statements. We are in process of reviewing our lease arrangements, as well as working through implementation steps and assessing our procedural and policy requirements and impacts to our internal controls. At a minimum, in the period the ASU is adopted, in addition to the expanded disclosures regarding leases, total assets and total liabilities will increase as a result of the recognized new ROU assets and lease liabilities for our equipment, vehicle and real estate operating leases, and our leases accounted for as sale-leaseback financing transactions will be derecognized and accounted for as a lease upon adoption.