NOTE 2: ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In the first quarter of fiscal 2018, we adopted an accounting standards update issued by the Financial Accounting

Standards Board (“FASB”) that requires recognition of the income tax consequences of intra-entity transfers of assets other

than inventory when the transfer occurs. Consequently, this update eliminates the exception to the recognition of current and

deferred income taxes for intra-entity transfers of assets other than for inventory until the assets have been sold to an outside

party. This update requires entities to apply a modified retrospective approach with a cumulative catch-up adjustment to

beginning retained earnings in the period of adoption. In addition, entities are required to record deferred tax balances with an

offset to retained earnings for unrecognized amounts that will be recognized under this update. We applied all changes

required by this update using the modified retrospective approach from the beginning of fiscal 2018. Adopting this update

resulted in a $27 million reduction of prepaid income tax assets from the “Other current assets” and “Other non-current

assets” line items and a $27 million increase in the “Non-current deferred income taxes” line item in our Condensed

Consolidated Balance Sheet (Unaudited) as of September 29, 2017.

In the fourth quarter of fiscal 2018, we adopted an accounting standards update issued by the FASB that allows companies to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), from accumulated other comprehensive loss to retained earnings. Stranded tax effects are the deferred tax amounts recorded through other comprehensive income, using a 35% statutory rate, that remained after we remeasured our net deferred tax assets and liabilities to reflect the lower enacted corporate tax rates. We elected to early adopt this accounting standards update and elected to reclassify, in the period of enactment, stranded tax effects totaling $35 million from the “Accumulated other comprehensive loss” line item to the “Retained earnings” line item in our Consolidated Balance Sheet. The reclassification amount primarily included income tax effects related to our pension and postretirement benefit plans. Income tax effects remaining in accumulated other comprehensive income will be released into earnings as the related pretax amounts are reclassified to earnings.

Accounting Standards Issued But Not Yet Effective

In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP and supersedes some cost guidance for construction-type and production-type contracts. The guidance in this standard is principles-based and, consequently, entities will be required to use more judgment and make more estimates than under prior guidance, including identifying contract performance obligations, estimating variable consideration to include in the contract price and allocating the transaction price to separate performance obligations. The core principle of this standard is that entities 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 and services. To help financial statement users better understand the nature, amount, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures.

We adopted the new standard in fiscal 2019 using the full retrospective method, whereby the guidance in the new standard will be applied to each prior fiscal year presented and the cumulative effect of applying the guidance in the new standard will be recognized at the beginning of fiscal 2017. In preparation for the adoption of this standard, we formed a project team to assess customer contracts across our business segments and have periodically briefed our Audit Committee on the progress of our assessment. We designed and implemented controls over our assessment, including our calculation of the cumulative effect of adoption. We have also updated our accounting policies, redesigned certain business processes and systems, determined the extent of the expanded disclosure requirements and changed internal controls over financial reporting in connection with adopting the new standard.

We have completed our preliminary assessment of the impact of adopting the new standard, and the following table presents adjusted and as reported selected financial data:



	AS ADJUSTED (PRELIMINARY)				AS REPORTED
	2018		2017		2018		2017

	(In millions)
Revenue from product sales and services	$	6,171	$	5,897	$	6,182	$	5,900
Operating income	$	1,110	$	1,066	$	1,122	$	1,073

Although the adjusted selected results of operations presented above may not be indicative of our future results of operations, we do not expect the new standard to have a material impact on our financial condition, results of operations or cash flows after the period of adoption.

In March 2017, the FASB issued an accounting standards update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This update requires that entities present components of net periodic pension cost and net periodic postretirement benefit cost other than the service cost component separately from the service cost component and outside the subtotal of income from operations. We will adopt the new standard in fiscal 2019, whereby the new guidance will be applied retrospectively to each prior fiscal year presented. Adopting this accounting standard will result in a decrease in operating income and an increase in the net non-operating components of income from continuing operations of $186 million, $184 million and $164 million for fiscal 2019, 2018 and 2017, respectively. Adopting this accounting standard will not have a material impact on our financial condition or cash flows.

In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires, among other things, the recognition of right-of-use (“ROU”) assets and liabilities on the balance sheet for all leases longer than 12 months and disclosure of certain information about leasing arrangements. The standard currently allows two transition methods whereby companies may elect to use the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available, or to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020. We continue to evaluate the impact this standard will have on our financial condition, results of operations and cash flows, which could be material, and we have not yet made a decision on the adoption method, as this determination is primarily dependent on the completion of our analysis.