Basis of Presentation | Basis of Presentation The accompanying unaudited consolidated condensed financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for the fair presentation of results for the interim period have been included. The results of operations for the three and nine months ended June 29, 2019 are not necessarily indicative of the results expected for the full year. The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-K for the fiscal year ended September 29, 2018 . All references to years in these financial statements are to fiscal years. Certain prior year amounts have been reclassified to conform to current year's presentation. Management does not consider the amounts reclassified to be material. Recent Accounting Pronouncements Adopted Standard Description Financial Statement Effect or Other Significant Matters ASU no. 2014-09 Revenue from Contracts with Customers The standard requires revenue recognition to depict the transfer of 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 also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The provisions of the standard, as well as all subsequently issued clarifications to the standard, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The standard can be adopted using either a full retrospective or modified retrospective approach. We adopted this standard using the modified retrospective method, under which prior years' results are not restated, but supplemental information is provided in our disclosures to present 2019 results before effect of the standard. In addition, a cumulative adjustment was made to shareholders' equity at the beginning of 2019. Supplemental information is provided in our disclosures to present 2019 results before effect of the standard. Date adopted: ASU no. 2017-07 Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost The standard amends existing guidance on the presentation of net periodic benefit cost in the income statement and what qualifies for capitalization on the balance sheet. The provisions of the standard are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period. The amendment requires income statement presentation provisions to be applied retrospectively and capitalization in assets provisions to be applied prospectively. We adopted this standard retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Consolidated Condensed Statement of Earnings. Supplemental information is provided in our disclosures to present 2018 results before effect of the standard. Date adopted: Recent Accounting Pronouncements Not Yet Adopted Standard Description Financial Statement Effect or Other Significant Matters ASU no. 2016-02 Leases (and all related ASUs) The standard requires most lease arrangements to be recognized in the balance sheet as lease assets and lease liabilities. The standard also requires additional disclosures about the leasing arrangements. The provisions of the standard are effective for fiscal years beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted. We plan to adopt the standard using the modified retrospective method without adjusting prior comparative periods. We expect to record a material right-of-use asset and lease liability on the Consolidated Condensed Balance Sheet. We have identified, and are in the process of implementing, changes to our financial statements and related disclosures, internal controls, financial policies and information technology systems. Upon adoption, we do not anticipate material changes to our Consolidated Condensed Statement of Earnings or Consolidated Condensed Statement of Cash Flows. We have not yet fully quantified the impact on our financial statements and related disclosures. Planned date of adoption: Q1 2020 ASU no. 2017-12 Targeted Improvements to Accounting for Hedging Activities The standard expands the hedging strategies eligible for hedge accounting, while simplifying presentation and disclosure by eliminating separate measurement and reporting of hedge ineffectiveness. The provisions of the standard are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effect on our financial statements and related disclosures. Planned date of adoption: Q1 2020 ASU no. 2018-15 Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract The standard amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement (CCA) that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. The ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the effect on our financial statements and related disclosures. Planned date of adoption: We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have an immaterial impact on our financial statements and related disclosures. In accordance with SEC Final Rule Release No. 33-10532, we have adopted Rule 3-04 of Regulation S-X during the first quarter of 2019 and have disclosed changes in the Consolidated Condensed Statement of Shareholders' Equity and the amount of dividends per share for each class of shares for all periods presented. Refer to Note 16, Earnings per Share and Dividends. Impact of Recent Accounting Pronouncements Adopted On September 30, 2018, we adopted ASC 606: Revenue from Contracts with Customers and the related amendments (ASC 606), using the modified retrospective method, as described above. ASC 606 was applied to contracts that were not completed as of September 29, 2018. Prior periods have not been restated and continue to be reported under the accounting standard in effect for those periods. Previously, we recognized revenue under ASC 605: Revenue Recognition (ASC 605). The cumulative effect from the adoption of ASC 606 as of September 30, 2018 was as follows: September 29, 2018 Adjustments due to adoption of ASC 606 September 30, 2018 ASSETS Receivables $ 793,911 $ 89,121 $ 883,032 Inventories 512,522 (65,991 ) 446,531 Deferred income taxes 17,328 134 17,462 LIABILITIES AND SHAREHOLDERS’ EQUITY Contract advances $ 151,687 $ 921 $ 152,608 Contract loss and contract-related reserves 47,417 2,430 49,847 Other accrued liabilities 120,944 1,139 122,083 Deferred income taxes 46,477 3,851 50,328 Retained earnings 1,973,514 14,923 1,988,437 The tables below represent the impact of the adoption of ASC 606 on the Consolidated Condensed Statement of Earnings for the three and nine months ended June 29, 2019 . Three Months Ended Under ASC 605 Effect of ASC 606 As Reported Under ASC 606 Net sales $ 737,887 $ 3,082 $ 740,969 Cost of sales 531,952 (2,902 ) 529,050 Gross profit 205,935 5,984 211,919 Earnings before income taxes 55,736 5,984 61,720 Income taxes 12,735 1,520 14,255 Net earnings $ 43,001 $ 4,464 $ 47,465 Nine Months Ended Under ASC 605 Effect of ASC 606 As Reported Under ASC 606 Net sales $ 2,119,821 $ 19,635 $ 2,139,456 Cost of sales 1,521,720 8,914 1,530,634 Gross profit 598,101 10,721 608,822 Earnings before income taxes 164,801 10,721 175,522 Income taxes 38,863 2,766 41,629 Net earnings $ 125,938 $ 7,955 $ 133,893 The table below represents the impact of the adoption of ASC 606 on the Consolidated Condensed Balance Sheet as of June 29, 2019 . Under ASC 605 Effect of ASC 606 As Reported Under ASC 606 ASSETS Current assets Receivables $ 813,187 $ 109,666 $ 922,853 Inventories 592,925 (77,870 ) 515,055 Total current assets 1,539,396 31,796 1,571,192 Deferred income taxes 15,783 (47 ) 15,736 Total assets 3,034,390 31,749 3,066,139 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Contract advances $ 148,393 $ (716 ) $ 147,677 Contract loss and contract-related reserves 55,755 1,801 57,556 Other accrued liabilities 104,656 3,885 108,541 Total current liabilities 670,804 4,970 675,774 Deferred income taxes 53,054 3,610 56,664 Total liabilities 1,701,902 8,580 1,710,482 Shareholders’ equity Retained earnings 2,073,296 22,878 2,096,174 Accumulated other comprehensive loss (366,845 ) 291 (366,554 ) Total shareholders’ equity 1,332,488 23,169 1,355,657 Total liabilities and shareholders’ equity 3,034,390 31,749 3,066,139 The tables below represent the impact of the adoption of ASU 2017-07: Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , on the Consolidated Condensed Statement of Earnings for the three and nine months ended June 30, 2018 . Three Months Ended As Reported, Impact of Adoption As Adjusted, Cost of sales $ 492,234 $ (275 ) $ 491,959 Gross profit 197,386 275 197,661 Research and development 31,040 (87 ) 30,953 Selling, general and administrative 103,053 (1,331 ) 101,722 Other 1,037 1,693 2,730 Nine Months Ended As Reported, Impact of Adoption As Adjusted, Cost of sales $ 1,424,731 $ (834 ) $ 1,423,897 Gross profit 574,144 834 574,978 Research and development 97,545 (263 ) 97,282 Selling, general and administrative 299,002 (3,996 ) 295,006 Other 45 5,093 5,138 The tables below represent the impact of the adoption of ASU 2017-07 on operating profit and deductions from operating profit for the three and nine months ended June 30, 2018 . Three Months Ended As Reported, Impact of Adoption As Adjusted, Operating profit: Aircraft Controls $ 33,342 $ 259 $ 33,601 Space and Defense Controls 16,513 176 16,689 Industrial Systems 24,283 689 24,972 Total operating profit $ 74,138 $ 1,124 $ 75,262 Deductions from operating profit: Non-service pension expense $ — $ 1,693 $ 1,693 Corporate and other expenses, net $ 9,439 $ (569 ) $ 8,870 Nine Months Ended As Reported, Impact of Adoption As Adjusted, Operating profit: Aircraft Controls $ 97,590 $ 847 $ 98,437 Space and Defense Controls 49,643 561 50,204 Industrial Systems 37,479 1,976 39,455 Total operating profit $ 184,712 $ 3,384 $ 188,096 Deductions from operating profit: Non-service pension expense $ — $ 5,093 $ 5,093 Corporate and other expenses, net $ 25,275 $ (1,709 ) $ 23,566 |