(4) RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-04, Goodwill and Other - Simplifying the Test for Goodwill Impairment (ASU 2017-04), which eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment testing performed after January 1, 2017, therefore an early election to adopt as of December 31, 2016 is not applicable. The Company will evaluate the potential impact the adoption of ASU 2017-04 will have on its consolidated financial statements when it becomes necessary.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business (ASU 2017-01), which is intended to clarify the definition of a business. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. ASU 2017-01 will be effective for the Company’s fiscal year beginning January 1, 2018 unless it elects early adoption. The Company will evaluate the potential impact the adoption of ASU 2017-01 will have on its consolidated financial statements when it becomes necessary. As of December 31, 2016, the Company has not elected to early adopt the amendments of ASU 2017-01.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02). The amended guidance requires balance sheet recognition of lease assets and liabilities by lessees for leases classified as operating leases, with an option to not recognize lease assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements. Lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, but the Company has not made the election to do so. ASU 2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019 unless it elects early adoption. The amendments require a modified retrospective approach with optional practical expedients. The Company is currently evaluating the potential impact the adoption of ASU 2016-02 may have on its consolidated financial statements, however, recognition of additional assets and corresponding liabilities related to operating leases on the Company’s Consolidated Balance Sheets is required. See Note 23 to these Consolidated Financial Statements for further details on the Company’s operating leases.

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09) regarding Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. ASU 2014-09 provides principles for recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date by one year with early adoption permitted as of the original effective date. ASU 2014-09 will be effective for the Company’s fiscal year beginning January 1, 2018. In 2016, the FASB issued several ASUs to help provide interpretive clarifications on the new guidance for ASC Topic 606.

As of December 31, 2016, the Company has not elected early adoption and has not concluded on an adoption method. The Company has formed a task force that is in the process of analyzing the Company’s customer contracts and the potential impacts the standard may have on previously reported revenues and future revenues. After completing the analysis of the accounting for the Company’s customer contracts under the new revenue standard, the Company will assess the required changes to its accounting policies, systems and internal control over financial reporting. Based on its preliminary analysis of its material contracts with customers, the Company does not anticipate that ASU 2014-09 will have a material impact on its net product revenues for products that are marketed by the Company (e.g., Kuvan, Naglazyme, and Vimizim). The Company is still assessing the application of ASU 2014-09 to its Aldurazyme revenues from Genzyme, which are currently recognized in two components upon delivery and upon sale of the product by Genzyme to third parties. ASU 2014-09 may have an impact on the timing of Aldurazyme revenue recognition, however the Company is in the early stages of its analysis and has not yet concluded on the impact of the new revenue standard on its Aldurazyme revenue recognition.

Accounting Pronouncements Adopted

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted and the Company adopted the amendments in ASU 2016-09 during the fourth quarter of fiscal 2016, which required the Company to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption.

The impact of adopting ASU 2016-09 resulted in the following:

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The Company recorded $15.1 million of tax benefits within income tax expense for the year ended December 31, 2016 related to employee equity award activity. Prior to adoption the excess tax benefit had not been realized through a reduction in taxes payable. In a small number of states, there had been a benefit to taxes payable and for these states the benefit was recorded as additional paid-in capital. This change could create future volatility in the Company’s effective tax rate depending upon the amount of exercise or vesting activity from stock-based awards.

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The Company recorded a $131.3 million cumulative-effect adjustment to accumulated deficit as of January 1, 2016 related to historical excess tax benefits.

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The Company elected to recognized forfeitures as they occur. The cumulative effect adjustment as a result of the adoption of this amendment on a modified retrospective basis was insignificant.

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The Company elected to apply the change in classification of cash flows resulting from excess tax benefits or deficiencies on a retrospective basis. Accordingly, $2.2 million and $1.5 million of excess tax benefits previously reported as a cash flow provided by financing activities during the years ended December 31, 2015 and 2014, respectively, have been reclassified to be included in cash flows from operating activities. The reclassification of excess tax benefits on the Consolidated Statements of Cash Flows is not material.

There were no other material impacts to our consolidated financial statements as a result of adopting this updated standard.