(4) RECENT ACCOUNTING PRONOUNCEMENTS

Except as described below, there have been no new accounting pronouncements or changes to accounting pronouncements during the six months ended June 30, 2018, as compared to the recent accounting pronouncements described in Note 4 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, that the Company believes are of significance or potential significance to the Company.

Accounting Pronouncements Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (ASU 2016-02). The amended guidance requires balance sheet recognition of lease right-of-use (ROU) assets and liabilities by lessees for leases classified as operating leases, with an option to not recognize lease ROU 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 the Company’s fiscal year beginning January 1, 2019. 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. The amendments require a modified retrospective approach with optional practical expedients.

As of June 30, 2018, the Company’s task force formed in connection with the adoption of ASU 2016-02 was in the process of analyzing the Company’s lease contracts and the potential impact the standard may have on its Condensed Consolidated Financial Statements and related disclosures. After completing the analysis of the accounting for the Company’s lease contracts under the standard, management will assess the required changes to the Company’s accounting policies, systems and internal control over financial reporting. Based on management’s preliminary analysis, the Company anticipates the standard may have a material impact on the Company’s Condensed Consolidated Balance Sheets due to the requirement to recognize lease ROU assets and corresponding liabilities related to leases on the Company’s Condensed Consolidated Balance Sheets, however it is not anticipated to have a material impact on the Company’s other Condensed Consolidated Financial Statements.

Accounting Pronouncements Adopted

Effective January 1, 2018, the Company adopted ASC 606, which 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. The Company adopted ASC 606 on a modified retrospective basis through a cumulative adjustment to equity. See Note 3 – Significant Accounting Policies and Note 15 – Revenue, Credit Concentrations and Geographic Information for additional disclosures related to the adoption of ASC 606.

The cumulative effect of applying the new guidance of ASC 606 to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to Accumulated Deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the Condensed Consolidated Balance Sheet as of January 1, 2018:

	As Reported								Adjusted
	December 31, 2017			Aldurazyme ⁽¹⁾		Tax Provision ⁽²⁾			January 1, 2018
Balance Sheet
Assets:
Accounts receivable, net	$	261,365		$	26,012	$	—		$	287,377
Deferred tax assets	$	399,095		$	—	$	(5,964	)	$	393,131
Total assets	$	4,633,125		$	26,012	$	(5,964	)	$	4,653,173
Equity:
Accumulated deficit	$	(1,637,548	)	$	26,012	$	(5,964	)	$	(1,617,500	)
Total liabilities and stockholders' equity	$	4,633,125		$	26,012	$	(5,964	)	$	4,653,173

(1)

This adjustment represents management’s estimate of the variable consideration to be earned on worldwide sales of Aldurazyme by Genzyme in excess of the product transfer revenue previously recognized for Genzyme’s ending inventory at December 31, 2017. The product transfer revenue previously recognized as revenue represents the fixed amount per unit of Aldurazyme that Genzyme was required to pay the Company if the product was unsold by Genzyme.

(2)

The adoption of ASC 606 primarily resulted in an acceleration of the variable consideration components of revenue as of December 31, 2017, which in turn generated additional deferred tax liabilities that ultimately reduced the Company's net deferred tax asset position. The tax provision amount has been calculated using the Company’s estimated statutory rate.

The impact of adoption on the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 was as follows:

	Three Months Ended June 30, 2018
						Balance without
						Adoption of
	As Reported			Adjustments ⁽¹⁾		ASC 606

Net product revenues	$	367,786		$	48	$	367,834
Benefit from income taxes	$	(12,385	)	$	11	$	(12,374	)
Net loss	$	(16,792	)	$	37	$	(16,755	)

	Six Months Ended June 30, 2018
							Balance without
							Adoption of
	As Reported			Adjustments ⁽¹⁾			ASC 606

Net product revenues	$	736,885		$	(27,150	)	$	709,735
Benefit from income taxes	$	(19,040	)	$	(6,225	)	$	(25,265	)
Net loss	$	(60,941	)	$	(20,925	)	$	(81,866	)

(1)

The adoption of ASC 606 resulted in additional revenues recognized in the first half of 2018, which in turn generated additional deferred tax liabilities that reduced the Company's benefit from income taxes. The Benefit from Income Taxes amount has been calculated using the Company’s estimated statutory rate.

The impact of adoption on the Company’s Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018 was as follows:

							Balance without
							Adoption of
	As Reported			Adjustments ⁽¹⁾			ASC 606
Net loss	$	(60,941	)	$	(20,925	)	$	(81,866	)
Deferred income taxes	$	(29,681	)	$	(6,225	)	$	(35,906	)
Changes in operating assets and liabilities:
Accounts receivable, net	$	(77,416	)	$	27,150		$	(50,266	)
Net cash used in operating activities	$	(76,366	)	$	—		$	(76,366	)

(1)

The adoption of ASC 606 resulted in decreased Net Loss and increased Accounts Receivable, Net due to additional revenues recognized in the first quarter of 2018, which in turn generated additional deferred tax liabilities that reduced the Company's net Deferred Tax Assets. The Deferred Income Taxes amount has been calculated using the Company’s estimated statutory rate.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The amendments allow a reclassification from Accumulated Other Comprehensive Income (Loss) (AOCI) to Accumulated Deficit for stranded tax effects resulting from the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act). ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2018-02 using the modified retrospective approach on an aggregate portfolio basis on January 1, 2018. As a result of adoption ASU 2018-02, the Company reclassified $0.6 million from AOCI to Accumulated Deficit in the first quarter of 2018.