NEW ACCOUNTING STANDARDS

Recently Adopted

On November 17, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-18, Restricted Cash. This accounting standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The amendment should be adopted retrospectively. We early adopted this guidance in the first quarter of 2017 and the adoption resulted in reclassifications of $0.3 million cash inflows from investing activities to operating activities for each of the six months ended July 1, 2017 and July 2, 2016.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows as of July 1, 2017.



(in thousands)	July 1, 2017		December 31, 2016
Cash and cash equivalents	$	18,430	$	35,409
Restricted cash	446		714
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statement of Cash Flows	$	18,876	$	36,123

On August 26, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. This accounting standard is intended to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. We adopted this guidance in the first quarter of 2017 and the impact on our Condensed Consolidated Statements of Cash Flows was a reclassification of $6.2 million cash outflows from operating activities to repayments of long-term debt within financing activities for the six months ended July 2, 2016. The table below summarizes the impact on the Statement of Cash Flows for the first six months of 2016.



(in thousands)	Previous Classification ⁽¹⁾			Impact			Current Classification
Operating activities:
Gain on write-off of debt premium	$	(1,341	)	$	1,341		$	—
Loss on early extinguishment of debt	—			4,749			4,749
Changes in operating assets and liabilities, excluding business acquisitions, divestitures and foreign currency translation adjustments	19,985			80			20,065
Net cash provided by operating activities	75,765			6,170			81,935

Financing activities:
Repayments of long-term debt	(114,125		)	(6,170		)	(120,295		)
Net cash provided by financing activities	$	981,965		$	(6,170	)	$	975,795

⁽¹⁾ The figures Changes in operating assets and liabilities, excluding business acquisitions, divestitures and foreign currency translation adjustments and Net cash provided by operating activities have been revised from the initial presentation to include the impact of the $6.6 million correction of an error described in Note 4.

On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016. The updated guidance includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. We adopted the accounting standard in the first quarter of 2017 and the impact to our condensed consolidated financial statements are as follows:

•

Excess tax benefits for share-based payments were previously recorded through income tax receivable and equity, and presented as a financing cash flow. As a result of adopting this accounting standard, excess tax benefits for share-based payments are recorded as an adjustment to income tax expense and reflected in operating cash flows. We elected to adopt this provision of the accounting standard prospectively which resulted in income tax benefit of $0.2 million and $1.6 million for the second quarter and first six months of 2017, respectively.


•	The guidance allows the employer to withhold up to the maximum statutory tax rates in the applicable jurisdictions without triggering liability accounting. Our accounting treatment of outstanding equity awards was not impacted by our adoption of this provision of the accounting standard.


•	The guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. We did not make this election, and continue to account for forfeitures on an estimated basis.

On January 26, 2017 the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This accounting standard simplifies how an entity is required to test goodwill for impairment by eliminating step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Instead, entities should perform annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of carrying amount over the fair value of the respective reporting unit. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early application of the ASU is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this standard in the second quarter of 2017 and will apply its guidance on a prospective basis, to the extent that an impairment is identified in step 1 of our testing procedures.

Not Yet Adopted

On May 10, 2017 the FASB issued ASU 2017-09, Scope of Modification Accounting. This accounting standard provides clarity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. According to this accounting standard, an entity should account for the effects of a modification unless the fair value, vesting conditions, and classification of the modified award are the same as the original award. The updated guidance is effective for annual reporting periods, and interim reporting periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating whether we will early adopt this standard during fiscal year 2017. However, there are currently no planned modifications to our share-based payment awards for the remainder of fiscal year 2017.

On January 5, 2017 the FASB issued ASU 2017-01, Clarifying the Definition of a Business. This accounting standard clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. We are currently evaluating the impact this accounting standard will have on our consolidated financial statements.

On October 24, 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. This accounting standard is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The updated guidance indicates that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs instead of when the asset has been sold to an outside party. The updated guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, and early adoption is permitted. The amendments are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of the adoption. The Company is still assessing the impact to the financial statements and intends to adopt the standard on December 31, 2017, the first day of our fiscal 2018.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases. This ASU requires us to recognize a lease liability for the obligation to make lease payments, measured at the present value on a discounted basis, and a right-of-use (“ROU”) asset for the right to use the underlying asset for the duration of the lease term, measured at the lease liability amount adjusted for lease prepayments, lease incentives received and initial direct costs. The lease liability and ROU asset are recognized in the balance sheet at the commencement of the lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight line expense while finance leases will result in a front-loaded expense pattern. Classification will be based on criteria that are largely similar to those applied in current lease accounting. ASU 2016-02 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2018, and requires the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period presented in the financial statements. Early application of the ASU is permitted. We are currently evaluating the impact this accounting standard will have on our condensed consolidated financial statements.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides for a single five-step model to be applied to all revenue from contracts with customers. The guidance also requires improved disclosures to help users of the financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of ASU No. 2014-09 by one year, to December 15, 2017 for interim and annual reporting periods beginning after that date. The FASB will permit early adoption of the standard, but not before the original effective date of December 15, 2016.

In 2016, the FASB issued final amendments clarifying the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting of intellectual property licenses. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes.

The impact of adopting the new standard on our net revenue and operating income is not expected to be material. We also do not expect a material impact to our balance sheet. The immaterial impact of adopting ASU No. 2014-09 primarily relates to the following:


•	Slotting fees, which are currently amortized over the lesser of their arrangement term or 12 months, but under the new standard these slotting fees will be recorded as a reduction in the transaction price as the product is sold. This could lead to a difference in the timing of recognizing revenue.


•	Licensing of promotional materials to distributors would be a separate performance obligation under the new standard. We believe that this is immaterial in the context of our contracts.


•	Contract manufacturing arrangements are recognized as revenue when product is delivered to the customer. If any of our contracts create an asset without an alternative use and an enforceable right to payment, then we would recognize revenue over time under the new standard. The right to payment is not enforceable under the contracts we have currently assessed.

We plan to adopt ASC Topic 606, Revenue from Contracts with Customers, on December 31, 2017, the first day of our fiscal year 2018. The guidance permits the use of either a full retrospective or modified retrospective transition method. We are currently evaluating the method of adoption but believe that we will apply the modified retrospective approach.

Other amendments to GAAP in the US that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our condensed consolidated financial statements upon adoption.