SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Information

The Company

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"). Unless the context requires otherwise, the terms "Perrigo," the "Company," "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries. We are a leading global over-the-counter ("OTC") consumer goods and pharmaceutical company, offering patients and customers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic standard topical products such as creams, lotions, and gels, as well as inhalants and injections ("extended topical") prescription products in the U.S. We also received royalties from sales of the multiple sclerosis drug Tysabri^®but divested our rights to those royalties in March 2017. We provide “Quality Affordable Healthcare Products^®” across a wide variety of product categories and geographies, primarily in North America, Europe, and Australia, as well as in other markets, including Israel, China, and Latin America.

Basis of Presentation

Our fiscal year previously consisted of a 52- or 53-week year ending on or around June 30 of each year with each quarter ending on the Saturday closest to each calendar quarter end. Beginning on January 1, 2016, we changed our fiscal year to begin on January 1 and end on December 31 of each year. As a result of our change in year end, this report on Form 10-K discloses the results of our operations for the twelve-month period from January 1, 2016 through December 31, 2016. The six months ended December 31, 2015 reflects our financial results from June 28, 2015 through December 31, 2015, and the six months ended December 27, 2014 reflects our financial results from June 29, 2014 through December 27, 2014. The year ended June 27, 2015 reflects our financial results for the twelve-month period from June 29, 2014 to June 27, 2015, and the year ended June 28, 2014 reflects our financial results for the twelve-month period from June 30, 2013 to June 28, 2014. Calendar-year data for 2015 was derived from our audited results for the six-month period ended December 31, 2015 and unaudited results for the fiscal quarters ended March 28, 2015 and June 27, 2015. We cut off our quarterly accounting periods on the Saturday closest to the end of the calendar quarter, with the fourth quarter ending on December 31 of each year.

Segment Reporting

During the quarter ended December 31, 2016, we changed our reporting segments to better align with our new organizational structure. These organizational changes were made to optimize our structure to better serve our customers and to reflect the way in which our chief operating decision maker reviews our operating results and allocates resources. The changes in our reporting segments are as follows:


•	Consumer Healthcare Americas ("CHCA"), comprises our U.S., Mexico and Canada consumer healthcare business (OTC, contract, infant formula and animal health categories).

•

Consumer Healthcare International ("CHCI"), comprises our legacy Branded Consumer Healthcare ("BCH") segment and now includes our consumer focused businesses in the U.K., Australia, and Israel, which were previously reported in the legacy Consumer Healthcare segment. This segment includes our U.K. liquid licensed products business, which was previously reported in the Prescription Pharmaceuticals segment.


•	Prescription Pharmaceuticals ("RX"), comprises our U.S. Prescription Pharmaceuticals business.


•	Specialty Sciences, continued to comprise the Tysabri^®Royalty Stream.

We also have an "Other" reporting segment that will continue to comprise our legacy Active Pharmaceutical Ingredients ("API") business, which does not meet the quantitative threshold required to be a separately reportable segment. Financial information related to our business segments and geographic locations can be found in Note 19.

Principles of Consolidation

The consolidated financial statements include our accounts and accounts of all majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Unconsolidated Variable Interest Entities

We have research and development ("R&D") arrangements with certain biotechnology companies that we determined to be variable interest entities ("VIEs"). We did not consolidate the VIEs in our financial statements because we lack the power to direct the activities that most significantly impact their economic performance and thus are not considered the primary beneficiaries of these entities. These arrangements provide us with certain rights and obligations to purchase product candidates from the VIEs, dependent upon the outcome of the development activities.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions, which affect the reported earnings, financial position and various disclosures. Although the estimates are considered reasonable, actual results could differ from the estimates.

Non-U.S. Operations

We translate our non-U.S. dollar-denominated operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of Accumulated Other Comprehensive Income ("AOCI"). Gains or losses from foreign currency transactions are included in Other expense, net.

Restatement

In connection with our year-end financial statement close and preparation of our Form 10-K for 2016, we identified misstatements in our historical financial statements, including for the nine months ended October 1, 2016, six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014 (the "Restated Periods"). Accordingly, we have restated the consolidated financial statements for the Restated Periods (and certain financial statements for interim periods within the Restated Periods) to reflect the correction of the misstatements, the most significant of which are described below. The segments predominantly affected by this restatement are Specialty Sciences and CHCI. Refer to Note 10 for additional information on how this restatement affects our debt covenants.

During the 2016 year-end financial statement close process, and in anticipation of our potential sale of our royalty rights, we evaluated the potential effects of the Tysabri^® royalty stream sale accounting and the accounting and disclosures associated with the pending 2018 adoption of ASC 606 “Revenues from Contracts with Customers.” After an extensive evaluation of the facts and circumstances and the judgments required to determine the appropriate classification, it was determined that under existing U.S. GAAP the contingent payments from Elan's May 2013 sale of Tysabri^® to Biogen (the "Tysabri^®royalty stream") should have been recorded as a financial asset, rather than an intangible asset, on the date of our acquisition of Elan.

Our Tysabri^®royalty stream is now accounted for in our consolidated financial statements for 2016 and prior restated periods as a financial asset using the fair value option. We made the election to account for the Tysabri^® financial asset using the fair value option as we believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date. Accounting for the Tysabri^® royalty stream as a financial asset required us to adjust our financial statements for the Restated Periods to (1) remove the Tysabri^® royalty stream from net sales in our Consolidated Statements of Operations, (2) remove the amortization expense (reflected in cost of goods sold) associated with recording the Tysabri^® royalty stream as an intangible asset, and (3) include the quarterly changes in fair value of the Tysabri^® royalty stream as a component of other non-operating income/expense. The cash payments we received from the royalty stream are included in our Consolidated Statements of Cash Flows for the Restated Periods and reflect the cash received from the Tysabri^® royalty stream as cash from investing activities, rather than as cash from operating activities.

In addition, in connection with the financial closing for the year ended December 31, 2016, we identified certain tax basis intangible assets that existed at the time of the acquisition of Omega Pharma Invest N.V. (“Omega”) on March 30, 2015, which reduced the deferred tax liabilities in acquired intangible assets and increased our valuation allowance resulting in a net change to our deferred taxes of approximately $236.3 million. The resulting balance sheet reclassification required a reduction of goodwill, offset by a corresponding reduction to net deferred taxes at the date of the Omega acquisition. Further, we have evaluated the accounting effect subsequent to the acquisition date related to the remeasured deferred tax liability, including the impairments of Omega goodwill recorded in 2016 and certain adjustments to valuation allowances, which have been reflected in the Restated Periods.

In restating our financial statements to correct the misstatements discussed above, we are also making adjustments for previously identified required corrections with respect to the Restated Periods. When these financial statements were originally issued, we assessed the impact of these unrecorded adjustments and concluded that they were not material individually or in the aggregate to our consolidated financial statements.

The tables below present the impact of the changes to our Consolidated Financial Statement line items in our Original Filing:

Consolidated Statement of Operations

(in millions, except per share amounts)



	Six Months Ended
	December 31, 2015
				Adjustments
	Previously Reported			Tysabri^®			Other				Restated
Net sales	$	2,769.5		$	(166.4	)	$	29.1		(b)	$	2,632.2
Cost of sales	1,661.4			(145.0		)	36.9			(b)	1,553.3
Gross profit (loss)	1,108.1			(21.4		)	(7.8		)		1,078.9

Operating expenses
Distribution	47.9			—			—				47.9
Research and development	88.2			—			—				88.2
Selling	325.9			—			—				325.9
Administration	309.1			—			(2.3		)		306.8
Impairment charges	215.6			—			—				215.6
Restructuring	26.9			—			—				26.9
Total operating expenses	1,013.6			—			(2.3		)		1,011.3

Operating income (loss)	94.5			(21.4		)	(5.5		)		67.6

Tysabri^® royalty stream - change in fair value	—			(57.3		)	—				(57.3		)
Interest expense, net	89.9			—			—				89.9
Other expense (income), net	26.9			0.9			(2.6		)		25.2
Loss on extinguishment of debt	0.9			—			—				0.9
Income (loss) before income taxes	(23.2		)	35.0			(2.9		)		8.9
Income tax expense (benefit)	(28.8		)	4.4			(9.2		)	(a)	(33.6		)
Net income	$	5.6		$	30.6		$	6.3			$	42.5

Income per share
Basic	$	0.04		$	0.21		$	0.04			$	0.29
Diluted	$	0.04		$	0.21		$	0.04			$	0.29

Weighted-average shares outstanding
Basic	145.6										145.6
Diluted	146.1										146.1

(a)

Adjustments primarily related to certain tax basis intangible assets that existed at the time of the acquisition of Omega on March 30, 2015, which reduced the deferred tax liabilities in acquired intangible assets and increased our valuation allowance resulting in a net change to our deferred taxes. The resulting balance sheet reclassification required a reduction of goodwill, offset by a corresponding reduction to net deferred taxes at the date of the Omega acquisition. The adjustment made at the date of the Omega acquisition also had an impact on previously reported goodwill impairment charges. ("BCH Deferred Tax Matters").

(b)

Adjustments primarily related to certain contracts related to a specific Belgium distributor that were consignment in nature due to an option for the distributor to return the product if it was not sold timely. The characterization of the contracts as consignment impacted the timing of revenue recognition in the Consolidated Statement of Operations and, due to the impact on factoring arrangements, required a reclassification between accounts receivable and current liabilities for the amounts factored for these contracts. (“BCH Belgium Distribution Contracts”)

Consolidated Statement of Operations

(in millions, except per share amounts)



	Year Ended
	June 27, 2015
			Adjustments
	Previously Reported		Tysabri^®			Other				Restated
Net sales	$	4,603.9	$	(338.5	)	$	(38.3	)	(b)	$	4,227.1
Cost of sales	2,891.4		(290.1		)	(18.4		)	(b)	2,582.9
Gross profit (loss)	1,712.5		(48.4		)	(19.9		)		1,644.2

Operating expenses
Distribution	67.7		—			—				67.7
Research and development	187.8		—			—				187.8
Selling	319.0		—			—				319.0
Administration	385.2		—			0.1				385.3
Impairment charges	—		—			6.8				6.8
Restructuring	5.1		—			—				5.1
Total operating expenses	964.8		—			6.9				971.7

Operating income (loss)	747.7		(48.4		)	(26.8		)		672.5

Tysabri^® royalty stream - change in fair value	—		(78.5		)	—				(78.5		)
Interest expense, net	146.0		—			—				146.0
Other expense (income), net	343.2		—			(9.0		)		334.2
Loss on extinguishment of debt	10.5		—			—				10.5
Income (loss) before income taxes	248.0		30.1			(17.8		)		260.3
Income tax expense	120.0		3.8			0.4				124.2
Net income (loss)	$	128.0	$	26.3		$	(18.2	)		$	136.1

Income per share
Basic	$	0.92	$	0.18		$	(0.13	)		$	0.97
Diluted	$	0.92	$	0.18		$	(0.13	)		$	0.97

Weighted-average shares outstanding
Basic	139.3									139.3
Diluted	139.8									139.8


(b)	Adjustments primarily related to BCH Belgium Distribution Contracts as described above.

Consolidated Statement of Operations

(in millions, except per share amounts)



	Year Ended
	June 28, 2014
			Adjustments
	Previously Reported		Tysabri^®			Other			Restated
Net sales	$	4,060.8	$	(146.7	)	$	—		$	3,914.1
Cost of sales	2,613.1		(152.8		)	1.7			2,462.0
Gross profit (loss)	1,447.7		6.1			(1.7		)	1,452.1

Operating expenses
Distribution	55.3		—			—			55.3
Research and development	158.5		—			(6.0		)	152.5
Selling	208.6		—			—			208.6
Administration	411.3		—			—			411.3
Impairment charges	—		—			6.0			6.0
Restructuring	47.0		—			—			47.0
Total operating expenses	880.7		—			—			880.7

Operating income (loss)	567.0		6.1			(1.7		)	571.4

Tysabri^® royalty stream - change in fair value	—		(26.6		)	—			(26.6		)
Interest expense, net	103.5		—			—			103.5
Other expense, net	25.1		—			—			25.1
Loss on extinguishment of debt	165.8		—			—			165.8
Income (loss) before income taxes	272.6		32.7			(1.7		)	303.6
Income tax expense (benefit)	67.3		4.1			(0.6		)	70.8
Net income (loss)	$	205.3	$	28.6		$	(1.1	)	$	232.8

Income per share
Basic	$	1.78	$	0.25		$	(0.01	)	$	2.02
Diluted	$	1.77	$	0.25		$	(0.01	)	$	2.01

Weighted-average shares outstanding
Basic	115.1								115.1
Diluted	115.6								115.6

Consolidated Balance Sheet

(in millions)



	December 31, 2015
				Adjustments
	Previously Reported			Tysabri^®			Other				Restated
Assets
Cash and cash equivalents	$	417.8		$	—		$	—			$	417.8
Accounts receivable, net of allowance for doubtful accounts of $4.5 million	1,193.1			—			(4.1		)	(b)	1,189.0
Inventories	844.4			—			54.3			(b)	898.7
Prepaid expenses and other current assets	289.1			—			(3.0		)		286.1
Total current assets	2,744.4			—			47.2				2,791.6
Property, plant and equipment, net	886.2			—			—				886.2
Tysabri^® royalty stream - at fair value	—			5,310.0			—				5,310.0
Goodwill and other indefinite-lived intangible assets	7,281.2			—			(212.2		)	(a)(b)	7,069.0
Other intangible assets, net	8,190.5			(5,212.2		)	(5.2		)		2,973.1
Non-current deferred income taxes	54.6			—			16.8			(a)(c)	71.4
Other non-current assets	237.0			—			11.3				248.3
Total non-current assets	16,649.5			97.8			(189.3		)		16,558.0
Total assets	$	19,393.9		$	97.8		$	(142.1	)		$	19,349.6
Liabilities and Shareholders’ Equity
Accounts payable	$	554.9		$	—		$	0.9		(b)	$	555.8
Payroll and related taxes	125.3			—			—				125.3
Accrued customer programs	398.0			—			(2.0		)	(b)	396.0
Accrued liabilities	308.4			—			43.5			(b)	351.9
Accrued income taxes	85.2			—			(22.5		)	(a)	62.7
Current indebtedness	1,018.3			—			42.2			(b)	1,060.5
Total current liabilities	2,490.1			—			62.1				2,552.2
Long-term debt, less current portion	4,971.6			—			—				4,971.6
Non-current deferred income taxes	1,563.7			12.2			(203.2		)	(a)(b)(c)	1,372.7
Other non-current liabilities	332.4			—			13.9			(a)	346.3
Total non-current liabilities	6,867.7			12.2			(189.3		)		6,690.6
Total liabilities	9,357.8			12.2			(127.2		)		9,242.8
Commitments and contingencies - Note 16
Shareholders’ equity
Controlling interest:
Preferred shares, $0.0001 par value, 10 million shares authorized	—			—			—				—
Ordinary shares, €0.001 par value, 10 billion shares authorized	8,144.6			—			(2.0		)		8,142.6
Accumulated other comprehensive (loss)	(15.5		)	—			0.2			(b)	(15.3		)
Retained earnings	1,907.6			85.6			(13.1		)		1,980.1
Total controlling interest	10,036.7			85.6			(14.9		)		10,107.4
Noncontrolling interest	(0.6		)	—			—				(0.6		)
Total shareholders’ equity	10,036.1			85.6			(14.9		)		10,106.8
Total liabilities and shareholders' equity	$	19,393.9		$	97.8		$	(142.1	)		$	19,349.6


(a)	Adjustments primarily related to the BCH Deferred Tax Matters as described above.(Goodwill and other indefinite-lived intangible assets: $(223.3) million, Non-current deferred income tax asset: $272.2 million, and Non-current deferred income tax liability $65.4 million)


(b)	Adjustments primarily related to BCH Belgium Distribution Contracts as described above. (Goodwill and other indefinite-lived intangible assets: $10.2 million and Non-current deferred income tax liabili: $8.7 million)


(c)	Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes. The balance of the adjustment to deferred taxes relates to jurisdictional netting.

Consolidated Balance Sheet

(in millions)



	June 27, 2015
			Adjustments
	Previously Reported		Tysabri^®			Other				Restated
Assets
Cash and cash equivalents	$	785.6	$	—		$	—			$	785.6
Accounts receivable, net of allowance for doubtful accounts of $2.6 million	1,282.1		—			(72.7		)	(b)(d)	1,209.4
Inventories	838.9		—			96.8			(b)	935.7
Current deferred income taxes	122.3		—			25.9			(c)	148.2
Prepaid expenses and other current assets	154.0		—			(3.9		)		150.1
Total current assets	3,182.9		—			46.1				3,229.0
Property, plant and equipment, net	932.4		—			—				932.4
Tysabri^® royalty stream - at fair value	—		5,420.0			—				5,420.0
Goodwill and other indefinite-lived intangible assets	7,235.0		—			(250.7		)	(a)(b)	6,984.3
Other intangible assets, net	8,105.6		(5,357.2		)	(5.6		)		2,742.8
Non-current deferred income taxes	39.6		—			10.5			(a)(c)	50.1
Other non-current assets	225.1		—			8.2				233.3
Total non-current assets	16,537.7		62.8			(237.6		)		16,362.9
Total assets	$	19,720.6	$	62.8		$	(191.5	)		$	19,591.9
Liabilities and Shareholders’ Equity
Accounts payable	$	747.5	$	—		$	(38.2	)	(b)(d)	$	709.3
Payroll and related taxes	133.9		—			—				133.9
Accrued customer programs	368.1		—			(9.6		)	(b)	358.5
Accrued liabilities	246.4		—			11.1			(b)	257.5
Accrued income taxes	52.6		—			3.7			(a)	56.3
Current deferred income taxes	80.6		—			(0.9		)		79.7
Current indebtedness	64.6		—			88.7			(b)	153.3
Total current liabilities	1,693.7		—			54.8				1,748.5
Long-term debt, less current portion	5,246.9		—			—				5,246.9
Non-current deferred income taxes	1,745.1		7.9			(238.7		)	(a)(b)(c)	1,514.3
Other non-current liabilities	372.1		—			10.6				382.7
Total non-current liabilities	7,364.1		7.9			(228.1		)		7,143.9
Total liabilities	9,057.8		7.9			(173.3		)		8,892.4
Commitments and contingencies - Note 16
Shareholders’ equity
Controlling interest:
Preferred shares, $0.0001 par value, 10 million shares authorized	—		—			—				—
Ordinary shares, €0.001 par value, 10 billion shares authorized	8,621.9		—			—				8,621.9
Accumulated other comprehensive income	102.4		—			1.1				103.5
Retained earnings	1,938.3		54.9			(19.3		)		1,973.9
Total controlling interest	10,662.6		54.9			(18.2		)		10,699.3
Noncontrolling interest	0.2		—			—				0.2
Total shareholders’ equity	10,662.8		54.9			(18.2		)		10,699.5
Total liabilities and shareholders' equity	$	19,720.6	$	62.8		$	(191.5	)		$	19,591.9


(a)	Adjustments primarily related to the BCH Deferred Tax Matters as described above. (Goodwill and other indefinite-lived intangible assets:$(262.3) million, Non-current deferred income tax asset: $268.9 million, and Non-current deferred tax liability $4.0 million)


(b)	Adjustments primarily related to BCH Belgium Distribution Contracts as described above. (Accounts receivable: $(39.5) million, Goodwill and other indefinite-lived intangible assets: $10.5 million, Accounts payable: $(1.0) million, and Non-current deferred income taxes: $(8.6) million)


(c)	Adjustment related to income tax expense (benefit) for interim period tax accounting required under ASC 740, Accounting for Income Taxes. The balance of the adjustment to deferred taxes relates to jurisdictional netting.


(d)	The balance of the adjustments in this category relate to other identified required corrections related to balance sheet reclassifications.

Consolidated Balance Sheet

(in millions)



	June 28, 2014
			Adjustments
	Previously Reported		Tysabri^®			Other			Restated
Assets
Cash and cash equivalents	$	799.5	$	—		$	—		$	799.5
Accounts receivable, net of allowance for doubtful accounts of $2.7 million	935.1		—			(3.6		)	931.5
Inventories	631.6		—			(1.7		)	629.9
Current deferred income taxes	62.8		—			—			62.8
Prepaid expenses and other current assets	121.9		—			—			121.9
Total current assets	2,550.9		—			(5.3		)	2,545.6
Property, plant and equipment, net	779.9		—			—			779.9
Tysabri^®royalty stream - at fair value	—		5,680.0			—			5,680.0
Goodwill and other indefinite-lived intangible assets	3,543.8		—			(1.1		)	3,542.7
Other intangible assets, net	6,787.0		(5,647.3		)	(11.0		)	1,128.7
Non-current deferred income taxes	23.6		—			—			23.6
Other non-current assets	167.6		—			11.0			178.6
Total non-current assets	11,301.9		32.7			(1.1		)	11,333.5
Total assets	$	13,852.8	$	32.7		$	(6.4	)	$	13,879.1
Liabilities and Shareholders’ Equity
Accounts payable	$	364.3	$	—		$	—		$	364.3
Payroll and related taxes	112.3		—			—			112.3
Accrued customer programs	256.5		—			—			256.5
Accrued liabilities	179.4		—			(5.3		)	174.1
Accrued income taxes	17.4		—			(0.6		)	16.8
Current deferred income taxes	1.1		—			—			1.1
Current indebtedness	143.7		—			—			143.7
Total current liabilities	1,074.7		—			(5.9		)	1,068.8
Long-term debt, less current portion	3,063.1		—			—			3,063.1
Non-current deferred income taxes	727.9		4.1			0.6			732.6
Other non-current liabilities	293.4		—			—			293.4
Total non-current liabilities	4,084.4		4.1			0.6			4,089.1
Total liabilities	5,159.1		4.1			(5.3		)	5,157.9
Commitments and contingencies - Note 16
Shareholders’ equity
Controlling interest:
Preferred shares, $0.0001 par value, 10 million shares authorized	—		—			—			—
Ordinary shares, €0.001 par value, 10 billion shares authorized	6,678.2		—			—			6,678.2
Accumulated other comprehensive income	139.6		—			—			139.6
Retained earnings	1,875.1		28.6			(1.1		)	1,902.6
Total controlling interest	8,692.9		28.6			(1.1		)	8,720.4
Noncontrolling interest	0.8		—			—			0.8
Total shareholders’ equity	8,693.7		28.6			(1.1		)	8,721.2
Total liabilities and shareholders' equity	$	13,852.8	$	32.7		$	(6.4	)	$	13,879.1

Consolidated Statement of Cash Flows

(in millions)



	Six Months Ended
	December 31, 2015
				Adjustments
	Previously Reported			Tysabri^®			Other				Restated
Cash Flows From (For) Operating Activities
Net income	$	5.6		$	30.6		$	6.3			$	42.5
Adjustments to derive cash flows
Loss on extinguishment of debt	0.9			—			—				0.9
Restructuring charges	26.9			—			—				26.9
Depreciation and amortization	328.0			(145.0		)	(0.6		)		182.4
Impairment charges	215.6			—			—				215.6
Tysabri^® royalty stream - change in fair value	—			(57.3		)	—				(57.3		)
Share-based compensation	24.8			—			(2.0		)		22.8
Deferred income taxes	(141.8		)	4.4			17.4			(a)(b)	(120.0		)
Amortization of financing fees and debt premium	—			—			(10.2		)		(10.2		)
Other non-cash adjustments	17.5			—			0.6				18.1
Subtotal	477.5			(167.3		)	11.5				321.7
Increase (decrease) in cash due to:
Accounts receivable	86.1			2.6			(36.2		)	(b)	52.5
Inventories	(70.0		)	—			40.4			(b)	(29.6		)
Accounts payable	(199.5		)	—			5.4			(b)	(194.1		)
Payroll and related taxes	(38.2		)	—			—				(38.2		)
Accrued customer programs	27.0			—			7.4			(b)	34.4
Accrued liabilities	75.6			—			32.5			(b)	108.1
Accrued income taxes	(30.5		)	—			(26.3		)	(a)	(56.8		)
Other	(4.8		)	—			7.7				2.9
Subtotal	(154.3		)	2.6			30.9				(120.8		)
Net cash from (for) operating activities	323.2			(164.7		)	42.4				200.9
Cash Flows From (For) Investing Activities
Proceeds from royalty rights	—			164.7			1.6				166.3
Acquisitions of businesses, net of cash acquired	(791.6		)	—			—				(791.6		)
Additions to property, plant and equipment	(77.8		)	—			—				(77.8		)
Other investing	(5.0		)	—			1.3				(3.7		)
Net cash from (for) investing activities	(874.4		)	164.7			1.6				(708.1		)
Cash Flows From (For) Financing Activities
Payments on long-term debt	(28.3		)	—			—				(28.3		)
Borrowings (repayments) of revolving credit agreements and other financing, net	762.0			—			(44.0		)	(b)	718.0
Deferred financing fees	(0.3		)	—			—				(0.3		)
Issuance of ordinary shares	4.9			—			—				4.9
Repurchase of ordinary shares	(500.0		)	—			—				(500.0		)
Cash dividends	(36.3		)	—			—				(36.3		)
Other financing	(8.4		)	—			—				(8.4		)
Net cash from (for) financing activities	193.6			—			(44.0		)		149.6
Effect of exchange rate changes on cash and cash equivalents	(10.2		)	—			—				(10.2		)
Net increase (decrease) in cash and cash equivalents	(367.8		)	—			—				(367.8		)
Cash and cash equivalents, beginning of period	785.6			—			—				785.6
Cash and cash equivalents, end of period	$	417.8		$	—		$	—			$	417.8


(a)	Adjustments primarily related to the BCH Deferred Tax Matters as described above.


(b)	Adjustments primarily related to BCH Belgium Distribution Contracts as described above.

Consolidated Statement of Cash Flows

(in millions)



	Year Ended
	June 27, 2015
				Adjustments
	Previously Reported			Tysabri^®			Other				Restated
Cash Flows From (For) Operating Activities
Net income	$	128.0		$	26.3		$	(18.2	)		$	136.1
Adjustments to derive cash flows
Loss on extinguishment of debt	10.5			—			—				10.5
Restructuring charges	5.1			—			—				5.1
Depreciation and amortization	548.8			(290.1		)	—				258.7
Tysabri^® royalty stream - change in fair value	—			(78.5		)	—				(78.5		)
Share-based compensation	31.6			—			—				31.6
Loss on acquisition-related foreign currency derivatives	326.4			—			—				326.4
Deferred income taxes	(16.4		)	3.8			(3.7		)	(a)	(16.3		)
Amortization of financing fees and debt discount	—			—			0.2				0.2
Other non-cash adjustments	17.0			—			(6.8		)		10.2
Subtotal	1,051.0			(338.5		)	(21.7		)		690.8
Increase (decrease) in cash due to:
Accounts receivable	(81.7		)	(4.3		)	34.9			(b)	(51.1		)
Inventories	10.7			—			(22.1		)	(b)	(11.4		)
Accounts payable	140.6			—			(20.1		)	(b)	120.5
Payroll and related taxes	(30.2		)	—			—				(30.2		)
Accrued customer programs	69.9			—			1.4			(b)	71.3
Accrued liabilities	37.3			—			5.5			(b)	42.8
Accrued income taxes	17.5			—			4.4				21.9
Other	(16.8		)	—			17.4				0.6
Subtotal	147.3			(4.3		)	21.4				164.4
Net cash from (for) operating activities	1,198.3			(342.8		)	(0.3		)		855.2
Cash Flows From (For) Investing Activities
Proceeds from royalty rights	—			342.8			1.8				344.6
Acquisitions of businesses, net of cash acquired	(2,177.8		)	—			—				(2,177.8		)
Asset acquisitions	(4.0		)	—			—				(4.0		)
Settlement of acquisition-related foreign currency derivatives	(329.9		)	—			—				(329.9		)
Additions to property, plant and equipment	(137.0		)	—			—				(137.0		)
Other investing	1.8			—			—				1.8
Net cash from (for) investing activities	(2,646.9		)	342.8			1.8				(2,302.3		)
Cash Flows From (For) Financing Activities
Issuances of long-term debt	2,504.3			—			—				2,504.3
Payments on long-term debt	(1,823.5		)	—			—				(1,823.5		)
Borrowings (repayments) of revolving credit agreements and other financing, net	(52.5		)	—			(1.5		)	(b)	(54.0		)
Deferred financing fees	(28.1		)	—			—				(28.1		)
Issuance of ordinary shares	1,043.4			—			0.1				1,043.5
Equity issuance costs	(35.7		)	—			—				(35.7		)
Cash dividends	(64.8		)	—			—				(64.8		)
Purchase of noncontrolling interest	—			—			—				—
Other financing	(19.2		)	—			(0.1		)		(19.3		)
Net cash from (for) financing activities	1,523.9			—			(1.5		)		1,522.4
Effect of exchange rate changes on cash and cash equivalents	(89.2		)	—			—				(89.2		)
Net increase (decrease) in cash and cash equivalents	(13.9		)	—			—				(13.9		)
Cash and cash equivalents, beginning of period	799.5			—			—				799.5
Cash and cash equivalents, end of period	$	785.6		$	—		$	—			$	785.6

(a) Adjustments primarily related to the BCH Deferred Tax Matters as described above.

(b) Adjustments primarily related to BCH Belgium Distribution Contracts as described above.

Consolidated Statement of Cash Flows

(in millions)



	Year Ended
	June 28, 2014
				Adjustments
	Previously Reported			Tysabri^®			Other			Restated
Cash Flows From (For) Operating Activities
Net income	$	205.3		$	28.6		$	(1.1	)	$	232.8
Adjustments to derive cash flows
Loss on extinguishment of debt	165.8			—			—			165.8
Restructuring charges	47.0			—			—			47.0
Depreciation and amortization	358.9			(152.8		)	—			206.1
Impairment charges	—			—			6.0			6.0
Tysabri^® royalty stream - change in fair value	—			(26.6		)	—			(26.6		)
Share-based compensation	24.6			—			—			24.6
Deferred income taxes	(53.8		)	4.1			—			(49.7		)
Amortization of financing fees and debt discount	—			—			2.0			2.0
Other non-cash adjustments	10.5			—			(6.0		)	4.5
Subtotal	758.3			(146.7		)	0.9			612.5
Increase (decrease) in cash due to:
Accounts receivable	(226.7		)	86.2			—			(140.5		)
Inventories	83.0			—			1.7			84.7
Accounts payable	(24.9		)	—			—			(24.9		)
Payroll and related taxes	(55.5		)	—			—			(55.5		)
Accrued customer programs	113.1			—			—			113.1
Accrued liabilities	23.0			—			—			23.0
Accrued income taxes	(10.7		)	—			(0.6		)	(11.3		)
Other	33.9			—			(2.0		)	31.9
Subtotal	(64.8		)	86.2			(0.9		)	20.5
Net cash from (for) operating activities	693.5			(60.5		)	—			633.0
Cash Flows From (For) Investing Activities
Proceeds from royalty rights	—			60.5			—			60.5
Acquisitions of businesses, net of cash acquired	(1,605.8		)	—			—			(1,605.8		)
Proceeds from sale of securities	81.4			—			—			81.4
Additions to property, plant and equipment	(171.6		)	—			—			(171.6		)
Other investing	(8.8		)	—			—			(8.8		)
Net cash from (for) investing activities	(1,704.8		)	60.5			—			(1,644.3		)
Cash Flows From (For) Financing Activities
Issuances of long-term debt	3,293.6			—			—			3,293.6
Payments on long-term debt	(2,035.0		)				—			(2,035.0		)
Borrowings (repayments) of revolving credit agreements and other financing, net	(3.0		)	—			—			(3.0		)
Deferred financing fees	(48.8		)	—			—			(48.8		)
Premium on early debt retirement	(133.5		)	—			—			(133.5		)
Issuance of ordinary shares	9.8			—			—			9.8
Cash dividends	(46.1		)	—			—			(46.1		)
Other financing	(9.0		)	—			—			(9.0		)
Net cash from (for) financing activities	1,028.0			—			—			1,028.0
Effect of exchange rate changes on cash and cash equivalents	2.9			—			—			2.9
Net increase (decrease) in cash and cash equivalents	19.6			—			—			19.6
Cash and cash equivalents, beginning of period	779.9			—			—			779.9
Cash and cash equivalents, end of period	$	799.5		$	—		$	—		$	799.5

Consolidated Statement of Other Comprehensive (Loss) Income

The Consolidated Statement of Comprehensive Income (Loss) was adjusted primarily for a $36.9 million increase in net income for the six months ended December 31, 2015, $8.1 million increase in net income for the year ended June 27, 2015, and $27.5 million increase in net income for the year ended June 28, 2014.

Consolidated Statement of Shareholders' Equity

The Consolidated Statement of Shareholders' Equity was corrected for a $36.9 million increase in net income, $8.1 million increase in net income, and $27.5 million increase in net income for the six months ended December 31, 2015 and for the years ended June 27, 2015 and June 28, 2014, respectively. There was no effect on the beginning balance of Shareholders' Equity at June 29, 2013 as a result of this restatement.

Revenues

We generally record revenues from product sales when the goods are shipped to the customer. For customers with Free on Board destination terms, a provision is recorded to exclude shipments estimated to be in-transit to these customers at the end of the reporting period. A sales allowance is recorded and accounts receivable are reduced as revenues are recognized for estimated losses on credit sales due to customer claims for discounts, price discrepancies, returned goods and other items. Revenue is also reduced for any contractual customer program arrangements and related liabilities are recorded concurrently.

We maintain customer-related accruals and allowances that consist primarily of chargebacks, rebates, sales returns, shelf stock allowances, administrative fees and other incentive programs. Some of these adjustments relate specifically to the RX segment while others relate only to the CHCA and CHCI segments. Certain of these accruals and allowances are recorded in the balance sheet as current liabilities and others are recorded as a reduction in accounts receivable. Changes in these estimates and assumptions related to customer programs may result in additional accruals or allowances. Customer-related accruals and allowances were $484.3 million,

$489.4 million, and $459.2 million at December 31, 2016, December 31, 2015, and June 27, 2015, respectively.

Revenues from service and royalty arrangements, including revenues from collaborative agreements, consist primarily of royalty payments, payments for R&D services, up-front fees and milestone payments. If an arrangement requires the delivery or performance of multiple deliverables or service elements, we determine whether the individual elements represent separate units of accounting. If the separate elements represent separate units of accounting, we recognize the revenue associated with each element separately and revenue is allocated among elements based on their relative selling prices. If the elements within a multiple deliverable arrangement are not considered separate units of accounting, the delivery of an individual element is considered not to have occurred if there are undelivered elements that are considered essential to the arrangement.

To the extent such arrangements contain refund clauses triggered by non-performance or other adverse circumstances, revenue is not recognized until all contractual obligations are satisfied. Non-refundable up-front fees are deferred and amortized to revenue over the related performance period. We estimate the performance period based on the specific terms of each collaborative agreement. Revenue associated with R&D services is recognized on a proportional performance basis over the period that we perform the related activities under the terms of the agreement. Revenue resulting from the achievement of contingent milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based upon the occurrence of a substantive element specified in the contract.

Shipping and handling costs billed to customers are included in net sales. Conversely, shipping and handling expenses we incur are included in cost of sales.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of demand deposits and other short-term investments with maturities of three months or less at the date of purchase. The carrying amount of cash and cash equivalents approximates its fair value.

Accounts Receivable

We maintain an allowance for doubtful accounts that reduces our receivables to amounts that are expected to be collected. In estimating the allowance, management considers factors such as current overall and industry-specific economic conditions, statutory requirements, historical and anticipated customer performance, historical experience with write-offs and the level of past-due amounts. Changes in these conditions may result in additional allowances. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

In addition, included in our accounts receivable balance is $84.4 million, $83.4 million, and $80.8 million related to our Tysabri® royalty stream at December 31, 2016, December 31, 2015, and June 27, 2015, respectively, for amounts earned that have not yet been paid.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in first-out method. Costs include material and conversion costs. Inventory related to R&D is expensed at the point when it is determined the materials have no alternative future use.

We maintain reserves for estimated obsolete or unmarketable inventory based on the difference between the cost of the inventory and its estimated net realizable value. In estimating the reserves, management considers factors such as excess or slow-moving inventories, product expiration dating, products on quality hold, current and future customer demand and market conditions. Changes in these conditions may result in additional reserves. See Note 5 for additional information on our inventory.

Investments

Available for Sale Investments

We determine the appropriate classification of securities as held-to-maturity, available-for-sale, or trading. The classification depends on the purpose for which the financial assets were acquired. Marketable equity securities are classified as available-for-sale. These securities are carried at fair value with unrealized gains and losses included in AOCI. The assessment for impairment of marketable securities classified as available-for-sale is based on established financial methodologies, including quoted market prices for publicly traded securities. If we determine that a loss in the value of an investment is other than temporary, the investment is written down to its estimated fair value. Any such losses are recorded in Other expense, net. See Note 7 for more information on our available for sale investments.

Cost Method Investments

Non-marketable equity securities are carried at cost, less any write down for impairments, and are adjusted for impairment based on methodologies, an assessment of the impact of general private equity market conditions, and discounted projected future cash flows. Non-marketable equity securities are recorded in Other non-current assets. See Note 7 for more information on our cost method investments.

Equity Method Investments

The equity method of accounting is used for unconsolidated entities over which we have significant influence; generally this represents ownership interests of at least 20% and not more than 50%. Under the equity method of accounting, we record the investments at carrying value and adjust for a proportionate share of the profits and losses of these entities each period. We evaluate our equity method investments for recoverability. If we determine that a loss in the value of an investment is other than temporary, the investment is written down to its estimated fair value. Any such losses are recorded in Other expense, net. Evaluations of recoverability are based primarily on projected cash flows. Due to uncertainties in the estimation process, actual results could differ from such estimates. Equity method investments are recorded in Other non-current assets. See Note 7 for more information on our equity method investments.

Derivative Instruments

We record derivative instruments on the balance sheet on a gross basis as either an asset or liability measured at fair value. See Note 8 for a table indicating where each component is recorded on the Consolidated Balance Sheets. Additionally, changes in a derivative's fair value, which are measured at the end of each period, are recognized in earnings unless specific hedge accounting criteria are met. If hedge accounting criteria are met for cash flow hedges, the changes in a derivative’s fair value are recorded in shareholders’ equity as a component of other comprehensive income ("OCI"), net of tax. These deferred gains and losses are recognized in income in the period in which the hedged item and hedging instrument affect earnings. Any ineffective portion of the change in fair value is immediately recognized in earnings.

We are exposed to credit loss in the event of nonperformance by the counterparties on derivative contracts. It is our policy to manage our credit risk on these transactions by dealing only with financial institutions having a long-term credit rating of "A" or better and by distributing the contracts among several financial institutions to diversify credit concentration risk. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument. The maximum term of our forward currency exchange contracts is 18 months.

Property, Plant and Equipment, net

Property, plant and equipment, net are recorded at cost and are depreciated using the straight-line method. Useful lives for financial reporting range from 2 to 15 years for machinery and equipment and 10 to 45 years for buildings. Maintenance and repair costs are charged to earnings, while expenditures that increase asset lives are capitalized. Depreciation expense includes amortization of assets recorded under capital leases and totaled $100.2 million, $53.8 million, $84.3 million, and $77.9 million, for the year ended December 31, 2016, the six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014, respectively.

We held the following property, plant and equipment, net (in millions):



	December 31, 2016			December 31, 2015			June 27, 2015
Land	$	45.0		$	47.5		$	48.7
Buildings	520.2			508.2			528.3
Machinery and equipment	1,094.7			1,103.3			1,094.0
Gross property and equipment	1,659.9			1,659.0			1,671.0
Less accumulated depreciation	(789.8		)	(772.8		)	(738.6		)
Property and equipment, net	$	870.1		$	886.2		$	932.4

Tsyabri Royalty Stream - At Fair Value

We are accounting for the Tysabri^® royalty stream as a financial asset and have elected to use the fair value option model. We made the election to account for the Tysabri^® financial asset using the fair value option as we believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date. The fair value of the Tysabri^® royalty stream is determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as Level 3 assets within the fair value hierarchy, as our valuation estimates utilize significant unobservable inputs, including estimates as to the probability and timing of future sales of the related products. Critical estimates in determining the fair value are the underlying revenue assumptions of Tysabri^® sales and the discount rates. The revenue assumptions are impacted by product demand and market growth assumptions, inventory target levels, product approval, currency movements and pricing assumptions. Factors that could cause a change in estimates of future cash flows include a change in estimated market size, entry of a competitive product that would erode market share, manufacturing and approval of a biosimilar equivalent product, a change in pricing strategy or reimbursement coverage, a delay in obtaining regulatory approval, a change in dosage of the product, and a change in the number of treatments.

Goodwill and Intangible Assets

Goodwill

Goodwill represents amounts paid for an acquisition in excess of the fair value of net assets received. Goodwill is tested for impairment annually on the first day of our fourth quarter, or more frequently if changes in circumstances or the occurrence of events suggest an impairment exists.

The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. The estimates associated with the goodwill impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected discounted future cash flows. Changes in these estimates may result in the recognition of an impairment loss. Due to the changes in our segment structure, effective in the quarter ended December 31, 2016, we performed our annual goodwill testing as of October 2, 2016 for both the new and old segment structures. Our annual impairment test was performed as of September 27, 2015, March 29, 2015, and March 30, 2014, for the six months ended December 31, 2015, and our years ended June 27, 2015 and June 28, 2014, respectively.

Intangible Assets

We have intangible assets that we have acquired through various business acquisitions and include trademarks, trade names and brands, in-process research and development ("IPR&D"), developed product technology/formulation and product rights, distribution and license agreements, customer relationships and distribution networks, and non-compete agreements. The assets are typically initially valued using one of the following valuation methods:

•

Relief from royalty method: This method assumes that if the acquired company did not own the intangible asset or intellectual property, it would be willing to pay a royalty for its use. The benefit of ownership of the intellectual property is valued as the relief from the royalty expense that would otherwise be incurred. We typically use this method for valuing readily transferable intangible assets that have licensing appeal, such as trade names and trademarks and certain technology assets.

•

Multi-period excess earnings method: This method starts with a forecast of the net cash flows expected to be generated by the asset over its estimated useful life. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. We typically use this method for valuing intangible assets such as developed product technology, customer relationships, product formulations and IPR&D.


•	Lost income method: This method estimates the fair value of an asset by comparing the value of the business, inclusive of the asset, to the hypothetical value of the same business excluding the asset.

Indefinite-lived intangible assets include IPR&D and certain trademarks, trade names, and brands. IPR&D assets are recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. If the associated research and development is completed, the IPR&D asset becomes a definite-lived intangible asset and is amortized over the asset's assigned useful life. If it is abandoned, an impairment loss is recorded.

We test indefinite-lived trademarks, trade names, and brands for impairment annually, or more frequently if changes in circumstances or the occurrence of events suggest impairment exists, by comparing the carrying value of the assets to their estimated fair values. An impairment loss is recognized if the carrying amount of the asset is not recoverable and its carrying amount exceeds its fair value.

Definite-lived intangible assets consist of a portfolio of developed product technology/formulation and product rights, distribution and license agreements, customer relationships, non-compete agreements, and certain trademarks, trade names, and brands. The assets are amortized on either a straight-line basis or proportionately to the benefits derived from those relationships or agreements. Useful lives vary by asset type and are determined based on the period over which the intangible asset is expected to contribute directly or indirectly to our future cash flows. We also review all other long-lived assets that have finite lives and that are not held for sale for impairment when indicators of impairment are evident by comparing the carrying value of the assets to their estimated future undiscounted cash flows.

See Note 3 for further information on our goodwill and intangible assets.

Assets Held for Sale

We classify assets as "held for sale" when management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year. The net assets of the business held for sale are then recorded at the lower of their current carrying value and the fair market value, less costs to sell. See Note 9 for further information on our assets held for sale.

Deferred Financing Fees

We record deferred financing fees as a reduction of long-term debt.

Share-Based Awards

We measure and record compensation expense for all share-based awards based on estimated grant date fair values, and net of any estimated forfeitures over the vesting period of the awards. Forfeiture rates are estimated at the grant date based on historical experience and adjusted in subsequent periods for any differences in actual forfeitures from those estimates.

We estimate the fair value of stock option awards granted based on the Black-Scholes option pricing model, which requires the use of subjective and complex assumptions. These assumptions include estimating the expected term that awards granted are expected to be outstanding, the expected volatility of our stock price for a period commensurate with the expected term of the related options, and the risk-free rate with a maturity closest to the expected term of the related awards. Restricted stock and restricted stock units are valued based on our stock price on the day the awards are granted. See Note 12 for further information on our share-based awards.

Income Taxes

Due to a change in accounting guidance, we changed our accounting policy as of December 31, 2015 to record deferred income tax assets and liabilities on the balance sheet as noncurrent based upon the difference between the financial reporting and the tax reporting basis of assets and liabilities using the enacted tax rates. The policy change is applied prospectively, thus the June 27, 2015 financial statements have not been reclassified to reflect the reclassification of deferred tax assets and liabilities from current to noncurrent. To the extent that available evidence raises doubt about the realization of a deferred income tax asset, a valuation allowance is established.

We have provided for income taxes for certain earnings of certain foreign subsidiaries which have not been deemed to be permanently reinvested. For those foreign subsidiaries we have deemed to be permanently reinvested we have provided no further tax provision.

We record reserves for uncertain tax positions to the extent it is more likely than not that the tax position will be sustained on audit, based on the technical merits of the position. Periodic changes in reserves for uncertain tax positions are reflected in the provision for income taxes. We include interest and penalties attributable to uncertain tax positions and income taxes as a component of our income tax provision.

Legal Contingencies

We are involved in product liability, patent, commercial, regulatory and other legal proceedings that arise in the normal course of business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range and no amount within that range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. We have established reserves for certain of our legal matters, as described in Note 16. We also separately record any insurance recoveries that are probable of occurring.

Research and Development

All R&D costs, including payments related to products under development and research consulting agreements, are expensed as incurred. We may continue to make non-refundable payments to third parties for new technologies and for R&D work that has been completed. These payments may be expensed at the time of payment depending on the nature of the payment made. R&D expense was $184.0 million, $88.2 million, $187.8 million, and $152.5 million for the year ended December 31, 2016, the six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014, respectively.

The year ended December 31, 2016 included R&D expense related to clinical trials primarily in our CHCA and RX segments. The six months ended December 31, 2015 included incremental R&D expense attributable to the Omega Pharma Invest N.V. ("Omega") acquisition. The year ended June 27, 2015 included incremental R&D expense related to a collaboration agreement entered into as a result the Omega acquisition. The year ended June 28, 2014 included incremental R&D expense due to the Sergeant's, Velcera, and Aspen acquisitions, as discussed in Note 2, as well as R&D expense related to the novel therapeutic agent for Alzheimer's disease ("ELND005") Phase 2 clinical program in collaboration with Transition Therapeutics Inc. ("Transition") that we assumed in the Elan acquisition. We ended our collaboration with Transition during the third quarter of the year ended June 28, 2014 and are no longer responsible for ongoing development activities and costs associated with ELND005. See Note 17 for additional information on collaboration agreements.

We actively collaborate with other pharmaceutical companies to develop, manufacture and market certain products or groups of products. We may choose to enter into these types of agreements to, among other things, leverage our or others’ scientific research and development expertise or utilize our extensive marketing and distribution resources. Our policy on accounting for costs of strategic collaborations determines the timing of the recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or capitalized as an asset. Management is required to form judgments with respect to the commercial status of such products in determining whether development costs meet the criteria for immediate expense or capitalization. For example, when we acquire certain products for which there is already an Abbreviated New Drug Application ("ANDA") or New Drug Application ("NDA") approval directly related to the product, and there is net realizable value based on projected sales for these products, we capitalize the amount paid as an intangible asset. If we acquire product rights that are in the development phase and as to which we have no assurance that the third party will successfully complete its development milestones, we expense the amount paid. See Note 17 for more information on our current collaboration agreements.

Advertising Costs

We expense advertising costs as incurred. Advertising costs were $155.9 million, $77.5 million, $55.7 million, and $41.4 million for the year ended December 31, 2016, the six months ended December 31, 2015, and the years ended June 27, 2015, and June 28, 2014, respectively. Advertising costs relate primarily to print advertising, direct mail, on-line advertising and social media communications. For the year ended December 31, 2016, 93% of advertising expense was attributable to our CHCI segment.

Earnings per Share ("EPS")

Basic EPS is calculated using the weighted-average number of ordinary shares outstanding during each period. It excludes both the dilutive effects of additional common shares that would have been outstanding if the shares issued under stock incentive plans had been exercised and the dilutive effect of restricted shares and restricted share units, to the extent those shares and units have not vested. Diluted EPS is calculated including the effects of shares and potential shares issued under stock incentive plans, following the treasury stock method.

Defined Benefit Plans

As part of the Omega acquisition during the year ended June 27, 2015, we assumed the liabilities under a number of defined benefit plans for employees based primarily in the Netherlands, Germany, France and Norway. Omega companies operate various pension plans across each country.

Two significant assumptions, the discount rate and the expected rate of return on plan assets, are important elements of expense and liability measurement. We evaluate these assumptions annually. Other assumptions involve employee demographic factors, such as retirement patterns, mortality, turnover, and the rate of compensation increase.

The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated periodically by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.

Actuarial gains and losses are recognized using the corridor method. Under the corridor method, to the extent that any cumulative unrecognized net actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of the plan assets, that portion is recognized over the expected average remaining working lives of the plan participants. Otherwise, the net actuarial gain or loss is recorded in OCI. We recognize the funded status of benefit plans on the Consolidated Balance Sheets. In addition, we recognize the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic pension cost of the period as a component of OCI. See Note 15 for further information on our defined benefit plans.

Recent Accounting Standard Pronouncements

Below are recent accounting standard updates that we are still assessing to determine the effect on our consolidated financial statements. We do not believe that any other recently issued accounting standards could have a material effect on our consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.



Recently Issued Accounting Standards Not Yet Adopted
Standard	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
Improvements to Employee Share-Based Payment Accounting	This guidance is intended to simplify several aspects of the accounting for share-based payment award transactions. It will require all income tax effects of awards to be recorded through the income statement when they vest or settle as opposed to certain amounts being recorded in additional paid-in capital. An entity will also have to elect whether to account for forfeitures as they occur or by estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change (as currently required). The guidance will also increase the amount an employer can withhold to cover income taxes on awards.	January 1, 2017	We will adopt this standard as of January 1, 2017.
Clarifying the Definition of a Business	This update clarifies the definition of a business and addresses whether transactions should be accounted for as asset acquisitions or business combinations (or divestitures). The guidance includes a screen that an acquired set will not be considered a business if substantially all of the fair value of the assets acquired is concentrated in a single tangible or identifiable intangible asset (or group of similar assets).The guidance also includes a framework to determine whether a substantive process is included in a set of acquired assets and activities. In order to have a substantive process, the acquired set should include an organized workforce, among other factors. Further, the guidance removes language stating that a business need not include all of the inputs and processes that the seller used in operating the business.	January 1, 2018	We are currently evaluating the implications of adoption on our consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted (continued)
Standard	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
Revenue from Contracts with Customers	The core principle of the guidance is that an entity 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 or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. This guidance allows for two adoption methods, full retrospective approach or modified retrospective approach.	January 1, 2018	We are currently evaluating the possible adoption methodologies and the implications of adoption on our consolidated financial statements. We have completed an initial assessment of the adoption and are in the process of completing a detailed review of our various customer contracts. Based on our initial analysis, we do not expect there to be a material impact on our revenue recognition practices. We are currently still evaluating the overall impact of the new revenue standard. We plan to adopt the new revenue standard effective January 1, 2018 using the modified retrospective approach and we continue to evaluate the effect of the standard on the ongoing financial reporting.
Intra-Entity Asset Transfers of Assets Other Than Inventory	Under the new guidance, the tax impact to the seller on the profit from the transfers and the buyer’s deferred tax benefit on the increased tax basis would be recognized when the transfers occur resulting in the recognition of expense sooner, as opposed to historical guidance. The guidance excludes intra-entity transfers of inventory. For intra-entity transfers of inventory, the FASB decided to retain current GAAP, which requires an entity to recognize the income tax consequences when the inventory has been sold to an outside party.	January 1, 2018	We are currently evaluating the implications of adoption on our consolidated financial statements and considering whether to early adopt the standard.
Leases	This guidance was issued to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For leases with a term of 12 months or less, lessees are permitted to make an election to not recognize right-of-use assets and lease liabilities. Upon adoption, lessees will apply the new standard as of the beginning of the earliest comparative period presented in the financial statements, however lessees will be able to exclude leases that expire as of the implementation date. Early adoption is permitted.	January 1, 2019	We are currently evaluating the implications of adoption on our consolidated financial statements and considering whether to early adopt the standard.
Measurement of Credit Losses on Financial Instruments	This guidance changes the impairment model for most financial assets and certain other instruments, replacing the current "incurred loss" approach with an "expected loss" credit impairment model, which will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, and off-balance sheet credit exposures such as letters of credit. Early adoption is permitted.	January 1, 2020	We are currently evaluating the new standard for potential impacts on our receivables, debt, and other financial instruments and considering whether to early adopt the standard.

Recently Issued Accounting Standards Adopted

Description

Date of adoption

Effect on the Financial Statements or Other Significant Matters

Classification of Certain Cash Receipts and Cash Payments

This guidance amends and clarifies the current guidance to reduce diversity in practice of the classification of certain cash receipts and payments in the statement of cash flows.

December 31, 2016

As of December 31, 2016, we reported $2.6 million of contingent consideration payments in the investing section of the statement of cash flows. This adoption did not affect prior years presented.