Note 14. Recent Accounting Guidance

(a)

Accounting Standard Codification 606 on Revenue Recognition Adopted January 1, 2018

Effective January 1, 2018, we adopted FASB ASC Topic 606, Revenue from Contracts with Customers, or ASC 606. In accordance with ASC 606, we changed certain characteristics of our revenue recognition accounting policy as described below. In our adoption, ASC 606 was applied only to open contracts using the modified retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018. Therefore, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition, or ASC 605.

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statement of operations for the three and nine months ended September 30, 2018 and consolidated balance sheet as of September 30, 2018 was as follows (in thousands):


	Three months ended						Nine months ended
	September 30, 2018						September 30, 2018
Consolidated Statement of Operations	As Reported		ASC 606 Adjustments		Pro Forma Under ASC 605		As Reported		ASC 606 Adjustments		Pro Forma Under ASC 605
Revenue:
Product	$	88,496	$	556	$	89,052	$	317,039	$	(1,280)	$	315,759
Total revenue		95,374		556		95,930		336,892		(1,280)		335,612
Gross profit		39,913		556		40,469		136,069		(1,280)		134,789
Income from operations		10,668		556		11,224		48,437		(1,280)		47,157
Income before income taxes		9,346		556		9,902		44,458		(1,280)		43,178
Income tax provision		508		121		629		7,036		(277)		6,759
Net income	$	8,838	$	435	$	9,273	$	37,422	$	(1,003)	$	36,419
Net income per share:
Basic	$	0.27	$	0.01	$	0.28	$	1.16	$	(0.03)	$	1.13
Diluted	$	0.26	$	0.01	$	0.27	$	1.10	$	(0.03)	$	1.07


	September 30, 2018
Consolidated Balance Sheet	As Reported		ASC 606 Adjustments		Pro Forma Under ASC 605
Deferred income taxes	$	76,382	$	277	$	76,659
Total assets	$	519,232	$	277	$	519,509

Deferred revenue	$	17,774	$	2,880	$	20,654
Total current liabilities		66,272		2,880		69,152
Total liabilities		122,158		2,880		125,038
Accumulated deficit		(165,723)		(2,603)		(168,326)
Total stockholders' equity		397,074		(2,603)		394,471
Total liabilities and stockholders' equity	$	519,232	$	277	$	519,509

The impact of the adoption of ASC 606 on consolidated statements of comprehensive income and cash flows for the nine months ended September 30, 2018 was not material.

Upon adoption of ASC 606, we changed our accounting policy for the installation performance obligation included in all system sales. Previously under ASC 605, the Company deferred revenue for the greater of the fair value of the installation or the portion of contract consideration for which collection was contingent upon installation completion (the “retention”). The concept of contingent consideration is no longer relevant under ASC 606 and therefore we will only defer the portion of the transaction price allocated to the installation performance obligation. As a result of this change, we recorded a cumulative effect adjustment to increase retained earnings and decrease deferred revenue on January 1, 2018 by $1.6 million. Upon the adoption, all new contracts will be accounted for under ASC 606. Disclosures related to the nature, amount and timing of revenue and cash flows arising from contracts with customers are included in Note 3.

(b)

Accounting Standard Update 2016-15 on Cash Receipts Adopted January 1, 2018

In August 2016, the FASB issued ASU No. 2016-15 “Classification of Certain Cash Receipts and Cash Payments.” The ASU is intended to add or clarify guidance on the classification relating to specific cash flow receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The guidance in ASU 2016-15 is required for annual reporting periods beginning after December 15, 2017, and is to be applied retrospectively for each period presented. Adoption of ASU 2016-15 had no material effect on our consolidated financial statements and disclosures.

(c)

Accounting Standard Update 2017-07 on Retirement Benefits Adopted January 1, 2018

In March 2017, the FASB issued ASU No. 2017-07 “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The ASU is intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendment applies to all entities offering a defined benefit pension plan, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in the ASU require an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within the annual period. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. Adoption of ASU 2017-07 had no material effect on the consolidated financial statements and disclosures.

(d)

Accounting Standard Update 2016-02 on Leases to be Effective January 1, 2019

In February 2016, the FASB issued ASU No. 2016-02 “Leases.” The ASU requires lessees to recognize the rights and obligations created by most leases as assets and liabilities on their balance sheet and continue to recognize expenses on their income statement over the lease term. It will also require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. In July 2018, the FASB issued ASU No. 2018-11 “Leases (Topic 842)”, that provides targeted improvements relating to the transition method options with which to adopt the new standard. Under this additional and optional transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. An entity that elects this transition method must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840. We are currently implementing procedures and controls in anticipation of our adoption as well as evaluating the impact of ASUs 2016-02 and 2018-11 on the consolidated financial statements and disclosures. The Company anticipates adopting the new standard on January 1, 2019 using the modified retrospective approach under the ASU 2018-11 transition method with the primary effect to be the recognition of additional right-of-use assets and corresponding liabilities related to operating leases. The adoption is not expected to have a material impact on the Company’s results of operations and cash flows.

(e)

Accounting Standard Update 2018-13 on Fair Value Measurements to be Effective January 1, 2020

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820).” The amendments in ASU No. 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, removing disclosure requirements for transfers between Level 1 and Level 2 within the fair value hierarchy, as well as modifying the disclosure requirement relating to the timing of liquidation for investments calculated on net asset value. The ASU also requires the disclosure of unrealized gains and losses for the period included in other comprehensive income for Level 3 instruments. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2019. The amendments on changes for unrealized gains and losses should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. Early adoption is permitted. We are currently evaluating the impact of ASU 2018-13 on the consolidated financial statements and disclosures.