2. Recently Adopted Accounting Standard

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance for revenue recognition (“Topic 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance, which includes several amendments, replaces most of the prior revenue recognition guidance under U.S. Generally Accepted Accounting Principles. The Company adopted the new guidance as of January 1, 2018 using the modified retrospective method, as applied to all contracts. As a result, the Company has changed its accounting policy for revenue recognition, as detailed below. The most significant impact of the adoption was on the timing of recognition of sales to the Company’s stocking distributors and including the additional required disclosures under the new standard. Through December 31, 2017, the Company deferred revenue and the related cost of sales on shipments to stocking distributors until the distributors resold the products to their customers. Upon adoption, the Company is no longer permitted to defer revenue until sale by the stocking distributor to the end customer, but rather, is required to estimate the effects of returns and allowances provided to stocking distributors and record revenue at the time of sale to the stocking distributor. In addition, the Company modified the accounting for a contractual arrangement due to a reassessment of the number of performance obligations in the arrangement, and adjusted for the timing of certain royalty revenue. The cumulative effect of adopting this guidance, recorded as an increase to the balance of retained earnings as of January 1, 2018, was approximately $3,670,000. The comparative information for the three and six months ended December 31, 2017, including disclosures, has not been restated and continues to be reported under the accounting standards in effect for that period.

The following tables summarize the impacts of adopting the new revenue recognition guidance on certain components of the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 (in thousands):

Consolidated Balance Sheet Items


	As reported		Adjustments			Balances without adoption of Topic 606
Accounts receivable, net	$	45,056	$	(39	)	$	45,017
Inventories, net		41,753		(97	)		41,656
Total assets		190,843		(136	)		190,707

Income taxes payable		526		(18	)		508
Deferred revenue		4,610		4,445			9,055
Sales allowances		550		(466	)		84
Total liabilities		31,905		3,961			35,866

Retained earnings		109,078		(4,097	)		104,981
Total equity		158,938		(4,097	)		154,841
Total liabilities and equity		190,843		(136	)		190,707

Consolidated Statement of Operations Items


	Three Months Ended
	As reported		Adjustments			Balances without adoption of Topic 606
Net revenues	$	74,196	$	(597	)	$	73,599
Cost of revenues		38,313		(372	)		37,941

Gross margin		35,883		(225	)		35,658

Income before income taxes		8,272		(225	)		8,047
Provision for income taxes		363		(11	)		352
Consolidated net income		7,909		(214	)		7,695
Net income attributable to Vicor Corporation		7,860		(214	)		7,646

	Six Months Ended
	As reported		Adjustments			Balances without adoption of Topic 606
Net revenues	$	139,465	$	(1,401	)	$	138,064
Cost of revenues		73,371		(956	)		72,415

Gross margin		66,094		(445	)		65,649

Income before income taxes		12,388		(445	)		11,943
Provision for income taxes		497		(18	)		479
Consolidated net income		11,891		(427	)		11,464
Net income attributable to Vicor Corporation		11,803		(427	)		11,376

The impact of the adoption of the new revenue recognition standard on the unaudited consolidated statements of comprehensive income (loss) and cash flows for the three and six months ended June 30, 2018 was not material.