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 impacts of the adoption were 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 nine months ended September 30, 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 (in thousands):

a) Consolidated Balance Sheet Items


	As of September 30, 2018
	As reported		Adjustments			Balances without adoption of Topic 606
Accounts receivable, net	$	45,052	$	(24	)	$	45,028
Inventories, net		43,444		(128	)		43,316
Total assets		207,665		(152	)		207,513

Income taxes payable		708		(25	)		683
Deferred revenue		4,442		4,911			9,353
Sales allowances		567		(497	)		70
Total liabilities		31,705		4,389			36,094

Retained earnings		122,090		(4,541	)		117,549
Total equity		175,960		(4,541	)		171,419
Total liabilities and equity		207,665		(152	)		207,513

b) Consolidated Statement of Operations Items


	Three Months Ended September 30, 2018
	As reported		Adjustments			Balances without adoption of Topic 606
Net revenues	$	78,035	$	(1,026	)	$	77,009
Cost of revenues		39,031		(575	)		38,456

Gross margin		39,004		(451	)		38,553

Income before income taxes		13,275		(451	)		12,824
Provision for income taxes		227		(7	)		220
Consolidated net income		13,048		(444	)		12,604
Net income attributable to Vicor Corporation		13,012		(444	)		12,568

	Nine Months Ended September 30, 2018
	As reported		Adjustments			Balances without adoption of Topic 606
Net revenues	$	217,500	$	(2,427	)	$	215,073
Cost of revenues		112,402		(1,531	)		110,871

Gross margin		105,098		(896	)		104,202

Income before income taxes		25,663		(896	)		24,767
Provision for income taxes		724		(25	)		699
Consolidated net income		24,939		(871	)		24,068
Net income attributable to Vicor Corporation		24,815		(871	)		23,944

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 nine months ended September 30, 2018 was not material.