Revenue

Impact from the Adoption of the New Revenue Standard

On July 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to all contracts. Results for reporting periods beginning after July 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

The change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors. Sales to these distributors are governed under the terms of agreements providing extended price protection and other return rights. The Company recorded a net increase to opening retained earnings of $1.0 million as of July 1, 2018 due to the cumulative impact of adopting ASC 606, with a corresponding $1.6 million decrease in deferred margin, a $0.2 million decrease in accounts receivables, a $0.1 million increase in current accrued liabilities, and a $0.3 million increase in deferred tax liabilities. Effective July 1, 2018, the Company recognized revenue at the time of shipment or delivery to these two distributors, adjusted for estimates of the price adjustments and return rights based on historical data and other available information. Based on the Company's assessment, only minimal changes were required to the Company's existing policies, processes, and controls to support the standard's measurement and disclosure requirements.

The following tables compare the amounts reported in the condensed consolidated statements of income and condensed consolidated balance sheet to the amounts had the previous revenue recognition guidance been in effect:



	As of September 30, 2018
	As Reported		Adjustment			Balances Without Adoption
	(in thousands)
Accounts receivable, net	$	37,108	$	224		$	37,332
Accrued liabilities	$	56,054	$	(120	)	$	55,934
Deferred margin	$	—	$	1,691		$	1,691
Deferred income tax liabilities	$	1,063	$	(285	)	$	778
Retained earnings	$	126,083	$	(1,062	)	$	125,021



	Three Months Ended September 30, 2018
	As Reported			Adjustment			Balances Without Adoption
	(in thousands)
Revenue	$	115,072		$	41		$	115,113
Cost of goods sold	$	82,461		$	20		$	82,481
Gross profit	$	32,611		$	21		$	32,632
Income tax expense	$	560		$	(8	)	$	552
Net income (loss) including noncontrolling interest	$	(913	)	$	29		$	(884	)

New Revenue Recognition Policy Including Significant Judgments and Estimates

As a result of the adoption of the new revenue standard on July 1, 2018, at the beginning of the first quarter of fiscal year 2019, the Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.

The Company has written contracts with combination of agreements and purchase orders with all customers including certain general terms and conditions. Often purchase orders entail merchandises, quantities and prices, which define the performance obligations of each party and are approved or accepted by the Company. The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days.

The Company’s performance obligations are to deliver the requested goods or services to customers according to the agreed shipping terms. As such, there is no material difference in regards to performance obligations vs. “deliverables” under ASC 606 vs. the legacy revenue guidance. The Company recognizes revenue when the performance obligation is satisfied.

The majority of the Company’s total revenue is from non-U.S. distributors and direct customers, which is recognized at the time of shipment or delivery to the distributors and direct customers. Accordingly, revenue recognition with these distributors and direct customers remains unchanged upon adoption of ASC 606. As noted above, the change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors. Sales to these distributors are governed under the terms of agreements providing extended price protection and other return rights, and were historically deferred under the previous accounting guidance until the related product was sold to end customers. Under ASC 606, the transaction price takes into consideration the effect of variable consideration such as price adjustments and return rights, which are estimated and recorded at the time the goods are delivered.

Because all of the Company’s performance obligations relate to contracts with a duration of less than one year, the Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

The Company adjusts the transaction price for variable consideration. Variable consideration is not typically significant and primarily results from stock rotation rights and price adjustments provided to our distributors. As a practical expedient, the Company recognizes the incremental costs of obtaining a contract, specifically commission expenses that have a period of benefit of less than twelve months, as an expense when incurred. Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers to the customer as a fulfillment activity.

The Company warrants its products to be free of defects generally for a period of one year. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of goods sold. Warranty expenses and the accrued warranty liability were not material as of September 30, 2018.

The following table presents the Company's revenue information by geographical location based on the country or region to which the products were shipped. The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers. Because the Company's distributors sell their products to end customers which may have a global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets.



	Three Months Ended September 30,
	2018		2017
	(in thousands)
Hong Kong	$	91,591	$	85,230
China	20,397		17,120
South Korea	169		287
United States	1,973		1,378
Other countries	942		843
	$	115,072	$	104,858

The following is a summary of revenue by product type:



	Three Months Ended September 30,
	2018		2017
	(in thousands)
Power discrete	$	92,255	$	83,678
Power IC	19,415		18,097
Packaging and testing services	3,402		3,083
	$	115,072	$	104,858