1. Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.) (GAAP) and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, needed to fairly present the financial results of Surmodics, Inc. and subsidiaries (Surmodics or the Company) for the periods presented. These financial statements include amounts that are based on managements best estimates and judgments. These estimates may be adjusted as more information becomes available, and any adjustment could be significant. The impact of any change in estimates is included in the determination of net income (loss) in the period in which the change in estimate is identified. The results of operations for the three months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the entire 2019 fiscal year. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the fiscal year ended September 30, 2018, and footnotes thereto included in the Companys Form 10-K as filed with the SEC on November 30, 2018. New Accounting Pronouncements Recently Adopted In May 2014, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) issued Update No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606) . The core principal of ASC Topic 606 is to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, as well as significant judgements and changes in judgements, which are described in Note 2 to the condensed consolidated financial statements. The Company adopted ASC Topic 606 in the first quarter of fiscal year 2019 using the modified retrospective method and applied the new revenue standard to all new customer contracts initiated on or after the effective date and contracts which had remaining performance obligations as of the effective date. The adoption of ASC Topic 606 resulted in an acceleration of minimum license fees and sales-based royalty revenue earned under the Companys hydrophilic coating technology license agreements by approximately one quarter. Prior to the adoption of ASC Topic 606, sales-based royalties were recognized in the period the Companys customers reported the underlying sales, which is generally one quarter after the sales occurred. Additionally, minimum royalties were recognized in the period they were contractually owed to the Company. Upon adoption of ASC Topic 606, sales-based royalties are recognized in the period the underlying customer sale occurs, while the minimum royalties are recognized at each renewal of the license contract, which generally occurs on the last day of the quarter for minimum royalties contractually due in the following quarter. The adoption of ASC Topic 606 resulted in cumulative-effect adjustments to opening retained earnings, contract assets, deferred tax assets and income tax receivable. The impact of the adoption of ASC Topic 606 on the opening consolidated balance sheet as of October 1, 2018, as compared with the consolidated balance sheet previously reported as of September 30, 2018, was as follows: (Dollars in thousands) September 30, 2018, As Reported Adjustments for Adoption of Topic 606 October 1, 2018 Opening Balance Assets Contract assets - royalties and license fees $  $ 6,904 $ 6,904 Deferred income taxes 6,304 (1,215 ) 5,089 Income tax receivable 1,152 (390 ) 762 Liabilities and Stockholders' Equity Deferred revenue, current portion 9,646 (18 ) 9,628 Deferred revenue, less current portion 11,247 (181 ) 11,066 Retained earnings 97,615 5,498 103,113 The impact of adoption of Topic 606 to the Companys condensed consolidated statements of operations for three months ended December 31, 2018 was a reduction of royalty and license fee revenue of $0.2 million and reduced income tax benefit of less than $0.1 million. Not Yet Adopted In February 2016, the FASB issued Accounting Standards Update ASU 2016-02, Leases (ASC Topic 842) . The new guidance primarily affects lessee accounting, while accounting by lessors will not be significantly impacted by the update. The update maintains two classifications of leases: finance leases, which replace capital leases, and operating leases. Lessees will need to recognize a right-of-use asset and a lease liability on the statement of financial position for those leases previously classified as operating leases under the old guidance. The liability will be equal to the present value of remaining contractual lease payments. The asset will be based on the liability, subject to adjustment, such as for direct costs. The accounting standard will be effective for the Company beginning the first quarter of fiscal year 2020 (October 1, 2019) and will be applied using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this standard will have on the Companys results of operations, cash flows and financial position. The Company believes the impact will be material due to the right-of-use assets and lease liabilities that will be recorded on the Companys consolidated balance sheets upon adoption of the standard. In June 2016, the FASB issued ASU No 2016-13, Financial Instruments  Credit Losses (ASC Topic 326), Measurement of Credit Losses on Financial Statements . This ASU requires a financial asset (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The accounting standard will be effective for the Company beginning in the first quarter of fiscal 2020 (October 1, 2019). Early adoption is permitted and the guidance will be applied using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this standard will have on the Companys results of operations, cash flows and financial position. No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Companys condensed consolidated financial statements.