Revenues

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which is codified in Accounting Standards Codification ("ASC") 606, effective January 1, 2018. ASC 606 is a comprehensive new revenue recognition model that requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The Company has applied the modified retrospective approach to adoption whereby the standard is applied only to the current period.

Adoption of ASC 606 did not have a material impact on our consolidated condensed financial statements. Certain costs previously included in selling and administrative expense and principally related to administrative fees paid to group purchasing organizations are required to be recorded as a reduction of revenue under the new standard. These costs amounted to $2.0 million and $2.1 million during the three months ended June 30, 2018 and 2017, respectively, and $3.9 million and $3.8 million during the six months ended June 30, 2018 and 2017, respectively. These costs are included as a reduction in net sales in the three and six months ended June 30, 2018 and as selling and administrative expense in the three and six months ended June 30, 2017, respectively. There is no impact on net income or earnings per share as a result of this change.

The Company recognizes revenue when we have satisfied a performance obligation by transferring a promised good or service (that is an asset) to a customer. An asset is transferred when the customer obtains control of that asset. The following policies apply to our major categories of revenue transactions:


•	Revenue is recognized when product is shipped and the customer obtains control of the product. Payment by the customer is due under fixed payment terms and collectability is reasonably assured.

•

We place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years. In these circumstances, no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met. Revenue is recognized upon the sale and shipment of the related single-use products. The cost of the equipment is amortized over its estimated useful life which is generally five years.


•	Product returns are only accepted at the discretion of the Company and in accordance with our “Returned Goods Policy”. Historically, the level of product returns has not been significant. We accrue for sales returns, rebates and allowances based upon an analysis of historical customer returns and credits, rebates, discounts and current market conditions.


•	Our terms of sale to customers generally do not include any obligations to perform future services. Limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data.


•	Amounts billed to customers related to shipping and handling have been included in net sales. Shipping and handling costs included in selling and administrative expense were $6.6 million and $6.4 million for the six months ended June 30, 2018 and 2017, respectively.


•	We sell to a diversified base of customers around the world and, therefore, believe there is no material concentration of credit risk.


•	We assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment. Historically, losses on accounts receivable have not been material. Management believes that the allowance for doubtful accounts of $2.3 million at June 30, 2018 is adequate to provide for probable losses resulting from accounts receivable.

We recognize revenues related to the promotion and marketing of sports medicine allograft tissue in accordance with the contractual terms of our agreement with Musculoskeletal Transplant Foundation (“MTF”) on a net basis as our role is limited to that of an agent earning a commission or fee. MTF records revenue when the tissue is shipped to the customer. Our services are completed at this time and net revenues for the “Service Fee” for our promotional and marketing efforts are then recognized based on a percentage of the net amounts billed by MTF to its customers. The timing of revenue recognition is determined through review of the net billings made by MTF each month. Our net commission Service Fee is based on the contractual terms of our agreement and is currently 50%. This percentage can vary over the term of the agreement but is contractually determinable. Our Service Fee revenues are recorded net of amortization of the acquired assets, which are being amortized over the expected useful life of 25 years.

We sell extended warranties to customers that are typically for a period of one to three years. The related revenue is recorded as a contract liability and recognized over the life of the contract on a straight-line basis, which is reflective of our obligation to stand ready to provide repair services. The Company previously expensed as incurred commissions paid for the sale of extended warranty contracts to customers. Under the new guidance, the Company capitalizes these contract acquisition costs and realizes the expense in line with the related extended warranty contract revenue recognition. Upon adoption of the new standard, we recorded a cumulative adjustment of $0.4 million net of income taxes to beginning shareholders’ equity in order to capitalize costs incurred to obtain contracts with customers.

The following tables present revenue disaggregated by primary geographic market where the products are sold, by product line and timing of revenue recognition:



	Three Months Ended						Three Months Ended
	June 30, 2018						June 30, 2017
	Orthopedic Surgery		General Surgery		Total		Orthopedic Surgery		General Surgery		Total
Primary Geographic Markets
United States	$	41,057	$	68,599	$	109,656	$	40,886	$	59,124	$	100,010
Americas (excluding the United States)	16,586		8,348		24,934		14,491		8,137		22,628
Europe, Middle East & Africa	29,443		13,944		43,387		27,500		12,839		40,339
Asia Pacific	23,045		11,798		34,843		22,684		11,493		34,177
Total sales from contracts with customers	$	110,131	$	102,689	$	212,820	$	105,561	$	91,593	$	197,154

Timing of Revenue Recognition
Goods transferred at a point in time	$	108,041	$	102,323	$	210,364	$	103,528	$	91,422	$	194,950
Services transferred over time	2,090		366		2,456		2,033		171		2,204
Total sales from contracts with customers	$	110,131	$	102,689	$	212,820	$	105,561	$	91,593	$	197,154



	Six Months Ended						Six Months Ended
	June 30, 2018						June 30, 2017
	Orthopedic Surgery		General Surgery		Total		Orthopedic Surgery		General Surgery		Total
Primary Geographic Markets
United States	$	84,209	$	131,698	$	215,907	$	83,276	$	116,161	$	199,437
Americas (excluding the United States)	33,357		16,027		49,384		28,109		14,958		43,067
Europe, Middle East & Africa	57,745		26,928		84,673		54,151		24,628		78,779
Asia Pacific	43,683		21,237		64,920		43,814		18,623		62,437
Total sales from contracts with customers	$	218,994	$	195,890	$	414,884	$	209,350	$	174,370	$	383,720

Timing of Revenue Recognition
Goods transferred at a point in time	$	214,706	$	195,204	$	409,910	$	205,332	$	174,083	$	379,415
Services transferred over time	4,288		686		4,974		4,018		287		4,305
Total sales from contracts with customers	$	218,994	$	195,890	$	414,884	$	209,350	$	174,370	$	383,720

Contract liability balances related to the sale of extended warranties to customers are as follows:



	June 30, 2018		December 31, 2017

Contract liability	$	10,094	$	7,786

Revenue recognized during six months ended June 30, 2018 and June 30, 2017 from amounts included in contract liabilities at the beginning of the period were $3.7 million and $3.0 million, respectively. There were no material contract assets as of June 30, 2018 and December 31, 2017.