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REVENUES FROM CONTRACT WITH CUSTOMERS | 3 Months Ended
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Mar. 31, 2018
Revenue from Contract with Customer [Abstract] |
REVENUES FROM CONTRACT WITH CUSTOMERS | REVENUES FROM CONTRACT WITH CUSTOMERS Summary of Accounting Policies on Revenue Recognition Revenue is recognized upon the transfer of control of promised products or services to the customers in an amount that reflects the consideration the Company expects to receive in exchange for those products and services. Total revenue, net, includes product sales, product royalties and other revenues, such as fees received from services. For products shipped with FOB shipping point terms, the control of the product passes to the customer at the time of shipment. For shipments in which the control of the product is transferred when the customer receives the product, the Company recognizes revenue upon receipt by the customer. Certain products that the Company produces for private label customers have no alternative use and the Company has a right of payment for performance to date. Revenues from those products are recognized over the period that the Company manufactures these products, which is typically one to three months. The Company uses the input method to measure the manufacturing activities completed to date, which depicts the progress of the Company's performance obligation of transferring control of goods being manufactured for private label customers. A portion of the Company's product revenue is generated from consigned inventory maintained at hospitals and distributors, and also from inventory physically held by field sales representatives. For these types of products sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized. Revenues from sale of products and services are evidenced by either a contract with the customer or a valid purchase order and an invoice which includes all relevant terms of sale. For product sales, invoices are generally issued upon the transfer of control (or upon the completion of the manufacturing in the case of the private label transactions recognized over time) and are typically payable 30 days after the invoice date. The Company performs a review of each specific customer's credit worthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers' creditworthiness prospectively. Performance Obligations The Company's performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders or invoices. The Company has no significant multi-element contracts with customers. Significant Judgments Usage-based royalties and licenses are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold by the Company's strategic partners. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information and expected sales trends. Differences between actual reported licensee sales and those that were estimated are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant. The Company estimates returns, price concessions and discounts allowances using the expected value method based on historical trends and other known factors. Rebate allowances are estimated using the most likely method based on each customer contract. The Company's return policy, as set forth in its product catalogs and sales invoices, requires the Company to review and authorize the return of product in advance. Upon the authorization, a credit will be issued for the goods returned within a set amount of days from the shipment, which is generally ninety days. The Company disregards the effects of a financing component if the Company expects, at contract inception, that the period between the transfer and customer payment for the good or services will be one year or less. The Company has no significant revenues recognized on payments expected to be received more than one year after the transfer of control of products or services to customers. Contract Asset and Liability Revenues recognized from the Company's private label business that are not invoiced to the customers as a result of recognizing revenue over time are recorded as a contract asset included in the prepaid expenses and other current assets account in the consolidated balance sheet. Other operating revenues may include fees received under service agreements. Non-refundable fees received under multiple-period service agreements are recognized as revenue as the Company satisfies the performance obligations to the other party. A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability. The following table summarized the changes in the contract asset and liability balances for the three months ended March 31, 2018:
Contract Asset |
Contract asset, January 1, 2018 | $ | 3,552 |
Transferred to trade receivable of contract asset included in beginning of the year contract asset | (3,552 | )
Contract asset, net of transferred to trade receivables on contracts during the period | 4,856 |
Contract asset, March 31, 2018 | $ | 4,856 |
Contract Liability |
Contract liability, January 1, 2018 | $ | 11,059 |
Recognition of revenue included in beginning of year contract liability | (1,750 | )
Contract liability, net of revenue recognized on contracts during the period | 931 |
Foreign currency translation | 28 |
Contract liability, March 31, 2018 | $ | 10,268 |
At March 31, 2018, the short-term portion of the contract liability of $3.6 million and the long-term portion of $6.7 million were included in accrued expenses and other current liabilities and other liabilities in the consolidated balance sheet. As of March 31, 2018, the Company is expected to recognize revenue of approximately $2.7 million for the remainder of 2018, $3.4 million in 2019, $0.6 million in 2020, $0.6 million in 2021, $0.6 million in 2022 and $2.4 million thereafter. Shipping and Handling Fees The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in the cost of goods sold. Product Warranties Certain of the Company's medical devices, including monitoring systems and neurosurgical systems, are reusable and are designed to operate over long periods of time. These products are sold with warranties which may extend for up to two years from the date of the purchase. Warranties are not considered as a separate performance obligation. The Company estimates the product warranties using the expected value method based on historical trends and other known factors, and includes them in accrued expenses and other current liabilities in the consolidated balance sheet. Taxes Collected from Customers The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer. Disaggregated Revenue The following table presents revenues disaggregated by the major sources of revenues for the three months ended March 31, 2018 (amounts in thousands):
Neurosurgery | $ | 166,898 |
Precision Tools and Instruments | 69,217 |
Total Codman Specialty Surgical | 236,115 |
Wound Reconstruction and Care | 70,112 |
Extremity Orthopedics | 24,810 |
Private Label | 26,045 |
Total Orthopedics and Tissue Technologies | 120,967 |
Total revenue | $ | 357,082 |
See Note 14, Segment and Geographical Information, for details of revenues based on the location of the customer. Effect of Adoption of ASC Topic 606 On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to all contracts which were not completed as of January 1, 2018. Result of operations for the reporting periods after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue Recognition. The adoption of Topic 606 resulted in an increase to the opening retained earnings of $1.9 million as of January 1, 2018 to reflect the change in timing of the recognition of revenue related to the Company's private label business from point in time to over time during the manufacturing process and goods in transit for which control was transferred to customers at the time of shipment, net of tax effect. The total assets and the total liabilities increased by $7.1 million and $5.2 million, respectively, as of January 1, 2018. The impact of adoption of Topic 606 to the Company's consolidated statement of operations for the three months ended March 31, 2018 was as follows:
| As Reported | Excluding Impact of Topic 606
| (Amounts in thousands)
Statement of Operations |  |
Total revenue, net | $ | 357,082 |  | $ | 356,622 |
Cost of goods sold | 144,222 |  | 144,019 |
Income tax benefit | (1,860 | ) | (1,924 | )
Net income | 10,992 |  | 10,799 |
The adoption of Topic 606 had no significant impact on the Company's consolidated balance sheet as of March 31, 2018.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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