XML 25 R14.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Revenue recognition and accounts receivable | 6 Months Ended
--- | ---
Jun. 30, 2018
Revenue Recognition And Accounts Receivable [Abstract] |
Revenue recognition and accounts receivable | 8. Revenue recognition and accounts receivable Adoption of ASU 2014-09, “Revenue from Contracts with Customers” Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective transition method, which was applied to all contracts. Results for the three and six months ended June 30, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under the previous revenue recognition standard, Topic 605. The Company recorded a net increase to opening retained earnings of $4.8 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606 as presented in the table below.
(U.S. Dollars, in thousands) |  | December 31, 2017 |  |  | Impact of Adoption of ASC 606 |  |  | January 1, 2018 |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 81,157 |  |  | $ | — |  |  | $ | 81,157 |
Accounts receivable, net |  |  | 63,437 |  |  |  | 8,648 |  |  |  | 72,085 |
Inventories |  |  | 81,330 |  |  |  | (2,338 | ) |  |  | 78,992 |
Prepaid expenses and other current assets |  |  | 25,877 |  |  |  | — |  |  |  | 25,877 |
Total current assets |  |  | 251,801 |  |  |  | 6,310 |  |  |  | 258,111 |
Deferred income taxes |  |  | 23,315 |  |  |  | (1,549 | ) |  |  | 21,766 |
Other long-term assets |  |  | 130,238 |  |  |  | — |  |  |  | 130,238 |
Total assets |  | $ | 405,354 |  |  | $ | 4,761 |  |  | $ | 410,115 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Total liabilities |  |  | 108,746 |  |  |  | — |  |  |  | 108,746 |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common shares |  |  | 1,828 |  |  |  | — |  |  |  | 1,828 |
Additional paid-in capital |  |  | 220,591 |  |  |  | — |  |  |  | 220,591 |
Retained earnings |  |  | 70,402 |  |  |  | 4,761 |  |  |  | 75,163 |
Accumulated other comprehensive income |  |  | 3,787 |  |  |  | — |  |  |  | 3,787 |
Total shareholders’ equity |  |  | 296,608 |  |  |  | 4,761 |  |  |  | 301,369 |
Total liabilities and shareholders’ equity |  | $ | 405,354 |  |  | $ | 4,761 |  |  | $ | 410,115 |
The impact primarily related to an increase in trade accounts receivable, net, from the Company’s stocking distributors, for which revenue was historically recognized when cash payment was received, and the recognition of previously deferred cost of sales for certain stocking distributor transactions, which were historically included within inventory. Adoption of Topic 606 had no impact to cash from or used in operating, investing, or financing activities on the condensed consolidated statement of cash flows. The table below presents the impact to the Company’s condensed consolidated statement of income for the three and six months ended June 30, 2018 as a result of the adoption of Topic 606.
|  | Three Months Ended June 30, 2018 |  |  | Six Months Ended June 30, 2018 |
(U.S. Dollars, in thousands) |  | Based on historical accounting under Topic 605 |  |  | Impact of adoption |  |  | As reported under Topic 606 |  |  | Based on historical accounting under Topic 605 |  |  | Impact of adoption |  |  | As reported under Topic 606 |
Net sales |  | $ | 113,400 |  |  | $ | (1,853 | ) |  | $ | 111,547 |  |  | $ | 214,762 |  |  | $ | 5,494 |  |  | $ | 220,256 |
Cost of sales |  |  | 23,075 |  |  |  | (240 | ) |  |  | 22,835 |  |  |  | 45,191 |  |  |  | 1,791 |  |  |  | 46,982 |
Gross profit |  |  | 90,325 |  |  |  | (1,613 | ) |  |  | 88,712 |  |  |  | 169,571 |  |  |  | 3,703 |  |  |  | 173,274 |
Sales and marketing |  |  | 51,614 |  |  |  | (85 | ) |  |  | 51,529 |  |  |  | 101,975 |  |  |  | (178 | ) |  |  | 101,797 |
Other operating expenses |  |  | 30,159 |  |  |  | — |  |  |  | 30,159 |  |  |  | 56,580 |  |  |  | — |  |  |  | 56,580 |
Operating income |  | $ | 8,552 |  |  | $ | (1,528 | ) |  | $ | 7,024 |  |  | $ | 11,016 |  |  | $ | 3,881 |  |  | $ | 14,897 |
Income tax expense |  |  | (1,694 | ) |  |  | 606 |  |  |  | (1,088 | ) |  |  | (5,612 | ) |  |  | (849 | ) |  |  | (6,461 | )
Net income from continuing operations |  | $ | 1,855 |  |  | $ | (922 | ) |  | $ | 933 |  |  | $ | 3,130 |  |  | $ | 3,032 |  |  | $ | 6,162 |
Net income from continuing operations per common share—basic |  | $ | 0.10 |  |  | $ | (0.05 | ) |  | $ | 0.05 |  |  | $ | 0.17 |  |  | $ | 0.16 |  |  | $ | 0.33 |
Net income from continuing operations per common share—diluted |  | $ | 0.10 |  |  | $ | (0.05 | ) |  | $ | 0.05 |  |  | $ | 0.16 |  |  | $ | 0.16 |  |  | $ | 0.32 |
Revenue Recognition Under Topic 606 The Company accounts for a contract when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. The Company’s contracts may contain one or more performance obligations. If a contract contains more than one performance obligation, the Company allocates the total transaction price to each of the performance obligations based upon the observable standalone selling price of the promised goods or services underlying each performance obligation. The Company recognizes revenue when control of the promised goods or services is transferred to the customer, which typically occurs at a point in time upon shipment, delivery, or utilization, in an amount that reflects the consideration which the Company expects to be entitled in exchange for the promised goods or services. The amount the Company expects to be entitled to in exchange for the goods or services reflects any fixed amount stated per the contract and estimates for any variable consideration, such as discounts, to the extent that is it probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. BioStim BioStim revenue is largely attributable to the U.S. and is comprised of third-party payor transactions and wholesale revenue. The largest portion of BioStim revenue is derived from third-party payors. This includes commercial insurance carriers, health maintenance organizations, preferred provider organizations and governmental payors such as Medicare, in connection with the sale of the Company’s stimulation products. The customer obtains control and revenue is recognized when the stimulation product is fitted to and accepted by the patient and all applicable documents that are required by the third-party payor have been obtained. Amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates. These revenues are recorded at the expected or preauthorized reimbursement rates, net of any contractual allowances or adjustments. Certain billings are subject to review by the third-party payors and may be subject to adjustment. Adoption of Topic 606 had an immaterial impact to the BioStim SBU. Wholesale revenue is related to the sale of the Company’s bone growth stimulators directly to healthcare providers. Wholesale revenues are typically recognized upon shipment and receipt of a confirming purchase order, which is when the customer obtains control of the promised goods. Extremity Fixation and Spine Fixation Extremity Fixation and Spine Fixation products are distributed world-wide, with U.S. sales largely comprised of commercial revenue and international sales derived from commercial sales and through stocking distributor arrangements. Commercial revenue is related to the sale of the Company’s internal and external fixation products, generally representing hospital customers. The customer obtains control and revenues are recognized when these products have been utilized and a confirming purchase order has been received from the hospital. Certain revenue within the Extremity Fixation and Spine Fixation SBUs are derived from stocking distributors, who purchase the Company’s products and then re-sell them directly to customers, such as hospitals. For revenue from stocking distributor arrangements, subsequent to the adoption of Topic 606 effective January 1, 2018, the Company recognizes revenue upon shipment and receipt of a confirming purchase order, which is when the distributor obtains control of the promised goods. The transaction price with stocking distributors is estimated based upon the Company’s historical collection experience with the stocking distributor. To derive this estimate, the Company analyzes twelve months of historical invoices by stocking distributor and the subsequent collections on those invoices, for a period of up to 24 months subsequent to the invoice date. This percentage, which is specific to each stocking distributor, is then used to calculate the transaction price. Cost of sales is also recorded upon transfer of control of the product to the customer. Prior to the adoption of Topic 606, or for all periods presented prior to January 1, 2018, the Company recognized revenue from stocking distributor arrangements once the product was delivered to the end customer (the “sell-through method”). Because the Company did not have reliable information about when its distributors sold the product through to end customers, the Company used cash collection from distributors as a basis for revenue recognition under the sell-through method. Although in many cases the Company was legally entitled to the accounts receivable at the time of shipment, the Company did not recognize accounts receivables or any corresponding deferred revenues at the time of shipment associated with stocking distributor transactions for which revenue was recognized on the sell-through method. The Company also considered whether to match the related cost of sales with revenue or to recognize cost of sales upon shipment. In making this assessment, the Company considered the financial viability of its stocking distributors based on their creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped was reasonably assured at the time of shipment to these stocking distributors. In instances where the stocking distributor was determined to be financially viable, the Company deferred the costs of sales until the revenue was recognized. Biologics Biologics revenue is largely attributable to the U.S. and is primarily related to a collaborative arrangement with MTF Biologics (“MTF”), which extends through July 28, 2027, through which the Company markets tissue for bone repair and reconstruction under the brand names Trinity Evolution and Trinity ELITE. Under the terms of the agreement, MTF sources the tissue, processes it to create the bone growth matrix, packages and delivers it to the customer in accordance with orders received from the Company. The Company has exclusive global marketing rights for the Trinity Evolution and Trinity ELITE tissues as well as non-exclusive marketing rights for other products, and receives marketing fees from MTF based on total sales. MTF is considered the primary obligor in these arrangements and therefore the Company recognizes these marketing service fees on a net basis within net sales upon shipment of the product to the customer. Adoption of Topic 606 had an immaterial impact to the Biologics SBU. Product Sales and Marketing Service Fees The table below presents net sales, which includes product sales and marketing service fees, for the three and six months ended June 30, 2018 and 2017.
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(U.S. Dollars, in thousands) |  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Product sales |  | $ | 97,453 |  |  | $ | 93,908 |  |  | $ | 192,342 |  |  | $ | 182,309 |
Marketing service fees |  |  | 14,094 |  |  |  | 15,034 |  |  |  | 27,914 |  |  |  | 29,371 |
Net sales |  | $ | 111,547 |  |  | $ | 108,942 |  |  | $ | 220,256 |  |  | $ | 211,680 |
Product sales primarily consist of the sale of bone growth stimulation devices and internal and external fixation products. Marketing service fees are received from MTF based on total sales of biologics tissues and relates solely to the Biologics SBU. Revenues exclude any value added or other local taxes, intercompany sales and trade discounts. Shipping and handling costs for products shipped to customers are included in cost of sales. Trade Accounts Receivable and Allowances Payment terms vary by the type and location of the Company’s customers and the products or services offered. The term between invoicing and when payment is due is not significant. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual allowances. Revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. The Company’s estimates are periodically tested against actual collection experience. Other Contract Assets The Company’s contract assets, excluding trade accounts receivable (“other contract assets”), largely consist of payments made to certain distributors to obtain contracts, gain access to customers in certain territories, and to provide the benefit of the exclusive distribution of Orthofix products. Other contract assets are included in other long-term assets and were $1.2 million and $1.0 million as of June 30, 2018, and December 31, 2017, respectively. Other contract assets are amortized on a straight-line basis over the term of the related contract. There were no changes to such treatment as a result of adoption of Topic 606. No impairments were incurred for other contract assets in 2018 or 2017. Further, the Company has applied the practical expedient allowed within the guidance to expense sales commissions when incurred as the amortization period would be for one year or less.

X
- Definition Revenue recognition and accounts receivable. + References No definition available. + Details
Name: | ofix_RevenueRecognitionAndAccountsReceivableAbstract
Namespace Prefix: | ofix_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_RevenueFromContractWithCustomerTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration