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Revenue recognition and accounts receivable | 3 Months Ended
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Mar. 31, 2020
Revenue Recognition And Accounts Receivable [Abstract] |
Revenue recognition and accounts receivable | 11. Revenue recognition and accounts receivable Revenue Recognition The Company has two reporting segments, which consist of Global Spine and Global Extremities. Within the Global Spine reporting segment there are three product categories: Bone Growth Therapies, Spinal Implants and Biologics. The table below presents net sales by major product category by reporting segment:
|  | Three Months Ended March 31, |
(U.S. Dollars, in thousands) |  | 2020 |  |  | 2019 |  |  | Change |
Bone Growth Therapies |  | $ | 45,443 |  |  | $ | 47,283 |  |  |  | -3.9 | %
Spinal Implants |  |  | 22,926 |  |  |  | 22,903 |  |  |  | 0.1 | %
Biologics |  |  | 13,949 |  |  |  | 15,732 |  |  |  | -11.3 | %
Global Spine |  |  | 82,318 |  |  |  | 85,918 |  |  |  | -4.2 | %
Global Extremities |  |  | 22,505 |  |  |  | 23,194 |  |  |  | -3.0 | %
Net sales |  | $ | 104,823 |  |  | $ | 109,112 |  |  |  | -3.9 | %
Product Sales and Marketing Service Fees The table below presents product sales and marketing service fees, which are both components of net sales:
|  | Three Months Ended March 31, |
(U.S. Dollars, in thousands) |  | 2020 |  |  | 2019 |
Product sales |  | $ | 91,421 |  |  | $ | 93,934 |
Marketing service fees |  |  | 13,402 |  |  |  | 15,178 |
Net sales |  | $ | 104,823 |  |  | $ | 109,112 |
Product sales primarily consist of the sale of bone growth therapies devices and internal and external fixation products. Marketing service fees are received from MTF Biologics based on total sales of biologics tissues and relate solely to the Global Spine reporting segment. 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. Adoption of ASU 2016-13 As discussed in Note 2, the Company adopted ASU No. 2016-13 - Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments, using the modified retrospective approach. Adoption of the new standard resulted in an increase to the Company’s allowance for expected credit losses of $1.1 million, an increase in deferred income tax assets of $0.2 million, and a decrease in retained earnings of $0.9 million as of January 1, 2020. The net impact of adoption to the Company’s balance sheet as of January 1, 2020 is presented in the table below. The standard did not have a material impact to the Company’s condensed consolidated statements of income or cash flows.
(U.S. Dollars, in thousands) |  | December 31, 2019 |  |  | Impact of Adoption of ASC 326 |  |  | January 1, 2020 |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |  |  |  |
Cash, cash equivalents, and restricted cash |  | $ | 70,403 |  |  | $ | — |  |  | $ | 70,403 |
Accounts receivable, net |  |  | 86,805 |  |  |  | (1,120 | ) |  |  | 85,685 |
Inventories |  |  | 82,397 |  |  |  | — |  |  |  | 82,397 |
Prepaid expenses and other current assets |  |  | 20,948 |  |  |  | — |  |  |  | 20,948 |
Total current assets |  |  | 260,553 |  |  |  | (1,120 | ) |  |  | 259,433 |
Deferred income taxes |  |  | 35,117 |  |  |  | 233 |  |  |  | 35,350 |
Other long-term assets |  |  | 199,950 |  |  |  | — |  |  |  | 199,950 |
Total assets |  | $ | 495,620 |  |  | $ | (887 | ) |  | $ | 494,733 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Total liabilities |  | $ | 167,989 |  |  | $ | — |  |  | $ | 167,989 |
Shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Common shares |  | $ | 1,902 |  |  | $ | — |  |  | $ | 1,902 |
Additional paid-in capital |  |  | 271,019 |  |  |  | — |  |  |  | 271,019 |
Retained earnings |  |  | 57,749 |  |  |  | (887 | ) |  |  | 56,862 |
Accumulated other comprehensive loss |  |  | (3,039 | ) |  |  | — |  |  |  | (3,039 | )
Total shareholders’ equity |  |  | 327,631 |  |  |  | (887 | ) |  |  | 326,744 |
Total liabilities and shareholders’ equity |  | $ | 495,620 |  |  | $ | (887 | ) |  | $ | 494,733 |
Accounts receivable and related allowances Subsequent to the adoption of ASU 2016-13, the Company’s allowance for expected credit losses represents the portion of the receivable’s amortized cost basis that an entity does not expect to collect over the receivable’s contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. The determination of the contractual life of accounts receivables, as well as the historical collections, write-offs, and payor reimbursement experience over the estimated contractual lives of such receivables, are integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for expected credit losses and contractual allowances. Revisions in allowances for expected credit loss 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. These estimates are periodically tested against actual collection experience. In addition, the Company analyzes its receivables by geography and by customer type, where appropriate, in developing estimates for expected credit losses. The following table provides a detail of changes in the Company’s allowance for expected credit losses for the three months ended March 31, 2020:
(U.S. Dollars, in thousands) |  | 2020 |
Allowance for expected credit losses at December 31, 2019 |  | $ | 3,987 |
Impact of adoption of ASU 2016-13 |  |  | 1,120 |
Current period provision for expected credit losses |  |  | 679 |
Writeoffs charged against the allowance and other |  |  | (114 | )
Effect of changes in foreign exchange rates |  |  | (81 | )
Allowance for expected credit losses at March 31, 2020 |  | $ | 5,591 |
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 or other current assets, dependent upon the original term of the related agreement, and totaled $3.3 million and $3.7 million as of March 31, 2020, and December 31, 2019, respectively.

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- Definition Revenue recognition and accounts receivable. + References No definition available. + Details
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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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