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 $2.4 million and $2.0 million during the three months ended September 30, 2018 and 2017, respectively, and $6.3 million and $5.8 million during the nine months ended September 30, 2018 and 2017, respectively. These costs are included as a reduction in net sales in the three and nine months ended September 30, 2018 and as selling and administrative expense in the three and nine months ended September 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.

•

We place certain of our capital equipment with customers on a loaned basis and at no charge in exchange 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 $10.0 million and $9.6 million for the nine months ended September 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 $2.7 million at September 30, 2018 is adequate to provide for probable losses resulting from accounts receivable.

We recognize revenue in accordance with the terms of our agreement with Musculoskeletal Transplant Foundation (“MTF”) on a net basis as our role is that of an agent earning a commission or fee. MTF is responsible for the sourcing, processing and distribution of allograft tissue for sports medicine procedures while the Company represents, markets and promotes MTF’s sports medicine allograft tissues to customers. The Company is paid a “Service Fee” by MTF which is calculated as a percentage of the amounts invoiced by MTF to customers for sports medicine allograft tissues. The Company accounts for the services as a series of distinct performance obligations and each service is recognized over time as MTF simultaneously receives and consumes the benefit.

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
	September 30, 2018						September 30, 2017
	Orthopedic Surgery		General Surgery		Total		Orthopedic Surgery		General Surgery		Total
Primary Geographic Markets
United States	$	39,574	$	67,955	$	107,529	$	38,044	$	60,260	$	98,304
Americas (excluding the United States)	14,949		7,347		22,296		15,147		7,945		23,092
Europe, Middle East & Africa	23,206		11,492		34,698		22,623		11,027		33,650
Asia Pacific	25,200		12,584		37,784		22,767		12,304		35,071
Total sales from contracts with customers	$	102,929	$	99,378	$	202,307	$	98,581	$	91,536	$	190,117

Timing of Revenue Recognition
Goods transferred at a point in time	$	94,640	$	98,992	$	193,632	$	91,047	$	91,307	$	182,354
Services transferred over time	8,289		386		8,675		7,534		229		7,763
Total sales from contracts with customers	$	102,929	$	99,378	$	202,307	$	98,581	$	91,536	$	190,117



	Nine Months Ended						Nine Months Ended
	September 30, 2018						September 30, 2017
	Orthopedic Surgery		General Surgery		Total		Orthopedic Surgery		General Surgery		Total
Primary Geographic Markets
United States	$	123,782	$	199,653	$	323,435	$	121,320	$	176,421	$	297,741
Americas (excluding the United States)	48,307		23,374		71,681		43,256		22,902		66,158
Europe, Middle East & Africa	80,951		38,420		119,371		76,774		35,655		112,429
Asia Pacific	68,883		33,821		102,704		66,581		30,928		97,509
Total sales from contracts with customers	$	321,923	$	295,268	$	617,191	$	307,931	$	265,906	$	573,837

Timing of Revenue Recognition
Goods transferred at a point in time	$	297,096	$	294,196	$	591,292	$	283,728	$	265,391	$	549,119
Services transferred over time	24,827		1,072		25,899		24,203		515		24,718
Total sales from contracts with customers	$	321,923	$	295,268	$	617,191	$	307,931	$	265,906	$	573,837

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



	September 30, 2018		December 31, 2017

Contract liability	$	10,375	$	7,786

Revenue recognized during nine months ended September 30, 2018 and September 30, 2017 from amounts included in contract liabilities at the beginning of the period were $6.6 million and $4.7 million, respectively. There were no material contract assets as of September 30, 2018 and December 31, 2017.