2 unchanged sentences
In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from the COVID-19 pandemic.
−Removed: Further discussion of the impact of the COVID-19 pandemic on our business may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors” for further discussion of the impact of the COVID-19 pandemic on our business.
+Added: Further discussion of the impact of the COVID-19 pandemic on our business may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors” .
Interest Rate Risk
2 unchanged sentences
Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates, and, as a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.
−Removed: As of December 31, 2020, we had no investments in available-for-sale marketable securities.
+Added: As of December 31, 2021, we had approximately $197.3 million invested in available-for-sale marketable securities.
An immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows.
10 unchanged sentences
These instruments are marked to market through earnings every period and generally are one month in original maturity.
−Removed: Prior to the closing of the exocad acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of €376.0 million.
−Removed: During the year ended December 31, 2020 , we recognized a loss of $10.2 million within other income (expense), net in our Consolidated Statement of Operation.
We do not enter into foreign currency forward contracts for trading or speculative purposes.
3 unchanged sentences
dollar on our results of operations and financial position could be material.
−Removed: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
−Removed: INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Report of Management on Internal Control over Financial Reporting 53
−Removed: Report of Independent Registered Public Accounting Firm 54
−Removed: Consolidated Statements of Operations for the year ended December 31, 2020, 2019 and 2018 57
−Removed: Consolidated Statements of Comprehensive Income for the year ended December 31, 2020, 2019 and 2018 58
−Removed: Consolidated Balance Sheets as of December 31, 2020 and 2019 59
−Removed: Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2020, 2019 and 2018 60
−Removed: Consolidated Statements of Cash Flows for the year ended December 31, 2020, 2019 and 2018 61
−Removed: Notes to Consolidated Financial Statements 62
−Removed: REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
−Removed: Management of Align is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
−Removed: Our internal control over financial reporting is designed by, or under supervision of, our CEO and CFO, and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
−Removed: Internal control over financial reporting includes those policies and procedures that:
−Removed: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Align;
−Removed: • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Align are being made only in accordance with authorizations of management and directors of Align;
−Removed: • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Align’s assets that could have a material effect on the financial statements.
−Removed: Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
−Removed: In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
−Removed: Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020.
−Removed: In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
−Removed: Based on our assessment, management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on criteria in Internal Control - Integrated Framework (2013) issued by the COSO .
−Removed: The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
−Removed: / S / JOSEPH M.
−Removed: President and Chief Executive Officer
−Removed: February 26, 2021
−Removed: / S / JOHN F.
−Removed: Chief Financial Officer and Senior Vice President, Global Finance
−Removed: February 26, 2021
−Removed: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
−Removed: To the Board of Directors and Stockholders of Align Technology, Inc.
−Removed: Opinions on the Financial Statements and Internal Control over Financial Reporting
−Removed: We have audited the accompanying consolidated balance sheets of Align Technology, Inc.
−Removed: and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15 (a)(2) (collectively referred to as the “consolidated financial statements”).
−Removed: We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
−Removed: In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
−Removed: Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
−Removed: Change in Accounting Principle
−Removed: As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
−Removed: Basis for Opinions
−Removed: The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting.
−Removed: Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.
−Removed: We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
−Removed: federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audits in accordance with the standards of the PCAOB.
−Removed: Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
−Removed: Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
−Removed: Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
−Removed: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
−Removed: Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
−Removed: Our audits also included performing such other procedures as we considered necessary in the circumstances.
−Removed: We believe that our audits provide a reasonable basis for our opinions.
−Removed: Definition and Limitations of Internal Control over Financial Reporting
−Removed: A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
−Removed: A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
−Removed: (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
−Removed: and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
−Removed: Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
−Removed: Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
−Removed: Critical Audit Matters
−Removed: The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.
−Removed: The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
−Removed: Revenue Recognition – Determination of Standalone Selling Price of Distinct Performance Obligations in Clear Aligner Contracts
−Removed: As described in Notes 1 and 18 to the consolidated financial statements, the Company recognized net revenues of $2.1 billion from its Clear Aligner segment for the year ended December 31, 2020.
−Removed: The Company enters into contracts (“treatment plans”) that involve multiple future performance obligations.
−Removed: Management identifies a performance obligation as distinct if both of the following criteria are met:
−Removed: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
−Removed: Determining the standalone selling price, allocation of consideration from the contract to the individual performance obligations, and the appropriate timing of revenue recognition is the result of significant qualitative and quantitative judgments.
−Removed: Management considers a variety of factors such as historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates.
−Removed: Management also considers usage rates, which is the number of times a customer is expected to order additional aligners.
−Removed: Management’s process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.
−Removed: The principal considerations for our determination that performing procedures related to revenue recognition and the determination of standalone selling price of distinct performance obligations in Clear Aligner contracts is a critical audit matter are the significant judgment by management in determining the estimate of standalone selling price, which includes significant assumptions related to usage rates for each distinct performance obligation.
−Removed: This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s determination of the estimates of standalone selling price and usage rates for each distinct performance obligation.
−Removed: Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
−Removed: These procedures included testing the effectiveness of controls relating to revenue recognition, including controls over the determination of standalone selling price for each distinct performance obligation in the Company’s Clear Aligner contracts.
−Removed: These procedures also included, among others, (i) testing management’s process for determining the estimate of standalone selling price, which included testing the completeness and accuracy of inputs used and evaluating the reasonableness of factors considered by management related to historical sales, usage rates, costs, and gross margin, and (ii) testing management’s process for estimating usage rates, which included evaluating the reasonableness of inputs evaluated by management related to historical usage data by region, country and channel.
−Removed: Deferred Tax Asset – Valuation of Intellectual Property Rights
−Removed: As described in Notes 1 and 15 to the consolidated financial statements, during the year ended December 31, 2020, the Company completed an intra-entity transfer of certain intellectual property rights to it’s Swiss subsidiary.
−Removed: The transfer of intellectual property rights resulted in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights.
−Removed: Consequently, the transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of $1.5 billion.
−Removed: The establishment of deferred tax assets from the intra-entity transfer of intangible assets required management to make significant estimates and assumptions to determine the fair value of intellectual property rights transferred which include, but are not limited to, management’s expectations of growth rates in revenue, margins, future cash flows, and discount rates.
−Removed: The principal considerations for our determination that performing procedures relating to the deferred tax asset, specifically the valuation of intellectual property rights, is a critical audit matter are the significant judgment by management when estimating the fair value of the intellectual property rights intangible assets.
−Removed: This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the growth rates in revenue, margins and future cash flows.
−Removed: Also, the audit effort involved the use of professionals with specialized skill and knowledge.
−Removed: Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
−Removed: These procedures included testing the effectiveness of controls over management’s valuation of intellectual property rights, including controls over the development of the growth rates in revenue, margins and future cash flows.
−Removed: These procedures also included, among others, (i) reading the intellectual property license agreement, (ii) testing management’s process for estimating the fair value of intellectual property rights intangible assets transferred, which included evaluating the appropriateness of the valuation method, (iii) testing the completeness, accuracy, and relevance of data used in the method, and (iv) evaluating the reasonableness of management’s significant assumptions related to growth rates in revenue, margins and future cash flows.
−Removed: Evaluating the reasonableness of the growth rates in revenue, margins and future cash flows involved considering current and past performance of the business.
−Removed: Professionals with specialized skill and knowledge were used to assist in the evaluation of the valuation method and the future cash flows significant assumptions.
−Removed: Acquisition of exocad Global Holdings GmbH – Valuation of Existing Technology Intangible Asset
−Removed: As described in Notes 1 and 5 to the consolidated financial statements, the Company completed the acquisition of exocad Global Holdings GmbH for total purchase consideration of $430 million on April 1, 2020, which resulted in $119 million of intangible assets being recorded on the acquisition date.
−Removed: Intangible assets recorded by the Company in connection with the acquisition primarily included existing technology of $87 million.
−Removed: Management valued the existing technology using the multi-period excess earnings method under the income approach.
−Removed: Management is required to make certain estimates and assumptions with respect to the fair value of intangible assets acquired.
−Removed: The estimates and assumptions used in valuing the existing technology intangible asset include, but are not limited to, the amount and timing of projected future cash flows including forecasted revenues, the discount rate used to determine the present value of these cash flows, and the determination of the assets’ life cycle.
−Removed: The principal considerations for our determination that performing procedures relating to the valuation of the existing technology intangible asset recorded in the acquisition of exocad Global Holdings GmbH is a critical audit matter are the significant judgment by management when estimating the fair value of the existing technology intangible asset.
−Removed: This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenues.
−Removed: Also, the audit effort involved the use of professionals with specialized skill and knowledge.
−Removed: Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
−Removed: These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the existing technology intangible asset and controls over development of the significant assumptions related to forecasted revenues.
−Removed: These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair value of existing technology intangible asset, which included evaluating the appropriateness of the valuation method, (iii) testing the completeness and accuracy of data provided by management used in the method, and (iv) evaluating the reasonableness of management’s significant assumption related to forecasted revenue.
−Removed: Evaluating the reasonableness of forecasted revenues involved gaining an understanding of management’s plans to integrate the existing technology into the Company’s business, as well as past performance of the business related to the existing technology.
−Removed: Professionals with specialized skill and knowledge were used to assist in the evaluation of the valuation method and the forecasted revenues significant assumption.
−Removed: /s/ PricewaterhouseCoopers LLP
−Removed: San Jose, California
−Removed: February 26, 2021
−Removed: We have served as the Company’s auditor since 1997.
−Removed: ALIGN TECHNOLOGY, INC.
−Removed: AND SUBSIDIARIES
−Removed: CONSOLIDATED STATEMENTS OF OPERATIONS
−Removed: (in thousands, except per share data)
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Net revenues $ 2,471,941 $ 2,406,796 $ 1,966,492
−Removed: Cost of net revenues 708,706 662,899 518,625
−Removed: Gross profit 1,763,235 1,743,897 1,447,867
−Removed: Operating expenses:
−Removed: Selling, general and administrative 1,200,757 1,072,053 852,404
−Removed: Research and development 175,307 157,361 128,899
−Removed: Impairments and other charges (gains), net — 22,990 —
−Removed: Litigation settlement gain — ( 51,000 ) —
−Removed: Total operating expenses 1,376,064 1,201,404 981,303
−Removed: Income from operations 387,171 542,493 466,564
−Removed: Interest income and other income (expense), net:
−Removed: Interest income 3,125 12,482 8,576
−Removed: Other income (expense), net ( 11,347 ) 7,676 ( 8,489 )
−Removed: Total interest income and other income (expense), net ( 8,222 ) 20,158 87
−Removed: Net income before provision for (benefit from) income taxes and equity in losses of investee 378,949 562,651 466,651
−Removed: Provision for (benefit from) income taxes ( 1,396,939 ) 112,347 57,723
−Removed: Equity in losses of investee, net of tax — 7,528 8,693
−Removed: Net income $ 1,775,888 $ 442,776 $ 400,235
−Removed: Net income per share:
−Removed: Basic $ 22.55 $ 5.57 $ 5.00
−Removed: Diluted $ 22.41 $ 5.53 $ 4.92
−Removed: Shares used in computing net income per share:
−Removed: Basic 78,760 79,424 80,064
−Removed: Diluted 79,230 80,100 81,357
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: ALIGN TECHNOLOGY, INC.
−Removed: AND SUBSIDIARIES
−Removed: CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
−Removed: (in thousands)
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Net income $ 1,775,888 $ 442,776 $ 400,235
−Removed: Change in foreign currency translation adjustment, net of tax 44,383 1,787 ( 3,631 )
−Removed: Change in unrealized gains (losses) on investments, net of tax ( 194 ) 299 286
−Removed: Other comprehensive income (loss) 44,189 2,086 ( 3,345 )
−Removed: Comprehensive income $ 1,820,077 $ 444,862 $ 396,890
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: ALIGN TECHNOLOGY, INC.
−Removed: AND SUBSIDIARIES
−Removed: CONSOLIDATED BALANCE SHEETS
−Removed: (in thousands, except per share data)
−Removed: Current assets:
−Removed: Cash and cash equivalents $ 960,843 $ 550,425
−Removed: Marketable securities, short-term — 318,202
−Removed: Accounts receivable, net of allowance for doubtful accounts of $ 10,239 and $ 6,756 , respectively
−Removed: 657,704 550,291
−Removed: Inventories 139,237 112,051
−Removed: Prepaid expenses and other current assets 91,754 102,450
−Removed: Total current assets 1,849,538 1,633,419
−Removed: Property, plant and equipment, net 734,721 631,730
−Removed: Operating lease right-of-use assets, net 82,553 56,244
−Removed: Goodwill 444,817 63,924
−Removed: Intangible assets, net 130,072 11,768
−Removed: Deferred tax assets 1,552,831 64,007
−Removed: Other assets 35,151 39,610
−Removed: Total assets $ 4,829,683 $ 2,500,702
−Removed: LIABILITIES AND STOCKHOLDERS’ EQUITY
−Removed: Current liabilities:
−Removed: Accounts payable $ 142,132 $ 87,250
−Removed: Accrued liabilities 405,582 319,958
−Removed: Deferred revenues 777,887 563,762
−Removed: Total current liabilities 1,325,601 970,970
−Removed: Income tax payable 105,748 102,794
−Removed: Operating lease liabilities 64,445 43,463
−Removed: Other long-term liabilities 100,024 37,306
−Removed: Total liabilities 1,595,818 1,154,533
−Removed: Commitments and contingencies (Notes 10 and 11)
−Removed: Stockholders’ equity:
−Removed: Preferred stock, $ 0.0001 par value ( 5,000 shares authorized;
−Removed: Common stock, $ 0.0001 par value ( 200,000 shares authorized;
−Removed: 78,860 and 78,433 issued and outstanding, respectively)
−Removed: Additional paid-in capital 974,556 906,937
−Removed: Accumulated other comprehensive income (loss), net 43,501 ( 688 )
−Removed: Retained earnings 2,215,800 439,912
−Removed: Total stockholders’ equity 3,233,865 1,346,169
−Removed: Total liabilities and stockholders’ equity $ 4,829,683 $ 2,500,702
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: ALIGN TECHNOLOGY, INC.
−Removed: AND SUBSIDIARIES
−Removed: CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
−Removed: (in thousands)
−Removed: Common Stock Additional
−Removed: Capital Accumulated
−Removed: Comprehensive
−Removed: Income (Loss), Net Retained Earnings Total
−Removed: Shares Amount
−Removed: Balance as of December 31, 2017 80,040 $ 8 $ 886,435 $ 571 $ 267,274 $ 1,154,288
−Removed: Net income — — — — 400,235 400,235
−Removed: Net change in unrealized gains (losses) from investments — — — 286 — 286
−Removed: Net change in foreign currency translation adjustment — — — ( 3,631 ) — ( 3,631 )
−Removed: Issuance of common stock relating to employee equity compensation plans 795 — 16,635 — — 16,635
−Removed: Tax withholdings related to net share settlements of equity awards — — ( 86,067 ) — — ( 86,067 )
−Removed: Common stock repurchased and retired ( 1,057 ) — ( 10,252 ) — ( 289,750 ) ( 300,002 )
−Removed: Stock-based compensation — — 70,763 — — 70,763
−Removed: Other — — — — 384 384
−Removed: Balance as of December 31, 2018 79,778 8 877,514 ( 2,774 ) 378,143 1,252,891
−Removed: Net income — — — — 442,776 442,776
−Removed: Net change in unrealized gains (losses) from investments — — — 299 — 299
−Removed: Net change in foreign currency translation adjustment
−Removed: — — — 1,787 — 1,787
−Removed: Issuance of common stock relating to employee equity compensation plans 542 — 17,907 — — 17,907
−Removed: Tax withholdings related to net share settlements of equity awards — — ( 57,676 ) — — ( 57,676 )
−Removed: Common stock repurchased and retired ( 1,887 ) — ( 18,992 ) — ( 381,007 ) ( 399,999 )
−Removed: Stock-based compensation — — 88,184 — — 88,184
−Removed: Balance as of December 31, 2019 78,433 8 906,937 ( 688 ) 439,912 1,346,169
−Removed: Net income — — — — 1,775,888 1,775,888
−Removed: Net change in unrealized gains (losses) from investments — — — ( 194 ) — ( 194 )
−Removed: Net change in foreign currency translation adjustment — — — 44,383 — 44,383
−Removed: Issuance of common stock relating to employee equity compensation plans 427 — 20,314 — — 20,314
−Removed: Tax withholdings related to net share settlements of equity awards — — ( 51,122 ) — — ( 51,122 )
−Removed: Stock-based compensation — — 98,427 — — 98,427
−Removed: Balance as of December 31, 2020 78,860 $ 8 $ 974,556 $ 43,501 $ 2,215,800 $ 3,233,865
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: ALIGN TECHNOLOGY, INC.
−Removed: AND SUBSIDIARIES
−Removed: CONSOLIDATED STATEMENTS OF CASH FLOWS
−Removed: (in thousands)
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: CASH FLOWS FROM OPERATING ACTIVITIES:
−Removed: Net income $ 1,775,888 $ 442,776 $ 400,235
−Removed: Adjustments to reconcile net income to net cash provided by operating activities:
−Removed: Deferred taxes ( 1,491,577 ) 307 ( 15,680 )
−Removed: Depreciation and amortization 93,538 78,990 54,727
−Removed: Stock-based compensation
−Removed: 98,427 88,184 70,763
−Removed: Non-cash operating lease cost 22,467 18,475 —
−Removed: Allowance for doubtful accounts provisions 12,073 5,853 870
−Removed: Impairments on equity investments 5,887 3,975 —
−Removed: Impairments on long-lived assets — 28,498 —
−Removed: Gain on lease terminations — ( 6,792 ) —
−Removed: Gain from sale of equity method investment — ( 15,769 ) —
−Removed: Equity in losses of investee — 7,528 8,693
−Removed: Other non-cash operating activities 15,783 20,032 16,382
−Removed: Changes in assets and liabilities, net of effects of acquisition:
−Removed: Accounts receivable ( 139,777 ) ( 121,014 ) ( 109,224 )
−Removed: Inventories ( 29,110 ) ( 58,269 ) ( 24,109 )
−Removed: Prepaid expenses and other assets ( 21,130 ) ( 31,529 ) ( 9,122 )
−Removed: Accounts payable 52,206 22,099 25,045
−Removed: Accrued and other long-term liabilities 42,168 60,240 36,250
−Removed: Long-term income tax payable ( 2,802 ) 14,611 ( 36,548 )
−Removed: Deferred revenues 228,133 189,075 136,399
−Removed: Net cash provided by operating activities 662,174 747,270 554,681
−Removed: CASH FLOWS FROM INVESTING ACTIVITIES:
−Removed: Acquisition, net of cash acquired ( 420,788 ) — —
−Removed: Purchase of property, plant and equipment ( 154,916 ) ( 149,707 ) ( 223,312 )
−Removed: Purchase of marketable securities ( 5,341 ) ( 693,284 ) ( 180,191 )
−Removed: Proceeds from maturities of marketable securities 42,641 290,754 375,105
−Removed: Proceeds from sales of marketable securities 278,817 194,677 9,560
−Removed: Repayment on unsecured promissory note 26,925 21,820 —
−Removed: Purchase of investment in privately held company — — ( 5,000 )
−Removed: Loan repayment from equity investee — — 30,000
−Removed: Other investing activities 1,156 ( 14,704 ) 765
−Removed: Net cash (used in) provided by investing activities ( 231,506 ) ( 350,444 ) 6,927
−Removed: CASH FLOWS FROM FINANCING ACTIVITIES:
−Removed: Proceeds from issuance of common stock 20,314 17,907 16,635
−Removed: Payroll taxes paid upon the vesting of equity awards ( 51,122 ) ( 57,675 ) ( 86,067 )
−Removed: Common stock repurchases — ( 399,999 ) ( 300,002 )
−Removed: Purchase of finance lease — ( 45,773 ) —
−Removed: Net cash used in financing activities ( 30,808 ) ( 485,540 ) ( 369,434 )
−Removed: Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 10,480 2,282 ( 4,733 )
−Removed: Net increase (decrease) in cash, cash equivalents, and restricted cash 410,340 ( 86,432 ) 187,441
−Removed: Cash, cash equivalents, and restricted cash at beginning of year 551,134 637,566 450,125
−Removed: Cash, cash equivalents, and restricted cash at end of year $ 961,474 $ 551,134 $ 637,566
−Removed: The accompanying notes are an integral part of these consolidated financial statements.
−Removed: ALIGN TECHNOLOGY, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Summary of Significant Accounting Policies
−Removed: Business Description
−Removed: Align Technology, Inc.
−Removed: (“We”, “Our”, or “Align”) was incorporated in April 1997 in Delaware.
−Removed: Align is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners, iTero® intraoral scanners, services for orthodontics, restorative and aesthetic dentistry and exocad® computer-aided design and computer-aided manufacturing (“CAD/CAM”) software for dental laboratories and dental practitioners.
−Removed: Align’s products are intended primarily for the treatment of malocclusion or the misalignment of teeth and are designed to help dental professionals achieve the clinical outcomes that they expect and the results patients desire.
−Removed: Our corporate headquarters is in Tempe, Arizona, which moved from San Jose, California effective January 1, 2021 and we have offices worldwide.
−Removed: Our Americas regional headquarters is located in Raleigh, North Carolina;
−Removed: our European, Middle East and Africa (“EMEA”) regional headquarters is located in Rotkreuz, Switzerland;
−Removed: and our Asia Pacific (“APAC”) regional headquarters is located in Singapore.
−Removed: We have two operating segments:
−Removed: (1) Clear Aligner, known as the Invisalign System, and (2) Imaging Systems and CAD/CAM services (“Systems and Services”), known as the iTero intraoral scanner and CAD/CAM services.
−Removed: Basis of Presentation and Preparation
−Removed: The consolidated financial statements include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions and balances.
−Removed: Out of Period Adjustment
−Removed: In fiscal 2020, we recorded an out of period correction that resulted in a tax benefit of $ 12.7 million.
−Removed: We do not believe the out of period adjustment is material to the interim or annual consolidated financial statements for the fiscal year ended December 31, 2020 or to any prior periods.
−Removed: Use of Estimates
−Removed: The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
−Removed: Actual results could differ materially from those estimates.
−Removed: On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes and contingent liabilities, the fair values of financial instruments, stock-based compensation, unsecured promissory note receivable, and valuation of investments in privately held companies among others.
−Removed: We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
−Removed: Fair Value of Financial Instruments
−Removed: We measure the fair value of financial assets as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
−Removed: We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
−Removed: This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
−Removed: The three levels of inputs that may be used to measure fair value:
−Removed: Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.
−Removed: Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
−Removed: We obtain fair values for our Level 2 investments.
−Removed: Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.
−Removed: Level 3 - Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
−Removed: Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
−Removed: Cash and Cash Equivalents
−Removed: We consider currency on hand, demand deposits, time deposits, and all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash and cash equivalents.
−Removed: Cash and cash equivalents are held in various financial institutions in the U.S.
−Removed: and internationally.
−Removed: Restricted Cash
−Removed: The restricted cash primarily consists of funds reserved for legal requirements.
−Removed: Restricted cash balances are primarily included in other assets within our Consolidated Balance Sheet.
−Removed: Marketable Securities
−Removed: Our marketable securities consist of marketable debt securities which are classified as available-for-sale and are carried at fair value.
−Removed: Marketable securities classified as current assets have maturities within one year.
−Removed: Unrealized gains or losses on such securities are included in accumulated other comprehensive income (loss), net in stockholders’ equity.
−Removed: Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method.
−Removed: Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income (expense), net, as incurred.
−Removed: We periodically evaluate these investments for other-than-temporary impairment.
−Removed: Variable Interest Entities
−Removed: We evaluate whether an entity in which we have made an investment is considered a variable interest entity (“VIE”).
−Removed: If we determine we are the primary beneficiary of a VIE, we would consolidate the VIE into our financial statements.
−Removed: In determining if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE ’ s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
−Removed: Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances.
−Removed: Our assessments of whether we are the primary beneficiary of a VIE require significant assumptions and judgments.
−Removed: We have concluded that we are not the primary beneficiary of our VIE investments;
−Removed: therefore, we do not consolidate their results into our consolidated financial statements.
−Removed: Investments in Privately Held Companies
−Removed: Investments in privately held companies in which we can exercise significant influence but do not own a majority equity interest or otherwise control are accounted for under ASC 323, “ Investments -Equity Method and Joint Ventures .
−Removed: ” We record our share of their operating results within equity in losses of investee, net of tax, in our Consolidated Statement of Operations.
−Removed: Investments in privately held companies in which we cannot exercise significant influence and do not own a majority equity interest or otherwise control are accounted for under ASC 321, “ Investments -Equity Securities .
−Removed: ” The equity securities without readily determinable fair values are recorded at cost and adjusted for impairments and observable price changes with a same or similar security from the same issuer (“Measurement Alternative ” ) .
−Removed: Equity securities under ASC 321 are reported on our Consolidated Balance Sheet as other assets, and we record a change in carrying value of our equity securities, if any, in other income (expense), net in our Consolidated Statement of Operations.
−Removed: Equity securities are evaluated for impairment as events or circumstances indicate that there is an other-than-temporary loss in value.
−Removed: The decrease in value is recognized in the period the impairment occurs and recorded in other income (expense), net in the Consolidated Statement of Operations.
−Removed: Derivative Financial Instruments
−Removed: We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations associated with certain assets and liabilities.
−Removed: These forward contracts are not designated as hedging instruments and do not subject us to material balance sheet risk due to fluctuations in foreign currency exchange rates.
−Removed: The gains and losses on
−Removed: these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged.
−Removed: We do not enter into foreign currency forward contracts for trading or speculative purposes.
−Removed: The net gain or loss from the settlement of these foreign currency forward contracts is recorded in other income (expense), net in the Consolidated Statement of Operations.
−Removed: Foreign Currency
−Removed: For our international subsidiaries, we analyze on an annual basis or more often if necessary, if a significant change in facts and circumstances indicate that the functional currency has changed.
−Removed: For international subsidiaries where the local currency is the functional currency, adjustments from translating financial statements from the local currency to the U.S.
−Removed: dollar reporting currency are recorded as a separate component of accumulated other comprehensive income (loss), net in the stockholders’ equity section of the Consolidated Balance Sheet.
−Removed: This foreign currency translation adjustment reflects the translation of the balance sheet at period end exchange rates, and the income statement at the transaction date or average exchange rate in effect during the period.
−Removed: The foreign currency revaluation that are derived from monetary assets and liabilities stated in a currency other than functional currency are included in other income (expense), net.
−Removed: For the year ended December 31, 2020, 2019 and 2018, we had foreign currency net gains (losses) of $ 6.8 million, $( 2.0 ) million and $( 5.6 ) million, respectively.
−Removed: Certain Risks and Uncertainties
−Removed: Our operating results depend to a significant extent on our ability to market and develop our products.
−Removed: The life cycles of our products are difficult to estimate due, in part, to the effect of future product enhancements and competition.
−Removed: Our inability to successfully develop and market our products as a result of competition or other factors would have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our cash and investments are held primarily by four financial institutions.
−Removed: Financial instruments which potentially expose us to concentrations of credit risk consist primarily of cash equivalents and marketable securities.
−Removed: We invest excess cash primarily in money market funds, commercial paper, corporate bonds, U.S.
−Removed: government agency bonds, U.S.
−Removed: government treasury bonds and certificates of deposits.
−Removed: If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could adversely affect our results of operations and financial condition.
−Removed: Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of the U.S.
−Removed: We provide credit to customers in the normal course of business.
−Removed: Collateral is not required for accounts receivable, but ongoing evaluations of customers’ credit worthiness are performed.
−Removed: We maintain reserves for potential credit losses and such losses have been within management’s expectations.
−Removed: No individual customer accounted for 10% or more of our accounts receivable at December 31, 2020 or 2019, or net revenues for the year ended December 31, 2020, 2019 or 2018.
−Removed: Food and Drug Administration (“FDA”) and similar international agencies regulate the design, manufacture, distribution, pre-clinical and clinical study, clearance and approval of medical devices.
−Removed: Products developed by us may require approvals or clearances from the FDA or other international regulatory agencies prior to commercialized sales.
−Removed: There can be no assurance that our products will receive any of the required approvals or clearances.
−Removed: If we were denied approval or clearance or such approval was delayed, it may have a material adverse impact on us.
−Removed: We have manufacturing facilities located in Juarez, Mexico, where we conduct our aligner fabrication, distribution, repair of our iTero scanners and perform certain CAD/CAM services and in Ziyang, China, where we fabricate aligners primarily for the China and APAC markets.
−Removed: In addition, we produce our handheld intraoral scanner wand, perform final scanner assembly and repair our scanners at our facilities in Or Yehuda, Israel and Ziyang, China.
−Removed: Our digital treatment plans using a sophisticated, internally developed computer-modeling program are located in multiple international locations to support our customers within the regions.
−Removed: Our reliance on international operations exposes us to related risks and uncertainties, including difficulties in staffing and managing international operations such as hiring and retaining qualified personnel;
−Removed: controlling production volume and quality of manufacture;
−Removed: political, social and economic instability;
−Removed: interruptions and limitations in telecommunication services;
−Removed: product and material transportation delays or disruption;
−Removed: trade restrictions and changes in tariffs;
−Removed: import and export license requirements and restrictions;
−Removed: fluctuations in foreign currency exchange rates;
−Removed: and potential adverse tax consequences.
−Removed: If any of these risks materialize, our international manufacturing operations, as well as our operating results, may be harmed.
−Removed: We purchase certain inventory from sole suppliers.
−Removed: Additionally, we rely on a limited number of hardware manufacturers.
−Removed: The inability of any supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.
−Removed: Due to the COVID-19 pandemic, we are subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies.
−Removed: As the COVID-19 pandemic continues to be a global issue, we may make changes to these estimates and judgments, which could result in meaningful impacts to our financial statements in future periods.
−Removed: The extent and duration of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict and the response to the pandemic is rapidly evolving.
−Removed: The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, all of which are uncertain and cannot be predicted.
−Removed: Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions or limitations, changes in manufacturing efficiency and capacity constraints caused by uneven or rapid changes in demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by us or our customers.
−Removed: Additionally, the uncertainty of future results and cash flows may impact our significant assumptions and estimates including the collectability of accounts and other receivables and realization of our deferred tax assets.
−Removed: The extent to which the COVID-19 pandemic may continue to materially impact our financial condition, liquidity, or results of operations is uncertain for all of the foregoing reasons stated above and many others directly and indirectly related to the virus and efforts to contain its spread.
−Removed: Inventories are valued at the lower of cost or net realizable value, with cost computed using standard cost which approximates actual cost on a first-in-first-out basis.
−Removed: Excess and obsolete inventories are determined primarily based on future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of net revenues.
−Removed: Property, Plant and Equipment
−Removed: Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization.
−Removed: Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets.
−Removed: Construction in progress ("CIP") is related to the construction or development of property (including land) and equipment that have not yet been placed in service for their intended use.
−Removed: Upon sale or retirement, the asset’s cost and related accumulated depreciation are removed from the balance sheet and any related gains or losses are reflected in income from operations.
−Removed: Maintenance and repairs are expensed as incurred.
−Removed: Refer to Note 3 "Balance Sheet Components" of the Notes of Consolidated Financial Statements for details on estimated useful lives .
−Removed: We lease office and retail spaces, vehicles and office equipment with original lease periods of up to 10 years.
−Removed: We determine if an arrangement is a lease at inception under ASC 842, which we adopted in 2019.
−Removed: Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
−Removed: ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
−Removed: If a lease arrangement does not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
−Removed: We use the implicit rate when readily determinable.
−Removed: Our lease terms may include options to extend or terminate the lease which we include in our lease term when it is reasonably certain that we will exercise that option.
−Removed: We have lease agreements with lease and non-lease components which are accounted for as a single lease component.
−Removed: Leases with an initial term of 12 months or less are not recorded on the balance sheet.
−Removed: Payments under our lease arrangements are primarily fixed, however, certain lease agreements contain variable payments, which are expensed as incurred and not included in the operating lease right-of-use assets and liabilities.
−Removed: Business Combinations
−Removed: We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.
−Removed: When determining the fair value of assets acquired and liabilities assumed, management is required to make certain estimates and assumptions, especially with respect to intangible assets.
−Removed: The estimates and assumptions used in valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows including forecasted revenues, the discount rate used to determine the present value of these cash flows, and the determination of the assets’ life cycle.
−Removed: Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
−Removed: Goodwill and Finite-Lived Acquired Intangible Assets
−Removed: Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in business combinations and is allocated to the respective reporting units based on relative synergies generated.
−Removed: Our intangible assets primarily consist of intangible assets acquired as part of our acquisitions.
−Removed: These assets are amortized using the straight-line method over their estimated useful lives ranging from one to fifteen years reflecting the period in which the economic benefits of the assets are expected to be realized.
−Removed: Impairment of Goodwill and Long-Lived Assets
−Removed: We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or changes in circumstances suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount.
−Removed: The allocation of goodwill to the respective reporting unit is based on relative synergies generated as a result of an acquisition.
−Removed: We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
−Removed: In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units.
−Removed: These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance.
−Removed: We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed.
−Removed: If, after assessing the totality of relevant events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed;
−Removed: however, if we conclude otherwise, then we will perform the quantitative impairment test which compares the estimated fair value of the reporting unit to its carrying value, including goodwill.
−Removed: If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would be recorded in the Consolidated Statement of Operations.
−Removed: Finite-Lived Intangible Assets and Long-Lived Assets
−Removed: We evaluate long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.
−Removed: An asset or asset group is considered impaired if its carrying amount exceeds the future undiscounted net cash flows that the asset or asset group is expected to generate.
−Removed: Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment.
−Removed: If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value.
−Removed: Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many assumptions.
−Removed: The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors.
−Removed: Refer to Note 6 "Goodwill and Intangible Assets" of Notes to Consolidated Financial Statements for details on intangible long-lived assets .
−Removed: Development Costs for Internal Use Software
−Removed: Internally developed software includes enterprise-level business software that we customize to meet our specific operational needs.
−Removed: Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications.
−Removed: There were no significant internally developed software costs capitalized in 2020 or 2019.
−Removed: The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility.
−Removed: As such, all related software development costs are expensed as incurred and included in research and development expense in our Consolidated Statement of Operations.
−Removed: Product Warranty
−Removed: We offer assurance warranties on our products which provide the customer assurance that the product will function as the parties intended because it complies with agreed-upon specifications;
−Removed: therefore, warranties are not treated as a separate revenue performance obligation and are accounted for as guarantees under GAAP.
−Removed: Clear Aligner
−Removed: We warrant our Invisalign products against material defects until the treatment plan is complete except in the case of retainers, which are warranted up to three months from expected first use.
−Removed: We accrue for warranty costs in cost of net revenues upon shipment of products which is primarily based on historical experience as to product failures as well as current information on replacement costs.
−Removed: Systems and Services
−Removed: We warrant our intraoral scanners for a period of one year , which include materials and labor.
−Removed: We accrue for these warranty costs based on average historical repair costs.
−Removed: An extended warranty may be purchased for additional fees.
−Removed: We warrant our CAD/CAM software for a one year period to perform in accordance with agreed product specifications.
−Removed: As we have not historically incurred any material warranty costs, we do not accrue for these software warranties.
−Removed: We regularly review our warranty liability and update these balances based on historical warranty cost trends.
−Removed: Actual warranty costs incurred have not materially differed from those accrued;
−Removed: however future actual warranty costs could differ from the estimated amounts.
−Removed: Allowance for Doubtful Accounts
−Removed: We maintain an allowance for doubtful accounts for customers that are not able to make payments.
−Removed: We periodically review these balances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness.
−Removed: Actual write-offs have not materially differed from the estimated allowances.
−Removed: Revenue Recognition
−Removed: Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments.
−Removed: We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period.
−Removed: We measure and allocate revenues according to ASC 606-10, “ Revenues from Contracts with Customers.
−Removed: We identify a performance obligation as distinct if both of the following criteria are met:
−Removed: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
−Removed: Determining the standalone selling price (“SSP”), allocation of consideration from the contract to the individual performance obligations and the appropriate timing of revenue recognition is the result of significant qualitative and quantitative judgments.
−Removed: While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations.
−Removed: This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
−Removed: Clear Aligner
−Removed: We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations.
−Removed: Invisalign Comprehensive, Invisalign First, Invisalign Moderate, and Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment, and Invisalign Go includes optional additional aligners at no charge for a period of up to two years after initial shipment.
−Removed: Our treatment plans comprise the following performance obligations that also represent distinct deliverables:
−Removed: initial aligners, additional aligners, case refinement, and replacement aligners.
−Removed: We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation.
−Removed: We allocate revenues for each treatment plan based on each unit’s SSP.
−Removed: Management considers a variety of factors such as historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates.
−Removed: We also consider usage rates, which is the number of times a customer is expected to order additional aligners.
−Removed: Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.
−Removed: We recognize the revenues upon shipment, as the customers obtain physical possession and we have enforceable rights to payment.
−Removed: As we collect most consideration upfront, we consider whether a significant financing component exists;
−Removed: however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.
−Removed: Systems and Services
−Removed: We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners.
−Removed: The intraoral scanner sales price includes one year of warranty and unlimited scanning services.
−Removed: The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year.
−Removed: When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSP of the scanner and the subscription service.
−Removed: We estimate the SSP of each element, taking into consideration historical prices as well as our discounting strategies.
−Removed: Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control.
−Removed: CAD/CAM services, where sold separately, include the initial software license and maintenance and support.
−Removed: We allocate revenues based upon the respective SSPs of the software license and the maintenance and support.
−Removed: We estimate the SSP of each element using historical prices.
−Removed: Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time.
−Removed: For both scanner and service sales, most consideration is collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing components.
−Removed: Volume Discounts
−Removed: In certain situations, we offer promotions in which the discount will increase depending upon the volume purchased over time.
−Removed: We concluded that in these situations, the promotions can represent either variable consideration or options, depending upon the specifics of the promotion.
−Removed: In the event the promotion contains an option, the option is considered a material right and, therefore, included in the accounting for the initial arrangement.
−Removed: We estimate the average anticipated discount over the lifetime of the promotion or contract, and apply that discount to each unit as it is sold.
−Removed: On a quarterly basis, we review our estimates and, if needed, updates are made and changes are applied prospectively.
−Removed: Accrued Sales Return Reserve
−Removed: We accrue for sales return reserve based on historical sales returns as a percentage of revenues.
−Removed: Costs to Obtain a Contract
−Removed: We offer a variety of commission plans to our salesforce;
−Removed: each plan has multiple components.
−Removed: To match the costs to obtain a contract to the associated revenues, we evaluate the individual components and capitalize the eligible components, recognizing the costs over the treatment period.
−Removed: The costs to obtain contracts were $ 22.8 million and $ 15.1 million as of December 31, 2020 and 2019, respectively, and are included in other assets in our Consolidated Balance Sheets.
−Removed: We recognized amortization on our costs to obtain a contract of $ 10.1 million, $ 7.2 million, and $ 5.4 million during the year ended December 31, 2020, 2019, and 2018, respectively, which is included in selling, general and administrative expenses in our Consolidated Statements of Operations.
−Removed: Unfulfilled Performance Obligations for Clear Aligners and Scanners
−Removed: Our unfulfilled performance obligations, including deferred revenues and backlog, as of December 31, 2020 and the estimated revenues expected to be recognized in the future related to these performance obligations are $ 873.4 million.
−Removed: This includes performance obligations from the Clear Aligner segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years .
−Removed: Also included are the performance obligations from the Systems and Services segment, primarily services and support, which are fulfilled over one to five years , and contracted deliveries of additional scanners.
−Removed: The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.
−Removed: Contract Balances
−Removed: The timing of revenue recognition results in deferred revenues being recognized on our Consolidated Balance Sheet.
−Removed: For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being performed
−Removed: with payment terms generally varying from net 30 to net 180 days.
−Removed: Contract liabilities are recorded as deferred revenue balances, which are generated based upon timing of invoices and recognition patterns, not payments.
−Removed: If the revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset.
−Removed: Conversely, if the billing occurs prior to the revenue recognition, the amount is considered deferred revenue and a contract liability.
−Removed: Shipping and Handling Costs
−Removed: Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of net revenues.
−Removed: Legal Proceedings and Litigations
−Removed: We are involved in legal proceedings on an ongoing basis.
−Removed: If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated loss in our consolidated financial statements.
−Removed: If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome;
−Removed: if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range.
−Removed: Research and Development
−Removed: Research and development costs are expensed as incurred and includes the costs associated with the research and development of new products and enhancements to existing products.
−Removed: These costs primarily include personnel-related costs, including payroll and stock-based compensation, equipment, material and maintenance costs, outside consulting expenses, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and information technology (“IT”).
−Removed: Advertising Costs
−Removed: The cost of advertising and media is expensed as incurred.
−Removed: For the year ended December 31, 2020, 2019 and 2018, we incurred advertising costs of $ 161.0 million, $ 119.1 million and $ 88.4 million, respectively.
−Removed: Common Stock Repurchase
−Removed: We repurchase our own common stock from time to time under stock repurchase programs approved by our Board of Directors.
−Removed: We account for these repurchases under the accounting guidance for equity where we allocate the total repurchase value that is in excess over par value between additional paid-in capital and retained earnings.
−Removed: All shares repurchased are retired.
−Removed: We make certain estimates and judgments in determining income tax expense for financial statement purposes.
−Removed: These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes.
−Removed: As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.
−Removed: This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.
−Removed: These differences result in deferred tax assets and liabilities which are included in our Consolidated Balance Sheet.
−Removed: We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return.
−Removed: The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit based on its technical merits, including resolution of any related appeals or litigation processes.
−Removed: The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.
−Removed: We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new information.
−Removed: To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statement of Operation in the period in which such determination is made.
−Removed: We assess the likelihood that we will be able to realize our deferred tax assets.
−Removed: Should there be a change in our ability to realize our deferred tax assets, our tax provision would increase in the period in which we determine that it is more likely than
−Removed: not that we cannot realize our deferred tax assets.
−Removed: We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance.
−Removed: If it is more likely than not that we will not realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realizable.
−Removed: During fiscal 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss subsidiary, which resulted in the recognition of deferred tax assets and related tax benefits.
−Removed: Refer to Note 15 “Income Taxes” of Notes to Consolidated Financial Statements for more information.
−Removed: The establishment of deferred tax assets from the intra-entity transfer of intangible assets required us to make significant estimates and assumptions to determine the fair value of intellectual property rights transferred which include, but are not limited to, our expectations of growth rates in revenue, margins, future cash flows, and discount rates.
−Removed: The accuracy of these estimates could be affected by unforeseen events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities.
−Removed: Tax Cuts and Jobs Act includes provisions for certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income (“GILTI”) which imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.
−Removed: We have made the election to record GILTI tax using the period cost method.
−Removed: Stock-Based Compensation
−Removed: We recognize stock-based compensation cost for shares expected to vest on a straight-line basis over the requisite service period of the award, net of estimated forfeitures.
−Removed: We use the Black-Scholes option pricing model to determine the fair value of stock awards and employee stock purchase plan shares.
−Removed: We use a Monte Carlo simulation model to estimate the fair value of market-performance based restricted stock units ("MSUs") which requires the input of assumptions, including expected term, stock price volatility and the risk-free rate of return.
−Removed: In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited.
−Removed: Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
−Removed: The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment.
−Removed: As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
−Removed: Comprehensive Income
−Removed: Comprehensive income includes all changes in equity during a period from non-owner sources including unrealized gains and losses on investments and foreign currency translation adjustments, net of their related tax effect.
−Removed: Recent Accounting Pronouncements
−Removed: (i) New Accounting Updates Recently Adopted
−Removed: In June 2016, the Financial Accounting Standards Board ( “FASB”) issued ASU 2016-13, “ Financial Instruments - Credit Losses ” (Topic 326) to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.
−Removed: The amendments in this update replace the existing guidance of incurred loss impairment methodology with an approach that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
−Removed: In November 2018, the FASB issued ASU 2018-19, “ Codification Improvements to Topic 326, Financial Instruments - Credit Losses ” which clarifies the scope of guidance in the ASU 2016-13 .
−Removed: The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.
−Removed: We adopted this standard in the first quarter of fiscal year 2020 which did not have a material impact on our consolidated financial statements and related disclosures.
−Removed: In January 2017, the FASB issued ASU 2017-04, “ Intangibles—Goodwill and Other (Topic 350):
−Removed: Simplifying the Test for Goodwill Impairment, ” to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test.
−Removed: Under the amendments in this update, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value.
−Removed: The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis.
−Removed: We adopted this standard in the first quarter of fiscal year 2020 which did not have any impact on our consolidated financial statements and related disclosures.
−Removed: In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):
−Removed: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement .
−Removed: The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis.
−Removed: We adopted this standard in the first quarter of fiscal year 2020 which did not have any impact on our consolidated financial statements and related disclosures .
−Removed: In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” to clarify the guidance on the costs of implementing a cloud computing hosting arrangement that is a service contract.
−Removed: Under the amendments in this update, the entity is required to follow the guidance in Subtopic 350-40, Internal-Use Software , to determine which implementation costs under the service contract to be capitalized as an asset and which costs to expense.
−Removed: The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 either on a retrospective or prospective basis.
−Removed: We adopted this standard in the first quarter of fiscal year 2020 on a prospective basis which did not have any impact on our consolidated financial statements and related disclosures.
−Removed: (ii) Recent Accounting Updates Not Yet Effective
−Removed: In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, ” to enhance and simplify various aspects of the income tax accounting guidance.
−Removed: The amendment removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
−Removed: The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.
−Removed: We will adopt this standard in the first quarter of fiscal year 2021 and do not expect the adoption of this standard to have a material impact on our consolidated financial statements and related disclosures.
−Removed: Investments and Fair Value Measurements
−Removed: Marketable Securities
−Removed: We have no short-term or long-term marketable securities as of December 31, 2020 .
−Removed: As of December 31, 2019 , the carrying value which approximates the estimated fair value of our short-term marketable securities, classified as available for sale, are as follows (in thousands):
−Removed: December 31, 2019 Amortized
−Removed: Losses Fair Value
−Removed: Corporate bonds $ 210,891 $ 142 $ ( 27 ) $ 211,006
−Removed: government treasury bonds
−Removed: 70,587 65 ( 2 ) 70,650
−Removed: government agency bonds 22,085 17 ( 1 ) 22,101
−Removed: Commercial paper 14,426 — — 14,426
−Removed: Certificates of deposit 19 — — 19
−Removed: Total marketable securities, short-term $ 318,008 $ 224 $ ( 30 ) $ 318,202
−Removed: We had no long-term marketable securities as of December 31, 2019.
−Removed: Cash equivalents are not included in the table above as the gross unrealized gains and losses are not material.
−Removed: We had no short-term marketable securities that have been in a continuous material unrealized loss position for greater than twelve months as of December 31, 2019.
−Removed: Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material in 2020, 2019 and 2018.
−Removed: For the year ended December 31, 2020, 2019 and 2018, realized gains or losses were not material.
−Removed: Our fixed-income securities investment portfolio allows for investments with a maximum effective maturity of up to 40 months on any individual security.
−Removed: The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies.
−Removed: The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields.
−Removed: As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss which are primarily due to changes in interest rates and credit spreads.
−Removed: We realized the full value of all these investments upon maturity or sale.
−Removed: The weighted average remaining duration of these securities was approximately seven months as of December 31, 2019.
−Removed: Fair Value Measurements
−Removed: The following tables summarize our financial assets measured at fair value on a recurring basis as of December 31, 2020 and 2019 (in thousands):
−Removed: Description Balance as of December 31, 2020 Level 1
−Removed: Cash equivalents:
−Removed: Money market funds $ 519,228 $ 519,228 $ — $ —
−Removed: Prepaid expenses and other current assets:
−Removed: Israeli funds 3,500 — 3,500 —
−Removed: Current unsecured promissory note 5,408 — — 5,408
−Removed: $ 528,136 $ 519,228 $ 3,500 $ 5,408
−Removed: Description Balance as of December 31, 2019
−Removed: Level 2 Level 3
−Removed: Cash equivalents:
−Removed: Money market funds $ 236,923 $ 236,923 $ — $ —
−Removed: Short-term investments:
−Removed: Corporate bonds 211,006 — 211,006 —
−Removed: Commercial paper 14,426 — 14,426 —
−Removed: government treasury bonds 70,650 70,650 — —
−Removed: government agency bonds 22,101 — 22,101 —
−Removed: Certificates of deposit 19 — 19 —
−Removed: Prepaid expenses and other current assets:
−Removed: Israeli funds 3,226 — 3,226 —
−Removed: Current unsecured promissory note 25,005 — — 25,005
−Removed: Other Assets:
−Removed: Long-term unsecured promissory note 7,328 — — 7,328
−Removed: $ 590,684 $ 307,573 $ 250,778 $ 32,333
−Removed: The unsecured promissory note that was entered into in 2019 with SmileDirectClub, LLC (“SDC”) is classified as Level 3 in our fair value hierarchy as financial information of third parties may not be timely available and consequently we estimate the fair value based on the best available information at the measurement date.
−Removed: The original amount of the note was $ 54.2 million which has decreased due to payments received.
−Removed: Refer to Note 7 “Equity Method Investments” of the Notes to Consolidated Financial Statements for more information.
−Removed: Investments in Privately Held Companies
−Removed: As of December 31, 2020, we had fully impaired our investments in equity securities of privately held companies without readily determinable fair value.
−Removed: As of December 31, 2019, our investments in equity securities of privately held companies without readily determinable fair value were $ 5.9 million and are reported as nonrecurring investments within other assets in our Consolidated Balance Sheet.
−Removed: Our investments in equity securities were considered Level 3 in the fair value hierarchy since the investments were in private companies without quoted market prices and we adjust the carrying value based on observable price changes.
−Removed: During the year ended December 31, 2020 and 2019, we recorded impairment losses of $ 5.9 million and $ 4.0 million, respectively, resulting from observable price changes.
−Removed: Derivatives Not Designated as Hedging Instruments
−Removed: Recurring foreign currency forward contracts
−Removed: We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables.
−Removed: These forward contracts are classified within Level 2 of the fair value hierarchy.
−Removed: As a result of the settlement of foreign currency forward contracts, during the year ended December 31, 2020, 2019 and 2018, we recognized a net loss of $ 22.1 million, a net gain of $ 3.2 million, and a net gain of
−Removed: $ 9.9 million, respectively.
−Removed: As of December 31, 2020 and 2019, the fair value of foreign exchange forward contracts outstanding was not material.
−Removed: The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of December 31, 2020 and 2019 (in thousands):
−Removed: December 31, 2020
−Removed: Local Currency Amount Notional Contract Amount (USD)
−Removed: Euro € 126,300 $ 155,125
−Removed: Chinese Yuan ¥ 936,000 143,393
−Removed: Canadian Dollar C$ 65,000 50,791
−Removed: British Pound £ 32,300 43,879
−Removed: Japanese Yen ¥ 4,249,000 41,222
−Removed: Brazilian Real R$ 142,000 27,264
−Removed: Israeli Shekel ILS 74,000 23,094
−Removed: Mexican Peso M$ 140,000 7,002
−Removed: Australian Dollar A$ 5,800 4,447
−Removed: Swiss Franc CHF 3,700 4,191
−Removed: December 31, 2019
−Removed: Local Currency Amount Notional Contract Amount (USD)
−Removed: Euro € 97,000 $ 108,870
−Removed: Chinese Yuan ¥ 431,000 60,702
−Removed: Canadian Dollar C$ 52,000 39,802
−Removed: British Pound £ 28,000 36,770
−Removed: Brazilian Real R$ 130,000 32,185
−Removed: Japanese Yen ¥ 3,000,000 27,604
−Removed: Israeli Shekel ILS 63,700 18,439
−Removed: Mexican Peso M$ 140,000 7,398
−Removed: Australian Dollar A$ 3,000 2,101
−Removed: Other foreign currency forward contract
−Removed: Prior to the closing of the exocad Global Holdings GmbH (“exocad”) acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of € 376.0 million.
−Removed: As a result of this contract, d uring the year ended December 31, 2020, we recognized a $ 10.2 million loss within other income (expense), net in our Consolidated Statement of Operations.
−Removed: Balance Sheet Components
−Removed: Inventories consist of the following (in thousands):
−Removed: Raw materials $ 76,404 $ 54,947
−Removed: Work in progress 31,393 30,974
−Removed: Finished goods 31,440 26,130
−Removed: Total inventories $ 139,237 $ 112,051
−Removed: Prepaid expenses and other current assets consist of the following (in thousands):
−Removed: Tax related receivables $ 45,243 $ 41,252
−Removed: Prepaid property tax and insurance 14,047 4,648
−Removed: Prepaid software and maintenance 6,070 7,128
−Removed: Current unsecured promissory note 1
−Removed: Others 20,986 24,417
−Removed: Total prepaid expenses and other current assets $ 91,754 $ 102,450
−Removed: 1 Refer to Note 7“Equity Method Investments” of the Notes to Consolidated Financial Statements for more information
−Removed: Property, plant and equipment consist of the following (in thousands):
−Removed: Generally Used Estimated Useful Life 2020 2019
−Removed: Clinical and manufacturing equipment Up to 10 years
−Removed: $ 372,077 $ 309,809
−Removed: Building 20 years
−Removed: 244,166 209,643
−Removed: Leasehold improvements Lease term 1
−Removed: 63,541 53,327
−Removed: Computer software 3 years
−Removed: 62,466 61,722
−Removed: Furniture and fixtures
−Removed: 50,031 44,373
−Removed: Computer hardware
−Removed: 45,602 39,199
−Removed: Land — 34,598 26,422
−Removed: CIP — 163,492 116,751
−Removed: Total 1,035,973 861,246
−Removed: Accumulated depreciation and impairment charges ( 301,252 ) ( 229,516 )
−Removed: Total property, plant and equipment, net $ 734,721 $ 631,730
−Removed: 1 Shorter of the remaining lease term or the estimated useful lives of the assets
−Removed: Depreciation was $ 80.1 million, $ 73.1 million and $ 48.7 million for the year ended December 31, 2020, 2019 and 2018, respectively.
−Removed: In the first quarter of 2019, we recorded impairment losses of $ 14.3 million related to leasehold improvements and other fixed assets.
−Removed: Refer to Note 9 “Impairments and Other Charges (Gains), net” of the Notes to Consolidated Financial Statements for more information.
−Removed: Accrued liabilities consist of the following (in thousands):
−Removed: Accrued payroll and benefits $ 170,106 $ 162,486
−Removed: Accrued expenses 77,024 55,529
−Removed: Accrued income taxes 30,130 14,130
−Removed: Accrued property, plant and equipment 27,692 9,167
−Removed: Current operating lease liabilities 21,735 15,737
−Removed: Others 78,895 62,909
−Removed: Total accrued liabilities $ 405,582 $ 319,958
−Removed: Accrued warranty as of December 31, 2020 and 2019, which is included in the “Others” category of the accrued liabilities table above, consists of the following activity (in thousands):
−Removed: Accrued warranty as of December 31, 2018 $ 8,551
−Removed: Charged to cost of net revenues 12,421
−Removed: Actual warranty expenditures ( 9,767 )
−Removed: Accrued warranty as of December 31, 2019 11,205
−Removed: Charged to cost of net revenues 12,581
−Removed: Actual warranty expenditures ( 11,171 )
−Removed: Accrued warranty as of December 31, 2020 $ 12,615
−Removed: Deferred revenues consist of the following (in thousands):
−Removed: Deferred revenues - current $ 777,887 $ 563,762
−Removed: Deferred revenues - long-term 1
−Removed: 62,551 35,503
−Removed: 1 Included in Other long-term liabilities within our Consolidated Balance Sheet
−Removed: During the year ended December 31, 2020 and 2019, we recognized $ 2.5 billion and $ 2.4 billion of net revenues, respectively, of which $ 341.9 million and $ 262.7 million was included in the deferred revenues balance at December 31, 2019 and December 31, 2018, respectively.
−Removed: We have operating leases for office and retail spaces, vehicles and office equipment.
−Removed: The components of lease expenses consist of following (in thousands):
−Removed: Year Ended December 31,
−Removed: Lease Cost 2020 2019
−Removed: Operating lease cost 1
−Removed: $ 27,825 $ 22,778
−Removed: Variable lease cost 1,429 1,899
−Removed: Total lease cost $ 29,254 $ 24,677
−Removed: 1 Includes short-term lease expense which is not material
−Removed: The following table provides a summary of our operating lease terms and discount rates:
−Removed: Remaining Lease Term and Discount Rate 2020 2019
−Removed: Weighted average remaining lease term (in years) 7.4 5.7
−Removed: Weighted average discount rate 4.2 % 4.1 %
−Removed: As of December 31, 2020, the future payments related to our operating lease liabilities are as follows (in thousands):
−Removed: Fiscal Year Ending December 31, Operating Leases
−Removed: 2021 $ 25,358
−Removed: Thereafter 29,280
−Removed: Total lease payments 100,520
−Removed: Imputed interest ( 14,340 )
−Removed: Total lease liabilities $ 86,180
−Removed: As of December 31, 2020, we had additional operating leases that have not yet commenced with future lease payments of $ 18.1 million, which includes a lease for office space in Tempe, Arizona which was designated as our new corporate headquarters effective January 1, 2021.
−Removed: These operating leases will commence during 2021 with non-cancelable lease terms of one to seven years .
−Removed: In 2019, as part of the $ 56.0 million purchase of a building located in Raleigh, North Carolina, we assumed an existing lease with a third-party for one floor of the building which is classified as an operating lease.
−Removed: The lease has annual escalating payments and expires in August 2029 in accordance with the terms and conditions of the existing agreement.
−Removed: Lease payments due to Align as of December 31, 2020 are as follows (in thousands):
−Removed: Fiscal Year Ending December 31, Operating Lease
−Removed: Thereafter 4,891
−Removed: Total minimum lease payments $ 11,014
−Removed: For the year ended December 31, 2020 and 2019, operating lease income was not material.
−Removed: Business Combination
−Removed: On April 1, 2020 (the “acquisition date”), we completed the acquisition of privately-held exocad for a total purchase consideration of $ 430.0 million and exocad became a wholly-owned subsidiary.
−Removed: exocad is a German dental CAD/CAM software company that offers fully integrated workflows to dental labs and dental practices.
−Removed: We believe the synergies from the acquisition will strengthen our digital platform by adding exocad’s expertise in restorative dentistry, implantology, guided surgery, and smile design to extend our digital solutions and pave the way for new, seamless cross-discipline dentistry in the lab and at chairside.
−Removed: The total purchase consideration consisted of the following (in thousands):
−Removed: Cash paid to exocad stockholders $ 412,287
−Removed: Cash paid to settle exocad’s bank debt
−Removed: Total purchase consideration paid $ 429,978
−Removed: The preliminary allocation of purchase price to assets acquired and liabilities assumed which is subject to change within the measurement period is as follows (in thousands):
−Removed: Goodwill $ 340,181
−Removed: Identified intangible assets 118,700
−Removed: Cash and cash equivalents 9,190
−Removed: Deferred tax liabilities ( 35,419 )
−Removed: Other assets (liabilities), net ( 2,674 )
−Removed: Total $ 429,978
−Removed: Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets, and represents the expected synergies of the transaction and the knowledge and experience of the workforce in place.
−Removed: None of this goodwill is deductible for tax purposes.
−Removed: Under the applicable accounting guidance, goodwill will not be amortized but will be tested for impairment on an annual basis or more frequently if certain indicators are present.
−Removed: We allocated approximately $ 296.7 million of goodwill to our Systems and Services reporting unit (formerly the “Scanner and Services” reporting unit prior to its renaming during the second quarter of 2020) and approximately $ 43.5 million of the goodwill to our Clear Aligner reporting unit (Refer to Note 6“Goodwill and Intangible Assets” of the Notes to C onsolidated Financial Statements for additional details).
−Removed: Our reporting units are the same as our operating segments.
−Removed: Acquisition related costs are recognized separately from the business combination and expensed as incurred.
−Removed: The following table presents details of the identified intangible assets acquired (in thousands, except years):
−Removed: Weighted Average Amortization Period (in years) Fair Value
−Removed: Intangible assets subject to amortization:
−Removed: Existing technology
−Removed: Customer relationships
−Removed: Intangible assets not subject to amortization:
−Removed: In-process Research and Development (“IPR&D”)
−Removed: Total intangible assets $ 118,700
−Removed: We believe the amount of purchased intangible assets recorded above represent the fair values and approximate the amount a market participant would pay for these intangible assets as of the acquisition date.
−Removed: Existing technology represents the estimated fair value of exocad’s core technology that has reached technological feasibility.
−Removed: We valued the existing technology using the multi-period excess earnings method under the income approach.
−Removed: The economic useful life of existing technology was determined by considering the life cycle of the technology and related cash flows.
−Removed: Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers.
−Removed: Customer relationships were valued using the with-and-without method under the income approach.
−Removed: The economic useful life for customer relationships was based on historical customer attrition rates.
−Removed: Tradenames relates to the exocad tradenames that are recognized within the industry.
−Removed: The fair value was determined using the relief-from-royalty method under the income approach.
−Removed: The economic useful life of tradenames was determined by benchmarking against similar transactions entered into by peer companies.
−Removed: IPR&D refers to the fair value of projects that are not yet completed but have potential value to the company.
−Removed: Deferred tax liabilities were recorded for significant basis differences primarily to reflect the tax effect of fair value adjustments made to the beginning balance of the intangible assets and deferred revenue as of the acquisition date (Refer to Note 15 “Accounting for Income Taxes” of the Notes to Consolidated Financial Statements for additional details).
−Removed: Our consolidated financial statements include the operating results of exocad from the acquisition date.
−Removed: Separate post-acquisition operating results and pro forma results of operations for this acquisition have not been presented as the effect is not material to our financial results.
−Removed: Goodwill and Intangible Assets
−Removed: The change in the carrying value of goodwill for the year ended December 31, 2020 and 2019, categorized by reportable segments, is as follows (in thousands):
−Removed: Clear Aligner Systems and Services Total
−Removed: Balance as of December 31, 2018 $ 64,029 $ — $ 64,029
−Removed: Adjustments 2
−Removed: ( 105 ) — ( 105 )
−Removed: Balance as of December 31, 2019 63,924 — 63,924
−Removed: Additions from exocad acquisition 1
−Removed: 43,500 296,681 340,181
−Removed: Adjustments 2
−Removed: 5,267 35,445 40,712
−Removed: Balance as of December 31, 2020 $ 112,691 $ 332,126 $ 444,817
−Removed: 1 Includes goodwill adjustments within the measurement period (up to one year from acquisition date).
−Removed: Refer to Note 5 "Business Combination" of the Notes to Consolidated Financial Statements for additional details.
−Removed: 2 Adjustments related to foreign currency translation within the measurement period
−Removed: We completed our annual goodwill impairment assessments in 2020 and 2019 and determined there were no impairments.
−Removed: Intangible Long-Lived Assets
−Removed: We amortize our intangible assets over their estimated useful lives.
−Removed: We evaluate long-lived assets, which includes property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.
−Removed: The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition.
−Removed: Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many factors.
−Removed: Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment.
−Removed: There were no triggering events in 2020 or 2019 that would cause impairments of our intangible long-lived assets.
−Removed: Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands):
−Removed: Weighted Average Amortization Period (in years) Gross Carrying Amount as of
−Removed: December 31, 2020 Accumulated
−Removed: Amortization Accumulated Impairment Loss Net Carrying
−Removed: December 31, 2020
−Removed: Existing technology 10 $ 99,400 $ ( 12,719 ) $ ( 4,328 ) $ 82,353
−Removed: Customer relationships 11 55,000 ( 21,879 ) ( 10,751 ) 22,370
−Removed: Trademarks and tradenames 10 16,600 ( 2,934 ) ( 4,179 ) 9,487
−Removed: Patents and other 8 6,610 ( 3,785 ) — 2,825
−Removed: $ 177,610 $ ( 41,317 ) $ ( 19,258 ) 117,035
−Removed: Foreign currency translation 13,037
−Removed: Total intangible assets 1
−Removed: 1 Refer to Note 5 "Business Combination" of the Notes to Consolidated Financial Statements for additional details on intangible assets from our exocad acquisition
−Removed: Weighted Average Amortization Period (in years) Gross Carrying
−Removed: December 31, 2019 Accumulated
−Removed: Amortization 2
−Removed: Accumulated Impairment Loss Net Carrying
−Removed: December 31, 2019
−Removed: Trademarks 15 $ 6,800 $ ( 1,745 ) $ ( 4,179 ) $ 876
−Removed: Existing technology 13 12,400 ( 5,631 ) ( 4,328 ) 2,441
−Removed: Customer relationships 11 33,500 ( 18,405 ) ( 10,751 ) 4,344
−Removed: Reacquired rights 3 7,500 ( 7,059 ) — 441
−Removed: Patents and other 8 6,770 ( 3,104 ) — 3,666
−Removed: Total intangible assets $ 66,970 $ ( 35,944 ) $ ( 19,258 ) $ 11,768
−Removed: 2 Includes foreign currency translation which is immaterial
−Removed: The total estimated annual future amortization expense for these acquired intangible assets as of December 31, 2020 is as follows (in thousands):
−Removed: Fiscal Year Amortization
−Removed: 2021 $ 15,622
−Removed: Thereafter 48,069
−Removed: Total $ 117,035
−Removed: Amortization expense was $ 13.4 million, $ 5.9 million and $ 6.0 million for the year ended December 31, 2020, 2019 and 2018, respectively.
−Removed: Equity Method Investments
−Removed: On July 25, 2016, we acquired a 17 % equity interest, on a fully diluted basis, in SDC for $ 46.7 million.
−Removed: Concurrently with the investment, we also entered into a supply agreement to manufacture clear aligners for SDC, which expired on December 31, 2019.
−Removed: The sale of aligners to SDC and the income from the supply agreement are reported in our Clear Aligner business segment.
−Removed: On July 24, 2017, we purchased an additional 2 % equity interest in SDC for $ 12.8 million.
−Removed: The investment was accounted for as an equity method investment and recorded in our Consolidated Balance Sheet.
−Removed: We recorded our proportional share of SDC’s losses within equity in losses of investee, net of tax, in our Consolidated Statement of Operations within our Clear Aligner reportable segment.
−Removed: As a result of the arbitrator’s decision regarding SDC announced on March 5, 2019, we were ordered to tender our SDC equity interest by April 3, 2019 for a purchase price equal to the “capital account” balance as of October 31, 2017 under the terms of the investment.
−Removed: In April 2019, based on the “capital account” value provided by SDC, we entered into an unsecured promissory note with SDC to receive $ 54.2 million through February 1, 2021 in exchange for the tender of our membership interests.
−Removed: As a result, we derecognized the equity method investment balance of $ 38.4 million in exchange for an unsecured promissory note of $ 54.2 million and we recorded the difference of $ 15.8 million as a gain in the second quarter of 2019 in other income in our Consolidated Statement of Operations.
−Removed: Although we tendered our membership interests pursuant to the arbitrator’s decision, the parties did not agree on the amount of the “capital account” balance as of October 31, 2017 or the appropriate repurchase price for the membership units.
−Removed: On July 3, 2019, we filed a demand for arbitration regarding SDC’s calculation of the “capital account” balance.
−Removed: Refer to Note 10 “Legal Proceedings” of the Notes to Consolidated Financial Statements for SDC legal proceedings discussion.
−Removed: As of December 31, 2020, the unsecured promissory note had a remaining current balance of $ 5.4 million.
−Removed: Credit Facility
−Removed: On July 21, 2020 we entered into a credit facility for a $ 300.0 million unsecured revolving line of credit, with a $ 50.0 million letter of credit sublimit, and a maturity date of July 21, 2023 (“2020 Credit Facility”), replacing our previous credit facility which provided for a $ 200.0 million revolving line of credit with a $ 50.0 million letter of credit.
−Removed: The 2020 Credit Facility requires us to comply with specific financial conditions and performance requirements.
−Removed: Loans under the 2020 Credit Facility bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a
−Removed: base rate, in each case plus a margin.
−Removed: The base rate is the highest of the credit facility’s publicly announced prime rate, the federal funds rate plus 0.50 % and one-month LIBOR plus 1.0 %.
−Removed: The margin ranges from 1.50 % to 2.25 % for LIBOR loans and 0.50 % to 1.25 % for base rate loans.
−Removed: Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans.
−Removed: The outstanding principal, together with accrued and unpaid interest, is due on the maturity date.
−Removed: As of December 31, 2020, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements.
−Removed: Impairments and Other Charges (Gains), net
−Removed: On March 5, 2019, we announced the outcome of the arbitration regarding SDC (Refer to Note 10 “Legal Proceedings” of the Notes to Consolidated Financial Statements for SDC legal proceedings discussion) which required Align to close its Invisalign stores and tender Align’s equity interest in SDC by April 3, 2019.
−Removed: Accordingly, Align evaluated the ongoing value of the Invisalign stores’ operating lease right-of-use assets and related leasehold improvements and other fixed assets in accordance with ASC 360, Property, Plant and Equipment .
−Removed: Based on the evaluation, Align determined that the carrying value of these assets were not recoverable.
−Removed: Align evaluated the fair value of these assets in accordance with ASC 820, Fair Value Measurement, and we considered the market participant’s ability to generate economic benefits by using these assets in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
−Removed: As a result, in the first quarter of 2019, we recorded impairment losses of $ 14.2 million for operating lease right-of-use assets and $ 14.3 million of leasehold improvements and other fixed assets.
−Removed: In addition, we also recorded $ 1.3 million of employee severance costs and other charges.
−Removed: During the third quarter of 2019, we negotiated early termination of our Invisalign store leases and recorded lease termination gains of $ 6.8 million.
−Removed: Legal Proceedings
−Removed: 2018 Securities Class Action Lawsuit
−Removed: On November 5, 2018, a class action lawsuit against Align and three of our executive officers was filed in the U.S.
−Removed: District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock.
−Removed: The complaint generally alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation.
−Removed: On December 12, 2018, a similar lawsuit was filed in the same court on behalf of a purported class of purchasers of our common stock.
−Removed: On November 29, 2019, the lead plaintiff filed an amended consolidated complaint against Align and two of our executive officers alleging similar claims as the initial complaints on behalf of a purported class of purchasers of our common stock from May 23, 2018 and October 24, 2018.
−Removed: On September 9, 2020, Defendants’ motion to dismiss the amended consolidated complaint was granted in part and denied in part.
−Removed: Trial is scheduled for October 3, 2022.
−Removed: Align believes the claims that remain in the case are without merit and intends to vigorously defend itself.
−Removed: Align is currently unable to predict the outcome of the lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
−Removed: 2019 Shareholder Derivative Lawsuit
−Removed: In January 2019, three derivative lawsuits were filed in the U.S.
−Removed: District Court for the Northern District of California which were later consolidated, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers.
−Removed: The allegations in the complaints are similar to those asserted in the 2018 Securities Class Action Lawsuit, but the complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment.
−Removed: The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees.
−Removed: The consolidated action has been stayed pending final disposition of the 2018 Securities Class Action Lawsuit.
−Removed: On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers.
−Removed: The allegations in the complaint are similar to those in the derivative suits described above.
−Removed: The matter has been similarly stayed pending final disposition of the 2018 Securities Class Action Lawsuit.
−Removed: Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss .
−Removed: 2020 Securities Class Action Lawsuit
−Removed: On March 2, 2020, a class action lawsuit against Align and two of our executive officers was filed in the U.S.
−Removed: District Court for the Southern District of New York (later transferred to the U.S.
−Removed: District Court for the Northern District of California) on behalf of a purported class of purchasers of our common stock.
−Removed: The complaint alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation.
−Removed: The lead plaintiff filed an amended complaint on August 4, 2020 against Align and three of our executive officers alleging similar claims as in the initial complaint on behalf of a purported class of purchasers of our common stock from April 25, 2019 to July 24, 2019.
−Removed: A motion to dismiss the amended complaint was filed on September 18, 2020.
−Removed: Align believes these claims are without merit and intends to vigorously defend itself.
−Removed: Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
−Removed: 2020 Shareholder Derivative Lawsuit
−Removed: On May 4, 2020, a derivative lawsuit was filed in the U.S.
−Removed: District Court for the Northern District of California, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers.
−Removed: The allegations in the complaint are similar to those presented in the 2020 Securities Class Action Lawsuit, but this complaint asserts state law claims for breach of fiduciary duty and insider trading.
−Removed: The complaint seeks unspecified monetary damages on behalf of Align, which is named solely as a no minal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees.
−Removed: This action has been stayed pending a decision on the motion to dismiss in the 2020 Securities Class Action Lawsuit.
−Removed: Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
−Removed: 3Shape Litigation
−Removed: On November 14, 2017, Align filed several patent infringement lawsuits asserting patents against 3Shape, a Danish corporation, and a related U.S.
−Removed: corporate entity, asserting that 3Shape’s Trios intraoral scanning system and Dental System software infringe Align patents.
−Removed: These lawsuits were filed in the U.S.
−Removed: District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system and Dental System software.
−Removed: Three of the cases are active and 3Shape has filed counterclaims for breach of contract and business torts in two.
−Removed: Those counterclaims are the subject of pending motions to dismiss.
−Removed: In 2018, 3Shape filed two separate complaints in the U.S.
−Removed: District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of 3Shape patents.
−Removed: On August 19, 2019, the Court consolidated the two actions, and on August 30, 2019, 3Shape filed an amended complaint.
−Removed: On December 10, 2018, Align filed a Section 337 complaint with the ITC alleging that 3Shape violated U.S.
−Removed: trade laws by selling for importation and importing the infringing TRIOS intraoral scanning system, Trios Lab Scanners and TRIOS software, TRIOS Module software, Dental System software, and Ortho System Software.
−Removed: On April 30, 2020, an Administrative Law Judge (“ALJ”) issued an initial determination that found a violation of Section 337 stemming from 3Shape’s infringement of 4 claims in 2 of Align’s asserted patents.
−Removed: The Commissioners at the ITC affirmed in part and reversed in part, resulting in no finding of infringement of valid patent claims and a finding of no violation of Section 337.
−Removed: On December 11, 2018, Align filed two additional complaints in the U.S.
−Removed: District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system, Lab Scanners and Dental and Ortho System Software.
−Removed: One of those cases was voluntarily dismissed.
−Removed: 3Shape has filed business tort counterclaims, which are the subject of a motion to dismiss.
−Removed: On October 19, 2020, Align filed a complaint in the U.S.
−Removed: District Court for the Western District of Texas alleging patent infringement by 3Shape ’s intraoral scanners and associated software products.
−Removed: In response, 3Shape filed a motion to dismiss as well as b usiness tort and patent infringement counterclaims.
−Removed: Align has moved to dismiss the business tort counterclaims .
−Removed: Each of 3Shape and Align’s District Court patent infringement complaints and all of 3Shape’s counterclaims seek monetary damages and/or injunctive relief.
−Removed: One of Align’s Delaware District Court cases against 3Shape was scheduled to proceed to jury trial on April 12, 2021;
−Removed: that jury trial has been rescheduled for July 26, 2021.
−Removed: The case pending in the Western District of Texas has been given an estimated trial date of October 3, 2022.
−Removed: No trial dates have been set in the remaining cases.
−Removed: On August 28, 2018, 3Shape filed a complaint against Align in the U.S.
−Removed: District Court for the District of Delaware alleging antitrust violations and seeking monetary damages and injunctive relief relating to Align’s alleged market activities,
−Removed: including Align’s assertion of its patent portfolio, in alleged clear aligner and intraoral scanning markets.
−Removed: After the Court dismissed 3Shape’s complaint, 3Shape filed an amended complaint on October 28, 2019.
−Removed: The Court denied Align’s motion to dismiss the amended complaint on November 25, 2020.
−Removed: No trial date has been set.
−Removed: Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.
−Removed: Simon & Simon
−Removed: On June 5, 2020, a dental practice named Simon and Simon, PC d/b/a City Smiles brought an antitrust action in the United States District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanning markets.
−Removed: Prior to filing in the Northern District of California, Plaintiff had voluntarily dismissed a similar action in the U.S.
−Removed: District Court for the District of Delaware.
−Removed: Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on August 14, 2020.
−Removed: On September 9, 2020, Align moved to dismiss Plaintiffs’ amended complaint.
−Removed: The District Court Judge heard argument regarding Align’s motion to dismiss on December 10, 2020.
−Removed: Align’s motion to dismiss remains pending before the court.
−Removed: The court has not entered a schedule or set a trial date.
−Removed: A lign believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.
−Removed: Align is currently unable to predi ct the outcome of this lawsuit and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.
−Removed: In April 2018, SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company (collectively, the “SDC Entities”) initiated confidential arbitration proceedings against Align.
−Removed: In an award dated March 4, 2019, (“Award”) an arbitrator found that Align breached a restrictive covenant and that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC.
−Removed: As part of the Award, Align was enjoined from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners in the United States, and enjoined from using the SDC Entities’ confidential information.
−Removed: The arbitrator extended the expiration date of specified aspects of the restrictive covenant to August 18, 2022.
−Removed: The arbitrator also ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the “capital account” balance as of October 31, 2017, to be determined in accordance with the applicable provisions of the SDC Operating Agreements.
−Removed: No financial damages were awarded to the SDC Entities.
−Removed: The Circuit Court for Cook County, Illinois confirmed the Award on April 29, 2019.
−Removed: As required by the Award, Align tendered its membership interests for a purchase price that SDC claims to be Align’s “capital account” balance.
−Removed: Align disputes that the SDC Entities properly determined the value of Align’s “capital account” balance as of October 31, 2017.
−Removed: Consequently, on July 3, 2019, Align filed a confidential demand for arbitration challenging the propriety of the SDC Entities’ determination.
−Removed: The arbitration hearing occurred in December 2020 and issuance of the arbitrator’s award remains pending.
−Removed: Relatedly, the SDC Entities filed a contempt petition with the Illinois court which confirmed the Award, asserting that Align had no right to contest the “capital account” determination as made by the SDC Entities.
−Removed: On September 4, 2019, the Illinois court denied in its entirety the contempt petition filed by the SDC Entities.
−Removed: The SDC Entities appealed and, on February 9, 2021, the Illinois Appellate Court affirmed the denial of the contempt petition.
−Removed: On August 19, 2019, the SDC Entities filed a separate confidential arbitration proceeding alleging that Align had violated a restrictive covenant applicable to the members of the SDC Entities by virtue of Align’s alleged dealings with a third-party claimed to be a competitor of the SDC Entities.
−Removed: On April 27, 2020, the SDC Entities filed an amended arbitration demand, which additionally asserted that Align’s alleged dealings with a third-party constituted contempt of the Award.
−Removed: On February 5, 2021, pursuant to SDC’s unopposed notice of voluntary dismissal, the arbitrator dismissed the arbitration with prejudice.
−Removed: On August 27, 2020, Align initiated a confidential arbitration proceeding against the SDC entities before the American Arbitration Association in San Jose, California.
−Removed: This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016.
−Removed: The complaint states that the SDC Entities breached the Supply Agreement ’ s terms, causing damages to Align in an amount to be determined.
−Removed: On January 19, 2021, SDC filed a counterclaim to Align’s suit alleging that Align breached the Supply Agreement.
−Removed: Align denies the SDC Entities’ allegations in this arbitration and will vigorously defend itself against them.
−Removed: This arbitration hearing is scheduled for September 27, 2021.
−Removed: Align is currently unable to predict the outcome of these disputes and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss or success, if any.
−Removed: In addition to the above, in the course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters.
−Removed: Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors.
−Removed: Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold;
−Removed: Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align’s financial position, results of operations or cash flows.
−Removed: Commitments and Contingencies
−Removed: On November 27, 2017, we entered into a Purchase Agreement with one of our existing single source suppliers.
−Removed: Under the terms of the original agreement, we are required to purchase a minimum of approximately $ 305.2 million of aligner materials over the next four years .
−Removed: On May 29, 2018, we entered into an amendment to the Purchase Agreement with the existing single source supplier to increase the original term of the agreement to five years and total minimum purchase amount to approximately $ 425.9 million.
−Removed: On October 3, 2019, we entered into a Promotional Rights Agreement with NFL Properties LLC for $ 36.0 million which includes certain advertising and media coverage.
−Removed: As of December 31, 2020, we had a remaining commitment of $ 27.9 million which is expected to be paid through 2023.
−Removed: On October 30, 2020, we entered into a non-cancelable Addendum to the Master Subscription Agreement with a software company to renew our software license subscription for the total price of $ 95.2 million over the next four years starting on January 1, 2021.
−Removed: Off-Balance Sheet Arrangements
−Removed: As of December 31, 2020, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in the Commitments and Contingencies section above.
−Removed: Indemnification Provisions
−Removed: In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties:
−Removed: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties.
−Removed: In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.
−Removed: Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.
−Removed: It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement.
−Removed: Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position.
−Removed: However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period.
−Removed: As of December 31, 2020, we did not have any material indemnification claims that were probable or reasonably possible.
−Removed: Stockholders’ Equity
−Removed: The holders of common stock are entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors.
−Removed: We have never declared or paid dividends on our common stock.
−Removed: Stock-Based Compensation Plans
−Removed: Our 2005 Incentive Plan, as amended, provides for the granting of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), market-performance based restricted stock units (“MSUs”), stock appreciation rights, performance units and performance shares to employees, non-employee directors and consultants.
−Removed: Shares granted on or after May 16, 2013 as an award of restricted stock, restricted stock unit, market-performance based restricted stock units,
−Removed: performance share or performance unit (“full value awards”) are counted against the authorized share reserve as one and nine-tenths (1 9/10 ) shares for every one (1) share subject to the award, and any shares canceled that were counted as one and nine-tenths against the plan reserve will be returned at the same ratio.
−Removed: As of December 31, 2020, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares for issuance of which 4,624,704 shares are available for issuance.
−Removed: We issue new shares from our pool of authorized but unissued shares to satisfy the exercise and vesting obligations of our stock-based compensation plans.
−Removed: Stock-Based Compensation
−Removed: Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period.
−Removed: Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
−Removed: The stock-based compensation related to all of our stock-based awards and employee stock purchase plan for the year ended December 31, 2020, 2019 and 2018 is as follows (in thousands):
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Cost of net revenues $ 4,719 $ 5,154 $ 3,695
−Removed: Selling, general and administrative 78,500 69,817 56,422
−Removed: Research and development 15,208 13,213 10,646
−Removed: Total stock-based compensation $ 98,427 $ 88,184 $ 70,763
−Removed: Stock Options
−Removed: We have not granted options since 2011 and all outstanding options were fully vested and associated stock-based compensation expense was recognized as of December 31, 2015.
−Removed: During the year ended December 31, 2020, no stock options were exercised and as of December 31, 2020, there were no options outstanding and exercisable.
−Removed: The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of the fiscal year.
−Removed: This amount will fluctuate based on the fair market value of our stock.
−Removed: The total intrinsic value of stock options exercised for the year ended December 31, 2019 and 2018 was $ 2.0 million and $ 17.6 million, respectively.
−Removed: Restricted Stock Units
−Removed: The fair value of RSUs is based on our closing stock price on the date of grant.
−Removed: RSUs granted generally vest over a period of four years .
−Removed: A summary for the year ended December 31, 2020, is as follows:
−Removed: Number of Shares
−Removed: Underlying RSUs
−Removed: (in thousands) Weighted Average Grant Date Fair Value Weighted Average
−Removed: Contractual Term
−Removed: (in years) Aggregate
−Removed: Intrinsic Value
−Removed: (in thousands)
−Removed: Unvested as of December 31, 2019 696 $ 190.60
−Removed: Granted 300 267.24
−Removed: Vested and released ( 324 ) 152.51
−Removed: Forfeited ( 40 ) 236.90
−Removed: Unvested as of December 31, 2020 632 $ 243.55 1.2 $ 337,677
−Removed: The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the last trading day of 2020 by the number of unvested RSUs) that would have been received by the unit holders had all RSUs been vested and released as of the last trading day of 2020.
−Removed: This amount will fluctuate based on the fair market value of our stock.
−Removed: During 2020, of the 323,633 shares vested and released, 103,065 shares were withheld for employee statutory tax obligations, resulting in a net issuance of 220,568 shares.
−Removed: The total fair value of RSUs vested as of their respective vesting dates during 2020, 2019 and 2018 was $ 89.6 million, $ 112.4 million and $ 146.7 million, respectively.
−Removed: The weighted average grant date fair value of RSUs granted during 2020, 2019 and 2018 was $ 267.24 , $ 255.42 and $ 262.58 , respectively.
−Removed: As of December 31, 2020, there was $ 100.2 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs and these costs are expected to be recognized over a weighted average period of 2.2 years.
−Removed: Market-Performance Based Restricted Stock Units
−Removed: We grant MSUs to our executive officers.
−Removed: Each MSU represents the right to one share of Align’s common stock.
−Removed: The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period, and certain MSU grants are also based on Align’s stock price at the end of the performance period.
−Removed: The maximum number of MSUs which will be eligible to vest range from 250 % to 300 % of the MSUs initially granted and the vesting period is three years .
−Removed: The following table summarizes the MSU performance for the year ended December 31, 2020:
−Removed: Number of Shares
−Removed: Underlying MSUs
−Removed: (in thousands) Weighted Average Grant Date Fair Value Weighted Average
−Removed: Contractual Term
−Removed: (in years) Aggregate
−Removed: Intrinsic Value
−Removed: (in thousands)
−Removed: Unvested as of December 31, 2019 244 $ 331.35
−Removed: Granted 156 242.04
−Removed: Vested and released 173 120.39
−Removed: Unvested as of December 31, 2020 227 $ 430.50 1.1 $ 121,435
−Removed: The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the last trading day of 2020 by the number of unvested MSUs) that would have been received by the unit holders had all MSUs been vested and released as of the last trading day of 2020.
−Removed: This amount will fluctuate based on the fair market value of our stock.
−Removed: During 2020, of the 173,000 shares vested and released, 82,591 shares were withheld for employee statutory tax obligations, resulting in a net issuance of 90,409 shares.
−Removed: The total fair value of MSUs vested as of their respective vesting dates during 2020, 2019 and 2018 was $ 47.1 million, $ 47.7 million and $ 92.7 million, respectively.
−Removed: As of December 31, 2020, there was $ 31.7 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs and these costs are expected to be recognized over a weighted average period of 1.1 years.
−Removed: The fair value of MSUs is estimated at the grant date using a Monte Carlo simulation that includes factors for market conditions.
−Removed: The weighted average assumptions used in the Monte Carlo simulation were as follows:
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Expected term (in years) 3.0 3.0 3.0
−Removed: Expected volatility 44.4 % 37.3 % 31.9 %
−Removed: Risk-free interest rate 1.4 % 2.5 % 2.5 %
−Removed: Expected dividends — — —
−Removed: Weighted average fair value per share at grant date $ 392.67 $ 392.03 $ 470.75
−Removed: Employee Stock Purchase Plan ( “ ESPP ” )
−Removed: In May 2010, our stockholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”), which consists of consecutive overlapping twenty-four month offering periods with four six-month purchase periods in each offering period.
−Removed: Employees purchase shares at 85 % of the lower of the fair market value of the common stock at either the beginning of the offering period or the end of the purchase period.
−Removed: The 2010 Purchase Plan will continue until terminated by either the Board of Directors or its administrator.
−Removed: The maximum number of shares available for purchase under the 2010 Purchase Plan is 2.4 million shares.
−Removed: In June 2019, the 2010 Purchase Plan was amended to include a non-Code Section 423 component to grant purchase rights to employees outside the U.S.
−Removed: and Canada with six-month offering periods and purchase periods.
−Removed: The following table summarizes the ESPP shares issued:
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Number of shares issued (in thousands) 116 130 164
−Removed: Weighted average price $ 175.69 $ 136.73 $ 96.95
−Removed: As of December 31, 2020, 325,665 shares remain available for future issuance.
−Removed: The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Expected term (in years) 1.0 1.4 1.3
−Removed: Expected volatility 55.0 % 50.0 % 35.2 %
−Removed: Risk-free interest rate 0.9 % 2.2 % 2.2 %
−Removed: Expected dividends — — —
−Removed: Weighted average fair value at grant date $ 96.94 $ 86.02 $ 94.71
−Removed: We recognized stock-based compensation related to our employee stock purchase plan of $ 10.5 million, $ 12.1 million and $ 5.6 million for the year ended December 31, 2020, 2019 and 2018, respectively.
−Removed: As of December 31, 2020, there was $ 2.6 million of total unamortized compensation costs related to future employee stock purchases which are expected to be recognized over a weighted average period of 0.3 year.
−Removed: Common Stock Repurchase Programs
−Removed: April 2016 Repurchase Program
−Removed: In April 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $ 300.0 million of our common stock (“April 2016 Repurchase Program”).
−Removed: In 2017, we entered into an accelerated share repurchase agreement (“ASR”) to repurchase $ 50.0 million of our common stock which was completed in August 2017.
−Removed: We received a total of approximately 0.4 million shares for an average share price of $ 146.48 .
−Removed: During 2017, we repurchased on the open market approximately 0.2 million shares of our common stock at an average price of $ 243.40 per share, including commissions, for an aggregate purchase price of approximately $ 50.0 million.
−Removed: In 2018, we repurchased on the open market approximately 0.7 million shares of our common stock at an average price of $ 293.21 per share, including commissions, for an aggregate purchase price of approximately $ 200.0 million, completing the April 2016 Repurchase Program.
−Removed: May 2018 Repurchase Program
−Removed: In May 2018, we announced that our Board of Directors had authorized a plan to repurchase up to $ 600.0 million of our common stock (“May 2018 Repurchase Program”).
−Removed: In 2018, we repurchased on the open market approximately 0.1 million shares of our common stock at an average price of $ 356.54 per share, including commissions, for an aggregate purchase price of approximately $ 50.0 million.
−Removed: In 2018, we entered into an ASR to repurchase $ 50.0 million of our common stock which was completed in December 2018.
−Removed: We received a total of approximately 0.2 million shares for an average share price of $ 213.18 .
−Removed: In 2019, we repurchased on the open market approximately 0.8 million shares of our common stock at an average price of $ 264.93 per share, including commissions, for an aggregate purchase price of $ 200.0 million.
−Removed: We also entered into an ASR to repurchase $ 200.0 million of our common stock which was completed in September 2019.
−Removed: We received a total of 1.1 million shares for an average share price of $ 176.61 .
−Removed: As of December 31, 2020, we have $ 100.0 million available for repurchase under the May 2018 Repurchase Program.
−Removed: Employee Benefit Plans
−Removed: We have defined contribution retirement plan under Section 401(k) of the Internal Revenue Code for our U.S.
−Removed: employees which covers substantially all U.S.
−Removed: employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.
−Removed: We match 50 % of our employee’s salary deferral contributions up to 6 % of the employee’s eligible compensation.
−Removed: We contributed approximately $ 6.9 million, $ 6.2 million and $ 5.2 million to the 401(k) plan during the year ended December 31, 2020, 2019 and 2018, respectively.
−Removed: We also have defined contribution retirement plans outside of the U.S.
−Removed: to which we contributed $ 28.9 million $ 25.4 million, and $ 18.0 million during the year ended December 31, 2020, 2019 and 2018, respectively.
−Removed: Net income before provision for (benefit from) income taxes and equity in losses of investee consists of the following (in thousands):
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Domestic $ 173,099 $ 184,956 $ 171,658
−Removed: Foreign 205,850 377,695 294,993
−Removed: Net income before provision for (benefit from) income taxes and equity in losses of investee $ 378,949 $ 562,651 $ 466,651
−Removed: The provision for (benefit from) income taxes consists of the following (in thousands):
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Current $ 55,291 $ 76,528 $ 35,788
−Removed: Deferred ( 11,749 ) 1,235 ( 5,989 )
−Removed: 43,542 77,763 29,799
−Removed: Current 8,862 9,169 9,568
−Removed: Deferred ( 2,121 ) 209 ( 3,274 )
−Removed: 6,741 9,378 6,294
−Removed: Current 29,399 28,364 22,753
−Removed: Deferred ( 1,476,621 ) ( 3,158 ) ( 1,123 )
−Removed: ( 1,447,222 ) 25,206 21,630
−Removed: Provision for (benefit from) income taxes $ ( 1,396,939 ) $ 112,347 $ 57,723
−Removed: The differences between income taxes using the federal statutory income tax rate for 2020, 2019 and 2018 and our effective tax rates are as follows:
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: federal statutory income tax rate 21.0 % 21.0 % 21.0 %
−Removed: State income taxes, net of federal tax benefit 1.8 1.7 1.3
−Removed: Impact of intra-entity intellectual property rights transfer ( 395.6 ) — —
−Removed: Impact of differences in foreign tax rates 5.6 ( 5.1 ) ( 6.7 )
−Removed: Stock-based compensation 1.1 ( 0.3 ) ( 2.8 )
−Removed: tax on foreign earnings — 1.9 4.1
−Removed: Settlement on audits ( 1.4 ) — —
−Removed: Impact of U.S.
−Removed: Tax Cuts and Jobs Act (“TCJA”) ( 0.5 ) — 2.1
−Removed: Impact of expiration of statute of limitations ( 0.3 ) — ( 6.2 )
−Removed: Other items not individually material ( 0.3 ) 0.8 ( 0.4 )
−Removed: Effective tax rate ( 368.6 ) % 20.0 % 12.4 %
−Removed: The TCJA was enacted into law on December 22, 2017 and made significant changes to the Internal Revenue Code, including, but not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S.
−Removed: international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
−Removed: As of December 31, 2020, undistributed earnings of our foreign subsidiaries totaled $ 638.8 million and substantially all of the earnings previously determined to be not indefinitely reinvested have been repatriated.
−Removed: income taxes have already been provided on the $ 638.8 million undistributed earnings that is indefinitely reinvested in our international operations, therefore, the tax impact upon distribution is limited to mainly state income and withholding taxes and is not significant.
−Removed: During the year ended December 31, 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our new Swiss subsidiary, where our EMEA regional headquarters is located beginning January 1, 2020.
−Removed: The transfer of intellectual property rights did not result in a taxable gain;
−Removed: however, it did result in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights.
−Removed: Consequently, this transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of approximately $ 1,493.5 million during the year ended December 31, 2020, which is the net impact of the deferred tax asset recognized as a result of the additional Swiss tax deductible basis in the transferred assets and certain costs related to the transfer of fixed assets and inventory.
−Removed: As of December 31, 2020 and 2019, the significant components of our deferred tax assets and liabilities are (in thousands):
−Removed: Deferred tax assets:
−Removed: Net operating loss and capital loss carryforwards $ 20,728 $ 18,182
−Removed: Reserves and accruals 34,469 39,264
−Removed: Stock-based compensation 10,842 8,416
−Removed: Deferred revenue 32,562 20,909
−Removed: Amortizable tax basis in intangibles 1,468,159 —
−Removed: Net translation losses 2,939 1,589
−Removed: Credit carryforwards 905 1,801
−Removed: 1,570,604 90,161
−Removed: Deferred tax liabilities:
−Removed: Depreciation and amortization 14,730 23,817
−Removed: Acquisition-related intangibles 35,689 —
−Removed: Prepaid expenses 1,720 1,341
−Removed: 52,139 25,158
−Removed: Net deferred tax assets before valuation allowance 1,518,465 65,003
−Removed: Valuation allowance ( 1,325 ) ( 1,086 )
−Removed: Net deferred tax assets $ 1,517,140 $ 63,917
−Removed: The available positive evidence at December 31, 2020 included historical operating profits and a projection of future income sufficient to realize most of our remaining deferred tax assets.
−Removed: As of December 31, 2020, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain capital loss carryovers as we are unable to forecast sufficient future profits to realize the deferred tax assets.
−Removed: The total valuation allowance as of December 31, 2020 as well as the increase during the year ended December 31, 2020 was not material to our financial statements.
−Removed: As of December 31, 2020, we have foreign net operating loss carryforwards of approximately $ 90.7 million, attributed mainly to losses in Israel which can be carried forward indefinitely.
−Removed: The majority of the remaining foreign net operating loss carryforwards is related to losses in China which, if not utilized, will expire beginning after 2025.
−Removed: The changes in the balance of gross unrecognized tax benefits, which exclude interest and penalties, for the year ended December 31, 2020, 2019 and 2018, are as follows (in thousands):
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Gross unrecognized tax benefits at January 1, $ 46,650 $ 33,262 $ 47,656
−Removed: Increases related to tax positions taken during the current year 20,592 19,012 14,519
−Removed: Increases related to tax positions taken during a prior year 10,201 143 80
−Removed: Decreases related to tax positions taken during a prior year ( 29,977 ) ( 3,783 ) —
−Removed: Decreases related to expiration of statute of limitations — ( 1,984 ) ( 28,993 )
−Removed: Decreases related to settlement with tax authorities ( 1,146 ) — —
−Removed: Gross unrecognized tax benefits at December 31, $ 46,320 $ 46,650 $ 33,262
−Removed: The total amount of gross unrecognized tax benefits as of December 31, 2020 was $ 46.3 million, of which $ 43.8 million would impact our effective tax rate if recognized.
−Removed: federal, U.S.
−Removed: state, and non-U.S.
−Removed: income tax returns.
−Removed: Our major tax jurisdictions include U.S.
−Removed: federal, the State of California and Switzerland.
−Removed: federal and state tax returns, we are no longer subject to tax examinations for
−Removed: years before 2017 and 2016, respectively.
−Removed: With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2013.
−Removed: We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes.
−Removed: Interest and penalties included in tax expense for the year ended December 31, 2020 and 2019 as well as accrued as of December 31, 2020 and 2019 were not material to our financials.
−Removed: The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
−Removed: We do not expect any material changes to the amount of unrecognized tax benefits within the next twelve months.
−Removed: Net Income per Share
−Removed: Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period.
−Removed: Diluted net income per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock.
−Removed: Potential common stock, computed using the treasury stock method, includes RSUs, MSUs and our ESPP.
−Removed: The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Net income $ 1,775,888 $ 442,776 $ 400,235
−Removed: Weighted average common shares outstanding, basic 78,760 79,424 80,064
−Removed: Dilutive effect of potential common stock 470 676 1,293
−Removed: Total shares, diluted 79,230 80,100 81,357
−Removed: Net income per share, basic $ 22.55 $ 5.57 $ 5.00
−Removed: Net income per share, diluted $ 22.41 $ 5.53 $ 4.92
−Removed: Anti-dilutive potential common shares 1
−Removed: 1 Represents RSUs and MSUs not included in the calculation of diluted net income per share as the effect would have been anti-dilutive.
−Removed: Supplemental Cash Flow Information
−Removed: The supplemental cash flow information consists of the following (in thousands):
−Removed: Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Taxes paid $ 76,332 $ 71,746 $ 114,601
−Removed: Non-cash investing and financing activities:
−Removed: Fixed assets acquired with accounts payable or accrued liabilities $ 37,267 $ 16,488 $ 15,069
−Removed: Conversion of convertible notes receivable into equity securities $ — $ — $ 4,862
−Removed: Issuance of promissory note in exchange for sale of equity method investment $ — $ 54,154 $ —
−Removed: Cash paid for amounts included in the measurement of lease liabilities:
−Removed: Operating cash flows from operating leases $ 26,022 $ 26,337 $ —
−Removed: Investing cash flows from finance leases (1)
−Removed: $ — $ 10,896 $ —
−Removed: Financing cash flows from finance leases $ — $ 45,773 $ —
−Removed: Right-of-use assets obtained in exchange for lease obligations:
−Removed: Operating leases $ 47,981 $ 32,723 $ —
−Removed: Finance leases $ — $ 51,064 $ —
−Removed: 1 A portion of finance lease purchase payment relates to leasing a part of the building to a third party as a lessor.
−Removed: This amount is included in Other Investing Activities in our Consolidated Statements of Cash Flows.
−Removed: Segments and Geographical Information
−Removed: Segment Information
−Removed: Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance.
−Removed: Our CODM is our Chief Executive Officer.
−Removed: We report segment information based on the management approach.
−Removed: The management approach designates the internal reporting used by CODM for decision making and performance assessment as the basis for determining our reportable segments.
−Removed: The performance measures of our reportable segments include net revenues, gross profit and income from operations.
−Removed: Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment.
−Removed: Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated.
−Removed: Costs not specifically allocated to segment income from operations include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other separately managed general and administrative costs outside the operating segments.
−Removed: We group our operations into two reportable segments:
−Removed: Clear Aligner segment and Imaging Systems and CAD/CAM services (“Systems and Services”) segment.
−Removed: The Systems and Services segment was formerly known as the Scanner and Services segment prior to our acquisition of exocad on April 1, 2020 (Refer to Note 5 “Business Combination” of the Notes to Consolidated Financial Statements for additional details on the exocad acquisition).
−Removed: • Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below:
−Removed: • Comprehensive Products include, but are not limited to, Invisalign Comprehensive and Invisalign First.
−Removed: • Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go.
−Removed: • Non-Case includes, but not limited to, Vivera retainers along with our training and ancillary products for treating malocclusion.
−Removed: • Our Systems and Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options, OrthoCAD services and ancillary products, as well as exocad’s CAD/CAM software solution that integrates workflows to dental labs and dental practices.
−Removed: These reportable operating segments are based on how our CODM views and evaluates our operations as well as allocation of resources.
−Removed: The following information relates to these segments (in thousands):
−Removed: For the Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Clear Aligner $ 2,101,459 $ 2,025,750 $ 1,691,467
−Removed: Systems and Services 370,482 381,046 275,025
−Removed: Total net revenues $ 2,471,941 $ 2,406,796 $ 1,966,492
−Removed: Clear Aligner $ 1,532,130 $ 1,499,713 $ 1,280,495
−Removed: Systems and Services 231,105 244,184 167,372
−Removed: Total gross profit $ 1,763,235 $ 1,743,897 $ 1,447,867
−Removed: Income from operations
−Removed: Clear Aligner $ 768,045 $ 835,957 $ 712,439
−Removed: Systems and Services 96,052 137,720 98,998
−Removed: Unallocated corporate expenses ( 476,926 ) ( 431,184 ) ( 344,873 )
−Removed: Total income from operations $ 387,171 $ 542,493 $ 466,564
−Removed: Stock-based compensation
−Removed: Clear Aligner $ 8,975 $ 9,220 $ 6,839
−Removed: Systems and Services 734 255 190
−Removed: Unallocated corporate expenses 88,718 78,709 63,734
−Removed: Total stock-based compensation $ 98,427 $ 88,184 $ 70,763
−Removed: Depreciation and amortization
−Removed: Clear Aligner $ 41,371 $ 38,979 $ 29,001
−Removed: Systems and Services 16,798 7,441 4,965
−Removed: Unallocated corporate expenses 35,369 32,570 20,761
−Removed: Total depreciation and amortization $ 93,538 $ 78,990 $ 54,727
−Removed: Impairments and other charges (gains), net
−Removed: Clear Aligner $ — $ 22,990 $ —
−Removed: Total impairments and other charges (gains), net $ — $ 22,990 $ —
−Removed: Litigation settlement gain
−Removed: Clear Aligner $ — $ ( 51,000 ) $ —
−Removed: Total litigation settlement gain $ — $ ( 51,000 ) $ —
−Removed: The following table reconciles total segment income from operations in the table above to net income before provision for (benefit from) income taxes and equity in losses of investee (in thousands):
−Removed: For the Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Total segment income from operations $ 864,097 $ 973,677 $ 811,437
−Removed: Unallocated corporate expenses ( 476,926 ) ( 431,184 ) ( 344,873 )
−Removed: Total income from operations 387,171 542,493 466,564
−Removed: Interest income 3,125 12,482 8,576
−Removed: Other income (expense), net ( 11,347 ) 7,676 ( 8,489 )
−Removed: Net income before provision for (benefit from) income taxes and equity in losses of investee $ 378,949 $ 562,651 $ 466,651
−Removed: Geographical Information
−Removed: Net revenues are presented below by geographic area (in thousands):
−Removed: For the Year Ended December 31,
−Removed: 2020 2019 2018
−Removed: Net revenues 1 :
−Removed: United States $ 1,099,564 $ 1,161,959 $ 1,023,559
−Removed: Switzerland 2
−Removed: The Netherlands 2
−Removed: — 760,444 610,039
−Removed: China 199,851 196,733 155,790
−Removed: Other International 363,446 287,660 177,104
−Removed: Total net revenues $ 2,471,941 $ 2,406,796 $ 1,966,492
−Removed: 1 Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.
−Removed: 2 During the first quarter of 2020, we implemented a new international corporate structure.
−Removed: This changed the structure of international procurement and sales operations from the Netherlands to Switzerland.
−Removed: Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net are presented below by geographic area (in thousands):
−Removed: As of December 31,
−Removed: Long-lived assets 1 :
−Removed: Switzerland 2
−Removed: $ 257,337 $ 7,755
−Removed: United States 180,539 164,451
−Removed: China 113,918 73,174
−Removed: Costa Rica 97,804 82,083
−Removed: The Netherlands 2
−Removed: Other International 166,711 134,225
−Removed: Total long-lived assets $ 817,274 $ 687,974
−Removed: 1 Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.
−Removed: 2 As a result of the new international corporate structure changes, most of the long-lived assets were transferred from our Netherlands entity to our Switzerland entity during the first quarter of 2020.
−Removed: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.