What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-11 compared with 2020-02-13 · 515 added, 392 removed, 973 unchanged (48% of the section changed)

6 unchanged sentences

There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

As a result of the COVID-19 pandemic, certain employees began working remotely in March 2020.

We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment.

We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.

Management’s Report on Internal Control over Financial Reporting

35 unchanged sentences

(2) 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 company;

and (3) 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 consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

8 unchanged sentences

The information concerning our executive officers required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Executive Officers.”

The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this Item is incorporated by reference to the section in our Proxy Statement entitled “Section 16(a) Beneficial Ownership Reporting Compliance.”

We have adopted a written code of ethics for financial employees that applies to our principal executive officer, principal financial officer, principal accounting officer, controller and other employees of the finance department designated by our Chief Financial Officer.

13 unchanged sentences

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report:

(a) The following documents are filed as part of this Annual Report:

Financial Statements.

3 unchanged sentences

Financial statement schedules not listed above have been omitted because information required to be set forth therein is not applicable, not required, or the information required by such schedules is shown in the consolidated financial statements or the notes thereto.

Exhibit Description

Incorporated by Reference

Number Exhibit Description Incorporated by Reference Provided

Form File No.

First Filing Exhibit

Registrant’s Restated Certificate of Incorporation.

March 3, 2005

S-1/A 333-122454 March 3, 2005 3.03

Amendment No.

1 to Registrant’s Restated Certificate of Incorporation.

April 20, 2017

DEF 14 A 000-51222 April 20, 2017 Appendix B

Registrant’s Amended and Restated Bylaws.

November 25, 2014

8-K 000-51222 September 9, 2020 3.1

Form of Specimen Certificate for Registrant’s common stock.

March 24, 2005

Indenture, dated as of May 12, 2017, between DexCom, Inc.

Bank National Association (including the form of 0.75% Convertible Senior Notes due 2022)

S-1/A 333-122454 March 24, 2005 4.01

Indenture, dated as of November 30, 201 8 , between DexCom, Inc.

Bank National Association (including the form of 0.75% Convertible Senior Notes due 2023)

December 3, 2018

8-K 000-51222 December 3, 2018 4.1

Indenture, dated as of May 14, 2020, between DexCom, Inc.

Bank National Association (including the form of 0.25% Convertible Senior Notes due 2025)

8-K 000-51222 May 15, 2020

Description of Securities Registered Under Section 12 of the Exchange Act.

Form of Indemnity Agreement between Registrant and each of its directors and executive officers.

February 1, 2005

Office Lease Agreement, dated March 31, 2006, between DexCom, Inc.

and Kilroy Realty, L.P.

April 7, 2006

8-K 000-51222 April 7, 2006 99.01

Offer letter between DexCom, Inc.

1 unchanged sentence

Pacelli dated April 10, 2006.*

April 13, 2006

8-K 000-51222 April 13, 2006 99.01

Form of Amended and Restated Executive Change of Control & Severance Agreement.*

March 5, 2009

10-K 000-51222 March 5, 2009 10.20

Non-Exclusive Distribution Agreement, between RGH Enterprises, Inc.

and DexCom, Inc., dated April 30, 2008.**

August 3, 2009

10-Q 000-51222 August 3, 2009 10.23

Amended and Restated Development, Manufacturing, Licensing and Supply Agreement, between DSM PTG, Inc.

and DexCom, Inc., dated February 19, 2010.**

March 9, 2010

10-K 000-51222 March 9, 2010 10.25

First Amendment to Office Lease between DexCom, Inc.

and Kilroy Realty, L.P., dated August 18, 2010.

November 4, 2010

Exhibit Description

Incorporated by Reference

10-Q 000-51222 November 4, 2010 10.27

Amendment Number One to Non-Exclusive Distribution Agreement, between RGH Enterprises, Inc.

and DexCom, Inc., dated March 29, 2011.**

10-Q/A 000-51222 July 1, 2011 10.26

Number Exhibit Description Incorporated by Reference Provided

Form File No.

First Filing Exhibit

Offer letter between DexCom, Inc.

and Kevin Sayer dated May 3, 2011.*

August 3, 2011

10-Q 000-51222 August 3, 2011 10.28

Amendment Number Two to Non-Exclusive Distribution Agreement between RGH Enterprises, Inc.

and DexCom, Inc., dated March 28, 2013.**

10-Q 000-51222 May 1, 2013 10.27

Amendment Number Three to Non-Exclusive Distribution Agreement between RGH Enterprises, Inc.

and DexCom, Inc., dated December 4, 2013.**

February 20, 2014

Non-Exclusive Distribution Agreement between Dexcom, Inc.

10-K 000-51222 February 20, 2014 10.28

Non-Exclusive Distribution Agreement between Dex C om, Inc.

and Diabetes Specialty Center, LLC dated October 12, 2009, as amended on September 30, 2010, October 11, 2011, November 14, 2012 and November 1, 2013.**

February 20, 2014

10-K 000-51222 February 20, 2014 10.29

Settlement and License Agreement by and among Abbott Diabetes Care, Inc.

and DexCom, Inc., dated July 2, 2014.

August 6, 2014

10-Q 000-51222 August 6, 2014 10.31

Amendment No.

1 unchanged sentence

and Diabetes Specialty Center, LLC, dated March 14, 2014.

August 6, 2014

10-Q 000-51222 August 6, 2014 10.32

Second Amendment to Office Lease between DexCom, Inc.

and Kilroy Realty, L.P., dated October 1, 2014.

February 25, 2015

10-K 000-51222 February 25, 2015 10.32

2015 Employee Stock Purchase Plan

April 13, 2015

DEF 14A 000-51222 April 13, 2015 Appendix A

Form of Subscription Agreement under 2015 Employee Stock Purchase Plan

000-51222 June 2, 2015 10.4

Sublease between DexCom, Inc.

and Entropic Communications, LLC dated February 1, 2016.

April 27, 2016

10-Q 000-51222 April 27, 2016 10.36

Amended and Restated Non-Exclusive Distribution Agreement with Byram Healthcare dated February 1, 2016.**

April 27, 2016

10-Q 000-51222 April 27, 2016 10.37

Industrial Net Lease, Broadway dated April 28, 2016, by and between PRA/LB, L.L.C.

and DexCom, Inc.

August 2, 2016

10-Q 000-51222 August 2, 2016 10.39

Standard Form of Agreement dated May 2, 2016, by and between DexCom, Inc.

and Skanska USA Building Inc.

August 2, 2016

10-Q 000-51222 August 2, 2016 10.40

Amendment to Non-Exclusive Distribution Agreement dated April 30, 2016 by and between RGH Enterprises, Inc.

d/b/a Cardinal Health at Home and DexCom, Inc.

August 2, 2016

10-Q 000-51222 August 2, 2016 10.41

Amendment No.

1 unchanged sentence

and Verily Life Sciences LLC (formerly Google Life Sciences LLC).

February 28, 2017

10-K 000-51222 February 28, 2017 10.42

Severance and Change in Control Plan.

Exhibit Description

Incorporated by Reference

8-K 000-51222 June 6, 2017 10.20

Form of Participation Agreement to the Severance and Change in Control Plan.

8-K 000-51222 June 6, 2017 10.30

Number Exhibit Description Incorporated by Reference Provided

Form File No.

First Filing Exhibit

First Amendment to Credit Agreement dated June 17, 2016 by and among DexCom, Inc., the Lenders, and JPMorgan Chase Bank, as Administrative Agent.

August 1, 2017

10-Q 000-51222 August 1, 2017 10.46

Standard Form of Agreement dated May 1, 2017, by and between DexCom, Inc.

and Skanska USA Building Inc.

August 1, 2017

10-Q 000-51222 August 1, 2017 10.47

Offer Letter for Quentin S.

Blackford dated July 28, 2017.

August 1, 2017

8-K 000-51222 August 1, 2017 10.10

Form of Indemnity Agreement

August 1, 2017

10-Q 000-51222 August 1, 2017 10.43

Form of RSU Grant Agreement 2015 Plan Global Double Trigger

February 27, 2018

10-K 000-51222 February 27, 2018 10.51

Form of RSU Grant Agreement 2015 Plan Global General

February 27, 2018

10-K 000-51222 February 27, 2018 10.52

Amended and Restated Collaboration and License Agreement dated November 20, 2018 by and between DexCom, Inc., Verily Life Sciences LLC (an Alphabet Company) and Verily Ireland Limited.**

February 21, 2019

10-K 000-51222 February 21, 2019 10.60

Amended and Restated Credit Agreement dated December 19, 2018 by and among DexCom, Inc., Bank of America, Silicon Valley Bank and Union Bank, and JPMorgan Chase Bank, as Administrative Agent.

February 21, 2019

10-K 000-51222 February 21, 2019 10.61

Amended and Restated 2015 Equity Incentive Plan

8-K 000-51222 June 4, 2019 10.01

Executive Deferred Compensation Plan

8-K 000-51222 June 4, 2019 10.02

Form of RSU Grant Agreement 2015 Plan (Board Members - Annual Grant)

February 13, 2020

10-K 000-51222 February 13, 2020 10.36

Form of RSU Grant Agreement 2015 Plan (Board Members - Incoming Grant)

February 13, 2020

10-K 000-51222 February 13, 2020 10.37

Distribution Services Agreement dated November 7, 2015 between DexCom, Inc.

and AmerisourceBergen Drug Corporation.****

February 13, 2020

Amendment to the Distribution Services Agreement between Dexcom Inc.

10-K 000-51222 February 13, 2020 10.38

Amendment to the Distribution Services Agreement between Dex C om Inc.

and AmerisourceBergen Drug Corporation.****

February 13, 2020

10-K 000-51222 February 13, 2020 10.39

Third Amendment to Office Lease between DexCom, Inc.

and John Hancock Life Insurance Company, dated January 9, 2019.****

February 13, 2020

10-K 000-51222 February 13, 2020 10.40

Fourth Amendment to Office Lease between DexCom, Inc.

1 unchanged sentence

Center CA LLC, dated September 9, 2019.****

February 13, 2020

10-K 000-51222 February 13, 2020 10.41

Fifth Amendment to Office Lease between DexCom, Inc.

1 unchanged sentence

Center CA LLC, dated October 21, 2019.

February 13, 2020

10-K 000-51222 February 13, 2020 10.42

First Amendment to Amended and Restated Credit Agreement by and among DexCom, Inc., the Lenders, and JPMorgan Chase Bank as Administrative Agent, dated May 11, 2020

10-Q 000-51222 July 28, 2020 10.01

Form of Indemnity Agreement between Registrant and each of its directors and executive officers.

Number Exhibit Description Incorporated by Reference Provided

Form File No.

First Filing Exhibit

2015 Employee Stock Purchase Plan, amended on December 13, 2019

Form of Subscription Agreement under 2015 Employee Stock Purchase Plan amended on December 13, 2019

Incentive Agreement between Dex C om, Inc.

and Jeffrey Moy dated April 28, 2020

Transition and Consulting Agreement between Dex C om, Inc.

and Richard B.

Doubleday dated December 10, 2020

List of Subsidiaries

Consent of Independent Registered Public Accounting Firm

Power of Attorney (see signature page of this Form 10-K)

Exhibit Description

Incorporated by Reference

24.01 Power of Attorney (see signature page of this Form 10-K) X

Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).

4 unchanged sentences

Section 1350 and Securities Exchange Act Rule 13a-14(b).***

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

101.INS Inline XBRL Instance Document X

101.SCH Inline XBRL Taxonomy Extension Schema Document X

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X

— Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) X

* Represents a management contract or compensatory plan.

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/S/ QUENTIN S.

Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)

Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)

POWER OF ATTORNEY

1 unchanged sentence

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)

February 13, 2020

Signature Title Date

SAYER Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) February 11, 2021

/S/ QUENTIN S.

Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)

February 13, 2020

/S/ MARK FOLETTA

Lead Independent Director

February 13, 2020

/S/ STEVE ALTMAN

February 13, 2020

/S/ NICHOLAS AUGUSTINOS

BLACKFORD Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) February 11, 2021

/S/ MARK FOLETTA Lead Independent Director

February 11, 2021

/S/ STEVE ALTMAN Director February 11, 2021

/S/ NICHOLAS AUGUSTINOS Director February 11, 2021

Nicholas Augustinos

/S/ RICHARD COLLINS

February 13, 2020

/S/ RICHARD COLLINS Director February 11, 2021

Richard Collins

/S/ BRIDGETTE HELLER

February 13, 2020

/S/ KAREN DAHUT Director February 11, 2021

/S/ BRIDGETTE HELLER Director February 11, 2021

Bridgette Heller

/S/ BARBARA KAHN

February 13, 2020

/S/ JAY SKYLER

February 13, 2020

/S/ BARBARA KAHN Director February 11, 2021

/S/ KYLE MALADY Director February 11, 2021

/S/ JAY SKYLER Director February 11, 2021

Jay Skyler, M.D.

/S/ ERIC TOPOL

February 13, 2020

/S/ ERIC TOPOL Director February 11, 2021

Eric Topol, M.D.

26 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

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 a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Estimation of transaction price and variable consideration for revenue recognition

Description of the Matter

As discussed in Note 1 of the consolidated financial statements, the Company recognizes revenue from contracted insurance payors and distributors based on a transaction price which reflects the net consideration to which the Company expects to be entitled.

Description of the Matter As discussed in Note 1 of the consolidated financial statements, the Company recognizes revenue based on a transaction price which reflects the net consideration to which the Company expects to be entitled.

The transaction price is typically based on the contracted rates less an estimate of claim denials and historical reimbursement experience by payor, which include current and future expectations regarding reimbursement rates and payor mix.

1 unchanged sentence

Auditing management’s determination of transaction price including variable consideration involved a high degree of subjectivity in evaluating management’s estimates.

In determining transaction price, management develops estimates based on actual historical reimbursement experience by payor.

In estimating variable consideration related to rebates, management applies contracted rates to estimates of products sold subject to rebate, known events or trends and channel inventory data.

In determining transaction price, management develops estimates based on the contracted rates less an estimate of claim denials and historical reimbursement experience by payor.

In estimating rebates, management applies contracted rates to estimates of products sold subject to rebate, known market events or trends and channel inventory data.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to determine transaction price and variable consideration, including the underlying assumptions.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to determine transaction price and rebates, including the underlying assumptions.

Our audit procedures also included, among others, evaluating the significant assumptions and the accuracy and completeness of the underlying data used in management’s calculations.

For transaction price, this included testing management’s estimate of the claim denials and historical reimbursement experience through a combination of underlying data validation by inspection of source documents and independent recalculation of management’s analysis.

For rebates, this included testing contractual rates, management’s estimates of products sold subject to rebate, and inventory held by distributors at the end of the period, through a combination of underlying data validation by inspection of source documents, agreement to underlying contracts, review for consistency against historical data, and trending of inventory held at distributors versus inventory sold into the channel.

For rebates, this included testing contractual rates, management’s estimates of products sold subject to rebate, and inventory held by third parties at the end of the period, through a combination of underlying data validation by inspection of source documents, agreement to underlying contracts, review for consistency against historical data, and trending of inventory held at third parties versus inventory sold into the channel.

In addition, we inspected the results of the Company’s retrospective review analysis of rebates claimed, evaluated the estimates made based on historical experience and performed sensitivity analyses over the Company's significant assumptions.

Valuation allowances on deferred tax assets

Description of the Matter

As discussed in Note 8, significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets.

The Company reviews all available positive and negative evidence, including projections of pre-tax book income, earnings history, reliability of forecasting, and reversal of temporary differences.

A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized.

Realization of deferred tax assets is dependent upon future earnings.

Prior to 2020, due to the Company’s U.S.

operating losses and earnings volatility in previous years, which did not allow sustainable profitability, the Company had established and maintained a full valuation allowance on its deferred tax assets.

In 2020, the Company achieved three years of cumulative income.

The Company analyzed both positive and negative evidence, and as a result, released its valuation allowance of $287.2 million on its deferred tax assets.

The Company maintains a valuation allowance of $55.5 million against its California research and development tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.

Auditing management's analysis of the realizability of the deferred tax assets was complex and highly judgmental because the assessment process involves significant judgment and subjective evaluation of assumptions that may be affected by future operations of the Company, market or economic conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to assess the realizability of the deferred tax assets and measurement of the valuation allowances, including controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and projections of future taxable income.

Among other audit procedures performed, we tested the reversal of the existing taxable temporary differences, including assessment of the completeness and accuracy of related schedules.

We evaluated the assumptions used by the Company to develop projections of future taxable income by jurisdiction.

For example, we compared the projections of future taxable income with the actual results from prior periods, as well as management’s consideration of current trends.

We also considered the relevant tax laws and regulations in the various jurisdictions, including considering whether the estimated future sources of taxable income were of the appropriate character to utilize the deferred tax assets.

We also considered the accuracy of management’s historical projections and performed sensitivity analyses of the significant assumptions to evaluate the changes in realizability of deferred tax assets that would result from changes in the assumptions.

In addition, we evaluated the Company’s income tax disclosures related to the matters described above.

/s/ Ernst & Young LLP

8 unchanged sentences

Accounts receivable, net 428.5 286.3

Inventory 234.7 119.8

Prepaid and other current assets 53.9 30.0

2 unchanged sentences

Operating lease right-of-use assets 93.3 71.5

Goodwill 19.3 18.6

Deferred tax assets 216.4 —

Other assets 21.4 14.2

Total assets $ 4,290.5 $ 2,395.0

Liabilities and Stockholders’ Equity

2 unchanged sentences

Accrued payroll and related expenses 114.3 88.5

Operating lease liabilities, current portion

Short-term operating lease liabilities 16.5 13.6

Deferred revenue 2.2 1.7

1 unchanged sentence

Long-term senior convertible notes 1,667.2 1,059.7

Operating lease liabilities, net of current portion

Long-term operating lease liabilities 101.8 72.4

Other long-term liabilities 80.9 20.1

3 unchanged sentences

Preferred stock, $ 0.001 par value, 5.0 million shares authorized;

no shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively

no shares issued and outstanding at December 31, 2020 and December 31, 2019

Common stock, $ 0.001 par value, 200.0 million shares authorized;

96.9 million and 96.1 million shares issued and outstanding, respectively, at December 31, 2020;

91.1 million and 90.0 million shares issued and outstanding, respectively, at December 31, 2018

and 92.4 million and 91.6 million shares issued and outstanding, respectively, at December 31, 2019

Additional paid-in capital 2,125.3 1,675.9

2 unchanged sentences

Treasury stock, at cost;

0.8 million shares at December 31, 2019

0.8 million shares at December 31, 2020 and December 31, 2019

( 100.0 ) ( 100.0 )

Total stockholders’ equity 1,826.5 882.6

4 unchanged sentences

(In millions, except per share data) 2020 2019 2018

Revenue $ 1,926.7 $ 1,476.0 $ 1,031.6

Cost of sales 646.6 544.5 367.7

Gross profit 1,280.1 931.5 663.9

Operating expenses

5 unchanged sentences

Interest expense ( 84.7 ) ( 60.3 ) ( 22.7 )

Loss on extinguishment of debt ( 5.9 ) — —

Income (loss) from equity investments — ( 4.2 ) 80.1

1 unchanged sentence

Income (loss) before income taxes 225.0 104.2 ( 126.5 )

Income tax expense

Income tax expense (benefit) ( 268.6 ) 3.1 0.6

Net income (loss) $ 493.6 $ 101.1 $ ( 127.1 )

8 unchanged sentences

Net income (loss) $ 493.6 $ 101.1 $ ( 127.1 )

Other comprehensive income (loss), net of income taxes:

Foreign currency translation gain (loss)

Other comprehensive income, net of tax:

Foreign currency translation gain 1.1 0.4 4.0

Unrealized gain (loss) on marketable debt securities ( 0.2 ) 0.4 0.1

Total other comprehensive income (loss), net

Total other comprehensive income, net of tax 0.9 0.8 4.1

Comprehensive income (loss) $ 494.5 $ 101.9 $ ( 123.0 )

2 unchanged sentences

(In millions)

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Treasury Stock

Income (Loss) Accumulated

Deficit Treasury Stock Total

Stockholders’

Shares Amount

Balance at December 31, 2017 87.0 $ 0.1 $ 1,093.7 $ ( 2.6 ) $ ( 671.8 ) $ — $ 419.4

1 unchanged sentence

Issuance of common stock for Employee Stock Purchase Plan 0.2 — 8.9 — — — 8.9

Share-based compensation expense

Issuance of common stock for collaborative research and development fee 1.8 — 217.7 — — — 217.7

Convertible note hedge — — ( 218.9 ) — — — ( 218.9 )

Equity component of convertible 2023 Note issuance, net of issuance costs — — 171.6 — — — 171.6

Adoption of ASU 2016-09

Other comprehensive loss

Purchases of treasury stock ( 0.8 ) — — — — ( 100.0 ) ( 100.0 )

Sale of warrants — — 183.8 — — — 183.8

Share-based compensation expense — — 101.9 — — — 101.9

Net loss — — — — ( 127.1 ) — ( 127.1 )

Other comprehensive income, net of tax — — — 4.1 — — 4.1

Balance at December 31, 2018 90.0 0.1 1,560.6 1.5 ( 798.9 ) ( 100.0 ) 663.3

Cumulative-effect adjustment from adoption of new lease accounting standard (Note 6) — — — — 2.1 — 2.1

Issuance of common stock under equity incentive plans 1.4 — 0.3 — — — 0.3

Issuance of common stock for Employee Stock Purchase Plan 0.2 — 11.6 — — — 11.6

Realization of tax benefit related to 2023 Note Hedge — — 0.7 — — — 0.7

Share-based compensation expense — — 102.7 — — — 102.7

Issuance of common stock for collaborative research and development fee

Equity component of convertible 2023 Note issuance, net of issuance costs

Sale of warrants

Convertible note hedge

Purchases of treasury stock

Other comprehensive income

Net income — — — — 101.1 — 101.1

Other comprehensive income, net of tax — — — 0.8 — — 0.8

Balance at December 31, 2019 91.6 0.1 1,675.9 2.3 ( 695.7 ) ( 100.0 ) 882.6

Cumulative-effect adjustment from adoption of new lease accounting standard (Note 6)

Issuance of common stock under equity incentive plans 1.1 — 0.3 — — — 0.3

Issuance of common stock for Employee Stock Purchase Plan — — 15.0 — — — 15.0

Equity component of 2025 Notes issuance, net of issuance costs — — 289.4 — — — 289.4

Tax benefit related to Senior Convertible Notes — — ( 62.5 ) — — — ( 62.5 )

Repurchase and conversions of 2022 Notes 3.4 — 87.8 — — — 87.8

Share-based compensation expense — — 119.4 — — — 119.4

Realization of tax benefit related to 2023 Note Hedge

Other comprehensive income

Net income — — — — 493.6 — 493.6

Other comprehensive income, net of tax — — — 0.9 — — 0.9

Balance at December 31, 2020 96.1 $ 0.1 $ 2,125.3 $ 3.2 $ ( 202.1 ) $ ( 100.0 ) $ 1,826.5

8 unchanged sentences

Share-based compensation 119.4 102.7 101.9

Loss on extinguishment of debt 5.9 — —

Non-cash interest expense 74.0 49.6 17.9

2 unchanged sentences

Realized (gain) loss on equity investment — 4.2 ( 44.1 )

Deferred income taxes (including benefit from valuation allowance release) ( 277.3 ) 0.2 ( 2.2 )

Other non-cash income and expenses 13.7 1.9 6.9

1 unchanged sentence

Accounts receivable, net ( 142.3 ) ( 60.0 ) ( 93.2 )

Inventory ( 114.5 ) ( 49.1 ) ( 25.5 )

Prepaid and other assets ( 2.4 ) ( 7.2 ) ( 3.0 )

2 unchanged sentences

Accrued payroll and related expenses 26.1 16.0 23.8

Deferred revenue, deferred rent and other liabilities

Deferred revenue and other liabilities 18.6 ( 0.2 ) 0.8

Net cash provided by operating activities 475.6 314.5 123.2

2 unchanged sentences

Proceeds from sale and maturity of marketable securities 2,250.5 1,196.4 392.1

Purchase of other equity investments

Purchase of property and equipment

Purchases of property and equipment ( 199.0 ) ( 180.0 ) ( 67.1 )

Acquisitions, net of cash acquired — — ( 11.3 )

Other investing activities ( 11.3 ) ( 1.2 ) ( 1.0 )

Net cash used in investing activities ( 1,018.0 ) ( 1,015.2 ) ( 139.8 )

2 unchanged sentences

Purchases of treasury stock — — ( 100.0 )

Proceeds from issuance of convertible debt, net of issuance costs

Proceeds from issuance of convertible notes, net of issuance costs 1,188.8 — 836.6

Repurchase of convertible notes ( 282.6 ) — —

Proceeds from sale of warrants — — 183.8

Purchase of convertible note hedge — — ( 218.9 )

Proceeds from short-term borrowings

Repayment of short-term borrowings

Other financing activities ( 9.4 ) ( 1.2 ) ( 1.9 )

8 unchanged sentences

Total cash, cash equivalents and restricted cash $ 818.2 $ 446.4 $ 1,137.1

Twelve Months Ended

Supplemental disclosure of non-cash investing and financing transactions:

Common stock issued for repurchase and conversions of senior convertible notes $ 1,350.9 $ — $ —

Acquisition of property and equipment included in accounts payable and accrued liabilities $ 35.3 $ 14.2 $ 10.8

7 unchanged sentences

Organization and Business

is a medical device company focused on the design, development and commercialization of CGM system(s) for use by people with diabetes and by healthcare providers.

is a medical device company that develops and markets continuous glucose monitoring, or CGM, systems for the management of diabetes by patients, caregivers, and clinicians around the world.

Unless the context requires otherwise, the terms “we,” “us,” “our,” the “company,” or “Dexcom” refer to DexCom, Inc.

1 unchanged sentence

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of DexCom, Inc.

These consolidated financial statements include the accounts of DexCom, Inc.

and our wholly owned subsidiaries.

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dollars using period-end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses.

We include translation-related adjustments in comprehensive income (loss) and in accumulated other comprehensive income in the equity section of our consolidated balance sheet.

We include translation-related adjustments in comprehensive income (loss) and in accumulated other comprehensive income in the equity section of our consolidated balance sheets.

Gains and losses resulting from certain intercompany transactions as well as transactions with customers and vendors that are denominated in currencies other than the functional currency of each entity give rise to foreign exchange gains or losses that we record in interest and other income, net in our consolidated statements of operations .

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The preparation of consolidated financial statements in conformity with U.S.

generally accepted accounting principles, or GAAP, requires us to make certain estimates and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes.

generally accepted accounting principles, or GAAP, requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements and the disclosures made in the accompanying notes.

Areas requiring significant estimates include pharmacy rebates, transaction price, net accounts receivable, excess or obsolete inventories and the valuation of inventory, and accruals for litigation contingencies.

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Accounts receivable are not interest bearing.

We evaluate the creditworthiness of significant customers and generally do not require collateral from our customers.

We evaluate the creditworthiness of significant customers based on historical trends, the financial condition of our customers, and external market factors.

We generally do not require collateral from our customers.

We maintain an allowance for doubtful accounts for potential credit losses.

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The following table sets forth the percentages of total revenue or gross accounts receivable for customers that represent 10% or more of the respective amounts for the periods shown:

Gross Accounts Receivable

Revenue Gross Accounts Receivable

Twelve Months Ended

As of December 31,

December 31, As of December 31,

2020 2019 2018 2020 2019

Distributor A 23 % 17 % 15 % 19 % 21 %

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Distributor C 18 % 10 % * 12 % *

Distributor D 11 % * * * *

* Less than 10%

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Property and Equipment

Property and equipment is stated at cost less accumulated depreciation.

Property and equipment is stated at cost less accumulated depreciation and amortization.

We capitalize additions and improvements and expense maintenance and repairs as incurred.

We calculate depreciation using the straight-line method over the estimated useful lives of the assets.

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Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remaining lease term.

Buildings are amortized over the shorter of the ownership of the building or forty years .

We include the amortization of assets that are recorded under finance leases in depreciation expense.

On retirement or disposition, the asset cost and related accumulated depreciation are removed from our consolidated balance sheets and any gain or loss is recognized in our consolidated statements of operations.

We review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of the unit, we perform the second step of the impairment test.

In this step we allocate the fair value of the reporting unit calculated in step one to all of the assets and liabilities of that unit, as if we had just acquired the reporting unit in a business combination.

In this step we allocate the fair value of the

reporting unit calculated in step one to all of the assets and liabilities of that unit, as if we had just acquired the reporting unit in a business combination.

The excess of the fair value of the reporting unit over the total amount allocated to the assets and liabilities represents the implied fair value of goodwill.

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Intangible Assets and Other Long-Lived Assets

We amortize intangible assets with a finite life, such as acquired technology, customer relationships, trade names and trademarks, on a straight-line basis over their estimated useful lives, which range from two to five years.

Intangible assets are included in other assets in our consolidated balance sheets.

We review intangible assets that have finite lives and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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If the carrying value of an asset exceeds its estimated fair value, we would record an impairment loss equal to the difference.

We recorded no intangible asset impairment charges for the twelve months ended December 31, 2020, 2019 or 2018.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized, which requires significant judgment.

The realization of deferred tax assets is dependent, in part, upon future taxable income.

In assessing whether our deferred tax assets will be realized, we consider all available evidence, both positive and negative.

Such evidence includes historical earnings, future reversals of existing taxable temporary differences, estimates of future taxable income, and the feasibility of ongoing tax planning strategies.

We have recorded a full valuation allowance on our net deferred tax asset balances for all periods presented because of the uncertainty related to utilization of our deferred tax assets.

Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets.

We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, reliability of forecasting, and reversal of temporary differences.

A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized.

Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.

Prior to 2020, due to our US operating losses and earnings volatility in previous years, which did not allow sustainable profitability, we had established and maintained a full valuation allowance on our deferred tax assets.

In 2020, we achieved three years cumulative income and expect to continue that profitability in future years.

We analyzed both positive and negative evidence, and as a result released our valuation allowance on our deferred tax assets.

We maintain the valuation allowance on our California research and development tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

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Comprehensive Income (Loss)

Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income (loss) .

Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income.

We report all components of comprehensive income (loss), including net income (loss), in our financial statements in the period in which they are recognized.

Total comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.

We report net income (loss) and the components of other comprehensive income (loss) , including foreign currency translation adjustments and unrealized gains and losses on marketable securities, net of their related tax effect to arrive at total comprehensive income (loss) .

We report net income (loss) and the components of other comprehensive income, including foreign currency translation adjustments and unrealized gains and losses on marketable securities, net of their related tax effect to arrive at total comprehensive income (loss).

Revenue Recognition

We generate our revenue from the sale of our Reusable Hardware and disposable sensors, which we refer to in this section as “Components”.

We adopted ASC Topic 606 effective January 1, 2018 using the modified retrospective method.

Our revenue recognition policies under ASC Topic 606 are explained below.

We generate our revenue from the sale of our reusable transmitter and receiver, collectively referred to as Reusable Hardware, and disposable sensors.

We refer to Reusable Hardware and disposable sensors in this section as Components.

We generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled.

In determining how revenue should be recognized, a five-step process is used which includes identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, estimating the amount of variable consideration to include in the transaction price and determining the timing of revenue recognition for separate performance obligations.

Policy Elections and Practical Expedients Taken

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Variable Consideration

We estimate reductions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.

We include an estimate of variable consideration in the calculation of the transaction price at the time of sale, when control of the Components transfers to the customer.

Variable consideration includes but is not limited to rebates, chargebacks, consideration payable to customers such as specialty distributor and wholesaler fees, product returns provision, prompt payment discounts, and various other promotional or incentive arrangements.

We classify our provisions related to variable consideration

as a reduction of accounts receivable when we are not required to make a payment or as a liability when we are required to make a payment.

We are subject to rebates on pricing programs with managed care organizations, such as pharmacy benefit managers, governmental and third-party commercial payors, primarily in the U.S.

We estimate provisions for rebates based on contractual arrangements, estimates of products sold subject to rebate, known events or trends and channel inventory data.

We participate in chargeback programs, primarily with government entities in the U.S., under which pricing on products below negotiated list prices is provided to participating entities and equal to the difference between their acquisition cost and the lower negotiated price.

We estimate provisions for chargebacks primarily based on historical experience on a product and program basis, current contract prices under the chargeback programs and channel inventory data.

Consideration Payable to the Customer

We pay administrative and service fees to certain of our distributors based on a fixed percentage of the product price.

These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price.

We accrue for these fees based on actual net sales and contractual fee rates negotiated with the customer.

Product Returns

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We generally provide a “ 30 -day money back guarantee” program whereby first-time end-user customers may return Reusable Hardware.

Product returns have historically been immaterial.

We estimate our product returns provision principally based on historical experience by applying a historical return rate to the amounts of revenue estimated to be subject to returns.

Additionally, we consider other specific factors such as estimated shelf life of inventory in the distribution channel and changes to customer terms.

Prompt Payment Discounts

We provide customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period.

We estimate prompt payment discount accruals based on actual net sales and contractual discount rates.

Various Other Promotional or Incentive Arrangements

Other promotional or incentive arrangements are periodically offered to customers, including but not limited to co-payment assistance we provide to patients with commercial insurance, promotional programs related to the launch of products or other targeted promotions.

We record a provision for the incentive earned based on the number of estimated claims and our estimate of the cost per claim related to product sales that we have recognized as revenue.

Revenue Recognition

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orders or Free Carrier (FCA) shipping point for international orders.

For certain of our distributors, control transfers at delivery of the product to the customer.

In cases where our free-of-charge software, mobile applications and updates are deemed to be separate performance obligations, revenue is recognized over time on a ratable basis over the estimated life of the related hardware component.

For certain sales transactions, control transfers at delivery of the product to the customer.

Our sales of Components include an assurance-type warranty.

Judgments and Estimates

In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates that can have a significant impact on the amount and timing of revenue we report.

These judgments and estimates include identifying performance obligations in the contract, determining whether the performance obligations are separate, allocating the transaction price to each separate performance obligation, determining the timing of revenue recognition for separate performance obligations and estimating the amount of variable consideration to include in the transaction price.

Contract Balances

Contract balances represent amounts presented in the consolidated balance sheets when either we have transferred goods or services to the customer or the customer has paid consideration to us under the contract.

Contract balances represent amounts presented in our consolidated balance sheets when either we have transferred goods or services to the customer or the customer has paid consideration to us under the contract.

These contract balances include accounts receivable and deferred revenue.

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We record deferred revenue when we have entered into a contract with a customer and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation.

The table below shows revenue that we recognized as a result of changes in the contract liability balances in the periods shown.

Twelve Months Ended

(In millions)

Revenue recognized in the period from:

Amounts included in contract liabilities at the beginning of the period

Our performance obligations are generally satisfied within 12 months of the initial contract date.

As of December 31, 2019 , the deferred revenue balance related to performance obligations that will be satisfied after 12 months was $ 2.1 million .

and is included in other long-term liabilities on our consolidated balance sheets.

As of December 31, 2018 , we had no deferred revenue balance related to performance obligations that will be satisfied after 12 months.

The deferred revenue balances related to performance obligations that will be satisfied after 12 months was $ 8.2 million as of December 31, 2020 and $ 2.1 million as of December 31, 2019.

These balances are included in other long-term liabilities in our consolidated balance sheets.

Revenue recognized in the period from performance obligations satisfied in previous periods was not material for the periods presented.

Deferred Cost of Sales

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We generally expense incentive compensation associated with our internal sales force when incurred because the amortization period for such costs, if capitalized, would have been one year or less.

We record these costs in selling, general and administrative expense in our consolidated statement of operations.

We record these costs in selling, general and administrative expense in our consolidated statements of operations.

Product Shipment Costs

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Advertising Costs

We expense advertising costs as we incur them to selling, general and administrative expenses.

We expense costs to produce advertising as we incur them whereas costs to communicate advertising are expensed when the advertising is first run.

Advertising costs are included in selling, general and administrative expenses.

Advertising expense was $ 76.5 million, $ 33.1 million and $ 24.0 million for the twelve months ended December 31, 2020, 2019 and 2018, respectively.

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Share-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized straight-line over the requisite service period of the individual grants, which typically equals the vesting period.

We value time-based Restricted Stock Units (“RSUs”) at the date of grant using the intrinsic value method.

We value time-based Restricted Stock Units or RSUs at the date of grant using the intrinsic value method.

Certain RSUs granted to senior management vest based on the achievement of pre-established performance or market goals.

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Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents.

Potentially dilutive common shares consist of shares issuable from stock options, unvested RSUs, warrants and the 2022 and 2023 Senior Convertible Notes.

Potentially dilutive common share equivalents shares from outstanding stock options, warrants and unvested RSUs are determined using the average share price for each period under the treasury stock method.

Potentially dilutive shares issuable upon conversion of our 2022 and 2023 Senior Convertible Notes are determined using the if-converted method.

Potentially dilutive common shares consist of shares issuable from stock options, restricted stock units, warrants, and our senior convertible notes.

Potentially dilutive common shares issuable upon vesting of stock options and restricted stock units and exercise of warrants are determined using the average share price for each period under the treasury stock method.

Potentially dilutive common shares issuable upon conversion of our senior convertible notes are determined using the if-converted method.

In periods of net losses, we exclude all potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods shown.

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Net income (loss) per common share

Basic $ 5.23 $ 1.11 $ ( 1.44 )

Diluted $ 5.06 $ 1.10 $ ( 1.44 )

Basic weighted average shares outstanding 94.4 91.1 88.2

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Senior convertible notes — — —

2023 senior convertible notes

Diluted weighted average shares outstanding 97.5 92.3 88.2

In periods of net losses, we exclude potentially dilutive common shares from the computation of the diluted net loss per share for those periods as the effect would be anti-dilutive.

Outstanding anti-dilutive securities not included in the diluted net income (loss) per share attributable to common stockholders calculations were as follows:

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(In millions) 2020 2019 2018

Options outstanding to purchase common stock

Unvested restricted stock units

Stock options — — 0.1

Restricted stock units — 0.2 2.7

Warrants — 5.2 5.2

Senior convertible notes due 2022

Senior convertible notes due 2023

Senior convertible notes 7.2 9.2 9.2

Total 7.2 14.6 17.2

Recent Accounting Guidance

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) (ASU 2016-02), which requires a lessee to recognize most leases on the consolidated balance sheet as lease liabilities with corresponding right-of-use assets.

We adopted ASU 2016-02 utilizing the modified retrospective transition method at the beginning of the first quarter of 2019.

See Note 6, “Leases and Other Commitments” for more information on the impact of our adoption of ASU 2016-02 and related disclosures.

In August 2017, the FASB issued ASU No.

2017-12, Derivatives and Hedging (ASU 2017-12), which is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency regarding the scope and results of hedging programs.

The guidance in this update is applied using a cumulative-effect adjustment to retained earnings at the beginning of the fiscal year of adoption.

ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Our adoption of ASU 2017-12 at the beginning of the first quarter of 2019 did not have a significant impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

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This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted.

W e expect to adopt the standard on its effective date in the first quarter of 2020.

We believe the adoption will modify the way we analyze financial instruments, but currently do not expect the adoption to have a material financial impact on our consolidated financial statements.

Our adoption of ASU 2016-13 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements.

In addition, the outbreak of the novel strain of coronavirus, SARS-CoV-2 (“COVID-19”), has not had a significant impact on our expected credit losses or our consolidated financial statements during 2020.

We are continuing to monitor the impact of COVID-19 on expected credit losses.

In January 2017, the FASB issued ASU No.

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ASU 2017-04 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted.

We do not expect the adoption to have a material financial impact on our consolidated financial statements.

Our adoption of ASU 2017-04 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No.

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ASU 2018-13 is effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted.

We do not expect the adoption to have a material financial impact on our consolidated financial statements.

Our adoption of ASU 2018-13 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No.

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Application of this guidance can be applied either prospectively or retrospectively.

We will adopt the new standard on January 1, 2020 on a prospective basis.

We do not expect the adoption to have a material financial impact on our consolidated financial statements, however, the adoption of this standard will result in an increase in capitalized assets related to qualifying cloud computing arrangement implementation costs incurred after the adoption date.

We adopted the new standard on January 1, 2020 on a prospective basis.

Our adoption of ASU 2018-15 at the beginning of the first quarter of 2020 did not have a significant impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No.

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We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) .

This new guidance is intended to reduce the complexity of accounting for convertible instruments.

The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments.

Entities may adopt ASU 2020-06 using either a partial retrospective or fully retrospective method of transition.

This ASU is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

Development and Other Agreements

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In the fourth quarter of 2018, we made an initial payment of $ 250.0 million through the issuance of 1,840,943 shares of our common stock.

We recorded a $ 217.7 million charge in our consolidated statement of operations during 2018 relating to the issuance of this common stock because this milestone payment did not meet the capitalization criteria.

We recorded a $ 217.7 million charge in our consolidated statements of operations during 2018 relating to the issuance of this common stock because this milestone payment did not meet the capitalization criteria.

The amount of the charge was based on our closing stock price of $ 118.28 per share on December 28, 2018, the date on which we obtained the necessary regulatory approvals and the transaction closed.

During 2019 , we made an incentive payment of $ 3.2 million due to the completion of certain development obligations and recorded as research and development in the consolidated statement of operations.

During 2020 we made no incentive payments, while in 2019 we made incentive payments of $ 3.2 million due to the completion of certain development obligations and we recorded these payments as research and development expense in our consolidated statements of operations.

Additional milestone payments of up to a total of $ 275.0 million may become due and payable by us upon the achievement of future development, product regulatory approval and revenue milestones.

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We obtain the fair values for our Level 2 financial instruments, which are not in active markets, from a primary professional pricing source that uses quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets.

Fair values obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement date, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.

Fair values obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.

We validate the quoted market prices provided by our primary pricing service by comparing the fair values of our Level 2 marketable securities portfolio balance provided by our primary pricing service against the fair values of our Level 2 marketable securities portfolio balance provided by our investment managers.

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Fair Value Measurements Using

(In millions)

(In millions) Level 1 Level 2 Level 3 Total

Cash equivalents $ 491.5 $ 150.0 $ — $ 641.5

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Total assets measured at fair value on a recurring basis $ 494.9 $ 2,040.1 $ — $ 2,535.0

(1) Includes assets which are held pursuant to a deferred compensation plan for our executives, which consist mainly of mutual funds.

(1) Includes assets which are held pursuant to a deferred compensation plan for senior management, which consist mainly of mutual funds.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2019, classified in accordance with the fair value hierarchy:

Fair Value Measurements Using

(In millions)

(In millions) Level 1 Level 2 Level 3 Total

Cash equivalents $ 110.1 $ 144.9 $ — $ 255.0

Equity investment in Tandem Diabetes Care, Inc.

Debt securities, available for sale:

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Total debt securities, available for sale — 1,087.1 — 1,087.1

Other assets (1)

Total assets measured at fair value on a recurring basis $ 110.8 $ 1,232.0 $ — $ 1,342.8

There were no transfers between Level 1 and Level 2 securities during the years ended December 31, 2019 and December 31, 2018 .

(1) Includes assets which are held pursuant to a deferred compensation plan for our executives, which consist mainly of mutual funds.

There were no transfers between Level 1 and Level 2 securities during the years ended December 31, 2020 and 2019.

There were no transfers into or out of Level 3 securities during the years ended December 31, 2020 and 2019.

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Fair Value Measurements Using Level 1

(In millions)

December 31, 2019

December 31, 2018

(In millions) December 31, 2020 December 31, 2019

Senior Convertible Notes due 2022 * * $ 890.8

Senior Convertible Notes due 2023 $ 1,936.4 1,260.0

Senior Convertible Notes due 2025 1,219.2 *

Total fair value of outstanding senior convertible notes $ 3,155.6 $ 2,150.8

For more information on the carrying values of our 2022 Notes and 2023 Notes, see Note 5, “Debt.”

*Not applicable as no notes were outstanding at this date.

For more information on the carrying values of our senior convertible notes, see Note 5, “Debt.”

Foreign Currency and Derivative Financial Instruments

From time to time we engage in limited hedging transactions to reduce foreign currency risks.

The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the derivative instruments are recorded in current assets or current liabilities in our balance sheets consistent with the nature of the instrument at period end.

Derivative gains and losses are included in interest and other income, net in our consolidated statement of operations.

As of December 31, 2019 , a notional amount of $ 8.0 million was outstanding to hedge currency risk relating to certain intercompany balances.

The resulting impact from the hedging activity on our consolidated financial statements was not significant for the year ended December 31, 2019 .

As of December 31, 2018 , a notional amount of $ 60.0 million was outstanding to hedge currency risk relating to certain intercompany balances.

Derivative instrument gains on forward exchange contracts were $ 0.4 million for the twelve months ended December 31, 2018 .

The fair value of the forward contract exchange derivative instrument liability was $ 0.2 million as of December 31, 2018 .

We entered into no foreign currency forward contracts during 2017 .

From time to time we engage in hedging transactions to reduce foreign currency risks.

The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the derivative instruments are recorded in current assets or current liabilities in our consolidated balance sheets consistent with the nature of the instrument at period end.

Derivative gains and losses are included in interest and other income, net in our consolidated statements of operations.

As of December 31, 2020 and December 31, 2019, notional amounts of $ 48.0 million and $ 8.0 million, respectively, were outstanding to hedge certain foreign currency risk.

The resulting impact on our consolidated financial statements from currency hedging activities was not significant for the twelve months ended December 31, 2020, 2019 and 2018.

Our foreign currency exposures vary but are primarily concentrated in the British Pound, the Euro, and the Canadian Dollar.

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In accordance with authoritative guidance, we measure certain non-financial assets and liabilities at fair value on a non-recurring basis.

These measurements are usually performed using the discounted cash flow method and Level 3 inputs.

These measurements are usually performed using the discounted cash flow method or cost method and Level 3 inputs.

These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived assets measured at fair value for an impairment assessment.

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Short-Term Marketable Securities

Short-term marketable securities, consisting of equity securities and debt securities, were as follows as of the dates indicated:

Short-term marketable securities, consisting of debt securities, were as follows as of the dates indicated:

December 31, 2020

(In millions)

(In millions) Amortized

Losses Estimated

Debt securities, available for sale:

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December 31, 2019

(In millions)

Equity investment in Tandem Diabetes Care, Inc

(In millions) Amortized

Losses Estimated

Debt securities, available for sale:

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Total debt securities, available for sale $ 1,086.7 $ 0.5 $ ( 0.1 ) $ 1,087.1

Total marketable securities

As of December 31, 2020 and 2019, all of our debt securities had contractual maturities of less than twelve months .

Gross realized gains and losses on our debt securities for the twelve months ended December 31, 2019 , 2018 and 2017 were not significant.

We periodically review our portfolio of debt securities to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns.

We believe that the investments we held at December 31, 2019 were not other-than-temporarily impaired.

Unrealized losses on available-for-sale debt securities at that date were not significant and were due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.

Gross realized gains and losses on sales of our debt securities for the twelve months ended December 31, 2020, 2019 and 2018 were not significant.

We periodically review our portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns.

For debt securities where the fair value of the investment is less than the amortized cost basis, we have assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment.

Unrealized losses on available-for-sale debt securities at December 31, 2020 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.

Accordingly, we have not recorded an allowance for credit losses.

We do not intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

The following table reconciles the net gain recognized on equity securities during the twelve months ended December 31, 2019 , 2018 and 2017 to the unrealized gain recognized during those periods on equity securities still held at the reporting dates.

The following table reconciles the net gain recognized on marketable equity securities during the twelve months ended December 31, 2020, 2019 and 2018 to the unrealized gain recognized during those periods on equity securities still held at the reporting dates.

Twelve Months Ended

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Total inventory $ 234.7 $ 119.8

During the twelve months ended December 31, 2019 , we recorded excess and obsolete inventory charges of $ 14.1 million in cost of sales as a result of our ongoing assessment of sales demand, inventory on hand for each product and the continuous improvement and innovation of our products.

During the twelve months ended December 31, 2020 and 2019, we recorded excess and obsolete inventory charges of $ 24.4 million and $ 14.1 million, respectively, in cost of sales as a result of our ongoing assessment of sales demand, inventory on hand for each product and the continuous improvement and innovation of our products.

During the twelve months ended December 31, 2018, we recorded excess and obsolete inventory charges of $ 7.3 million in cost of sales primarily as a result of the approval and launch of our G6 system and our ongoing assessment of sales demand and the continuous improvement and innovation of our products.

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(In millions) 2020 2019

Building and land

Furniture and fixtures 15.3 12.8

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Construction in progress 219.0 132.6

Total cost 669.5 426.3

Less accumulated depreciation and amortization ( 154.2 ) ( 105.0 )

Total property and equipment, net $ 515.3 $ 321.3

Building and Land.

Although we do not legally own these premises, under previous lease accounting standards we were deemed the owner of the construction project during the construction period of our manufacturing facility in Mesa, Arizona under a build-to-suit lease arrangement.

As a result of our adoption of ASC 842, we de-recognized the estimated fair value of the building shell that was included in “building and land” in our consolidated balance sheets as of December 31, 2018 and the related lease liability and recorded the difference between the asset and liability as an adjustment to retained earnings at the beginning of the first quarter of 2019.

The December 31, 2019 balance in “building and land” represents our finance lease right-of-use assets as a result of our adoption of ASC 842.

(1) Represents our finance lease right-of-use assets.

Depreciation expense related to property and equipment for the twelve months ended December 31, 2020, 2019 and 2018 was $ 64.0 million, $ 46.9 million, and $ 28.6 million, respectively.

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Total accounts payable and accrued liabilities $ 481.1 $ 256.4

Restructuring Plan.

In February 2019, our Board of Directors approved a restructuring plan that resulted in the transition of certain of our operations to the Philippines.

We incurred total pre-tax charges and costs of approximately $ 8.0 million , primarily for employee severance benefits under both ongoing and one-time benefit arrangements.

We incurred most of these costs in the first half of 2019 and the restructuring activities have been substantially completed as of December 31, 2019 .

Accrued Warranty

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Finance lease obligations $ 54.0 $ 14.4

Deferred rent

Contractual obligations 12.6 —

Other liabilities 14.3 5.7

Total other liabilities $ 80.9 $ 20.1

Our adoption of ASC 842 during the first quarter of 2019 affected the balances of finance lease liabilities and deferred rent.

See Note 6, “Leases And Other Commitments” for more information on leases.

Senior Convertible Notes

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(Dollars in millions) 2020 2019

0.75% Senior Convertible Notes due 2022:

Principal amount:

Unamortized debt discount

Unamortized debt issuance costs

Net carrying amount of Senior Convertible Notes due 2022

Senior Convertible Notes due 2022 $ — $ 400.0

Principal amount

Unamortized debt discount

Unamortized debt issuance costs

Net carrying amount of Senior Convertible Notes due 2023

Total net carrying amount of senior convertible notes

Carrying value of equity component of convertible senior notes, net of debt issuance costs

Senior Convertible Notes due 2023 850.0 850.0

Senior Convertible Notes due 2025 1,207.5 —

Total principal amount 2,057.5 1,250.0

Unamortized debt discount ( 371.1 ) ( 177.2 )

Unamortized debt issuance costs ( 19.2 ) ( 13.1 )

Carrying amount of liability component $ 1,667.2 $ 1,059.7

Carrying value of equity component $ 461.0 $ 242.2

Remaining amortization period of debt discount on the liability component:

Senior Convertible Notes due 2022

Senior Convertible Notes due 2023

The amount by which the notes’ if-converted value exceeds their principal amount is as of the dates indicated:

Senior Convertible Notes due 2022 * 2.5 years

Senior Convertible Notes due 2023 2.9 years 4.0 years

Senior Convertible Notes due 2025 4.9 years *

* Not applicable as no notes were outstanding at this date.

For our senior convertible notes for which the if-converted value exceeded the principal amount, the amount in excess of principal is as follows as of the dates indicated:

(In millions) 2020 2019

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Total by which the notes’ if-converted value exceeds their principal amount $ 1,077.5 $ 858.6

* Not applicable as no notes were outstanding at this date.

The following table summarizes the components of interest expense and the effective interest rates for each of our senior convertible notes for the periods shown.

(Dollars in millions)

Twelve Months Ended

Interest expense recognized:

0.75% Senior Convertible Notes due 2022:

Contractual coupon interest

Accretion of debt discount (1)

Amortization of debt issuance costs

Interest expense recognized on 2022 Notes

0.75% Senior Convertible Notes due 2023:

(Dollars in millions) Twelve Months Ended

2020 2019 2018

Cash interest expense:

Contractual coupon interest (1)

$ 9.3 $ 9.3 $ 3.5

Non-cash interest expense:

Accretion of debt discount 68.6 45.8 16.0

Amortization of debt issuance costs 4.0 3.7 1.8

Interest expense recognized on 2023 Notes

Total interest expense recognized on senior notes $ 81.9 $ 58.8 $ 21.3

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Senior Convertible Notes due 2022 (2)

5.1 % 5.1 % 5.1 %

Senior Convertible Notes due 2023 5.6 % 5.6 % 5.6 %

(1) The discount on the 2022 Notes is being amortized through May 15, 2022.

Interest on the 2022 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year.

(2) The discount on the 2023 Notes is being amortized through December 1, 2023.

Senior Convertible Notes due 2025 5.5 % * *

(1) Interest on the 2022 Notes began accruing upon issuance and was payable semi-annually on May 15 and November 15 of each year.

Interest on the 2023 Notes began accruing upon issuance and is payable semi-annually on June 1 and December 1 of each year.

Interest on the 2025 Notes began accruing upon issuance and is payable semi-annually on May 15 and November 15 of each year.

(2) The effective interest rate presented represents the rate applicable for the period outstanding.

The Senior Convertible Notes due 2022 were fully redeemed by July 31, 2020, as described below.

* Not applicable as no notes were outstanding at this date.

0.75% Senior Convertible Notes due 2022

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The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $ 389.0 million.

The initial conversion rate of the 2022 Notes is 10.0918 shares per $ 1,000 principal amount of notes, which is equivalent to a conversion price of approximately $ 99.09 per share, subject to adjustments.

The 2022 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion.

We use the if-converted method for assumed conversion of the 2022 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity.

As a result, we recognized $ 72.6 million in additional paid-in-capital during 2017.

No principal payments are due on the 2022 Notes prior to maturity.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes includes customary terms and covenants, including certain events of default after which the 2022 Notes may be due and payable immediately.

The initial conversion rate of the 2022 Notes was 10.0918 shares per $1,000 principal amount of notes, which was equivalent to a conversion price of approximately $ 99.09 per share, subject to adjustments.

The 2022 Notes could be settled in cash, stock, or a combination thereof, solely at our discretion.

We used the if-converted method for assumed conversion of the 2022 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

Since upon conversion by the holders we could elect to settle such conversion in shares of our common stock, cash, or a combination thereof, we accounted for the cash conversion option as an equity instrument classified to stockholders’ equity.

As a result, we recognized $ 70.6 million in additional paid-in-capital, net of debt issuance costs, during 2017.

No principal payments were due on the 2022 Notes prior to maturity.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2022 Notes included customary terms and covenants, including certain events of default after which the 2022 Notes could be due and payable immediately.

Conversion Rights at the Option of the Holders

In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100 % of the principal amount of the 2022 Notes, plus any accrued and unpaid interest.

Holders of the 2022 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by DexCom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate.

Prior to 5:00 p.m., New York City time, on the business day immediately preceding February 15, 2022, holders of the 2022 Notes may convert all or a portion of their notes, in multiples of $ 1,000 principal amount, only under the following circumstances:

during any calendar quarter commencing after September 30, 2017 (and only during such calendar quarter), if the last reported sale price of common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the Notes on each such trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $ 1,000 principal amount of the Notes for each day of that five day consecutive trading day period was less than 98 % of the product of the last reported sale price of common stock and the applicable conversion rate of the Notes on such trading day;

if we call any or all of the Notes for redemption, at any time prior to the close on business on the scheduled trading day immediately preceding the redemption date;

In the event of a fundamental change (as defined in the indenture related to the 2022 Notes), holders of the 2022 Notes had the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100 % of the principal amount of the 2022 Notes, plus any accrued and unpaid interest.

Holders of the 2022 Notes who would convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by Dexcom of a notice of redemption were, under certain circumstances, entitled to an increase in the conversion rate.

Prior to 5:00 p.m., New York City time, on the business day immediately preceding February 15, 2022, holders of the 2022 Notes could convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:

(1) during any calendar quarter commencing after September 30, 2017 (and only during such calendar quarter), if the last reported sale price of Dexcom’s common stock for at least 20 trading days (whether or not consecutive) during

the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 2022 Notes on each such trading day;

(2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2022 Notes for each day of that five day consecutive trading day period was less than 98 % of the product of the last reported sale price of Dexcom’s common stock and the applicable conversion rate of the Notes on such trading day;

(3) if we called any or all of the Notes for redemption, at any time prior to the close on business on the scheduled trading day immediately preceding the redemption date;

(4) upon the occurrence of specified corporate transactions.

On or after February 15, 2022 , until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2022 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarters ended March 31, 2019, September 30, 2019 and December 31, 2019.

As a result, the 2022 Notes became convertible at the option of the holders from April 1, 2019 through June 30, 2019, October 1, 2019 through December 31, 2019 and will remain convertible at the option of the holder from January 1, 2020 through March 31, 2020.

Holders of 2022 Notes with an insignificant principal amount exercised their option to convert their 2022 Notes during the second and fourth quarters of 2019 and we settled these conversions with shares of our common stock.

We continue to classify the carrying value of the liability component of the 2022 Notes as long-term debt, and the equity component of the 2022 Notes as permanent equity in our consolidated balance sheets as of December 31, 2019 .

On or after February 15, 2022, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2022 Notes could convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarters ended December 31, 2019 and March 31, 2020.

As a result, the 2022 Notes became convertible at the option of the holder from January 1, 2020 through June 30, 2020.

On June 29, 2020, Dexcom issued a notice of redemption to the holders of its outstanding 2022 Notes which is described below.

Conversion Rights at Our Option

DexCom may not redeem the 2022 Notes prior to May 15, 2020.

On or after May 15, 2020, DexCom may redeem for cash all or part of the 2022 Notes, at its option, if the last reported sale price of our common stock has been at least 140 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which DexCom provides notice of redemption.

The redemption price will be equal to 100 % of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

On or after May 15, 2020, Dexcom could redeem for cash all or part of the 2022 Notes, at its option, if the last reported sale price of our common stock had been at least 140 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which Dexcom provided notice of redemption.

The redemption price would be equal to 100 % of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

Repurchase, Conversion, and Redemption of 2022 Notes

In May 2020, we used approximately $ 282.6 million of the net proceeds from the 2025 Notes offering described below and issued 1,953,067 shares of Dexcom common stock to repurchase $ 260.0 million principal amount outstanding of the 2022 Notes and the associated conversion feature of the repurchased notes (which was recorded in additional paid-in capital).

In addition, holders of 2022 Notes with a principal amount of $ 140.0 million exercised their option to convert their 2022 Notes during the twelve months ended December 31, 2020.

We settled these conversions by issuing 1,412,497 shares of our common stock.

As a result of the repurchase and conversions of the 2022 Notes, we recorded a loss on extinguishment of debt of $ 5.9 million for the twelve months ended December 31, 2020.

The loss on extinguishment of debt included the unamortized debt issuance costs for the 2022 Notes.

On June 29, 2020, we issued a notice of redemption to the holders of our outstanding 2022 Notes pursuant to which we would redeem the outstanding 2022 Notes for cash at a price of 100 % of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any, on July 31, 2020, unless earlier converted.

The principal amount of 2022 Notes actually redeemed for cash was not significant.

0.75% Senior Convertible Notes due 2023

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As a result, we recognized $ 174.4 million in additional paid-in capital during 2018.

As a result, we recognized $ 171.6 million in additional paid-in capital, net of debt issuance costs, during 2018.

No principal payments are due on the 2023 Notes prior to maturity.

4 unchanged sentences

Holders of the 2023 Notes may convert all or a portion of their notes at their option prior to 5:00 p.m., New York City time, on the business day immediately preceding September 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances:

during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 2023 Notes on each such trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $ 1,000 principal amount of the 2023 Notes for each day of that five -day consecutive trading day period was less than 98 % of the product of the last reported sale price of common stock and the applicable conversion rate of the 2023 Notes on such trading day;

(1) during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of Dexcom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the 2023 Notes on each such trading day;

(2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of that five -day consecutive trading day period was less than 98 % of the product of the last reported sale price of Dexcom’s common stock and the applicable conversion rate of the 2023 Notes on such trading day;

(3) if we call any or all of the 2023 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

1 unchanged sentence

On or after September 1, 2023, until 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, holders of the 2023 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Circumstance (1) listed above occurred during the quarter ended December 31, 2019.

As a result, the 2023 Notes are convertible at the option of the holders from January 1, 2020 and will remain convertible until March 31, 2020.

We continue to classify the carrying value of the liability component of the 2023 Notes as long-term debt, and the equity component of the 2023 Notes as permanent equity in our consolidated balance sheets as of December 31, 2019 .

Circumstance (1) listed above occurred during the quarters ended December 31, 2019, March 1, 2020, June 30, 2020, and September 30, 2020.

As a result, the 2023 Notes were convertible at the option of the holder from January 1, 2020 through December 31, 2020;

actual conversions during that period were not significant.

Circumstance (1) listed above also occurred during the quarter ended December 31, 2020 and as a result, the 2023 Notes will be convertible at the option of the holder from January 1, 2021 through March 31, 2021.

Conversion Rights at Our Option

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We received $ 183.8 million in cash proceeds from the sale of the 2023 Warrants, which we recorded in additional paid-in capital during 2018.

The 2023 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants.

The 2023 Warrants could have a dilutive effect on our

earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants.

The strike price of the 2023 Warrants is initially $ 198.38 per share and is subject to certain adjustments under the terms of the warrant agreements.

We use the treasury share method for assumed conversion of the 2023 Warrants when computing the weighted average common shares outstanding for diluted earnings per share.

0.25% Senior Convertible Notes due 2025

In May 2020, we completed an offering of $ 1.21 billion aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 0.25 % and a maturity date of November 15, 2025 (the 2025 Notes).

The net proceeds from the offering, after deducting initial purchasers’ discounts and estimated costs directly related to the offering, were approximately $ 1.19 billion.

The initial conversion rate of the 2025 Notes is 1.6655 shares per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $ 600.42 per share, subject to adjustments, with a maximum conversion rate of 2.3732.

The 2025 Notes may be settled in cash, stock, or a combination thereof, solely at our discretion.

We use the if-converted method for assumed conversion of the 2025 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share.

As a result, we recognized $ 289.4 million in additional paid-in-capital, net of debt issuance costs, during 2020.

No principal payments are due on the 2025 Notes prior to maturity.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the indenture relating to the 2025 Notes includes customary terms and covenants, including certain events of default after which the 2025 Notes may be due and payable immediately.

Conversion Rights at the Option of the Holders

In the event of a fundamental change (as defined in the indenture related to the 2025 Notes), holders of the 2025 Notes have the right to require us to repurchase for cash all or a portion of their notes at a price equal to 100 % of the principal amount of the 2025 Notes, plus any accrued and unpaid interest.

Holders of the 2025 Notes who convert their notes in connection with a make-whole fundamental change (as defined in the indenture) or following the delivery by Dexcom of a notice of redemption are, under certain circumstances, entitled to an increase in the conversion rate.

Prior to 5:00 p.m., New York City time, on the business day immediately preceding August 15, 2025, holders of the 2025 Notes may convert all or a portion of their notes, in multiples of $1,000 principal amount, only under the following circumstances:

(1) during any calendar quarter commencing after September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Dexcom’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the applicable conversion price of the Notes on each such trading day;

(2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five day consecutive trading day period was less than 98 % of the product of the last reported sale price of Dexcom’s common stock and the applicable conversion rate of the Notes on such trading day;

(3) if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

(4) upon the occurrence of specified corporate transactions.

On or after August 15, 2025, until 5:00 p.m., New York City time, on the business day immediately preceding the maturity date, holders of the 2025 Notes may convert all or a portion of their notes regardless of the foregoing circumstances.

Conversion Rights at Our Option

Dexcom may not redeem the 2025 Notes prior to May 20, 2023.

On or after May 20, 2023 and prior to August 15, 2025, Dexcom may redeem for cash all or part of the 2025 Notes, at its option, if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which Dexcom provides notice of redemption.

The redemption price will be equal to 100 % of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

Revolving Credit Agreement

Terms of the Revolving Credit Agreement

On December 19, 2018, we entered into an amended and restated revolving credit agreement (the Credit Agreement) which provides for available principal amount of $ 200.0 million which can be increased up to $ 500.0 million at our option subject to customary conditions and approval of our lenders.

On December 19, 2018, we entered into an amended and restated revolving credit agreement which was subsequently amended on May 11, 2020 (as amended, the Credit Agreement).

The Credit Agreement provides for available principal amount of $ 200.0 million which can be increased up to $ 500.0 million at our option subject to customary conditions and approval of our lenders.

Borrowings under the Credit Agreement are available for general corporate purposes, including working capital and capital expenditures.

Information related to availability and outstanding borrowings on our Credit Agreement is as follows:

Information related to availability and outstanding borrowings on our Credit Agreement is as follows as of the date indicated:

(In millions) 2020

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Leases And Other Commitments

We lease office, manufacturing and warehouse space facilities under various domestic and international operating leases that expire at various times through August 2026.

We lease office, manufacturing and warehouse space facilities under various domestic and international non-cancellable operating lease arrangements that expire at various times through December 2030.

We also have one land lease that expires in 2080.

Certain of our leases have renewal options which allow us to extend the lease term typically between three and five years per option and some of our leases have multiple options to extend.

We have one finance lease for our manufacturing facility in Mesa, Arizona under a lease that expires in March 2028 with options to renew this lease for four additional five -year terms.

Our facility leases generally provide for periodic rent increases and many contain escalation clauses.

Certain leases also require us to pay taxes, insurance, and maintenance.

The remaining lease terms of our leases range from less than one year to approximately thirteen years ;

and represent the non-cancellable periods of the leases, including extension options that we determined are reasonably certain to be exercised.

The remaining lease terms of our leases range from less than one year to approximately twenty years and represent the non-cancellable periods of the leases, including extension options that we determined are reasonably certain to be exercised.

Leases are classified as operating or financing at lease commencement.

We adopted ASC 842 utilizing the modified retrospective transition method through a $ 2.1 million cumulative-effect adjustment to accumulated deficit at the beginning of the first quarter of 2019.

3 unchanged sentences

As a result of our adoption of ASC 842, we have de-recognized the estimated fair value of the building shell and the related lease liability as of December 31, 2018 and recorded the difference between the asset and liability as an adjustment to retained earnings at the beginning of the first quarter of 2019.

In addition, as a result of our adoption of ASC 842 we recorded operating lease right-of-use assets of $ 26.7 million , finance lease right-of-use assets of $ 15.3 million , operating lease liabilities of $ 40.4 million and finance lease liabilities of $ 15.9 million in our consolidated balance sheets at the beginning of the first quarter of 2019, with no material impact to our consolidated statement of operations.

Operating lease right-of-use assets and liabilities are presented separately in our consolidated balance sheets.

In addition, as a result of our adoption of ASC 842 we recorded operating lease right-of-use assets of $ 26.7 million, finance lease right-of-use assets of $ 15.3 million, operating lease liabilities of $ 40.4 million and finance lease liabilities of $ 15.9 million in our consolidated balance sheets at the beginning of the first quarter of 2019, with no material impact to our consolidated statements of operations.

Operating lease right-of-use assets and lease liabilities are presented separately in our consolidated balance sheets.

Finance lease right-of-use assets are included in property and equipment and finance lease liabilities are included in accounts payable and accrued liabilities and in other long-term liabilities in our consolidated balance sheets.

As of December 31, 2020, the maturities of our operating and finance lease liabilities were as shown in the table below:

(In millions)

Operating Leases

Finance Leases

(In millions) Operating Leases Finance Leases

2020 $ 21.2 $ 10.7

2021 22.1 4.2

2022 22.4 4.3

2023 20.8 4.5

2024 20.0 4.6

Thereafter 32.0 68.7

Total future lease cost (1)

Amount representing interest

Imputed interest ( 20.2 ) ( 34.2 )

Present value of future payments 118.3 62.8

Short-term leases not recorded as a liability

Revised present value of future lease payments

Current portion ( 16.5 ) ( 8.8 )

1 unchanged sentence

(1) Total future lease cost excludes $ 16.3 million of legally binding minimum lease payments for leases signed but not yet commenced .

The components of lease expense for the twelve months ended December 31, 2019 were as follows:

Certain lease agreements require us to return designated areas of leased space to its original condition upon termination of the lease agreement, for which we record an asset retirement obligation and a corresponding capital asset in an amount equal to the estimated fair value of the obligation.

In subsequent periods, the asset retirement obligation is accreted for the change in its present value and the capitalized asset is depreciated, both over the term of the associated lease agreement.

Asset retirement obligations of $ 4.5 million and $ 2.6 million as of December 31, 2020 and 2019, respectively, are included under “Other long-term liabilities” in our consolidated balance sheets.

The components of lease expense for the twelve months ended December 31, 2020 and 2019 were as follows:

Twelve Months Ended

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Prior to January 1, 2019, we recorded operating lease rent expense under ASC 840 on a straight-line basis over the non-cancellable lease term.

Rent expense for the twelve months ended December 31, 2018 and 2017 was $ 12.5 million and $ 11.1 million , respectively.

Rent expense for the twelve months ended December 31, 2018 was $ 12.5 million .

Other information related to leases was as shown in the table below.

9 unchanged sentences

Finance leases $ 41.7 $ 15.5

Weighted average remaining lease term in years:

Operating leases

Finance leases

Weighted average remaining lease term:

Operating leases 6.1 years 6.2 years

Finance leases 23.3 years 13.3 years

Weighted average discount rate:

1 unchanged sentence

Finance leases 5.2 % 5.0 %

Amortization of operating lease right-of-use asset included in cash flows from operating activities in the Consolidated Statements of Cash Flows was $ 9.1 million for the twelve months ended December 31, 2019 .

Amortization of operating lease right-of-use asset included in cash flows from operating activities in our consolidated statements of cash flows was $ 12.4 million for the twelve months ended December 31, 2020 and $ 9.1 million for the twelve months ended December 31, 2019.

Purchase Commitments

We are party to various purchase arrangements related to our manufacturing and research and development activities.

As of December 31, 2019 , we had approximately $ 165.8 million of open purchase orders and contractual obligations in the ordinary course of business, most of which are due within one year .

As of December 31, 2020, we had approximately $ 335.6 million of open purchase orders and contractual obligations in the ordinary course of business, the majority of which are due within one year .

Contingencies

On March 28, 2016, AgaMatrix, Inc., or AgaMatrix, filed a patent infringement lawsuit against us in the U.S.

District Court for the District of Oregon, asserting that certain of our products infringe three patents held by AgaMatrix.

(After filing suit, AgaMatrix reorganized its business and the Court granted AgaMatrix’s motion to substitute the newly created entity WaveForm Technologies, Inc., as the plaintiff following AgaMatrix’s transfer of the three asserted patents to WaveForm.) DexCom filed petitions for inter partes review with the Patent Trial and Appeal Board, or PTAB, of the U.S.

Patent and Trademark Office, challenging each of the three asserted patents as being unpatentable in view of prior art.

The PTAB issued a Final Written Decision for each of the first two patents on February 28, 2018, where the PTAB found the majority of asserted claims from the first patent unpatentable and the remaining claims under review not unpatentable.

The PTAB found all claims under review from the second patent not unpatentable.

On September 12, 2018, the PTAB found all of the asserted claims in the third patent unpatentable.

In October 2018, we filed in the District Court a motion for summary judgment that all remaining asserted claims are invalid.

The District Court granted that motion and, on August 23, 2019, entered judgment in our favor.

On September 6, 2019, WaveForm appealed the judgment.

The appeal is pending and no hearing date has been set.

We have also filed several lawsuits against AgaMatrix.

We filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the Central District of California, or C.D.

Cal., in which a Final Judgment of non-infringement was entered by the C.D.

Cal judge on February 23, 2018 and affirmed on appeal by the Federal Circuit on March 7, 2019.

AgaMatrix was awarded attorneys’ fees for this lawsuit.

As of December 31, 2019 , we have accrued an immaterial amount for those fees.

The fee decision is currently on appeal to the Federal Circuit.

On September 15, 2017, we filed a patent infringement lawsuit against AgaMatrix in the United States District Court for the District of Delaware, asserting certain single-point blood glucose monitoring products of AgaMatrix infringe two patents held by us.

In addition, on September 18, 2017, we filed a Complaint against AgaMatrix in the International Trade Commission, referred to as the ITC, requesting that the ITC institute an investigation and issue an order excluding certain products of AgaMatrix from importation into or sale in the United States based on AgaMatrix’s infringement of the same two patents asserted in the Delaware litigation.

The investigation was terminated by the ITC on April 4, 2019 with a finding of non-infringement.

The decision is currently on appeal.

Neither the outcome of these lawsuits nor the amount and range of potential loss associated with the lawsuits can be assessed at this time.

Other than the attorneys’ fees described above, as of December 31, 2019 we have accrued no amounts for contingent losses associated with these suits.

We are subject to various claims, complaints and legal actions that arise from time to time in the normal course of business, including commercial insurance, product liability and employment related matters.

We are subject to various claims, complaints and legal actions that arise from time to time in the normal course of business, including commercial insurance, product liability, intellectual property and employment related matters.

In addition, from time to time we may bring claims or initiate lawsuits against various third parties with respect to matters arising out of the ordinary course of our business, including commercial and employment related matters.

We do not expect that the resolution of these matters would, or will, have a material adverse effect or material impact on our financial position or results of operations.

We do not believe we are party to any currently pending legal proceedings, the outcome of which could have a material adverse effect on our business, financial condition or results of operations.

There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, financial condition or results of operations.

Income (loss) before income taxes subject to taxes in the following jurisdictions is as follows:

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Outside of the United States ( 45.7 ) ( 14.9 ) ( 98.2 )

Total $ 225.0 $ 104.2 $ ( 126.5 )

Significant components of the provision for income taxes are as follows:

Twelve Months Ended

December 31, 2019

(In millions) 2020 2019 2018

Federal $ — $ — $ —

State 6.1 1.0 2.7

Foreign 2.6 1.9 0.1

Total current income taxes 8.7 2.9 2.8

Federal ( 198.8 ) — ( 1.7 )

State ( 51.4 ) — ( 0.5 )

Foreign ( 27.1 ) 0.2 —

Total deferred income taxes ( 277.3 ) 0.2 ( 2.2 )

At December 31, 2019 , we had federal, state and foreign tax net operating loss carryforwards of approximately $ 438.8 million , $ 324.1 million , and $ 124.1 million , respectively.

The federal and state tax loss carryforwards will begin to expire in 2027 and 2020 , respectively, unless previously utilized.

The foreign net operating losses carry forward indefinitely.

At December 31, 2019 , we also had federal and state research and development tax credit carryforwards of approximately $ 54.4 million and $ 52.7 million , respectively.

$ 0.1 million of the federal research and development tax credit will begin to expire in 2020 , unless previously utilized.

The state research and development tax credit will carryforward indefinitely until utilized.

Total $ ( 268.6 ) $ 3.1 $ 0.6

Significant loss and tax credit carryforwards and years of expiration are as follows:

December 31, Year of Expiration

(In millions) 2020 2019

Net Operating Loss:

Federal $ 169.1 $ 438.8 2027

California 236.3 235.3 2029

Other States 36.1 88.8 2030

UK 113.2 124.1 Indefinite

Federal 73.1 54.4 2026

California $ 66.2 $ 52.7 Indefinite

On June 29, 2020, California’s Governor Newsom signed AB 85 into law, suspending California net operating loss utilization and imposing a $5.0 million cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020 through 2022.

As a result of the legislation, we are utilizing $ 2.4 million of California research and development credits for the tax year ended December 31, 2020.

Utilization of net operating losses and credit carryforwards is subject to an annual limitation due to ownership change limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions.

An ownership change limitation occurred as a result of the stock offering completed in February 2009.

The limitation will likely result in approximately $ 2.1 million of U.S.

income tax credits that will expire unused.

The limitation will result in approximately $ 1.9 million of U.S.

research and development tax credits that will expire unused.

The related deferred tax assets have been removed from the components of our deferred tax assets as summarized in the table below.

We performed a Section 382 study on the remaining federal and state net operating losses and tax credit carryforwards and have determined that there is no annual limitation on them as of December 31, 2019 .

Significant components of our deferred tax assets as of December 31, 2019 and 2018 are shown below.

A valuation allowance of approximately $ 332.2 million has been established as of December 31, 2019 to offset the deferred tax assets, as realization of such assets is uncertain.

We maintain a deferred tax liability related to indefinite-lived intangible assets that is not netted against the deferred tax assets.

Reversal of the taxable temporary difference for these intangible assets cannot serve as a source of income for realization of the deferred tax assets because the deferred tax liability will not reverse until the intangible assets are sold or written down due to impairment.

The tax benefits related to the remaining federal and state net operating losses and tax credit carryforwards may be further limited or lost if future cumulative changes in ownership exceed 50% within any three-year period.

Significant components of our deferred tax assets and liabilities as of December 31, 2020 and 2019 are shown below.

Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets.

We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, reliability of forecasting, and reversal of temporary differences.

A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized.

Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.

Prior to 2020, due to our U.S.

operating losses and earnings volatility in previous years, which did not allow sustainable profitability, we had established and maintained a full valuation allowance on our deferred tax assets.

In 2020, we achieved three years of cumulative income.

We analyzed both positive and negative evidence, and as a result, we released our valuation allowance on our deferred tax assets, with the exception of our California research and development tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.

(In millions) 2020 2019

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Capitalized research and development expenses 53.6 57.1

Tax credits 101.1 78.6

Share-based compensation 13.0 10.9

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Net deferred tax assets (liabilities) $ 216.4 $ ( 0.1 )

Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets.

We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, and reliability of forecasting.

A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized.

As of December 31, 2019 , we have maintained a full valuation allowance on our deferred tax assets since inception based on our historical losses and the uncertainty of generating future taxable income to utilize our loss and credit carryforwards.

A future release of our valuation allowance will result in a material tax benefit recognized in the quarter of the release.

As of December 31, 2019 , deferred tax assets for which any subsequently recognized tax benefits will be credited to additional paid-in capital rather than to income tax benefit totaled $ 55.7 million .

We released $ 287.2 million of valuation allowance related to our deferred tax assets, of which $ 285.5 million was recorded to income tax benefit and $ 1.7 million was recorded to additional paid-in capital.

We maintain a valuation allowance of $ 55.5 million against our California research and development tax credits and certain foreign intangible assets.

The reconciliation between our effective tax rate on income (loss) from continuing operations and the statutory rate is as follows:

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(In millions) 2020 2019 2018

Income taxes at statutory rates

federal statutory tax rate $ 47.3 $ 21.9 $ ( 26.6 )

State income tax, net of federal benefit 3.2 ( 2.3 ) ( 5.5 )

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Stock and officers compensation ( 28.7 ) ( 14.7 ) ( 5.1 )

Unrecognized tax benefits

Change in statutory tax rates ( 4.1 ) — —

Impact of adoption of ASU 2016-16 — — ( 13.3 )

Impact of Tax Cuts and Jobs Act of 2017 — — ( 0.4 )

Other 0.1 ( 1.0 ) 1.3

Change in valuation allowance ( 275.0 ) 3.4 56.9

Income taxes at effective rates

$ ( 268.6 ) $ 3.1 $ 0.6

On June 22, 2020, the Supreme Court effectively resolved the Altera Corp.

Commissioner case when it denied its petition to hear the case.

argued that the Treasury Department’s regulation requiring related companies to share the cost of stock-based employee compensation is arbitrary, and thus invalid.

The denial to hear the case supports that related companies should share in the cost of stock-based employee compensation.

Pursuant to an Altera clause in our cost-sharing agreement, we recalculated and retroactively billed stock-based compensation for years 2016-2020, resulting in an additional $ 32.0 million cost-share payment.

The 2017 Tax Cuts and Jobs Act included provisions for tax on Global Intangible Low-taxed Income (“GILTI”) effective for tax years of foreign corporations beginning after December 31, 2017.

We have elected to account for GILTI in the period the tax is incurred.

The following table summarizes the activity related to our gross unrecognized tax benefits:

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Balance at December 31, 2020 $ 36.6

Due to the valuation allowance recorded against our deferred tax assets, none of the total unrecognized tax benefits as of December 31, 2019 would reduce our annual effective tax rate if recognized.

Of the total unrecognized tax benefits at December 31, 2020, 2019, and 2018, $ 23.5 million, $ 0 , and $ 0 , respectively, would reduce our annual effective tax rate if recognized.

Interest and penalties are classified as a component of income tax expense and were not material for any period presented.

Due to net operating losses incurred, tax years from 1999 and forward for federal and state purposes and from 2016 and forward for foreign jurisdictions remain open to examination by the major taxing jurisdictions to which we are subject.

The IRS commenced an audit of our 2015 and 2016 federal income tax returns in February 2018.

The audit closed in June 2019 with no significant changes to our unrecognized tax benefits.

We conduct business globally and consequently file income tax returns and are subject to routine compliance audits in numerous jurisdictions including those material jurisdictions listed in the following table.

We are currently under a routine examination by the Federal Central Office in Germany for fiscal years 2016-2018.

We do not expect any material adjustments as a result of this audit.

net operating losses generated since 1999 and utilized in recent years are open for examination.

The years remaining subject to audit, by major jurisdiction, are as follows:

Jurisdiction Fiscal Year

United States (Federal and state) 1999 - 2020

Germany 2016 - 2020

United Kingdom 2017 - 2020

Canada 2015 - 2020

We operate under a tax holiday in the Philippines, which is effective through December 31, 2023, and may be extended for another three years if certain additional requirements are satisfied.

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The impact of this tax holiday decreased foreign taxes by $ 0.1 million in 2020.

We have been granted an investment tax allowance incentive by the Malaysian Investment Development Authority (MIDA) in Malaysia, which is effective through December 31, 2025.

The tax incentive had no effect on foreign taxes during 2020.

We have approximately $ 1.4 million of undistributed earnings attributable to operations in our controlled foreign corporations as of December 31, 2020.

We assert that any foreign earnings will be indefinitely reinvested.

Accordingly, we have not recorded a liability for taxes associated with any future distributions of these undistributed earnings as any distribution would be immaterial.

Employee Benefit Plans and Stockholders’ Equity

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Under the terms of the 401(k) Plan, we may elect to match a discretionary percentage of contributions.

In April 2018, we began matching 50 % of contributions up to 4 % of annual compensation.

We match 50 % of contributions up to 5 % of annual compensation.

Total matching contributions were $ 6.7 million and $ 4.8 million for the twelve months ended December 31, 2020, and 2019, respectively.

Employee Stock Purchase Plan, or ESPP

Under the 2015 Employee Stock Purchase Plan (the 2015 ESPP) eligible employees can purchase shares of our common stock at semi-annual intervals through periodic payroll deductions during defined Offering Periods.

Under the 2015 Employee Stock Purchase Plan (the 2015 ESPP), amended in December 2019, eligible employees can purchase shares of our common stock at semi-annual intervals through periodic payroll deductions during defined Offering

A total of up to 1.5 million shares may be issued under the 2015 ESPP and it expires upon the earliest to occur of (a) termination of the 2015 ESPP by our board of directors, (b) issuance of all of the shares of common stock reserved for issuance under the plan, or (c) May 28, 2025.

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Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.

We issue new shares of common stock to satisfy option exercises and RSU vesting under our employee equity incentive plans.

We issue new shares of common stock to satisfy RSU vesting under our employee equity incentive plans.

We have not yet determined the ultimate disposition of the 0.8 million shares that we repurchased in 2018, and consequently we continue to hold them as treasury shares rather than retiring them.

No shares of our common stock were repurchased during 2019 .

No shares of our common stock were repurchased during 2019 or 2020.

Stock Options

We have not granted any stock options since 2010.

As of December 31, 2019 we have 28,385 options outstanding, all of which are in-the-money.

The options have a weighted- average remaining contractual term of 0.27 years, a weighted- average exercise price of $ 10.11 per share, and an aggregate intrinsic value of $ 5.9 million .

The aggregate intrinsic value of options outstanding and exercisable is calculated as the difference between the exercise price of the underlying options and the $ 218.74 per share market price of our common stock at December 31, 2019 .

As of December 31, 2020, we have no stock options outstanding.

The total intrinsic value of stock options exercised as of the date of exercise was as follows:

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A summary of our RSU activity for the twelve months ended December 31, 2020, 2019 and 2018 is as follows:

(In millions except weighted average grant date fair value)

(In millions except weighted average grant date fair value) Shares Weighted

Fair Value Aggregate

Intrinsic Value

Nonvested at December 31, 2017 2.7 $ 70.68

Granted 1.7 66.07

Vested ( 1.4 ) 68.44

Forfeited ( 0.3 ) 68.56

Nonvested at December 31, 2018 2.7 69.19 $ 319.0

Granted 0.7 144.37

Vested ( 1.4 ) 69.45

Forfeited ( 0.2 ) 83.45

Nonvested at December 31, 2019 1.8 96.63 392.0

Granted 0.5 300.36

Vested ( 1.0 ) 92.07

Forfeited ( 0.1 ) 137.44

Nonvested at December 31, 2020 1.2 $ 183.51 $ 430.6

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(In millions) 2020 2019

Stock options and awards under our plans:

Stock options granted and outstanding

Stock awards under our plans:

Unvested restricted stock units 1.2 1.8

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Employee Stock Purchase Plan 0.8 0.9

Total 6.5 7.6

Share-based Compensation

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Selling, general and administrative 67.0 60.2 59.7

Total share-based compensation expense included in net loss

Total share-based compensation expense $ 119.4 $ 102.7 $ 101.9

We estimate the fair value of ESPP purchase rights on the date of grant using the Black-Scholes option pricing model and the assumptions below for the specified reporting periods.

Twelve Months Ended

2020 2019 2018

Risk free interest rate 0.13 - 0.95

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Disaggregation of Revenue

We disaggregate revenue by geographic region and by major sales channel.

We have determined that disaggregating revenue into these categories achieves the ASC Topic 606 disclosure objectives of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Dexcom is domiciled in the United States.

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During the twelve months ended December 31, 2020, 2019 and 2018, no individual country outside the United States generated revenue that represented more than 10% of our total revenue.

The following table sets forth revenues by our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product:

The table below sets forth revenues by our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product.

The majority of our long-lived assets are located in the United States.

Twelve Months Ended December 31,

(Dollars in millions)

2020 2019 2018

(Dollars in millions) Amount %

of Total Amount %

United States $ 1,509.5 78 % $ 1,161.5 79 % $ 818.4 79 %

Outside of the United States 417.2 22 % 314.5 21 % 213.2 21 %

The majority of our long-lived assets are located in the United States.

Total $ 1,926.7 100 % $ 1,476.0 100 % $ 1,031.6 100 %

Revenues by customer sales channel

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Twelve Months Ended December 31,

(Dollars in millions)

Quarterly Financial Information (Unaudited)

The following is a summary of our quarterly results of operations for the years ended December 31, 2019 and 2018 :

For the Three Months Ended

(In millions except per share data)

Year ended December 31, 2019

Total operating expenses

Net income (loss)

Basic net income (loss) per share (1)

Diluted net income (loss) per share (1)

Year ended December 31, 2018

Total operating expenses

Net income (loss)

Basic net income (loss) per share (1)

Diluted net income (loss) per share (1)

(1) Basic and diluted earnings per share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.

2020 2019 2018

(Dollars in millions) Amount %

of Total Amount %

Distributor $ 1,437.6 75 % $ 1,011.6 69 % $ 652.9 63 %

Direct 489.1 25 % 464.4 31 % 378.7 37 %

Total $ 1,926.7 100 % $ 1,476.0 100 % $ 1,031.6 100 %

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

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Write-offs and adjustments ( 8.3 )

Recoveries 0.5

Balance at December 31, 2018 $ 7.2

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Write-offs and adjustments ( 3.0 )

Recoveries 0.7

Balance at December 31, 2019 $ 5.8

3 unchanged sentences

Write-offs and adjustments ( 2.1 )

Recoveries 0.3

Balance at December 31, 2020 $ 7.2

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.

What changed 10-K

Item 9A. Controls and Procedures