What changed in this filing

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Item 1. Financial Statements

2020-10-28 compared with 2020-08-05 · 181 added, 136 removed, 540 unchanged (37% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(In thousands, except par value)

27 unchanged sentences

Authorized 500,000,000 shares;

issued and outstanding 75,327 and 77,395 shares at June 30, 2020 and December 31, 2019, respectively

issued and outstanding 76,241,618 and 77,394,983 shares at September 30, 2020 and December 31, 2019, respectively

Class B common stock;

1 unchanged sentence

Authorized 275,000,000 shares;

issued and outstanding 22,430 and 22,430 shares at June 30, 2020 and December 31, 2019, respectively

issued and outstanding 22,430,097 and 22,430,097 shares at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

25 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

27 unchanged sentences

Balance at June 30, 2020

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at September 30, 2020

‎ Common Stock

13 unchanged sentences

Balance at June 30, 2019

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at September 30, 2019

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

10 unchanged sentences

(Gain)/loss on disposal of assets, net

Payment of business acquisition related liabilities

(Increase)/decrease in:

14 unchanged sentences

Cash flows from financing activities:

Payment of business acquisition liabilities

Payment of business acquisition related liabilities

Proceeds from exercise of stock options

2 unchanged sentences

Effect of foreign exchange rate on cash

Net increase/(decrease) in cash, cash equivalents, and restricted cash

Net increase in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period

1 unchanged sentence

Supplemental disclosures of cash flow information:

Interest paid

Income taxes paid

Purchases of property and equipment included in accounts payable and accrued expenses

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 unchanged sentences

(b) COVID-19 Pandemic Impact

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide.

The pandemic has significantly impacted the economic conditions in the U.S.

1 unchanged sentence

While emergency and time-sensitive surgical procedures continue, as of the date of this filing, the Company has been impacted by temporary postponement of elective surgeries in hospitals and surgical facilities worldwide.

The Company cannot reasonably estimate the length or severity of this pandemic, however, as a result of these developments the Company expects a material adverse impact on its sales, results of operations, and cash flows in the remainder of fiscal 2020, and potentially fiscal 2021.

In response to these developments, the Company will continue to monitor liquidity and cash flow.

The Company has the ability to borrow from our credit facility signed on August 6, 2020, if needed, although we do not expect to do so due to our cash, cash equivalents and short-term marketable securities balances.

5 unchanged sentences

As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results for the three and six month periods presented.

The results of operations for any interim period are not indicative of results for the full year.

15 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:

September 30,

(In thousands)

3 unchanged sentences

(g) Marketable Securities

Our marketable securities include municipal bonds, corporate debt securities, commercial paper, securities of government, federal agency, and other sovereign obligations, and asset-backed securities, and are classified as available-for-sale as of June 30, 2020 and December 31, 2019.

Available-for-sale securities are recorded at fair value in both short-term and long-term marketable securities on our condensed consolidated balance sheets.

9 unchanged sentences

If an unrealized loss for any security is expected, the loss will be recognized on an allowance basis, consistent with ASC 326-30, in our condensed consolidated statement of income in the period the determination is made.

(h) Inventories

(h) Fair Value Measurements

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

Under the accounting for fair value measurements and disclosures, fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or the liability in an orderly transaction between market participants on the measurement date.

Additionally, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:

Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities;

Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques.

Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis

The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill.

We utilize Level 3 inputs in the determination of the initial fair value.

Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized.

We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.

Contingent consideration represents our contingent milestone, performance and revenue-sharing payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

The valuation of contingent consideration uses assumptions we believe would be made by a market participant.

We assess these assumptions on an ongoing basis as additional data impacting the assumptions is obtained.

The balances of the fair value of contingent consideration are recognized within business acquisition liabilities on our condensed consolidated balance sheets, and the changes in the fair value of contingent consideration are recognized within acquisition related costs in the condensed consolidated statements of income.

(i) Inventories

Inventories are stated at the lower of cost or net realizable value.

4 unchanged sentences

Once inventory has been written down, it creates a new cost basis for inventory that is not subsequently written up.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the three months ended June 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $ 6.5 million and $ 0.3 million, respectively.

The net adjustments for the three months ended June 30, 2020 and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($ 8.5 million and $ 3.9 million, respectively) offset by sales and disposals ($ 2.0 million and $ 3.6 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

During the six months ended June 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $ 7.2 million and $ 2.5 million, respectively.

The net adjustments for the six months ended June 30, 2020 and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($ 10.9 million and $ 6.6 million, respectively) offset by sales and disposals ($ 3.7 million and $ 4.1 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

(i) Property and Equipment

Purchases of property and equipment included in accounts payable and accrued expenses were $ 6.2 million and $ 4.8 million as of June 30, 2020 and 2019, respectively.

(j) Revenue Recognition

1 unchanged sentence

Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

Incidental items that are immaterial in the context of the contract are recognized as expense.

For purposes of disclosing disaggregated revenue, we disaggregate our revenue into two categories, Musculoskeletal Solutions and Enabling Technologies.

5 unchanged sentences

Our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Nature of Products and Services

11 unchanged sentences

Deferred revenue is generally invoiced annually at the beginning of each contract period and recognized ratably over the coverage period.

For the three and six months ended June 30, 2020, there was an immaterial amount of revenue recognized from previously deferred revenue.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three and nine months ended September 30, 2020, there was an immaterial amount of revenue recognized from previously deferred revenue.

Disaggregation of Revenue

The following table represents total sales by revenue stream:

Net sales for the three and nine months ended September 30, 2020 and 2019, respectively included the following:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

1 unchanged sentence

Enabling Technologies products

Total net sales

(k) Recently Issued Accounting Pronouncements

5 unchanged sentences

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

On March 12, 2020, the FASB issued ASU No.

2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The ASU is effective for all entities as of March 12, 2020, and will apply through December 31, 2022.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(l) Recently Adopted Accounting Pronouncements

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Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reasonable and supportable information to inform credit loss estimates.

This amendment is effective for fiscal years beginning after December 15, 2019.

13 unchanged sentences

Adoption of the standard did not have a material impact on our financial position, results of operations, and disclosures .

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

17 unchanged sentences

The Company recorded identifiable net assets, based on their estimated fair values, related to inventory of $ 15.3 million, fixed assets of $ 4.2 million and customer relationships of $ 3.9 million and goodwill of $ 4.7 million.

The contingent consideration payable related to this acquisition of $ 5.0 million was paid during the third quarter of 2020.

The payment up to the amount of the contingent consideration liability recognized at the acquisition date of $ 4.3 million is presented as a financing activity and the excess cash payment of $ 0.7 million is presented as an operating activity on the Condensed Consolidated Statement of Cash Flows as of the nine months ended September 30, 2020 in accordance with FASB ASC Topic 230, “Statement of Cash Flows” (ASC 230) .

GLOBUS MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2020, the contingent consideration payable related to this acquisition is $ 5.0 million, which was paid in July 2020.

GOODWILL AND INTANGIBLE ASSETS

A summary of intangible assets is presented below:

June 30, 2020

Intangible assets as of September 30, 2020 included the following:

September 30, 2020

(In thousands)

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Due to the completion of contractual milestones related to the 2018 acquisition of Nemaris, in the first quarter of 2020, $ 13.0 million was capitalized to Developed technology and began to be amortized over a period of 5.4 years.

Intangible assets as of December 31, 2019 included the following:

December 31, 2019

5 unchanged sentences

Total intangible assets

A summary of the net carrying value of goodwill is presented below:

The change in the carrying amount of goodwill during the twelve months ended December 31, 2019 and the nine months ended September 30, 2020, respectively included the following:

(In thousands)

5 unchanged sentences

Foreign exchange

June 30, 2020

September 30, 2020

GLOBUS MEDICAL, INC.

2 unchanged sentences

MARKETABLE SECURITIES

The composition of our short-term and long-term marketable securities is as follows:

June 30, 2020

Short-term and long-term marketable securities as of September 30, 2020 and December 31, 2019, respectively included the following:

September 30, 2020

(In thousands)

9 unchanged sentences

Asset-backed securities

Government, federal agency, and other sovereign obligations

Total long-term marketable securities

11 unchanged sentences

Total long-term marketable securities

FAIR VALUE MEASUREMENTS

Additionally, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

GLOBUS MEDICAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:

Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities;

Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques.

The fair value of our assets and liabilities measured at fair value on a recurring basis was as follows:

FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, respectively included the following:

(In thousands)

September 30,

Cash equivalents

15 unchanged sentences

Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis

We utilize Level 3 inputs in the determination of the initial fair value.

We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

measurement within the fair value hierarchy.

The valuation of contingent consideration uses assumptions we believe would be made by a market participant.

We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained.

The recurring Level 3 fair value measurements of our business acquisition liabilities include the following significant unobservable inputs, which have not materially changed since December 31, 2019, exclusive of the contractual payable reclassification to Accrued Expenses in the Condensed Consolidated Balance Sheet:

(In thousands)

Fair Value at June 30, 2020

Valuation technique

Unobservable input

Fair Value at September 30, 2020

Discount rate

3 unchanged sentences

Projected year of payment

The following table provides a reconciliation of the beginning and ending balances of business acquisition liabilities:

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The change in the carrying value of the business acquisition liabilities during the three and nine months ended September 30, 2020 and 2019, respectively included the following:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

Ending balance

Inventories as of September 30, 2020 and December 31, 2019, respectively included the following:

September 30,

(In thousands)

3 unchanged sentences

Total inventories

During the three months ended September 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $ 5.2 million and ($ 0.6 ) million, respectively.

The net adjustments for the three months ended September 30, 2020 and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($ 7.9 million and $ 1.2 million, respectively) offset by sales and disposals ($ 2.7 million and $ 1.8 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

During the nine months ended September 30, 2020 and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $ 12.4 million and $ 1.9 million, respectively.

The net adjustments for the nine months ended September 30, 2020 and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($ 18.9 million and $ 7.8 million, respectively) offset by sales and disposals ($ 6.5 million and $ 5.9 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

During the third quarter of 2020, the Company initiated a voluntary Class II recall of specific lots of ALTERA ® Spacers.

This recall was initiated because specific lots of ALTERA ® implants have internal components that were manufactured using stainless steel rather than the specified cobalt chromium molybdenum alloy.

Only devices made after February 12, 2020 from specific lots were affected, and some parts in some lots may not be affected.

No reports of adverse reactions related to the affected ALTERA ® implants have been received to date.

A recall notification was issued to all relevant parties and Globus has collected and replaced impacted field inventory.

The Company recorded an accrual in the second quarter of approximately $ 1.3 million in costs associated with this recall of which $ 1.0 million was charged to Cost of Goods Sold in the Condensed Consolidated Statements of Income.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ACCRUED EXPENSES

Accrued expense as of September 30, 2020 and December 31, 2019, respectively included the following:

September 30,

(In thousands)

Compensation and other employee-related costs

Contractual payable (1)

Legal and other settlements and expenses

1 unchanged sentence

Total accrued expenses

(1) The contractual payable includes $ 10.0 million related to the Nemaris acquisition milestone payment and $ 4.9 million related to the StelKast acquisition milestone payment, which are recorded in intangible assets and accrued liabilities as a non-cash financing activity on the Condensed Consolidated Statement of Cash Flows as of the six months ended June 30, 2020.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Line of Credit

In May 2011, we entered into a credit agreement with Wells Fargo Bank related to a revolving credit facility that provides for borrowings up to $ 50.0 million.

In June 2018, we amended the credit agreement to increase the revolving credit facility amount from $ 50.0 million to $ 125.0 million.

At our request, and with the approval of the bank, the amount of borrowings available under the revolving credit facility can be increased to $ 150.0 million.

On August 6, 2020, we entered into a credit agreement with Citizens Bank, N.A.

(the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $ 125.0 million (the “Revolving Credit Facility”), and has a termination date of August 5, 2021 .

The Revolving Credit Facility includes up to a $ 25.0 million sub limit for letters of credit.

Revolving loans under the Credit Agreement will bear interest, at the Company’s option, at either a base rate or the Adjusted LIBOR Rate (as defined in the Credit Agreement), plus, in each case, an applicable margin, as determined in accordance with the provisions of the Credit Agreement.

The base rate will be the highest of:

the rate of interest announced publicly by Citizens Bank, N.A.

from time to time as its “prime rate”;

the federal funds effective rate plus 1/2 of 1 %;

and the Adjusted LIBOR Rate for a one-month period plus 1 %.

The applicable margin is subject to adjustment as provided in the Credit Agreement.

The Credit Agreement contains financial and other customary covenants, including a maximum leverage ratio.

In May 2011, we entered into a credit agreement with Wells Fargo Bank related to a revolving credit facility that provided for borrowings up to $ 50.0 million.

In June 2018, we amended the credit agreement to increase the revolving credit facility amount from $ 50.0 million to $ 125.0 million.

At our request, and with the approval of the bank, the amount of borrowings available under the revolving credit facility increased to $ 150.0 million.

The revolving credit facility included up to a $ 25.0 million sub-limit for letters of credit.

As amended to date, the revolving credit facility with Wells Fargo Bank expired in May 2020.

The Company is currently negotiating and intends to enter into a new credit agreement with another institution in the near term.

Stock Repurchases

Under the current stock repurchase plan, announced on March 11, 2020, the Company is authorized to repurchase up to $ 200 million of the Company’s Class A common stock.

As of June 30, 2020, $ 95.3 million of this authorization is remaining.

As of September 30, 2020, $ 95.3 million of this authorization is remaining.

The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, debt covenant requirements, alternative investment opportunities and other market conditions.

2 unchanged sentences

The Company made an accounting policy election to charge the excess of repurchase price over par value entirely to retained earnings.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the activity related to share repurchases:

6 unchanged sentences

April 1, 2020 - June 30, 2020

January 1, 2020 - June 30, 2020

July 1, 2020 - September 30,2020

January 1, 2020 - September 30, 2020

(1) Inclusive of an immaterial amount of commission fees

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For more details relating to the conversion of our Class B common stock please see “Exhibit 4.2, Description of Securities of the Registrant filed with our amended Form 10-K on March 2, 2020.”

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our issued and outstanding common shares by Class were as follows:

June 30, 2020

December 31, 2019

Accumulated Other Comprehensive Income (Loss)

The tables below present the changes in each component of accumulated other comprehensive income/(loss), including current period other comprehensive income/(loss) and reclassifications out of accumulated other comprehensive income/(loss):

(In thousands)

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Other comprehensive (loss)/income, net of tax

Accumulated other comprehensive loss, net of tax, at June 30, 2020

Accumulated other comprehensive loss, net of tax, at September 30, 2020

(In thousands)

8 unchanged sentences

Other comprehensive (loss)/income, net of tax

Accumulated other comprehensive loss, net of tax, at June 30, 2019

Accumulated other comprehensive loss, net of tax, at September 30, 2019

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STOCK-BASED COMPENSATION

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The shares of Class A Common stock issuable under the 2012 Plan include authorized but unissued shares, treasury shares or shares of common stock purchased on the open market.

As of June 30, 2020, pursuant to the 2012 Plan, there were 17,899,947 shares of Class A Common stock reserved and 2,135,639 shares of Class A Common stock available for future grants.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The weighted average grant date fair value per share of the options awarded to employees were as follows:

As of September 30, 2020, pursuant to the 2012 Plan, there were 17,899,947 shares of Class A Common stock reserved and 2,206,992 shares of Class A Common stock available for future grants.

The weighted average grant date fair value per share of the options awarded to employees for the three and nine months ended September 30, 2020 and 2019, respectively were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted average grant date fair value per share

Stock option activity during the six months ended June 30, 2020 is summarized as follows:

Stock option activity during the nine months ended September 30, 2020 is summarized as follows:

‎ Shares (thousands)

3 unchanged sentences

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Exercisable at June 30, 2020

Expected to vest at June 30, 2020

The intrinsic value of stock options exercised and the compensation cost related to stock options granted to employees and non-employees under our stock plans was as follows:

Outstanding at September 30, 2020

Exercisable at September 30, 2020

Expected to vest at September 30, 2020

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The intrinsic value of stock options exercised and the compensation cost related to stock options granted to employees and non-employees under our stock plans for the three and nine months ended September 30, 2020 and 2019, respectively was as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Total stock-based compensation cost

As of June 30, 2020, there was $ 69.4 million of unrecognized compensation expense related to unvested employee stock options that are expected to vest over a weighted average period of three years .

As of September 30, 2020, there was $ 62.0 million of unrecognized compensation expense related to unvested employee stock options that are expected to vest over a weighted average period of three years .

In computing our income tax provision, we make certain estimates and management judgments, such as estimated annual taxable income or loss, annual effective tax rate, the nature and timing of permanent and temporary differences between taxable income for financial reporting and tax reporting, and the recoverability of deferred tax assets.

1 unchanged sentence

Should facts and circumstances change during a quarter causing a material change to the estimated effective income tax rate, a cumulative adjustment is recorded.

The following table provides a summary of our effective tax rate:

The following table provides a summary of our effective tax rate for the three and nine months ended September 30, 2020 and 2019, respectively:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Effective income tax rate

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The change in the effective income tax rates for the three and six month periods ended June 30, 2020 and 2019 is primarily a result of the non-tax-deductible expense of acquired IPR&D of $ 24.4 million, and tax benefits due to an increase in stock option exercises in the current year.

The change in the effective income tax rates for the three month period ended September 30, 2020 and 2019 is primarily a result of tax benefits due to an increase in stock option exercises in the current year.

The change in the effective income tax rates for the nine month period ended September 30, 2020 and 2019 is primarily driven by the non-deductible expense of acquired IPR&D of $ 24.4 million, offset by tax benefits due to an increase in stock option exercises in the current year.

COMMITMENTS AND CONTINGENCIES

7 unchanged sentences

While it is not possible to predict the outcome for most of the matters discussed, we believe it is possible that costs associated with them could have a material adverse impact on our consolidated earnings, financial position or cash flows.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

L5 Litigation

7 unchanged sentences

Moskowitz seeks an unspecified amount in damages and injunctive relief.

On July 2, 2020, this suit was transferred from the U.S.

District Court for the Western District of Texas to the U.S.

District Court for the Eastern District of Pennsylvania and was stayed on September 25, 2020 pending the outcome of earlier filed Inter Partes Reviews.

The probable outcome of this litigation cannot be determined, nor can we estimate a range of potential loss.

5 unchanged sentences

As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

As of June 30, 2020, the Company’s short-term lease commitments and sublease income are immaterial.

As of September 30, 2020, the Company’s short-term lease commitments and sublease income are immaterial.

The Company classifies right-of-use assets as Other assets, short-term lease liabilities as Accrued expenses, and long-term lease liabilities as Other liabilities on the Condensed Consolidated Balance Sheet.

Lease expense is recognized, on a straight-line basis over the term of the lease, as a component of operating income on the Consolidated Statement of Income.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Amounts reported in the Condensed Consolidated Balance Sheet as of the six months ended June 30, 2020 were as follows:

Lease expense is recognized, on a straight-line basis over the term of the lease, as a component of operating income on the Condensed Consolidated Statement of Income.

Amounts reported in the Condensed Consolidated Balance Sheet as of September 30, 2020 were as follows:

(In thousands, except weighted average lease term and discount rate)

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Total operating lease liability

Lease expense as of June 30, 2020

Lease expense as of September 30, 2020

Weighted-average remaining lease term - operating leases (in years)

Weighted-average discount rate

Future minimum lease payments under non-cancellable leases as of the quarter ended June 30, 2020 are as follows:

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future minimum lease payments under non-cancellable leases as of September 30, 2020 are as follows:

(In thousands)

2020 (excluding the six months ended June 30, 2020)

2020 (excluding the nine months ended September 30, 2020)

Total undiscounted leases payments

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Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

The following table represents total sales by geographic area, based on the location of the customer:

The following table represents total net sales by geographic area, based on the location of the customer for the three and nine months ended September 30, 2020 and 2019, respectively:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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International

SUBSEQUENT EVENT

Product Recall

On July 22, 2020, the Company initiated a voluntary Class II recall of specific lots of ALTERA® Spacers.

This recall was initiated because specific lots of ALTERA® implants have internal components that were manufactured using stainless steel rather than the specified cobalt chromium molybdenum alloy.

Only devices made after February 12, 2020 from specific lots are affected, and some

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

parts in some lots may not be affected.

No reports of adverse reactions related to the stainless steel components have been received to date.

A recall notification has been issued to all relevant parties and Globus is in the process of collecting and replacing all impacted inventory.

It is expected to take approximately 8 weeks to fully replace the affected inventory.

Production has already been increased to meet the demand.

The Company recorded an accrual in the second quarter of approximately $ 1.3 million in costs associated with this recall with a majority charged to Cost of Goods Sold in the Condensed Consolidated Statements of Income.

The Company will continue to evaluate any further impact as additional information becomes available.

Total net sales

GLOBUS MEDICAL, INC.

1 unchanged sentence

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-Q

Item 1. Financial Statements