What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-17 compared with 2020-02-20 · 477 added, 399 removed, 515 unchanged (63% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Operations and Comprehensive Income

Consolidated Statements of Equity

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We have audited the accompanying consolidated balance sheets of Globus Medical, Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements").

and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Our procedures related to management’s forecasts of product demand used to record a write-down for excess and obsolete inventories included the following, among others:

 We tested the effectiveness of controls over management’s inventory valuation model, including those over management’s development and approval of product demand forecasts.

 We t ested the effectiveness of controls over management’s inventory valuation model, including those over management’s development and approval of product demand forecasts.

 We evaluated management’s ability to accurately forecast product demand by comparing actual results to management’s historical estimates.

 We tested the mathematical accuracy of management’s calculations.

 We selected a sample of products and verified that the product demand forecasts were supported by historical sales data and other information.

 Performed corroborative inquiries with the personnel responsible for sales forecasting to evaluate the reasonableness of the product demand forecasts.

 We selected a sample of products and verified that the product demand forecasts were supported by historical sales data and other current information.

 Performed corroborative inquiries with the personnel responsible for product development and sales forecasting to evaluate the reaso nableness of the product demand forecasts.

/s/ DELOITTE & TOUCHE LLP

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February 17, 2021

We have served as the Company's auditor since 2017.

We have served as the Company’s auditor since 2017.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2019, of the Company and our report dated February 20, 2020, expressed an unqualified opinion on those financial statements and financial statement schedule.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 17, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share amounts)

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Total operating expenses

Operating income

Other income, net

Operating income/(loss)

Other income/(expense), net

Interest income/(expense), net

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Total other income/(expense), net

Income before income taxes

Income/(loss) before income taxes

Income tax provision

Earnings per share:

Weighted average shares outstanding:

Dilutive stock options

Anti-dilutive stock options excluded from weighted average calculation

See accompanying notes to consolidated financial statements.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Net income/(loss)

Other comprehensive income/(loss):

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Total other comprehensive income/(loss)

Comprehensive income

Comprehensive income/(loss)

Earnings per share:

Weighted average shares outstanding:

See accompanying notes to consolidated financial statements.

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(In thousands)

income/(loss)

Balance at December 31, 2019

Cumulative effects of adoption of accounting standards

Stock-based compensation

Exercise of stock options

Comprehensive income

Comprehensive income/(loss)

Repurchase and retirement of common stock

Balance at March 31, 2020

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Repurchase and retirement of common stock

Balance at June 30, 2020

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at September 30, 2020

Stock-based compensation

Grant of restricted stock units

Exercise of stock options

Comprehensive income/(loss)

Balance at December 31, 2020

Conversion to Class A

‎ Common Stock

Additional paid-in

Accumulated other comprehensive

(In thousands)

income/(loss)

Balance at December 31, 2018

Stock-based compensation

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Comprehensive income/(loss)

Balance at March 31, 2019

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at June 30, 2019

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at September 30, 2019

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at December 31, 2019

See accompanying notes to consolidated financial statements.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

‎ Common Stock

Additional paid-in

Accumulated other comprehensive

(In thousands)

income/(loss)

Balance at December 31, 2017

Stock-based compensation

Exercise of stock options

Comprehensive income

Comprehensive income/(loss)

Balance at March 31, 2018

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at June 30, 2018

Conversion to Class A

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at September 30, 2018

Stock-based compensation

Exercise of stock options

Comprehensive income/(loss)

Balance at December 31, 2018

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Adjustments to reconcile net income to net cash provided by operating activities:

Acquired in-process research and development

Depreciation and amortization

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Change in fair value of business acquisition liabilities

Impairment of intangible assets

Change in deferred income taxes

(Gain)/loss on disposal of assets, net

Payment of business acquisition related liabilities

(Increase)/decrease in:

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Proceeds from exercise of stock options

Net cash provided by financing activities

Repurchase of common stock

Net cash used in/provided by financing activities

Effect of foreign exchange rate on cash

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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 consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) The Company

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We are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to assist surgeons in effectively treating their patients and to address new treatment options.

With over 200 products launched, we offer a comprehensive portfolio of innovative and differentiated technologies that address a variety of musculoskeletal pathologies, anatomies, and surgical approaches.

With 220 products launched, we offer a comprehensive portfolio of innovative and differentiated technologies that address a variety of musculoskeletal pathologies, anatomies, and surgical approaches.

We are headquartered in Audubon, Pennsylvania, and market and sell our products through our exclusive sales force in the United States, as well as within North, Central & South America, Europe, Asia, Africa and Australia.

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and, where applicable, our consolidated subsidiaries.

(b) Basis of Presentation

(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.

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

and globally as federal, state and local governments react to the public health crisis, creating significant uncertainties in the economy.

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.

Although the Company cannot reasonably estimate the length or severity of the impact that the pandemic will have on its financial results, the Company has experienced, and may continue to experience, a material adverse impact on its sales, results of operations, and cash flows in 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 a credit facility signed in August 2020, if needed, although we do not expect to do so due to our cash, cash equivalents and short-term marketable securities balances.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with U.S.

generally accepted accounting principles (“U.S.

(b) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Globus and its wholly owned subsidiaries.

All intercompany balances and transactions are eliminated in consolidation.

(d) Use of Estimates

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

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

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

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Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Significant areas that require management’s estimates include intangible assets, contingent payment liabilities, allowance for doubtful accounts, stock-based compensation, write-down for excess and obsolete inventory, useful lives of assets, the outcome of litigation, recoverability of intangible assets and income taxes.

We are subject to risks and uncertainties due to changes in the healthcare environment, regulatory oversight, competition, and legislation that may cause actual results to differ from estimated results.

During fourth quarter of 2017, we completed a review of the estimated useful life of our Instruments and Modules and cases.

Based on historical useful life information, forecasted product life cycles and demand expectations, the useful life of Instruments and Modules and cases were extended from three to five years.

This was accounted for as a change in accounting estimate and was made on a prospective basis effective October 1, 2017.

For the three months ended December 31, 2018, depreciation expense was lower by approximately $1.3 million than it would have been had the useful life of these assets not been extended.

The effect of this change on basic and diluted earnings per share for the three months ended December 31, 2018 was $0.01 per share.

For the year ended December 31, 2018, depreciation expense was lower by approximately $5.7 million than it would have been had the useful life of these assets not been extended, with a diluted earnings per share impact of $0.05 per share .

(e ) Foreign Currency Translation

The functional currency of our foreign subsidiaries is generally their local currency.

Assets and liabilities of the foreign subsidiaries are translated at the period end currency exchange rate and revenues and expenses are translated at an average currency exchange rate for the

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The resulting foreign currency translation gains and losses are included as a component of accumulated other comprehensive income.

Gains and losses arising from intercompany foreign transactions are included in other income, net on the consolidated statement of income

(f) Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash on hand and all highly liquid investments with a maturity of three months or less when purchased.

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:

(In thousands)

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents, and restricted cash as presented in the consolidated statement of cash flows

(g) Concentrations of Credit Risk

Significant areas that require estimates include revenue recognition, intangible assets, business acquisition liabilities, allowance for doubtful accounts, stock-based compensation, reserves for excess and obsolete inventory, useful lives of assets, the outcome of litigation, recoverability of intangible assets and income taxes.

(d) Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

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

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

Our Musculoskeletal Solutions products consist primarily of the implantable devices, disposables, and unique instruments used in an expansive range of spine, orthopedic trauma, hip, knee and extremity procedures.

The majority of our Musculoskeletal Solutions contracts have a single performance obligation and revenue is recognized at a point in time.

Our Enabling Technologies products are advanced hardware and software systems, and related technologies, that are designed to enhance a surgeon’s capabilities and streamline surgical procedures by making them less invasive, more accurate, and more reproducible to improve patient care.

The majority of our Enabling Technologies product contracts contain multiple performance obligations, including maintenance and support, and revenue is recognized as we fulfill each performance obligation.

When contracts have multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

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

Nature of Products and Services

A significant portion of our Musculoskeletal Solutions product revenue is generated from consigned inventory maintained at hospitals or with sales representatives.

Revenue from the sale of consigned musculoskeletal products is recognized when we transfer control, which occurs at the time the product is used or implanted.

For all other Musculoskeletal Solutions product transactions, we recognize revenue when we transfer title to the goods, provided there are no remaining performance obligations that can affect the customer’s final acceptance of the sale.

Revenue from the sale of Enabling Technologies products is generally recognized when control transfers to the customer which occurs at the time the product is shipped or delivered.

Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration as we satisfy future performance obligations related to the provision of maintenance and support.

We use an observable price to determine the stand-alone selling price for each separate performance obligation.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers.

We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing.

Deferred revenue is comprised mainly of unearned revenue related to the sales of certain Enabling Technologies products, which includes maintenance and support services.

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

For the years ended December 31, 2020, 2019, and 2018, there was an immaterial amount of revenue recognized from previously deferred revenue.

(e) Concentrations of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, are primarily marketable securities and accounts receivable.

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There was no customer that accounted for 10% or more of sales for the years ended December 31, 2020, 2019, and 2018, respectively.

(h) 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 December 31, 2019 and 2018.

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

The change in fair value for available-for-sale securities is recorded, net of taxes, as a component of accumulated other comprehensive income or loss on our consolidated balance sheets.

(f) Cash, Cash Equivalents, and Restricted Cash

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents.

Cash equivalents, which consist of money market accounts, commercial paper and corporate debt securities are stated at fair value.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(g) Marketable Securities

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

Short-term and long-term marketable securities are recorded at fair value on our consolidated balance sheets.

Any change in fair value for available-for-sale securities, that do not result in recognition or reversal of an allowance for credit loss or write down, is recorded, net of taxes, as a component of accumulated other comprehensive income or loss on our consolidated balance sheets.

Premiums and discounts are recognized over the life of the related security as an adjustment to yield using the straight-line method.

Realized gains or losses from the sale of our marketable securities are determined on a specific identification basis.

Realized gains and losses, along with interest income and the amortization/accretion of premiums/discounts are included as a component of other income, net, on our consolidated statements of income.

Realized gains or losses from the sale of marketable securities are determined on a specific identification basis.

Realized gains and losses, interest income and the amortization/accretion of premiums/discounts are included as a component of other income/(expense), net, on our consolidated statements of operations and comprehensive income.

Interest receivable is recorded as a component of prepaid expenses and other current assets on our consolidated balance sheets.

We maintain a portfolio of various holdings, types and maturities, though most of the securities in our portfolio could be liquidated at minimal cost at any time.

We invest in securities that meet or exceed standards as defined in our investment policy.

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We review our securities for other-than-temporary impairment at each reporting period.

If an unrealized loss for any security is considered to be other-than-temporary, the loss will be recognized in our consolidated statement of income in the period the determination is made.

Purchases of marketable securities include payables to broker of $ 10.3 million during the twelve months ended December 31, 2019.

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 consolidated statements of operations and comprehensive income in the period the determination is made.

(h) Fair Value Measurements

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

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.

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 date, with the excess recorded as goodwill.

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

Contingent consideration represents contingent milestone, performance and revenue-sharing payment obligations related to acquisitions and is measured at fair value, based on significant inputs that are 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 fair value of contingent consideration is recorded in business acquisition liabilities on our consolidated balance sheets, and changes in the fair value of contingent consideration is recognized in acquisition related costs in the consolidated statements of operations and comprehensive income.

The fair value of contingent restricted stock unit (“RSU”) grants are recorded as additional paid-in capital in the consolidated balance sheet on the day of the grant due to the remote likelihood of forfeiture.

(i) Inventories

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Cost is determined on a first-in, first-out basis.

The majority of our inventories are finished goods and we utilize both in-house manufacturing and third-party suppliers to source our products.

We periodically evaluate the carrying value of our inventories in relation to our estimated forecast of product demand, which takes into consideration the estimated life cycle of product releases.

The majority of our inventory is finished goods and we utilize both in-house manufacturing and third-party suppliers to produce our products.

We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases.

When quantities on hand exceed estimated sales forecasts, we record a write-down for such excess inventories.

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

During years ended December 31, 2019, 2018 and 2017, net adjustments to cost of sales related to excess and obsolete inventory were $ 2.5 million, $ 10.5 million and $ 11.5 million, respectively.

The net adjustments for the years ended December 31, 2019, 2018 and 2017 reflect a combination of additional expense for excess and obsolete related provisions ($ 11.2 million, $ 17.6 million and $ 20.7 million,

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

respectively) offset by sales and disposals ($ 8.7 million, $ 7.1 million and $ 9.2 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

(j) Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation.

Property and equipment is recorded at cost less accumulated depreciation.

Additions or improvements are capitalized, while repairs and maintenance are expensed as incurred.

Depreciation and amortization are provided using the straight-line method over the related useful lives of the assets.

When assets are sold or otherwise disposed of, the related property, equipment, and accumulated depreciation amounts are relieved from the accounts, and any gain or loss is recorded in the consolidated statements of income.

Purchases of property and equipment included in accounts payable and accrued expenses were $ 4.2 million, $ 10.1 million, and $ 6.5 million during the twelve months ended December 31, 2019, 2018, and 2017, respectively.

Depreciation is recognized using the straight-line method over the related useful lives of the assets.

(k) Goodwill and Intangible Assets

Goodwill represents the excess purchase price over the fair values of the identifiable assets acquired less the liabilities assumed.

Goodwill is tested for impairment at a minimum on an annual basis.

Goodwill represents the excess of purchase price over the fair values of the identifiable assets acquired less the liabilities assumed in the acquisition of a business.

Goodwill is tested for impairment at least annually.

Goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s carrying amount to the fair value of the reporting unit.

The fair values are estimated using an income and discounted cash flow approach.

We perform our annual impairment test for goodwill in the fourth quarter of each year.

Fair values are estimated using an income and discounted cash flow approach.

We perform our annual impairment test of goodwill in the fourth quarter of each year.

We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill.

During the years ended December 31, 2019, 2018 and 2017, we did not record any impairment charges related to goodwill.

Intangible assets consist of purchased in-process research and development (“IPR&D”), developed technology, supplier network, patents, customer relationships and non-compete agreements.

Intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to seventeen years.

During the years ended December 31, 2020, 2019, and 2018, we did no t record any impairment charges related to goodwill.

Intangible assets consist of purchased in-process research and development (“IPR&D”), developed technology, supplier network, patents, customer relationships, re-acquired rights, and non-compete agreements.

Intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to sixteen years.

Intangible assets are tested for impairment annually or whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable.

If impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset.

If an impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset.

Fair value is generally determined using a discounted future cash flow analysis.

During 2017, we recorded an impairment charge of $ 0.5 million related to one of our developed technologies related to one of our systems as a component of selling, general and administrative expense.

There were no impairments of finite-lived intangible assets during the years ended December 31, 2019 and 2018.

There were no impairments of finite-lived intangible assets during the years ended December 31, 2020, 2019, or 2018.

IPR&D has an indefinite life and is not amortized until completion of the project at which time the IPR&D becomes an amortizable asset.

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An impairment is assessed when the undiscounted future cash flows from the use and eventual disposition of an asset group are less than its carrying value.

If impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset group.

If an impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset group.

Our fair value methodology is based on quoted market prices, if available.

If quoted market prices are not available, an estimate of fair value is made based on prices of similar assets or other valuation techniques including present value techniques.

During the years ended December 31, 2019, 2018 and 2017, we did not record any impairment charges related to long-lived assets.

(m) Revenue Recognition

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, based on the timing of revenue recognition.

The majority of our Musculoskeletal Solutions contracts have a single performance obligation and revenue is recognized at a point in time.

Our Enabling Technologies products are the advanced hardware and software systems and related technologies that are designed to enhance a surgeon’s capabilities and streamline surgical procedures by making them less invasive, more accurate, and more reproducible to improve patient care.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The majority of our Enabling Technologies product contracts typically contain multiple performance obligations, including maintenance and support, and revenue is recognized as we fulfill each performance obligation.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

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

Nature of Products and Services

A significant portion of our Musculoskeletal Solutions product revenue is generated from consigned inventory maintained at hospitals or with sales representatives.

Revenue from the sale of consigned Musculoskeletal products is recognized when we transfer control, which occurs at the time the product is used or implanted.

For all other Musculoskeletal Solutions product transactions, we recognize revenue when we transfer title to the goods, provided there are no remaining performance obligations that will affect the customer’s final acceptance of the sale.

We use an observable price to determine the stand-alone selling price for the identified performance obligation.

Revenue from the sale of Enabling Technologies products is generally recognized when title transfers to the customer which occurs at the time the product is shipped or delivered.

Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received as we have to satisfy a future performance obligation to provide maintenance and support.

We use an observable price to determine the stand-alone selling price for each separate performance obligation.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers.

We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing.

Deferred revenue is comprised mainly of unearned revenue related to the sales of certain Enabling Technologies products, which includes maintenance and support services.

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

For the three months and years ended December 31, 2019, 2018 and 2017, there was an immaterial amount of revenue recognized from previously deferred revenue.

Disaggregation of Revenue

The following table represents total sales by revenue stream:

Three Months Ended

(In thousands)

Musculoskeletal Solutions products

Enabling Technologies products

(n) Cost of Goods Sold

Cost of goods sold consists primarily of costs from our in-house manufacturing, costs of products purchased from third-party suppliers, excess and obsolete inventory charges, depreciation of surgical instruments and cases, royalties, shipping, inspection and related costs incurred in making our products available for sale or use.

(o) Research and Development

During the years ended December 31, 2020, 2019, and 2018, we did no t record any impairment charges related to long-lived assets.

(m) Cost of Goods Sold

Cost of goods sold consists primarily of costs from our manufacturing operations, costs of products purchased from third-party suppliers, reserves for excess and obsolete inventory, depreciation of surgical instruments and cases, royalties, shipping, inspection and related costs incurred in making our products available for sale or use.

(n) Research and Development

Research and development costs are expensed as incurred.

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Costs incurred in obtaining technology licenses and patents are charged immediately to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use.

(p) Other Income

In June 2018, we sold assets for $ 5.0 million, which resulted in a gain on sale of assets of $ 4.6 million.

(o) Stock -Based Compensation

The cost of employee and non-employee director awards is measured at the grant date fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period of the equity award.

Compensation expense for awards includes the impact of forfeiture in the period when they occur.

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(q) Stock -Based Compensation

The cost for employee and non-employee director awards is measured at the grant date based on the fair value of the award.

The fair value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period (generally the vesting period of the equity award).

Awards issued to non-employees are recorded at their fair value as determined in accordance with authoritative guidance, and are periodically revalued as the awards vest and are recognized as expense over the requisite service period.

The determination of the fair value of stock options is made utilizing the Black-Scholes option-pricing model which is affected by our stock price and a number of assumptions, including expected volatility, expected term, risk-free interest rate and expected dividends.

We estimate the fair value of stock options utilizing the Black-Scholes option-pricing model.

Inputs to the Black-Scholes model include our stock price, expected volatility, expected term, risk-free interest rate and expected dividends.

Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options offering period which is derived from historical experience.

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The dividend yield assumption is based on the history and expectation of no dividend payouts.

(r) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which such items are expected to be recovered or settled.

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

A valuation allowance is established to offset any deferred tax assets if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Significant judgment is required in determining income tax provisions and in evaluating tax positions.

We will establish additional provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum probability threshold that a tax position is more likely than not to be sustained upon examination by the taxing authority.

In the normal course of business, we and our subsidiaries are examined by various federal, state, and foreign tax authorities.

We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of the provision for income taxes.

We periodically assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability, and deferred taxes in the period in which the facts that give rise to a revision become known.

(s) Fair Value of Financial Instruments

As of December 31, 2019 and 2018, the carrying values of cash and cash equivalents, short and long-term investments, accounts receivable, accounts payable and accrued expenses approximate their respective fair values based on their short and long-term nature.

We classify our financial assets and liabilities that are measured at fair value into one of the three categories based upon inputs used to determine fair value.

Fair Value Measurements” below for more details regarding inputs and classifications.

(t) Advertising Expense

The fair value of restricted stock units is estimated on the day of grant based on the closing price of the Company’s common stock.

(p) Advertising Expense

We expense advertising costs as they are incurred.

Advertising expense was $ 0.6 million, $ 1.1 million, and $ 1.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.

(u) Legal Costs

(q) Provision for Litigation

We are involved in a number of proceedings, legal actions, and claims.

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In some actions, the claimants seek damages, as well as other relief, including injunctions prohibiting us from engaging in certain activities, which, if granted, could require significant expenditures and/or result in lost revenues.

We record a liability in the consolidated financial statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

We record a liability in the consolidated financial statements for these actions when a loss is considered probable and the amount can be reasonably estimated.

If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed.

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We expense legal costs related to loss contingencies as incurred.

(v) Acquisition Related Costs

(r) Acquisition Related Costs

Acquisition related costs represents the change in fair value of business acquisition related contingent consideration;

costs related to integrating recently acquired businesses including but not limited to costs to exit or convert contractual obligations, severance, and information

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

system conversion;

costs related to integrating recently acquired businesses including but not limited to costs to exit or convert contractual obligations, severance, and information system conversion;

and specific costs related to the consummation of the acquisition process such as banker fees, legal fees, and other acquisition related professional fees.

(w) Medical Device Excise Tax

Effective as of January 1, 2013, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act imposed a medical device excise tax (“MDET”) of 2.3 % on any entity that manufactures or imports certain medical devices offered for sale in the United States.

We have historically accounted for the MDET as a component of our cost of goods sold.

On December 20, 2019, pursuant to the Further Consolidated Appropriations Act, the MDET was repealed.

Prior to its repeal, the MDET was on a four-year moratorium.

As a result, the MDET does not apply to sales of taxable medical devices after December 31, 2015.

(x) Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

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 reasonable and supportable information to inform credit loss estimates.

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

We adopted ASU 2016-13 on January 1, 2020.

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

In January 2017, the FASB released ASU 2017-04, Intangibles - Goodwill and Other (Topic 805):

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the Step 2 calculation for the implied fair value of goodwill to measure a goodwill impairment charge.

Under the updated standard, an entity will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

ASU 2017-04 does not change the guidance on completing Step 1 of the goodwill impairment test and still allows an entity to perform the optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1.

This update is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted for any impairment test performed on testing dates after January 1, 2017.

We adopted ASU 2017-04 on January 1, 2020.

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

In August 2018, the FASB released ASU 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements in Topic 820, including the consideration of costs and benefits.

This update is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

We adopted ASU 2018-13 on January 1, 2020.

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

(y) Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) .

ASU 2014-09 amends the guidance in former Topic 605, Revenue Recognition , and most other existing revenue guidance in US GAAP.

Under the new standard, an entity will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which the entity expects to be entitled in exchange for those goods or services and provide additional disclosures.

As amended, the effective date for public entities is annual reporting periods beginning after December 15, 2017 and interim periods therein.

We adopted the standard on January 1, 2018, using the modified retrospective method.

We implemented internal controls to enable the preparation of financial information upon adoption.

The adoption of this standard did not have a material impact on our financial position and results of operations.

Background and Summary of Significant Accounting Policies;

(i) Revenue Recognition ” above for more detail regarding our disclosures.

In October 2016, the FASB released ASU 2016-16, Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”).

ASU 2016-16 removes the current exception in US GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity.

The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected.

This update is effective for public entities for annual reporting periods beginning after December 15, 2017.

We adopted ASU 2016-16 on January 1, 2018.

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

In November 2016, the FASB released ASU 2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows.

Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented in the statement of cash flows.

The amendments in this update should be applied using a retrospective transition method to each period presented.

This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years;

early adoption is permitted, including adoption in an interim

(s ) Foreign Currency Translation

The functional currency of our foreign subsidiaries is generally their local currency.

Assets and liabilities of the foreign subsidiaries are translated at the period end currency exchange rate and revenues and expenses are translated at an average currency exchange rate for the period.

The resulting foreign currency translation gains and losses are included as a component of accumulated other comprehensive income.

Gains and losses arising from intercompany foreign transactions are included in other income, net on the consolidated statements of operations and comprehensive income.

(t) Income Taxes

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which such items are expected to be recovered or settled.

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

A valuation allowance is established to offset any deferred tax assets if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Significant judgment is required in determining income tax provisions and in evaluating tax positions.

In the normal course of business, we and our subsidiaries are examined by various federal, state, and foreign tax authorities.

We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of the provision for income taxes.

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We adopted ASU 2016-18 on January 1, 2018.

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

In January 2017, the FASB released ASU 2017-01, Business Combinations (Topic 805):

Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses.

The amendments in this ASU should be applied prospectively and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early application permitted.

No disclosures are required at transition.

We adopted ASU 2017-01 on January 1, 2018.

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

In May 2017, the FASB released ASU 2017-09, Compensation - Stock Compensation (Topic 718):

Scope of Modification Accounting (“ASU 2017-09”), which clarifies the changes to terms or conditions of a share-based payment award that requires application of modification accounting under Topic 718.

A change to an award should be accounted for as a modification unless the fair value of the modified award is the same as the original award, the vesting conditions do not change, and the classification as an equity or liability instrument does not change.

This update is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017.

Early application is permitted and prospective application is required for awards modified on or after the adoption date.

(u) Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”) , which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

We adopted ASU 2019-12 on January 1, 2021.

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

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

To date, we have had no impacts on our investment portfolio or our credit agreement with Citizens Bank, N.A.

related to reference rate reform.

We will continue to evaluate the impact this guidance could have on our 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.

(v) Recently Adopted Accounting Pronouncements

In February 2016, the FASB released ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”).

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

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

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

We adopted the updated guidance on January 1, 2020 on a prospective basis recording $ 0.5 million as a cumulative effect adjustment to retained earnings and as a result, prior period amounts were not adjusted.

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

In January 2017, the FASB released ASU 2017-04, Intangibles - Goodwill and Other (Topic 805):

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the Step 2 calculation for the implied fair value of goodwill to measure a goodwill impairment charge.

Under the updated standard, an entity will record an impairment charge based on the excess of a reporting unit’s carrying amount over

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

its fair value.

We adopted ASU 2017-04 on January 1, 2020.

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

This update is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

We adopted ASU 2018-13 on January 1, 2020.

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

ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

Asset Acquisitions

During the second quarter of 2020, the Company acquired Synoste Oy (“Synoste”), a Finnish engineering company that specializes in the research and development of a limb lengthening system.

The fair value of the net assets acquired was $ 25.3 million, and the consideration consisted of approximately $ 22.8 million of cash paid at closing plus $ 2.5 million of a contractual holdback obligation payable eighteen months from the closing date of the transaction, subject to net working capital and other post-closing adjustments, if applicable.

The contractual holdback obligation is included in accrued expenses in the consolidated balance sheet.

The Company accounted for the transaction as an asset acquisition as substantially all of the fair value of the assets acquired was concentrated in a single identified asset, in-process research and development (“IPR&D”) of the limb lengthening system, thus satisfying the requirements of the screen test in ASU 2017-1.

At the date of acquisition, the Company determined that the development of the projects underway at Synoste had not yet reached technological feasibility and that the research in process had no alternative future use.

Accordingly, the acquired IPR&D of $ 24.4 million was charged to research and development expense in the consolidated statements of operations and comprehensive income.

The transaction also provides for additional consideration contingent upon the developed product obtaining approval from the U.S.

Food and Drug Administration (the “FDA”) of $ 8.0 million within the third anniversary, or $ 4.0 million within the fourth anniversary of the acquisition closing date, respectively.

Contingent consideration is not recorded in an asset acquisition until the milestone is met.

Business Combinations

On October 1, 2020, the Company completed two acquisitions that were not considered material, individually or collectively, to the overall consolidated financial statements during the periods presented.

These acquisitions have been included in the consolidated financial statements from the date of acquisition.

The combined purchase price consisted of approximately $ 1.5 million of cash paid at closing, plus $ 0.3 million of other liabilities and $ 33.2 million of contingent consideration payments.

These payments are based upon achieving various performance obligations over a period of 10 years, and are payable in a combination of cash and RSUs.

The Company recorded other intangible assets of $ 8.8 million, with a weighted average useful life of 4.2 years, and goodwill of $ 26.2 million based on their preliminary estimated fair values.

The Company will finalize the purchase price allocation of the assets and liabilities acquired within one year from the date of acquisition.

While the Company does not expect material changes from the initial outcome of the valuation, certain assumptions and findings made at the date of acquisition could result in changes in the purchase price allocation.

During the second quarter of 2019, the Company acquired substantially all of the assets of StelKast, Inc.

(the “StelKast Acquisition”), a privately held company that designs, manufactures and distributes orthopedic implants for knee and hip replacement surgeries.

The Company has included the financial results from the StelKast Acquisition in our consolidated financial statements from the acquisition date, and the results from the StelKast Acquisition were not material to our consolidated financial statements.

The fair value of the net assets acquired is $ 28.1 million.

The purchase price consisted of approximately $ 23.8 million of cash paid at closing, plus a potential $ 4.3 million contingent consideration payment based on product sales milestones.

The Company recorded identifiable net assets, based on their preliminary 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 $ 4.8 million.

The majority of the goodwill is expected to be deductible for tax purposes.

As of December 31, 2019, the maximum aggregated undiscounted amount of contingent consideration potentially payable related to this acquisition is $ 5.0 million .

The Company has included the financial results from the StelKast Acquisition in our consolidated financial statements from the acquisition date.

At acquisition date, the fair value of the net assets acquired was $ 28.1 million.

The purchase price consisted of approximately $ 23.8 million of cash paid at closing, plus $ 4.3 million of contingent consideration payable based upon the achievement product sales milestones.

The Company recorded identifiable net assets, based on their estimated fair values, for 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 the StelKast 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 consolidated statement of cash flows as of the year ended December 31, 2020 in accordance with FASB ASC Topic 230, “Statement of Cash Flows” (ASC 230) .

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table represents net sales by product category:

(In thousands)

Musculoskeletal Solutions

Enabling Technologies

Total net sales

NOTE RECEIVABLE

On September 1, 2016, in connection with the acquisition of the international operations and distribution channels of Alphatec Holdings, Inc.

In September 2016, in connection with the acquisition of the international operations and distribution channels of Alphatec Holdings, Inc.

(“Alphatec”), we entered into a Credit, Security and Guaranty Agreement (the “Credit Agreement”) with Alphatec and Alphatec Spine, Inc.

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On the Closing Date, we made an initial loan of $ 25.0 million and the Alphatec Borrowers issued a note for such amount to us.

On December 20, 2016, the remaining $ 5.0 million was drawn by the Alphatec Borrowers and added to the note.

On November 7, 2018, the Alphatec Borrowers repaid all of the then outstanding principal and interest under the Credit Agreement in a total amount of $ 29.3 million.

GOODWILL AND INTANGIBLE ASSETS

A summary of intangible assets is presented below:

December 31, 2019

(In thousands)

‎ Amortization

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

Due to the FDA 510(k) clearance for AQRate, a robotic guidance and navigation system, in the first quarter of 2019, $19.8 million of IPR&D was transferred to Developed technology and began to be amortized over a period of 8.5 years.

December 31, 2018

(In thousands)

‎ Amortization

In-process research & development

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

On September 5, 2018, we acquired Nemaris, Inc.

(“Nemaris”), a privately held company that markets and develops Surgimap ® , a surgical planning software platform (“Nemaris Acquisition”).

The assets of the Nemaris Acquisition consist primarily of developed technology.

We determined that substantially all the fair value of the gross assets on the date of acquisition is captured in the developed technology and as a result, the Nemaris acquisition was accounted for as an asset purchase.

We allocated the consideration paid of $ 15.2 million on a pro rata basis to the assets acquired on their respective fair values.

The useful lives of the developed technology are seven years and will be amortized on a straight-line basis.

In addition to the cash paid at closing, there is a potential $ 10.0 million contingent consideration payment based on product development milestones.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

(In thousands)

December 31, 2017

Additions and adjustments

Foreign exchange

December 31, 2018

Additions and adjustments

Foreign exchange

December 31, 2019

For intangible assets subject to amortization as of December 31, 2019, the following is the expected future amortization:

(In thousands)

‎ Amortization

Year ending December 31:

In December 2016, the remaining $ 5.0 million was drawn by the Alphatec Borrowers and added to the note.

In November 2018, the Alphatec Borrowers repaid all of the outstanding principal and interest under the Credit Agreement in a total amount of $ 29.3 million.

MARKETABLE SECURITIES

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Commercial paper

government and agency securities

Asset-backed securities

Government, federal agency, and other sovereign obligations

Total short-term marketable securities

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Asset-backed securities

government and agency securities

Total long-term marketable securities

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Commercial paper

government and agency securities

Asset-backed securities

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Asset-backed securities

government and agency securities

Government, federal agency, and other sovereign obligations

Total long-term marketable securities

The short-term marketable securities have effective maturity dates of less than one year and the long-term marketable securities have effective maturity dates ranging from one to three years as of December 31, 2020 and 2019, respectively.

Purchases of marketable securities include amounts payable to brokers of $ 9.3 million and $ 10.3 million as of December 31, 2020 and 2019, respectively.

FAIR VALUE MEASUREMENTS

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.

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:

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

(In thousands)

‎ December 31,

Cash equivalents

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Business acquisition liabilities

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands)

‎ December 31,

Cash equivalents

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Business acquisition liabilities

Our marketable securities are classified as Level 2 within the fair value hierarchy, as we measure their fair value using market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors .

Our marketable securities are classified as Level 2 within the fair value hierarchy, as we measure their fair value using quoted market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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 estimates 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 consolidated balance sheets, and the changes in the fair value of contingent consideration are recognized within acquisition related costs in the consolidated statements of income.

As part of the StelKast Acquisition during the second quarter of 2019, we incurred a milestone-based contingent consideration liability.

The recurring Level 3 fair value measurements of our contingent consideration liabilities include the following significant unobservable inputs, which have not materially changed since December 31, 2018:

(In thousands)

Fair Value at December 31, 2019

Fair value of the revenue-based business acquisition liabilities was determined using a discounted cash flow model and an option pricing methodology.

The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility and discount rates, market price risk adjustment, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement.

The following are the significant unobservable inputs used in the two valuation techniques:

Unobservable input

Weighted Average*

Market risk adjustment

Discount rate

Revenue-based payments

Discounted cash flow

Probability of payment

Projected year of payment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:

* The weighted average rates were calculated based on the relative fair value of each business acquisition liability.

The change in the carrying value of the business acquisition liabilities during the years ended December 31, 2020 and 2019, respectively included the following:

(In thousands)

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Changes resulting from foreign currency fluctuations

Contingent payments

Contingent cash payments

Contingent RSU grants

Changes in fair value of business acquisition liabilities

Contractual payable reclassification

Ending balance

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

(In thousands)

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Total inventories

During years ended December 31, 2020, 2019, and 2018, net adjustments to cost of sales related to excess and obsolete inventory were $ 17.7 million, $ 2.5 million, and $ 10.5 million, respectively.

The net adjustments for the years ended December 31, 2020, 2019, and 2018 reflect a combination of additional expense for excess and obsolete related provisions ($ 27.4 million, $ 11.2 million, and $ 17.6 million, respectively) offset by sales and disposals ($ 9.7 million, $ 8.7 million, and $ 7.1 million, respectively) of inventory for which an excess and obsolete provision was previously recorded.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2020 and 2019, respectively included the following:

(In thousands)

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(In thousands)

In June 2018, we sold assets for $ 5.0 million, which resulted in a gain on sale of assets of $ 4.6 million and was recognized as other income in the consolidated statement of operations and comprehensive income.

GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill during the years ended December 31, 2020 and 2019, respectively included the following:

(In thousands)

December 31, 2018

Additions and adjustments

Foreign exchange

December 31, 2019

Additions and adjustments

Foreign exchange

December 31, 2020

Intangible assets as of December 31, 2020 included the following:

December 31, 2020

(In thousands)

‎ Amortization

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 is being amortized over a period of 5.4 years.

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

December 31, 2019

(In thousands)

‎ Amortization

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

The following table summarizes amortization of intangible assets for future periods as of December 31, 2020:

(In thousands)

‎ Amortization

Year ending December 31:

ACCRUED EXPENSES

Accrued expenses as of December 31, 2020 and 2019, respectively included the following:

(In thousands)

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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.

In August 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.

As amended to date, the revolving credit facility expires in May 2020.

Cash advances bear interest at our option either at a fluctuating rate per annum equal to the daily LIBOR in effect for a one -month period plus 0.75 %, or a fixed rate for a one - or three -month period equal to LIBOR plus 0.75 %.

The credit agreement governing the revolving credit facility also subjects us to various restrictive covenants, including the requirement to maintain maximum consolidated leverage.

The covenants also include limitations on our ability to repurchase shares, to pay cash dividends or to enter into a sale transaction.

As of December 31, 2019, we were in compliance with all financial covenants under the credit agreement, there were no outstanding borrowings under the revolving credit facility and available borrowings were $ 125.0 million.

We may terminate the credit agreement at any time on ten days’ notice without premium or penalty.

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

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Stock Repurchases

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

As of December 31, 2020, $ 95.3 million of this authorization was 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.

Funding for share repurchases in the future is expected to come from operating cash flows and excess cash.

Shares repurchased by the Company are accounted for under the constructive retirement method, in which the shares repurchased, are immediately retired, as there is no plan to reissue the shares.

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

The following table summarizes share repurchases made during the year ended December 31, 2020:

(In thousands except for per share prices)

Total number of shares repurchased

Average Price Paid per Share

Dollar amount of shares repurchased (1)

Approximate dollar value of shares that may yet be purchased under the plan

January 1, 2020 - March 31, 2020

April 1, 2020 - June 30, 2020

July 1, 2020 - September 30,2020

October 1, 2020 – December 31, 2020

January 1, 2020 – December 31, 2020

(1) Inclusive of an immaterial amount of commission fees

Our amended and restated Certificate of Incorporation provides for a total of 775,000,000 authorized shares of common stock.

Of the authorized number of shares of common stock, 500,000,000 shares are designated as Class A common stock (“Class A Common”), 275,000,000 shares are designated as Class B common stock (“Class B Common”) and 10,000,000 shares are designated as Class C common stock (“Class C Common”).

Of the authorized number of shares of common stock, 500,000,000 shares are designated as Class A common stock (“Class A Common”) and 275,000,000 shares are designated as Class B common stock (“Class B Common”).

The holders of Class A Common are entitled to one vote for each share of Class A Common held.

Each share of our Class B common stock is convertible at any time at the option of the holder into one share of our Class A common stock.

In addition, each share of our Class B common stock will convert automatically into one share of our Class A common stock upon any transfer, whether or not for value, except for permitted transfers.

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 herein.

The holders of Class B Common are entitled to 10 votes for each share of Class B Common held.

The holders of Class A Common and Class B Common vote together as one class of common stock.

The Class C Common is nonvoting.

Except for voting rights, the Class A Common, Class B Common and Class C Common have the same rights and privileges.

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

December 31, 2019

December 31, 2018

Except for voting rights, the Class A Common and Class B Common have the same rights and privileges.

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) for the years ended December 31, 2020 and 2019, respectively:

(In thousands)

Unrealized loss on marketable securities, net of tax

Foreign currency translation adjustments

Accumulated other comprehensive loss

Accumulated other comprehensive loss, net of tax, at December 31, 2019

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated other comprehensive income, net of tax

Other comprehensive (loss)/income, net of tax

Accumulated other comprehensive loss, net of tax, at December 31, 2020

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

(In thousands)

Unrealized loss on marketable securities, net of tax

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Accumulated other comprehensive loss, net of tax, at December 31, 2018

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive loss, net of tax

Other comprehensive loss, net of tax

Accumulated other comprehensive loss, net of tax, at December 31, 2018

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated other comprehensive loss, net of tax

Amounts reclassified from accumulated other comprehensive income, net of tax

Other comprehensive (loss)/income, net of tax

Accumulated other comprehensive loss, net of tax, at December 31, 2019

Amounts reclassified from accumulated other comprehensive loss, net of tax, related to unrealized gains/losses on marketable securities were released to other income, net in our consolidated statements of income.

STOCK-BASED COMPENSATION

Net Income (Loss) Per Common Share

The Company computes basic net income per share using the weighted-average number of common shares outstanding during the period.

Diluted net income per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would be anti-dilutive.

For purposes of this calculation, common stock equivalents include the Company’s stock options and unvested RSUs.

The contingently issuable shares are included in basic net income per share as of the date that all necessary conditions have been satisfied and are included in the denominator for dilutive calculation for the entire period if such shares would be issuable as of the end of the reporting period assuming the end of the reporting period was the end of the contingency period.

The following table sets forth the computation of basic and diluted earnings per share:

(In thousands, except per share amounts)

Net income/(loss)

Denominator for basic and diluted net income per share:

Weighted average shares outstanding for basic

Dilutive stock options

Weighted average shares outstanding for diluted

Earnings per share:

Anti-dilutive stock options and RSUs excluded from the calculation

STOCK-BASED AWARDS

We have three stock plans:

our Amended and Restated 2003 Stock Plan, our 2008 Stock Plan, and our 2012 Equity Incentive Plan (the “2012 Plan”).

The 2012 Plan is the only remaining active stock plan.

The purpose of these stock plans was, and the 2012 Plan is, to provide incentive to employees, directors, and consultants of Globus.

The 2012 Plan is the only active stock plan.

The purpose of these stock plans was, and of the 2012 Plan is, to provide incentive to employees, directors, and consultants of Globus.

The Plans are administered by the Board of Directors of Globus (the “Board”) or its delegates.

The number, type of option, exercise price, and vesting terms are determined by the Board or its delegates in accordance with the terms of the Plans.

The options granted expire on a date specified by the Board, but generally not more than ten years from the grant date.

Option grants to employees generally vest in varying installments over a four -year period.

The options granted expire on a date specified by the Board, which is generally not more than ten years from the grant date.

Options granted to employees generally vest in varying installments over a four-year period.

The 2012 Plan was approved by our Board in March 2012, and by our stockholders in June 2012.

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

As of December 31, 2019, pursuant to the 2012 Plan, there were 14,905,194 shares of Class A Common stock reserved and 795,058 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 were as follows:

Weighted average grant date fair value per share

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of the options was estimated on the date of the grant using a Black-Scholes option pricing model with the following assumptions:

Risk-free interest rate

Expected term (years)

Expected volatility

Expected dividend yield

As of December 31, 2020, pursuant to the 2012 Plan, there were 17,899,947 shares of Class A Common stock reserved and 2,109,742 shares of Class A Common stock available for future grants.

Stock Options

Stock option activity during the year ended December 31, 2020 is summarized as follows:

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Expected to vest at December 31, 2020

We use the Black Scholes pricing model to determine the fair value of our stock options (see “Note 1.

Background and Summary of Significant Accounting Policies, (q) Stock-Based Compensation” above).

The total intrinsic value of stock options exercised was $ 76.1 million, $ 31.3 million, and $ 59.3 million, during the years ended December 31, 2020, 2019, and 2018, respectively.

The fair value of the options was estimated on the date of the grant using a Black-Scholes option pricing model with the following assumptions:

Risk-free interest rate

Expected term (years)

Expected volatility

Expected dividend yield

The weighted average grant date fair value of stock options granted during the years ended December 31, 2020, 2019, and 2018 was $ 14.81 , $ 13.76 , and $ 14.90 per share, respectively.

Restricted Stock Units

Restricted stock unit activity during the year ended December 31, 2020 is summarized as follows:

Restricted Stock Units (thousands)

‎ grant date fair value per share

‎ contractual

‎ life (years)

Outstanding at December 31, 2019

Expected to vest at December 31, 2020

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation

Compensation expense related to stock options granted to employees and non-employees under the Plans and the intrinsic value of stock options exercised was as follows:

(In thousands)

Intrinsic value of stock options exercised

Stock-based compensation expense

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Total stock-based compensation cost

As of December 31, 2019, there was $ 60.6 million of unrecognized compensation expense related to unvested employee stock options that vest over a weighted average period of three years.

As of December 31, 2020, there was $ 58.0 million of unrecognized compensation expense related to unvested employee stock options that vest over a weighted average period of two years .

The components of income before income taxes are as follows:

(In thousands)

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

(In thousands)

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

(In thousands)

A reconciliation of the statutory U.S.

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Foreign taxes

Valuation allowance

Domestic production activities deduction

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Nondeductible expenses

Tax reform impact

Effective tax rate

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Total deferred tax liabilities

Net deferred tax assets

Net deferred tax assets/(liabilities)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Based upon the level of historical taxable income and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize a portion of the benefits of these deductible differences at December 31, 2019 and 2018.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize a portion of the benefits of these deductible differences at December 31, 2020 and 2019.

The Company has established valuation allowances of $ 6.5 million and $ 2.8 million at December 31, 2020 and 2019, respectively, primarily related to the uncertainty of the utilization of certain deferred tax assets and primarily comprised of tax loss carryforwards in various jurisdictions.

The increase in the valuation allowance during fiscal year 2019 is primarily driven by current year foreign tax losses that are not expected to be realized.

The increase in the valuation allowance during fiscal year 2020 is primarily driven by foreign tax assets that are not expected to be realized.

The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

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Unrecognized tax benefits at the beginning of the year

Additions related to current year tax positions

Additions related to prior year tax positions

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Unrecognized tax benefits at the end of the year

The reduction s related to prior year tax positions for the year ending December 31, 2019 of $ 2.4 million are primarily related to resolution of certain tax positions confirmed from refunds on amended tax returns.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The reduction s related to prior year tax positions for the year ended December 31, 2020 of $ 0.8 million are primarily related to resolution of certain tax positions confirmed from refunds on amended tax returns.

The impact of our unrecognized tax benefits to the effective income tax rate is as follows:

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Certain leases contain options to extend terms beyond the lease termination date.

In these leases, we use judgment to determine whether it is reasonably possible that we will extend the lease beyond the initial term and the length of the possible extension.

Leases that have terms of less than 12 months are treated as short-term and are not recognized as right of use assets or lease liabilities.

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.

We use judgment to determine whether it is reasonably possible that we will extend the lease beyond the initial term and the length of the possible extension.

Leases that have a term of less than 12 months are treated as short-term and are not recognized as right of use assets or lease liabilities.

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

As of December 31, 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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

‎ Amounts reported in the Consolidated Balance Sheet as of the twelve months ended December 31, 2019 are as follows:

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 consolidated balance sheets.

Lease expense is recognized, on a straight-line basis over the term of the lease, as a component of operating income on the consolidated statements of operations and comprehensive income.

Amounts reported in the consolidated balance sheet as of the years ended December 31, 2020 and 2019, respectively are as follows:

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

Operating leases:

Right of use assets

Lease liability - short term

Operating lease right of use asset

Lease liability - current

Lease liability - long-term

Total operating lease liability

Lease expense as of December 31, 2019

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 December 31, 2019 are as follows:

Operating lease expense

Supplemental non-cash information:

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

Weighted-average discount rate - operating leases

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarized the future minimum lease payments under non-cancellable leases as of December 31, 2020:

(In thousands)

Total undiscounted leases payments

Operating Leases

Total undiscounted operating lease payments

imputed interest

Total lease liabilities

Total operating lease liability

COMMITMENTS AND CONTINGENCIES

We are involved in a number of proceedings, legal actions, and claims.

We are involved in a number of proceedings, legal actions, and claims arising in the ordinary course of business.

Such matters are subject to many uncertainties, and the outcomes of these matters are not within our control and may not be known for prolonged periods of time.

We record a liability in the consolidated financial statements

for these actions when a loss is known or considered probable and the amount can be reasonably estimated.

If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued.

We record a liability in the consolidated financial statements for these actions when a loss is considered probable and the amount can be reasonably estimated.

If the reasonable estimate of a probable loss is a range, and no amount in the range is a better estimate than any other, the minimum amount of the range is accrued.

If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed.

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The injunction phase was resolved in September 2010 and the remaining claims were fully resolved through settlement by the parties on February 6, 2019.

Bianco Litigation

On March 21, 2012, Sabatino Bianco filed suit against us in the Federal District Court for the Eastern District of Texas claiming that we misappropriated his trade secret and confidential information and improperly utilized it in developing our CALIBER ® product.

On October 1, 2013, Bianco amended his complaint to claim that his trade secrets and confidential information were also used improperly in developing our RISE ® and CALIBER ® -L products.

GLOBUS MEDICAL, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On September 13, 2017, we settled this matter with Bianco for $ 11.5 million in cash, which resulted in the reversal of a previously recorded accrual of $ 2.5 million and the recording of $ 9.0 million in other assets that will be amortized through June 30, 2022, as a component of cost of goods sold.

Moskowitz Family LLC Litigation

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District Court for the Western District of Texas for patent infringement.

Moskowitz, a non-practicing entity, alleges that Globus willfully infringes one or more claims of eight patents by making, using, offering for sale or selling the Coalition ® , Coalition MIS ® , Coalition AGX ® , Monument ® , Independence ® , Independence MIS ® , Fortify ® and XPand ® families , Rise ® , Rise ® Intralif, Rise ® -L, ELSA ® , ELSA ® ATP, RASS, Altera ® , Ariel ® , Latis ® , Caliber ® and Caliber ® -L products.

Moskowitz, a non-practicing entity, alleges that Globus willfully infringes one or more claims of eight patents by making, using, offering for sale or selling the Coalition ® , Coalition MIS ® , Coalition AGX ® , Monument ® , MAGNIFY ® -S, HEDRON IA TM , HEDRON IC TM , Independence ® , Independence MIS ® , Fortify ® and XPand ® families , SABLE TM , Rise ® , Rise ® Intralif, Rise ® -L, ELSA ® , ELSA ® ATP, RASS, Altera ® , Ariel ® , Latis ® , Caliber ® and Caliber ® -L products.

Moskowitz seeks an unspecified amount in damages and injunctive relief.

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

Therefore, in accordance with authoritative guidance on the evaluation of loss contingencies, we have not recorded an accrual related to this litigation.

In addition, we are subject to legal proceedings arising in the ordinary course of business.

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 outcome of this litigation cannot be determined, nor can we estimate a range of potential loss, therefore, we have not recorded a liability related to this litigation as of December 31, 2020.

RETIREMENT BENEFIT PLANS

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The benefits offered under these plans are reflective of local customs and practices in the countries concerned.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company contributions to these retirement plans were as follows:

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Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

We globally manage the business within one operating segment.

We manage our business globally within one operating segment.

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 years ended December 31, 2020, 2019 and 2018, respectively:

(In thousands)

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International

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total net sales

QUARTERLY FINANCIAL DATA (unaudited)

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(In thousands, except per share amounts)

Net earnings per common share - basic

Net earnings per common share - diluted

Net income/(loss)

Earnings per share - basic

Earnings per share - diluted

* amounts might not add due to rounding

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(In thousands, except per share amounts)

Net earnings per common share - basic

Net earnings per common share - diluted

Net income/(loss)

Earnings per share - basic

Earnings per share - diluted

* amounts might not add due to rounding

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-K

Item 8. Financial Statements and Supplementary Data