What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-10-28 · 324 added, 357 removed, 364 unchanged (65% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(In thousands, except par value)

(In thousands, except share and per share values)

Current assets:

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Authorized 500,000,000 shares;

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

issued and outstanding 77,587,013 and 77,284,007 shares at March 31, 2021 and December 31, 2020, respectively

Class B common stock;

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Authorized 275,000,000 shares;

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

issued and outstanding 22,430,097 shares at March 31, 2021 and December 31, 2020

Additional paid-in capital

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AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

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Operating income/(loss)

Other income, net

Other income/(expense), net

Interest income/(expense), net

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Net income/(loss)

Earnings per share:

Weighted average shares outstanding:

Dilutive stock options

Anti-dilutive stock options excluded from weighted average calculation

See accompanying notes to unaudited condensed consolidated financial statements.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Net income/(loss)

Other comprehensive income/(loss):

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Comprehensive income/(loss)

Earnings per share:

Weighted average shares outstanding:

See accompanying notes to unaudited condensed consolidated financial statements.

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Balance at December 31, 2020

Cumulative effects of adoption of accounting standards

Stock-based compensation

Grant of restricted stock units

Exercise of stock options

Comprehensive income/(loss)

Repurchase and retirement of common stock

Balance at March 31, 2021

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

‎ Common Stock

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Balance at December 31, 2019

Cumulative effects of adoption of accounting standards

Stock-based compensation

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Comprehensive income/(loss)

Repurchase and retirement of common stock

Balance at March 31, 2020

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

See accompanying notes to unaudited condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

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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

Amortization of premium (discount) on marketable securities

Write-down for excess and obsolete inventories

Write-down of excess and obsolete inventories

Stock-based compensation expense

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(Gain)/loss on disposal of assets, net

Payment of business acquisition related liabilities

(Increase)/decrease in:

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Purchases of property and equipment

Acquisition of businesses, net of cash acquired, and purchases of intangible and other assets

Net cash used in investing activities

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Repurchase of common stock

Net cash used in/provided by financing activities

Effect of foreign exchange rate on cash

Net cash provided by/used in financing activities

Effect of foreign exchange rates on cash

Net increase in cash, cash equivalents, and restricted cash

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) The Company

Globus Medical, Inc., together with its subsidiaries, is a medical device company that develops and commercializes healthcare solutions whose mission is to improve the quality of life of patients with musculoskeletal disorders.

Globus Medical, Inc., together with its subsidiaries, is a medical device company that develops and commercializes healthcare solutions with a mission to improve the quality of life of patients with musculoskeletal disorders.

We are primarily focused on implants that promote healing in patients with musculoskeletal disorders, including the use of a robotic guidance and navigation system and products to treat patients who have experienced orthopedic traumas.

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 address new treatment options.

With over 210 products on the market, 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.

The sales force consists of direct sales representatives and distributor sales representatives employed by exclusive independent distributors.

With over 220 product launches to date, 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 we 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.

Our sales force consists of direct sales representatives and distributor sales representatives employed by exclusive independent distributors.

The terms the “Company,” “Globus,” “we,” “us” and “our” refer to Globus Medical, Inc.

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(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.

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

COVID-19 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.

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

Although the Company cannot reasonably estimate the length or severity of the impact that COVID-19 will have on its financial results, the Company may experience a material adverse impact on its sales, results of operations, and cash flows in 2021 should there be a resurgence impacting hospitals and surgical facilities to which we provide services.

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

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

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 interim unaudited condensed consolidated financial statements have been prepared in conformity with U.S.

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GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

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

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

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

(d) Principles of Consolidation

In the opinion of management, these condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position as of March 31, 2021, and results of operations for the three months ended March 31, 2021.

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

(b) Principles of Consolidation

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

All intercompany balances and transactions are eliminated in consolidation.

All intercompany balances and transactions have been eliminated.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(e) Use of Estimates

The preparation of the condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates, in part, on historical experience that management believes to be reasonable under the circumstances.

GAAP requires the Company 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

We base our estimates, in part, on historical experience that we believe to be reasonable under the circumstances.

Actual results could differ from those estimates.

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

Significant areas that require management’s estimates include intangible assets, business acquisition liabilities, 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.

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.

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.

(f) Cash, Cash Equivalents, and Restricted Cash

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

September 30,

(In thousands)

Cash and cash equivalents

Restricted cash

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

(g) Marketable Securities

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

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

The 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 condensed consolidated balance sheets.

(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 contracts with our customers for Musculoskeletal Solutions products have a single performance obligation and revenue is recognized at a point in time.

Our Enabling Technologies products are advanced robotics hardware 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 contracts with our customers for Enabling Technologies products 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 generally 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.

Any revenue related to the provision of maintenance and support is recognized as we satisfy the performance obligation.

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.

Maintenance and support services are generally invoiced annually, at the beginning of each contract period, and revenue is recognized ratably over the maintenance period.

For the three months ended March 31, 2021 and 2020, there was an immaterial amount of revenue recognized from previously deferred revenue.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(e) 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.

(f) 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 are classified as available-for-sale as of March 31, 2021 and December 31, 2020.

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

Any changes in the fair value of our available-for-sale securities, that do not result in recognition or reversal of an allowance for credit loss or write-down, are recorded, net of taxes, as a component of accumulated other comprehensive income or loss on our condensed 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/(expense), on our condensed consolidated statements of income.

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

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 in other income/(expense), net, on our condensed consolidated statements of operations and comprehensive income.

Interest receivable is recorded in prepaid expenses and other current assets on our condensed consolidated balance sheets.

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

(h) Fair Value Measurements

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

(g) Fair Value Measurements

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

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

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.

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

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

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

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

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

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

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

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingent consideration represents contingent milestone, performance and revenue-sharing payment obligations related to business 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 balances of the fair value of contingent consideration are recognized within business acquisition liabilities on our condensed consolidated balance sheets, and the changes in the fair value of contingent consideration are recognized within acquisition related costs in the condensed consolidated statements of income.

(i) Inventories

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

(h) Inventories

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

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.

(j) Revenue Recognition

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

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

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.

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.

(i) Goodwill and Intangible Assets

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 or whenever events or circumstances indicate that a carrying amount may not be recoverable.

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.

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 three months ended March 31, 2021 and 2020, 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 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.

There were no impairments of finite-lived intangible assets during the three months ended March 31, 2021 or 2020.

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.

If the related project is not completed in a timely manner, we may have an impairment related to the IPR&D, calculated as the excess of the asset’s carrying value over its fair value.

There were no impairments of IPR&D during the three months ended March 31, 2021 or 2020.

(j) 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.

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.

The risk-free interest rate assumption is based on observed interest rates of U.S.

Treasury securities appropriate for the expected terms of the stock options.

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

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

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Disaggregation of Revenue

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Musculoskeletal Solutions products

Enabling Technologies products

Total net sales

(k) 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.

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

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

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

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

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

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 condensed consolidated financial statements and related disclosures.

(l) Recently Adopted Accounting Pronouncements

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

Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases with terms greater than 12 months, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and permits modified retrospective method or cumulative-effect adjustment method.

We adopted the standard on January 1, 2019, using the cumulative-effect adjustment transition method.

As part of the adoption, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications.

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

See “Note 13.

Leases” for more detail regarding our disclosures.

In February 2018, the FASB released ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) , Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”).

Prior to ASU 2018-02, GAAP required the remeasurement of deferred tax assets and liabilities as a result of a change in tax laws or rates to be presented in net income from continuing operations, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income.

As a result, such items, referred to as stranded tax effects, did not reflect the appropriate tax rate.

Under ASU 2018-02, entities are permitted, but not required, to reclassify from accumulated other comprehensive income to retained earnings those stranded tax effects resulting from the U.S.

legislation commonly referred to as the Tax Cuts and Jobs Act enacted in December 2017 .

ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Early adoption is permitted.

We adopted ASU 2018-02 on January 1, 2019.

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

In June 2018, the FASB released ASU 2018-07, Compensation—Stock Compensation (Topic 718) , (“ASU 2018-07”), which expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

This update is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Early adoption is permitted.

We adopted ASU 2018-07 on January 1, 2019.

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

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

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

ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

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 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.

Adoption of the 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) , (“ASU 2018-13”), 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.

Early adoption is permitted.

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.

ASU 2019-12 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.

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

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

ASSET ACQUISITIONS AND BUSINESS COMBINATIONS

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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 Other Liabilities in the Condensed Consolidated Balance Sheet.

The Company accounted for the transaction as an asset acquisition as substantially all of the estimated fair value of the gross 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.

Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development” (ASC 730).

The contractual holdback obligation is included in accrued expenses in the condensed 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, 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 Condensed Consolidated Statements of Income on the acquisition date.

The Company also recorded the remaining immaterial identifiable net assets based on their estimated fair values, which primarily consisted of cash and assembled workforce.

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

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

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Business Combinations

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 condensed financial statements from the acquisition date, and the results from the StelKast Acquisition were not material to our condensed financial statements.

At the acquisition date, the fair value of the net assets acquired was $ 28.1 million, which 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 estimated fair values, related to inventory of $ 15.3 million, fixed assets of $ 4.2 million and customer relationships of $ 3.9 million and goodwill of $ 4.7 million.

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

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

During the fourth quarter of 2020, the Company completed two acquisitions that were not considered material, individually or collectively, to the condensed consolidated financial statements during the periods presented.

These acquisitions have been included in the condensed 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.

The contingent 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 purchase price allocation of the assets and liabilities acquired remains open with respect to the final determination of deferred tax asset values.

The Company expects the purchase price allocation to be finalized 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.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

GOODWILL AND INTANGIBLE ASSETS

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

September 30, 2020

(In thousands)

‎ Amortization

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

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

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

December 31, 2019

(In thousands)

‎ Amortization

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

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

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 condensed consolidated financial statements from the acquisition date.

At the 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 of 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 following table represents net sales by product category:

Three Months Ended

(In thousands)

December 31, 2018

Additions and adjustments

Foreign exchange

December 31, 2019

Additions and adjustments

Foreign exchange

September 30, 2020

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Musculoskeletal Solutions

Enabling Technologies

Total net sales

MARKETABLE SECURITIES

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

September 30, 2020

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

March 31, 2021

(In thousands)

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Total long-term marketable securities

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020

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Asset-backed securities

Government, federal agency, and other sovereign obligations

Total short-term marketable securities

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Asset-backed securities

Government, federal agency, and other sovereign obligations

Total long-term marketable securities

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 March 31, 2021 and December 31, 2020, respectively.

Purchases of marketable securities include amounts payable to brokers of $ 8.2 million and $ 9.3 million as of March 31, 2021 and December 31, 2020, respectively.

FAIR VALUE MEASUREMENTS

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

Assets and liabilities measured at fair value on a recurring basis included the following:

(In thousands)

September 30,

Cash equivalents

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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.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

(In thousands)

Fair Value at September 30, 2020

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

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

* 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 three months ended March 31, 2021 and 2020, respectively included the following:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Beginning balance

Purchase price contingent consideration

Changes resulting from foreign currency fluctuations

Contingent payments

Fair value measurement at January 1, 2021 and 2020, respectively

Contingent cash payments

Contingent RSU grants

Changes in fair value of business acquisition liabilities

Contractual payable reclassification

Ending balance

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

September 30,

Fair value measurement at March 31, 2021 and 2020, respectively

Inventories included the following:

(In thousands)

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Total inventories

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

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

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

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

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

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

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

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

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

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

During the three months ended March 31, 2021 and 2020, net adjustments to cost of sales related to excess and obsolete inventory were $ 1.6 million and $ 0.7 million, respectively.

The net adjustments for the three months ended March 31, 2021 and 2020 reflect a combination of additional expense for excess and obsolete related provisions ($ 3.8 million and $ 2.4 million, respectively) offset by sales and disposals ($ 2.2 million and $ 1.7 million, respectively) of inventory for which an excess and obsolete provision was provided previously through expense recognized in prior periods.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PROPERTY AND EQUIPMENT

Property and equipment included the following:

(In thousands)

Buildings and improvements

Modules and cases

Other property and equipment

accumulated depreciation

Instruments are hand-held devices used by surgeons to install implants during surgery.

Modules and cases are used to store and transport the instruments and implants.

Depreciation expense related to property and equipment was as follows:

Three Months Ended

(In thousands)

GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill during the twelve months ended December 31, 2020 and the three months ended March 31, 2021, respectively included the following:

(In thousands)

December 31, 2019

Additions and adjustments

Foreign exchange

December 31, 2020

Foreign exchange

March 31, 2021

The composition of intangible assets was as follows:

March 31, 2021

(In thousands)

‎ Amortization

Supplier network

Customer relationships & other intangibles

Developed technology

Total intangible assets

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2020

(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 March 31, 2021:

(In thousands)

‎ Amortization

Remaining 2021

ACCRUED EXPENSES

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

September 30,

Accrued expense included the following:

(In thousands)

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Line of Credit

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

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 .

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

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

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

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

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

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

As of March 31, 2021, we have no t borrowed under the Credit Agreement with Citizens Bank, N.A.

GLOBUS MEDICAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Repurchases

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

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

Under the current 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.

The repurchase program has no time limit and may be suspended for periods or discontinued at any time.

As of March 31, 2021, $ 95.3 million of this authorization is remaining.

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

We continue to expect funding of share repurchases will come from operating cash flows and excess cash.

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

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the activity related to share repurchases:

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July 1, 2020 - September 30,2020

January 1, 2020 - September 30, 2020

October 1, 2020 - December 31, 2020

January 1, 2021 - March 31, 2021

January 1, 2020 - March 31, 2021

(1) Inclusive of an immaterial amount of commission fees

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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.

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 on all matters submitted to a vote of stockholders, except as required by law or our amended and restated Certificate of Incorporation.

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 with our amended Form 10-K on March 2, 2020.”

For more details relating to the conversion of our Class B common stock please see “Exhibit 4.2, Description of Securities of the Registrant” filed with our Annual Report on Form 10-K on February 17, 2021.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 nine months ended September 30, 2020 and 2019, respectively:

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 three months ended March 31, 2021 and 2020, respectively:

(In thousands)

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Other comprehensive (loss)/income, net of tax

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

Accumulated other comprehensive loss, net of tax, at March 31, 2021

(In thousands)

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Other comprehensive (loss)/income, net of tax

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

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

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 condensed consolidated statements of operations and comprehensive income.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Earnings Per Common Share

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

Diluted earnings 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:

Three Months Ended

(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 COMPENSATION

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.

We have two stock plans:

our 2008 Stock Plan and our 2012 Equity Incentive Plan (the “2012 Plan”).

The 2012 Plan is the only active stock plan.

The purpose of the 2008 Stock Plan 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 number of shares that may be issued or transferred pursuant to incentive stock options under the 2012 Plan is limited to 10,769,230 shares.

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

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

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

Three Months Ended

Nine Months Ended

September 30,

Weighted average grant date fair value per share

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

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 March 31, 2021, pursuant to the 2012 Plan, there were 17,901,177 shares of Class A Common stock reserved and 806,579 shares of Class A Common stock available for future grants.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Options

Stock option activity during the three months ended March 31, 2021 is summarized as follows:

‎ Shares (thousands)

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Outstanding at December 31, 2020

Outstanding at September 30, 2020

Exercisable at September 30, 2020

Expected to vest at September 30, 2020

Outstanding at March 31, 2021

Exercisable at March 31, 2021

Expected to vest at March 31, 2021

The total intrinsic value of stock options exercised was $ 10.1 million and $ 3.5 million during the three months ended March 31, 2021, and 2020, 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:

Three Months Ended

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 three months ended March 31, 2021, and 2020 was $ 19.26 and $ 14.43 per share, respectively.

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Restricted Stock Units

Restricted stock unit activity during the three months ended March 31, 2021 is summarized as follows:

Restricted Stock

‎ Units (thousands)

‎ grant date fair value

‎ contractual

‎ life (years)

Outstanding at December 31, 2020

Outstanding at March 31, 2021

Stock-Based Compensation

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Intrinsic value of stock options exercised

Stock-based compensation expense

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Total stock-based compensation cost

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

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

As of March 31, 2021, there was $ 75.9 million of unrecognized compensation expense related to unvested employee stock options that are expected to vest over a weighted average period of approximately three years .

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

Our estimates and assumptions may change as new events occur, additional information is obtained, or as the tax environment changes.

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

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

The following table provides a summary of our effective tax rate for the three months ended March 31, 2021 and 2020, respectively:

Three Months Ended

Nine Months Ended

September 30,

Effective income tax rate

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

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

The change in effective income tax rate for the three month periods ending March 31, 2021 and 2020 is primarily driven by the increase in pretax income partially offset by an increase in tax benefits related to stock option exercises and the reduction to non-tax deductible expenses in the current year.

COMMITMENTS AND CONTINGENCIES

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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 condensed 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.

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.

In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded.

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

We record a liability in the condensed 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 probable, and the amount can be reasonably estimated, the estimated loss or range of loss is disclosed.

In most cases, significant judgment is required to estimate the amount and timing of a

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

L5 Litigation

In December 2009, we filed suit in the Court of Common Pleas of Montgomery County, Pennsylvania against our former exclusive independent distributor L5 Surgical, LLC and its principals, seeking an injunction and declaratory judgment concerning certain restrictive covenants made to L5 by its sales representatives.

L5 brought counterclaims against us alleging tortious interference, unfair competition and conspiracy.

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

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 ® , 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, 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 ® , CORBEL TM , MONUMENT ® , MAGNIFY ® -S, HEDRON IA TM , HEDRON IC TM , INDEPENDENCE ® , INDEPENDENCE MIS ® , INDEPENDENCE MIS AGX ® , 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.

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

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

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

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

The Company leases certain equipment, vehicles, and facilities under operating leases.

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 for how long.

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.

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

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

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

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

District Court for the Eastern District of Pennsylvania.

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 March 31, 2021.

The Company leases certain equipment, vehicles, and facilities under the terms of operating lease agreements.

Our leases have initial lease terms ranging from one year to fourteen years .

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

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 we do not recognize right of use assets or lease liabilities for such leases.

We generally estimate discount rates using our incremental borrowing rate, and based on other information available, at commencement date of a lease when determining the present value of future payments as most of our leases do not provide an implicit rate.

The Company includes right-of-use assets in other assets, short-term lease liabilities in accrued expenses, and long-term lease liabilities in other liabilities on the condensed consolidated balance sheet.

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

Amounts reported in the condensed consolidated balance sheet were 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 September 30, 2020

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

Weighted-average discount rate

Supplemental non-cash information:

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

Weighted-average discount rate - operating leases

Operating lease expense recognized in the condensed consolidated statement of operations and comprehensive income was as follows:

Three months ended

(In thousands)

Operating lease expense

GLOBUS MEDICAL, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Future minimum lease payments under non-cancellable leases as of March 31, 2021 are as follows:

(In thousands)

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

Total undiscounted leases payments

Operating Leases

Remaining 2021

Total undiscounted operating lease payments

imputed interest

Total lease liabilities

Total operating lease liability

SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate discrete 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.

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

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 manage our business globally within one operating segment, and segment information is consistent with how the chief operating decision makers review the business, makes investing and resource allocation decisions and assesses operating performance.

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements