GLOBUS MEDICAL INC 10-K

Item 8. Financial Statements and Supplementary Data GLOBUS MEDICAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm ( Deloitte & Touche LLP , Philadelphia, Pennsylvania , PCAOB ID No. 34 ) 51 Consolidated Balance Sheets 54 Consolidated Statements of Operations and Comprehensive Income 55 Consolidated Statements of Equity 56 Consolidated Statements of Cash Flows 59 Notes to Consolidated Financial Statements 60 ‎ 50 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Globus Medical, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Globus Medical, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2022, 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. 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventories Valuation – Refer to Notes 2 and 7 to the financial statements Critical Audit Matter Description Inventories are recorded at the lower of cost or net realizable value. Management periodically evaluates the carrying value of inventories in relation to the forecasts of product demand, which takes into consideration the estimated life cycle of product releases. When quantities on hand exceed sales forecasts, a write-down is recorded for such excess inventories. Changes in assumptions of product demand could have a significant impact on the amount of write-down recorded. Given the inherent uncertainty in forecasting product demand, including the impact of product releases, auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit 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: 51 Table of Contents • 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 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 current information. • We performed corroborative inquiries with the personnel responsible for product development and sales forecasting to evaluate the reasonableness of the product demand forecasts. /s/ DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania February 17, 2022 We have served as the Company’s auditor since 2017. ‎ 52 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Globus Medical, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Globus Medical, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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 as of and for the year ended December 31, 2021, of the Company and our report dated February 17, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate . /s/ DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania February 17, 2022 ‎ 53 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (In thousands, except share and per share values) 2021 2020 ASSETS Current assets: Cash, cash equivalents, and restricted cash $ 193,069 $ 239,397 Short-term marketable securities 250,378 187,344 Accounts receivable, net of allowances of $ 4,962 and $ 4,408 , respectively 164,436 141,676 Inventories 237,001 229,153 Prepaid expenses and other current assets 18,417 17,771 Income taxes receivable 1,215 6,424 Total current assets 864,516 821,765 Property and equipment, net of accumulated depreciation of $ 305,575 and $ 276,451 , respectively 221,076 216,879 Long-term marketable securities 562,475 358,522 Intangible assets, net 68,660 86,949 Goodwill 179,708 156,716 Other assets 36,334 32,039 Deferred income taxes 24,494 6,615 Total assets $ 1,957,263 $ 1,679,485 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 21,955 $ 18,205 Accrued expenses 91,168 78,334 Income taxes payable 1,046 1,101 Business acquisition liabilities 11,770 5,777 Deferred revenue 12,025 8,125 Payable to broker 2,200 9,250 Total current liabilities 140,164 120,792 Business acquisition liabilities, net of current portion 58,755 31,493 Deferred income taxes 4,314 6,202 Other liabilities 12,642 14,701 Total liabilities 215,875 173,188 Commitments and contingencies (Note 16) Equity: Class A common stock; $ 0.001 par value. Authorized 500,000,000 shares; issued and outstanding 79,113,916 and 77,284,007 shares at December 31, 2021 and December 31, 2020, respectively 79 77 Class B common stock; $ 0.001 par value. Authorized 275,000,000 shares; issued and outstanding 22,430,097 and 22,430,097 shares at December 31, 2021 and December 31, 2020, respectively 22 22 Additional paid-in capital 553,787 457,161 Accumulated other comprehensive loss ( 6,772 ) 3,955 Retained earnings 1,194,272 1,045,082 Total equity 1,741,388 1,506,297 Total liabilities and equity $ 1,957,263 $ 1,679,485 See accompanying notes to consolidated financial statements. ‎ 54 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Year Ended December 31, (In thousands, except per share amounts) 2021 2020 2019 Net sales $ 958,102 $ 789,042 $ 785,368 Cost of goods sold 239,223 217,463 179,975 Gross profit 718,879 571,579 605,393 Operating expenses: Research and development 97,346 84,519 60,073 Selling, general and administrative 408,149 354,757 354,757 Provision for litigation 5,921 9 2,190 Amortization of intangibles 18,526 16,831 13,809 Acquisition related costs 16,984 4,030 2,575 Total operating expenses 546,926 460,146 433,404 Operating income/(loss) 171,953 111,433 171,989 Other income/(expense), net Interest income/(expense), net 9,297 13,952 17,406 Foreign currency transaction gain/(loss) ( 1,423 ) ( 279 ) 75 Other income/(expense) 580 793 476 Total other income/(expense), net 8,454 14,466 17,957 Income/(loss) before income taxes 180,407 125,899 189,946 Income tax provision 31,216 23,614 34,736 Net income/(loss) $ 149,191 $ 102,285 $ 155,210 Other comprehensive income/(loss): Unrealized gain/(loss) on marketable securities, net of tax ( 6,054 ) 1,402 3,767 Foreign currency translation gain/(loss) ( 4,673 ) 5,451 507 Total other comprehensive income/(loss) ( 10,727 ) 6,853 4,274 Comprehensive income/(loss) $ 138,464 $ 109,138 $ 159,484 Earnings per share: Basic $ 1.48 $ 1.04 $ 1.57 Diluted $ 1.44 $ 1.01 $ 1.52 Weighted average shares outstanding: Basic 100,734 98,580 99,150 Diluted 103,623 100,971 101,998 See accompanying notes to consolidated financial statements. ‎ 55 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Class A ‎ Common Stock Class B ‎ Common Stock Additional paid-in Accumulated other comprehensive Retained (In thousands) Shares $ Shares $ capital income/(loss) earnings Total Balance at December 31, 2020 77,284 $ 77 22,430 $ 22 $ 457,161 $ 3,955 $ 1,045,082 $ 1,506,297 Stock-based compensation — — — — 7,883 — — 7,883 Grant of restricted stock units — — — — 163 — — 163 Exercise of stock options 303 1 — — 9,100 — — 9,101 Comprehensive income/(loss) — — — — — ( 5,779 ) 45,329 39,550 Balance at March 31, 2021 77,587 $ 78 22,430 $ 22 $ 474,307 $ ( 1,824 ) $ 1,090,411 $ 1,562,994 Stock-based compensation — — — — 7,788 — — 7,788 Grant of restricted stock units — — — — 197 — — 197 Exercise of stock options 716 1 — — 26,496 — — 26,497 Comprehensive income/(loss) — — — — — 252 41,545 41,797 Balance at June 30, 2021 78,303 $ 79 22,430 $ 22 $ 508,788 $ ( 1,572 ) $ 1,131,956 $ 1,639,273 Stock-based compensation — — — — 7,621 — — 7,621 Grant of restricted stock units — — — — 1,311 — — 1,311 Exercise of stock options 727 — — — 24,335 — — 24,335 Comprehensive income/(loss) — — — — — ( 1,482 ) 47,211 45,729 Balance at September 30, 2021 79,030 $ 79 22,430 $ 22 $ 542,055 $ ( 3,054 ) $ 1,179,167 $ 1,718,269 Stock-based compensation — — — — 7,962 — — 7,962 Grant of restricted stock units — — — — 207 — — 207 Exercise of stock options 84 — — — 3,563 — — 3,563 Comprehensive income/(loss) — — — — — ( 3,718 ) 15,105 11,387 Balance at December 31, 2021 79,114 $ 79 22,430 $ 22 $ 553,787 $ ( 6,772 ) $ 1,194,272 $ 1,741,388 56 Table of Contents Class A ‎ Common Stock Class B ‎ Common Stock Additional paid-in Accumulated other comprehensive Retained (In thousands) Shares $ Shares $ capital income/(loss) earnings Total Balance at December 31, 2019 77,394 $ 77 22,431 $ 22 $ 357,320 $ ( 2,898 ) $ 1,047,931 $ 1,402,452 Cumulative effects of adoption of accounting standards — — — — — — ( 468 ) ( 468 ) Stock-based compensation — — — — 6,902 — — 6,902 Exercise of stock options 190 1 — — 5,762 — — 5,763 Comprehensive income/(loss) — — — — — ( 3,368 ) 25,949 22,581 Repurchase and retirement of common stock ( 1,920 ) ( 2 ) — — — — ( 73,862 ) ( 73,864 ) Balance at March 31, 2020 75,664 $ 76 22,431 $ 22 $ 369,984 $ ( 6,266 ) $ 999,550 $ 1,363,366 Stock-based compensation — — — — 7,426 — — 7,426 Exercise of stock options 434 — ( 1 ) — 10,201 — — 10,201 Comprehensive income/(loss) — — — — — 7,564 ( 20,837 ) ( 13,273 ) Repurchase and retirement of common stock ( 771 ) ( 1 ) — — — — ( 30,804 ) ( 30,805 ) Balance at June 30, 2020 75,327 $ 75 22,430 $ 22 $ 387,611 $ 1,298 $ 947,909 $ 1,336,915 Stock-based compensation — — — — 7,007 — — 7,007 Exercise of stock options 915 1 — — 28,156 — — 28,157 Comprehensive income/(loss) — — — — — 909 44,216 45,125 Balance at September 30, 2020 76,242 $ 76 22,430 $ 22 $ 422,774 $ 2,207 $ 992,125 $ 1,417,204 Stock-based compensation — — — — 5,995 — — 5,995 Grant of restricted stock units — — — — 191 — — 191 Exercise of stock options 1,042 1 — — 28,201 — — 28,202 Comprehensive income/(loss) — — — — — 1,748 52,957 54,705 Balance at December 31, 2020 77,284 $ 77 22,430 $ 22 $ 457,161 $ 3,955 $ 1,045,082 $ 1,506,297 See accompanying notes to consolidated financial statements. ‎ 57 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Continued) Class A ‎ Common Stock Class B ‎ Common Stock Additional paid-in Accumulated other comprehensive Retained (In thousands) Shares $ Shares $ capital income/(loss) earnings Total Balance at December 31, 2018 76,144 $ 76 22,431 $ 22 $ 299,869 $ ( 7,172 ) $ 892,721 $ 1,185,516 Stock-based compensation — — — — 6,541 — — 6,541 Exercise of stock options 407 1 — — 10,255 — ( 1 ) 10,255 Comprehensive income/(loss) — — — — — 1,692 33,210 34,902 Balance at March 31, 2019 76,551 $ 77 22,431 $ 22 $ 316,665 $ ( 5,480 ) $ 925,930 $ 1,237,214 Stock-based compensation — — — — 6,381 — — 6,381 Exercise of stock options 96 — — — 2,015 — 1 2,016 Comprehensive income/(loss) — — — — — 3,752 38,163 41,915 Balance at June 30, 2019 76,647 $ 77 22,431 $ 22 $ 325,061 $ ( 1,728 ) $ 964,094 $ 1,287,526 Stock-based compensation — — — — 6,978 — — 6,978 Exercise of stock options 326 — — — 7,081 — 1 7,082 Comprehensive income/(loss) — — — — — ( 1,098 ) 38,307 37,209 Balance at September 30, 2019 76,973 $ 77 22,431 $ 22 $ 339,120 $ ( 2,826 ) $ 1,002,402 $ 1,338,795 Stock-based compensation — — — — 6,516 — — 6,516 Exercise of stock options 421 — — — 11,684 — — 11,684 Comprehensive income/(loss) — — — — — ( 72 ) 45,529 45,457 Balance at December 31, 2019 77,394 $ 77 22,431 $ 22 $ 357,320 $ ( 2,898 ) $ 1,047,931 $ 1,402,452 See accompanying notes to consolidated financial statements. ‎ 58 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In thousands) 2021 2020 2019 Cash flows from operating activities: Net income $ 149,191 $ 102,285 $ 155,210 Adjustments to reconcile net income to net cash provided by operating activities: Acquired in-process research and development 34,312 24,418 — Depreciation and amortization 69,867 62,874 52,734 Amortization of premium (discount) on marketable securities 2,781 587 ( 1,089 ) Write-down for excess and obsolete inventories, net 6,143 17,741 2,498 Stock-based compensation expense 30,586 27,073 26,085 Allowance for doubtful accounts 1,200 2,960 3,026 Change in fair value of business acquisition liabilities 16,807 2,674 1,787 Change in deferred income taxes ( 17,615 ) ( 4,338 ) 4,302 (Gain)/loss on disposal of assets, net 464 809 866 Payment of business acquisition related liabilities ( 210 ) ( 700 ) — (Increase)/decrease in: Accounts receivable ( 25,895 ) 10,696 ( 18,306 ) Inventories ( 11,971 ) ( 50,111 ) ( 50,018 ) Prepaid expenses and other assets ( 6,178 ) ( 11,088 ) ( 12,263 ) Increase/(decrease) in: Accounts payable 3,684 ( 6,352 ) 773 Accrued expenses and other liabilities 17,896 17,608 7,043 Income taxes payable/receivable 5,212 1,657 ( 673 ) Net cash provided by/(used in) operating activities 276,274 198,793 171,975 Cash flows from investing activities: Purchases of marketable securities ( 622,359 ) ( 223,540 ) ( 346,526 ) Maturities of marketable securities 227,908 134,462 247,008 Sales of marketable securities 109,898 68,897 53,786 Purchases of property and equipment ( 56,898 ) ( 63,658 ) ( 70,750 ) Acquisition of businesses, net of cash acquired and purchases of intangible and other assets ( 34,488 ) ( 33,483 ) ( 23,799 ) Net cash provided by/(used in) investing activities ( 375,939 ) ( 117,322 ) ( 140,281 ) Cash flows from financing activities: Payment of business acquisition liabilities ( 9,349 ) ( 6,316 ) ( 6,597 ) Proceeds from exercise of stock options 63,496 72,322 31,036 Repurchase of common stock — ( 104,669 ) — Net cash provided by/(used in) financing activities 54,147 ( 38,663 ) 24,439 Effect of foreign exchange rate on cash ( 810 ) 865 ( 156 ) Net increase in cash, cash equivalents, and restricted cash ( 46,328 ) 43,673 55,977 Cash, cash equivalents, and restricted cash at beginning of period 239,397 195,724 139,747 Cash, cash equivalents, and restricted cash at end of period $ 193,069 $ 239,397 $ 195,724 Supplemental disclosures of cash flow information: Income taxes paid $ 45,027 $ 25,437 $ 34,139 Purchases of property and equipment included in accounts payable and accrued expenses $ 4,551 $ 4,210 $ 4,226 See accompanying notes to consolidated financial statements. 59 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BACKGROUND (a) The Company Globus Medical, Inc., together with its subsidiaries, is a medical device company that develops and commercializes healthcare solutions in 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 to address new treatment options. With over 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. The 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. and, where applicable, our consolidated subsidiaries. (b) COVID-19 Pandemic Impact 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. 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 2022 should there be a resurgence impacting hospitals, surgical facilities, our internal operations, or our suppliers. In response to these developments, the Company will continue to monitor liquidity and cash flow. The Company has the ability to borrow from its existing credit facility, if needed, although we do not expect to do so due to our cash, cash equivalents and short-term marketable securities balances. NOTE 2. 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. GAAP”). (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. (c) Use of Estimates 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. We base our estimates, in part, on historical experience that management believes 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 consolidated financial statements in the period they are determined to be necessary. 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, 60 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. (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, 2021, 2020, and 2019, 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. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of entities comprising our customer base. We perform ongoing credit evaluations of our customers and generally do not require collateral. There was no customer that accounted for 10% or more of sales for the years ended December 31, 2021, 2020, and 2019, respectively. (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. 61 Table of Contents 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, 2021 and 2020. 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 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 invest in securities that meet or exceed standards as defined in our investment policy. Our policy also limits the amount of credit exposure to any one issue, issuer or type of security. We review declines in the fair value of our securities to determine whether they are resulting from expected credit losses or other factors. If the assessment indicates a credit loss exists, we recognize any measured impairment as an allowance for credit loss in our consolidated statements of operations. Any other impairments not recorded through allowance for credit losses is recognized in our other comprehensive income. (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; and 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 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 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 62 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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) Property and Equipment Property and equipment is recorded at cost less accumulated depreciation. Additions or improvements are capitalized, while repairs and maintenance are expensed as incurred. Depreciation is recognized 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 operations and comprehensive income. (k) 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. 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 years ended December 31, 2021, 2020, and 2019, 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 years ended December 31, 2021, 2020, and 2019. 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 years ended December 31, 2021, 2020, and 2019. (l) Impairment of Long-Lived Assets We periodically evaluate the recoverability of the carrying amount of long-lived assets, which include property and equipment, as well as whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be fully recoverable. 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 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, 2021, 2020, and 2019, 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. Research and development costs include salaries, employee benefits, supplies, consulting services, clinical services and clinical trial costs, and facilities costs. 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. 63 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (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. 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 on the day of grant based on the closing price of the Company’s common stock. (p) Provision for Litigation We are involved in a number of proceedings, legal actions, and claims. 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. 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 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. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. We expense legal costs related to loss contingencies as incurred. (q) 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 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. (r ) 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. (s) 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. 64 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (t) Recently Issued Accounting Pronouncements None applicable. (u) Recently Adopted Accounting Pronouncements 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. 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. This standard did not have a material impact on our financial position, results of operations and disclosures. 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 15. 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 Tax Act. 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 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 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 65 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 . NOTE 3. ASSET ACQUISITIONS AND BUSINESS COMBINATIONS Asset Acquisitions During the fourth quarter of 2021, the Company acquired substantially all the assets of Capstone Surgical Technologies, LLC (“Capstone”), which engages in the business of advanced drill and robotic surgery platforms. The purchase price consisted of $ 24.5 million of cash paid at closing, subject to net working capital and other post-closing adjustments, if applicable. The transaction also provides for additional consideration contingent upon the developed products obtaining approval from the U.S. Food and Drug Administration (the “FDA”) of up to $ 15.0 million, and additional consideration contingent upon the achievement of certain performance obligations of up to $ 10.0 million. Contingent consideration is not recorded in an asset acquisition until the milestone is met. Also during the fourth quarter of 2021, the Company acquired substantially all the assets of a company that engages in the development of technology for use in robotic surgery platforms which was not considered material to the consolidated financial statements during the periods presented. The purchase price consisted of $ 10.0 million of cash paid at closing and also provides for additional consideration contingent upon the achievement of certain performance obligations of $ 5.0 million. Contingent consideration is not recorded in an asset acquisition until the milestone is met. 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. During the fourth quarter of 2021, the contractual holdback and net working capital and other post-closing adjustments were settled for $ 2.7 million. 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. The Company accounted for all of these transactions as asset acquisitions as substantially all of the fair value of the assets acquired in each transaction was concentrated in a single identified asset, in-process research and development (“IPR&D”) of the acquired technology, thus satisfying the requirements of the screen test in ASU 2017-1. At the date of the acquisitions, the Company determined that the development of the projects underway had not yet reached technological feasibility and that the research in process had no alternative future use. Accordingly, the acquired IPR&D of $ 34.3 million and $ 24.4 million was charged to research and development expense in the consolidated statements of operations and comprehensive income for years ended 2021 and 2020, respectively. Business Combinations During 2021, the Company completed three acquisitions that were not considered material, individually or collectively, to the consolidated financial statements during the periods presented. Two acquisitions were completed in the third quarter, while the third acquisition was completed in the fourth quarter. These acquisitions have been included in the consolidated financial statements from the date of acquisition. The purchase price of the acquisition in the fourth quarter consisted of approximately $ 0.3 million of cash paid at closing and $ 13.0 million of contingent consideration payments, resulting in goodwill of $ 13.3 million based on the estimated fair values. The combined purchase price of the two acquisitions in the third quarter consisted of approximately $ 12.6 million of contingent consideration payments. The Company recorded other intangible assets of $ 1.6 million, with a weighted average useful life of 3.8 years, and goodwill of $ 11.0 million based on their estimated fair values. The contingent payments for all three acquisitions are based upon achieving various performance obligations over a period of 10 years and are payable in a combination of cash and RSUs. During the fourth quarter of 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 66 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 fair values. 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. 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. NOTE 4. NET SALES The following table represents net sales by product category: Year Ended December 31, (In thousands) 2021 2020 2019 Musculoskeletal Solutions $ 876,780 $ 748,446 $ 738,377 Enabling Technologies 81,322 40,596 46,991 Total net sales $ 958,102 $ 789,042 $ 785,368 67 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5. MARKETABLE SECURITIES The composition of our short-term and long-term marketable securities is as follows: December 31, 2021 (In thousands) Amortized ‎ Cost Gross ‎ Unrealized ‎ Gains Gross Unrealized Losses Fair ‎ Value Short-term: Municipal bonds $ 66,379 $ 99 $ ( 11 ) $ 66,467 Corporate debt securities 107,102 434 ( 65 ) 107,471 Commercial paper 38,252 2 ( 1 ) 38,253 Asset-backed securities 12,931 58 — 12,989 Government, federal agency, and other sovereign obligations 25,231 — ( 33 ) 25,198 Total short-term marketable securities $ 249,895 $ 593 $ ( 110 ) $ 250,378 Long-term: Municipal bonds $ 91,185 $ 4 $ ( 409 ) $ 90,780 Corporate debt securities 324,492 351 ( 1,318 ) 323,525 Asset-backed securities 128,139 101 ( 578 ) 127,662 Government, federal agency, and other sovereign obligations 20,539 — ( 31 ) 20,508 Total long-term marketable securities $ 564,355 $ 456 $ ( 2,336 ) $ 562,475 December 31, 2020 (In thousands) Amortized ‎ Cost Gross ‎ Unrealized ‎ Gains Gross ‎ Unrealized ‎ Losses Fair ‎ Value Short-term: Municipal bonds $ 39,684 $ 140 $ — $ 39,824 Corporate debt securities 97,937 817 ( 4 ) 98,750 Commercial paper 25,543 4 — 25,547 Asset-backed securities 15,232 44 — 15,276 U.S. government and agency securities 7,886 61 — 7,947 Total short-term marketable securities $ 186,282 $ 1,066 $ ( 4 ) $ 187,344 Long-term: Municipal bonds $ 70,176 $ 612 $ — $ 70,788 Corporate debt securities 158,464 3,120 — 161,584 Asset-backed securities 124,406 1,747 ( 3 ) 126,150 Total long-term marketable securities $ 353,046 $ 5,479 $ ( 3 ) $ 358,522 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, 2021 and 2020, respectively. Purchases of marketable securities include amounts payable to brokers of $ 2.2 million and $ 9.3 million as of December 31, 2021 and 2020, respectively. 68 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6. FAIR VALUE MEASUREMENTS Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020, respectively included the following: (In thousands) Balance at December 31, 2021 Level 1 Level 2 Level 3 Assets Cash equivalents $ 26,684 $ 3,768 $ 22,916 $ — Municipal bonds 157,247 — 157,247 — Corporate debt securities 430,996 — 430,996 — Commercial paper 38,253 — 38,253 — Asset-backed securities 140,651 — 140,651 — Government, federal agency, and other sovereign obligations 45,706 — 45,706 — Liabilities Business acquisition liabilities 70,525 — — 70,525 (In thousands) Balance at December 31, 2020 Level 1 Level 2 Level 3 Assets Cash equivalents $ 56,223 $ 23,628 $ 32,595 $ — Municipal bonds 110,612 — 110,612 — Corporate debt securities 260,334 — 260,334 — Commercial paper 25,547 — 25,547 — Asset-backed securities 141,426 — 141,426 — Government, federal agency, and other sovereign obligations 7,947 — 7,947 — Liabilities Business acquisition liabilities 37,270 — — 37,270 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 . 69 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis 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 Range Weighted Average* Revenue risk premium 2.4 % - 4.9 % 3.0 % Revenue volatility 14.0 % - 15.8 % 14.8 % Discount rate 1.2 % - 8.5 % 3.3 % Projected year of payment 2022 - 2031 * 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, 2021 and 2020, respectively included the following: Year Ended December 31, (In thousands) 2021 2020 Beginning balance $ 37,270 $ 9,549 Purchase price contingent consideration 25,662 33,219 Contingent cash payments ( 6,753 ) ( 6,971 ) Contingent RSU grants ( 1,877 ) ( 191 ) Changes in fair value of business acquisition liabilities 16,597 2,674 Contractual payable reclassification ( 374 ) ( 1,010 ) Ending balance $ 70,525 $ 37,270 NOTE 7. INVENTORIES Inventories as of December 31, 2021 and 2020, respectively included the following: December 31, (In thousands) 2021 2020 Raw materials $ 41,819 $ 39,646 Work in process 17,401 16,446 Finished goods 177,781 173,061 Total inventories $ 237,001 $ 229,153 During years ended December 31, 2021, 2020, and 2019, net adjustments to cost of sales related to excess and obsolete inventory were $ 6.1 million, $ 17.7 million, and $ 2.5 million, respectively. The net adjustments for the years ended December 31, 2021, 2020, and 2019 reflect a combination of additional expense for excess and obsolete related provisions ($ 20.2 million, $ 27.4 million, and $ 11.2 million, respectively) offset by sales and disposals ($ 14.1 million, $ 9.7 million, and $ 8.7 million, respectively) of inventory for which an excess and obsolete provision was previously recorded. 70 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. PROPERTY AND EQUIPMENT Property and equipment as of December 31, 2021 and 2020, respectively included the following: Useful December 31, (In thousands) Life 2021 2020 Land — $ 8,296 $ 8,322 Buildings and improvements 31.5 44,672 33,825 Equipment 5 - 15 113,301 102,553 Instruments 5 285,762 278,930 Modules and cases 5 44,185 41,919 Other property and equipment 3 - 5 30,435 27,781 526,651 493,330 Less: accumulated depreciation ( 305,575 ) ( 276,451 ) Total $ 221,076 $ 216,879 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: Year Ended December 31, (In thousands) 2021 2020 2019 Depreciation $ 51,342 $ 46,043 $ 38,924 NOTE 9. GOODWILL AND INTANGIBLE ASSETS The change in the carrying amount of goodwill during the years ended December 31, 2021 and 2020, respectively included the following: (In thousands) December 31, 2019 $ 128,775 Additions and adjustments 26,043 Foreign exchange 1,898 December 31, 2020 156,716 Additions and adjustments 24,251 Foreign exchange ( 1,259 ) December 31, 2021 $ 179,708 Intangible assets as of December 31, 2021 included the following: December 31, 2021 (In thousands) Weighted Average Amortization Period (in years) Gross ‎ Carrying ‎ Amount Accumulated ‎ Amortization Intangible ‎ Assets, ‎ net Supplier network 10.0 $ 4,000 $ ( 2,867 ) $ 1,133 Customer relationships & other intangibles 6.4 56,264 ( 37,842 ) 18,422 Developed technology 8.0 71,947 ( 28,545 ) 43,402 Patents 16.1 8,938 ( 3,235 ) 5,703 Total intangible assets $ 141,149 $ ( 72,489 ) $ 68,660 71 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible assets as of December 31, 2020 included the following: December 31, 2020 (In thousands) Weighted Average Amortization Period (in years) Gross ‎ Carrying ‎ Amount Accumulated ‎ Amortization Intangible ‎ Assets, ‎ net Supplier network 10.0 $ 4,000 $ ( 2,467 ) $ 1,533 Customer relationships & other intangibles 6.5 57,704 ( 32,056 ) 25,648 Developed technology 8.0 72,644 ( 19,295 ) 53,349 Patents 16.1 9,082 ( 2,663 ) 6,419 Total intangible assets $ 143,430 $ ( 56,481 ) $ 86,949 The following table summarizes amortization of intangible assets for future periods as of December 31, 2021: (In thousands) Annual ‎ Amortization Year ending December 31: 2022 $ 18,358 2023 16,174 2024 13,190 2025 8,904 2026 5,461 Thereafter 6,573 Total $ 68,660 NOTE 10. ACCRUED EXPENSES Accrued expenses as of December 31, 2021 and 2020, respectively included the following: December 31, (In thousands) 2021 2020 Compensation and other employee-related costs $ 52,407 $ 44,948 Legal and other settlements and expenses 6,124 650 Accrued non-income taxes 6,415 4,952 Royalties 4,558 3,720 Rebates 8,725 8,011 Other 12,939 16,053 Total accrued expenses $ 91,168 $ 78,334 NOTE 11. DEBT Line of Credit 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 3, 2022 . The Revolving Credit Facility includes up to a $ 25.0 million sub limit for letters of credit. Revolving loans under the Credit Agreement will bear interest, at the Company’s option, at either a base rate or the Adjusted LIBOR Rate (as defined in the Credit Agreement), plus, in each case, an applicable margin, as determined in accordance with the provisions of the Credit Agreement. The base rate will be the highest of: the rate of interest announced publicly by Citizens Bank, N.A. from time to time as its “prime rate”; the federal funds effective rate plus 1/2 of 1 %; and the Adjusted LIBOR Rate for a one-month period plus 1 %. The applicable margin is subject to adjustment as provided in the Credit Agreement. The Credit Agreement contains financial and other customary covenants, including a maximum leverage ratio. As of December 31, 2021, we have no t borrowed under the Credit Agreement with Citizens Bank, N.A. 72 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. EQUITY 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, 2021, $ 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 the activity related to share repurchases: (In thousands except for per share prices) Period 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 1,920 $ 38.49 $ 73,902 $ 126,098 April 1, 2020 - June 30, 2020 771 39.95 30,804 95,294 July 1, 2020 - September 30,2020 — — — 95,294 October 1, 2020 - December 31, 2020 — — — 95,294 January 1, 2021 - March 31, 2021 — — — 95,294 April 1, 2021 - June 30, 2021 — — — 95,294 July 1, 2021 - September 30,2021 — — — 95,294 October 1, 2021 - December 31, 2021 — — — $ 95,294 January 1, 2020 - December 31, 2021 2,691 $ 38.91 $ 104,706 (1) Inclusive of an immaterial amount of commission fees Common Stock 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”) 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. Except for voting rights, the Class A Common and Class B Common have the same rights and privileges. 73 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO 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 years ended December 31, 2021 and 2020, 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, 2020 $ 5,001 $ ( 1,046 ) $ 3,955 Other comprehensive (loss)/income before reclassifications ( 7,922 ) ( 4,673 ) ( 12,595 ) Amounts reclassified from accumulated other comprehensive income, net of tax 1,868 — 1,868 Other comprehensive (loss)/income, net of tax ( 6,054 ) ( 4,673 ) ( 10,727 ) Accumulated other comprehensive loss, net of tax, at December 31, 2021 $ ( 1,053 ) $ ( 5,719 ) $ ( 6,772 ) (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 $ 3,599 $ ( 6,497 ) $ ( 2,898 ) Other comprehensive (loss)/income before reclassifications 1,827 5,451 7,278 Amounts reclassified from accumulated other comprehensive income, net of tax ( 425 ) — ( 425 ) Other comprehensive (loss)/income, net of tax 1,402 5,451 6,853 Accumulated other comprehensive loss, net of tax, at December 31, 2020 $ 5,001 $ ( 1,046 ) $ 3,955 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 operations and comprehensive income. Earnings 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: Year Ended December 31, (In thousands, except per share amounts) 2021 2020 2019 Numerator: Net income/(loss) $ 149,191 $ 102,285 $ 155,210 Denominator for basic and diluted net income per share: Weighted average shares outstanding for basic 100,734 98,580 99,150 Dilutive stock options 2,889 2,391 2,848 Weighted average shares outstanding for diluted 103,623 100,971 101,998 Earnings per share: Basic $ 1.48 $ 1.04 $ 1.57 Diluted $ 1.44 $ 1.01 $ 1.52 Anti-dilutive stock options and RSUs excluded from the calculation 2,139 5,454 4,494 NOTE 13. STOCK-BASED AWARDS We have three stock plans: our 2008 Stock Plan, our 2012 Equity Incentive Plan (the “2012 Plan”), our 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan is the only active stock plan. The purpose of the 2008 and 2012 stock plans was, and of the 2021 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 74 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) accordance with the terms of the Plans. 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. Under the 2012 Plan, the aggregate number of shares of Class A Common stock that were able to be issued subject to options and other awards is equal to the sum of (i) 3,076,923 shares, (ii) any shares available for issuance under the 2008 Plan as of March 13, 2012, (iii) any shares underlying awards outstanding under the 2008 Plan as of March 13, 2012 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares and (iv) starting January 1, 2013, an annual increase in the number of shares available under the 2012 Plan equal to up to 3 % of the number of shares of our common and preferred stock outstanding at the end of the previous year, as determined by our Board. The number of shares that were able to be issued or transferred pursuant to incentive stock options under the 2012 Plan was limited to 10,769,230 shares. The shares of Class A Common stock covered by the 2012 Plan included authorized but unissued shares, treasury shares or shares of common stock purchased on the open market. The 2021 Plan was approved by our Board in March 2021, and by our stockholders in June 2021. Under the 2021 Plan, the aggregate number of shares of Class A Common stock that were able to be issued subject to options and other awards is equal to the sum of (i) 2,000,000 shares, (ii) any shares available for issuance under the 2012 Plan as of June 3, 2021 and (iii) any shares underlying awards outstanding under the 2012 Plan or 2021 Plan as of June 3, 2021 that, on or after that date, are forfeited, terminated, expired or lapse for any reason, or are settled for cash without delivery of shares. The number of shares that may be issued or transferred pursuant to incentive stock options under the 2021 Plan is limited to 2,000,000 shares. The shares of Class A Common stock covered by the 2021 Plan include authorized but unissued shares, treasury shares or shares of common stock purchased on the open market. As of December 31, 2021, pursuant to the 2021 Plan, there were 2,845,575 shares of Class A Common stock reserved and 2,538,076 shares of Class A Common stock available for future grants. Stock Options Stock option activity during the year ended December 31, 2021 is summarized as follows: Option ‎ Shares (thousands) Weighted average exercise price Weighted ‎ average ‎ remaining ‎ contractual ‎ life (years) Aggregate ‎ intrinsic ‎ value ‎ (thousands) Outstanding at December 31, 2020 9,746 $ 41.33 Granted 2,164 68.12 Exercised ( 1,830 ) 34.73 Forfeited ( 618 ) 52.14 Outstanding at December 31, 2021 9,462 $ 48.01 7.0 $ 231,869 Exercisable at December 31, 2021 4,751 $ 39.46 5.9 $ 155,536 Expected to vest at December 31, 2021 4,711 $ 56.64 8.1 $ 76,334 The total intrinsic value of stock options exercised was $ 71.3 million, $ 76.1 million, and $ 31.3 million, during the years ended December 31, 2021, 2020, and 2019, 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: Year Ended December 31, 2021 2020 2019 Risk-free interest rate 0.40 % - 1.14 % 0.23 % - 1.67 % 1.35 % - 2.57 % Expected term (years) 4.8 4.9 5.0 Expected volatility 33.0 % - 34.0 % 28.0 % - 37.0 % 29.0 % Expected dividend yield —% —% —% The weighted average grant date fair value of stock options granted during the years ended December 31, 2021, 2020, and 2019 was $ 20.34 , $ 14.81 , and $ 13.76 per share, respectively. 75 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Restricted Stock Units Restricted stock unit activity during the year ended December 31, 2021 is summarized as follows: Restricted Stock ‎ Units (thousands) Weighted ‎ average ‎ grant date fair value ‎ per share Weighted ‎ average ‎ remaining ‎ contractual ‎ life (years) Outstanding at December 31, 2020 3 $ 58.69 Granted 26 74.33 Vested — — Forfeited — — Outstanding at December 31, 2021 29 $ 72.54 8.8 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: Year Ended December 31, (In thousands) 2021 2020 2019 Stock-based compensation expense $ 30,586 $ 27,073 $ 26,085 Net stock-based compensation capitalized into inventory 667 257 331 Total stock-based compensation cost $ 31,253 $ 27,330 $ 26,416 As of December 31, 2021, there was $ 62.0 million of unrecognized compensation expense related to unvested employee stock options that vest over a weighted average period of three years . NOTE 14. INCOME TAXES The components of income before income taxes are as follows: Year Ended December 31, (In thousands) 2021 2020 2019 Domestic $ 184,819 $ 154,356 $ 179,194 Foreign ( 4,412 ) ( 28,457 ) 10,752 Total $ 180,407 $ 125,899 $ 189,946 The components of the provision for income taxes are as follows: Year Ended December 31, (In thousands) 2021 2020 2019 Current: Federal $ 37,436 $ 22,183 $ 23,093 State 7,688 4,381 4,532 Foreign 3,741 991 2,819 48,865 27,555 30,444 Deferred: Federal ( 13,535 ) ( 3,293 ) 6,542 State ( 2,265 ) ( 678 ) ( 68 ) Foreign ( 1,849 ) 30 ( 2,182 ) ( 17,649 ) ( 3,941 ) 4,292 Total $ 31,216 $ 23,614 $ 34,736 76 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A reconciliation of the statutory U.S. federal tax rate to our effective rate is as follows: Year Ended December 31, 2021 2020 2019 Statutory U.S. federal tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 2.7 3.5 2.2 Foreign taxes 1.6 0.6 0.3 Valuation allowance 0.1 1.7 0.1 Domestic production activities deduction ( 0.3 ) ( 0.3 ) ( 0.6 ) Tax credits ( 1.5 ) ( 2.6 ) ( 2.6 ) Stock-based compensation windfall ( 6.6 ) ( 9.5 ) ( 2.5 ) Nondeductible expenses 0.5 0.5 0.3 Other ( 0.2 ) — 0.1 IPR&D — 3.9 — Effective tax rate 17.3 % 18.8 % 18.3 % Deferred income taxes reflect the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting purposes and tax purposes. Significant components of our deferred income taxes are as follows: December 31, (In thousands) 2021 2020 Deferred tax assets: Inventory reserve $ 29,417 $ 28,973 Accruals, reserves, and other currently not deductible 23,102 12,537 Stock-based compensation 16,167 14,297 Net operating loss carryforwards 3,812 4,269 Total deferred tax assets 72,498 60,076 Valuation allowance ( 6,594 ) ( 6,487 ) Total deferred tax assets, net of valuation allowance 65,904 53,589 Deferred tax liabilities: Depreciation and amortization ( 45,724 ) ( 53,176 ) Total deferred tax liabilities ( 45,724 ) ( 53,176 ) Net deferred tax assets/(liabilities) $ 20,180 $ 413 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 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, 2021 and 2020. The Company has established valuation allowances of $ 6.6 million and $ 6.5 million at December 31, 2021 and 2020, respectively, primarily related to the uncertainty of the utilization of certain deferred tax assets comprised of tax loss carryforwards in various jurisdictions. The increase in the valuation allowance during fiscal year 2021 is primarily driven by foreign deferred 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. As of December 31, 2021 and 2020, we have NOL carryforwards of $ 19.9 million and $ 26.1 million, respectively, which, if unused, will expire in years 2022 through 2037. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended December 31, (In thousands) 2021 2020 2019 Unrecognized tax benefits at the beginning of the year $ 1,600 $ 2,399 $ 4,777 Additions related to prior year tax positions 160 — — Reductions related to prior year tax positions ( 708 ) ( 799 ) ( 2,378 ) Unrecognized tax benefits at the end of the year $ 1,052 $ 1,600 $ 2,399 77 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The reduction s related to prior year tax positions for the year ended December 31, 2021 of $ 0.7 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: December 31, (In thousands) 2021 2020 2019 Portion of total unrecognized tax benefits that, if recognized, would affect the effective income tax rate $ 1,471 $ 2,032 $ 2,878 The Company intends to indefinitely reinvest its foreign earnings abroad to ensure sufficient working capital for further expansion of its existing operations outside the United States, therefore the Company has not recorded income taxes on the undistributed earnings of its foreign subsidiaries. The undistributed earnings of our foreign subsidiaries as of December 31, 2021 are immaterial. In the event we are required to repatriate funds from outside of the United States, such repatriation may be subject to local laws, customs, and tax consequences. Interest and penalties are recorded in the statement of income as provision for income taxes. The total interest and penalties recorded in the statement of income was immaterial for the years ended December 31, 2021, 2020, and 2019. We do not expect a significant change in our uncertain tax benefits in the next twelve months. We are subject to federal income tax as well as income tax of multiple state and foreign jurisdictions. With few exceptions, we are no longer subject to income tax examination by tax authorities in major jurisdictions for years prior to 2015 as of December 31, 2021. NOTE 15. LEASES The Company leases certain equipment, vehicles, and facilities under operating leases. Our leases have initial lease terms ranging from one year to 14 years. Certain leases contain options to extend terms beyond the 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 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, 2021, 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 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, 2021 and 2020, respectively are as follows: December 31, (In thousands, except weighted average lease term and discount rate) 2021 2020 Operating lease right of use asset $ 5,019 $ 4,741 Lease liability - current 2,116 1,865 Lease liability - long-term 2,937 2,936 Total operating lease liability $ 5,053 $ 4,801 Supplemental non-cash information: Weighted-average remaining lease term (years) - operating leases 1.8 2.9 Weighted-average discount rate - operating leases 2.7 % 3.0 % Operating Lease expense recognized in the consolidated statement of operations and comprehensive income was as follows: Year Ended December 31, (In thousands) 2021 2020 2019 Operating Lease Expense $ 3,373 $ 3,579 $ 3,174 78 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Future minimum lease payments under non-cancellable leases as of December 31, 2021 are as follows: (In thousands) Operating Leases 2022 $ 2,266 2023 1,531 2024 1,024 2025 393 2026 64 Thereafter 84 Total undiscounted operating lease payments $ 5,362 Less: imputed interest 309 Total operating lease liability $ 5,053 NOTE 16. COMMITMENTS AND CONTINGENCIES 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. 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 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. 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. Moskowitz Family LLC Litigation On November 20, 2019, Moskowitz Family LLC filed suit against us in the U.S. 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 ® , CORBEL ® , 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. 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. 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, 2021. NOTE 17. RETIREMENT BENEFIT PLANS We sponsor a 401(k) Plan covering all eligible U.S. employees. Under the 401(k) Plan, we make nondiscretionary matching contributions at the rate of 100 % of employee’s contributions up to a maximum annual contribution of $ 6,000 per eligible employee, limited to 3 % of the employee’s compensation for the period. Additionally, we contribute to various foreign retirement benefit plans required by local law or coordinated with government sponsored plans which cover many of our international employees. The benefits offered under these plans are reflective of local customs and practices in the countries concerned. Company contributions to these retirement plans were as follows: Year Ended December 31, (In thousands) 2021 2020 2019 401(k) and other retirement plan contributions $ 6,588 $ 5,798 $ 5,363 79 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 18. SEGMENT AND GEOGRAPHIC INFORMATION 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. 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 years ended December 31, 2021, 2020 and 2019, respectively: Year Ended December 31, (In thousands) 2021 2020 2019 United States $ 819,571 $ 664,454 $ 647,683 International 138,531 124,588 137,685 Total net sales $ 958,102 $ 789,042 $ 785,368 80 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.