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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 21, 2023, 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 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. • We tested the mathematical accuracy of management’s calculations. /s/ DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania February 21, 2023 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, 2022, 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, 2022, 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, 2022, of the Company and our report dated February 21, 2023, 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 21, 2023 ‎ 53 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (In thousands, except share and per share values) 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 150,466 $ 193,069 Short-term marketable securities 295,592 250,378 Accounts receivable, net of allowances of $ 4,724 and $ 4,962 , respectively 213,247 164,436 Inventories 298,981 237,001 Prepaid expenses and other current assets 20,997 18,417 Income taxes receivable 4,061 1,215 Total current assets 983,344 864,516 Property and equipment, net of accumulated depreciation of $ 343,036 and $ 305,575 , respectively 243,729 221,076 Long-term marketable securities 495,852 562,475 Intangible assets, net 63,574 68,660 Goodwill 197,471 179,708 Other assets 43,311 36,334 Deferred income taxes 48,845 24,494 Total assets $ 2,076,126 $ 1,957,263 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 36,101 $ 21,955 Accrued expenses 94,705 91,168 Income taxes payable 990 1,046 Business acquisition liabilities 13,308 11,770 Deferred revenue 14,100 12,025 Payable to broker — 2,200 Total current liabilities 159,204 140,164 Business acquisition liabilities, net of current portion 54,950 58,755 Deferred income taxes 1,779 4,314 Other liabilities 13,820 12,642 Total liabilities 229,753 215,875 Commitments and contingencies (Note 15) Equity: Class A common stock; $ 0.001 par value. Authorized 500,000,000 shares; issued and outstanding 77,762,282 and 79,113,916 shares at December 31, 2022 and December 31, 2021, respectively 78 79 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, 2022 and December 31, 2021, respectively 22 22 Additional paid-in capital 630,952 553,787 Accumulated other comprehensive income/(loss) ( 24,630 ) ( 6,772 ) Retained earnings 1,239,951 1,194,272 Total equity 1,846,373 1,741,388 Total liabilities and equity $ 2,076,126 $ 1,957,263 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) 2022 2021 2020 Net sales $ 1,022,843 $ 958,102 $ 789,042 Cost of goods sold 263,725 239,223 217,463 Gross profit 759,118 718,879 571,579 Operating expenses: Research and development 73,015 97,346 84,519 Selling, general and administrative 432,117 408,149 354,757 Provision for litigation 2,341 5,921 9 Amortization of intangibles 17,735 18,526 16,831 Acquisition related costs 5,959 16,984 4,030 Total operating expenses 531,167 546,926 460,146 Operating income/(loss) 227,951 171,953 111,433 Other income/(expense), net Interest income/(expense), net 14,233 9,297 13,952 Foreign currency transaction gain/(loss) ( 1,020 ) ( 1,423 ) ( 279 ) Other income/(expense) 1,855 580 793 Total other income/(expense), net 15,068 8,454 14,466 Income/(loss) before income taxes 243,019 180,407 125,899 Income tax provision 52,850 31,216 23,614 Net income/(loss) $ 190,169 $ 149,191 $ 102,285 Other comprehensive income/(loss), net of tax: Unrealized gain/(loss) on marketable securities ( 14,040 ) ( 6,054 ) 1,402 Foreign currency translation gain/(loss) ( 3,818 ) ( 4,673 ) 5,451 Total other comprehensive income/(loss), net of tax ( 17,858 ) ( 10,727 ) 6,853 Comprehensive income/(loss) $ 172,311 $ 138,464 $ 109,138 Earnings per share: Basic $ 1.89 $ 1.48 $ 1.04 Diluted $ 1.85 $ 1.44 $ 1.01 Weighted average shares outstanding: Basic 100,469 100,734 98,580 Diluted 102,643 103,623 100,971 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, 2021 79,114 $ 79 22,430 $ 22 $ 553,787 $ ( 6,772 ) $ 1,194,272 $ 1,741,388 Stock-based compensation — — — — 8,353 — — 8,353 Grant of restricted stock units — — — — 196 — — 196 Exercise of stock options 184 — — — 7,746 — — 7,746 Comprehensive income/(loss) — — — — — ( 10,395 ) 38,084 27,689 Balance at March 31, 2022 79,298 $ 79 22,430 $ 22 $ 570,082 $ ( 17,167 ) $ 1,232,356 $ 1,785,372 Stock-based compensation — — — — 8,020 — — 8,020 Grant of restricted stock units — — — — 220 — — 220 Exercise of stock options 90 — — — 3,585 — — 3,585 Comprehensive income/(loss) — — — — — ( 8,201 ) 54,590 46,389 Repurchase and retirement of common stock ( 2,351 ) ( 2 ) — — — — ( 144,491 ) ( 144,493 ) Balance at June 30, 2022 77,037 $ 77 22,430 $ 22 $ 581,907 $ ( 25,368 ) $ 1,142,455 $ 1,699,093 Stock-based compensation — — — — 8,434 — — 8,434 Grant of restricted stock units — — — — 1,116 — — 1,116 Exercise of stock options 364 — — — 14,895 — — 14,895 Comprehensive income/(loss) — — — — — ( 6,858 ) 47,431 40,573 Balance at September 30, 2022 77,401 $ 77 22,430 $ 22 $ 606,352 $ ( 32,226 ) $ 1,189,886 $ 1,764,111 Stock-based compensation — — — — 8,659 — — 8,659 Grant of restricted stock units — — — — 453 — — 453 Exercise of stock options 361 1 — — 15,488 — — 15,489 Comprehensive income/(loss) — — — — — 7,596 50,065 57,661 Balance at December 31, 2022 77,762 $ 78 22,430 $ 22 $ 630,952 $ ( 24,630 ) $ 1,239,951 $ 1,846,373 See accompanying notes to consolidated financial statements. 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, 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 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, 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. ‎ 58 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities: Net income $ 190,169 $ 149,191 $ 102,285 Adjustments to reconcile net income to net cash provided by operating activities: Acquired in-process research and development 150 34,312 24,418 Depreciation and amortization 68,252 69,867 62,874 Amortization of premium (discount) on marketable securities 5,389 2,781 587 Write-down for excess and obsolete inventories, net 6,400 6,143 17,741 Stock-based compensation expense 32,810 30,586 27,073 Allowance for doubtful accounts ( 1 ) 1,200 2,960 Change in fair value of business acquisition liabilities 5,132 16,807 2,674 Change in deferred income taxes ( 22,223 ) ( 17,615 ) ( 4,338 ) (Gain)/loss on disposal of assets, net 299 464 809 Payment of business acquisition related liabilities ( 2,647 ) ( 210 ) ( 700 ) (Increase)/decrease in: Accounts receivable ( 50,843 ) ( 25,895 ) 10,696 Inventories ( 61,745 ) ( 11,971 ) ( 50,111 ) Prepaid expenses and other assets ( 10,292 ) ( 6,178 ) ( 11,088 ) Increase/(decrease) in: Accounts payable 14,418 3,684 ( 6,352 ) Accrued expenses and other liabilities 6,087 17,896 17,608 Income taxes payable/receivable ( 2,887 ) 5,212 1,657 Net cash provided by/(used in) operating activities 178,468 276,274 198,793 Cash flows from investing activities: Purchases of marketable securities ( 419,534 ) ( 622,359 ) ( 223,540 ) Maturities of marketable securities 312,221 227,908 134,462 Sales of marketable securities 102,433 109,898 68,897 Purchases of property and equipment ( 74,047 ) ( 56,898 ) ( 63,658 ) Acquisition of businesses, net of cash acquired and purchases of intangible and other assets ( 31,435 ) ( 34,488 ) ( 33,483 ) Net cash provided by/(used in) investing activities ( 110,362 ) ( 375,939 ) ( 117,322 ) Cash flows from financing activities: Payment of business acquisition liabilities ( 7,185 ) ( 9,349 ) ( 6,316 ) Proceeds from exercise of stock options 41,716 63,496 72,322 Repurchase of common stock ( 144,493 ) — ( 104,669 ) Net cash provided by/(used in) financing activities ( 109,962 ) 54,147 ( 38,663 ) Effect of foreign exchange rates on cash ( 747 ) ( 810 ) 865 Net increase/(decrease) in cash and cash equivalents ( 42,603 ) ( 46,328 ) 43,673 Cash and cash equivalents at beginning of period 193,069 239,397 195,724 Cash and cash equivalents at end of period $ 150,466 $ 193,069 $ 239,397 Supplemental disclosures of cash flow information: Income taxes paid $ 77,823 $ 45,027 $ 25,437 Purchases of property and equipment included in accounts payable and accrued expenses $ 7,423 $ 4,551 $ 4,210 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 with a mission to improve the quality of life of patients with musculoskeletal disorders. We are primarily focused on implants that promote healing in patients with musculoskeletal disorders, including the use of a robotic guidance and navigation system and products to treat patients who have experienced orthopedic traumas. We are an engineering-driven company with a history of rapidly developing and commercializing advanced products and procedures to assist surgeons in effectively treating their patients and to address new treatment options. With over 230 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 2023 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. Any revenue related to the provision of maintenance and support is recognized as we satisfy the performance obligation. We use an observable price to determine the stand-alone selling price for each separate performance obligation. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Deferred revenue is comprised mainly of unearned revenue related to the sales of certain Enabling Technologies products, which includes maintenance and support services. Maintenance and support services are generally invoiced annually, at the beginning of each contract period, and revenue is recognized ratably over the maintenance period. For the years ended December 31, 2022, 2021, and 2020, 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, 2022, 2021, and 2020 , 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. (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, 2022 and 2021. 61 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 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. 62 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (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 or whenever events or circumstances indicate that a carrying amount may not be recoverable. Goodwill is tested for impairment at the reporting unit level by comparing the reporting unit’s carrying amount to the fair value of the reporting unit. Fair values are estimated using an income and discounted cash flow approach. We perform our annual impairment test of goodwill in the fourth quarter of each year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. During the years ended December 31, 2022, 2021, and 2020 , we did no t record any impairment charges related to goodwill. Intangible assets consist of purchased in-process research and development (“IPR&D”), developed technology, supplier network, patents, customer relationships, re-acquired rights, and non-compete agreements. Intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to twenty-one years . Intangible assets with finite useful lives are tested 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, 2022, 2021, and 2020 . IPR&D has an indefinite life and is not amortized until completion of the project at which time the IPR&D becomes an amortizable asset. Intangible assets with indefinite useful lives 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 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, 2022, 2021, and 2020 . (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, 2022, 2021, and 2020 , 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, as later extended by ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 , through December 31, 2024. 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 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. 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, 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 of $ 8.0 million contingent upon the developed product obtaining approval from the FDA 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, 65 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 the fourth quarter of 2022, the Company acquired the membership interests of Harvest Biologics LLC (the “Harvest Acquisition”), which engages in the business of selling systems that produce autologous biologics. The purchase price was a cash payment of $ 30 million, subject to post-closing adjustments, if applicable. The Company has included the financial results from the Harvest Acquisition in our consolidated financial statements from the acquisition date. At acquisition date, the preliminary fair value of the net assets acquired was $ 30.1 million. The purchase price consisted of approximately $ 30.0 million of cash paid at closing, plus $ 0.1 million of preliminary post-closing adjustments. The Company recorded identifiable net assets, based on their estimated fair values, for inventory of $ 3.0 million, goodwill of $ 14.2 million, customer relationships and other intangibles of $ 10.5 million with a weighted average useful life of 20 years, and developed technology of $ 2.4 million with a weighted average useful life of 8 years. The Company will finalize the purchase price allocation of the assets and liabilities acquired within one year from the date of acquisition. During the second quarter of 2022, the Company completed one acquisition that was not considered material to the consolidated financial statements during the periods presented. This acquisition has been included in the condensed consolidated financial statements from the date of acquisition. The purchase price consisted of approximately $ 0.2 million of cash paid at closing and $ 4.4 million of contingent consideration payments, resulting in goodwill of $ 4.6 million based on the estimated fair values. The contingent payments for this acquisition are based upon achieving various performance milestones over a period of 10 years and are payable in a combination of cash and RSUs. 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 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. NOTE 4. NET SALES The following table represents net sales by product category: Year Ended December 31, (In thousands) 2022 2021 2020 Musculoskeletal Solutions $ 926,703 $ 876,780 $ 748,446 Enabling Technologies 96,140 81,322 40,596 Total net sales $ 1,022,843 $ 958,102 $ 789,042 66 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, 2022 (In thousands) Amortized ‎ Cost Gross ‎ Unrealized ‎ Gains Gross Unrealized Losses Fair ‎ Value Short-term: Municipal bonds $ 83,279 $ 9 $ ( 1,680 ) $ 81,608 Corporate debt securities 187,174 2 ( 3,438 ) 183,738 Commercial paper 5,583 — ( 1 ) 5,582 Asset-backed securities 4,200 — ( 181 ) 4,019 Government, federal agency, and other sovereign obligations 21,102 1 ( 458 ) 20,645 Total short-term marketable securities $ 301,338 $ 12 $ ( 5,758 ) $ 295,592 Long-term: Municipal bonds $ 61,986 $ 44 $ ( 1,549 ) $ 60,481 Corporate debt securities 268,524 72 ( 8,947 ) 259,649 Asset-backed securities 120,929 217 ( 2,795 ) 118,351 Government, federal agency, and other sovereign obligations 58,453 18 ( 1,100 ) 57,371 Total long-term marketable securities $ 509,892 $ 351 $ ( 14,391 ) $ 495,852 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 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, 2022 and 2021, respectively. Purchases of marketable securities include amounts payable to brokers of $ 2.2 million as of December 31, 2021. Purchases of marketable securities included no amounts payable to brokers as of December 31, 2022. 67 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, 2022 and 2021, respectively included the following: (In thousands) Balance at December 31, 2022 Level 1 Level 2 Level 3 Assets: Cash equivalents $ 17,655 $ 17,655 $ — $ — Municipal bonds 142,089 — 142,089 — Corporate debt securities 443,387 — 443,387 — Commercial paper 5,582 — 5,582 — Asset-backed securities 122,370 — 122,369 — Government, federal agency, and other sovereign obligations 78,016 — 78,016 — Liabilities: Business acquisition liabilities 68,258 — — 68,258 (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 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 . 68 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 % 2.8 % Revenue volatility 14.0 % - 15.8 % 14.8 % Discount rate 5.9 % - 8.5 % 6.7 % Projected year of payment 2022 - 2032 * 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, 2022 and 2021, respectively included the following: Year Ended December 31, (In thousands) 2022 2021 Beginning balance $ 70,525 $ 37,270 Purchase price contingent consideration 4,414 25,662 Contingent cash payments ( 9,787 ) ( 6,753 ) Contingent RSU grants ( 1,986 ) ( 1,877 ) Changes in fair value of business acquisition liabilities 5,132 16,597 Contractual payable reclassification ( 40 ) ( 374 ) Ending balance $ 68,258 $ 70,525 NOTE 7. INVENTORIES Inventories as of December 31, 2022 and 2021, respectively included the following: December 31, (In thousands) 2022 2021 Raw materials $ 60,324 $ 41,819 Work in process 18,699 17,401 Finished goods 219,958 177,781 Total inventories $ 298,981 $ 237,001 During years ended December 31, 2022, 2021, and 2020, net adjustments to cost of sales related to excess and obsolete inventory were $ 6.4 million, $ 6.1 million, and $ 17.7 million, respectively. The net adjustments for the years ended December 31, 2022, 2021, and 2020 reflect a combination of additional expense for excess and obsolete related provisions ($ 18.5 million, $ 20.2 million, and $ 27.4 million, respectively) offset by sales and disposals ($ 12.1 million, $ 14.1 million, and $ 9.7 million, respectively) of inventory for which an excess and obsolete provision was previously recorded. 69 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, 2022 and 2021, respectively included the following: Useful December 31, (In thousands) Life 2022 2021 Land — $ 8,277 $ 8,296 Buildings and improvements 31.5 51,510 44,672 Equipment 5 - 15 148,803 113,301 Instruments 5 312,055 285,762 Modules and cases 5 48,023 44,185 Other property and equipment 3 - 5 18,097 30,435 586,765 526,651 Less: accumulated depreciation ( 343,036 ) ( 305,575 ) Total $ 243,729 $ 221,076 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) 2022 2021 2020 Depreciation $ 50,517 $ 51,342 $ 46,043 NOTE 9. GOODWILL AND INTANGIBLE ASSETS The change in the carrying amount of goodwill during the years ended December 31, 2022 and 2021, respectively included the following: (In thousands) December 31, 2020 $ 156,716 Additions and adjustments 24,251 Foreign exchange ( 1,259 ) December 31, 2021 179,708 Additions and adjustments 18,799 Foreign exchange ( 1,036 ) December 31, 2022 $ 197,471 Intangible assets as of December 31, 2022 included the following: December 31, 2022 (In thousands) Weighted Average Amortization Period (in years) Gross ‎ Carrying ‎ Amount Accumulated ‎ Amortization Intangible ‎ Assets, ‎ net Supplier network 10.0 $ 4,000 $ ( 3,267 ) $ 733 Customer relationships & other intangibles 8.7 62,324 ( 41,651 ) 20,673 Developed technology 8.0 75,087 ( 37,984 ) 37,103 Patents 16.1 8,885 ( 3,820 ) 5,065 Total intangible assets $ 150,296 $ ( 86,722 ) $ 63,574 70 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 The following table summarizes amortization of intangible assets for future periods as of December 31, 2022: (In thousands) Annual ‎ Amortization 2023 $ 16,894 2024 14,095 2025 9,810 2026 6,366 2027 4,647 Thereafter 11,762 Total $ 63,574 NOTE 10. ACCRUED EXPENSES Accrued expenses as of December 31, 2022 and 2021, respectively included the following: December 31, (In thousands) 2022 2021 Compensation and other employee-related costs $ 53,352 $ 52,407 Legal and other settlements and expenses 5,564 6,124 Accrued non-income taxes 10,029 6,415 Royalties 4,375 4,558 Rebates 10,501 8,725 Other 10,884 12,939 Total accrued expenses $ 94,705 $ 91,168 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 (as amended, the “Revolving Credit Facility”), and has a termination date of August 2, 2023 . 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 Daily Bloomberg Short-Term Bank Yield (“BSBY”) (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 Daily BSBY Rate 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, 2022, we have no t borrowed under the Revolving Credit Facility. 71 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. EQUITY Stock Repurchases On March 11, 2020, the Company announced a share repurchase program, which authorized the Company to repurchase up to $ 200 million of the Company’s Class A common stock. On March 4, 2022, the share repurchase program was expanded by authorizing the Company to repurchase an additional $ 200 million of the Company’s Class A common stock. The repurchase program has no time limit and may be suspended for periods or discontinued at any time. As of December 31, 2022, the Company has remaining authorization to repurchase a total of $ 150.8 million of Class A common stock. 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 of share repurchases is expected to come from operating cash flows and excess cash. Shares repurchased by the Company are accounted for under the constructive retirement method, in which the shares repurchased, are immediately retired, as there is no plan to reissue the 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, 2022 - March 31, 2022 — — — 295,294 April 1, 2022 - June 30, 2022 2,351 61.45 144,493 150,801 July 1, 2022 - September 30, 2022 — — — 150,801 October 1, 2022 - December 31, 2022 — — — $ 150,801 January 1, 2020 - December 31, 2022 5,042 $ 49.42 $ 249,199 (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. 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, 2022 and 2021, respectively: 72 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In thousands) Unrealized loss on marketable securities, net of tax Foreign currency translation adjustments Accumulated other comprehensive loss Accumulated other comprehensive income/(loss), net of tax, at December 31, 2021 $ ( 1,053 ) $ ( 5,719 ) $ ( 6,772 ) Other comprehensive income/(loss) before reclassifications ( 18,494 ) ( 3,818 ) ( 22,312 ) Amounts reclassified from accumulated other comprehensive income/(loss), net of tax 4,454 — 4,454 Other comprehensive income/(loss), net of tax ( 14,040 ) ( 3,818 ) ( 17,858 ) Accumulated other comprehensive income/(loss), net of tax, at December 31, 2022 $ ( 15,093 ) $ ( 9,537 ) $ ( 24,630 ) (In thousands) Unrealized loss on marketable securities, net of tax Foreign currency translation adjustments Accumulated other comprehensive loss Accumulated other comprehensive income/(loss), net of tax, at December 31, 2020 $ 5,001 $ ( 1,046 ) $ 3,955 Other comprehensive income/(loss) before reclassifications ( 7,922 ) ( 4,673 ) ( 12,595 ) Amounts reclassified from accumulated other comprehensive income/(loss), net of tax 1,868 — 1,868 Other comprehensive income/(loss), net of tax ( 6,054 ) ( 4,673 ) ( 10,727 ) Accumulated other comprehensive income/(loss), net of tax, at December 31, 2021 $ ( 1,053 ) $ ( 5,719 ) $ ( 6,772 ) 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) 2022 2021 2020 Numerator: Net income/(loss) $ 190,169 $ 149,191 $ 102,285 Denominator for basic and diluted net income per share: Weighted average shares outstanding for basic 100,469 100,734 98,580 Dilutive stock options and RSUs 2,174 2,889 2,391 Weighted average shares outstanding for diluted 102,643 103,623 100,971 Earnings per share: Basic $ 1.89 $ 1.48 $ 1.04 Diluted $ 1.85 $ 1.44 $ 1.01 Anti-dilutive stock options and RSUs excluded from the calculation 3,851 2,139 5,454 NOTE 13. STOCK-BASED AWARDS We have two stock plans: our 2012 Equity Incentive Plan (the “2012 Plan”) and our 2021 Equity Incentive Plan (the “2021 Plan”), together with the 2012 Plan, the “Plans”. The 2021 Plan is the only active stock plan. The purpose of the 2012 Plan 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 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. 73 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The 2012 Plan was approved by our Board in March 2012, and by our stockholders in June 2012. The 2012 Plan terminated as to new awards pursuant to its terms in 2022. Following effectiveness of the 2021 Plan, we have not issued any additional awards under the 2012 Plan; however, awards previously granted under the 2012 Plan remain outstanding and are administered by our Board under the terms and conditions of the 2012 Plan. 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 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, as amended to date, the aggregate number of shares of Class A Common that were able to be issued subject to options and other awards is equal to the sum of (i) 4,000,000 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 could be issued or transferred pursuant to incentive stock options under the 2021 Plan is limited to 4,000,000 shares. The shares of Class A Common 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, 2022, pursuant to the 2021 Plan, there were 5,687,725 shares of Class A Common stock reserved and 2,634,899 shares of Class A Common stock available for future grants. Stock Options Stock option activity during the year ended December 31, 2022 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, 2021 9,463 $ 48.01 Granted 2,736 64.06 Exercised ( 999 ) 41.78 Forfeited ( 862 ) 58.92 Outstanding at December 31, 2022 10,338 $ 51.86 6.8 $ 234,207 Exercisable at December 31, 2022 5,556 $ 44.38 5.6 $ 166,449 Expected to vest at December 31, 2022 4,782 $ 60.54 8.2 $ 67,758 The total intrinsic value of stock options exercised was $ 26.3 million, $ 71.3 million, and $ 76.1 million, during the years ended December 31, 2022, 2021, and 2020, respectively. The fair value of the options was estimated on the date of the grant using a Black-Scholes option pricing model with the following assumptions: Year Ended December 31, 2022 2021 2020 Risk-free interest rate 1.46 % - 4.04 % 0.40 % - 1.14 % 0.23 % - 1.67 % Expected term (years) 4.7 - 9.9 4.8 4.9 Expected volatility 33.0 % - 35.0 % 33.0 % - 34.0 % 28.0 % - 37.0 % Expected dividend yield —% —% —% The weighted average grant date fair value of stock options granted during the years ended December 31, 2022, 2021, and 2020 was $ 22.10 , $ 20.34 , and $ 14.81 per share, respectively. 74 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, 2022 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, 2021 29 $ 72.54 Granted 31 62.77 Vested — — Forfeited — — Outstanding at December 31, 2022 60 $ 67.40 7.8 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) 2022 2021 2020 Stock-based compensation expense $ 32,810 $ 30,586 $ 27,073 Net stock-based compensation capitalized into inventory 657 667 257 Total stock-based compensation cost $ 33,467 $ 31,253 $ 27,330 As of December 31, 2022, there was $ 76.0 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) 2022 2021 2020 Domestic $ 247,260 $ 184,819 $ 154,356 Foreign ( 4,241 ) ( 4,412 ) ( 28,457 ) Total $ 243,019 $ 180,407 $ 125,899 The components of the provision for income taxes are as follows: Year Ended December 31, (In thousands) 2022 2021 2020 Current: Federal $ 60,927 $ 37,436 $ 22,183 State 12,408 7,688 4,381 Foreign 1,845 3,741 991 75,180 48,865 27,555 Deferred: Federal ( 16,429 ) ( 13,535 ) ( 3,293 ) State ( 3,142 ) ( 2,265 ) ( 678 ) Foreign ( 2,759 ) ( 1,849 ) 30 ( 22,330 ) ( 17,649 ) ( 3,941 ) Total $ 52,850 $ 31,216 $ 23,614 75 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, 2022 2021 2020 Statutory U.S. federal tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 3.0 2.7 3.5 Foreign taxes 0.7 1.6 0.6 Valuation allowance ( 0.5 ) 0.1 1.7 Domestic production activities deduction — ( 0.3 ) ( 0.3 ) Tax credits ( 1.3 ) ( 1.5 ) ( 2.6 ) Stock-based compensation windfall ( 1.2 ) ( 6.6 ) ( 9.5 ) Nondeductible expenses — 0.5 0.5 Other — ( 0.2 ) — IPR&D — — 3.9 Effective tax rate 21.7 % 17.3 % 18.8 % 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) 2022 2021 Deferred tax assets: Inventory reserve $ 29,649 $ 29,417 Accruals, reserves, and other currently not deductible 27,608 23,102 Stock-based compensation 20,554 16,167 Capitalized R&E 14,279 — Net operating loss carryforwards 4,182 3,812 Total deferred tax assets 96,272 72,498 Valuation allowance ( 5,488 ) ( 6,594 ) Total deferred tax assets, net of valuation allowance 90,784 65,904 Deferred tax liabilities: Depreciation and amortization ( 43,718 ) ( 45,724 ) Total deferred tax liabilities ( 43,718 ) ( 45,724 ) Net deferred tax assets/(liabilities) $ 47,066 $ 20,180 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, 2022 and 2021. The Company has established valuation allowances of $ 5.5 million and $ 6.6 million at December 31, 2022 and 2021, respectively, primarily related to the uncertainty of the utilization of certain deferred tax assets comprised of tax loss carryforwards in various jurisdictions. The decrease in the valuation allowance during fiscal year 2022 is primarily driven by foreign deferred tax assets that are 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, 2022 and 2021, we have NOL carryforwards of $ 20.2 million and $ 19.9 million, respectively, which, if unused, will expire in years 2023 through 2039. 76 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended December 31, (In thousands) 2022 2021 2020 Unrecognized tax benefits at the beginning of the year $ 1,052 $ 1,600 $ 2,399 Additions related to prior year tax positions 50 160 — Reductions related to prior year tax positions ( 116 ) ( 708 ) ( 799 ) Unrecognized tax benefits at the end of the year $ 986 $ 1,052 $ 1,600 The reduction s related to prior year tax positions for the year ended December 31, 2022 of $ 0.1 million are primarily related to the resolution of certain foreign tax positions. The impact of our unrecognized tax benefits to the effective income tax rate is as follows: December 31, (In thousands) 2022 2021 2020 Portion of total unrecognized tax benefits that, if recognized, would affect the effective income tax rate $ 1,355 $ 1,471 $ 2,032 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, 2022 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, 2022, 2021, and 2020. 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 2016 as of December 31, 2022. NOTE 15. 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 six patents by making, using, offering for sale or selling the COALITION®, COALITION MIS®, COALITION AGX®, CORBEL®, MONUMENT®, MAGNIFY®-S, HEDRON IATM, HEDRON IC®, INDEPENDENCE®, INDEPENDENCE MIS®, INDEPENDENCE MIS AGX®, FORTIFY® and XPAND® families, SABLE®, RISE®, RISE® INTRALIF, RISE®-L, ELSA®, ELSA® ATP, ALTERA®, ARIEL®, CALIBER® and CALIBER®-L products. Moskowitz seeks monetary 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 no t recorded a liability related to this litigation as of December 31, 2022. 77 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. 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) 2022 2021 2020 401(k) and other retirement plan contributions $ 7,154 $ 6,588 $ 5,798 NOTE 17. 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, 2022, 2021 and 2020, respectively: Year Ended December 31, (In thousands) 2022 2021 2020 United States $ 871,939 $ 819,571 $ 664,454 International 150,904 138,531 124,588 Total net sales $ 1,022,843 $ 958,102 $ 789,042 NOTE 18. SUBSEQUENT EVENT On February 8, 2023, the Company and its wholly-owned subsidiary, Zebra Merger Sub, Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with NuVasive, Inc., a Delaware corporation (“NuVasive”). The Merger Agreement provides, among other things, that subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into NuVasive (the “Merger”), with NuVasive surviving the Merger as a wholly owned subsidiary of the Company. The transaction brings together these two technology companies in the musculoskeletal industry, which have a shared vision focused on innovation in a relentless pursuit of unmet clinical needs to improve patient care. Under the Merger Agreement, at the effective time of the Merger, each share of common stock, par value $ 0.001 per share, of NuVasive (“NuVasive Common Stock”) issued and outstanding immediately prior to the effective time (other than certain excluded shares as described in the Merger Agreement) will be cancelled and converted into the right to receive 0.75 fully paid and non-assessable shares of Class A common stock of Globus Medical, $ 0.001 par value per share (the “Globus Medical Class A Common Stock”), and the right to receive cash in lieu of fractional shares. Following the close of the transaction, NuVasive shareholders will own approximately 28 % of the combined company, and Globus Medical shareholders will own approximately 72 %, on a fully diluted basis. Either NuVasive or Globus Medical may terminate the Merger Agreement under certain circumstances described in the Merger Agreement, resulting in a termination fee payable to the other equal to $ 120 million or $ 75 million, depending on such circumstances. NuVasive will also be required to make a payment to Globus Medical equal to $ 60 million if the Merger Agreement is terminated because NuVasive’s stockholders fail to adopt the Merger Agreement and at the time of such failure, NuVasive’s board of directors has not changed its recommendation to its stockholders in favor of the Merger. 78 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The transaction is expected to close in the middle of 2023, subject to approval by both companies’ shareholders, regulatory approval, and other customary closing conditions. For additional information about the Merger Agreement, please refer to our Form 8-K filed on February 9, 2023 . No Offer or Solicitation This filing is not intended to and does not constitute an offer to subscribe for, buy or sell, or the solicitation of an offer to subscribe for, buy or sell, or a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, sale or solicitation would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law. Important Information About the Transaction and Where To Find It In connection with the proposed transaction, Globus Medical will file with the U.S. Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 that will include a joint proxy statement of Globus Medical and NuVasive and that will also constitute a prospectus of Globus Medical for shares of its class A common stock to be offered in the proposed transaction. Globus Medical and NuVasive may also file other documents with the SEC regarding the proposed transaction. This document is not a substitute for the joint proxy statement statement/prospectus or registration statement or any other document which Globus Medical or NuVasive may file with the SEC. INVESTORS AND SECURITY HOLDERS OF GLOBUS MEDICAL AND NUVASIVE ARE URGED TO READ THE REGISTRATION STATEMENT, WHICH WILL INCLUDE THE JOINT PROXY STATEMENT/PROSPECTUS, AND ANY OTHER RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND RELATED MATTERS. The registration statement, definitive joint proxy statement/ prospectus and other documents filed by Globus Medical and NuVasive with the SEC will be available free of charge at the SEC’s website (www.sec.gov) and from Globus Medical and NuVasive. Requests for copies of the joint proxy statement/ prospectus and other documents filed by Globus Medical with the SEC may be made by contacting Keith Pfeil, Chief Financial Officer by phone at (610) 930-1800 or by email at kpfeil@globusmedical.com, and request for copies of the joint proxy statement/prospectus and other documents filed by NuVasive may be made by contacting Matt Harbaugh, Chief Financial Officer, by phone at (858) 210-2129 or by email at investorrelations@nuvasive.com. Participants in the Solicitation Globus Medical, NuVasive, their respective directors and certain of their executive officers and other employees may be deemed to be participants in the solicitation of proxies from Globus Medical’s and NuVasive’s shareholders in connection with the proposed transaction. Information about the directors and executive officers of Globus Medical and their ownership of Globus Medical stock is set forth in Globus Medical’s annual report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 17, 2022 and its proxy statement for its 2022 annual meeting of stockholders, which was filed with the SEC on April 21, 2022. Information regarding NuVasive’s directors and executive officers is contained in NuVasive’s annual report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 23, 2022, and its proxy statement for its 2022 annual meeting of stockholders, which was filed with the SEC on March 30, 2022. Certain directors and executive officers of Globus Medical and NuVasive may have a direct or indirect interest in the transaction due to securities holdings, vesting of equity awards and rights to severance payments. Additional information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of Globus Medical’s and NuVasive’s shareholders in connection with the proposed transaction will be included in the joint proxy statement/prospectus. These documents can be obtained free of charge from the sources indicated above. Cautionary Notes on Forward-Looking Statements This Form 10-K contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “may,” “target,” and similar expressions and variations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed transaction and the anticipated benefits thereof. These and other forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements, including the failure to consummate the proposed transaction or to make any filing or take other action required to consummate such transaction in a timely matter or at all. Important risk factors that may cause such a difference include, but are not limited to: (i) the proposed transaction may not be completed on anticipated terms and timing, (ii) a condition to closing of the transaction may not be satisfied, including obtaining shareholder and regulatory approvals, (iii) the anticipated tax treatment of the transaction may not be 79 Table of Contents GLOBUS MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) obtained, (iv) the potential impact of unforeseen liabilities, future capital expenditures, revenues, costs, expenses, earnings, synergies, economic performance, indebtedness, financial condition and losses on the future prospects, business and management strategies for the management, expansion and growth of the combined business after the consummation of the transactions, (v) potential litigation relating to the proposed transaction that could be instituted against Globus Medical, NuVasive or their respective directors, (vi) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transactions, (vii) any negative effects of the announcement, pendency or consummation of the transactions on the market price of Globus Medical’s or NuVasive’s common stock and on Globus Medical’s or NuVasive’s businesses or operating results, (viii) risks associated with third party contracts containing consent and/or other provisions that may be triggered by the proposed transaction, (ix) the risks and costs associated with the integration of, and the ability of Globus Medical and NuVasive to integrate, their businesses successfully and to achieve anticipated synergies, (x) the risk that disruptions from the proposed transaction will harm Globus Medical’s or NuVasive’s business, including current plans and operations, (xi) the ability of Globus Medical or NuVasive to retain and hire key personnel and uncertainties arising from leadership changes, (xii) legislative, regulatory and economic developments, and (xiii) the other risks described in Globus Medical’s and NuVasive’s most recent annual reports on Form 10-K and quarterly reports on Form 10-Q. These risks, as well as other risks associated with the proposed transaction, will be more fully discussed in the joint proxy statement/prospectus that will be included in the registration statement on Form S-4 that will be filed with the SEC in connection with the proposed transaction. While the list of factors presented here is, and the list of factors to be presented in the registration statement on Form S-4 are, considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Globus Medical’s or NuVasive’s consolidated financial condition, results of operations, credit rating or liquidity. Neither Globus Medical nor NuVasive assumes any obligation to publicly provide revisions or updates to any forward looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. 80 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.