| GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In the Annual Report on Form 10-K, unless the context otherwise requires, reference to "K2M," "the Company," "we," us," and "our," refer to K2M Group Holdings, Inc. together with its subsidiaries. Description of Business K2M Group Holdings, Inc. (the Company) was formed as a Delaware corporation on June 29, 2010. On July 2, 2010, K2M, Inc. (K2M), a company initially incorporated in 2004, entered into an Agreement and Plan of Merger (the Merger Agreement) with Altitude Group Holdings, Inc. (Altitude) and Altitude Merger Sub, Inc. (Merger Sub). Altitude was a newly formed corporation and an indirect wholly-owned subsidiary of Welsh, Carson, Anderson & Stowe XI, L.P., ("WCAS"). On August 12, 2010 (the Merger Date), upon the closing of the transactions under the Merger Agreement, Merger Sub merged with and into K2M with K2M being the surviving corporation of such merger (the Merger) and Altitude was renamed K2M Group Holdings, Inc. We are a global medical device company focused on designing, developing and commercializing innovative and proprietary complex spine technologies and techniques. Our complex spine products are used by spine surgeons to treat some of the most difficult and challenging spinal pathologies, such as deformity (primarily scoliosis), trauma, and tumor. We have applied our product development expertise in innovating complex spine technologies and techniques to the design, development, and commercialization of an expanding number of proprietary minimally invasive surgery, or MIS products. Our MIS products are designed to allow for less invasive access to the spine and faster patient recovery times as compared to traditional open access surgical approaches for both complex spine and degenerative spine pathologies. We have leveraged these core competencies in the design, development and commercialization of an increasing number of products for patients suffering from degenerative spinal conditions. Issuances of Common Stock and Use of Proceeds On May 13, 2014, we completed an initial public offering (IPO) of 8,825,000 shares of common stock at a price of $ 15 per share. The IPO generated net proceeds of $ 118,862 , after deducting underwriting commissions of $ 9,266 and expenses of approximately $ 4,283 . The underwriting commissions and offering costs were reflected as a reduction to the IPO proceeds received in additional paid-in capital. Concurrent with the closing of the IPO, the outstanding shares of the Series A redeemable convertible preferred stock (Series A Preferred) and Series B redeemable convertible preferred stock (Series B Preferred) were converted on a 2.43 -to- 1 basis into 5,577,016 shares of common stock. Following the closing of the IPO, there were no shares of preferred stock outstanding. Proceeds from the IPO were used to pay cumulative dividends of approximately $ 11,932 to holders of Series A Preferred and $ 6,615 to holders of Series B Preferred following the conversion of the preferred stock. In addition, we paid approximately $ 23,500 to repay all outstanding indebtedness under its line of credit and $ 40,495 to prepay all outstanding aggregate principal and accrued interest of notes to stockholders. In connection with the prepayment, we expensed $ 4,825 representing the acceleration of the issuance discounts on the notes to stockholders. On June 10, 2014, the underwriters purchased an additional 1,000,000 shares of common stock offered by selling stockholders at a price of $ 15.00 per share before underwriting discounts. We did not receive any proceeds from the sale of these shares. On February 2, 2015, we completed a second public offering of 6,044,990 shares of our common stock at a price of $ 18.75 per share. We sold 2,044,990 shares of common stock in the offering and selling stockholders sold 4,000,000 shares of common stock. We received net proceeds from the offering of approximately $ 35,400 after deducting the underwriting discount and offering expenses. On February 12, 2015, the underwriters purchased an additional 906,748 shares of common stock offered by selling stockholders at a price of $ 18.75 per share before underwriting discounts. We did not receive any proceeds from shares of common stock sold by the selling stockholders. On July 13, 2015, we completed an additional public offering of 4,500,000 shares of our common stock at a price of $ 22.60 per share. We sold 750,000 shares of common stock in the offering and selling stockholders sold 3,750,000 shares of common stock. We received net proceeds from the offering of approximately $ 16,300 after deducting the underwriting discount and estimated offering costs. We did not receive any proceeds from shares of common stock sold by the selling stockholders. On July 17, 2015, the underwriters purchased an additional 112,500 shares offered by us and 562,500 shares of common stock offered by the selling stockholders, at a price of $ 22.60 per share. We received net proceeds of approximately $ 2,400 after deducting underwriting discounts and estimated offering costs. We did not receive any proceeds from shares of common stock sold by the selling stockholders. We expect to use proceeds of the primary portion of these offerings for working capital and general corporate purposes which is expected to include the expansion of our global distribution network and the purchase of inventory to support sales efforts. Use of proceeds may also include the acquisition of or investment in complementary products, technologies or businesses. The principal purposes of the offerings were to facilitate an orderly distribution of shares by the selling stockholders and to increase the public float of our shares. Out-of-Period Adjustments In 2015, we recorded out-of-period adjustments impacting stock-based compensation and net inventories of which a majority related to stock-based compensation. The out-of-period adjustment related to stock-based compensation was to correct an error in the recognition of stock-based compensation expense related to performance based stock options we granted primarily in 2010 and 2011. Previously, we had deferred such recognition since the market condition associated with the grants had not been met but we now believe that, consistent with accounting guidance, the expense recognition should have commenced as of the date of our IPO in May 2014. The net impact of the adjustments in 2015 was to increase our net loss before taxes and net loss attributable to K2M by approximately $ 1,862 resulting in an increase in net loss per share of $ 0.05 . We have determined that the impact of the error on the originating periods was immaterial. Accordingly, a restatement of prior period amounts was not considered necessary. Principles of Consolidation The accompanying consolidated financial statements include our accounts and all of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Reclassifications In 2015, we have changed our presentation of goodwill and intangible assets on our consolidated balance sheets to present each separately. In prior periods these were presented and included in the line item goodwill and intangible assets, net. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Net Loss per Share Basic net loss per common share is determined by dividing the net loss allocable to common stockholders by the weighted average number of common shares outstanding during the periods presented, without consideration of common stock equivalents. Diluted loss per share is computed by dividing the net loss allocable to common stockholders by the weighted average number of shares of common stock and common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of our stock option grants and the if-converted method is used to determine the dilutive effect of Series A Preferred and Series B Preferred, until their conversion into common stock in May 2014. The weighted average shares used to calculate both basic and diluted loss per share are the same because common stock equivalents were excluded in the calculation of diluted loss per share because their effect would be anti-dilutive. Foreign Currency Translation and Other Comprehensive Loss Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our reporting currency is the U.S. dollar, which is also the functional currency of our domestic entities, while the functional currency of our foreign subsidiaries are the British Pound, Euro and Swiss Franc. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Net gains and losses resulting from the translation of foreign financial statements are recorded in other comprehensive income (loss). Net foreign currency gains or losses resulting from transactions in currencies other than the functional currencies are included in other expense, net on the consolidated statements of operations. Cash and Cash Equivalents We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Restricted Cash We classify cash as restricted when cash is unavailable for withdrawal or usage. Restrictions may include legally restricted deposits, contract bids or other contractual requirements, or our statements of intention with regard to particular deposits. Accounts Receivable Accounts receivable are reported in the consolidated balance sheets at outstanding amounts, less the allowance for doubtful accounts. We perform ongoing credit evaluations of certain customers and generally extends credit without requiring collateral. We periodically assesses the collectability of accounts receivable considering factors such as the specific evaluation of collectability, historical collection experience and economic conditions in individual markets and records an allowance for doubtful accounts for the estimated uncollectible amount as appropriate. Inventory Inventory consists primarily of finished goods and surgical instruments available for sale and is stated at the lower of cost or market using a weighted-average cost method. We review our inventory on a periodic basis for excess, obsolete, and impaired inventory and record a reserve for the identified items. Property, Plant and Equipment Property, plant and equipment are stated at cost net of accumulated depreciation and amortization. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is credited or charged to the consolidated statements of operations. Repairs and maintenance costs are expensed as incurred. Buildings under capital lease are recorded at the lower of the present value of the minimum lease payments under the lease agreement or the fair market value of the underlying assets under lease on the lease commencement date. Depreciation and amortization of property, plant and equipment is recorded using the straight-line method over the estimated useful lives of the respective assets or the lease term for buildings under capital lease. Amortization of leasehold improvements is recorded over the shorter of the life of the improvement or the remaining term of the lease using the straight-line method. Goodwill and Other Intangible Assets Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in connection with the Merger. We have concluded that the Company operates with one reporting unit. Goodwill is not amortized but evaluated annually or more frequently for impairment if impairment indicators exist. Such indicators include, but are not limited to (i) a significant adverse change in the business climate or environment, (ii) unanticipated competition, or (iii) adverse action or assessment by a regulator. Our annual impairment measurement date is November 1. We first assess qualitative factors before performing a quantitative assessment of the reporting unit. The qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company and specific reporting unit specifications. If after performing this assessment, we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we are required to perform a quantitative test. Our evaluation of goodwill completed during the years ended December 31, 2015 , 2014 , and 2013 resulted in no impairment loss. Our indefinite-lived intangible assets include trademarks and purchased in-process research and development (IPR&D) projects, which originated from the Merger and were measured at their respective estimated fair values as of the acquisition date. We also used a qualitative assessment for our indefinite lived intangible asset impairment testing. Our evaluation of indefinite-lived intangible assets completed during the years ended December 31, 2015 , 2014 and 2013 resulted in no impairment losses. Definite-lived intangible assets include licensed technology, developed technology, and customer relationships are amortized over estimated useful lives, which range from four to seven years. Patents and other are amortized over estimated useful lives which range from two to seventeen years. We recorded no impairment loss during the years ended December 31, 2015 , 2014 and 2013 . Other Assets Other long-term assets consist mainly of surgical instruments used primarily in the domestic and direct international distribution channels to implant our products. Surgical instruments are stated at cost less accumulated amortization. We amortize these instruments to cost of revenues over their estimated useful life. We provide surgical instruments to our customers for use to implant our products during a surgical procedure. Following completion of the procedure, the instruments are returned to us upon which we will sanitize the instrument and provide it to another customer. Impairment of Long-Lived Assets Long-lived assets, such as fixed assets and other definite lived intangible assets are reviewed for impairment whenever circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset may not be recoverable if it exceeds the sum of undiscounted cash flows expected to be generated by the asset. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its estimated fair value. Considerable management judgment is necessary to estimate undiscounted future cash flows. Accordingly, actual results could differ from such estimates. No events have been identified that caused an evaluation of the recoverability of the long-lived assets. Fair Value Measurements Fair value is defined in the fair value measurement accounting guidance as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, or exit price. Assets and liabilities subject to fair value measurements are required to be disclosed within a specified fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs or assumptions used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories based on the lowest level input used that is significant to a particular fair value measurement: Level 1 – Defined as observable inputs such as unadjusted quoted prices in active markets for identical assets. Level 2 – Defined as observable inputs other than Level 1 prices, such as quoted prices for similar assets, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Our cash and cash equivalents are subject to fair value measurements. In accordance with the hierarchy, the inputs used in measuring the fair value of the cash equivalents are considered to be Level 1. We apply the fair value measurement accounting guidance to non-financial assets upon the acquisition of businesses or in conjunction with the measurement of an impairment loss of a long-lived asset, goodwill or other intangible asset under the accounting guidance for impairments. Financial Instruments and Concentration of Credit Risk We consider the recorded costs of certain financial assets and liabilities, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to approximate their fair value because of relatively short maturities at December 31, 2015 and 2014 . The fair values of the capital lease obligation and other long-term liabilities approximated their respective carrying amounts as of December 31, 2015 and 2014 , based on rates and terms available to us at that time. Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents and accounts receivable. We maintain our cash balances with credit worthy financial institutions in the United States, and the balances may exceed, at times, the amount insured by the Federal Deposit Insurance Corporation. No single customer represented more than 10% of revenue for any period presented. Revenue Recognition Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenue in our direct markets is generated by making its products available to hospitals that purchase specific products for use in surgery on a case-by-case basis. Revenue from sales generated by use of products is recognized upon receipt of a delivered order confirming that our products have been used in a surgical procedure or following shipment and transfer of title to a hospital that purchases products in advance of a surgery. International sales outside of our direct markets are transacted with independent distributors, who then resell the products to their hospital customers. We recognize revenue upon shipment of our products to the international distributors, who accept title at point of shipment. Shipping and Handling Costs Shipping and handling costs are charged to sales and marketing expense in the consolidated statements of operations and amounted to $ 4,199 , $ 3,403 and $ 2,311 for the years ended December 31, 2015 , 2014 and 2013 , respectively. Advertising Costs Advertising costs are charged to sales and marketing expense as incurred in the consolidated statements of operations and amounted to $ 290 , $ 269 and $ 224 for the years ended December 31, 2015 , 2014 and 2013 , respectively. Research and Development We expense our research and development as incurred. Stock-Based Compensation We award stock-based compensation primarily in the form of stock options, restricted stock and RSUs. For stock options awarded, stock-based compensation is based on the fair value of such awards granted to employees using a Black-Scholes-Merton option pricing model and is expensed on a straight-line basis over the awards' vesting period, less awards expected to be forfeited using estimated forfeiture rates. For stock options awarded that include performance and market conditions, stock-based compensation is based on the fair value of such awards granted to employees using a Monte Carlo Simulation model and expensed beginning when the performance condition is met over the service period. No such options were awarded to employees subsequent to 2011. For restricted stock and RSUs awarded, the stock-based compensation is based on the fair value using the closing market share price of our common stock on the date of award and is expensed on a straight-line basis over the awards vesting period. We also recognize stock-based compensation for participation in our 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for a look-back option feature that gives an option to the participant to purchase our common stock at a discount to the market price for such stock. Our costs are recognized over the offering period based on the fair value of the option granted to participants as determined using a Black-Scholes-Merton option pricing model and the number of shares expected to be purchased at the end of the offering period. Income Taxes We account for income taxes using the liability method. 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, their respective tax bases and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable (receivable) for the period and the change during the period in deferred tax assets and liabilities. As prescribed by the accounting guidance, we use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of the tax benefits, as determined on a cumulative probability basis, that are more-likely-than-not to be realized upon ultimate settlement in the financial statements. We recognize interest and penalties related to income tax matters in income tax expense (benefit). Redeemable Convertible Preferred Stock Through their conversion in May 2014, we used the effective interest method to accrete the differences between the carrying value and the estimated redemption value of our preferred stock, such that the carrying value approximated the redemption value on the earliest possible redemption date. Loss Contingencies Evaluation of loss contingencies require significant judgment to estimate the amount and timing of recording a potential loss accrual in our consolidated financial statements. Such contingencies include, but are not limited to, product liability, intellectual property, litigation, regulatory proceedings; and other legal matters that arise from time to time in the ordinary course of business. We regularly assess uncertainty to determine the degree of probability and range of possible loss that will ultimately be resolved when one or more future events occur or fail to occur. We disclose information regarding each material claim where the likelihood of a loss contingency is probable, or reasonably possible and accrue for the loss when a reasonable estimate can be made. Based on such evaluation management believes that there are no claims or pending actions threatened against us, that are expected to have a material adverse effect on our financial position for the period ended December 31, 2015 . |
