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SHARE-BASED COMPENSATION | 9 Months Ended
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Sep. 30, 2022
Share-Based Payment Arrangement [Abstract] |
SHARE-BASED COMPENSATION | SHARE-BASED COMPENSATION In April 2022, the Company’s shareholders approved an amended and restated 2010 Incentive Award Plan to provide for an increase in the number of shares of common stock reserved for issuance thereunder from 103,350,000 to 110,350,000. As of September 30, 2022, approximately 27.4 million shares were reserved for future issuance under the Company’s stock plans. A maximum of approximately 11.9 million of these shares can be awarded as restricted stock units (“RSUs”). Stock Options Information A summary of stock option activity under all stock plans for the nine months ended September 30, 2022, is presented as follows (in millions, except per share amounts):
|  | Stock Options Outstanding
|  | Number Outstanding |  | Weighted-Average Exercise Price Per Share
Balance as of December 31, 2021 |  | 11.7 |  |  | $ | 125.07 |
Options granted |  | 1.1 |  |  | $ | 250.26 |
Options exercised |  | (1.4) |  |  | $ | 76.22 |
Options forfeited/expired |  | (0.1) |  |  | $ | 236.30 |
Balance as of September 30, 2022 |  | 11.3 |  |  | $ | 141.78 |
As of September 30, 2022, options to purchase an aggregate of 9.1 million shares of common stock were exercisable at a weighted average price of $115.73 per share. Restricted Stock Units Information A summary of RSUs activity under all stock plans for the nine months ended September 30, 2022, is presented as follows (in millions, except per share amounts):
| Shares |  | Weighted-Average Grant-Date Fair Value
Unvested balance as of December 31, 2021 | 4.8 |  |  | $ | 207.37 |
RSUs granted | 1.9 |  |  | $ | 276.28 |
RSUs vested | (1.8) |  |  | $ | 189.31 |
RSUs forfeited | (0.2) |  |  | $ | 232.59 |
Unvested balance as of September 30, 2022 | 4.7 |  |  | $ | 241.87 |
Performance Share Units Beginning in 2022, in addition to RSUs and stock options, the Company granted performance share units (“PSUs”) to officers and other key employees subject to three-year cliff vesting and pre-established, quantitative goals. Whether any PSUs vest, and the amount that does vest, is tied to completion of service over three years and the achievement of three equally-weighted, quantitative goals that directly align with or help drive the Company’s strategy and long-term total shareholder return. The metrics are focused on relative total shareholder return (“TSR”), year-over-year procedure growth for 2023, and two-year compound annual procedure growth for 2024. TSR is considered a market condition, and the expense is determined at the grant date. This expense will not be adjusted even if the market condition is not met. The two procedure growth goals are considered performance conditions, and the expense is recorded over the vesting period based on the forecasted performance, which will be reassessed each reporting period based on the probability of achieving the two performance conditions. The number of shares earned at the end of the three-year period will vary, based on actual performance, from 0% to 125% of the target number of PSUs granted. PSUs are subject to forfeiture if employment terminates prior to the vesting date. PSUs are not considered issued or outstanding shares of the Company. The Company calculates the fair value for each component of the PSUs individually. The fair value for the component with the TSR metric was determined using Monte Carlo simulation. The fair value per share for the components with the procedure growth metrics is equal to the closing stock price on the grant date. As part of the Company’s annual grant in 2022, 0.1 million PSUs were granted at a weighted-average grant-date fair value of $299.32. Employee Stock Purchase Plan Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately 0.4 million shares for $87.9 million and approximately 0.5 million shares for $75.9 million during the nine months ended September 30, 2022, and 2021, respectively. Share-based Compensation Expense The following table summarizes share-based compensation expense for the three and nine months ended September 30, 2022, and 2021 (in millions):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of sales–products | $ | 22.0 |  |  | $ | 19.0 |  |  | $ | 61.0 |  |  | $ | 50.9 |
Cost of sales–services | 6.3 |  |  | 6.0 |  |  | 17.7 |  |  | 16.9 |
Total cost of sales | 28.3 |  |  | 25.0 |  |  | 78.7 |  |  | 67.8 |
Selling, general, and administrative | 68.0 |  |  | 62.5 |  |  | 191.0 |  |  | 171.3 |
Research and development | 42.3 |  |  | 35.4 |  |  | 117.6 |  |  | 98.1 |
Share-based compensation expense before income taxes | 138.6 |  |  | 122.9 |  |  | 387.3 |  |  | 337.2 |
Income tax benefit | 26.9 |  |  | 24.8 |  |  | 75.0 |  |  | 67.9 |
Share-based compensation expense after income taxes | $ | 111.7 |  |  | $ | 98.1 |  |  | $ | 312.3 |  |  | $ | 269.3 |
The Black-Scholes option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans and rights to acquire stock granted under the ESPP. The weighted-average estimated fair values of stock options and the rights to acquire stock under the ESPP, as well as the weighted-average assumptions used in calculating the fair values of stock options and the rights to acquire stock under the ESPP that were granted during the three and nine months ended September 30, 2022, and 2021, were as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Stock Options |  |  |  |  |  |  |
Risk-free interest rate | 3.4% |  | 0.8% |  | 2.5% |  | 0.8%
Expected term (in years) | 3.0 |  | 3.8 |  | 3.2 |  | 4.1
Expected volatility | 42% |  | 31% |  | 38% |  | 32%
Fair value at grant date | $66.00 |  | $87.35 |  | $73.51 |  | $78.17
ESPP |  |  |  |  |  |  |
Risk-free interest rate | 2.9% |  | 0.1% |  | 2.1% |  | 0.1%
Expected term (in years) | 1.2 |  | 1.2 |  | 1.2 |  | 1.2
Expected volatility | 40% |  | 29% |  | 39% |  | 29%
Fair value at grant date | $75.01 |  | $91.07 |  | $80.61 |  | $89.98

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