XML 34 R18.htm IDEA: XBRL DOCUMENT
v3.22.4

Share-Based Compensation | 12 Months Ended
--- | ---
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | SHARE-BASED COMPENSATION Stock Plans 2010 Incentive Award Plan. In April 2010, the Company’s stockholders approved the 2010 Incentive Award Plan (“2010 Plan”). Under this plan, the Company can issue RSUs, nonqualified stock options (“NSOs”), and PSUs to employees, non-employee directors, and consultants. Equity awards granted to employees and non-employee directors include a mix of RSUs, stock options, and, as applicable, PSUs. The 2010 Plan generally permits NSOs to be granted at no less than the fair market value of the common stock on the date of grant. Prior to 2022, NSOs were granted with terms of 10 years from the date of the grant. Beginning in 2022, the Company changed the term of its new NSO grants to 7 years from the date of the grant. The 2010 Plan expires in 2032. In April 2022, the Company’s shareholders approved an amended and restated 2010 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 December 31, 2022, approximately 27.2 million shares were reserved for future issuance under the 2010 Plan. A maximum of approximately 11.8 million of these shares can be awarded as RSUs. 2009 Employment Commencement Incentive Plan. In October 2009, the Board adopted the 2009 Employment Commencement Incentive Plan (“New Hire Plan”). The New Hire Plan provides for the shares to be used exclusively for the grant of RSUs and NSOs to new employees (“New Hire Options”), who were not previously employees or non-employee directors of the Company. The Compensation Committee approves all equity awards under the New Hire Plan, which are granted to newly-hired employees once a month on the fifth business day of each month after their hire. Options are granted at an exercise price not less than the fair market value of the stock on the date of grant and have a term not to exceed 10 years. In April 2015, the Board of Directors amended and restated the New Hire Plan to provide for an increase in the number of shares of common stock authorized for issuance pursuant to awards granted under the New Hire Plan from 10,395,000 to 13,095,000. The New Hire Plan expired in October 2019 and, therefore, there are no shares reserved for future grants under the New Hire Plan. However, awards granted prior to the plan’s expiration continue to remain outstanding until their original expiration date. Restricted Stock Units. The RSUs granted to employees vest in one-fourth increments annually over a four-year period. The RSUs granted to existing non-employee directors vest one year from the date of grant or at the next Annual Shareholders Meeting, whichever comes first. New non-employee directors receive pro-rated RSU grants that vest on the same term as the annual RSU grants. The number of shares issued on the date the RSUs vest is net of the minimum statutory tax withholdings, which are paid in cash to the appropriate taxing authorities on behalf of the Company’s employees. Nonqualified Stock Options. Prior to 2020, annual NSO grants were made to employees on February 15 (or the next business day if the date is not a business day) and on August 15 (or the next business day if the date is not a business day). Beginning in 2020, the Company changed the timing of its annual equity award grants to the last trading day of February and on the same date in August or, if that date is not a trading day, the next trading day. The February NSO grants vest 1/8 upon completion of 6 months of service and 1/48 per month thereafter. The August NSO grants vest 7/48 at the end of one month and 1/48 per month thereafter through a 3.5-year vesting period. NSOs granted to new hires generally vest 1/4 upon completion of one year of service and 1/48 per month thereafter. NSOs granted to existing non-employee directors vest one year from the date of grant or at the next Annual Shareholders Meeting, whichever comes first. New non-employee directors receive pro-rated NSO grants that vest on the same term as the annual NSO grants. Option vesting terms are determined by the Board and, in the future, may vary from past practices. Performance Stock Units. Beginning in 2022, the Company granted PSUs to officers and other key employees, which are designed to provide further incentives for the achievement of the Company’s long-term objectives. The PSUs are 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 metrics that directly align with or help drive the Company’s strategy and long-term total shareholder return. 2000 Non-Employee Directors’ Stock Option Plan. In March 2000, the Board of Directors adopted the 2000 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”). In October 2009, the automatic evergreen increase provisions were eliminated so that no further automatic increases would be made to the number of shares reserved for issuance under the Directors’ Plan. In addition, the common stock authorized for issuance under the Directors’ Plan was reduced to 1,350,000. Options are granted at an exercise price not less than the fair market value of the stock on the date of grant and have a term not to exceed 10 years. Prior to 2016, initial stock option grants to new non-employee directors vested over a three-year period with 1/3 of the shares vesting after one year from the date of grant and 1/36 of the shares vesting monthly thereafter. Annual stock option grants vested one year from the date of the grant. Since 2016, new non-employee directors received pro-rated stock option grants that vest on the same term as the annual stock option grants. The Directors’ Plan was terminated in November 2020 and, therefore, there are no shares reserved for future grants under the Directors’ Plan. However, options granted prior to the plan’s termination continue to remain outstanding until their original expiration date. 2000 Employee Stock Purchase Plan. In March 2000, the Board adopted the ESPP. Employees are generally eligible to participate in the ESPP if they are customarily employed by the Company for more than 20 hours per week and more than 5 months in a calendar year and are not 5% stockholders of the Company. Under the ESPP, eligible employees may select a rate of payroll deduction up to 15% of their eligible compensation subject to certain maximum purchase limitations. The duration for each offering period is 24 months and is divided into four purchase periods of approximately six months in length. Offerings are concurrent. The purchase price of the shares under the offering is the lesser of 85% of the fair market value of the shares on the offering date or 85% of the fair market value of the shares on the purchase date. A two-year look-back feature in the ESPP causes the offering period to reset if the fair value of the Company’s common stock on the first or last day of the purchase period is less than that on the original offering date. ESPP purchases by employees are settled with newly-issued common stock from the ESPP’s previously authorized and available pool of shares. In April 2017, the Company’s stockholders approved an amended and restated ESPP to provide for an increase in the number of shares of common stock reserved for issuance from 18,270,945 to 22,770,945. As of December 31, 2022, there were approximately 2.4 million share s reserved for future issuance under the ESPP. Restricted Stock Units RSU activity for the year ended December 31, 2022, was as follows (in millions, except per share amounts):
| Shares |  | Weighted-Average Grant Date Fair Value Per Share
Unvested balance as of December 31, 2021 | 4.8 |  |  | $ | 207.37 |
Granted | 2.0 |  |  | $ | 272.97 |
Vested | (1.9) |  |  | $ | 191.19 |
Forfeited | (0.3) |  |  | $ | 235.38 |
Unvested balance as of December 31, 2022 | 4.6 |  |  | $ | 241.47 |
As of December 31, 2022, 4.2 million shares of RSUs were expected to vest with an aggregate intrinsic value of $1.12 billion. The aggregate vesting date fair value of RSUs vested was $536 million, $578 million, and $478 million during the years ended December 31, 2022, 2021, and 2020, respectively. Stock Options NSO activity during 2022 under all of the stock plans was 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 | 1.2 |  |  | $ | 249.62 |
Options exercised | (1.9) |  |  | $ | 77.59 |
Options forfeited/expired | (0.2) |  |  | $ | 240.02 |
Balance as of December 31, 2022 | 10.8 |  |  | $ | 144.86 |
The aggregate intrinsic value of stock options exercised under the Company’s stock plans determined as of the date of option exercise was $315 million, $613 million, and $598 million during the years ended December 31, 2022, 2021, and 2020, respectively. Cash received from option exercises and employee stock purchase plans for the years ended December 31, 2022, 2021, and 2020, was $234 million, $276 million, and $309 million, respectively. The income tax benefit from stock options exercised was $70 million for the year ended December 31, 2022. The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2022 (number of shares and aggregate intrinsic value in millions):
|  | Options Outstanding |  | Options Exercisable
Range of Exercise Prices |  | Number of Shares |  | Weighted-Average Remaining Contractual Life |  | Weighted-Average Exercise Price Per Share |  | Aggregate Intrinsic Value (1) |  | Number of Shares |  | Weighted-Average Remaining Contractual Life |  | Weighted-Average Exercise Price Per Share |  | Aggregate Intrinsic Value (1)
$29.91-$49.34 |  | 1.1 |  |  | 0.9 |  | $ | 45.33 |  |  |  |  | 1.1 |  |  |  |  | $ | 45.33 |  |  |
$51.02-$59.23 |  | 1.5 |  |  | 2.1 |  | $ | 55.61 |  |  |  |  | 1.5 |  |  |  |  | $ | 55.61 |  |  |
$59.46-$77.00 |  | 1.4 |  |  | 2.6 |  | $ | 67.23 |  |  |  |  | 1.4 |  |  |  |  | $ | 67.23 |  |  |
$77.04-$139.52 |  | 1.4 |  |  | 4.6 |  | $ | 108.37 |  |  |  |  | 1.4 |  |  |  |  | $ | 108.37 |  |  |
$143.49-$174.26 |  | 1.3 |  |  | 6.1 |  | $ | 168.86 |  |  |  |  | 1.2 |  |  |  |  | $ | 168.99 |  |  |
$175.53-$182.83 |  | 1.2 |  |  | 6.6 |  | $ | 179.92 |  |  |  |  | 1.0 |  |  |  |  | $ | 180.26 |  |  |
$182.90-$242.34 |  | 1.3 |  |  | 7.1 |  | $ | 219.80 |  |  |  |  | 0.6 |  |  |  |  | $ | 224.29 |  |  |
$243.26-$290.33 |  | 1.1 |  |  | 7.2 |  | $ | 268.20 |  |  |  |  | 0.4 |  |  |  |  | $ | 261.46 |  |  |
$292.49-$341.16 |  | — |  |  | 6.8 |  | $ | 311.17 |  |  |  |  | — |  |  |  |  | $ | 330.70 |  |  |
$347.42-$347.42 |  | 0.5 |  |  | 8.6 |  | $ | 347.42 |  |  |  |  | 0.2 |  |  |  |  | $ | 347.42 |  |  |
Total |  | 10.8 |  |  | 4.7 |  | $ | 144.87 |  |  | $ | 1,354 |  |  | 8.8 |  |  | 4.2 |  | $ | 121.60 |  |  | $ | 1,292 |
(1)The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $265.35 as of December 31, 2022, which would have been received by the option holders had all in-the-money option holders exercised their options as of that date. As of December 31, 2022, a total of 10.6 million shares of stock options vested and expected to vest had a weighted-average remaining contractual life of 4.7 years, an aggregate intrinsic value of $1.35 billion, and a weighted-average exercise price of $143.06. Performance Stock Units The 2022 PSU grant metrics are focused on relative total shareholder return (“TSR”), year-over-year da Vinci procedure growth for 2023, and two-year compound annual da Vinci procedure growth for 2024. TSR is considered a market condition, and the expense is determined at the grant date. The two procedure growth goals are considered performance conditions, and the expense is recorded based on the forecasted performance, which is 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. PSU activity during 2022 was as follows (in millions, except per share amounts):
| Shares |  | Weighted-Average Grant Date Fair Value Per Share
Unvested balance as of December 31, 2021 | — |  |  | $ | — |
Granted | 0.1 |  |  | $ | 299.32 |
Vested | — |  |  | $ | — |
Performance change | — |  |  | $ | — |
Forfeited | — |  |  | $ | — |
Unvested balance as of December 31, 2022 | 0.1 |  |  | $ | 299.32 |
As of December 31, 2022, 0.1 million shares of PSUs were expected to vest with an aggregate intrinsic value of $18 million. Employee Stock Purchase Plan Under the ESPP, employees purchased approximately 0.4 million, 0.5 million, and 0.5 million shares, representing a pproximately $87.9 million, $75.9 million, and $71.2 million in employee contributions for the years ended December 31, 2022, 2021, and 2020, respectively. Share-Based Compensation Expense The following table summarizes share-based compensation expense (in millions):
| Years Ended December 31,
| 2022 |  | 2021 |  | 2020
Cost of revenue—product | $ | 67.6 |  |  | $ | 68.9 |  |  | $ | 58.9 |
Cost of revenue—service | 23.6 |  |  | 22.2 |  |  | 24.0 |
Total cost of revenue | 91.2 |  |  | 91.1 |  |  | 82.9 |
Selling, general and administrative | 261.1 |  |  | 231.6 |  |  | 202.2 |
Research and development | 164.2 |  |  | 134.1 |  |  | 113.6 |
Share-based compensation expense before income taxes | 516.5 |  |  | 456.8 |  |  | 398.7 |
Income tax benefit | 101.7 |  |  | 93.7 |  |  | 81.4 |
Share-based compensation expense after income taxes | $ | 414.8 |  |  | $ | 363.1 |  |  | $ | 317.3 |
The Black-Scholes-Merton 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, the rights to acquire stock under the ESPP, and RSUs, as well as the weighted-average assumptions used in calculating the fair values of stock options and rights to acquire stock under the ESPP that were granted during the years ended December 31, 2022, 2021, and 2020, were as follows:
| Years Ended December 31,
| 2022 |  | 2021 |  | 2020
RSUs |  |  |  |  |
Fair value at grant date | $272.97 |  | $256.52 |  | $181.89
STOCK OPTIONS |  |  |  |  |
Risk-free interest rate | 2.6% |  | 0.8% |  | 0.6%
Expected term (in years) | 3.2 |  | 4.1 |  | 4.1
Expected volatility | 38% |  | 32% |  | 32%
Fair value at grant date | $73.65 |  | $78.23 |  | $54.34
PSUs |  |  |  |  |
Fair value at grant date | $299.32 |  | $— |  | $—
ESPP |  |  |  |  |
Risk-free interest rate | 2.1% |  | 0.1% |  | 0.9%
Expected term (in years) | 1.2 |  | 1.2 |  | 1.2
Expected volatility | 39% |  | 29% |  | 30%
Fair value at grant date | $80.61 |  | $89.98 |  | $57.29
As share-based compensation expense recognized in the Consolidated Statements of Income during the years ended December 31, 2022, 2021, and 2020, is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. As of December 31, 2022, there was $700 million, $121 million, $15 million, and $65 million of total unrecognized compensation expense related to unvested restricted stock units, unvested stock options, unvested performance stock units, and rights granted to acquire common stock under the ESPP, respectively. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.3 years for unvested restricted stock units, 2.4 years for unvested stock options, 2.2 years for unvested performance stock units, and 1.5 years for rights granted to acquire common stock under the ESPP.

X
- Definition The entire disclosure for share-based payment arrangement. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI https://asc.fasb.org/topic&trid=2228938 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (l) -URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901 Reference 4: http://www.xbrl.org/2003/role/exampleRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a)(1) -URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (h)(2)(i) -URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (h)(2) -URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901 + Details
Name: | us-gaap_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_DisclosureOfCompensationRelatedCostsSharebasedPaymentsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration