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Stock-Based Compensation | 9 Months Ended
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Sep. 02, 2022
Share-based Payment Arrangement [Abstract] |
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION Restricted Stock Units Restricted stock unit activity for the nine months ended September 2, 2022 was as follows:
| Number of Shares (in millions) |  | Weighted Average Grant Date Fair Value |  | Aggregate Fair Value(1) (in millions)
Beginning outstanding balance | 6.6 |  |  | $ | 411.52 |  |  |
Awarded | 3.9 |  |  | $ | 482.83 |  |  |
Released | (2.4) |  |  | $ | 376.20 |  |  |
Forfeited | (0.6) |  |  | $ | 438.28 |  |  |
Ending outstanding balance | 7.5 |  |  | $ | 457.41 |  |  | $ | 2,755 |
Expected to vest | 6.8 |  |  | $ | 455.52 |  |  | $ | 2,502 |
_________________________________________ (1) The aggregate fair value is calculated using the closing stock price as of September 2, 2022 of $368.14. The total fair value of restricted stock units vested during the nine months ended September 2, 2022 was $1.08 billion. Performance Shares In the first quarter of fiscal 2022, the Executive Compensation Committee of our Board of Directors (the “ECC”) approved the 2022 Performance Share Program. Shares approved under our 2022 Performance Share Program may be earned based on the achievement of (i) an objective relative total stockholder return measured over a three-year performance period, as well as (ii) revenue-based financial metrics measured over three one-year performance periods. Each type of performance goal is weighted 50% and achievement of each performance goal is determined independently of the other. Shares associated with each performance goal are not awarded until the corresponding performance targets are defined. Shares under our 2022 Performance Share Program will be earned and cliff-vest upon the later of (i) the three-year anniversary of the earliest vesting commencement date or (ii) the ECC’s certification of the level of achievement of the final performance period, contingent upon the participant’s continued service. Our performance share awards which are contingent upon achievement of relative total stockholder return are valued using a Monte Carlo Simulation model, with compensation costs recognized over the longer of the remaining performance or service period. Our performance share awards which are contingent upon achievement of revenue-based financial metrics are valued based on the fair market value of the award on the grant date. The related compensation costs are recognized over the longer of the remaining performance or service period based upon the expected levels of achievement, which are assessed periodically until certification by the ECC. As of September 2, 2022, the shares awarded under our 2022, 2021 and 2020 Performance Share Programs remained outstanding and were yet to be earned. For information regarding our outstanding 2021 and 2020 Performance Share Programs, including the terms, see “Note 12. Stock-Based Compensation” of our Annual Report on Form 10-K for the fiscal year ended December 3, 2021. Performance share activity for the nine months ended September 2, 2022 was as follows:
| Number of Shares (in millions) |  | Weighted Average Grant Date Fair Value |  | Aggregate Fair Value(1) (in millions)
Beginning outstanding balance | 0.6 |  |  | $ | 408.84 |  |  |
Awarded | 0.3 |  |  | $ | 402.24 |  |  |
Released | (0.4) |  |  | $ | 291.15 |  |  |
Forfeited | (0.1) |  |  | $ | 490.39 |  |  |
Ending outstanding balance | 0.4 |  |  | $ | 495.23 |  |  | $ | 158 |
Expected to vest | 0.4 |  |  | $ | 494.35 |  |  | $ | 144 |
_________________________________________ (1) The aggregate fair value is calculated using the closing stock price as of September 2, 2022 of $368.14. Under our Performance Share Programs, participants generally have the ability to receive up to 200% of the target number of shares originally granted. Shares released during the nine months ended September 2, 2022 resulted from 168% achievement of target for the 2019 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2021. Shares awarded during the nine months ended September 2, 2022 include 0.2 million additional shares awarded for the final achievement of the 2019 Performance Share Program. The remaining awarded shares were for the 2022 Performance Share Program. The total fair value of performance shares vested during the nine months ended September 2, 2022 was $192 million. Employee Stock Purchase Plan Shares Employees purchased 0.8 million shares at an average price of $333.92 and 1.0 million shares at an average price of $294.15 for the nine months ended September 2, 2022 and September 3, 2021, respectively. The intrinsic value of shares purchased during the nine months ended September 2, 2022 and September 3, 2021 was $73 million and $256 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares. Compensation Costs As of September 2, 2022, there was $3.04 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of 2.36 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. Total stock-based compensation costs included in our condensed consolidated statements of income for the three and nine months ended September 2, 2022 and September 3, 2021 were as follows:
| Three Months |  | Nine Months
(in millions) | 2022 |  | 2021 |  | 2022 |  | 2021
Cost of revenue | $ | 26 |  |  | $ | 19 |  |  | $ | 71 |  |  | $ | 53 |
Research and development | 189 |  |  | 141 |  |  | 527 |  |  | 408 |
Sales and marketing | 112 |  |  | 81 |  |  | 305 |  |  | 227 |
General and administrative | 51 |  |  | 39 |  |  | 149 |  |  | 133 |
Total | $ | 378 |  |  | $ | 280 |  |  | $ | 1,052 |  |  | $ | 821 |

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