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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DELAWARE
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77-0416458
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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Title of Each Class:
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Name of Each Exchange on which Registered
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Common Stock, par value $0.001 per share
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The NASDAQ Global Select Market
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Large accelerated filer
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x
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Page No.
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ITEM 1.
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BUSINESS
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1.
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Patient Value.
We believe that the value of a surgical procedure to a patient can be defined as:
Patient Value = Procedure Efficacy/Invasiveness
. We define
procedure efficacy
as a measure of the success of the surgery in resolving the underlying disease and
invasiveness
as how disruptive and painful the treatment is itself. When the patient value of a
da Vinci
procedure is deemed higher than alternate treatment options, patients may seek out surgeons and hospitals that offer that specific
da Vinci
procedure, potentially resulting in a local market share shift for the specific treatment.
da Vinci
procedure adoption occurs procedure by procedure, and is driven by the relative patient value and total treatment costs of
da Vinci
procedures compared to alternative treatment options for the same disease state. We believe most patients will place higher value on procedures that are not only more efficacious, but also less invasive than alternative treatments. Our goal is to provide products to surgeons who in turn provide patients with procedure options that are both highly effective and less invasive than other surgical options.
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2.
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Surgeon Value.
We train surgeons on the use of our
da Vinci
Surgical System and assist them in building their practices by their delivery of high patient value. We provide an ergonomic platform for surgeons to perform their procedures. We seek to provide surgeons with reliable and easy to use products.
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3.
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Hospital Value.
We assist hospitals in building value by offering patient value using
da Vinci
products,
thereby increasing surgical revenue and reducing costs through lower complication rates and reduced length of patient stay. We believe
da Vinci
Surgery is a cost effective approach to many surgeries as compared to alternative treatment options, as recognized in many published studies.
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1.
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a device that has grandfather marketing status because it was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or
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2.
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a device that has previously been cleared through the 510(k) process.
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•
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
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•
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal third-party payors that are false or fraudulent;
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•
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the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;
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•
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federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating to healthcare matters;
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•
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information;
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•
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the federal Physician Payment Sunshine Act, which requires (i) manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and (ii) applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by the physicians described above and their immediate family members, and payments or other “transfers of value” to such physician owners. Manufacturers are required to submit reports to CMS by the 90th day of each calendar year; and
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•
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analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report
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ITEM 1A.
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RISK FACTORS
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•
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changes in customer, geographic, or product mix, including mix of
da Vinci
Surgical System models sold;
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•
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changes in the portion of sales involving a trade-in of another system and the amount of trade-in credits given;
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•
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introduction of new products, which may have lower margins than our existing products;
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•
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our ability to maintain or reduce production costs;
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•
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changes to our pricing strategy;
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•
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changes in competition;
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•
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changes in production volume driven by demand for our products;
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•
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changes in material, labor or other manufacturing-related costs, including impact of foreign exchange rate fluctuations for foreign-currency denominated costs;
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•
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changes to U.S. and foreign trade policies, including the enactment of tariffs on goods imported into the U.S., including but not limited to, goods imported from Mexico where we manufacture a majority of our instruments that we sell;
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•
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inventory obsolescence and product recall charges; and
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•
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market conditions.
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•
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failure to obtain the same degree of protection against infringement of our intellectual property rights as we have in the United States;
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•
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multiple OUS regulatory requirements that are subject to change and that could impact our ability to manufacture and sell our products;
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•
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protectionist laws and business practices that favor local competitors, which could slow our growth in OUS markets;
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•
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local or national regulations that make it difficult or impractical to market or use our products;
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•
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inability or regulatory limitations on our ability to move goods across borders;
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•
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the risks associated with foreign currency exchange rate fluctuations;
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•
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difficulty in establishing, staffing and managing OUS operations;
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•
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the expense of establishing facilities and operations in new foreign markets;
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•
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building and maintaining an organization capable of supporting geographically dispersed operations;
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•
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anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials; and
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•
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political and economic instability.
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•
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delays in product shipments;
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•
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loss of revenue;
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•
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delay in market acceptance;
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•
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diversion of our resources;
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•
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damage to our reputation;
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•
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product recalls;
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•
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regulatory actions;
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•
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increased service or warranty costs; or
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•
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product liability claims.
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•
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problems involving production yields;
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•
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quality control and assurance;
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•
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component supply shortages;
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•
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import or export restrictions on components, materials or technology;
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•
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shortages of qualified personnel; and
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•
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compliance with state, federal and foreign regulations.
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•
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the jurisdictions in which profits are determined to be earned and taxed;
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•
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the resolution of issues arising from tax audits with various tax authorities;
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•
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changes in valuation of our deferred tax assets and liabilities;
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•
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increases in expenses not deductible for tax purposes, including write-offs of acquired intangibles and impairment of goodwill in connection with acquisitions;
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•
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changes in availability of tax credits, tax holidays, and tax deductions;
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•
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changes in share-based compensation;
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•
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changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles; and
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•
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the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.
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•
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continued compliance to the QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures during the development and manufacturing process;
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•
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labeling regulations;
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the FDA’s general prohibition against false or misleading statements in the labeling or promotion of products for unapproved or “off-label” uses;
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•
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stringent complaint reporting and Medical Device Reporting regulations, which requires that manufacturers keep detailed records of investigations or complaints against their devices and to report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur;
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•
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adequate use of the Corrective and Preventive Actions process to identify and correct or prevent significant systemic failures of products or processes or in trends which suggest same; and
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•
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the reporting of Corrections and Removals, which requires that manufacturers report to the FDA recalls and field corrective actions taken to reduce a risk to health or to remedy a violation of the FFDCA that may pose a risk to health.
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•
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the extent to which our products achieve and maintain market acceptance;
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•
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actions relating to regulatory matters;
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•
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our timing and ability to develop our manufacturing and sales and marketing capabilities;
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•
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demand for our products;
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•
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the size and timing of particular sales and any collection delays related to those sales;
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•
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product quality and supply problems;
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•
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the progress of surgical training in the use of our products;
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•
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our ability to develop, introduce and market new or enhanced versions of our products on a timely basis;
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•
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third-party payor reimbursement policies;
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•
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our ability to protect our proprietary rights and defend against third party challenges;
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•
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our ability to license additional intellectual property rights; and
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•
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the progress and results of clinical trials.
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•
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announcements about us or our competitors;
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•
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quarterly variations in operating results;
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•
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introduction or abandonment of new technologies or products;
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•
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regulatory approvals and enforcement actions;
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•
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changes in product pricing policies;
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•
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changes in earnings estimates by analysts or changes in accounting policies;
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•
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economic changes and overall market volatility;
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•
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litigation; and
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•
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political uncertainties.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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ITEM 2.
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PROPERTIES
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ITEM 3.
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LEGAL PROCEEDINGS
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ITEM 4.
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MINE SAFETY DISCLOSURES
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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2016
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2015
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||||||||||||
Fiscal
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High
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Low
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High
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Low
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||||||||
First Quarter
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$
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603.07
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$
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507.28
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$
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535.36
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$
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487.52
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Second Quarter
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$
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661.41
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$
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606.50
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$
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552.98
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$
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483.78
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Third Quarter
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$
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724.83
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$
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664.67
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$
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557.20
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$
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455.47
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Fourth Quarter
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$
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724.61
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$
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619.01
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$
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553.37
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$
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454.86
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Plan Category
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Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
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Weighted-
average
exercise price
of outstanding
options
|
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Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
||||
Equity compensation plans approved by security holders
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2,666,131
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$
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439.31
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1,917,140
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Equity compensation plans not approved by security holders
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422,408
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$
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481.55
|
|
|
131,045
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Total
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3,088,539
|
|
|
$
|
445.09
|
|
|
2,048,185
|
|
Fiscal Period
|
Total Number of
Shares
Repurchased
|
|
Average
Price Paid
Per Share
|
|
Total Number of
Shares Purchased As
Part of a Publicly
Announced Program
|
|
Approximate Dollar
Amount of Shares That
May Yet be Purchased
Under the Program (1)
|
||||||
October 1 to October 31, 2016
|
—
|
|
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$
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—
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|
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—
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|
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$
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808.2
|
million
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November 1 to November 30, 2016
|
10,674
|
|
|
$
|
632.77
|
|
|
10,674
|
|
|
$
|
801.5
|
million
|
December 1 to December 31, 2016
|
44,020
|
|
|
$
|
629.68
|
|
|
44,020
|
|
|
$
|
2,991.6
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million
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Total during quarter ended December 31, 2016
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54,694
|
|
|
$
|
630.29
|
|
|
54,694
|
|
|
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COMPARISON OF CUMULATIVE TOTAL RETURN AMONG INTUITIVE SURGICAL, NASDAQ
COMPOSITE, S&P HEALTH CARE INDEX, AND S&P 500 INDEX
|
|
December 31,
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||||||||||||||||||||||
|
2011
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|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
||||||||||||
Intuitive Surgical, Inc.
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$
|
100.00
|
|
|
$
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105.91
|
|
|
$
|
82.95
|
|
|
$
|
114.24
|
|
|
$
|
117.96
|
|
|
$
|
136.97
|
|
NASDAQ Composite
|
$
|
100.00
|
|
|
$
|
117.45
|
|
|
$
|
164.57
|
|
|
$
|
188.84
|
|
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$
|
201.98
|
|
|
$
|
219.89
|
|
S&P 500 Healthcare Index
|
$
|
100.00
|
|
|
$
|
117.89
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|
|
$
|
166.76
|
|
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$
|
209.02
|
|
|
$
|
223.42
|
|
|
$
|
242.43
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|
S&P 500 Index
|
$
|
100.00
|
|
|
$
|
116.00
|
|
|
$
|
153.57
|
|
|
$
|
174.60
|
|
|
$
|
177.01
|
|
|
$
|
198.18
|
|
ITEM 6.
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SELECTED FINANCIAL DATA
|
|
Fiscal Year
|
||||||||||||||||||
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
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(In millions, except per share amounts and headcount)
|
||||||||||||||||||
Revenue
|
$
|
2,704.4
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|
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$
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2,384.4
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|
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$
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2,131.7
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$
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2,265.1
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$
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2,178.8
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Gross profit
|
$
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1,890.1
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|
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$
|
1,577.9
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$
|
1,413.8
|
|
|
$
|
1,594.2
|
|
|
$
|
1,570.3
|
|
Net income
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$
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735.9
|
|
|
$
|
588.8
|
|
|
$
|
418.8
|
|
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$
|
671.0
|
|
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$
|
656.6
|
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Net income per common share:
|
|
|
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|
||||||||||
Basic
|
$
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19.21
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|
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$
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15.87
|
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$
|
11.35
|
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$
|
17.12
|
|
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$
|
16.50
|
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Diluted
|
$
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18.73
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|
|
$
|
15.54
|
|
|
$
|
11.11
|
|
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$
|
16.73
|
|
|
$
|
15.98
|
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Shares used in computing basic and diluted net income per share:
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|
|
|
|
|
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|
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||||||||||
Basic
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38.3
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|
37.1
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|
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36.9
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|
|
39.2
|
|
|
39.8
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|||||
Diluted
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39.3
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|
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37.9
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37.7
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40.1
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|
|
41.1
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|
|||||
Cash, cash equivalents and investments
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$
|
4,837.9
|
|
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$
|
3,347.8
|
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$
|
2,497.0
|
|
|
$
|
2,753.9
|
|
|
$
|
2,920.5
|
|
Total assets
|
$
|
6,486.9
|
|
|
$
|
4,907.3
|
|
|
$
|
3,959.4
|
|
|
$
|
3,950.3
|
|
|
$
|
4,059.2
|
|
Other long-term liabilities
|
$
|
112.6
|
|
|
$
|
95.9
|
|
|
$
|
78.8
|
|
|
$
|
68.0
|
|
|
$
|
77.5
|
|
Stockholders’ equity
|
$
|
5,777.8
|
|
|
$
|
4,319.5
|
|
|
$
|
3,379.4
|
|
|
$
|
3,501.4
|
|
|
$
|
3,580.1
|
|
Total headcount
|
3,755
|
|
|
3,211
|
|
|
2,978
|
|
|
2,792
|
|
|
2,362
|
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
A new overhead instrument arm architecture designed to facilitate anatomical access from virtually any position.
|
•
|
A new digital endoscope architecture that creates a simpler, more compact design with improved vision definition and clarity.
|
•
|
An ability to attach the endoscope to any arm, providing flexibility for visualizing the surgical site.
|
•
|
Smaller, thinner arms with newly designed joints that offer a greater range of motion than before.
|
•
|
Longer instrument shafts designed to give surgeons greater operative reach.
|
•
|
Ease of use enhancements, including automated pre-surgical deployment of the
da Vinci
robot arms.
|
•
|
Total revenue increased by
13%
to
$2.7 billion
for the year ended December 31, 2016, compared with
$2.4 billion
for the year ended December 31, 2015.
|
•
|
Approximately
753,000
da Vinci
procedures were performed during the year ended December 31,
2016
, an increase of approximately
15%
compared with approximately
652,000
for the year ended December 31,
2015
.
|
•
|
Instrument and accessory revenue increased by
17%
to
$1.4 billion
for the year ended December 31,
2016
, compared with
$1.2 billion
for the year ended December 31,
2015
.
|
•
|
Recurring revenue increased by
15%
to
$1.9 billion
for the year ended December 31,
2016
, compared with
$1.7 billion
for the year ended December 31,
2015
, representing
71%
and
70%
of total revenue in 2016 and 2015, respectively.
|
•
|
Systems revenue increased by
10%
to
$791.6 million
for the year ended December 31,
2016
, compared with
$721.9 million
for the year ended December 31,
2015
.
537
da Vinci
Surgical Systems were shipped for the year ended December 31,
2016
, compared with
492
for the year ended December 31,
2015
.
|
•
|
As of December 31,
2016
, we had a
da Vinci
Surgical System installed base of approximately
3,919
systems, an increase of approximately
9%
compared with the installed base as of December 31, 2015.
|
•
|
Gross profit as a percentage of revenue increased to
69.9%
for the year ended December 31, 2016, compared with
66.2%
for the year ended December 31, 2015. Gross profit for the year ended December 31, 2016, included a $7.1 million benefit due to a Medical Device Excise Tax (“MDET”) refund.
|
•
|
Operating income increased by
28%
to
$945.2 million
for the year ended December 31,
2016
, compared with
$740.0 million
for the year ended December 31,
2015
. Operating income included
$178.0 million
and
$168.1 million
of share-based compensation expense related to employee stock plans for the years ended December 31,
2016
, and
2015
, respectively. Operating income for the year ended December 31,
2016
, and
2015
, also included pre-tax litigation charges of
$12.1 million
and
$13.2 million
, respectively.
|
•
|
As of December 31,
2016
, we had
$4.8 billion
in cash, cash equivalents, and investments. Cash, cash equivalents, and investments increased by
$1.5 billion
compared with December 31,
2015
, primarily as a result of cash provided by operating activities and employee stock option exercises.
|
|
Years Ended December 31,
|
|||||||||||||||||||
|
2016
|
|
% of
total
revenue
|
|
2015
|
|
% of
total
revenue
|
|
2014
|
|
% of
total
revenue
|
|||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
$
|
2,187.4
|
|
|
81
|
%
|
|
$
|
1,919.6
|
|
|
81
|
%
|
|
$
|
1,702.7
|
|
|
80
|
%
|
Service
|
517.0
|
|
|
19
|
%
|
|
464.8
|
|
|
19
|
%
|
|
429.0
|
|
|
20
|
%
|
|||
Total revenue
|
2,704.4
|
|
|
100
|
%
|
|
2,384.4
|
|
|
100
|
%
|
|
2,131.7
|
|
|
100
|
%
|
|||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Product
|
663.3
|
|
|
25
|
%
|
|
647.2
|
|
|
27
|
%
|
|
569.9
|
|
|
27
|
%
|
|||
Service
|
151.0
|
|
|
5
|
%
|
|
159.3
|
|
|
7
|
%
|
|
148.0
|
|
|
7
|
%
|
|||
Total cost of revenue
|
814.3
|
|
|
30
|
%
|
|
806.5
|
|
|
34
|
%
|
|
717.9
|
|
|
34
|
%
|
|||
Product gross profit
|
1,524.1
|
|
|
56
|
%
|
|
1,272.4
|
|
|
54
|
%
|
|
1,132.8
|
|
|
53
|
%
|
|||
Service gross profit
|
366.0
|
|
|
14
|
%
|
|
305.5
|
|
|
12
|
%
|
|
281.0
|
|
|
13
|
%
|
|||
Gross profit
|
1,890.1
|
|
|
70
|
%
|
|
1,577.9
|
|
|
66
|
%
|
|
1,413.8
|
|
|
66
|
%
|
|||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Selling, general and administrative
|
705.3
|
|
|
26
|
%
|
|
640.5
|
|
|
27
|
%
|
|
691.0
|
|
|
32
|
%
|
|||
Research and development
|
239.6
|
|
|
9
|
%
|
|
197.4
|
|
|
8
|
%
|
|
178.0
|
|
|
8
|
%
|
|||
Total operating expenses
|
944.9
|
|
|
35
|
%
|
|
837.9
|
|
|
35
|
%
|
|
869.0
|
|
|
40
|
%
|
|||
Income from operations
|
945.2
|
|
|
35
|
%
|
|
740.0
|
|
|
31
|
%
|
|
544.8
|
|
|
26
|
%
|
|||
Interest and other income, net
|
35.6
|
|
|
1
|
%
|
|
18.5
|
|
|
1
|
%
|
|
4.2
|
|
|
—
|
%
|
|||
Income before taxes
|
980.8
|
|
|
36
|
%
|
|
758.5
|
|
|
32
|
%
|
|
549.0
|
|
|
26
|
%
|
|||
Income tax expense
|
244.9
|
|
|
9
|
%
|
|
169.7
|
|
|
7
|
%
|
|
130.2
|
|
|
6
|
%
|
|||
Net income
|
$
|
735.9
|
|
|
27
|
%
|
|
$
|
588.8
|
|
|
25
|
%
|
|
$
|
418.8
|
|
|
20
|
%
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
(in millions)
|
|
||||||||||
Net cash provided by (used in)
|
|
|
|
|
|
||||||
Operating activities
|
$
|
1,042.9
|
|
|
$
|
771.9
|
|
|
$
|
665.1
|
|
Investing activities
|
(1,279.4
|
)
|
|
(849.5
|
)
|
|
(153.9
|
)
|
|||
Financing activities
|
558.5
|
|
|
193.4
|
|
|
(692.4
|
)
|
|||
Effect of exchange rates on cash and cash equivalents
|
—
|
|
|
(1.5
|
)
|
|
(0.6
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
$
|
322.0
|
|
|
$
|
114.3
|
|
|
$
|
(181.8
|
)
|
1.
|
Our net income included non-cash charges including in the form of share-based compensation of $
177.6 million
; depreciation and loss of disposal of property, plant, and equipment of $
73.9 million
; investment related non-cash charges of $
35.9 million
; deferred income tax of
$18.7 million
; amortization of intangible assets of $
18.2 million
; partly offset by tax benefits from employee stock plans of
$14.3 million
.
|
2.
|
The non-cash charges outlined above were partly offset by changes in operating assets and liabilities that resulted in $3.0 million of cash used by operating activities during the year ended December 31, 2016. Operating assets and liabilities are primarily comprised of accounts receivable, inventory, prepaid expenses, deferred revenue, and other accrued liabilities. Inventory, including the transfer of equipment from inventory to property, plant and equipment, increased by
$46.7 million
. Accounts receivable increased
$35.9 million
primarily driven by higher revenue and timing of collections. Prepaids and other assets increased
$28.7 million
primarily driven by higher lease receivable balances resulting from sales-type lease arrangement transactions entered into during year ended December 31, 2016. The unfavorable impact of these items on cash provided by operating activities was partly offset by a
$53.8 million
increase in other liabilities, primarily due to higher income tax payable, a
$19.9 million
increase in deferred revenue, an
$18.7 million
increase in accrued compensation and employee benefits, and a
$15.9 million
increase in accounts payable. Deferred revenue, which includes deferred service revenue that is being recognized as revenue over the service contract period, increased primarily due to the increase in the number of installed systems for which service contracts existed.
|
1.
|
Our net income included non-cash charges primarily in the form of share-based compensation of $167.9 million, depreciation and loss of disposal of property, plant, and equipment of $65.1 million, income tax benefits from employee
|
2.
|
The non-cash charges outlined above were partly offset by changes in operating assets and liabilities that resulted in $92.5 million of cash used by operating activities.
|
1.
|
Our net income included substantial non-cash charges primarily in the form of share-based compensation, amortization of intangible assets, taxes, and depreciation. These non-cash charges totaled $232.1 million during the year ended December 31, 2014.
|
2.
|
Changes in operating assets and liabilities resulted in approximately $14.2 million in cash provided by operating activities during the year ended December 31, 2014.
|
|
Payments due by period
|
||||||||||||||||||
|
Total
|
|
Less than
1 year
|
|
1 to 3 years
|
|
3 to 5 years
|
|
More than 5 years
|
||||||||||
Operating leases
|
$
|
36.7
|
|
|
$
|
7.1
|
|
|
$
|
9.2
|
|
|
$
|
5.4
|
|
|
$
|
15.0
|
|
Purchase commitments and obligations
|
345.8
|
|
|
342.7
|
|
|
3.1
|
|
|
—
|
|
|
—
|
|
|||||
Total contractual obligations
|
$
|
382.5
|
|
|
$
|
349.8
|
|
|
$
|
12.3
|
|
|
$
|
5.4
|
|
|
$
|
15.0
|
|
•
|
the valuation and recognition of investments, which impacts our investment portfolio balance when we assess fair value, and interest and other income, net, when we record impairments;
|
•
|
the valuation of revenue and allowance for sales returns and doubtful accounts, which impacts revenue;
|
•
|
the estimation of transactions to hedge, which impacts revenue and other expense;
|
•
|
the valuation of inventory, which impacts gross profit margins;
|
•
|
the assessment of recoverability of intangible assets and their estimated useful lives, which primarily impacts gross profit margin or operating expenses when we record asset impairments or accelerate their amortization;
|
•
|
the valuation and recognition of share-based compensation, which impacts gross profit margin and operating expenses;
|
•
|
the recognition and measurement of current and deferred income taxes (including the measurement of uncertain tax positions), which impact our provision for taxes; and
|
•
|
the estimate of probable loss associated with product liability claims, which impacts accrued liabilities and operating expenses.
|
•
|
the sufficiency of the trading volume of freely traded options;
|
•
|
the ability to reasonably match the terms, such as the date of the grant and the exercise price of the freely traded options to options granted; and
|
•
|
the length of the term of the freely traded options used to derive implied volatility.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
Page No.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,036.6
|
|
|
$
|
714.6
|
|
Short-term investments
|
1,518.0
|
|
|
845.2
|
|
||
Accounts receivable, net of allowances of $1.9 and $2.1 at December 31, 2016 and 2015, respectively
|
430.2
|
|
|
394.3
|
|
||
Inventory
|
182.3
|
|
|
167.9
|
|
||
Prepaids and other current assets
|
83.3
|
|
|
73.5
|
|
||
Total current assets
|
3,250.4
|
|
|
2,195.5
|
|
||
Property, plant and equipment, net
|
458.4
|
|
|
432.1
|
|
||
Long-term investments
|
2,283.3
|
|
|
1,788.0
|
|
||
Deferred tax assets
|
150.9
|
|
|
167.8
|
|
||
Intangible and other assets, net
|
142.8
|
|
|
122.8
|
|
||
Goodwill
|
201.1
|
|
|
201.1
|
|
||
Total assets
|
$
|
6,486.9
|
|
|
$
|
4,907.3
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
68.5
|
|
|
$
|
52.6
|
|
Accrued compensation and employee benefits
|
136.4
|
|
|
117.3
|
|
||
Deferred revenue
|
240.6
|
|
|
225.6
|
|
||
Other accrued liabilities
|
151.0
|
|
|
96.4
|
|
||
Total current liabilities
|
596.5
|
|
|
491.9
|
|
||
Other long-term liabilities
|
112.6
|
|
|
95.9
|
|
||
Total liabilities
|
709.1
|
|
|
587.8
|
|
||
Commitments and contingencies (Note 7)
|
|
|
|
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively
|
—
|
|
|
—
|
|
||
Common stock, 100.0 shares authorized, $0.001 par value, 38.8 shares and 37.4 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
4,211.8
|
|
|
3,429.8
|
|
||
Retained earnings
|
1,574.9
|
|
|
899.2
|
|
||
Accumulated other comprehensive loss
|
(8.9
|
)
|
|
(9.5
|
)
|
||
Total stockholders’ equity
|
5,777.8
|
|
|
4,319.5
|
|
||
Total liabilities and stockholders’ equity
|
$
|
6,486.9
|
|
|
$
|
4,907.3
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Product
|
$
|
2,187.4
|
|
|
$
|
1,919.6
|
|
|
$
|
1,702.7
|
|
Service
|
517.0
|
|
|
464.8
|
|
|
429.0
|
|
|||
Total revenue
|
2,704.4
|
|
|
2,384.4
|
|
|
2,131.7
|
|
|||
Cost of revenue:
|
|
|
|
|
|
||||||
Product
|
663.3
|
|
|
647.2
|
|
|
569.9
|
|
|||
Service
|
151.0
|
|
|
159.3
|
|
|
148.0
|
|
|||
Total cost of revenue
|
814.3
|
|
|
806.5
|
|
|
717.9
|
|
|||
Gross profit
|
1,890.1
|
|
|
1,577.9
|
|
|
1,413.8
|
|
|||
Operating expenses:
|
|
|
|
|
|
||||||
Selling, general and administrative
|
705.3
|
|
|
640.5
|
|
|
691.0
|
|
|||
Research and development
|
239.6
|
|
|
197.4
|
|
|
178.0
|
|
|||
Total operating expenses
|
944.9
|
|
|
837.9
|
|
|
869.0
|
|
|||
Income from operations
|
945.2
|
|
|
740.0
|
|
|
544.8
|
|
|||
Interest and other income, net
|
35.6
|
|
|
18.5
|
|
|
4.2
|
|
|||
Income before taxes
|
980.8
|
|
|
758.5
|
|
|
549.0
|
|
|||
Income tax expense
|
244.9
|
|
|
169.7
|
|
|
130.2
|
|
|||
Net income
|
$
|
735.9
|
|
|
$
|
588.8
|
|
|
$
|
418.8
|
|
Net income per share:
|
|
|
|
|
|
||||||
Basic
|
$
|
19.21
|
|
|
$
|
15.87
|
|
|
$
|
11.35
|
|
Diluted
|
$
|
18.73
|
|
|
$
|
15.54
|
|
|
$
|
11.11
|
|
Shares used in computing net income per share:
|
|
|
|
|
|
||||||
Basic
|
38.3
|
|
|
37.1
|
|
|
36.9
|
|
|||
Diluted
|
39.3
|
|
|
37.9
|
|
|
37.7
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Net income
|
$
|
735.9
|
|
|
$
|
588.8
|
|
|
$
|
418.8
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
||||||
Change in foreign currency translation gains (losses)
|
2.0
|
|
|
(1.2
|
)
|
|
(2.5
|
)
|
|||
Available-for-sale investments:
|
|
|
|
|
|
||||||
Change in unrealized losses, net of tax
|
(4.6
|
)
|
|
(3.2
|
)
|
|
(3.9
|
)
|
|||
Less: Reclassification adjustment for net gains (losses) on investments recognized during the year, net of tax
|
0.2
|
|
|
(0.8
|
)
|
|
2.0
|
|
|||
Net change, net of tax effect
|
(4.4
|
)
|
|
(4.0
|
)
|
|
(1.9
|
)
|
|||
Derivative instruments:
|
|
|
|
|
|
||||||
Change in unrealized gains
|
4.1
|
|
|
7.8
|
|
|
8.6
|
|
|||
Less: Reclassification adjustment for gains (losses) on derivative instruments recognized during the year, net of tax
|
(0.6
|
)
|
|
(7.4
|
)
|
|
(7.5
|
)
|
|||
Net change, net of tax effect
|
3.5
|
|
|
0.4
|
|
|
1.1
|
|
|||
Employee benefit plans:
|
|
|
|
|
|
||||||
Change in unrealized losses, net of tax
|
(0.7
|
)
|
|
(0.4
|
)
|
|
(4.2
|
)
|
|||
Less: Reclassification adjustment for gains (losses) on employee benefit plans recognized during the year, net of tax
|
0.2
|
|
|
0.8
|
|
|
0.3
|
|
|||
Net change, net of tax effect
|
(0.5
|
)
|
|
0.4
|
|
|
(3.9
|
)
|
|||
Other comprehensive gains (losses)
|
0.6
|
|
|
(4.4
|
)
|
|
(7.2
|
)
|
|||
Total comprehensive income
|
$
|
736.5
|
|
|
$
|
584.4
|
|
|
$
|
411.6
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (loss)
|
|
Total
|
|||||||||||||
|
Shares
|
|
Amount
|
|
|
|
|
|||||||||||||||
Balances at December 31, 2013
|
38.2
|
|
|
$
|
—
|
|
|
$
|
2,519.9
|
|
|
$
|
979.4
|
|
|
$
|
2.1
|
|
|
$
|
3,501.4
|
|
Issuance of common stock through employee stock plans
|
0.9
|
|
|
|
|
283.6
|
|
|
|
|
|
|
283.6
|
|
||||||||
Income tax benefit from employee stock plans
|
|
|
|
|
13.9
|
|
|
|
|
|
|
13.9
|
|
|||||||||
Share-based compensation expense related to employee stock plans
|
|
|
|
|
168.9
|
|
|
|
|
|
|
168.9
|
|
|||||||||
Repurchase and retirement of common stock
|
(2.5
|
)
|
|
|
|
(89.5
|
)
|
|
(910.5
|
)
|
|
|
|
(1,000.0
|
)
|
|||||||
Net income
|
|
|
|
|
|
|
418.8
|
|
|
|
|
418.8
|
|
|||||||||
Other comprehensive loss
|
|
|
|
|
|
|
|
|
(7.2
|
)
|
|
(7.2
|
)
|
|||||||||
Balances at December 31, 2014
|
36.6
|
|
|
$
|
—
|
|
|
$
|
2,896.8
|
|
|
$
|
487.7
|
|
|
$
|
(5.1
|
)
|
|
$
|
3,379.4
|
|
Issuance of common stock through employee stock plans
|
1.2
|
|
|
|
|
361.1
|
|
|
|
|
|
|
361.1
|
|
||||||||
Income tax benefit from employee stock plans
|
|
|
|
|
21.4
|
|
|
|
|
|
|
21.4
|
|
|||||||||
Shares withheld related to net share settlement of equity awards
|
|
|
|
|
(1.1
|
)
|
|
(9.9
|
)
|
|
|
|
(11.0
|
)
|
||||||||
Share-based compensation expense related to employee stock plans
|
|
|
|
|
167.9
|
|
|
|
|
|
|
167.9
|
|
|||||||||
Repurchase and retirement of common stock
|
(0.4
|
)
|
|
|
|
(16.3
|
)
|
|
(167.4
|
)
|
|
|
|
(183.7
|
)
|
|||||||
Net income
|
|
|
|
|
|
|
588.8
|
|
|
|
|
588.8
|
|
|||||||||
Other comprehensive loss
|
|
|
|
|
|
|
|
|
(4.4
|
)
|
|
(4.4
|
)
|
|||||||||
Balances at December 31, 2015
|
37.4
|
|
|
$
|
—
|
|
|
$
|
3,429.8
|
|
|
$
|
899.2
|
|
|
$
|
(9.5
|
)
|
|
$
|
4,319.5
|
|
Issuance of common stock through employee stock plans
|
1.5
|
|
|
|
|
580.9
|
|
|
|
|
|
|
580.9
|
|
||||||||
Income tax benefit from employee stock plans
|
|
|
|
|
29.8
|
|
|
|
|
|
|
29.8
|
|
|||||||||
Shares withheld related to net share settlement of equity awards
|
|
|
|
|
(2.2
|
)
|
|
(21.8
|
)
|
|
|
|
(24.0
|
)
|
||||||||
Share-based compensation expense related to employee stock plans
|
|
|
|
|
177.6
|
|
|
|
|
|
|
177.6
|
|
|||||||||
Repurchase and retirement of common stock
|
(0.1
|
)
|
|
|
|
(4.1
|
)
|
|
(38.4
|
)
|
|
|
|
(42.5
|
)
|
|||||||
Net income
|
|
|
|
|
|
|
735.9
|
|
|
|
|
735.9
|
|
|||||||||
Other comprehensive income
|
|
|
|
|
|
|
|
|
0.6
|
|
|
0.6
|
|
|||||||||
Balances at December 31, 2016
|
38.8
|
|
|
$
|
—
|
|
|
$
|
4,211.8
|
|
|
$
|
1,574.9
|
|
|
$
|
(8.9
|
)
|
|
$
|
5,777.8
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Operating activities:
|
|
|
|
|
|
||||||
Net income
|
$
|
735.9
|
|
|
$
|
588.8
|
|
|
$
|
418.8
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Depreciation and loss on disposal of property, plant, and equipment, net
|
73.9
|
|
|
65.1
|
|
|
52.0
|
|
|||
Amortization of intangible assets
|
18.2
|
|
|
24.4
|
|
|
22.4
|
|
|||
Loss (gain) on investment, accretion of discounts, and amortization of premiums on investments, net
|
35.9
|
|
|
26.4
|
|
|
33.9
|
|
|||
Deferred income taxes
|
18.7
|
|
|
4.6
|
|
|
(35.0
|
)
|
|||
Income tax benefits from employee stock plans
|
29.8
|
|
|
21.5
|
|
|
13.9
|
|
|||
Excess tax benefit from employee stock plans
|
(44.1
|
)
|
|
(34.3
|
)
|
|
(24.0
|
)
|
|||
Share-based compensation expense
|
177.6
|
|
|
167.9
|
|
|
168.9
|
|
|||
Changes in operating assets and liabilities, net of effects of acquisition:
|
|
|
|
|
|
||||||
Accounts receivable
|
(35.9
|
)
|
|
(79.2
|
)
|
|
(13.7
|
)
|
|||
Inventory
|
(46.7
|
)
|
|
(10.7
|
)
|
|
(26.8
|
)
|
|||
Prepaids and other assets
|
(28.7
|
)
|
|
(10.5
|
)
|
|
(67.6
|
)
|
|||
Accounts payable
|
15.9
|
|
|
(11.3
|
)
|
|
17.7
|
|
|||
Accrued compensation and employee benefits
|
18.7
|
|
|
21.5
|
|
|
21.4
|
|
|||
Deferred revenue
|
19.9
|
|
|
8.2
|
|
|
19.8
|
|
|||
Other liabilities
|
53.8
|
|
|
(10.5
|
)
|
|
63.4
|
|
|||
Net cash provided by operating activities
|
1,042.9
|
|
|
771.9
|
|
|
665.1
|
|
|||
Investing activities:
|
|
|
|
|
|
||||||
Purchase of investments
|
(2,585.5
|
)
|
|
(1,827.4
|
)
|
|
(1,344.6
|
)
|
|||
Proceeds from sales of investments
|
389.9
|
|
|
233.1
|
|
|
665.9
|
|
|||
Proceeds from maturities of investments
|
970.1
|
|
|
825.8
|
|
|
714.7
|
|
|||
Purchase of property, plant and equipment, intellectual property
|
(53.9
|
)
|
|
(81.0
|
)
|
|
(105.6
|
)
|
|||
Acquisition of business, net of cash acquired
|
—
|
|
|
—
|
|
|
(84.3
|
)
|
|||
Net cash used in investing activities
|
(1,279.4
|
)
|
|
(849.5
|
)
|
|
(153.9
|
)
|
|||
Financing activities:
|
|
|
|
|
|
||||||
Proceeds from issuance of common stock relating to employee stock plans
|
580.9
|
|
|
361.1
|
|
|
283.6
|
|
|||
Excess tax benefit from employee stock plans
|
44.1
|
|
|
34.3
|
|
|
24.0
|
|
|||
Taxes paid related to net share settlement of equity awards
|
(24.0
|
)
|
|
(11.0
|
)
|
|
—
|
|
|||
Repurchase and retirement of common stock
|
(42.5
|
)
|
|
(183.7
|
)
|
|
(1,000.0
|
)
|
|||
Other financing activities
|
—
|
|
|
(7.3
|
)
|
|
—
|
|
|||
Net cash provided by (used in) financing activities
|
558.5
|
|
|
193.4
|
|
|
(692.4
|
)
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
(1.5
|
)
|
|
(0.6
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
322.0
|
|
|
114.3
|
|
|
(181.8
|
)
|
|||
Cash and cash equivalents, beginning of year
|
714.6
|
|
|
600.3
|
|
|
782.1
|
|
|||
Cash and cash equivalents, end of year
|
$
|
1,036.6
|
|
|
$
|
714.6
|
|
|
$
|
600.3
|
|
|
Useful Lives
|
Building
|
Up to 30 years
|
Building improvements
|
Up to 15 years
|
Leasehold improvements
|
Lesser of useful life or term of lease
|
Equipment and furniture
|
5 years
|
Operating lease assets
|
Greater of lease term or 1 to 5 years
|
Computer and office equipment
|
3 years
|
Enterprise-wide software
|
5 years
|
Purchased software
|
Lesser of 3 years or life of license
|
|
|
|
|
|
|
|
|
|
Reported as:
|
||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Cash and
Cash
Equivalents
|
|
Short-term
Investments
|
|
Long-term
Investments
|
||||||||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash
|
$
|
227.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
227.7
|
|
|
$
|
227.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
612.4
|
|
|
—
|
|
|
—
|
|
|
612.4
|
|
|
612.4
|
|
|
—
|
|
|
—
|
|
|||||||
U.S. treasuries
|
625.9
|
|
|
0.1
|
|
|
(2.0
|
)
|
|
624.0
|
|
|
157.9
|
|
|
168.4
|
|
|
297.7
|
|
|||||||
Subtotal
|
1,238.3
|
|
|
0.1
|
|
|
(2.0
|
)
|
|
1,236.4
|
|
|
770.3
|
|
|
168.4
|
|
|
297.7
|
|
|||||||
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
|
139.6
|
|
|
—
|
|
|
—
|
|
|
139.6
|
|
|
31.1
|
|
|
108.5
|
|
|
—
|
|
|||||||
Corporate securities
|
1,471.8
|
|
|
0.7
|
|
|
(5.0
|
)
|
|
1,467.5
|
|
|
2.9
|
|
|
555.4
|
|
|
909.2
|
|
|||||||
U.S. government agencies
|
938.7
|
|
|
0.5
|
|
|
(2.9
|
)
|
|
936.3
|
|
|
—
|
|
|
342.7
|
|
|
593.6
|
|
|||||||
Non-U.S. government securities
|
18.5
|
|
|
—
|
|
|
—
|
|
|
18.5
|
|
|
—
|
|
|
16.0
|
|
|
2.5
|
|
|||||||
Municipal securities
|
815.4
|
|
|
—
|
|
|
(3.5
|
)
|
|
811.9
|
|
|
4.6
|
|
|
327.0
|
|
|
480.3
|
|
|||||||
Subtotal
|
3,384.0
|
|
|
1.2
|
|
|
(11.4
|
)
|
|
3,373.8
|
|
|
38.6
|
|
|
1,349.6
|
|
|
1,985.6
|
|
|||||||
Total assets measured at fair value
|
$
|
4,850.0
|
|
|
$
|
1.3
|
|
|
$
|
(13.4
|
)
|
|
$
|
4,837.9
|
|
|
$
|
1,036.6
|
|
|
$
|
1,518.0
|
|
|
$
|
2,283.3
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Cash and
Cash
Equivalents
|
|
Short-term
Investments
|
|
Long-term
Investments
|
||||||||||||||
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash
|
$
|
202.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
202.6
|
|
|
$
|
202.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
430.6
|
|
|
—
|
|
|
—
|
|
|
430.6
|
|
|
430.6
|
|
|
—
|
|
|
—
|
|
|||||||
U.S. treasuries & corporate equity securities
|
253.6
|
|
|
—
|
|
|
(1.8
|
)
|
|
251.8
|
|
|
50.6
|
|
|
52.4
|
|
|
148.8
|
|
|||||||
Subtotal
|
684.2
|
|
|
—
|
|
|
(1.8
|
)
|
|
682.4
|
|
|
481.2
|
|
|
52.4
|
|
|
148.8
|
|
|||||||
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
|
76.4
|
|
|
—
|
|
|
—
|
|
|
76.4
|
|
|
3.8
|
|
|
72.6
|
|
|
—
|
|
|||||||
Corporate securities
|
1,131.0
|
|
|
0.8
|
|
|
(3.0
|
)
|
|
1,128.8
|
|
|
—
|
|
|
384.5
|
|
|
744.3
|
|
|||||||
U.S. government agencies
|
618.5
|
|
|
—
|
|
|
(1.5
|
)
|
|
617.0
|
|
|
27.0
|
|
|
194.8
|
|
|
395.2
|
|
|||||||
Non-U.S. government securities
|
28.8
|
|
|
—
|
|
|
(0.1
|
)
|
|
28.7
|
|
|
—
|
|
|
10.3
|
|
|
18.4
|
|
|||||||
Municipal securities
|
611.9
|
|
|
0.6
|
|
|
(0.6
|
)
|
|
611.9
|
|
|
—
|
|
|
130.6
|
|
|
481.3
|
|
|||||||
Subtotal
|
2,466.6
|
|
|
1.4
|
|
|
(5.2
|
)
|
|
2,462.8
|
|
|
30.8
|
|
|
792.8
|
|
|
1,639.2
|
|
|||||||
Total assets measured at fair value
|
$
|
3,353.4
|
|
|
$
|
1.4
|
|
|
$
|
(7.0
|
)
|
|
$
|
3,347.8
|
|
|
$
|
714.6
|
|
|
$
|
845.2
|
|
|
$
|
1,788.0
|
|
|
Amortized
Cost
|
|
Fair
Value
|
||||
Mature in less than one year
|
$
|
1,714.9
|
|
|
$
|
1,714.5
|
|
Mature in one to five years
|
2,295.0
|
|
|
2,283.3
|
|
||
Total
|
$
|
4,009.9
|
|
|
$
|
3,997.8
|
|
|
Unrealized losses less
than 12 months
|
|
Unrealized losses 12
months or greater
|
|
Total
|
||||||||||||||||||
December 31, 2016
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
||||||||||||
Corporate securities
|
$
|
1,056.1
|
|
|
$
|
(5.0
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,056.1
|
|
|
$
|
(5.0
|
)
|
U.S. Treasuries
|
357.1
|
|
|
(2.0
|
)
|
|
—
|
|
|
—
|
|
|
357.1
|
|
|
(2.0
|
)
|
||||||
U.S. Government and agency securities
|
538.2
|
|
|
(2.9
|
)
|
|
—
|
|
|
—
|
|
|
538.2
|
|
|
(2.9
|
)
|
||||||
Municipal securities
|
728.8
|
|
|
(3.5
|
)
|
|
—
|
|
|
—
|
|
|
728.8
|
|
|
(3.5
|
)
|
||||||
|
$
|
2,680.2
|
|
|
$
|
(13.4
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,680.2
|
|
|
$
|
(13.4
|
)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate securities
|
$
|
869.9
|
|
|
$
|
(3.0
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
869.9
|
|
|
$
|
(3.0
|
)
|
U.S. Treasuries and equity securities
|
231.2
|
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
231.2
|
|
|
(1.8
|
)
|
||||||
U.S. Government and agency securities
|
561.7
|
|
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
561.7
|
|
|
(1.5
|
)
|
||||||
Municipal securities
|
340.0
|
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
340.0
|
|
|
(0.6
|
)
|
||||||
Non-U.S. government securities
|
28.7
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
28.7
|
|
|
(0.1
|
)
|
||||||
|
$
|
2,031.5
|
|
|
$
|
(7.0
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,031.5
|
|
|
$
|
(7.0
|
)
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Recognized gains (losses) in interest and other income, net
|
$
|
6.4
|
|
|
$
|
7.0
|
|
|
$
|
5.7
|
|
Foreign exchange gains (losses) related to balance sheet re-measurement
|
$
|
(5.6
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(6.9
|
)
|
|
Derivatives Designated as Hedging Instruments
|
|
Derivatives Not Designated as Hedging Instruments
|
||||||||||||
|
December 31,
2016 |
|
December 31,
2015 |
|
December 31,
2016 |
|
December 31,
2015 |
||||||||
Notional amounts:
|
|
|
|
|
|
|
|
||||||||
Forward contracts
|
$
|
109.7
|
|
|
$
|
89.1
|
|
|
$
|
143.7
|
|
|
$
|
128.7
|
|
Gross fair value recorded in:
|
|
|
|
|
|
|
|
||||||||
Prepaid and other current assets
|
$
|
6.2
|
|
|
$
|
2.0
|
|
|
$
|
5.6
|
|
|
$
|
2.6
|
|
Other accrued liabilities
|
$
|
1.0
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
0.2
|
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
Inventory:
|
|
|
|
||||
Raw materials
|
$
|
54.8
|
|
|
$
|
53.3
|
|
Work-in-process
|
13.4
|
|
|
10.2
|
|
||
Finished goods
|
114.1
|
|
|
104.4
|
|
||
Total inventory
|
$
|
182.3
|
|
|
$
|
167.9
|
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
Property, plant and equipment, net:
|
|
|
|
||||
Land
|
$
|
131.7
|
|
|
$
|
131.7
|
|
Building and building/leasehold improvements
|
199.5
|
|
|
191.5
|
|
||
Machinery and equipment
|
217.7
|
|
|
197.6
|
|
||
Operating lease assets
|
34.7
|
|
|
15.0
|
|
||
Computer and office equipment
|
41.3
|
|
|
35.7
|
|
||
Capitalized software
|
114.2
|
|
|
84.5
|
|
||
Construction-in-process
|
41.2
|
|
|
43.2
|
|
||
Gross property, plant and equipment
|
780.3
|
|
|
699.2
|
|
||
Less: Accumulated depreciation*
|
(321.9
|
)
|
|
(267.1
|
)
|
||
Total property, plant and equipment, net
|
$
|
458.4
|
|
|
$
|
432.1
|
|
|
|
|
|
||||
*Accumulated depreciation associated with operating lease assets
|
$
|
(6.8
|
)
|
|
$
|
(2.6
|
)
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
Other accrued liabilities—short term:
|
|
|
|
||||
Taxes payable
|
$
|
40.4
|
|
|
$
|
11.4
|
|
Tolled product liability claims accrued
|
20.5
|
|
|
24.4
|
|
||
Other accrued liabilities
|
90.1
|
|
|
60.6
|
|
||
Total other accrued liabilities—short-term
|
$
|
151.0
|
|
|
$
|
96.4
|
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
Other long-term liabilities:
|
|
|
|
||||
Income taxes—long term
|
$
|
84.9
|
|
|
$
|
74.3
|
|
Other long-term liabilities
|
27.7
|
|
|
21.6
|
|
||
Total other long-term liabilities
|
$
|
112.6
|
|
|
$
|
95.9
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Income taxes paid
|
$
|
138.4
|
|
|
$
|
110.3
|
|
|
$
|
176.8
|
|
Supplemental non-cash investing activities:
|
|
|
|
|
|
||||||
Equipment transfers from inventory to property, plant and equipment
|
$
|
39.3
|
|
|
$
|
26.7
|
|
|
$
|
27.2
|
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
Gross lease receivables
|
$
|
104.3
|
|
|
$
|
67.1
|
|
Unearned income
|
(4.8
|
)
|
|
(3.4
|
)
|
||
Allowance for credit loss
|
(0.6
|
)
|
|
(0.4
|
)
|
||
Net investment in sales-type leases
|
98.9
|
|
|
63.3
|
|
||
Reported as:
|
|
|
|
||||
Prepaids and other current assets
|
29.8
|
|
|
16.1
|
|
||
Intangible and other assets, net
|
69.1
|
|
|
47.2
|
|
||
Total, net
|
$
|
98.9
|
|
|
$
|
63.3
|
|
Fiscal Year
|
Amount
|
||
2017
|
32.1
|
|
|
2018
|
31.6
|
|
|
2019
|
22.0
|
|
|
2020
|
12.5
|
|
|
2021
|
5.1
|
|
|
2022 and thereafter
|
1.0
|
|
|
Total
|
$
|
104.3
|
|
Fiscal Year
|
Amount
|
||
2017
|
24.4
|
|
|
2018
|
22.7
|
|
|
2019
|
19.9
|
|
|
2020
|
13.7
|
|
|
2021
|
4.5
|
|
|
2022 and thereafter
|
0.5
|
|
|
Total
|
$
|
85.7
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
||||||||||||||||||||
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||||||||
Patents and developed technology
|
|
$
|
158.7
|
|
|
$
|
(141.6
|
)
|
|
$
|
17.1
|
|
|
$
|
159.7
|
|
|
$
|
(129.6
|
)
|
|
$
|
30.1
|
|
Distribution rights and others
|
|
9.2
|
|
|
(9.1
|
)
|
|
0.1
|
|
|
9.2
|
|
|
(8.0
|
)
|
|
1.2
|
|
||||||
Customer relationships
|
|
28.6
|
|
|
(14.3
|
)
|
|
14.3
|
|
|
28.6
|
|
|
(10.2
|
)
|
|
18.4
|
|
||||||
Total intangible assets
|
|
$
|
196.5
|
|
|
$
|
(165.0
|
)
|
|
$
|
31.5
|
|
|
$
|
197.5
|
|
|
$
|
(147.8
|
)
|
|
$
|
49.7
|
|
Fiscal Year
|
Amount
|
||
2017
|
$
|
12.5
|
|
2018
|
8.6
|
|
|
2019
|
3.6
|
|
|
2020
|
3.4
|
|
|
2021
|
2.3
|
|
|
2022 and thereafter
|
1.1
|
|
|
Total
|
$
|
31.5
|
|
Fiscal Year
|
Amount
|
||
2017
|
$
|
7.1
|
|
2018
|
5.7
|
|
|
2019
|
3.5
|
|
|
2020
|
2.8
|
|
|
2021
|
2.6
|
|
|
2022 and thereafter
|
15.0
|
|
|
Total
|
$
|
36.7
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Shares repurchased
|
0.1
|
|
|
0.4
|
|
|
2.5
|
|
|||
Average price per share
|
$
|
605.10
|
|
|
$
|
502.23
|
|
|
$
|
397.52
|
|
Value of shares repurchased
|
$
|
42.5
|
|
|
$
|
183.7
|
|
|
$
|
1,000.0
|
|
|
Year Ended December 31, 2016
|
||||||||||||||||||
|
Gains (Losses)
on Hedge
Instruments
|
|
Unrealized Gains
(Losses) on
Available-for-Sale Securities
|
|
Foreign
Currency
Translation
Gains (Losses)
|
|
Employee Benefit Plans
|
|
Total
|
||||||||||
Beginning balance
|
$
|
1.5
|
|
|
$
|
(4.2
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(3.5
|
)
|
|
$
|
(9.5
|
)
|
Other comprehensive income before reclassifications
|
4.1
|
|
|
(4.6
|
)
|
|
2.0
|
|
|
(0.7
|
)
|
|
0.8
|
|
|||||
Reclassified from accumulated other comprehensive income (loss)
|
(0.6
|
)
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
(0.2
|
)
|
|||||
Net current-period other comprehensive income (loss)
|
3.5
|
|
|
(4.4
|
)
|
|
2.0
|
|
|
(0.5
|
)
|
|
0.6
|
|
|||||
Ending balance
|
$
|
5.0
|
|
|
$
|
(8.6
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
(4.0
|
)
|
|
$
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Year Ended December 31, 2015
|
||||||||||||||||||
|
Gains (Losses)
on Hedge
Instruments
|
|
Unrealized Gains
(Losses) on
Available-for-Sale Securities
|
|
Foreign
Currency
Translation
Gains (Losses)
|
|
Employee Benefit Plans
|
|
Total
|
||||||||||
Beginning balance
|
$
|
1.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(5.1
|
)
|
Other comprehensive income before reclassifications
|
7.8
|
|
|
(3.2
|
)
|
|
(1.2
|
)
|
|
(0.4
|
)
|
|
3.0
|
|
|||||
Reclassified from accumulated other comprehensive income (loss)
|
(7.4
|
)
|
|
(0.8
|
)
|
|
—
|
|
|
0.8
|
|
|
(7.4
|
)
|
|||||
Net current-period other comprehensive income (loss)
|
0.4
|
|
|
(4.0
|
)
|
|
(1.2
|
)
|
|
0.4
|
|
|
(4.4
|
)
|
|||||
Ending balance
|
$
|
1.5
|
|
|
$
|
(4.2
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(3.5
|
)
|
|
$
|
(9.5
|
)
|
|
Stock Options Outstanding
|
|||||
|
Number
Outstanding
|
|
Weighted Average
Exercise Price Per
Share
|
|||
Balance at December 31, 2015
|
4.2
|
|
|
$
|
421.00
|
|
Options granted
|
0.3
|
|
|
$
|
616.97
|
|
Options exercised
|
(1.3
|
)
|
|
$
|
410.98
|
|
Options forfeited/expired
|
(0.1
|
)
|
|
$
|
494.64
|
|
Balance at December 31, 2016
|
3.1
|
|
|
$
|
445.09
|
|
|
|
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)
|
||||||||||
$95.89 - $341.19
|
|
0.8
|
|
|
3.0
|
|
$
|
279.22
|
|
|
|
|
0.8
|
|
|
|
|
$
|
279.22
|
|
|
|
||||
$343.83 - $459.14
|
|
0.8
|
|
|
6.8
|
|
$
|
416.51
|
|
|
|
|
0.6
|
|
|
|
|
$
|
410.32
|
|
|
|
||||
$466.70 - $517.31
|
|
0.7
|
|
|
6.3
|
|
$
|
508.52
|
|
|
|
|
0.6
|
|
|
|
|
$
|
509.04
|
|
|
|
||||
$518.29 - $614.78
|
|
0.6
|
|
|
7.4
|
|
$
|
550.88
|
|
|
|
|
0.4
|
|
|
|
|
$
|
557.95
|
|
|
|
||||
$618.96 - $718.04
|
|
0.2
|
|
|
9.6
|
|
$
|
685.31
|
|
|
|
|
—
|
|
|
|
|
$
|
692.54
|
|
|
|
||||
Total
|
|
3.1
|
|
|
6.0
|
|
$
|
445.09
|
|
|
$
|
593.3
|
|
|
2.4
|
|
|
5.2
|
|
$
|
417.93
|
|
|
$
|
516.4
|
|
|
(1)
|
The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the Company’s closing stock price of
$634.17
at
December 31, 2016
, which would have been received by the option holders had all in-the-money option holders exercised their options as of that date.
|
|
Shares
|
|
Weighted Average
Grant Date Fair Value
|
|||
Unvested balance at December 31, 2015
|
0.4
|
|
|
$
|
485.55
|
|
Granted
|
0.3
|
|
|
$
|
553.76
|
|
Vested
|
(0.1
|
)
|
|
$
|
481.84
|
|
Forfeited
|
—
|
|
|
$
|
509.75
|
|
Unvested balance at December 31, 2016
|
0.6
|
|
|
$
|
524.17
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Cost of sales—products
|
$
|
25.2
|
|
|
$
|
22.8
|
|
|
$
|
19.1
|
|
Cost of sales—services
|
12.4
|
|
|
12.9
|
|
|
13.5
|
|
|||
Total cost of sales
|
37.6
|
|
|
35.7
|
|
|
32.6
|
|
|||
Selling, general and administrative
|
97.4
|
|
|
94.7
|
|
|
99.0
|
|
|||
Research and development
|
43.0
|
|
|
37.7
|
|
|
37.5
|
|
|||
Share-based compensation expense before income taxes
|
178.0
|
|
|
168.1
|
|
|
169.1
|
|
|||
Income tax effect
|
56.1
|
|
|
51.8
|
|
|
53.5
|
|
|||
Share-based compensation expense after income taxes
|
$
|
121.9
|
|
|
$
|
116.3
|
|
|
$
|
115.6
|
|
|
Years Ended December 31,
|
||||||||||
STOCK OPTION PLANS
|
2016
|
|
2015
|
|
2014
|
||||||
Risk free interest rate
|
1.1
|
%
|
|
1.6
|
%
|
|
1.5
|
%
|
|||
Expected term (years)
|
4.2
|
|
|
4.3
|
|
|
4.3
|
|
|||
Volatility
|
26
|
%
|
|
28
|
%
|
|
31
|
%
|
|||
Fair value at grant date
|
$
|
141.18
|
|
|
$
|
131.47
|
|
|
$
|
122.39
|
|
EMPLOYEE STOCK PURCHASE PLAN
|
|
|
|
|
|
||||||
Risk free interest rate
|
0.6
|
%
|
|
0.4
|
%
|
|
0.2
|
%
|
|||
Expected term (years)
|
1.2
|
|
|
1.2
|
|
|
1.2
|
|
|||
Volatility
|
30
|
%
|
|
31
|
%
|
|
33
|
%
|
|||
Fair value at grant date
|
$
|
172.71
|
|
|
$
|
146.72
|
|
|
$
|
124.60
|
|
RESTRICTED STOCK UNITS
|
|
|
|
|
|
||||||
Fair value at grant date
|
$
|
553.76
|
|
|
$
|
511.92
|
|
|
$
|
441.36
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
U.S.
|
$
|
653.0
|
|
|
$
|
425.1
|
|
|
$
|
353.0
|
|
Foreign
|
327.8
|
|
|
333.4
|
|
|
196.0
|
|
|||
Total income before provision for income taxes
|
$
|
980.8
|
|
|
$
|
758.5
|
|
|
$
|
549.0
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Current
|
|
|
|
|
|
||||||
Federal
|
$
|
207.0
|
|
|
$
|
148.7
|
|
|
$
|
150.5
|
|
State
|
13.4
|
|
|
8.4
|
|
|
7.0
|
|
|||
Foreign
|
5.4
|
|
|
7.6
|
|
|
7.5
|
|
|||
|
$
|
225.8
|
|
|
$
|
164.7
|
|
|
$
|
165.0
|
|
Deferred
|
|
|
|
|
|
||||||
Federal
|
$
|
18.3
|
|
|
$
|
7.5
|
|
|
$
|
(30.9
|
)
|
State
|
0.6
|
|
|
0.5
|
|
|
(0.6
|
)
|
|||
Foreign
|
0.2
|
|
|
(3.0
|
)
|
|
(3.3
|
)
|
|||
|
$
|
19.1
|
|
|
$
|
5.0
|
|
|
$
|
(34.8
|
)
|
Total income tax expense
|
$
|
244.9
|
|
|
$
|
169.7
|
|
|
$
|
130.2
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Federal tax at statutory rate
|
$
|
343.3
|
|
|
$
|
265.5
|
|
|
$
|
192.2
|
|
Increase (reduction) in tax resulting from:
|
|
|
|
|
|
||||||
State taxes, net of federal benefits
|
14.0
|
|
|
8.9
|
|
|
6.4
|
|
|||
Foreign rate differential
|
(86.2
|
)
|
|
(67.4
|
)
|
|
(47.4
|
)
|
|||
Research and development credit
|
(7.8
|
)
|
|
(6.4
|
)
|
|
(5.0
|
)
|
|||
Share-based compensation not benefited
|
3.6
|
|
|
6.9
|
|
|
7.7
|
|
|||
Domestic production activities deduction
|
(8.0
|
)
|
|
(5.3
|
)
|
|
(4.6
|
)
|
|||
Reversal of unrecognized tax benefits
|
(15.8
|
)
|
|
(6.4
|
)
|
|
(20.3
|
)
|
|||
Reversal of share-based compensation from intercompany charges
|
—
|
|
|
(25.0
|
)
|
|
—
|
|
|||
Other
|
1.8
|
|
|
(1.1
|
)
|
|
1.2
|
|
|||
Total income tax expense
|
$
|
244.9
|
|
|
$
|
169.7
|
|
|
$
|
130.2
|
|
|
December 31,
|
||||||
|
2016
|
|
2015
|
||||
Deferred tax assets:
|
|
|
|
||||
Share-based compensation expense
|
$
|
122.2
|
|
|
$
|
140.5
|
|
Expenses deducted in later years for tax purposes
|
47.4
|
|
|
47.1
|
|
||
Research and other credits
|
15.6
|
|
|
13.5
|
|
||
Other
|
9.8
|
|
|
7.5
|
|
||
Gross deferred tax assets
|
$
|
195.0
|
|
|
$
|
208.6
|
|
Valuation allowance
|
(17.2
|
)
|
|
(15.2
|
)
|
||
Deferred tax assets
|
$
|
177.8
|
|
|
$
|
193.4
|
|
Deferred tax liabilities:
|
|
|
|
||||
Fixed assets
|
$
|
(25.2
|
)
|
|
$
|
(24.0
|
)
|
Intangible assets
|
(2.3
|
)
|
|
(2.0
|
)
|
||
Other
|
(0.2
|
)
|
|
(0.5
|
)
|
||
Deferred tax liabilities
|
$
|
(27.7
|
)
|
|
$
|
(26.5
|
)
|
Net deferred tax assets
|
$
|
150.1
|
|
|
$
|
166.9
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Beginning balance
|
$
|
92.4
|
|
|
$
|
75.5
|
|
|
$
|
74.0
|
|
Increases related to tax positions taken during the current year
|
29.9
|
|
|
28.9
|
|
|
22.3
|
|
|||
Increases related to tax positions taken during a prior year
|
—
|
|
|
0.3
|
|
|
—
|
|
|||
Decreases related to tax positions taken during a prior year
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|||
Decreases related to settlements with tax authorities
|
—
|
|
|
(11.4
|
)
|
|
(19.1
|
)
|
|||
Decreases related to expiration of statute of limitations
|
(15.8
|
)
|
|
(0.9
|
)
|
|
(1.7
|
)
|
|||
Ending balance
|
$
|
106.0
|
|
|
$
|
92.4
|
|
|
$
|
75.5
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Net income
|
$
|
735.9
|
|
|
$
|
588.8
|
|
|
$
|
418.8
|
|
Basic:
|
|
|
|
|
|
||||||
Weighted-average shares outstanding
|
38.3
|
|
|
37.1
|
|
|
36.9
|
|
|||
Basic net income per share
|
$
|
19.21
|
|
|
$
|
15.87
|
|
|
$
|
11.35
|
|
Diluted:
|
|
|
|
|
|
||||||
Weighted-average shares outstanding used in basic calculation
|
38.3
|
|
|
37.1
|
|
|
36.9
|
|
|||
Add: Dilutive potential shares
|
1.0
|
|
|
0.8
|
|
|
0.8
|
|
|||
Weighted-average shares used in computing diluted net income per share
|
39.3
|
|
|
37.9
|
|
|
37.7
|
|
|||
Diluted net income per share
|
$
|
18.73
|
|
|
$
|
15.54
|
|
|
$
|
11.11
|
|
|
Three Months Ended
|
||||||||||||||
|
December 31,
2016
|
|
September 30,
2016
|
|
June 30,
2016
|
|
March 31,
2016
|
||||||||
Revenue
|
$
|
756.9
|
|
|
$
|
682.9
|
|
|
$
|
670.1
|
|
|
$
|
594.5
|
|
Gross profit
(3)
|
$
|
527.2
|
|
|
$
|
487.0
|
|
|
$
|
470.9
|
|
|
$
|
405.0
|
|
Net income
(1)(2)(3)
|
$
|
204.0
|
|
|
$
|
211.0
|
|
|
$
|
184.5
|
|
|
$
|
136.4
|
|
Net income per common share
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
5.26
|
|
|
$
|
5.45
|
|
|
$
|
4.82
|
|
|
$
|
3.62
|
|
Diluted
|
$
|
5.13
|
|
|
$
|
5.31
|
|
|
$
|
4.71
|
|
|
$
|
3.54
|
|
|
|
|
|
|
|
|
|
||||||||
(1) Includes discrete tax benefits as follows:
|
|
|
|
|
|
|
|
||||||||
Audit settlement and expiration of the statutes of limitations in multiple jurisdictions
|
$
|
—
|
|
|
$
|
15.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(2) Includes pre-tax litigation charges
|
$
|
5.5
|
|
|
$
|
—
|
|
|
$
|
4.4
|
|
|
$
|
2.2
|
|
(3) Includes pre-tax medical device excise tax refund benefit
|
$
|
—
|
|
|
$
|
7.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Three Months Ended
|
||||||||||||||
|
December 31,
2015
|
|
September 30,
2015
|
|
June 30,
2015 |
|
March 31,
2015 |
||||||||
Revenue
|
$
|
676.5
|
|
|
$
|
589.7
|
|
|
$
|
586.1
|
|
|
$
|
532.1
|
|
Gross profit
|
$
|
458.8
|
|
|
$
|
395.8
|
|
|
$
|
386.5
|
|
|
$
|
336.8
|
|
Net income
(1)(2)
|
$
|
190.0
|
|
|
$
|
167.3
|
|
|
$
|
134.5
|
|
|
$
|
97.0
|
|
Net income per common share
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
5.09
|
|
|
$
|
4.49
|
|
|
$
|
3.64
|
|
|
$
|
2.64
|
|
Diluted
|
$
|
4.99
|
|
|
$
|
4.40
|
|
|
$
|
3.56
|
|
|
$
|
2.57
|
|
|
|
|
|
|
|
|
|
||||||||
(1) Includes discrete tax benefits as follows:
|
|
|
|
|
|
|
|
||||||||
Audit settlement and expiration of the statutes of limitations in multiple jurisdictions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7.8
|
|
|
$
|
—
|
|
Reversal of the share-based compensation intercompany charges as a result of U.S. Tax Court opinion
|
$
|
—
|
|
|
$
|
29.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reinstatement of the 2015 federal R&D tax credit
|
$
|
6.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(2) Includes pre-tax litigation charges (recoveries)
|
$
|
(0.6
|
)
|
|
$
|
—
|
|
|
$
|
6.6
|
|
|
$
|
7.2
|
|
|
Balance at
Beginning of
Year
|
|
Additions
|
|
Deductions
(1)
|
|
Balance at
End of Year
|
||||||||
Allowance for doubtful accounts and loan credit losses, and sales returns
|
|
|
|
|
|
|
|
||||||||
Year ended December 31, 2016
|
$
|
9.4
|
|
|
$
|
24.6
|
|
|
$
|
(23.2
|
)
|
|
$
|
10.8
|
|
Year ended December 31, 2015
|
$
|
5.5
|
|
|
$
|
22.3
|
|
|
$
|
(18.4
|
)
|
|
$
|
9.4
|
|
Year ended December 31, 2014
|
$
|
5.8
|
|
|
$
|
22.2
|
|
|
$
|
(22.5
|
)
|
|
$
|
5.5
|
|
|
(1)
|
Primarily represents products returned.
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
(i)
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
|
(ii)
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|
(iii)
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
|
(a)
|
The following documents are filed as part of this Annual Report on Form 10-K
|
1)
|
Financial Statements—See Index to Consolidated Financial Statements at Item 8 of this report on Form 10-K.
|
2)
|
The following financial statement schedule of Intuitive Surgical, Inc. is filed as part of this report and should be read in conjunction with the financial statements of Intuitive Surgical, Inc.:
|
3)
|
Exhibits
|
3.1(1)
|
|
Amended and Restated Certificate of Incorporation of the Company.
|
|
|
|
3.2(1)
|
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company.
|
|
|
|
3.3(2)
|
|
Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company.
|
|
|
|
3.4(3)
|
|
Amended and Restated Bylaws of the Company.
|
|
|
|
4.1(4)
|
|
Specimen Stock Certificate.
|
|
|
|
10.1(4)
|
|
2000 Equity Incentive Plan. *
|
|
|
|
10.2(4)
|
|
2000 Non-Employee Directors’ Stock Option Plan. *
|
|
|
|
10.3(4)
|
|
2000 Employee Stock Purchase Plan. *
|
|
|
|
10.4(5)
|
|
Form of Indemnity Agreement. *
|
|
|
|
10.5(6)
|
|
2009 Employment Commencement Incentive Plan, as amended and restated. *
|
|
|
|
10.6(7)
|
|
2010 Incentive Award Plan, as amended and restated. *
|
|
|
|
10.7(8)
|
|
Severance Plan. *
|
|
|
|
10.8(9)
|
|
Form of Intuitive Surgical, Inc. 2000 Equity Incentive Plan Stock Option Agreement (Incentive and Nonstatutory Stock Options). *
|
|
|
|
10.9(10)
|
|
Form of Intuitive Surgical, Inc. 2009 Employment Commencement Incentive Plan Stock Option Grant Notice. *
|
|
|
|
10.10(10)
|
|
Form of Intuitive Surgical, Inc. 2009 Employment Commencement Incentive Plan Restricted Stock Unit Grant Notice. *
|
|
|
|
10.11(10)
|
|
Form of Intuitive Surgical, Inc. 2010 Incentive Award Plan Stock Option Grant Notice. *
|
|
|
|
10.12(10)
|
|
Form of Intuitive Surgical, Inc. 2010 Incentive Award Plan Restricted Stock Unit Grant Notice. *
|
|
|
|
10.13
|
|
Master Confirmation and Supplemental Confirmation between Intuitive Surgical, Inc. and Goldman, Sachs & Co., dated January 24, 2017.
|
|
|
|
21.1
|
|
Intuitive Surgical, Inc. Subsidiaries.
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer.
|
|
|
|
31.2
|
|
Certification of Principal Financial Officer.
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101
|
|
The following materials from Intuitive Surgical, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statement of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged at Level I through IV.
|
|
(1)
|
Incorporated by reference to exhibits filed with the Company’s 2008 Annual Report on Form 10-K filed on February 6, 2009 (File No. 000-30713).
|
(2)
|
Incorporated by reference to Exhibit A filed with the Company’s Definitive Proxy Statement on Schedule 14A filed on March 1, 2012 (File No. 000-30713).
|
(3)
|
Incorporated by reference to Exhibit 3.1 filed with the Company’s Current Report on Form 8-K filed on December 13, 2016 (File No. 000-30713).
|
(4)
|
Incorporated by reference to exhibits filed with the Company’s Registration Statement on Form S-1 filed on March 22, 2000 (File No. 333-33016).
|
(5)
|
Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed on August 3, 2015 (File No. 000-30713).
|
(6)
|
Incorporated by reference to Exhibit 4.2 filed with the Company’s Registration Statement on Form S-8 filed on May 1, 2015 (File No. 333-203793).
|
(7)
|
Incorporated by reference to Exhibit 4.1 filed with the Company’s Registration Statement on Form S-8 filed on May 1, 2015 (File No. 333-203793).
|
(8)
|
Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed on December 2, 2008 (File No. 000-30713).
|
(9)
|
Incorporated by reference to Exhibit 10.2 filed with the Company’s Quarterly Report on Form 10-Q filed on July 23, 2009 (File No. 000-30713).
|
(10)
|
Incorporated by reference to exhibits filed with the Company’s 2015 Annual Report on Form 10-K filed on February 2, 2016 (File No. 000-30713).
|
INTUITIVE SURGICAL, INC.
|
||
|
|
|
By:
|
|
/
S
/ G
ARY
S. G
UTHART
|
|
|
Gary S. Guthart, Ph.D.
President and Chief Executive Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
||
/
S
/ G
ARY
S. G
UTHART
|
|
President, Chief Executive Officer, and Director (Principal Executive Officer)
|
|
February 3, 2017
|
Gary S. Guthart, Ph.D.
|
|
|
||
/
S
/ M
ARSHALL
L. M
OHR
|
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
|
|
February 3, 2017
|
Marshall L. Mohr
|
|
|
||
/
S
/ J
AMIE
E. S
AMATH
|
|
Vice President, Corporate Controller (Principal Accounting Officer)
|
|
February 3, 2017
|
Jamie E. Samath
|
|
|
||
/
S
/ L
ONNIE
M. S
MITH
|
|
Chairman of the Board of Directors
|
|
February 3, 2017
|
Lonnie M. Smith
|
|
|
||
/
S
/ C
RAIG
H. B
ARRATT
|
|
Director
|
|
February 3, 2017
|
Craig H. Barratt, Ph.D.
|
|
|
||
/
S
/
M
ICHAEL
A
.
F
RIEDMAN
|
|
Director
|
|
February 3, 2017
|
Michael A. Friedman, M.D.
|
|
|
|
|
/
S
/ A
MAL
M. J
OHNSON
|
|
Director
|
|
February 3, 2017
|
Amal M. Johnson
|
|
|
||
/
S
/ K
EITH
R. L
EONARD
J
R
.
|
|
Director
|
|
February 3, 2017
|
Keith R. Leonard Jr.
|
|
|
|
|
/
S
/ A
LAN
J. L
EVY
|
|
Director
|
|
February 3, 2017
|
Alan J. Levy, Ph.D.
|
|
|
||
/
S
/ M
ARK
J. R
UBASH
|
|
Director
|
|
February 3, 2017
|
Mark J. Rubash
|
|
|
||
|
|
Director
|
|
|
George Stalk Jr.
|
|
|
|
|
To:
|
Intuitive Surgical, Inc.
1266 Kifer Rd
Sunnyvale, CA 94086
|
A/C:
|
#########
|
From:
|
Goldman, Sachs & Co.
|
Re:
|
Accelerated Stock Repurchases
|
Ref. No:
|
As provided in the Supplemental Confirmation
|
Date:
|
January 24, 2017
|
|
|
Trade Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Buyer:
|
Counterparty
|
Seller:
|
GS&Co.
|
Shares:
|
Common Stock, par value USD 0.001 per share, of Counterparty (Ticker: ISRG)
|
Exchange:
|
The NASDAQ Global Select Market
|
Related Exchange(s):
|
All Exchanges.
|
Obligation:
|
Applicable
|
Prepayment Amount:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Prepayment Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
VWAP Price:
|
For any Exchange Business Day, as determined by the Calculation Agent based on the NASDAQ 10b-18 Volume Weighted Average Price per Share for the regular trading session (including any extensions thereof) of the Exchange on such Exchange Business Day (without regard to pre-open or after hours trading outside of such regular trading session for such Exchange Business Day), as published by Bloomberg at 4:15 p.m. New York time (or 15 minutes following the end of any extension of the regular trading session) on such Exchange Business Day, on Bloomberg page “ISRG Q <Equity> AQR_SEC” (or any successor thereto), or if such price is not so reported on such Exchange Business Day for any reason or is, in the Calculation Agent’s reasonable discretion, erroneous, such VWAP Price shall be as reasonably determined by the Calculation Agent.
For purposes of calculating
|
Forward Price:
|
The average of the VWAP Prices for the Exchange Business Days in the Calculation Period, subject to “Valuation Disruption” below.
|
Adjustment Amount:
|
For each Transaction, as set forth in the related Supplemental Confirmation and Trade Notification.
|
Calculation Period:
|
The period from and including the Calculation Period Start Date to and including the Termination Date.
|
Calculation Period Start Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Termination Date:
|
The Scheduled Termination Date;
provided
that GS&Co. shall have the right to designate any Exchange Business Day on or after the First Acceleration Date to be the Termination Date (the “
Accelerated Termination Date
”) by delivering notice to Counterparty of any such designation prior to 6:00 P.M. New York City time on the designated Accelerated Termination Date.
|
Scheduled Termination Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation, subject to postponement as provided in “Valuation Disruption” below.
|
First Acceleration Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Valuation Disruption:
|
The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be” and inserting the words “at any time on any Scheduled Trading Day during the Calculation Period or Settlement Valuation Period” after the word “material,” in the third line thereof.
|
Settlement Procedures:
|
If the Number of Shares to be Delivered is positive, Physical Settlement shall be applicable;
provided
that GS&Co. does not, and shall not, make the agreement or the representations set forth in Section 9.11 of the Equity Definitions related to the restrictions imposed by applicable securities laws with respect to any Shares delivered by GS&Co. to Counterparty under any Transaction. If the Number of Shares to be Delivered is negative, then the Counterparty Settlement Provisions in Annex A shall apply.
|
to be Delivered:
|
A number of Shares equal to (i) (a) the Prepayment Amount
divided by
(b) the Divisor Amount
minus
(ii) the number of Initial Shares.
|
Divisor Amount:
|
The greater of (i) the Forward Price
minus
the Forward Price Adjustment Amount and (ii) $60.00.
|
Excess Dividend Amount:
|
For the avoidance of doubt, all references to the Excess Dividend Amount shall be deleted from Section 9.2(a)(iii) of the Equity Definitions.
|
Settlement Date:
|
If the Number of Shares to be Delivered is positive, the date that is one Settlement Cycle immediately following the Termination Date.
|
Settlement Currency:
|
USD
|
Initial Share Delivery:
|
GS&Co. shall deliver a number of Shares equal to the Initial Shares to Counterparty on the Initial Share Delivery Date in accordance with Section 9.4 of the Equity Definitions, with the Initial Share Delivery Date deemed to be a “Settlement Date” for purposes of such Section 9.4.
|
Initial Share Delivery Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Initial Shares:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Potential Adjustment Event:
|
Notwithstanding anything to the contrary in Section 11.2(e) of the Equity Definitions, an Extraordinary Dividend shall not constitute a Potential Adjustment Event.
|
Extraordinary Dividend:
|
Any dividend or distribution on the Shares (other than any dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) or (B) of the Equity Definitions).
|
Method of Adjustment:
|
Calculation Agent Adjustment
|
(a)
|
Share-for-Share: Modified Calculation Agent Adjustment
|
(b)
|
Share-for-Other: Cancellation and Payment
|
(c)
|
Share-for-Combined: Component Adjustment
|
Tender Offer:
|
Applicable;
provided
that (i) Section 12.1(l) of the Equity Definitions shall be amended (x) by deleting the parenthetical in the fifth line thereof, (y) by replacing “that” in the fifth line thereof with “whether or not such announcement” and (z) by adding immediately after the words “Tender Offer” in the fifth line thereof “, and any publicly announced change or amendment to such an announcement (including the announcement of an abandonment of such intention)” and (ii) Sections 12.3(a) and 12.3(d) of the Equity Definitions shall each be amended by replacing each occurrence of the words “Tender Offer Date” by “Announcement Date”.
|
(a)
|
Share-for-Share: Modified Calculation Agent Adjustment or Cancellation and Payment, at the election of GS&Co.
|
(b)
|
Share-for-Other: Modified Calculation Agent Adjustment or Cancellation and Payment, at the election of GS&Co.
|
(c)
|
Share-for-Combined: Modified Calculation Agent Adjustment or Cancellation and Payment, at the election of GS&Co.
|
Insolvency or Delisting:
|
Cancellation and Payment;
provided
that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, NYSE MKT, The NASDAQ Global Select Market or The NASDAQ Global Market (or their
|
(a)
|
Change in Law: Applicable
|
(b)
|
Failure to Deliver: Applicable
|
(c)
|
Insolvency Filing: Applicable
|
(d)
|
Loss of Stock Borrow: Applicable
|
Hedging Party:
|
GS&Co.;
provided
that, upon request from Counterparty, GS&Co. shall promptly provide Counterparty with a written explanation describing in reasonable detail any determination or calculation made by GS&Co. as Hedging Party (but without disclosing GS&Co.’s proprietary models or other information that may be proprietary or subject to contractual, legal or regulatory obligations to not disclose such information). Whenever the Hedging Party is required to act or to exercise judgment in any way with respect to any Transaction hereunder (but not, for the avoidance of doubt, the making of any election it is entitled to make as “Hedging Party”), it will do so in good faith and in a commercially reasonable manner.
|
Determining Party:
|
GS&Co.;
provided
that, upon request from Counterparty, GS&Co. shall promptly provide Counterparty with a written explanation describing in reasonable detail any determination or calculation made by GS&Co. as Determining Party (but without disclosing GS&Co.’s proprietary models or other information that may be proprietary or subject to contractual, legal or regulatory obligations to not disclose such information). Whenever the Determining Party is required to act or to exercise judgment in any way with respect to any Transaction hereunder, it will do so in good faith and in a commercially reasonable manner.
|
Hedging Adjustments:
|
For the avoidance of doubt, whenever the Calculation Agent is called upon to make an adjustment pursuant to the terms of this Master Confirmation or the Equity Definitions to take into account the effect of an event, the Calculation Agent shall make such adjustment by reference to the effect of such event on GS&Co., assuming that GS&Co. maintains a commercially reasonable Hedge Position.
|
Additional Termination Event(s):
|
Notwithstanding anything to the contrary in the Equity Definitions, if, as a result of an Extraordinary Event, any Transaction would be cancelled or terminated (whether in whole or in part) pursuant to Article 12 of the Equity Definitions, an Additional Termination Event (with such terminated Transaction(s) (or portions thereof) being the Affected Transaction(s) and Counterparty being the sole Affected Party) shall be deemed to occur, and, in lieu of Sections 12.7, 12.8 and 12.9 of the Equity Definitions, Section 6 of the Agreement shall apply to such Affected Transaction(s).
|
Relevant Dividend Period:
|
The period from and including the Calculation Period Start Date to and including the Relevant Dividend Period End Date.
|
End Date:
|
If Annex A applies, the last day of the Settlement Valuation Period; otherwise, the Termination Date.
|
Acknowledgements:
|
Applicable
|
Transfer:
|
Notwithstanding anything to the contrary in the Agreement, GS&Co. may assign, transfer and set over all rights, title and interest, powers, privileges and remedies of GS&Co. under any Transaction, in whole or in part, to an affiliate of GS&Co. whose obligations are guaranteed by The Goldman Sachs Group, Inc. without the consent of Counterparty. GS&Co. shall promptly, and in any event within ten (10) Exchange Business Days, provide a written notice of such transfer pursuant to the immediately preceding sentence to Counterparty.
|
GS&Co. Payment Instructions:
|
Chase Manhattan Bank New York
|
for Purpose of Giving Notice:
|
To be provided by Counterparty
|
11.
|
Acknowledgments
. (a) The parties hereto intend for:
|
23.
|
Offices
.
|
By:
|
/s/ DANIELA ROUSE
|
|
Authorized Signatory
|
|
Name: Daniela Rouse
|
|
Title: Vice President
|
By:
|
/s/ MARSHALL L. MOHR
|
|
Name: Marshall L. Mohr
|
|
Title: Senior Vice President and Chief Financial Officer
|
To:
|
Intuitive Surgical, Inc.
1266 Kifer Rd
Sunnyvale, CA 94086
|
From:
|
Goldman, Sachs & Co.
|
Subject:
|
Accelerated Stock Repurchases
|
Ref. No:
|
[Insert Reference No.]
|
Date:
|
[Insert Date]
|
Trade Date:
|
[ ]
|
Forward Price Adjustment Amount:
|
As set forth in the Trade Notification, to be the product of the Relevant Closing Price on the Reference Date and the Discount Percentage.
|
Reference Date:
|
The first Exchange Business Day following the Trade Date
|
Testing Times:
|
Each of 1:00 p.m., New York City time, 2:00 p.m., New York City time, 3:00 p.m., New York City time, and 3:30 p.m., New York City time.
|
Discount Percentage:
|
The Discount Percentage shall be set forth in the Trade Notification and shall be determined by the Calculation Agent based on the Discount Percentage Table in Appendix I hereto (the “
Table
”) by reference to the Reference Implied Volatility. In each such case,
(ii) the figures appearing in the Table are the Discount Percentage for those Reference Implied Volatilities that appear exactly in the relevant row of such table;
(iii) for Reference Implied Volatilities falling between the amounts appearing in such column or row, as applicable, the Discount Percentage will be calculated by the Calculation Agent using linear interpolation;
(iv) if the Discount Percentage is otherwise not determinable pursuant to the foregoing because the Reference Implied Volatility is less than the lowest Reference Implied Volatility appearing in the Table, the Discount Percentage will be determined by the Calculation Agent by reference to such lowest Reference Implied Volatility; and
(v) if the Discount Percentage is otherwise not determinable pursuant to the foregoing because the Reference Implied Volatility is greater than the highest Reference Implied Volatility appearing in the Table, such Discount Percentage will be determined by the Calculation Agent by reference to such highest Reference Implied Volatility.
|
Reference Implied Volatility:
|
The arithmetic average of the Relevant Listed Volatilities for each Option Reference Date at each Testing Time. The Reference Implied Volatility determined as described above shall be set forth in the Trade Notification.
|
Relevant Listed Volatility:
|
If, for any Option Reference Date at any Testing Time, there is a listed put option expiring on such Option Reference Date with a strike price equal to the Intraday Price as of such Testing Time, the Relevant Listed Volatility for such Option Reference Date at such Testing Time shall be the Listed Volatility at such Testing Time for such listed put option. If, for any Option Reference Date and any Testing Time, the Intraday Price as of such Testing Time does not match any of the strike prices of the listed put options expiring on such Option Reference Date, the Relevant Listed Volatility for such Option Reference Date at such Testing Time shall be the volatility determined for the put option expiring on such Option Reference Date by the Calculation Agent using the Listed Volatility at such Testing Time of the listed put option expiring on such Option Reference Date with a strike price that is next-higher than the Intraday Price as of such Testing Time. If, for any Option Reference Date at any Testing Time, there are no listed put options expiring on such Option Reference Date with a strike price that is higher than the Intraday Price as of such Testing Time, the Relevant Listed Volatility for such Option Reference Date at the relevant Testing Time shall be as determined by the Calculation Agent in a commercially reasonable manner.
|
Listed Volatility:
|
For any listed option and any Testing Time, as determined by the Calculation Agent based on bid implied volatility (IVB) as published by Bloomberg on Bloomberg page “ISRG Q <equity> OMON <GO>” (or any successor thereto) at such Testing Time, or if such Exchange Business Day is a Disrupted Day (in whole or in part), such volatility is not so reported at such Testing Time for any reason or the reported volatility is clearly erroneous, the Listed Volatility shall be as determined by the Calculation Agent in a commercially reasonable manner.
|
Option Reference Dates:
|
The scheduled listed options expiry dates for each of April 2017 and July 2017.
|
Relevant Closing Price:
|
For any Exchange Business Day, the closing price per Share for the regular trading session (including any extensions thereof) of the Exchange on such Exchange Business Day, as determined by the Calculation Agent based on Bloomberg page “ISRG Q <equity> QR <GO>” (or any successor thereto) at 4:15 p.m. New York City time (or 15 minutes following the end of any extension of the regular trading session of the Exchange) on such Exchange Business Day, or if such Exchange Business Day is a Disrupted Day (determined pursuant to the Equity Definitions without any amendment or modification), if such price is not so reported on such Exchange Business Day for any reason or the reported price is clearly erroneous, the Relevant Closing Price shall be as determined by the Calculation Agent in a commercially reasonable manner.
|
Intraday Price:
|
For any Testing Time, the per Share price on the Exchange at such Testing Time as determined by the Calculation Agent, or if a Market Disruption Event (determined pursuant to the Equity Definitions as modified by the Master Confirmation) is ongoing at such Testing Time, if such price is not so reported on the Exchange at such Testing Time for any reason or if the reported price on the Exchange at such Testing Time is clearly erroneous, the Intraday Price at such Testing Time shall be as determined by the Calculation Agent in a commercially reasonable manner.
|
Calculation Period Start Date:
Scheduled Termination Date:
|
[ ]
[ ]
|
First Acceleration Date:
|
[ ]
|
Prepayment Amount:
|
[ ]
|
Prepayment Date:
|
[ ]
|
Initial Shares:
|
[ ] Shares;
provided
that if, in connection with the Transaction, GS&Co. is unable to borrow or otherwise acquire a number of Shares equal to the Initial Shares for delivery to Counterparty on the Initial Share Delivery Date, the Initial Shares delivered on the Initial Share Delivery Date shall be reduced to such number of Shares that GS&Co. is able to so borrow or otherwise acquire ;
provided further
that if the Initial Shares are reduced as provided in the preceding proviso, then GS&Co. shall use commercially reasonable efforts to borrow or otherwise acquire an additional number of Shares equal to the shortfall in the Initial Shares delivered on the Initial Share Delivery Date and shall deliver such additional Shares as promptly as practicable, and all Shares so delivered shall be considered Initial Shares.
|
Initial Share Delivery Date:
|
[ ]
|
Termination Price:
|
USD [ ] per Share
|
Additional Relevant Days:
|
The 5 Exchange Business Days immediately following the Calculation Period.
|
By:
|
/s/ DANIELA ROUSE
|
|
Authorized Signatory
|
|
Name: Daniela Rouse
|
|
Title: Vice President
|
By:
|
/s/ MARSHALL L. MOHR
|
|
Name: Marshall L. Mohr
|
|
Title: Senior Vice President and Chief Financial Officer
|
Reference Implied Volatility
|
Discount Percentage
|
[ ]
|
[ ]
|
To:
|
Intuitive Surgical, Inc.
1266 Kifer Rd
Sunnyvale, CA 94086
|
From:
|
Goldman, Sachs & Co.
|
Subject:
|
Accelerated Stock Repurchases
|
Ref. No:
|
[Insert Reference No.]
|
Date:
|
[Insert Date]
|
Relevant Closing Price:
|
USD [ ]
|
Discount Percentage:
|
[ ]
|
Reference Implied Volatility:
|
[ ]
|
Forward Price Adjustment Amount:
|
USD [ ]
|
Settlement Currency:
|
USD
|
Settlement Method Election:
|
Applicable;
provided
that (i) Section 7.1 of the Equity Definitions is hereby amended by deleting the word “Physical” in the sixth line thereof and replacing it with the words “Net Share” and (ii) the Electing Party may make a settlement method election only if the Electing Party represents and warrants to GS&Co. in writing on the date it notifies GS&Co. of its election that, as of such date, the Electing Party is not aware of any material non-public information concerning Counterparty or the Shares and is electing the settlement method in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws.
|
Electing Party:
|
Counterparty
|
Election Date:
|
The earlier of (i) the Scheduled Termination Date and (ii) the second Exchange Business Day immediately following the Accelerated Termination Date (in which case the election under Section 7.1 of the Equity Definitions shall be made no later than 10 minutes prior to the open of trading on the Exchange on such second Exchange Business Day), as the case may be.
|
Default Settlement Method:
|
Cash Settlement
|
Amount:
|
The Number of Shares to be Delivered
multiplied by
the Settlement Price.
|
Settlement Price:
|
The average of the VWAP Prices for the Exchange Business Days in the Settlement Valuation Period, subject to Valuation Disruption as specified in the Master Confirmation.
|
Settlement Valuation Period:
|
A number of Scheduled Trading Days selected by GS&Co. in its good faith commercially reasonable discretion by reference to (x) the then-prevailing volume limitations of Rule 10b-18 in respect of the Shares and (y) the number of commercially reasonable Scheduled Trading Days necessary or advisable to unwind a commercially reasonable hedge position, beginning on the Scheduled Trading Day immediately following the earlier of (i) the Scheduled Termination Date or (ii) the Exchange Business Day immediately following the Termination Date.
|
Cash Settlement:
|
If Cash Settlement is applicable, then Buyer shall pay to Seller the absolute value of the Forward Cash Settlement Amount on the Cash Settlement Payment Date.
|
Payment Date:
|
The date one Settlement Cycle following the last day of the Settlement Valuation Period.
|
Procedures:
|
If Net Share Settlement is applicable, Net Share Settlement shall be made in accordance with paragraphs 2 through 7 below.
|
Where
|
A = the number of authorized but unissued shares of the Counterparty that are not reserved for future issuance on the date of the determination of the Capped Number; and
|
Subsidiaries of the Registrant
|
State or Other Jurisdiction of Incorporation
|
Intuitive Surgical Holdings, LLC
|
Delaware, U.S.
|
Intuitive Surgical S. de R. L. de C.V.
|
Mexico
|
Intuitive Surgical Sarl
|
Switzerland
|
Intuitive Surgical International Ltd.
|
Cayman
|
Intuitive Surgical S.A.S.
|
France
|
Intuitive Surgical Deutschland GmbH
|
Germany
|
Intuitive Surgical SPRL
|
Belgium
|
Intuitive Surgical Limited
|
United Kingdom
|
Intuitive Surgical Pte. Ltd.
|
Singapore
|
Intuitive Surgical HK Limited
|
Hong Kong
|
Intuitive Surgical Operations, Inc.
|
Delaware, U.S.
|
Intuitive Surgical GK
|
Japan
|
Intuitive Surgical Brasil Importacao E Comercio De Equipamentos Cirurgicos Ltda.
|
Brazil
|
Intuitive Surgical AB
|
Sweden
|
Intuitive Surgical Medical Device and Technology (Shanghai) Co., Ltd.
|
China
|
Intuitive Surgical Korea Limited
|
Korea
|
Intuitive Surgical s.r.o.
|
Czech Republic
|
I.S. Netherlands C.V.
|
Netherlands
|
I.S. Holdings C.V.
|
Netherlands
|
Intuitive Surgical BV
|
Netherlands
|
Intuitive Surgical India Private Limited
|
India
|
Intuitive Surgical Medical Device Taiwan Ltd.
|
Taiwan
|
Intuitive Surgical ApS
|
Denmark
|
1.
|
I have reviewed this annual report on Form 10-K of Intuitive Surgical, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
By:
|
/
S
/ G
ARY
S. G
UTHART
|
|
Gary S. Guthart, Ph.D.
President and Chief Executive Officer
|
1.
|
I have reviewed this annual report on Form 10-K of Intuitive Surgical, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/
S
/ M
ARSHALL
L. M
OHR
|
Marshall L. Mohr
Senior Vice President and Chief Financial Officer
|
(i)
|
the accompanying Annual Report on Form 10-K of the Company for the period ended December 31,
2016
(the “
Report
”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
(ii)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/
S
/ G
ARY
S. G
UTHART
|
Gary S. Guthart, Ph.D.
President and Chief Executive Officer
|
(i)
|
the accompanying Annual Report on Form 10-K of the Company for the period ended December 31,
2016
(the “
Report
”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
(ii)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/
S
/ M
ARSHALL
L. M
OHR
|
Marshall L. Mohr
Senior Vice President and Chief Financial Officer
|