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Stock-Based Compensation and Shareholders' Equity
 12 Months Ended
Nov. 02, 2019
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation and Shareholders' Equity Stock-Based Compensation and Shareholders’ Equity
Equity Compensation Plans
The Company grants, or has granted, stock options and other stock and stock-based awards under the Company's Amended and Restated 2006 Stock Incentive Plan (2006 Plan). This plan was originally approved by shareholders on March 14, 2006, and shareholders subsequently approved the amended and restated 2006 Plan in March 2014. The 2006 Plan provides for the grant of up to 34 million shares of the Company’s common stock, plus such number of additional shares that were subject to outstanding options under the Company’s previous equity compensation plans that have not been issued because the applicable option award subsequently terminates or expires without being exercised. The 2006 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Employees, officers, directors, consultants and advisors of the Company and its subsidiaries are eligible to be granted awards under the 2006 Plan. No award may be made under the 2006 Plan after March 12, 2021, but awards previously granted may extend beyond that date. The Company will not grant further equity awards under any previous equity compensation plans. In connection with the Acquisition, the Company assumed the Linear Technology Corporation Amended and Restated 2005 Equity Incentive Plan (the 2005 Plan) and the Linear Technology Corporation Amended and Restated 2010 Equity Incentive Plan (now referred to as the Analog Devices, Inc. Amended and Restated 2010 Equity Incentive Plan) (the 2010 Plan). The Company will not grant further equity awards under the 2005 Plan but may grant stock options and other stock and stock-based awards under the 2010 Plan.
While the Company may grant options to employees that become exercisable at different times or within different periods, the Company generally grants to employees options that vest over four years and become exercisable in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. For grants issued prior to fiscal 2018 the options granted to employees generally vested over five years and became exercisable in annual installments of 20% on each of the first, second, third, fourth and fifth anniversaries of the date of grant. The maximum contractual term of all options is ten years.
In addition, the Company grants to employees restricted stock units that generally vest over four years in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant. For grants issued prior to fiscal 2018 restricted stock units generally vested in one installment on the third anniversary of the date of grant.
As of November 2, 2019, a total of 10.2 million and 1.4 million common shares were available for future grant under the 2006 Plan and 2010 Plan, respectively, and 21.2 million common shares were reserved for issuance under the 2006 Plan, 2010 Plan and the Company's previous equity compensation plans.
Stock-based compensation is measured at the grant date based on the grant-date fair value of the awards ultimately expected to vest and is recognized as an expense on a straight-line basis over the vesting period. Determining the amount of stock-based compensation to be recorded requires the Company to develop estimates used in calculating the grant-date fair value of stock options.
Linear Replacement Awards
In connection with the Acquisition, the Company issued equity awards, consisting of restricted stock awards and restricted stock units (replacement awards), to certain Linear employees in replacement of Linear equity awards. The replacement awards consisted of restricted stock awards and restricted stock units for approximately 2.8 million shares of the Company's common stock with a weighted average grant date fair value of $82.20. The terms and intrinsic value of these replacement awards are substantially the same as the converted Linear awards. The fair value of the replacement awards associated with services rendered through the Acquisition Date was recognized as a component of the total acquisition consideration, and the remaining fair value of the replacement awards associated with post-Acquisition services will be recognized as an expense on a straight-line basis over the remaining vesting period.
Modification of Awards
The Company has, from time to time, modified the terms of its equity awards to employees and directors. The modifications made to the Company’s equity awards in fiscal 2019, fiscal 2018 and fiscal 2017 did not result in significant incremental compensation costs, either individually or in the aggregate.
Grant-Date Fair Value
The Company uses the Black-Scholes valuation model to calculate the grant-date fair value of stock option awards. The use of valuation models requires the Company to make estimates and assumptions, such as expected volatility, expected term, risk-free interest rate, expected dividend yield and forfeiture rates. The grant-date fair value of restricted stock units with a service condition represents the value of the Company's common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company's common stock prior to vesting.
Information pertaining to the Company’s stock option awards and the related estimated weighted-average assumptions to calculate the fair value of stock options using the Black-Scholes valuation model granted in fiscal 2018, fiscal 2017 and fiscal 2016 is as follows: 
Stock Options201920182017
Options granted (in thousands)454  603  1,480  
Weighted-average exercise price$107.11  $90.98  $82.99  
Weighted-average grant-date fair value$23.29  $20.82  $17.12  
Assumptions:
Weighted-average expected volatility26.4 %27.7 %26.4 %
Weighted-average expected term (in years)5.05.05.1
Weighted-average risk-free interest rate2.4 %2.6 %2.1 %
Weighted-average expected dividend yield2.0 %2.1 %2.2 %
Expected volatility — The Company is responsible for estimating volatility and has considered a number of factors, including third-party estimates. The Company currently believes that the exclusive use of implied volatility results in the best estimate of the grant-date fair value of employee stock options because it reflects the market’s current expectations of future volatility. In evaluating the appropriateness of exclusively relying on implied volatility, the Company concluded that: (1) options in the Company’s common stock are actively traded with sufficient volume on several exchanges; (2) the market prices of both the traded options and the underlying shares are measured at a similar point in time to each other and on a date close to the grant date of the employee share options; (3) the traded options have exercise prices that are both near-the-money and close to the exercise price of the employee share options; and (4) the remaining maturities of the traded options used to estimate volatility are at least one year.
Expected term — The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option, and that generally its employees exhibit similar exercise behavior.
Risk-free interest rate — The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate.
Expected dividend yield — Expected dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the date of grant. Until such time as the Company’s Board of Directors declares a cash dividend for an amount that is different from the current quarter’s cash dividend, the current dividend will be used in deriving this assumption. Cash dividends are not paid on options, restricted stock or restricted stock units. In connection with the Acquisition, the Company granted restricted stock awards to replace outstanding restricted stock awards of Linear employees. These restricted stock awards entitle recipients to voting and nonforfeitable dividend rights from the date of grant.
Stock-Based Compensation Expense
The amount of stock-based compensation expense recognized during a period is based on the value of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock-based award. Based on an analysis of its historical forfeitures, the Company has applied an annual forfeiture rate of 5.0% to all unvested stock-based awards as of November 2, 2019. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those awards that vest.
Total stock-based compensation expense recognized is as follows:
201920182017
Cost of sales$20,628  $18,733  $12,569  
Research and development75,305  81,444  51,258  
Selling, marketing, general and administrative51,829  50,988  40,361  
Special charges2,538  —  —  
Total stock-based compensation expense$150,300  $151,165  $104,188  
As of November 2, 2019 and November 3, 2018, the Company capitalized $6.8 million and $7.1 million, respectively, of stock-based compensation in inventory.
Additional paid-in-capital (APIC) Pool
The Company adopted ASU 2016-09 during fiscal 2018. ASU 2016-09 eliminated the APIC pool and requires that excess tax benefits and tax deficiencies be recorded in the income statement when awards are settled. As a result of this adoption the Company recorded total excess tax benefits of $28.7 million and $26.2 million in fiscal 2019 and fiscal 2018, respectively, from its stock-based compensation payments within income tax expense in its consolidated statements of income.
For fiscal 2017, the APIC pool represented the excess tax benefits related to stock-based compensation that were available to absorb future tax deficiencies. If the amount of future tax deficiencies was greater than the available APIC pool, the Company recorded the excess as income tax expense in its consolidated statements of income. For fiscal 2017, the Company had a sufficient APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations.
Stock-Based Compensation Activity
A summary of the activity under the Company’s stock option plans as of November 2, 2019 and changes during the fiscal year then ended is presented below: 
Options
Outstanding
(in thousands)		Weighted-
Average Exercise
Price Per Share		Weighted-
Average
Remaining
Contractual
Term in Years		Aggregate
Intrinsic
Value
Options outstanding at November 3, 2018
7,297  $58.42  
Options granted454  $107.11  
Options exercised(2,364) $49.67  
Options forfeited(198) $78.05  
Options expired(6) $21.97  
Options outstanding at November 2, 2019
5,183  $65.97  5.9$224,945  
Options exercisable at November 2, 2019
2,933  $55.23  4.7$158,789  
Options vested or expected to vest at November 2, 2019 (1)
5,046  $65.42  5.9$221,766  
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(1)In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.
The total intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) during fiscal 2019, fiscal 2018 and fiscal 2017 was $132.3 million, $123.8 million and $144.6 million, respectively, and the total amount of proceeds received by the Company from exercise of these options during fiscal 2019, fiscal 2018 and fiscal 2017 was $116.5 million, $99.0 million and $133.3 million, respectively.
A summary of the Company’s restricted stock unit award activity as of November 2, 2019 and changes during the fiscal year then ended is presented below: 
Restricted
Stock Units/Awards
Outstanding
(in thousands)		Weighted-
Average Grant-
Date Fair Value
Per Share
Restricted stock units/awards outstanding at November 3, 2018
5,289  $77.54  
Units/Awards granted1,317  $98.82  
Restrictions lapsed(1,896) $69.38  
Forfeited(314) $80.44  
Restricted stock units/awards outstanding at November 2, 2019
4,396  $87.18  
As of November 2, 2019, there was $318.3 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total grant-date fair value of shares that vested during fiscal 2019, fiscal 2018 and fiscal 2017 was approximately $150.6 million, $136.1 million and $114.8 million, respectively.
Common Stock Repurchases
The Company’s share repurchase program has been in place since August 2004. In the aggregate, the Board of Directors has authorized the Company to repurchase $8.2 billion of the Company’s common stock under the program, which includes the $2.0 billion authorization approved by the Board of Directors on August 21, 2018. The Company may repurchase outstanding shares of its common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of the Company’s Board of Directors, the repurchase program will expire when the Company has repurchased all shares authorized under the program.
In connection with the Acquisition, the Company temporarily suspended the share repurchase program. On August 21, 2018, the Company reinstated the share repurchase program and, as of November 2, 2019, the Company had repurchased a total of approximately 154.4 million shares of its common stock for approximately $6.1 billion under this program. An additional $2.1 billion remains available for repurchase of shares under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock.
The Company also, from time to time, repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. The withholding amount is based on the employee's minimum statutory withholding requirement. Any future common stock repurchases will be dependent upon several factors, including the Company's financial performance, outlook, liquidity and the amount of cash the Company has available in the United States.
Preferred Stock
The Company has 471,934 authorized shares of $1.00 par value preferred stock, none of which is issued or outstanding. The Board of Directors is authorized to fix designations, relative rights, preferences and limitations on the preferred stock at the time of issuance.