Stock-Based Compensation and Shareholders' Equity

9 Months Ended

Jul. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation and Shareholders' Equity

A summary of the Company’s stock option activity as of July 31, 2021 and changes during the nine-month period 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 October 31, 2020	4,192	$70.73
Options granted	644	$145.04
Options exercised	(875)	$63.18
Options forfeited	(36)	$87.18
Options expired	(6)	$40.69
Options outstanding at July 31, 2021	3,919	$84.53	5.7	$324,862
Options exercisable at July 31, 2021	2,511	$66.15	4.3	$254,262
Options vested or expected to vest at July 31, 2021 (1)	3,816	$83.41	5.7	$320,532

(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.

In the first quarter of fiscal 2021, the Company issued a special performance stock option award to the Company's chief executive officer. The performance stock option award is exercisable for up to 460,000 shares of the Company's common stock (the Target Number of Shares) at an exercise price per share of $144.06, which was the closing price of the Company's common stock on the date of grant, and vests subject to the satisfaction of certain target stock price thresholds during a five-year period, measured on the basis of the average of the closing prices of the Company's common stock over 70 consecutive trading days. The actual number of shares that will become exercisable will range from 0% to a maximum of 100% of the Target Number of Shares based on the attainment of such target stock price thresholds at any time during a five-year period from December 15, 2020 to December 15, 2025. The grant date fair value of the award was calculated using the Monte Carlo simulation model which utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the award to calculate the fair market value. The Monte Carlo simulation model also uses stock price volatility and other variables to estimate the probability of satisfying the performance conditions, including the possibility that the market condition may not be satisfied, and the resulting fair value of the award.

During the nine-month periods ended July 31, 2021 and August 1, 2020, 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) was $79.1 million and $61.7 million, respectively.

A summary of the Company’s restricted stock unit/award activity as of July 31, 2021 and changes during the nine-month period 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 October 31, 2020	3,637	$91.54
Units/Awards granted	1,034	$143.88
Restrictions lapsed	(1,160)	$89.08
Forfeited	(163)	$100.74
Restricted stock units/awards outstanding at July 31, 2021	3,348	$107.70

In the first half of fiscal 2021, the Company issued approximately 121,000 performance-based restricted stock units (Maxim Integration PRSUs) related to the Company's planned acquisition of Maxim to a select group of employees. The number of Maxim Integration PRSUs that may be earned will range from 0% to a maximum of 200% of the issued amount of Maxim Integration PRSUs and will be determined according to the achievement of certain performance metrics. Any shares earned will vest on the 60th day following the two-year anniversary of the closing of the Maxim acquisition. If the Maxim acquisition does not close, the awards will be cancelled. The grant date fair value of these awards were calculated using 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. The grant-date fair value of these awards is also impacted by the number of units that are expected to vest during the performance period and is adjusted through the related stock-based compensation expense at each reporting period based on the probability of achievement of that performance condition.

As of July 31, 2021, there was $337.9 million of total unrecognized compensation cost related to unvested stock-based awards comprised of stock options and restricted stock units/awards. That cost is expected to be recognized over a weighted-average period of 1.4 years. The total grant-date fair values of awards that vested during the nine-month periods ended July 31, 2021 and August 1, 2020 were approximately $114.7 million and $157.9 million, respectively.

Total stock-based compensation expense recognized was as follows:


	Three Months Ended				Nine Months Ended
	July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Cost of sales	$	4,331	$	4,508	$	13,338	$	13,428
Research and development	19,806		19,158		57,675		55,163
Selling, marketing, general and administrative	17,550		14,951		47,670		43,427
Special charges, net	—		943		—		943
Total stock-based compensation expense	$	41,687	$	39,560	$	118,683	$	112,961

As of July 31, 2021 and October 31, 2020, the Company capitalized $6.0 million and $5.8 million, respectively, of stock-based compensation in Inventories on the Condensed Consolidated Balance Sheets.

Common Stock Repurchases

As of July 31, 2021, the Company had repurchased a total of approximately 159.0 million shares of its common stock for approximately $6.7 billion under the Company's share repurchase program. As of July 31, 2021, an additional $1.4 billion remains available for repurchase of shares under the current authorized program. The Company also repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. Future repurchases of common stock will be dependent upon the Company's financial position, results of operations, outlook, liquidity, and other factors deemed relevant by the Company.