Note 8—Stock-Based Compensation

In May 2009, the Company adopted the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and its Subsidiaries (the “2009 Employee Option Plan”). The Company continues to maintain the 2000 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (the “2000 Employee Option Plan”). No additional stock options can be granted under the 2000 Employee Option Plan. The 2009 Employee Option Plan authorizes the granting of additional stock options by a committee of the Company’s Board of Directors and was amended in May 2014 to increase the number of shares of common stock reserved for issuance from 32,000,000 shares to 58,000,000 shares. As of September 30, 2014, there were 24,788,660 shares of common stock available for the granting of additional stock options under the 2009 Employee Option Plan. Options granted under the 2000 Employee Option Plan and the 2009 Employee Option Plan generally vest ratably over a period of five years and are generally exercisable over a period of ten years from the date of grant.

In 2004, the Company adopted the 2004 Stock Option Plan for Directors of Amphenol Corporation (the “2004 Directors Option Plan”). The 2004 Directors Option Plan is administered by the Company’s Board of Directors. As of September 30, 2014, there were 140,000 shares of common stock available for the granting of additional stock options under the 2004 Directors Option Plan, although no additional stock options are expected to be granted under this plan. Options granted under the 2004 Directors Option Plan generally vest ratably over a period of three years and are generally exercisable over a period of ten years from the date of grant.

In May 2012, the Company adopted the 2012 Restricted Stock Plan for Directors of Amphenol Corporation (the “2012 Directors Restricted Stock Plan”). The 2012 Directors Restricted Stock Plan is administered by the Company’s Board of Directors. As of September 30, 2014, the number of restricted shares available for grant under the 2012 Directors Restricted Stock Plan was 171,922. Restricted shares granted under the 2012 Directors Restricted Stock Plan generally vest on the first anniversary of the grant date. Grants under the 2012 Directors Restricted Stock Plan entitle the holder to receive shares of the Company’s common stock without payment.

The grant-date fair value of each option grant under the 2000 Employee Option Plan, the 2009 Employee Option Plan and the 2004 Directors Option Plan is estimated using the Black-Scholes option pricing model. The grant-date fair value of each restricted share grant is determined based on the closing share price of the Company’s stock on the date of the grant. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model for option grants requires management to make certain assumptions with respect to selected model inputs. Expected share price volatility is calculated based on the historical volatility of the stock of the Company and implied volatility derived from related exchange traded options. The average expected life is based on the contractual term of the option and expected exercise and historical post-vesting termination experience. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The expected annual dividend per share is based on the Company’s dividend rate.

Stock-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates. Changes in estimated forfeitures are recognized in the period of change and impact the amount of expense to be recognized in future periods. For the three months ended September 30, 2014, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $10,133 and $7,512, respectively, and those reductions were $29,382 and $21,649, respectively, for the nine months ended September 30, 2014. For the three months ended September 30, 2013, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $9,413 and $6,940, respectively, and these reductions were $26,584 and $19,432, respectively, for the nine months ended September 30, 2013. The expense incurred for stock-based compensation is included in selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Income.

Stock Options

Stock option activity for the three and nine months ended September 30, 2014, was as follows:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2014	26,844,452		$	25.90	7.08	$	501,706
Options granted	65,000		44.57
Options exercised	(629,932	)	20.21
Options forfeited	(102,920	)	29.90
Options outstanding at March 31, 2014	26,176,600		$	26.07	6.89	$	517,164
Options granted	6,047,000		47.72
Options exercised	(2,257,950	)	19.90
Options forfeited	(99,120	)	32.61
Options outstanding at June 30, 2014	29,866,530		$	30.90	7.46	$	515,908
Options granted	108,000		48.77
Options exercised	(1,483,440	)	20.47
Options forfeited	(94,320	)	36.39
Options outstanding at September 30, 2014	28,396,770		$	31.49	7.32	$	523,618
Vested and non-vested options expected to vest at September 30, 2014	25,649,402		$	31.10	7.23	$	483,163
Exercisable options at September 30, 2014	11,775,650		$	23.11	5.74	$	315,886

A summary of the status of the Company’s non-vested options as of September 30, 2014 and changes during the three and nine months then ended, is as follows:

	Options		Weighted Average Fair Value at Grant Date
Non-vested options at January 1, 2014	16,033,842		$	7.39
Options granted	65,000		10.62
Options vested	(14,000	)	8.49
Options forfeited	(102,920	)	7.41
Non-vested options at March 31, 2014	15,981,922		$	7.40
Options granted	6,047,000		8.62
Options vested	(5,296,022	)	6.98
Options forfeited	(99,120	)	7.66
Non-vested options at June 30, 2014	16,633,780		$	7.97
Options granted	108,000		8.85
Options vested	(26,340	)	8.33
Options forfeited	(94,320	)	8.00
Non-vested options at September 30, 2014	16,621,120		$	7.98

During the three and nine months ended September 30, 2014 and 2013, the following activity occurred under the Company’s option plans:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Total intrinsic value of stock options exercised	$	45,458	$	16,456	$	123,911	$	91,091
Total fair value of stock options vested	219		49		37,277		33,830

As of September 30, 2014, the total compensation cost related to non-vested options not yet recognized is approximately $104,618 with a weighted average expected amortization period of 3.59 years.

Restricted Shares

Prior to the third quarter of 2013, the Company issued 34,090 restricted shares with a weighted-average fair value at grant date of $26.89 per share, all of which became fully vested in 2013. In the second quarter of 2013, the Company issued 25,648 restricted shares with a weighted-average fair value at grant date of $39.00, all of which became fully vested in the second quarter of 2014. Additionally, in the second quarter of 2014, the Company issued 18,340 restricted shares with a weighted-average fair value at grant date of $47.72. As of September 30, 2014, the total compensation cost related to non-vested restricted shares not yet recognized was approximately $562 with a weighted average expected amortization period of 0.65 years.