Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Stock-Based Compensation

Stock-Based Compensation

Note 8—Stock-Based Compensation

For the three months ended September 30, 2022 and 2021, the Company’s Income from continuing operations before income taxes was reduced for stock-based compensation expense of $23.6 and $21.2, respectively. In addition, for the three months ended September 30, 2022 and 2021, the Company recognized aggregate income tax benefits (associated with stock-based compensation) of $12.9 and $14.0, respectively, in Provision for income taxes in the accompanying Condensed Consolidated Statements of Income. These aggregate income tax benefits during the three months ended September 30, 2022 and 2021 include excess tax benefits of $10.6 and $12.3, respectively, from option exercises.

For the nine months ended September 30, 2022 and 2021, the Company’s Income from continuing operations before income taxes was reduced for stock-based compensation expense of $64.2 and $60.2, respectively. In addition, for the nine months ended September 30, 2022 and 2021, the Company recognized aggregate income tax benefits (associated with stock-based compensation) of $28.3 and $40.4, respectively, in Provision for income taxes in the accompanying Condensed Consolidated Statements of Income. These aggregate income tax benefits during the nine months ended September 30, 2022 and 2021 include excess tax benefits of $21.9 and $34.3, respectively, from option exercises.

The impact associated with recognizing excess tax benefits from option exercises in the provision for income taxes on our consolidated financial statements could result in significant fluctuations in our effective tax rate in the future, since the provision for income taxes will be impacted by the timing and intrinsic value of future stock-based compensation award exercises.

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. The expense incurred for stock-based compensation plans is included in Selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.

Stock Options

In May 2017, the Company adopted the 2017 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (the “2017 Employee Option Plan”), which provided for the issuance of 60,000,000 shares.  In March 2021, the Board authorized and approved the Amended and Restated 2017 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (the “Amended 2017 Employee Option Plan” and, together with the 2017 Employee Option Plan, the “2017 Option Plan”), which among other things, increased the number of shares reserved for issuance under the plan by 40,000,000 shares. The Amended 2017 Employee Option Plan was approved by the Company’s stockholders and became effective on May 19, 2021. As of September 30, 2022, there were 36,604,107 shares of Common Stock available for the granting of additional stock options under the 2017 Option Plan. Prior to the approval of the 2017 Employee Option Plan, the Company issued stock options under the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries, and its amendment (the “2009 Employee Option Plan”). No additional stock options will be granted under the 2009 Employee Option Plan.  Options granted under the 2017 Option Plan and the 2009 Employee Option Plan generally vest ratably over a period of five years from the date of grant and are generally exercisable over a period of ten years from the date of grant.  

Stock option activity for the three and nine months ended September 30, 2022 was as follows:

				Weighted
				Average	Aggregate
		Weighted		Remaining	Intrinsic
		Average		Contractual	Value
	Options	Exercise Price		Term (in years)	(in millions)
Options outstanding at January 1, 2022	65,300,748	$	42.00	6.47	$	2,968.8
Options granted	532,721		85.92
Options exercised	(646,759)		30.24
Options forfeited	(136,140)		47.07
Options outstanding at March 31, 2022	65,050,570		42.46	6.27		2,145.0
Options granted	6,389,410		67.59
Options exercised	(819,522)		27.16
Options forfeited	(182,370)		48.89
Options outstanding at June 30, 2022	70,438,088		44.91	6.41		1,420.3
Options granted	143,393		65.90
Options exercised	(2,058,799)		35.00
Options forfeited	(81,380)		50.00
Options outstanding at September 30, 2022	68,441,302	$	45.24	6.22	$	1,501.6
Vested and non-vested options expected to vest at September 30, 2022	65,484,627	$	44.84	6.14	$	1,463.0
Exercisable options at September 30, 2022	41,460,615	$	38.30	5.04	$	1,188.2

A summary of the status of the Company’s non-vested options as of September 30, 2022 and changes during the three and nine months then ended is as follows:

		Weighted
		Average
		Fair Value at
	Options	Grant Date
Non-vested options at January 1, 2022	31,380,283	$	8.34
Options granted	532,721		17.97
Options vested	(59,200)		10.69
Options forfeited	(136,140)		7.68
Non-vested options at March 31, 2022	31,717,664		8.50
Options granted	6,389,410		16.68
Options vested	(10,914,950)		7.16
Options forfeited	(182,370)		8.37
Non-vested options at June 30, 2022	27,009,754		10.98
Options granted	143,393		16.60
Options vested	(99,080)		6.60
Options forfeited	(73,380)		9.87
Non-vested options at September 30, 2022	26,980,687	$	11.03

During the three and nine months ended September 30, 2022 and 2021, the following activity occurred under the Company’s option plans:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Total intrinsic value of stock options exercised	$	82.2	$	108.1	$	151.4	$	246.5
Total fair value of stock options vested		0.7		0.6		79.4		71.4

As of September 30, 2022, the total compensation cost related to non-vested options not yet recognized was approximately $243.7 with a weighted average expected amortization period of 3.54 years.

The grant-date fair value of each option grant under the 2009 Employee Option Plan and the 2017 Option Plan is estimated using the Black-Scholes option pricing model. The grant-date fair value of each share grant is determined based on the closing share price of the Company’s Common 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 Common Stock 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 experience. The risk-free interest rate is based on U.S. Treasury zero-coupon issuances 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.

Restricted Stock

In 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 Board. As of September 30, 2022, the number of restricted shares available for grant under the 2012 Directors Restricted Stock Plan was 120,047. Restricted shares granted under the 2012 Directors Restricted Stock Plan vest on the earlier of the first anniversary of the date of grant or the day immediately prior to the date of the next regular annual meeting of the Company’s stockholders following such date of grant. Grants under the 2012 Directors Restricted Stock Plan entitle the holder to receive shares of the Company’s Common Stock without payment.

Restricted share activity for the three and nine months ended September 30, 2022 was as follows:

				Weighted Average
				Remaining
	Restricted	Fair Value at		Amortization
	Shares	Grant Date		Term (in years)
Restricted shares outstanding at January 1, 2022	21,061	$	66.92	0.38
Restricted shares granted	—		—
Restricted shares outstanding at March 31, 2022	21,061		66.92	0.13
Shares vested and issued	(21,061)		66.92
Restricted shares granted	21,312		67.59
Restricted shares outstanding at June 30, 2022	21,312		67.59	0.88
Restricted shares granted	—		—
Restricted shares outstanding at September 30, 2022	21,312	$	67.59	0.62

As of September 30, 2022, the total compensation cost related to non-vested restricted shares not yet recognized was approximately $0.9 (with a weighted average expected amortization period of 0.62 years).