Stock-Based Compensation

9 Months Ended

Sep. 30, 2023

Stock-Based Compensation

Stock-Based Compensation

Note 8—Stock-Based Compensation

For the three months ended September 30, 2023 and 2022, the Company’s Income before income taxes was reduced for stock-based compensation expense of $26.9 and $23.6, respectively. In addition, for the three months ended September 30, 2023 and 2022, the Company recognized aggregate income tax benefits (associated with stock-based compensation) of $41.0 and $12.9, 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, 2023 and 2022 include excess tax benefits of $38.3 and $10.6, respectively, from option exercises.

For the nine months ended September 30, 2023 and 2022, the Company’s Income before income taxes was reduced for stock-based compensation expense of $72.4 and $64.2, respectively. In addition, for the nine months ended September 30, 2023 and 2022, the Company recognized aggregate income tax benefits (associated with stock-based compensation) of $74.5 and $28.3, 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, 2023 and 2022 include excess tax benefits of $67.3 and $21.9, 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, 2023, there were 31,234,953 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, 2023 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, 2023	66,135,037	$	45.57	6.03	$	2,027.2
Options granted	29,900		79.74
Options exercised	(2,568,529)		31.58
Options forfeited	(58,420)		53.54
Options outstanding at March 31, 2023	63,537,988		46.14	5.89		1,911.4
Options granted	5,909,147		75.80
Options exercised	(2,678,572)		37.26
Options forfeited	(284,616)		54.97
Options outstanding at June 30, 2023	66,483,947		49.10	6.07		2,384.3
Options granted	57,541		83.53
Options exercised	(4,007,400)		35.62
Options forfeited	(99,442)		65.23
Options outstanding at September 30, 2023	62,434,646	$	49.97	5.98	$	2,125.3
Vested and non-vested options expected to vest at September 30, 2023	60,609,087	$	49.56	5.91	$	2,088.0
Exercisable options at September 30, 2023	39,792,545	$	42.50	4.83	$	1,651.2

A summary of the status of the Company’s non-vested options as of September 30, 2023 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, 2023	26,721,012	$	11.04
Options granted	29,900		20.87
Options vested	(150,468)		15.32
Options forfeited	(58,420)		10.45
Non-vested options at March 31, 2023	26,542,024		11.03
Options granted	5,909,147		21.36
Options vested	(9,421,232)		9.15
Options forfeited	(268,616)		11.13
Non-vested options at June 30, 2023	22,761,323		14.48
Options granted	57,541		23.93
Options vested	(61,321)		11.54
Options forfeited	(115,442)		13.68
Non-vested options at September 30, 2023	22,642,101	$	14.52

During the three and nine months ended September 30, 2023 and 2022, the following activity occurred under the Company’s option plans:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Total intrinsic value of stock options exercised	$	208.4	$	82.2	$	447.9	$	151.4
Total fair value of stock options vested		0.7		0.7		89.3		79.4

As of September 30, 2023, the total compensation cost related to non-vested options not yet recognized was approximately $273.0 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 was administered by the Board. On May 17, 2023, 21,312 shares of restricted stock previously granted to non-employee directors vested in accordance with their terms. As of September 30, 2023, no additional shares of restricted stock are outstanding under the 2012 Directors Restricted Stock Plan and, given that the 2012 Directors Restricted Stock Plan expired on May 22, 2022, no additional shares of restricted stock will be granted thereunder.

Phantom Stock

On June 5, 2023, the Company granted 2,375 shares of phantom stock to each then-current non-employee director (19,000 shares in the aggregate), which will vest and, pursuant to the election of the non-employee director, is expected to convert into unrestricted shares of the Company’s Common Stock on the earlier of May 19, 2024 or the day immediately prior to the date of the 2024 annual meeting of the Company’s stockholders. As of September 30, 2023, the total compensation cost related to non-vested shares of phantom stock not yet recognized was approximately $0.9 (with a weighted average expected amortization period of 0.62 years).