(1) | Includes (a) excess tax benefits related to stock-based compensation of $38.1 resulting from stock option exercises, partially offset by (b) acquisition-related expenses of $25.4 ($21.0 after-tax) comprised of the amortization related to the value associated with acquired backlog from two acquisitions, along with external transaction costs and (c) refinancing-related costs of $14.3 ($12.5 after-tax) associated with the early extinguishment of debt. These items had the aggregate effect of increasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $4.6 and $0.01 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, both non-GAAP financial measures defined in Part II, Item 7 herein, were $1,150.4 and $3.74 per share, respectively, for the year ended December 31, 2019. | ● | If there is a general market downturn and continued high degree of volatility in the financial markets, we may experience a material re-valuation of, for example, our pension assets and obligations. |
(2) | Includes (a) an income tax benefit of $14.5 recorded in 2018 related to the completion of the accounting associated with the provisional income tax charge recorded in 2017 related to the enactment of the Tax Cuts and Jobs Act and (b) excess tax benefits related to stock-based compensation of $19.8 resulting from stock option exercises, partially offset by (c) acquisition-related expenses of $8.5 ($7.2 after-tax) primarily relating to external transaction costs. These items had the aggregate effect of increasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $27.1 and $0.08 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $1,177.9 and $3.77 per share, respectively, for the year ended December 31, 2018. |
(3) | Includes (a) an income tax charge of $398.5 related to the enactment of the Tax Cuts and Jobs Act, which represented our estimate of taxes arising from the implementation of a modified territorial tax regime and the deemed and intended repatriation of prior unremitted earnings of foreign subsidiaries, partially offset by the tax benefit associated with the remeasurement of the Company’s U.S. net deferred tax liabilities due to the U.S. federal corporate tax rate reduction and (b) acquisition-related expenses of $4.0 ($3.7 after-tax) primarily relating to external transaction costs associated with 2017 acquisitions, partially offset by (c) excess tax benefits related to stock-based compensation of $66.6 resulting from stock option exercises. These items had the aggregate effect of decreasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $335.6 and $1.06 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $986.1 and $3.12 per share, respectively, for the year ended December 31, 2017. |
(4) | Includes acquisition-related expenses of $36.6 ($33.1 after-tax) primarily relating to the FCI Asia Pte. Ltd. (“FCI”) and other 2016 acquisitions, including external transaction costs, amortization related to the value associated with acquired backlog and restructuring charges. These items had the aggregate effect of decreasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $33.1 and $0.11 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $856.0 and $2.72 per share, respectively, for the year ended December 31, 2016. |
(5) | Includes acquisition-related expenses of $5.7 ($5.7 after-tax) relating to acquisitions closed and announced in 2015. These acquisition-related expenses had the effect of decreasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $5.7 and $0.02 per share, respectively. Excluding the effect of this item, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $769.2 and $2.43 per share, respectively, for the year ended December 31, 2015. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(amounts in millions, except share and per share data, unless otherwise noted)
The following discussion and analysis of the results of operations and financial condition for the three years ended December 31, 2019, 2018 and 2017 has been derived from and should be read in conjunction with the Consolidated Financial Statements included in Part II, Item 8, herein. The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”. For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meanings, respectively, as these aforementioned non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures.
In addition to historical information, the following discussion and analysis also contains certain forward-looking statements that are subject to risks and uncertainties, including but not limited to the risk factors described in Part I, Item 1A herein, as well as the risks and uncertainties that exist with the use of forward-looking statements as described in the “Cautionary Note Regarding Forward-Looking Statements” section included herein at the beginning of this Annual Report on Form 10-K.
Overview
General
Amphenol Corporation (together with its subsidiaries, “Amphenol”, the “Company”, “we”, “our”, or “us”) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company operates through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. In 2019, approximately 69% of the Company’s sales were outside the United States. The primary end markets for our products are:The Company and certain of its suppliers and customers are experiencing difficulties obtaining certain raw materials and components, and the cost of most of the Company’s raw materials and components is increasing. | ● | information technology and communication devices and systems for the converging technologies of voice, video and data communications;The Company uses basic materials like aluminum, steel, copper, titanium, metal alloys, gold, silver, palladium and plastic resins in its manufacturing processes as well as a variety of components and relies on third-party suppliers to secure these materials and components. The COVID-19 pandemic initially disrupted the supply of such raw materials and components, primarily in the first half of 2020. However, more recently, in 2021 and the first quarter of 2022, we, along with many of our suppliers and customers, have experienced widespread supply chain disruptions that have resulted in significant cost increases across certain raw materials and components as well as some supply shortages, that collectively have had an adverse impact on our business and operating results. For example, the recent market shortage of semiconductors has caused disruptions, from both a supply and pricing standpoint, in some of the markets we serve, in particular, the automotive market. Recent inflationary pressures have been exacerbated by the lower availability of, and increased prices for, freight and logistics, including air, sea and ground freight. In addition, the Company may not be able to pass along increased raw material or component prices to its customers. While the Company has taken and continues to take measures to procure and obtain sufficient quantities of raw materials and components at acceptable prices from our suppliers, there can be no assurance that the Company will be able to continue to do so. Accordingly, any future delays, disruptions, and supply and pricing risks, such as the ongoing supply chain challenges and disruptions that we expect to continue during 2022, could affect our ability to meet customer demand for our products, which could have an adverse effect on our business, results of operations and financial condition. |
| ● | a broad range of industrial applications and traditional, hybrid and electric automotive applications; and |
| ● | military and commercial aerospace applications. |
The Company’s products are used in a wide variety of applications by numerous customers around the world. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. There has been a trend on the part of customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. The Company has focused its global resources to position itself to compete effectively in this environment. The Company believes that its global presence is an important competitive advantage as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.
Strategy
The Company’s strategy is to provide its customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis while maintaining continuing programs of productivity improvement and cost control. The Company focuses its research and development efforts through close collaboration with its customers to develop highly-engineered products that meet customer needs and have the potential for broad market applications and significant sales within a one- to three-year period. The Company is also focused on controlling costs. The Company does this by investing in modern manufacturing technologies, controlling purchasing processes and expanding into lower cost areas.
The Company’s strategic objective is to further enhance its position in its served markets by pursuing the following success factors:
| ● | Pursue broad diversification; |
| ● | Develop high technology performance-enhancing interconnect solutions; |
| ● | Pursue strategic acquisitions and investments; and |
| ● | Foster collaborative, entrepreneurial management. |
In 2019, the Company reported net sales of $8,225.4, which was flat compared to 2018, along with operating income and net income attributable to Amphenol Corporation of $1,619.2 and $1,155.0, respectively, both representing a decrease of 4% from 2018. In 2019, the Company’s net income attributable to Amphenol Corporation was impacted by (a) excess tax benefits related to stock-based compensation of $38.1 resulting from stock option exercises, partially offset by (b) acquisition-related expenses of $25.4 ($21.0 after-tax) primarily from the amortization related to the value associated with acquired backlog as well as external transaction costs and (c) refinancing-related costs associated with the early extinguishment of debt of $14.3 ($12.5 after-tax), comprised primarily of the premiums and other fees incurred from the early extinguishment of redeemed amounts of our 3.125% Senior Notes and 4.00% Senior Notes resulting from the tender offers in September 2019 described herein under “Liquidity and Capital Resources – Financing Activities”. In 2018, the Company’s net income attributable to Amphenol Corporation was impacted by the recognition of an income tax benefit of $14.5 related to the completion of the accounting for the Tax Act Charge (defined below) in the fourth quarter of 2018, along with excess tax benefits of $19.8 from stock option exercises, partially offset by acquisition-related expenses incurred during the year.Excluding the effects of these items, Adjusted Operating Income and Adjusted Net Income attributable to Amphenol Corporation, as defined in the “Non-GAAP Financial Measures” section below and as reconciled in Part II, Item 7 herein, decreased by 3% and 2%, respectively, in 2019. Sales and profitability trends are discussed in detail in “Results of Operations” below. In addition, a strength of the Company has been its ability to consistently generate cash from operations. The Company uses cash generated from operations to fund capital expenditures and acquisitions, repurchase shares of its common stock, pay dividends and reduce indebtedness. In 2019, the Company generated operating cash flow of $1,502.3, which net of capital expenditures of $295.0, resulted in Free cash flow of $1,207.3. Free cash flow, a non-GAAP financial measure, is defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7 herein.
Tax Cuts and Jobs Act of 2017
On December 22, 2017, the United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”), marking a change from a worldwide tax system to a modified territorial tax system in the United States and a reduction of the U.S. federal corporate income tax rate from 35% to 21%. As a result of the Tax Act, in the fourth quarter of 2017, the Company recorded an income tax charge of $398.5 (“Tax Act Charge”). The Tax Act Charge was a provisional amount recorded in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which was subsequently codified under ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. Consistent with ASU 2018-05, the Company completed its accounting of the Tax Act Charge and recorded an income tax benefit of $14.5 in 2018, reflecting the interpretive guidance that was issued subsequent to our 2017 Form 10-K filing. While the Company completed its accounting of the Tax Act in the fourth quarter of 2018 based on the regulatory guidance issued at that time, the Department of Treasury interpretive guidance initiatives are ongoing. Refer to Note 6 of the Notes to the Consolidated Financial Statements for further discussion of the Tax Act.
23
In limited instances we depend on a single source of supply or participate in commodity markets that may be served by a limited number of suppliers. Delays in obtaining supplies may result from a number of factors affecting our suppliers, and any delay could impair our ability to deliver products to our customers. The cost and availability of raw materials may fluctuate significantly due to external factors including, but not limited to, product scarcity, disruptions caused by climate change and adverse weather conditions, commodity market fluctuations, currency fluctuations, governmental policies and regulations such as trade tariffs, as well as pandemics and epidemics (such as, but not limited to, the COVID-19 pandemic), which may, in turn, negatively impact our results of operations and financial condition. The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused by climate change and global warming. From time to time, extreme weather conditions and natural disasters have negatively impacted and may continue to negatively impact our operations, as well as the operations of our suppliers, vendors, customers and distributors. Such extreme weather conditions and natural disasters including, but not limited to, earthquakes, fires, floods, hurricanes, tornadoes, and stronger and longer-lasting weather patterns, and their consequences and effects have, in the past, temporarily disrupted our business operations both in the United States and abroad. These events could cause some of the Company’s operations to suffer from supply chain disruptions and potential delays in fulfilling customer orders or order cancellations altogether, lost future business and sales, and/or damage to our property or harm to our people, each and all of which could have an adverse effect on our business, operations, financial condition and results of operations. Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various foreign jurisdictions and our business reputation and financial results may be impaired by improper conduct by any of our employees, customers, suppliers, distributors or any other business partners. Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various foreign jurisdictions, and our failure to comply with these rules and regulations may expose us to significant liabilities. These laws and regulations may apply to companies, individual directors, officers, employees, subcontractors and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”). As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. In addition, some of the foreign locations in which we operate lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk of violating U.S. and foreign anti-corruption laws. We have established policies and procedures designed to assist us and our personnel in complying with applicable U.S. and international laws and regulations. However, there can be no assurance that these policies will be effective in preventing our directors, officers, employees, subcontractors and agents from taking actions that violate these legal requirements. Violations of these legal requirements could subject us to criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts and other remedial measures. In addition, any actual or alleged violations could disrupt our operations, cause reputational harm, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition. The Company’s results have at times been negatively affected by foreign currency exchange rates. The Company conducts business in many foreign currencies through its worldwide operations, and as a result is subject to foreign exchange exposure due to changes in exchange rates of the various currencies, including possible foreign currency restrictions and/or devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. The Company manages currency exposure risk in a number of ways, including producing its products in the same country or region in which the products are sold (thereby generating revenues and incurring expenses in the same currency), cost reduction and pricing actions, working capital management and hedging contracts. However, there can be no assurance that these actions will be fully effective in managing currency risk, including in the event of a significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations, which could have an adverse effect on the Company’s business, financial condition and results of operations. The Company is dependent on attracting, recruiting, hiring and retaining skilled employees, including as part of our various management teams. Our performance is dependent on our ability to attract, recruit, hire and retain skilled personnel, including our executive and management teams. Given the current inflationary wage environment and strong demand for skilled labor in many of the countries and regions in which we operate, the ability to identify and attract new talent, as well as retain existing talent, may prove to be difficult. It is possible that the current labor market could have an adverse effect on our ability to attract, recruit, hire and retain skilled employees, which in turn, could have an adverse effect on the Company’s business, financial condition and results of operations. In particular, as a result of the COVID-19 pandemic, many workers around the world have re-assessed their career plans and priorities, which could lead to increased difficulty of the Company in retaining its experienced team members. Risks related to our end markets The Company is dependent on the communications industry, including information technology and data communications, wireless communications and broadband communications. Approximately 42% of the Company’s 2021 net sales came from sales to the communications industry, including information technology and data communication, wireless communications and broadband communications, with 12% of the Company’s 2021 net sales coming from sales to the mobile devices market. Demand for these products is subject to rapid technological change. In addition, these markets are dominated by several large manufacturers and operators who regularly exert significant pressure on their suppliers, including the Company. Furthermore, a trend among customers has been to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. There can be no assurance that the Company will be able to meet these standards or maintain competitive pricing and therefore continue to compete successfully in the communications industry. The Company’s failure to do so could have a material adverse effect on the Company’s business, financial condition and results of operations. Approximately 4% and 5% of the Company’s 2021 net sales came from sales to the broadband communications and mobile networks markets, respectively. Demand for the Company’s products in these markets depends primarily on capital spending by operators for constructing, rebuilding or upgrading their systems. The amount of this capital spending and, therefore, the Company’s sales and profitability could be affected by a variety of factors, including general economic conditions, consolidation within the communications industry, the financial condition of operators and their access to financing, competition, technological developments, new legislation and regulation of operators. There can be no assurance that existing levels of capital spending will continue or that spending will not decrease. Changes in defense expenditures may reduce the Company’s sales. Approximately 11% of the Company’s 2021 net sales came from sales to the military market. The Company participates in a broad spectrum of defense programs. The Company’s military sales are generally to contractors and subcontractors of the U.S. or foreign governments or to distributors that in turn sell to the contractors and subcontractors. Accordingly, the Company’s sales are affected by changes in the defense budgets of the U.S. and foreign governments. A significant decline in U.S. or foreign government defense expenditures could have an adverse effect on the Company’s business, financial condition and results of operations. U.S. and foreign government expenditures are also subject to political and budgetary fluctuations and constraints, which may result in significant unexpected changes in levels of demand for our products. The Company encounters competition in substantially all areas of our business. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. Competitors include large, diversified companies, some of which have greater assets and financial resources than the Company, as well as medium- to small-sized companies. In addition, rapid technological changes occurring in the communications industry could also lead to the entry of new competitors of all sizes against whom we may not be able to successfully compete. There can be no assurance that the Company will be able to compete successfully against existing or new competition, and the inability to do so may result in price reductions, reduced margins, or loss of market share, any of which could have an adverse effect on the Company’s business, financial condition and results of operations. Risks related to acquisitions The Company has at times experienced difficulties and unanticipated expenses in connection with purchasing and integrating newly acquired businesses. The Company has completed a number of acquisitions in recent years, including seven in 2021. The Company anticipates that it will continue to pursue acquisition opportunities as part of its growth strategy. From time to time, the Company experiences difficulty and unanticipated expenses associated with purchasing and integrating acquisitions, and acquisitions do not always perform and deliver the financial benefits expected. The Company has also experienced challenges at times following the acquisition of a new company or business, including but not limited to: managing the operations, manufacturing facilities and technology; maintaining and increasing the customer base; or retaining key employees, suppliers and distributors. In certain limited cases, the Company has pursued indemnification claims against the seller or sellers of an acquired business for pre-acquisition liabilities, breaches of representations, warranties or covenants or for other reasons provided for in the relevant acquisition agreement. To the extent we pursue indemnification claims against the seller or sellers of any acquired business, such seller or sellers may successfully contest such claims, such seller or sellers may not have the financial capacity to compensate us for such claims or such claims may otherwise be difficult or impractical to enforce. We cannot predict or guarantee whether and to what extent anticipated cost savings, benefits and growth prospects will be achieved from recent or future acquisitions. The Company may in the future incur goodwill and other intangible asset impairment charges. On December 31, 2021, the total assets of the Company were $14.7 billion, which included $6.4 billion of goodwill (the excess of fair value of consideration paid over the fair value of net identifiable assets of businesses acquired) and $756.9 million of other intangible assets, net. The Company performs annual evaluations (or more frequently, if necessary) for the potential impairment of the carrying value of goodwill and other intangible assets. Such evaluations to date have not resulted in the need to recognize an impairment. However, if the financial performance of the Company’s businesses were to decline significantly, the Company could incur a material non-cash charge to its income statement for the impairment of goodwill and other intangible assets. Furthermore, we cannot provide assurance that impairment charges in the future will not be required if the expected cash flow estimates as projected by management do not occur, especially if an economic recession occurs and continues for a lengthy period or becomes severe, or if acquisitions and investments made by the Company fail to achieve expected returns. Risks related to our liquidity and capital resources The Company’s credit agreement contains certain covenants, which if breached, could have a material adverse effect on the Company. The second amended and restated credit agreement that governs our $2.5 billion unsecured credit facility (the “Revolving Credit Facility”), which also backstops the Company’s U.S. commercial paper program (“U.S. Commercial Paper Program”) and Euro commercial paper program (“Euro Commercial Paper Program”), contains financial and other covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, a limit on priority indebtedness and limits on incurrence of liens. Although the Company believes none of these covenants is presently restrictive to the Company’s operations, the ability to meet the financial covenants can be affected by events beyond the Company’s control, and the Company cannot provide assurance that it will meet those tests. A breach of any of these covenants could result in a default under the Revolving Credit Facility. Upon the occurrence of an event of default under the Revolving Credit Facility, the lenders could terminate all commitments to extend further credit and elect to declare amounts outstanding thereunder to be immediately due and payable which could result in the acceleration of certain of the Company’s other indebtedness and the Company not having sufficient assets to repay the Revolving Credit Facility and such other indebtedness. As of December 31, 2021, the Company had approximately $795.2 million of outstanding borrowings under the U.S. Commercial Paper Program, and no outstanding borrowings under the Revolving Credit Facility and Euro Commercial Paper Program. The Company relies on the global capital markets, and an inability to access those markets on favorable terms could adversely affect the Company’s results. The Company has used the global capital markets to invest in its business and make strategic acquisitions. If general economic and capital market conditions deteriorate significantly, it could impact the Company’s ability to access the capital markets. The capital and credit markets have experienced significant volatility in the past. Market conditions could make it more difficult to access capital to finance capital investments, acquisitions and other initiatives including dividends and share repurchases. As such, this could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In addition, if the credit rating agencies that rate the Company’s debt were to downgrade the Company’s credit rating, it would likely increase the Company’s cost of capital and make it more difficult for the Company to obtain new financing and access capital markets, which could also have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. The Company’s results may be negatively affected by changing interest rates. The Company may be subject to interest rate volatility with regard to existing and future issuances of debt. The Company monitors its mix of fixed-rate and variable-rate debt, as well as its mix of short-term and long-term debt. As of December 31, 2021, approximately $804 million, or 17%, of the Company’s outstanding borrowings were subject to floating interest rates and were primarily comprised of borrowings under the U.S. Commercial Paper Program. A 10% change in floating interest rates at December 31, 2021 would not have a material effect on the Company’s interest expense. However, there can be no assurance that interest rates will not change more significantly. Legal and regulatory risks Cybersecurity incidents affecting our information technology systems could disrupt business operations or cause the release of highly sensitive confidential information, resulting in adverse impacts to our reputation and operating results and potentially leading to litigation and/or governmental investigations. Cybersecurity threats, including but not limited to malware, phishing, credential harvesting, ransomware and other increasingly sophisticated attacks, continue to expand and evolve globally, making it difficult to detect and prevent such threats from impacting the Company. Globally, there has been an increased volume of cyber threats and ransomware attempts throughout the COVID-19 pandemic. Ransomware attacks have become easier to execute, and the rise of cryptocurrency has facilitated payments to criminals, making ransomware a more lucrative business. While the Company has been a target of various cybersecurity attacks, including but not limited to ransomware attacks, the impact of such attacks has not been material. Future cybersecurity incidents could lead to unauthorized access to and potentially impair the Company’s information technology systems, products, customers, suppliers and third-party service providers. Cybersecurity incidents could potentially result in the disruption of our business operations and/or misappropriation, destruction or corruption of critical data and confidential or proprietary information. Cybersecurity events could also result in the loss of or inability to access confidential information and critical business, financial or other data, and/or cause the release of highly sensitive confidential information. Cybersecurity incidents could also result from unauthorized parties gaining access to our systems or information through fraudulent or other means of deceiving our employees, suppliers or third-party service providers. In addition, the ongoing COVID-19 pandemic may increase our susceptibility to cybersecurity incidents and risks, especially as some of our employees have transitioned and continue to work from home. Despite the Company’s implementation of preventative security measures to prevent, detect, address and mitigate these threats, our infrastructure may still be susceptible to disruptions from cybersecurity incidents, ransomware attacks, security breaches, computer viruses, outages, systems failures, natural disasters, adverse public health developments, or other catastrophic events, any of which could include reputational damage, loss of our intellectual property, release of highly sensitive confidential information, the inability to access critical data, litigation with third parties and/or governmental investigations and fines, among other things, which could have a material adverse effect on our business, financial condition and results of operations. We and our business partners maintain significant amounts of data electronically in locations around the world. This data relates to all aspects of our business, including financial information and current and future products under development, and also contains certain customer, supplier, partner and employee data. We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyberattacks or tampering that could compromise the integrity and privacy of this data or make the data inaccessible to us. In addition, in certain cases, in order to conduct business, we outsource to third-party business partners. We generally obtain assurances from those parties that they have systems and processes in place to protect our data, and where applicable, that they will take steps to assure the protection of our data; nonetheless, those partners may also be subject to data intrusion or a cyberattack. Any compromise of the data could substantially disrupt our operations, harm our customers, employees and other business partners, damage our reputation, violate applicable laws and regulations, and subject us to potentially significant costs and liabilities. The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. For example, the European Union's General Data Protection Regulation (“GDPR”), which became effective in May 2018, the state of California’s California Consumer Privacy Act (“CCPA”), which became effective January 1, 2020, and more recently in August 2021, the Standing Committee of the National People’s Congress of the People’s Republic of China’s Personal Information Protection Law (“PIPL”), which became effective on November 1, 2021, impose significant requirements and additional obligations for companies on how they collect, process and transfer personal data by enhancing consumer privacy rights and imposing significant fines for non-compliance. The potential for fines and other related costs in the event of a breach of or non-compliance with the GDPR, CCPA, PIPL or other existing or proposed information security or privacy laws and requirements may have an adverse effect on our financial results. Our business and financial results may be adversely affected by government contracting risks. We are subject to various laws and regulations applicable to parties doing business with the U.S. and other governments, including laws and regulations governing performance of government contracts, the use and treatment of government furnished property and the nature of materials used in our products. In the U.S., we may be unilaterally suspended or barred from conducting business with the U.S. government or its suppliers (both directly and indirectly), or become subject to fines or other sanctions if we are found to have violated such laws or regulations. As a result of the need to comply with these laws and regulations, we are subject to increased risks of governmental investigations, civil fraud actions, criminal prosecutions, whistleblower lawsuits and other enforcement actions. For example, in August 2018, we received a subpoena from the U.S. Department of Defense, Office of the Inspector General, requesting documents pertaining to certain products manufactured by the Company’s Military and Aerospace Group that are purchased or used by the U.S. government, as noted herein in Item 3. Legal Proceedings and Note 15 of the Notes to Consolidated Financial Statements. The U.S. laws and regulations to which we are subject include, but are not limited to, Export Administration Regulations, the Federal Acquisition Regulation, the False Claims Act, International Traffic in Arms Regulations, regulations from the Bureau of Alcohol, Tobacco and Firearms and the FCPA. We are subject to a wide range of similar laws and regulations in other countries throughout the world. Failure, or the perceived failure, to comply with applicable requirements also could harm our reputation and our ability to compete for future government contracts or sell commercial equivalent products. Any of these outcomes could have a material adverse effect on our business, operations, financial condition, liquidity, and results of operations. In addition, U.S. government contracts are subject to modification, curtailment or termination by the U.S. government without prior written notice, either for convenience or for default as a result of our failure to perform under the applicable contract. If our contracts are terminated by the U.S. government as a result of our default, we could be liable for additional costs the U.S. government incurs in acquiring undelivered goods or services from another source and any other damages it suffers. We are also prohibited from assigning prime U.S. government contracts without the prior consent of the U.S. government contracting officer. Furthermore, the U.S. government periodically audits our governmental contract costs, which could result in fines, penalties or adjustment of costs and prices under the contracts. Any such fines, penalties or payment adjustments resulting from such audits could adversely affect our reputation, business, operations, financial condition, liquidity, and results of operations. The Company is subject to governmental export and import controls. Certain of our products, including purchased components of such products, are subject to export controls and may be exported only with the required export license or through an export license exception. In addition, we are required to comply with certain U.S. and foreign sanctions and embargoes. These laws and regulations are complex, may change frequently and with limited notice, have generally become more stringent over time and have intensified under recent U.S. administrations, especially in light of recent trade tensions with China. For example, in 2019, the U.S. government added certain of the Company’s customers based in China to its “Entity List”, which imposes additional restrictions on sales to such customers. Although such restrictions did not have a material adverse effect on the Company’s business, financial condition and results of operations, the U.S. government has the power to place even greater restrictions on these and other customers, and such restrictions could further limit or prohibit the Company from selling products to such customers. If we were to fail to comply with these restrictions or applicable export licensing, customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines for us, the incarceration of responsible employees and managers, and the possible loss of export or import privileges. In addition, if our distributors fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected through reputational harm and penalties. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Changes in fiscal and tax policies, audits and examinations by taxing authorities could impact the Company’s results. The Company is subject to tax in the U.S. and in numerous foreign jurisdictions. The Company is currently under tax examination in several jurisdictions, and, in addition, new examinations could be initiated by additional tax authorities. As the Company has operations in jurisdictions throughout the world, the risk of tax examinations will continue to occur. The Company’s financial condition, results of operations or cash flows may be materially impacted by the results of these tax examinations. Any future changes in tax laws, regulations, accounting standards for income taxes and/or other tax guidance, including related interpretations, could materially impact the Company’s current and non-current tax liabilities, along with deferred tax assets and liabilities, and consequently, our financial condition, results of operations or cash flows. We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others. We rely on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights. Despite our efforts, these protections may be limited and, from time to time, we encounter difficulties in protecting our intellectual property rights, particularly in certain countries outside the U.S. We cannot provide assurance that the patents that we hold or may obtain will provide meaningful protection against our competitors. Changes in laws concerning intellectual property, or the enforcement of such laws, may affect our ability to prevent or address the misappropriation of, or the unauthorized use of, our intellectual property, potentially resulting in loss of market share. Litigation may be necessary to enforce our intellectual property rights. Litigation is inherently uncertain and outcomes are unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive. The intellectual property rights of others could inhibit our ability to introduce new products. Other companies hold patents on technologies used in our industries and are aggressively seeking to expand, enforce and license their patent portfolios. We periodically receive notices from, or have lawsuits filed against us by, third parties claiming infringement, misappropriation or other misuse of their intellectual property rights and/or breach of our agreements with them. These third parties may include entities that do not have the capabilities to design, manufacture, or distribute products or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse. In addition, some foreign competitors may take advantage of the intellectual property laws in their home countries and the more favorable litigation and regulatory environment to our detriment. Third party claims of infringement may result in loss of revenue, substantial costs, or lead to monetary damages or injunctive relief against us. The Company is subject to customer claims, litigation and other regulatory or legal proceedings. The Company is currently engaged in, or subject to, various customer claims, litigation and other regulatory and legal matters and may be subject to additional claims, litigation and other regulatory or legal proceedings in the future. Such matters expose the Company to risks that could be material, including but not limited to, risks related to employment disputes, tax controversies, government investigations, intellectual property infringement, compliance with environmental laws, unfair sales practices, product safety and liability, and product warranty, indemnity and other contract-related claims. These matters may subject the Company to lawsuits, voluntary or forced product recalls, government investigations and criminal liability, including claims for compensatory, punitive or consequential damages, and could result in disruptions to our business and significant legal expenses. These matters could also damage our reputation, harm our relationships with customers or negatively affect product demand. While the Company does maintain certain insurance coverages that may mitigate losses associated with some of these types of claims and proceedings, the policies may not respond and, where insurance exists, the amount of insurance coverage may not be adequate to cover the total claims and liabilities. In some cases, particularly with respect to product warranty claims from customers, we self-insure against this risk, meaning that any product liability claims will likely have to be paid from Company funds and not by insurance. Any current or future substantial liabilities or regulatory actions could have a material adverse effect on our business, financial condition, cash flows and reputation. The Company is subject to environmental laws and regulations that could adversely affect our business. The Company operates in both the United States and various foreign jurisdictions, and we must comply with locally enacted laws and regulations addressing health, safety and environmental matters in such jurisdictions in which we manufacture and/or sell our products. Certain operations of the Company are subject to locally enacted environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company and its operations may be subject to liabilities, regardless of fault, for investigative and/or remediation efforts on such matters that may arise at any of the Company’s former or current properties, either owned or leased. For example, as disclosed in Note 15 of the Notes to Consolidated Financial Statements, the Company was named as one of several defendants in four separate lawsuits filed in the State of Indiana relating to a manufacturing site in Franklin, Indiana where the Company has been conducting an environmental clean-up effort under the direction of the United States Environmental Protection Agency. All the costs incurred by the Company relating to these lawsuits as well as all costs associated with the clean-up effort at the manufacturing site have been reimbursed by the former owner pursuant to an indemnification agreement entered into in connection with the acquisition of the manufacturing site as part of a larger acquisition that led to the establishment of the Company’s business in 1987. Environmental liabilities can result from the use of hazardous materials in production, the disposal of products, damages associated with the use of any of our products or other related matters. We cannot be certain as to the potential impact of any changes to environmental conditions or environmental policies that may arise in any of our jurisdictions. Our failure to comply with these local environmental laws and regulations could result in fines or other punitive damages and/or modifications to our production processes as well as subject us to reputational harm, any of which could adversely impact our financial position, results of operations, or cash flows. The Company may be subject to incremental costs and risks associated with efforts to combat the negative effects of climate change. There continues to be an increased global focus on climate change issues which has led to international treaties and agreements and legislative and regulatory efforts. In addition to the risks discussed under the heading “The Company may be negatively impacted by extreme weather conditions and natural catastrophic events, including those caused by climate change and global warming,” the Company may also be subject to larger, global climate change initiatives, laws, regulations or orders. For example, in early 2021, the United States rejoined the Paris Climate Agreement, an international treaty focused on climate change, with several goals, including but not limited to, the reduction of greenhouse gas (“GHG”) emissions. More recently, in late 2021, the United States participated in the 2021 United National Climate Change Conference (“COP26”). At the COP26, participating countries agreed on a new climate change-focused deal, the Glasgow Climate Pact, which marks the first-ever climate deal to explicitly commit to a reduction in coal use. The COP26 also resulted in many countries pledging to end deforestation and reduce methane emissions, among other pledges. Given our global manufacturing presence, any future increased regulation surrounding GHG emissions and other climate change-related laws and regulations, beyond initiatives already in process at the Company, could subject us to additional and/or unforeseen compliance costs and limitations, including increased energy and raw material costs and capital expenditures. Any future regulatory changes in any of the countries in which we operate could result in transition risks to the Company, including but not limited to (i) the nature and timing of any requirement to lower GHG emissions and adopt more energy-efficient energy use, which could result in changes or disruptions to the way the Company operates, (ii) financial risks where the compliance with such regulations requires unforeseen capital expenditures and becomes costly or financially burdensome, (iii) legal risks associated with the failure to adapt to or comply with future climate change-related regulations, (iv) risks associated with the implementation of any new technologies required to comply with such regulations, which could impede our ability to innovate new products, meet customer and market demand or compete on pricing and quality in the market, and/or (v) reputational risks associated with our customers’ and investors’ perceptions of the Company and their preferences for maintaining relationships with companies with lower emissions, all of which could harm our reputation in the marketplace. We are not able to predict how any future definitive agreements, pacts and/or regulations, if and when they are adopted and required, and the commitments necessary to comply with such requirements, will affect our reputation, business, operations, financial condition, liquidity, or results of operations in the future. Item 1B. Unresolved Staff Comments None. Item 2. Properties The Company’s fixed assets include plants and warehouses and a substantial quantity of machinery and equipment. The Company’s plants, warehouses and machinery and equipment are generally in good operating condition, are reasonably maintained and substantially all of its facilities are in regular use. The Company considers the present level of fixed assets along with planned capital expenditures as suitable and adequate for operations in the current business environment. At December 31, 2021, the Company operated approximately 230 manufacturing facilities with approximately 22.0 million square feet, of which approximately 15.0 million square feet were leased. Manufacturing facilities located in the U.S. had approximately 4.0 million square feet, of which approximately 1.5 million square feet were leased. Manufacturing facilities located outside the U.S. had approximately 18.0 million square feet, of which approximately 13.5 million square feet were leased. The square footage by segment related to our manufacturing facilities was approximately 21.0 million square feet and approximately 1.0 million square feet for the Interconnect Products and Assemblies segment and the Cable Products and Solutions segment, respectively. The Company believes that its facilities are suitable and adequate for the business conducted therein and are being appropriately utilized for their intended purposes. Utilization of the facilities varies based on demand for the products. The Company continuously reviews its anticipated requirements for facilities and, based on that review, may from time to time acquire or lease additional facilities and/or dispose of existing facilities. Item 3. Legal Proceedings Information required with respect to legal proceedings in this Part I, Item 3 is included in Note 15 of the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report, which is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company effected the initial public offering of its Class A Common Stock (“Common Stock”) in November 1991. The Company’s Common Stock has been listed on the New York Stock Exchange since that time under the ticker symbol “APH”. As of January 31, 2022, there were 32 holders of record of the Company’s Common Stock. A significant number of outstanding shares of Common Stock are registered in the name of only one holder, which is a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms. The Company believes that there are a significant number of beneficial owners of its Common Stock. Stock Split On January 27, 2021, the Company announced that its Board of Directors (the “Board”) approved a two-for-one split of the Company’s Common Stock. The stock split was effected in the form of a stock dividend paid to stockholders of record as of the close of business on February 16, 2021. The additional shares were distributed on March 4, 2021, and the Company’s Common Stock began trading on a split-adjusted basis on March 5, 2021. As a result of the stock split, stockholders received one additional share of Common Stock for each share held as of the record date. All current and prior year data impacted by the stock split and presented throughout this Annual Report, including number of shares and per share information, earnings per share, and dividends per share amounts, among others, have been retroactively adjusted to reflect the effect of the stock split. Refer to Note 1 of the Notes to Consolidated Financial Statements for further information related to the stock split. In May 2021, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock. Refer to Note 7 of the Notes to Consolidated Financial Statements for further details related to the increase in the number of shares authorized for issuance as a result of this amendment. Stock Performance Graph The following graph compares the cumulative total shareholder return of Amphenol over a period of five years ending December 31, 2021 with the performance of the Standard & Poor’s 500 (“S&P 500”) Stock Index and the Dow Jones U.S. Electrical Components & Equipment Index. This graph assumes that $100 was invested in our Common Stock and each index on December 31, 2016, reflects reinvested dividends, and is weighted on a market capitalization basis as of the beginning of each year. Each reported data point below represents the last trading day of each calendar year. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance. 
Dividends Contingent upon declaration by the Board, the Company pays a quarterly dividend on shares of its Common Stock. The following table sets forth the dividends declared per common share for each quarter of 2021 and 2020: | | | | | | | | | 2021 | | 2020 | First Quarter | | $ | 0.145 | | $ | 0.125 | Second Quarter | | | 0.145 | | | 0.125 | Third Quarter | | | 0.145 | | | 0.125 | Fourth Quarter | | | 0.20 | | | 0.145 | Total | | $ | 0.635 | | $ | 0.52 |
Dividends declared and paid for the years ended December 31, 2021 and 2020 (in millions) were as follows: | | | | | | | | | | | | | 2021 | | 2020 | Dividends declared | | $ | 379.7 | | $ | 310.0 | Dividends paid (including those declared in the prior year) | | | 346.7 | | | 297.6 |
The Company’s Revolving Credit Facility contains restrictions that may limit the Company’s ability to pay dividends, and any future indebtedness that the Company may incur could also limit its ability to pay dividends. Repurchase of Equity Securities In April 2018, the Board authorized a stock repurchase program under which the Company could purchase up to $2.0 billion of its Common Stock during the three-year period ending April 24, 2021 (the “2018 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the year ended December 31, 2021, the Company repurchased 3.1 million shares of its Common Stock for $203.8 million under the 2018 Stock Repurchase Program. As a result of these purchases, the Company completed all purchases authorized under the 2018 Stock Repurchase Program and, therefore, the 2018 Stock Repurchase Program has terminated. Of the total repurchases made in 2021 under the 2018 Stock Repurchase Program, 0.3 million shares, or $19.8 million, were retained in Treasury stock at the time of repurchase; the remaining 2.8 million shares, or $184.0 million, were retired by the Company. On April 27, 2021, the Board authorized a new stock repurchase program under which the Company may purchase up to $2.0 billion of its Common Stock during the three-year period ending April 27, 2024 (the “2021 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act. During the year ended December 31, 2021, the Company repurchased 6.2 million shares of its Common Stock for $457.9 million under the 2021 Stock Repurchase Program. Of the total repurchases made in 2021 under the 2021 Stock Repurchase Program, 0.4 million shares, or $33.0 million, have been retained in Treasury stock at the time of repurchase; the remaining 5.8 million shares, or $424.9 million, have been or will be retired by the Company. From January 1, 2022 through January 31, 2022, the Company repurchased 0.6 million additional shares of its Common Stock for $50.0 million under the 2021 Stock Repurchase Program, and, as of February 1, 2022, has remaining authorization to purchase up to $1,492.1 million of its Common Stock under the 2021 Stock Repurchase Program. The price and timing of any future purchases under the 2021 Stock Repurchase Program will depend on a number of factors such as levels of cash generation from operations, the volume of stock options exercised by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Company’s Common Stock. The Company’s stock repurchases during the three months and year ended December 31, 2021 were as follows: | | | | | | | | | | | | (dollars in millions, except price per share) | | | | | | | Total Number of Shares | | Maximum Dollar Value | | | | Total Number | | Average | | Purchased as Part of | | of Shares that May Yet be | | | | of Shares | | Price Paid | | Publicly Announced | | Purchased Under the | | Period | | Purchased | | per Share | | Plans or Programs | | Plans or Programs | | First Quarter - 2021 | | 2,372,455 | | $ | 64.40 | | 2,372,455 | | $ | 51.0 | | Second Quarter - 2021 | | 2,484,028 | | | 67.35 | | 2,484,028 | | | 1,883.7 | | Third Quarter - 2021 | | 2,332,855 | | | 73.26 | | 2,332,855 | | | 1,712.8 | | | | | | | | | | | | | | Fourth Quarter - 2021: | | | | | | | | | | | | October 1 to October 31, 2021 | | 635,662 | | | 76.21 | | 635,662 | | | 1,664.3 | | November 1 to November 30, 2021 | | 761,624 | | | 81.74 | | 761,624 | | | 1,602.1 | | December 1 to December 31, 2021 | | 718,869 | | | 83.40 | | 718,869 | | $ | 1,542.1 | | | | 2,116,155 | | | 80.64 | | 2,116,155 | | | | | | | | | | | | | | | | | Total - 2021 | | 9,305,493 | | $ | 71.10 | | 9,305,493 | | | | |
Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (amounts in millions, except share and per share data, unless otherwise noted) The following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2021, 2020 and 2019 has been derived from and should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our,” or “us”). The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). Any references to the Company’s results in this Item 7 are specifically to our continuing operations only and exclude discontinued operations, unless otherwise noted. The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”. For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meaning, respectively, as these aforementioned non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures. In addition to historical information, the following discussion and analysis also contains certain forward-looking statements that are subject to risks and uncertainties, including but not limited to the risk factors described in Part I, Item 1A herein, as well as the risks and uncertainties that exist with the use of forward-looking statements as described in the “Cautionary Note Regarding Forward-Looking Statements” section included herein at the beginning of this Annual Report on Form 10-K (“Annual Report”). Stock Split On January 27, 2021, the Company announced that its Board of Directors (the “Board”) approved a two-for-one split of the Company’s Class A Common Stock (“Common Stock”). The stock split was effected in the form of a stock dividend paid to stockholders of record as of the close of business on February 16, 2021. The additional shares were distributed on March 4, 2021, and the Company’s Common Stock began trading on a split-adjusted basis on March 5, 2021. As a result of the stock split, stockholders received one additional share of Common Stock for each share held as of the record date. All current and prior year data impacted by the stock split and presented in this Item 7 and throughout this Annual Report, including number of shares and per share information, earnings per share, and dividends per share amounts, among others, have been retroactively adjusted to reflect the effect of the stock split. Refer to Note 1 of the Notes to Consolidated Financial Statements for further information related to the stock split. Overview General Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. Through December 31, 2021, the Company operated through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. In 2021, approximately 71% of the Company’s sales were outside the United States. The primary end markets for our products are: | ● | information technology and communication devices and systems for the converging technologies of voice, video and data communications; |
| ● | a broad range of industrial applications and traditional, hybrid and electric automotive applications; and |
| ● | military and commercial aerospace applications. |
The Company’s products are used in a wide variety of applications by a wide array of customers around the world. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. A trend among customers has been to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. The Company has focused its global resources to position itself to compete effectively in this environment. The Company believes that its global presence is an important competitive advantage as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers. Effective January 1, 2022, the Company aligned its businesses into three newly formed reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii)Interconnect and Sensor Systems. This new alignment replaces our historic reportable business segments. All businesses previously reported in the Interconnect Products and Assemblies segment have now been aligned with one of the three newly formed segments. All businesses previously reported in the Cable Products and Solutions segment have now been aligned with our newly formed Communications Solutions segment. This new alignment reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future. The Company will begin reporting its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022, including the recasting of relevant prior year period segment information for conformity of presentation. For further details related to the Company’s change in its reportable business segments effective January 1, 2022, refer to Note 16 of the Notes to Consolidated Financial Statements herein. Strategy The Company’s strategy is to provide its customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis, while maintaining continuing programs of productivity improvement and cost control. The Company focuses its research and development efforts through close collaboration with its customers to develop highly engineered products that meet customer needs and have the potential for broad market applications and significant sales within a one- to three-year period. The Company is also focused on controlling costs. The Company does this by investing in modern manufacturing technologies, controlling purchasing processes and expanding into lower cost areas. The Company’s strategic objective is to further enhance its position in its served markets by pursuing the following success factors: | ● | Pursue broad market diversification; |
| ● | Develop high-technology performance-enhancing solutions; |
| ● | Pursue strategic acquisitions and investments; and |
| ● | Foster collaborative, entrepreneurial management. |
In 2021, the Company reported net sales, operating income and net income from continuing operations attributable to Amphenol Corporation of $10,876.3, $2,105.1 and $1,569.4, respectively, representing an increase of 26%, 28% and 30%, respectively, from 2020. In 2021, the Company’s net income from continuing operations attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $63.4 related to stock-based compensation resulting from stock option exercises and (b) a discrete tax benefit of $14.9 related to the settlement of uncertain tax positions in certain non-U.S. jurisdictions, partially offset by (c) acquisition-related expenses of $70.4 ($57.3 after-tax) comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the acquisition of MTS Systems Corporation (“MTS”) in the second quarter of 2021 and external transaction costs and certain non-cash purchase accounting costs related to the acquisition of Halo Technology Limited (“Halo”) in the fourth quarter of 2021. In 2020, the Company’s net income from continuing operations attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $42.8 related to stock-based compensation resulting from stock option exercises and (b) a discrete tax benefit of $19.9 related to the settlements of refund claims in a non-U.S. jurisdiction and the resulting adjustments to deferred taxes, partially offset by (c) acquisition-related expenses of $11.5 ($10.7 after-tax) comprised primarily of external transaction costs related to acquisitions that were announced or closed. Excluding the effects of these items, Adjusted Operating Income and Adjusted Net Income from continuing operations attributable to Amphenol Corporation, as defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7, increased by 32% and 34%, respectively, in 2021 compared to 2020. Sales and profitability trends are discussed in detail in “Results of Operations” below. In addition, a strength of the Company has been its ability to consistently generate net cash provided by operating activities from continuing operations (“Operating Cash Flow”). The Company uses Operating Cash Flow to fund capital expenditures and acquisitions, repurchase shares of its Common Stock, pay dividends and reduce indebtedness. In 2021, the Company generated Operating Cash Flow of $1,523.9 and Free Cash Flow of $1,167.2. Free Cash Flow, a non-GAAP financial measure, is defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7. Impact of COVID-19 on our Business, Operations, Financial Condition, Liquidity and Results of Operations The COVID-19 pandemic has affected our offices and manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. The COVID-19 pandemic caused widespread disruptions to our Company during the first half of 2020, and to a lesser extent, those disruptions continued during the second half of 2020 and throughout all of 2021. As of December 31, 2021, we continue to experience some disruptions, and at a minimum, particularly given the surge of cases resulting from the Omicron variant, we expect those disruptions to continue into 2022 and potentially beyond. These disruptions have included and may continue to include government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply-chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers. During 2021 and into 2022, there have been resurgences in COVID-19 cases in several regions around the world, particularly related to new variant strains, including Delta and Omicron. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the impact of the recent resurgence of the crisis due to the Omicron variant, as well as any additional future resurgences from known or new variants, future government regulations and actions in response to the crisis, the timing, availability, effectiveness and adoption rates of vaccines and treatments, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. In addition, the COVID-19 pandemic could impact the health of our management team and other employees. Given these uncertainties, we expect the pandemic to continue to have an impact on our business, operations, financial condition, liquidity and results of operations in 2022 and potentially beyond. There can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future. For further discussion on the risks and uncertainties associated with the COVID-19 pandemic, refer to Part I, Item 1A. Risk Factors. Results of Operations The following table sets forth the components of net income attributable to Amphenol Corporation as a percentage of net sales for the years indicated. | | | | | | | | | | | | | Year Ended December 31, | | | | | 2019 | | | 2018 | | | 2017 | | | Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | Cost of sales | | 68.2 | | | 67.6 | | | 67.1 | | | Acquisition-related expenses | | 0.3 | | | 0.1 | | | — | | | Selling, general and administrative expenses | | 11.8 | | | 11.7 | | | 12.5 | | | Operating income | | 19.7 | | | 20.6 | | | 20.4 | | | Interest expense | | (1.4) | | | (1.2) | | | (1.3) | | | Loss on early extinguishment of debt | | (0.2) | | | — | | | — | | | Other income, net | | 0.1 | | | — | | | 0.2 | | | Income before income taxes | | 18.2 | | | 19.4 | | | 19.3 | | | Provision for income taxes | | (4.1) | | | (4.5) | | | (9.9) | | | Net income | | 14.1 | | | 14.9 | | | 9.4 | | | Net income attributable to noncontrolling interests | | (0.1) | | | (0.2) | | | (0.1) | | | Net income attributable to Amphenol Corporation | | 14.0 | % | | 14.7 | % | | 9.3 | % | |
2019 Compared to 2018
| | | | | | | | | | | | | Year Ended December 31, | | | | | 2021 | | | 2020 | | | 2019 | | | Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % | | Cost of sales | | 68.7 | | | 69.0 | | | 68.2 | | | Acquisition-related expenses | | 0.6 | | | 0.1 | | | 0.3 | | | Selling, general and administrative expenses | | 11.3 | | | 11.8 | | | 11.8 | | | Operating income | | 19.4 | | | 19.1 | | | 19.7 | | | Interest expense | | (1.1) | | | (1.3) | | | (1.4) | | | Loss on early extinguishment of debt | | — | | | — | | | (0.2) | | | Other (expense) income, net | | — | | | — | | | 0.1 | | | Income from continuing operations before income taxes | | 18.3 | | | 17.8 | | | 18.2 | | | Provision for income taxes | | (3.8) | | | (3.7) | | | (4.1) | | | Net income from continuing operations | | 14.5 | | | 14.1 | | | 14.1 | | | Net income from continuing operations attributable to noncontrolling interests | | (0.1) | | | (0.1) | | | (0.1) | | | Net income from continuing operations attributable to Amphenol Corporation | | 14.4 | | | 14.0 | | | 14.0 | | | Income from discontinued operations attributable to Amphenol Corporation | | 0.2 | | | — | | | — | | | Net income attributable to Amphenol Corporation | | 14.6 | % | | 14.0 | % | | 14.0 | % | |
2021 Compared to 2020 Net sales were $8,225.4$10,876.3 for the year ended December 31, 20192021 compared to $8,202.0$8,598.9 for the year ended December 31, 2018,2020, which was flatrepresented an increase of 26% in U.S. dollars, an increase of 2%25% in constant currencies, and a decrease of 3%18% organically (excluding both currency and acquisition impacts), over the prior year. The increase in net sales in 2021 was driven by growth in several markets in the Interconnect Products and Assemblies segment, as described below. Net sales in the Interconnect Products and Assemblies segment (approximately 95%96% of net sales) increased 1%27% in U.S. dollars, and 2%25% in constant currencies, while decreasing 3%and 19% organically, in 20192021, compared to 2018.2020. The sales growth in 2021 was driven by strong growth across nearly all end markets, including the industrial, automotive, information technology and data communications, military and mobile networks markets, along with moderate growth in the militarymobile devices market and commercial aerospace markets as well as contributions from the Company’s acquisition program. This sales growth was largelypartially offset by reductionsa decline in the communications-related markets, in particular the mobile devices market, along with the negative effect of currency translation. Net sales to the military market increased (approximately $181.0), driven by broad-based strength across essentially all segments including military vehicle, rotorcraft, and military airframe applications. Net sales to the commercial aerospace market, increased (approximately $48.7) primarily duewhich continued to strengthbe negatively impacted by the significant impact of the COVID-19 pandemic on travel and aircraft production. The strong sales growth in large passenger planes.2021 in the Interconnect Products and Assemblies segment also reflected a recovery in certain markets from the more negative impact resulting from the COVID-19 pandemic during 2020. Net sales to the industrial market increased (approximately $66.1)$864.6), primarily driven bywith broad-based growth across nearly all market segments of the global industrial market, with particular strength in heavy equipment, factory automation, industrial instrumentation, battery and heavy electric vehicle, alternative energy, rail mass transit, and transportation, along with contributions from acquisitions, as well as strength in medical and factory automation applications, which were partially offset by moderations in industrial instrumentation, heavy equipment and transportation, as well as other applications.acquisitions. Net sales to the automotive market increased (approximately $38.0)$683.4), driven primarily by contributions from acquisitions, which were partially offset by moderationsreflecting the continued recovery and growth in demand due to the slowingmost regions of the worldwideglobal automotive market.market, as well as the Company’s expanded position in next-generation electronics, including in particular electric and hybrid drive trains. Net sales to the information technology and data communications market slightly increased (approximately $5.6)$482.7), driven primarily by contributions from acquisitionscontinued strong sales growth to web service providers and organic growth of sales to data center customers, offset by moderations inbroad-based market demand for server, storage and networking related products.products as customers worked to support higher demand for increased bandwidth. Net sales to the military market increased (approximately $135.8), driven by strength across nearly all segments of the military market, including missile, military communications and naval and space-related applications, along with a recovery from the impact of pandemic-related production disruptions experienced during the first half of 2020, as well as contributions from acquisitions. Net sales to the mobile networks market increased (approximately $60.5), driven by a recovery in demand from mobile networks equipment manufacturers and mobile operators, which was primarily driven by increased demand for products used in 5G network build-outs and contributions from acquisitions, offset in part by reductions of sales to certain customers in China that were added to the U.S. Department of Commerce’s “Entity List”. Net sales to the mobile devices market decreasedincreased (approximately $277.5)$45.7), driven by moderationsgrowth in sales of products incorporated into smartphones.laptops and wearable devices, along with production-related products, and was partially offset by moderations of sales into smartphones and tablets. Net sales to the mobile networkscommercial aerospace market decreased (approximately $10.2),$26.6) primarily due to reduced demand from both mobile networks equipment manufacturersthe continued significant impact of the COVID-19 pandemic on travel and mobile operators, offset in part by contributions from acquisitions. aircraft production. Net sales in the Cable Products and Solutions segment (approximately 5%4% of net sales), which primarily serves the broadband communications market, decreased 8%increased 21% in U.S. dollars, 6%20% in constant currencies and 7%15% organically in 2019,2021, compared to 2018.2020. The decreaseincrease in net sales in the Cable Products and Solutions segment was primarily due to a reduction indriven by increased market demand from broadband operators and mobile network service providers.providers, as well as the contribution from one acquisition in this segment that closed during the first quarter of 2021. The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures, by segment, geography and consolidated, for the year ended December 31, 20192021 compared to the year ended December 31, 2018:2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage Growth (relative to prior year) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | Foreign | | Constant | | | | Organic | | | | | | growth in | | currency | | Currency Net | | Acquisition | | Net Sales | | | | | | | | | | U.S. Dollars (1) | | impact (2) | | Sales Growth (3) | | impact (4) | | Growth (3) | | | | 2019 | | 2018 | | (GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | Net sales: | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products and Assemblies | | $ | 7,840.3 | | $ | 7,781.9 | | 1 | % | | (1) | % | | 2 | % | | 5 | % | | (3) | % | | Cable Products and Solutions | | | 385.1 | | | 420.1 | | (8) | % | | (2) | % | | (6) | % | | 1 | % | | (7) | % | | Consolidated | | $ | 8,225.4 | | $ | 8,202.0 | | — | % | | (2) | % | | 2 | % | | 5 | % | | (3) | % | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage Growth (relative to prior year) (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | Foreign | | Constant | | | | Organic | | | | | | growth in | | currency | | Currency Net | | Acquisition | | Net Sales | | | | | | | | | | U.S. Dollars (2) | | impact (3) | | Sales Growth (4) | | impact (5) | | Growth (4) | | Net sales by: | | 2021 | | 2020 | | (GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | Segment: | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products and Assemblies | | $ | 10,430.9 | | $ | 8,229.9 | | 27 | % | | 2 | % | | 25 | % | | 6 | % | | 19 | % | | Cable Products and Solutions | | | 445.4 | | | 369.0 | | 21 | % | | — | % | | 20 | % | | 5 | % | | 15 | % | | Consolidated | | $ | 10,876.3 | | $ | 8,598.9 | | 26 | % | | 2 | % | | 25 | % | | 6 | % | | 18 | % | | | | | | | | | | | | | | | | | | | | | | | | | Geography (6): | | | | | | | | | | | | | | | | | | | | | | | United States | | $ | 3,155.9 | | $ | 2,494.0 | | 27 | % | | — | % | | 26 | % | | 9 | % | | 17 | % | | Foreign | | | 7,720.4 | | | 6,104.9 | | 26 | % | | 2 | % | | 24 | % | | 5 | % | | 19 | % | | Consolidated | | $ | 10,876.3 | | $ | 8,598.9 | | 26 | % | | 2 | % | | 25 | % | | 6 | % | | 18 | % | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding. |
| (2) | Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 1314 of the accompanying financial statements.Notes to Consolidated Financial Statements. While the term “net sales growth in U.S. dollars” is not considered a U.S. GAAP financial measure, for purposes of this table, we derive the reported (GAAP) measure based on GAAP results, which serves as the basis for the reconciliation to its comparable non-GAAP financial measures. |
(2)(3) | Foreign currency translation impact, a non-GAAP measure, represents the percentage impact on net sales resulting from foreign currency exchange rate changes in the current reporting year compared to the prior reporting year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior year from current year reported net sales, taken as a percentage of the respective prior year’s net sales. |
(3)(4) | Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section. |
(4)(5) | Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions closed since the beginning of the prior calendar year, which werethat have not been included in the Company’s consolidated results as offor the full current year and/or prior comparable prior year and whichpresented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. |
| (6) | Net sales by geographic area are based on the customer location to which the product is shipped. |
Geographically,The increase in foreign net sales in the United States in 2019 increased approximately 13% in U.S. dollars ($2,524.7 in 2019 versus $2,241.4 in 2018) and 4% organically,2021 compared to 2018. Foreign sales in 2019 decreased approximately 4% in U.S. dollars ($5,700.7 in 2019 versus $5,960.6 in 2018), 2% in constant currencies and 6% organically, compared to 2018,2020 was driven by moderationsstrong growth in both Europe and Asia. The comparatively strongerweaker U.S. dollar in 20192021 had the effect of decreasing netincreasing sales by approximately $125.8 when$159.1, compared to foreign currency translation rates in 2018.2020.
Selling, general and administrative expenses were $971.4$1,226.3, or 11.3% of net sales for 2021, compared to $1,014.2, or 11.8% of net sales for 2019, compared to $959.5 or 11.7% of net sales for 2018. Administrative2020. The decrease in selling, general and administrative expenses were flat in 2019 compared to 2018, and represented approximately 4.7%as a percentage of net sales in both years.2021 was driven primarily by higher sales during the year, relative to 2020 which was more negatively impacted by the COVID-19 pandemic, slightly offset by the impact of MTS’s Sensors business, acquired in 2021, which currently has higher selling, general and administrative expenses as a percentage of net sales compared to the average of the Company. Administrative expenses increased $78.6 in 2021, and represented approximately 4.5% of net sales in 2021 and 4.8% of net sales in 2020. Research and development expenses increased approximately $13.3$57.0 in 20192021 primarily related to increases in expenses for new product development, and represented approximately 2.8%2.9% of net sales in 20192021 and 2.7%3.0% of net sales in 2018.2020. Selling and marketing expenses were flatincreased $76.5 in 20192021 compared to 2018,2020, and represented approximately 4.3%3.8% of net sales in both years.2021 and 4.0% of net sales in 2020. Operating income was $1,619.2$2,105.1, or 19.7%19.4% of net sales in 2019,2021, compared to $1,686.9$1,638.4, or 20.6%19.1% of net sales in 2018.2020. Operating income for 2019in 2021 included acquisition-related expenses of $25.4, comprising$70.4, comprised primarily of the amortization of $15.7transaction, severance, restructuring and certain non-cash purchase accounting costs related to the value associatedMTS acquisition in the second quarter of 2021, along with acquired backlog resulting from 2019 acquisitions, with the remainder representing external transaction costs.costs and certain non-cash purchase accounting costs related to the Halo acquisition in the fourth quarter of 2021. Operating income for 2018in 2020 included acquisition-related expenses of $8.5,$11.5, comprised primarily of external transaction costs related to external transaction costs.acquisitions that were announced or closed. These acquisition-related expenses in 2021 and 2020 had the effect of decreasing net income from continuing operations by $57.3, or $0.09 per share, and $10.7, or $0.02 per share, respectively. Acquisition-related expenses are separately presented in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $1,644.6 or$2,175.5 and 20.0% of net sales, respectively, in 20192021, and $1,695.4 or 20.7%$1,649.9 and 19.2% of net sales, respectively, in 2018. 2020. The increase in Adjusted Operating Income and Adjusted Operating Margin in 2021 relative to 2020 was primarily driven by the Interconnect Products and Assemblies segment, as discussed further below. Operating income for the Interconnect Products and Assemblies segment in 20192021 was $1,722.7$2,296.8, or 22.0% of net sales, compared to $1,752.5$1,741.2, or 22.5%21.2% of net sales in 2018.2020. The slight decreaseincrease in operating margin for the Interconnect Products and Assemblies segment for 20192021 compared to 2018 was primarily2020 is driven by normal downside conversion relatedoperating leverage on the higher sales volumes combined with the benefit of a lower cost impact resulting from the COVID-19 pandemic compared to the organic decline in sales as well as2020, partially offset by the impact of recent acquisitions which currently have, on average, a lower operating margin than the average of the Interconnect Productsmore challenging commodity and Assemblies segment. In addition, the operatingsupply chain environment experienced in 2021. Operating income for the Cable Products and Solutions segment in 20192021 was $39.5$22.8, or 10.2%5.1% of net sales, compared to $52.6$35.4, or 12.5%9.6% of net sales in 2018.2020. The decrease in operating income margin for the Cable Products and Solutions segment in 20192021 compared to 2018 was primarily2020 is driven by lower volumesthe impact of the more challenging commodity, logistics and product mix.supply chain environment experienced in 2021. Interest expense was $117.6$115.5 in 20192021 compared to $101.7$115.4 in 2018. The increase is primarily due to higher average debt levels and the higher average interest rate associated with the 4.350% U.S. Senior Notes issuance in January 2019 (the net proceeds of which, along with commercial paper borrowings, were used to repay the Company’s 2.55% U.S. Senior Notes also in January 2019).
Loss on early extinguishment of debt was $14.3 in 2019, which related to refinancing-related costs, specifically premiums and fees incurred associated with the early extinguishment of certain redeemed principal amounts of the 3.125% Senior Notes and 4.00% Senior Notes (collectively, the “Tendered Notes”) as a result of the tender offers in
September 2019.2020. Refer to Note 4 of the accompanyingNotes to Consolidated Financial Statements and the Liquidity and Capital Resources section within this Item 7 for further information related to the Tendered Notes.Company’s debt.
Provision for income taxes was at an effective rate of 22.2%20.6% in 20192021 and 23.4%20.5% in 2018.2020. Provision for income taxes in 20192021 included (i) excess tax benefits of $38.1$63.4 from stock option exercises and (ii) a discrete tax benefit of $14.9 related to the settlement of uncertain tax positions in certain non-U.S. jurisdictions, all of which was partially offset by the tax effects related to (i) acquisition-related expenses during the year and (ii) refinancing-related costs associated with the early extinguishment of debt. Provision for income taxes in 2018 included (i) excess tax benefits of $19.8 from stock option exercises and (ii) an income tax benefit of $14.5 related to the completion of the accounting for the Tax Act Charge, which were partially offset by the tax effect related to acquisition-related expenses during the year. These items had the aggregate effect of loweringdecreasing the effective tax rate and increasing earnings per share by the amounts noted in the tablestable below. Provision for income taxes in 2020 included (i) excess tax benefits of $42.8 from stock option exercises and (ii) a discrete tax benefit of $19.9 related to the settlements of refund claims in a non-U.S. jurisdiction and the resulting adjustments to deferred taxes, which were partially offset by the tax effects related to acquisition-related expenses during the year. These items had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.3% and 24.5% for 2021 and 25.5% for 2019 and 2018,2020, respectively, as reconciled in the table below to the comparable effective tax rate based on GAAP results. For additional details related to the reconciliation between the U.S. statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 6 of the Notes to the Consolidated Financial Statements. Net income from continuing operations attributable to Amphenol Corporation and Net income from continuing operations per common share-Dilutedshare attributable to Amphenol Corporation-Diluted (“Diluted EPS”) was $1,155.0were $1,569.4 and $3.75,$2.51, respectively, for 2019,2021, compared to $1,205.0$1,203.4 and $3.85,$1.96, respectively, for 2018.2020. Excluding the effect of the aforementioned items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,150.4$1,548.4 and $3.74,$2.48, respectively, for 2019,2021, compared to $1,177.9$1,151.4 and $3.77,$1.87, respectively, for 2018.2020. The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income from continuing operations attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all on a continuing operations basis only, as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 20192021 and 2018:2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2021 | | 2020 | | | | | | | | Net Income | | | | | | | | | | | | Net Income | | | | | | | | | | | | Net Income | | | | | | | | | | | | Net Income | | | | | | | | | | | | | attributable | | Effective | | | | | | | | | | attributable | | Effective | | | | | | | | | | attributable | | Effective | | | | | | | | | | attributable | | Effective | | | | | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | Reported (GAAP) | | $ | 1,619.2 | | 19.7 | % | $ | 1,155.0 | | 22.2 | % | $ | 3.75 | | $ | 1,686.9 | | 20.6 | % | $ | 1,205.0 | | 23.4 | % | $ | 3.85 | | $ | 2,105.1 | | 19.4 | % | $ | 1,569.4 | | 20.6 | % | $ | 2.51 | | $ | 1,638.4 | | 19.1 | % | $ | 1,203.4 | | 20.5 | % | $ | 1.96 | Acquisition-related expenses | | | 25.4 | | 0.3 | | | 21.0 | | (0.1) | | | 0.07 | | | 8.5 | | 0.1 | | | 7.2 | | - | | | 0.02 | | | 70.4 | | 0.6 | | | 57.3 | | (0.2) | | | 0.09 | | | 11.5 | | 0.1 | | | 10.7 | | (0.1) | | | 0.02 | Loss on early extinguishment of debt | | | - | | - | | | 12.5 | | (0.1) | | | 0.04 | | | - | | - | | | - | | - | | | - | | Excess tax benefits related to stock-based compensation | | | - | | - | | | (38.1) | | 2.5 | | | (0.12) | | | - | | - | | | (19.8) | | 1.2 | | | (0.06) | | | — | | — | | | (63.4) | | 3.2 | | | (0.10) | | | — | | — | | | (42.8) | | 2.8 | | | (0.07) | Tax Act Charge (benefit) | | | - | | - | | | - | | - | | | - | | | - | | - | | | (14.5) | | 0.9 | | | (0.04) | | Adjusted (non-GAAP) | | $ | 1,644.6 | | 20.0 | % | $ | 1,150.4 | | 24.5 | % | $ | 3.74 | | $ | 1,695.4 | | 20.7 | % | $ | 1,177.9 | | 25.5 | % | $ | 3.77 | | Discrete tax item | | | | — | | — | | | (14.9) | | 0.7 | | | (0.02) | | | — | | — | | | (19.9) | | 1.3 | | | (0.03) | Adjusted (non-GAAP) (2) | | | $ | 2,175.5 | | 20.0 | % | $ | 1,548.4 | | 24.3 | % | $ | 2.48 | | $ | 1,649.9 | | 19.2 | % | $ | 1,151.4 | | 24.5 | % | $ | 1.87 |
Note: All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations | (1) | While the terms “operating margin” and “effective tax rate” are not considered U.S. GAAP financial measures, for purposes of this table, we derive the reported (GAAP) measures based on GAAP results, which serve as the basis for the reconciliation to their comparable non-GAAP financial measure.measures. |
| (2) | All percentages and per share amounts in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding. |
2018
2020 Compared to 20172019 Net sales were $8,202.0$8,598.9 for the year ended December 31, 20182020 compared to $7,011.3$8,225.4 for the year ended December 31, 2017,2019, which represented an increase of 17%5% in both U.S. dollars, and4% in constant currencies, and 14%2% organically (excluding both currency and acquisition impacts), over the prior year. The increase in net sales in 2020 was driven by strong growth in several markets, which was partially offset by the sudden and severe slowdown in certain of our markets resulting from the global outbreak of the COVID-19 pandemic, which also caused production disruptions in many parts of the world during much of the first half of 2020. Net sales in the Interconnect Products and Assemblies segment (approximately 95%96% of net sales) increased 18%5% in U.S. dollars, 17%4% in constant currencies, and 14%2% organically, in 2018,2020, compared to 2017.2019. The sales growth was driven by strong growth in the mobile devices, industrial, automotive, information technology and data communications, and mobile devices markets, along with moderate growth in the military mobile networksmarket, and commercial aerospace markets, partially offset by a slight decline in sales into the broadband communications market, with growth resulting primarily from organic strength, in addition to contributions from the Company’s acquisitions.acquisition program. This sales growth was partially offset by declines in the commercial aerospace, mobile networks and automotive markets, all of which were negatively impacted by the COVID-19 pandemic. Net sales to the mobile devices market increased (approximately $403.6) primarily due to growth in sales of products incorporated into smartphones and related accessories, partially offset by declining sales of products incorporated into tablets. Net sales to the industrial market increased (approximately $214.9)$246.4), reflecting salesprimarily driven by strength in medical,battery and electric vehicle, industrial instrumentation, heavy equipment, electric vehicle, railwayalternative energy and mass transit, and oil and gas, as well as contributions from acquisitions. Net sales to the automotive market increased (approximately $184.9), driven by growth and expansion in most regions of the global automotive market, as well asmedical applications, along with contributions from acquisitions. Net sales to the information technology and data communications market increased (approximately $166.1)$234.0), reflecting organicdriven primarily by strong sales growth to data center customers and market demand for storage and networking related products as customers worked to support higher demand for increased bandwidth to support work, school and entertainment activities during the pandemic, along with contributions from acquisitions. Net sales to the mobile devices market increased (approximately $179.9), driven by strength in products for data centers, including serverincorporated into laptops, tablets, wearable devices, and networking-related applications, storage,accessories along with production-related products, and consumer electronics.was partially offset by a slight moderation of sales into smartphones. Net sales to the military market increased (approximately $133.2)$32.2), driven by broad strength across multiple segments of the military market, including increased sales into avionics, military communications and military airframe applications, as well as missile applications.offset in part by the impact of pandemic-related production disruptions experienced during the first half of the year. Net sales to the commercial aerospace market decreased significantly (approximately $135.3) primarily due to the significant impact of the COVID-19 pandemic on travel and aircraft production. Net sales to the mobile networks market increaseddecreased (approximately $56.3)$98.5), due to increased sales towhich reflected the impact of the 2019 U.S. Government restrictions on certain Chinese customers as well as reduced demand from both mobile networks equipment manufacturers and mobile operators.operators, partially as a result of the negative impact of the COVID-19 pandemic, offset in part by contributions from acquisitions. Net sales to the commercial aerospaceautomotive market increaseddecreased (approximately $39.6) primarily$86.0), due to strengtha significant reduction in large passenger planes. demand resulting from customer factory shutdowns together with production disruptions in the first half of 2020 resulting from the COVID-19 pandemic, which was partially offset by a strong recovery of demand during the second half of the year. Net sales in the Cable Products and Solutions segment (approximately 5%4% of net sales), which primarily serves the broadband communications market, increaseddecreased 4% in U.S. dollars, 6%1% in constant currencies and 6%1% organically in 2018,2020, compared to 2017.2019. The increasedecrease in net sales in the Cable Products and Solutions segment was primarily due to an increase in cable products sold into the mobile networks market, which was partially offsetlargely driven by the slight decreasenegative impact of the COVID-19 pandemic primarily during the first half of 2020, as well as an overall weakness in sales into the broadband communications market.market demand. The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures, by segment, geography and consolidated, for the year ended December 31, 20182020 compared to the year ended December 31, 2017:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage Growth (relative to prior year) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | Foreign | | Constant | | | | Organic | | | | | | growth in | | currency | | Currency Net | | Acquisition | | Net Sales | | | | | | | | | | U.S. Dollars (1) | | impact (2) | | Sales Growth (3) | | impact (4) | | Growth (3) | | | | 2018 | | 2017 | | (GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | Net sales: | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products and Assemblies | | $ | 7,781.9 | | $ | 6,606.9 | | 18 | % | | 1 | % | | 17 | % | | 3 | % | | 14 | % | | Cable Products and Solutions | | | 420.1 | | | 404.4 | | 4 | % | | (2) | % | | 6 | % | | — | % | | 6 | % | | Consolidated | | $ | 8,202.0 | | $ | 7,011.3 | | 17 | % | | — | % | | 17 | % | | 3 | % | | 14 | % | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Percentage Growth (relative to prior year) (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | Foreign | | Constant | | | | Organic | | | | | | growth in | | currency | | Currency Net | | Acquisition | | Net Sales | | | | | | | | | | U.S. Dollars (2) | | impact (3) | | Sales Growth (4) | | impact (5) | | Growth (4) | | Net sales by: | | 2020 | | 2019 | | (GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | (non-GAAP) | | Segment: | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products and Assemblies | | $ | 8,229.9 | | $ | 7,840.3 | | 5 | % | | 1 | % | | 4 | % | | 2 | % | | 2 | % | | Cable Products and Solutions | | | 369.0 | | | 385.1 | | (4) | % | | (3) | % | | (1) | % | | — | % | | (1) | % | | Consolidated | | $ | 8,598.9 | | $ | 8,225.4 | | 5 | % | | 1 | % | | 4 | % | | 2 | % | | 2 | % | | | | | | | | | | | | | | | | | | | | | | | | | Geography (6): | | | | | | | | | | | | | | | | | | | | | | | United States | | $ | 2,494.0 | | $ | 2,524.7 | | (1) | % | | — | % | | (1) | % | | 4 | % | | (5) | % | | Foreign | | | 6,104.9 | | | 5,700.7 | | 7 | % | | 1 | % | | 7 | % | | 2 | % | | 5 | % | | Consolidated | | $ | 8,598.9 | | $ | 8,225.4 | | 5 | % | | 1 | % | | 4 | % | | 2 | % | | 2 | % | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Percentages in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding. |
| (2) | Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 1314 of the accompanying financial statements.Notes to Consolidated Financial Statements. While the term “net sales growth in U.S. dollars” is not considered a U.S. GAAP financial measure, for purposes of this table, we derive the reported (GAAP) measure based on GAAP results, which serves as the basis for the reconciliation to its comparable non-GAAP financial measures. |
(2)(3) | Foreign currency translation impact, a non-GAAP measure, represents the percentage impact on net sales resulting from foreign currency exchange rate changes in the current reporting year compared to the prior reporting year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior year from current year reported net sales, taken as a percentage of the respective prior year’s net sales. |
(3)(4) | Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section. |
(4)(5) | Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions closed since the beginning of the prior calendar year, which werethat have not been included in the Company’s consolidated results as offor the full current year and/or prior comparable prior year and whichpresented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. |
| (6) | Net sales by geographic area are based on the customer location to which the product is shipped. |
Geographically,The increase in foreign net sales in the United States in 2018 increased approximately 13% in U.S. dollars ($2,241.4 in 2018 versus $1,978.4 in 2017) and 9% organically,2020 compared to 2017. Foreign sales2019 was driven primarily by strong growth in 2018 increased approximately 18% in U.S. dollars ($5,960.6 in 2018 versus $5,032.9 in 2017), 17% in constant currencies and 15% organically, compared to 2017 with strength in both Asia and Europe.Asia. The comparatively slightly weaker U.S. dollar in 20182020 had an insignificant effect on net sales compared to 2017.2019.
Selling, general and administrative expenses were $959.5$1,014.2, or 11.7%11.8% of net sales for 2018,2020, compared to $878.3$971.4, or 12.5%11.8% of net sales for 2017.2019. Administrative expenses increased approximately $46.4$27.5 in 2018 primarily related to increases in employee-related benefits and stock-based compensation expense,2020, and represented approximately 4.8% of net sales in 2020 and 4.7% of net sales in 2018 and 4.8% of net sales in 2017.2019. Research and development expenses increased approximately $27.2$26.5 in 20182020 primarily related to increases in expenses for new product development, and represented approximately 2.7%3.0% of net sales in 20182020 and 2.8% of net sales in 2017.2019. Selling and marketing expenses increased approximately $7.6decreased $11.2 in 2018 primarily related2020 compared to the increase in sales volume2019, and represented approximately 4.0% of net sales in 2020 and 4.3% of net sales in 2018 and 4.9% of net sales in 2017.2019. Operating income was $1,686.9$1,638.4, or 20.6%19.1% of net sales in 2018,2020, compared to $1,427.6$1,619.2, or 20.4%19.7% of net sales in 2017.2019. Operating income for 2018 and 2017 includes in 2020 included acquisition-related expenses of $8.5 and $4.0, respectively, $11.5, comprised primarily of external transaction costs related to acquisitions that were announced or closed. Operating income in 2019 included acquisition-related expenses of $25.4, comprised of the amortization of $15.7 related to the value associated with the acquired backlog resulting from two of our 2019 acquisitions, with the remainder representing external transaction costs. These acquisition-related expenses in 2020 and 2019 had the effect of decreasing net income from continuing operations by $10.7, or $0.02 per share, and $21.0, or $0.03 per share, respectively. Acquisition-related expenses are separately presented in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $1,695.4 or 20.7%$1,649.9 and 19.2% of net sales, respectively, in 20182020, and $1,644.6 and 20.0% of net sales, respectively, in 2019. and $1,431.6 or 20.4% in 2017. The increase in Adjusted Operating Margin for 2018 compared to 2017 was driven primarily by an increase in operating margin for the Interconnect Products and Assemblies segment.
Operating income for the Interconnect Products and Assemblies segment in 20182020 was $1,752.5$1,741.2, or 22.5%21.2% of net sales, compared to $1,475.2$1,722.7, or 22.3%22.0% of net sales in 2017.2019. The increasedecrease in operating income margin for the Interconnect Products and Assemblies segment for 2020 compared to 2019 was primarily driven by the significant incremental costs incurred, primarily during the first half of 2020, related to the COVID-19 pandemic. This decrease in the operating margin during the first half of 2020 was partly offset by strong operating leverage on higher sales volumes. In addition,volumes during the operatingsecond half of 2020. Operating income for the Cable Products and Solutions segment in 20182020 was $52.6$35.4, or 12.5%9.6% of net sales, compared to $54.2$39.5, or 13.4%10.2% of net sales in 2017.2019. The decrease in operating income margin for the Cable Products and Solutions segment in 20182020 compared to 20172019 was primarily driven by increases in certain comlower volumes as well as the negative impact of the COVID-19 pandemic, primarily during the first half of 2020.modity costs. Interest expense was $101.7$115.4 in 20182020 compared to $92.3$117.6 in 2017. The increase was primarily due2019. Refer to higher average interest rates onNote 4 of the Notes to Consolidated Financial Statements for further information related to the Company’s U.S. Commercial Paper Program (as defined below in this Item 7) and the senior note issuances in April 2017.debt. Loss on early extinguishment of debt was $14.3 in 2019, which related to refinancing-related costs, specifically premiums and fees incurred associated with the early extinguishment of certain redeemed principal amounts of the 3.125% Senior Notes due September 2021 (the “2021 Senior Notes”) and 4.00% Senior Notes due February 2022 (the “2022 Senior Notes”) (collectively, the “Tendered Notes”) as a result of the tender offers in September 2019. Refer to Note 4 of the accompanying Consolidated Financial Statements for further information related to the Tendered Notes. Provision for income taxes was at an effective rate of 23.4%20.5% in 20182020 and 51.1%22.2% in 2017. The lower2019. Provision for income taxes in 2020 included (i) excess tax benefits of $42.8 from stock option exercises and (ii) a discrete tax benefit of $19.9 related to the settlements of refund claims in a non-U.S. jurisdiction and the resulting adjustments to deferred taxes, which were partially offset by the tax effects related to acquisition-related expenses during the year. These items had the aggregate effect of decreasing the effective tax rate and increasing earnings per share by the amounts noted in 2018 compared to 2017 resulted primarilythe table below. Provision for income taxes in 2019 included excess tax benefits of $38.1 from the Tax Act Charge of $398.5 recorded in 2017,stock option exercises, which was partially offset by the excess tax benefits of $66.6 from stock option exercises. The effects of these items were significantly lower in 2018, as the Company recorded an income tax benefit of $14.5 in 2018 related to (i) acquisition-related expenses during the completion of the accounting for the Tax Act Charge, alongyear and (ii) refinancing-related costs associated with the excessearly extinguishment of debt. These items had the aggregate effect of decreasing the effective tax benefits of $19.8 from stock option exercises. rate and increasing earnings per share by the amounts noted in the table below. Excluding the effect of these items, along with the effect of acquisition-related expenses in each respective year, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 25.5%24.5% for both 2020 and 26.5% for 2018 and 2017, respectively,2019, as reconciled in the table below to the comparable effective tax rate based on GAAP results. For additional details related to the reconciliation between the U.S. statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 6 of the Notes to the Consolidated Financial Statements. Net income from continuing operations attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) was $1,205.0EPS were $1,203.4 and $3.85,$1.96, respectively, for 2018,2020, compared to $650.5$1,155.0 and $2.06,$1.88, respectively, for 2017.2019. Excluding the effect of the aforementioned items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,177.9$1,151.4 and $3.77,$1.87, respectively, for 2018,2020, compared to $986.1$1,150.4 and $3.12,$1.87, respectively, for 2017.2019. The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income from continuing operations attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all on a continuing operations basis only, as defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 20182020 and 2017:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | 2020 | | 2019 | | | | | | | | Net Income | | | | | | | | | | | | Net Income | | | | | | | | | | | | Net Income | | | | | | | | | | | | Net Income | | | | | | | | | | | | | attributable | | Effective | | | | | | | | | | attributable | | Effective | | | | | | | | | | attributable | | Effective | | | | | | | | | | attributable | | Effective | | | | | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | Operating | | Operating | | to Amphenol | | Tax | | Diluted | | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | | Income | | Margin (1) | | Corporation | | Rate (1) | | EPS | Reported (GAAP) | | $ | 1,686.9 | | 20.6 | % | $ | 1,205.0 | | 23.4 | % | $ | 3.85 | | $ | 1,427.6 | | 20.4 | % | $ | 650.5 | | 51.1 | % | $ | 2.06 | | $ | 1,638.4 | | 19.1 | % | $ | 1,203.4 | | 20.5 | % | $ | 1.96 | | $ | 1,619.2 | | 19.7 | % | $ | 1,155.0 | | 22.2 | % | $ | 1.88 | Acquisition-related expenses | | | 8.5 | | 0.1 | | | 7.2 | | - | | | 0.02 | | | 4.0 | | - | | | 3.7 | | - | | | 0.01 | | | 11.5 | | 0.1 | | | 10.7 | | (0.1) | | | 0.02 | | | 25.4 | | 0.3 | | | 21.0 | | (0.1) | | | 0.03 | Loss on early extinguishment of debt | | | | — | | — | | | — | | — | | | — | | | — | | — | | | 12.5 | | (0.1) | | | 0.02 | Excess tax benefits related to stock-based compensation | | | - | | - | | | (19.8) | | 1.2 | | | (0.06) | | | - | | - | | | (66.6) | | 4.9 | | | (0.21) | | | — | | — | | | (42.8) | | 2.8 | | | (0.07) | | | — | | — | | | (38.1) | | 2.5 | | | (0.06) | Tax Act Charge (benefit) | | | - | | - | | | (14.5) | | 0.9 | | | (0.04) | | | - | | - | | | 398.5 | | (29.5) | | | 1.26 | | Adjusted (non-GAAP) | | $ | 1,695.4 | | 20.7 | % | $ | 1,177.9 | | 25.5 | % | $ | 3.77 | | $ | 1,431.6 | | 20.4 | % | $ | 986.1 | | 26.5 | % | $ | 3.12 | | Discrete tax item | | | | — | | — | | | (19.9) | | 1.3 | | | (0.03) | | | — | | — | | | — | | — | | | — | Adjusted (non-GAAP) (2) | | | $ | 1,649.9 | | 19.2 | % | $ | 1,151.4 | | 24.5 | % | $ | 1.87 | | $ | 1,644.6 | | 20.0 | % | $ | 1,150.4 | | 24.5 | % | $ | 1.87 |
Note: All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations | (1) | While the terms “operating margin” and “effective tax rate” are not considered U.S. GAAP financial measures, for purposes of this table, we derive the reported (GAAP) measures based on GAAP results, which serve as the basis for the reconciliation to their comparable non-GAAP financial measure.measures. |
| (2) | All percentages and per share amounts in this table were calculated using actual, unrounded results; therefore, the sum of the components may not add due to rounding. |
Liquidity and Capital Resources Liquidity and Cash Requirements At December 31, 20192021 and 2018,2020, the Company had cash, cash equivalents and short-term investments of $908.6$1,241.4 and $1,291.7, respectively. The vast$1,738.1, respectively, with the majority of the Company’s cash, cash equivalents and short-term investments on hand as of December 31, 2019 and 2018 is located outside of the United States. On April 7, 2021, the Company used a combination of cash on hand and borrowings under its U.S. Commercial Paper Program (defined below) to fund the acquisition of MTS. In addition, on December 1, 2021, the Company used cash on hand to fund the acquisition of Halo. The Company’s primary sources of liquidity are internally generated cash provided by operating activities, our cash, cash equivalents and short-term investments on hand, the U.S. Commercial Paper Program, the Euro Commercial Paper Program, and the Revolving Credit Facility (each as defined and discussed further below within this Item 7). The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash from operating activities, availability under its Revolving Credit Facility, and access to capital markets (including the recent issuance of the Company’s $750.0 principal amount of unsecured 2.200% Senior Notes due September 15, 2031 (the “2031 Senior Notes”) in September 2021, along with borrowings under the U.S. Commercial Paper Program), provide adequate liquidity to meet both its short-term (next twelve months) and reasonably foreseeable long-term requirements and obligations. Prior to the Tax Act, the Company asserted its intention to indefinitely reinvest outsideCash Requirements from Known Contractual and Other Obligations
The Company’s primary ongoing cash requirements will be for operating and working capital needs, capital expenditures, product development activities, repurchases of the United States all of its foreign earnings not otherwise distributed currently. For earnings occurring on or after January 1, 2018, the Tax Act’s change to a modified territorial tax system in the United States has significantly reduced the U.S. tax expenseour Common Stock, dividends, debt service, payments associated with the remittanceone-time tax on the deemed repatriation of foreign earnings, among other changes. The Tax Act also imposed a one-time transition tax (“Transition Tax”) on all of the Company’s pre-2018 accumulated unremitted foreign earnings. As a result, on December 31, 2017, the Company recorded a provisional U.S. tax expense for the Transition Tax, which was adjusted and finalized in 2018. This Transition Tax on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries will be paid, net of applicable tax credits and deductions,(“Transition Tax”) which is payable in annual installments until 2025, taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings), funding of pension obligations, and other contractual obligations and commitments (refer to the table below for the Company’s material cash requirements from known contractual and other obligations). The Company may also use cash to fund all or part of the cost of future acquisitions. The Company’s debt service requirements consist primarily of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility and the Commercial Paper Programs (all as permitted under the Tax Act.defined below). The Company expects that capital expenditures in 2022 will be in a range of 3% to 4% of net sales. The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of December 31, 2021, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied. | | | | | | | | | | | | | | | | | | | Payment Due By Period | | Contractual Obligations | | | | | Less than | | 1-3 | | 3-5 | | More than | | (dollars in millions) | | Total | | 1 year | | years | | years | | 5 years | | Debt (1) | | $ | 4,830.6 | | $ | 4.0 | | $ | 351.2 | | $ | 1,763.0 | | $ | 2,712.4 | | Interest related to senior notes | | | 707.9 | | | 99.7 | | | 193.8 | | | 164.7 | | | 249.7 | | Operating leases (2) | | | 267.3 | | | 75.0 | | | 99.3 | | | 48.6 | | | 44.4 | | Purchase obligations (3) | | | 838.3 | | | 793.6 | | | 40.6 | | | 2.8 | | | 1.3 | | Accrued pension and postretirement benefit obligations (4) | | | 59.8 | | | 7.3 | | | 11.5 | | | 12.7 | | | 28.3 | | Transition tax (5) | | | 86.2 | | | 15.8 | | | 69.1 | | | 1.3 | | | — | | Total (6) | | $ | 6,790.1 | | $ | 995.4 | | $ | 765.5 | | $ | 1,993.1 | | $ | 3,036.1 | |
| (1) | The Company has excluded expected interest payments on the Revolving Credit Facility, U.S. Commercial Paper Program and Euro Commercial Paper Program from the above table, as this calculation is largely dependent on average debt levels the Company expects to have during each of the years presented. The actual interest payments made related to the Company’s Revolving Credit Facility and both Commercial Paper Programs combined, in 2021, were approximately $2.4. Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by items such as future acquisitions, repurchases of Common Stock and dividend payments, as well as payments or additional borrowings made to reduce or increase the underlying revolver balance. |
| (2) | The Company’s operating lease payments included in this table reflect the future minimum undiscounted fixed lease payments, which serve as the basis for calculating the Company’s operating lease liabilities as of December 31, 2021. The table above excludes any variable lease payments not included in the measurement of the Company’s right-of-use assets and operating lease liabilities, due to their uncertainty. Finance leases are not material to the Company individually or in the aggregate and as such have been excluded from the table above. |
| (3) | Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production. |
| (4) | This table includes estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans, as well as the anticipated minimum required contributions under the Company’s funded pension plans, the most significant funded plan of which covers certain of its U.S. employees. Over the past several years, there has been no minimum requirement for Company contributions to our defined benefit pension plans in the United States (“U.S. Plans”) due to prior contributions made in excess of minimum requirements, and as a result, there was no anticipated minimum required contribution included in the table above related to the U.S. Plans for 2022. The Company did not make any voluntary contributions to its U.S. Plans in 2021 and 2020. It is not possible to reasonably estimate expected required contributions in the above table after 2022 since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets. |
| (5) | As a result of the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”) in December 2017, the United States changed to a modified territorial tax system, which significantly reduced the U.S. tax expense associated with the remittance of foreign earnings, among other changes. The Tax Act also imposed the Transition Tax associated with all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries. As a result, of the Tax Act, on December 31, 2017, the Company recorded a provisional U.S. tax expense for the Transition Tax, which was adjusted and finalized in 2018. The Transition Tax is to be paid in annual installments over the eight-year period until 2025, as permitted under the Tax Act. The table above reflects the remaining amounts associated with the Transition Tax, which is net of applicable tax credits and deductions. The fourth installment of the Transition Tax was paid in the second quarter of 2021. |
| (6) | As of December 31, 2021, the Company has recorded net liabilities of approximately $176.5 related to unrecognized tax benefits. These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows. It is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid. |
Repatriation of Foreign Earnings and Related Income Taxes Following the enactment of the Tax Act in December 2017, the Company has previously indicated an intention to repatriate most of its pre-2018pre-2021 accumulated earnings and recordedhas accrued the foreign and U.S. state and local tax costs related to the repatriation. The associated tax payments are due as the repatriations are made. On December 31, 2018, the Company indicated its intention to distribute certain 2018 foreign earnings and accrue foreign and U.S. state and local taxes, if applicable, on those earnings, as appropriate andappropriate. The associated tax payments are due as the repatriations are made. The Company intends to indefinitely reinvest allthe remaining 2018pre-2021 foreign earnings. The Company intends to distribute certain 20192021 foreign earnings and has accrued foreign and U.S. state and local taxes, ifwhere applicable, on those earnings, as appropriate as of December 31, 2019,2021, and intends to indefinitely reinvest allthe remaining 20192021 foreign earnings. The Company intends to evaluate certain post-2019post-2021 earnings for distribution,repatriation, and accrue for those distributions where appropriate, and to indefinitely reinvest all other foreign earnings. As of December 31, 2019,2021, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,000 related to certain geographies, of approximately $900, as it is the Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated. The Company’s primary sources36
Table of liquidity are internally generated cash flow, our cash, cash equivalents and short-term investments on hand, the U.S. Commercial Paper Program, the Euro Commercial Paper Program, and the Revolving Credit Facility (each as defined below in this Item 7). The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash flow from operations, availability under its credit facilities, and access to capital markets provide adequate liquidity to meet its obligations for at least the next twelve months.Contents
The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchases of its Common Stock, dividends, debt service, payments associated with the Transition Tax (which is payable in annual installments until 2025), taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings), and funding of pension obligations. The Company’s debt service requirements consist primarily of principal and interest on the Company’s Senior Notes (including the 2.20% Senior Notes due in April 2020), Revolving Credit Facility, and Commercial Paper Programs (all as defined below). The Company may also use cash to fund all or part of the cost of acquisitions. The Company expects that capital expenditures in 2020 will be in a range of 3% to 4% of net sales.
Cash Flow Summary The following table summarizes the Company’s cash flows from operating, investing and financing activities for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, as reflected in the Consolidated Statements of Cash Flow: | | | | | | | | | | | | Year Ended December 31, | | | 2019 | | 2018 | | 2017 | Net cash provided by operating activities | | $ | 1,502.3 | | $ | 1,112.7 | | $ | 1,144.2 | Net cash used in investing activities | | | (1,228.8) | | | (441.8) | | | (380.2) | Net cash used in financing activities | | | (648.4) | | | (1,070.1) | | | (140.1) | Effect of exchange rate changes on cash and cash equivalents | | | (13.2) | | | (40.6) | | | 60.6 | Net change in cash and cash equivalents | | $ | (388.1) | | $ | (439.8) | | $ | 684.5 |
| | | | | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | | 2019 | Net cash provided by operating activities from continuing operations | | $ | 1,523.9 | | $ | 1,592.0 | | $ | 1,502.3 | Net cash used in investing activities from continuing operations | | | (2,604.4) | | | (333.5) | | | (1,228.8) | Net cash used in financing activities from continuing operations | | | (145.1) | | | (516.6) | | | (648.4) | Net cash change from discontinued operations | | | 733.0 | | | — | | | — | Effect of exchange rate changes on cash and cash equivalents | | | (12.3) | | | 68.9 | | | (13.2) | Net (decrease) increase in cash and cash equivalents | | $ | (504.9) | | $ | 810.8 | | $ | (388.1) |
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Operating Activities The ability to generate cash from operating activities ishas been one of the Company’s fundamental financial strengths. Cash flowNet cash provided by operating activities from continuing operations (“Operating Cash Flow”) was $1,502.3 for 2019$1,523.9 in 2021, compared to $1,112.7 for 2018.$1,592.0 in 2020 and $1,502.3 in 2019. The decrease in Operating Cash Flow in 2021 compared to 2020 is primarily due to a higher usage of cash related to the change in working capital as discussed below, partially offset by an increase in net income from continuing operations. The increase in Operating Cash Flow forin 2020 compared to 2019 iswas primarily relateddue to the increase in net income from continuing operations, along with a lower usage of cash related to the change in working capital. In addition, Operating Cash Flow in 2018 also reflected the Company’s voluntary cash contribution of approximately $81.0 in the first quarter of 2018 to fund our U.S. defined benefit pension plans (“U.S. Plans”, and together with its foreign plans, the “Plans”), while no such voluntary cash contribution to the U.S. Plans was made in 2019. Operating Cash Flow was $1,112.7 for 2018 compared to $1,144.2 for 2017. The decrease in Operating Cash Flow for 2018 compared to 2017 was primarily related to (i) certain tax payments made, primarily in the first half of 2018, related to the Tax Act Charge of approximately $87.0, including the first annual installment of the Transition Tax of approximately $18 in the second quarter of 2018 and payments for foreign and U.S. state and local taxes of approximately $69 related to foreign cash repatriated during 2018 and (ii) the Company’s voluntary cash contribution of approximately $81.0 in the first quarter of 2018 to fund our U.S. Plans. Excluding these items, Operating Cash Flow in 2018 increased compared to 2017 primarily due to the increase in net income, which was partially offset by the higher usage of cash related to the change in working capital.capital as discussed below. In 2021, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $496.4, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in accounts receivable, inventories, and prepaid expenses and other current assets of $398.4, $263.0 and $20.2, respectively, partially offset by increases in accounts payable of $131.7 and accrued liabilities, including income taxes, of $53.5. In 2020, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $38.9, excluding the impact of acquisitions and foreign currency translation, due to increases in accounts receivable, inventories, and prepaid expenses and other current assets of $146.3, $102.0 and $88.6, respectively, partially offset by increases in accounts payable of $204.3 and accrued liabilities, including income taxes, of $93.7. In 2019, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $81.6, excluding the impact of acquisitions and foreign currency translation, primarily due to decreases in accrued liabilities, including income taxes, of $129.3 and accounts payable of $60.2, partially offset by a decrease in accounts receivable of $117.3. In 2018, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $362.4, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in accounts receivable, inventories and other current assets of $237.9, $173.3 and $47.7, respectively, partially offset by increases in accounts payable and accrued liabilities, including income taxes, of $48.8 and $47.7, respectively. In 2017, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $158.1, excluding the impact of acquisitions and foreign currency translation, due primarily to increases in accounts receivable, inventories and other current assets of $146.5, $100.4 and $75.9, respectively, partially offset by increases in accounts payable and accrued liabilities of $140.5 and $24.2, respectively. The following describes the significant changes in the amounts as presented on the accompanying Consolidated Balance Sheets at December 31, 20192021 compared to December 31, 2018.2020. Accounts receivable decreased $55.4increased $503.2 to $1,736.4$2,454.8 primarily due to lowerhigher sales volumes in the fourth quarter of 20192021 relative to the fourth quarter of 2018 as well as2020, along with the impact of the seven acquisitions (collectively, the “2021 Acquisitions”) that closed during 2021, in particular the MTS and Halo acquisitions, all of which was partially offset by the effect of translation from exchange rate changes (“Translation”) at December 31, 20192021 compared to December 31, 2018 (“Translation”), partially offset by the impact of acquisitions.2020. Days sales outstanding at December 31, 20192021 and 20182020 were approximately 73 days.71 days and 72 days, respectively. Inventories increased $76.3$431.9 to $1,310.1,$1,894.1, primarily due to higher sales, along with the impact of acquisitions,our 2021 Acquisitions, partially offset by Translation. Inventory days at December 31, 20192021 and 20182020 were approximately 80 days and 7479 days, respectively. Prepaid expenses and other current assets increased $29.0 to $367.9, primarily due to increases in certain prepaid expenses and other current receivables as well as the impact of the 2021 Acquisitions. Property, plant and equipment, net, increased $123.2$120.7 to $999.0,$1,175.3, primarily due to capital expenditures of $295.0$360.4 and the impact of acquisitions,the 2021 Acquisitions, partially offset by depreciation of $240.0,$302.9, disposals and Translation. Goodwill increased $763.9$1,344.7 to $4,867.1 primarily as a result of$6,376.8, resulting from goodwill recognized related to ninethe 2021 Acquisitions, primarily from the MTS and Halo acquisitions, that closed in 2019, partially offset by Translation. Other intangible assets, net, increased $44.1$359.4 to $442.0 primarily$756.9 due to the recognition of certain identifiable intangible assets of $111.8 related to the 20192021 Acquisitions, primarily from the MTS and Halo acquisitions, partially offset by amortization of $67.3.$86.4 related to the Company’s intangible assets. Other long-term assets increased $199.8$58.9 to $296.2$411.2, primarily due to the adoption of the new lease standard (“Topic 842”) describedincreases in Note 1 and Note 10 of the accompanying Consolidated Financial Statements, which resulted(i) overfunded pension plans primarily in the recognition of $196.7 ofU.S. and (ii) operating lease right-of-use assets resulting from both leases assumed from the 2021 Acquisitions as of December 31, 2019.well as new and renewed lease agreements entered into during the year. Accounts payable decreased $23.7increased $191.3 to $866.8,$1,312.0, primarily due to lessas a result of increased purchasing activity resulting from lowerrelated to higher sales activity and Translation, partially offset bylevels, along with the impact of acquisitions.the 2021 Acquisitions. Payable days at December 31, 20192021 and 20182020 were 53 days.56 days and 61 days, respectively. Total accrued expenses, including accrued income taxes, increased $66.1$177.8 to $862.6,$1,131.1, primarily as a result of the adoption of Topic 842, which resultedMTS acquisition and the other 2021 Acquisitions, along with an increase in the recognition of $54.0 of current operating lease liabilities as of December 31, 2019,accrued salaries, wages and employee benefits, and other accrued expenses, partially offset by a decrease in accrued income taxes, primarily resulting from U.S. federal tax payments. Accrued pension and postretirement benefit obligations decreased $35.2 to $193.4, primarily due to the impact of acquisitions, partially offset by certain tax payments.higher discount rates used to calculate our projected benefit obligation, along with Translation. Other long-term liabilities, including deferred tax liabilities, increased $151.6$156.6 to $684.4,$862.9, primarily as a result of an increase in deferred tax liabilities resulting from the adoption of Topic 842, which resultedMTS and Halo acquisitions, along with an increase in the recognition of $145.4 of long-term operating lease liabilities resulting from both leases assumed from the 2021 Acquisitions as of December 31, 2019.well as new and renewed lease agreements entered into during the year. In 20192021, 2020 and 2018,2019, the Company made aggregate cash contributions to its defined benefit pension plans of approximately $6.8, $6.5 and $6.6, and $88.3, respectively, of which approximately $81.0 of the 2018 contributions related to the January 2018 voluntary cash contribution to fund our U.S. Plans.respectively. There is no current requirement for cash contributions to any of the Company’s U.S. Plans, and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the Plans’ assets, the timing and amount of cash contributions in the future.future, as discussed in more detail in Note 9 of the Notes to Consolidated Financial Statements. In addition to Operating Cash Flow, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, as a key metric in measuring the Company’s ability to generate cash. The following table reconciles Free Cash Flow to its most directly comparable U.S. GAAP financial measure for the years ended December 31, 2019, 20182021, 2020 and 2017.2019. The decrease in Free Cash Flow in 2021 compared to 2020 was driven by the increase in capital expenditures to support our strong sales growth and, to a lesser extent, the decrease in Operating Cash Flow, as described above. The increase in Free Cash Flow in 20192020 compared to 20182019 was driven by the increase in Operating Cash Flow, as described above. Theabove, and, to a lesser extent, a decrease in Free Cash Flow in 2018 compared to 2017 was primarilycapital expenditures. The following table is on a continuing operations basis only and excludes any cash flows related to an increase in capital expenditures to support certain new customer programs, along with a modest decrease in Operating Cash Flow, as described above.discontinued operations: | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | Operating Cash Flow (GAAP) | | $ | 1,502.3 | | $ | 1,112.7 | | $ | 1,144.2 | | $ | 1,523.9 | | $ | 1,592.0 | | $ | 1,502.3 | Capital expenditures (GAAP) | | | (295.0) | | | (310.6) | | | (226.6) | | | (360.4) | | | (276.8) | | | (295.0) | Proceeds from disposals of property, plant and equipment (GAAP) | | | | 3.7 | | | 12.7 | | | 7.4 | Free Cash Flow (non-GAAP) | | $ | 1,207.3 | | $ | 802.1 | | $ | 917.6 | | $ | 1,167.2 | | $ | 1,327.9 | | $ | 1,214.7 |
Investing Activities Cash flows from investing activities consist primarily of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment, salespurchases (sales and maturities (purchases)maturities) of short-term investments, net, and acquisitions. Net cash used in investing activities from continuing operations was $2,604.4 in 2021, compared to $333.5 in 2020 and $1,228.8 in 2019, compared2019. In 2021, net cash used in investing activities from continuing operations was driven primarily by the use of $2,225.4 to $441.8fund acquisitions, capital expenditures (net of disposals) of $356.7, and net purchases of short-term investments of $8.6. In 2020, net cash used in 2018investing activities from continuing operations was driven primarily by capital expenditures (net of disposals) of $264.1, the use of $50.4 to fund acquisitions, and $380.2 in 2017.net purchases of short-term investments of $18.4. In 2019, net cash used in investing activities from continuing operations was driven primarily by the use of $937.4 to fund acquisitions, capital expenditures (net of disposals) of $287.6, and net purchases of short-term investments of $3.8. In 2018, net cash used in investing activities was driven primarily by capital expenditures (net of disposals) of $305.6 and the use of $158.9 to fund acquisitions, partially offset by net sales and maturities of short-term investments of $22.7. In 2017, net cash used in investing activities was driven primarily by the use of $265.5 to fund acquisitions, along with capital expenditures (net of disposals) of $222.5, partially offset by net sales and maturities of short-term investments of $107.8. Financing Activities Cash flows from financing activities consist primarily of cash flows associated with borrowings and repayments of the Company’s credit facilities and other long-term debt, repurchases of common stock,Common Stock, proceeds from the exercise of stock options,option exercises, dividend payments, and distributions to and purchases of noncontrolling interests. Net cash used in financing activities from continuing operations was $145.1 in 2021, compared to $516.6 in 2020 and $648.4 in 2019, compared2019. In 2021, net cash used in financing activities from continuing operations was driven primarily by (i) debt repayments of $912.6, primarily related to $1,070.1the repayment of the assumed outstanding MTS senior notes in 2018the second quarter of 2021 as well as the redemption of the 3.125% Senior Notes in the third quarter of 2021 and $140.1the redemption of the 4.00% Senior Notes in 2017.the fourth quarter of 2021, (ii) repurchases of the Company’s Common Stock of $661.7, (iii) dividend payments of $346.7, (iv) a cash transfer of $28.7 made by the Company’s continuing operations to its discontinued operations in order to fund the September 2021 payment of contingent consideration assumed as part of the MTS acquisition, (v) distributions to and purchases of noncontrolling interests of $18.9, (vi) payments of $9.3 related to debt financing costs associated with the 2031 Senior Notes, and (vii) payments of $4.1 associated with the deferred purchase price related to acquisitions, partially offset by (a) net borrowings of $796.3 primarily under the U.S. Commercial Paper Program, the majority of the proceeds of which were used to fund acquisitions and to redeem the 3.125% Senior Notes and the 4.00% Senior Notes, (b) net cash proceeds of $752.1, primarily related to the September 2021 issuance of the 2031 Senior Notes, and (c) cash proceeds of $288.5 from the exercise of stock options. In 2020, net cash used in financing activities from continuing operations was driven primarily by (i) repurchases of the Company’s Common Stock of $641.3, (ii) debt repayments of $404.4 related to the Company’s 2.20% U.S. Senior Notes due April 2020 and other debt, (iii) net repayments of $385.8 related to the Company’s Commercial Paper Programs, (iv) dividend payments of $297.6, (v) payment of $75.0 related to acquisition-related contingent consideration, (vi) payment of $16.2 associated with the deferred purchase price related to an acquisition, (vii) distributions to and purchases of noncontrolling interests of $14.9, (vii) payments of $8.7 related to debt financing costs primarily associated with the 2025 Senior Notes and 2026 Euro Notes (each as defined below), and (viii) net repayments of $0.7 under the Company’s credit facilities, partially offset by (a) aggregate net cash proceeds of $942.3 from both the February 2020 issuance of the 2025 Senior Notes and the May 2020 issuance of the 2026 Euro Notes and (b) cash proceeds of $385.7 from the exercise of stock options. In 2019, net cash used in financing activities from continuing operations was driven primarily by (i) the aggregate debt repayments of $1,111.5 associated with certain of the Company’s senior notes and other long-term debt (primarily the(the 2.55% U.S. Senior Notes due January 2019 and the early extinguishment of the Tendered Notes in September 2019) of $1,111.5,and other long-term debt, (ii) repurchases of the Company’s common stockCommon Stock of $601.7, (iii) dividend payments of $279.5, (iv) net repayments underof $229.0 related to the Company’s commercial paper programs of $229.0,Commercial Paper Programs, (v) distributions to and purchases of noncontrolling interests of $43.3, (vi) payments of costs of $14.9 related to debt financing costs primarily associated with the 2029 Senior Notes, the Revolving Credit Facility, the 4.350% Senior Notes due June 2029 (the “2029 Senior Notes”), and the 20302.800% Senior Notes (each as defined below)due February 2030 (the “2030 Senior Notes”), and (vii) premiums and fees paid of $13.4 related to the early extinguishment of the Tendered Notes, partially offset by (i)(a) aggregate net cash proceeds of $1,398.8 from the issuances of the 2029 Senior Notes and the 2030 Senior Notes of $1,398.8 and (ii)(b) cash proceeds of $246.1 from the exercise of stock options of $246.1. options.In 2018, net cash used in financing activities was driven primarily by (i) repurchases of the Company’s common stock of $935.2, (ii) net repayments of commercial paper and other debt of $559.8, (iii) dividend payments of $253.7, (iv) distributions to and purchases of noncontrolling interests of $18.2 and (v) payments of costs of $5.6 related to debt financing associated with the issuances of the Euro senior notes and Euro commercial paper program, partially offset by (i) net cash proceeds from the October 2018 issuance of the Euro senior notes of $571.7 and (ii) cash proceeds from the exercise of stock options of $130.7. In 2017, net cash used in financing activities was driven primarily by (i) repurchases of the Company’s common stock of $618.0, (ii) repayment of the Company’s 1.55% Senior Notes due September 2017 of $375.0, (iii) dividend payments of $205.0, (iv) distributions to and purchases of noncontrolling interests of $24.4, and (v) payments of costs of $5.2 related to debt financing associated with the issuances of two series of senior notes, partially offset by (i) borrowings related to the issuances of two series of senior notes in April 2017 of $749.3, (ii) net borrowings under the U.S. commercial paper program of $154.1, and (iii) cash proceeds from the exercise of stock options of $184.1. The Company has significant flexibility to meet its financial commitments. The Company uses debt financing to lower the overall cost of capital and increase return on stockholders’ equity. The Company’s debt financing includes the use of the commercial paper programs, revolving credit facilityCommercial Paper Programs, the Revolving Credit Facility and senior notes as part of its overall cash management strategy. On January 15, 2019,November 30, 2021, the Company amended and restated its $2,000.0$2,500.0 unsecured revolving credit facility with a $2,500.0 unsecured credit facility (“Revolving(the “Revolving Credit Facility”). As a result, the Revolving Credit Facility no longer references LIBOR for interest rate determinations. The Revolving Credit Facility which matures January 2024, increasesmaintains the lenders’ aggregate commitments by $500.0under the facility at $2,500.0. The Revolving Credit Facility matures in November 2026 and gives the Company the ability to borrow, in various currencies, at a spread that varies based on the Company’s debt rating over LIBOR.certain currency-specific benchmark rates, which benchmark rates in the case of U.S. dollar borrowings are either the base rate or the adjusted term Secured Overnight Financing Rate (“SOFR”). The Company may utilize the Revolving Credit Facility for general corporate purposes. At December 31, 2019,2021, there were no outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. At December 31, 2019,2021, the Company was in compliance with the financial covenants under the Revolving Credit Facility. The Company has a commercial paper program pursuant to which the Company issuesmay issue short-term unsecured commercial paper notes (the “USCP Notes”) in one or more private placements in the United States (the “U.S. Commercial Paper Program”). The maximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0. On April 7, 2021, a combination of borrowings under the U.S. commercial paper notesCommercial Paper Program and cash on hand were used to fund the acquisition of MTS. The Company also used borrowings under the U.S. Commercial Paper Program to (i) redeem, in the third quarter of 2021, its unsecured 3.125% Senior Notes due September 15, 2021, of which $227.7 aggregate principal amount was outstanding (“USCP Notes”) asand (ii) redeem, in the fourth quarter of 2021, its unsecured 4.00% Senior Notes due February 1, 2022, of which $295.0 aggregate principal amount was outstanding. As of December 31, 20192021, the amount of USCP Notes outstanding was $160.0.$795.2, with a weighted average interest rate of 0.29%. OnIn July 10, 2018, the Company and one of its wholly owned European subsidiaries (the “Euro Issuer”) entered into a euro-commercialcommercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”) pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, the “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States. The ECP Notes may be issued in Euros, Sterling, U.S. Dollarsdollars or other currencies. The maximum aggregate principal amount outstanding of ECP Notes outstanding asat any time is $2,000.0. As of December 31, 2019 was €210.0 (approximately $235.5).2021, there were no ECP Notes outstanding.
Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time. AsIn conjunction with the Revolving Credit Facility, as of December 31, 2019,2021, the authorization from the Company’s Board of Directors limits the maximum aggregate principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper euro-commercial paper or similar programs, along with outstanding amounts under the Revolving Credit Facility, at any time to $2,500.0 consistent within the Revolving Credit Facility. In addition, taggregatehe maximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0, while the maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0.. The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and, based on the Board’s authorization described above, are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary. Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes. The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of Commercial Paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future. As of December 31, 2019,2021, the Company has outstanding senior notes (the “Senior Notes”) as follows: | | | | | | | | | | | Principal | Principal | | Interest | | | Principal | | Interest | | | Amount | Amount | | Rate | | Maturity | Amount | | Rate | | Maturity | $ | 400.0 | | 2.20 | % | April 2020 | 350.0 | | 3.20 | % | April 2024 | | 227.7 | | 3.125 | % | September 2021 | 400.0 | | 2.050 | % | March 2025 | | 295.0 | | 4.00 | % | February 2022 | 500.0 | | 4.350 | % | June 2029 | | 350.0 | | 3.20 | % | April 2024 | 900.0 | | 2.80 | % | February 2030 | | 500.0 | | 4.35 | % | June 2029 | 750.0 | | 2.200 | % | September 2031 | | 900.0 | | 2.80 | % | February 2030 | | | | | | € | 500.0 | | 2.00 | % | October 2028 (Euro Notes) | 500.0 | | 0.750 | % | May 2026 (Euro Notes) | | | 500.0 | | 2.00 | % | October 2028 (Euro Notes) |
On September 14, 2021, the Company issued the 2031 Senior Notes due September 15, 2031. The Company used the net proceeds from the 2031 Senior Notes to repay certain outstanding borrowings under the U.S. Commercial Paper Program. On February 20, 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025 (the “2025 Senior Notes”). On April 1, 2020, the Company used the net proceeds from the 2025 Senior Notes, together with cash on hand, to repay the $400.0 outstanding principal amount of unsecured 2.20% Senior Notes due April 1, 2020 upon maturity. All of the Company’s outstanding senior notes in the United States (the “U.S. Senior NotesNotes”) are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness. Interest on each series of the U.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of U.S. Senior Notes at any time, subject to certain terms and conditions. The 2.20% Senior Notes are due in April 2020 and are therefore recorded, net of the related unamortized discount and debt issuance costs, within Current portion of long-term debt in the accompanying Consolidated Balance Sheets as of December 31, 2019.
On January 9, 2019, the Company issued $500.0 principal amount of unsecured 4.350% Senior Notes due June 1, 2029 at 99.904% of face value (the “2029 Senior Notes”), the net proceeds of which were used, along with proceeds
from borrowings under the U.S. Commercial Paper Program, to repay the $750.0 of the Company’s 2.55% Senior Notes due in January 2019.
On SeptemberMay 4, 2019,2020, the Company commenced tender offers (“Tender Offers”) to purchase for cash any and all of the Company’s outstanding (i) $375.0 principal amount of its 3.125% Senior Notes due September 2021 (“2021 Senior Notes”) and (ii) $500.0 principal amount of its 4.00% Senior Notes due February 2022 (“2022 Senior Notes”). On September 11, 2019, as a result of the Tender Offers, the Company accepted for payment $147.3 aggregate principal amount of the 2021 Senior Notes and $205.0 aggregate principal amount of the 2022 Senior Notes for 101.9% and 104.5% of par value, respectively (collectively, the “Tendered Notes”), plus accrued and unpaid interest to, but not including, the settlementEuro Issuer issued €500.0 (approximately $545.4 at date of the Tender Offers. The total consideration for the Tendered Notes was $368.8, which in addition to the Tendered Notes, included $13.4 of premiums and fees paid related to the early extinguishment of debt and $3.1 of accrued interest. The remaining principal amounts associated with the 2021 Senior Notes and 2022 Senior Notes, which were not redeemed as a result of the Tender Offers, remain outstanding as of December 31, 2019.
On September 10, 2019, the Company issued $900.0issuance) principal amount of unsecured 2.800%0.750% Senior Notes due February 15, 2030 at 99.920% of face valueMay 4, 2026 (the “2030 Senior“2026 Euro Notes”). In September 2019, theThe Company used the net proceeds from the 2030 Senior2026 Euro Notes to fundrepay amounts outstanding under the cash consideration payable in the Tender Offers, with the remaining net proceeds being used for general corporate purposes, including to partially reduce outstanding borrowings related to the U.S. Commercial Paper Program.then existing revolving credit facility.
On October 8,In 2018, the Euro Issuer issued €500.0 (approximately $574.6 at date of issuance) principal amount of unsecured 2.000% Senior Notes due October 8, 2028 at 99.498% of face value (the “2028 Euro Notes”, collectively with the 2026 Euro Notes, “Euro Notes”, and collectively with the 2026 Euro Notes and the U.S. Senior Notes, in the United States, “Senior Notes”). The 2028 Euro Notes are unsecured and rank equally in right of payment with the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on the 2028 Euro Notes is payable annually on October 8 of each year, commencing on October 8, 2019. The Company may, at its option, redeem some or all of the 2028 Euro Notes at any time, subject to certain terms and conditions. The Company used a portion of the net proceeds from the 2028 Euro Notes to repay a portion of the outstanding amounts under its Commercial Paper Programs, with the remainder of the net proceeds being used for general corporate purposes.
The Euro Notes are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on each series of Euro Notes is payable annually. The Company may, at its option, redeem some or all of any series of Euro Notes at any time, subject to certain terms and conditions. The Senior Notes containimpose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial and non-financial covenants. Atrequirements. On December 31, 2019,2021, the Company was in compliance with the financial covenantsall requirements under its Senior Notes. Refer to Note 4 of the Notes to the Consolidated Financial Statements for further information related to the Company’s debt. In April 2018, the Company’s Board of Directors authorized a stock repurchase program under which the Company maycould purchase up to $2,000.0 of the Company’s Common Stock during the three-year period ending April 24, 2021 (the “2018 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the yearsyear ended December 31, 2019 and 2018,2021, the Company repurchased 6.5 million and 6.43.1 million shares of its Common Stock for $601.7$203.8 under the 2018 Stock Repurchase Program. As a result of these purchases, the Company completed all purchases authorized under the 2018 Stock Repurchase Program and, $553.2,therefore, the 2018 Stock Repurchase Program has terminated. Of the total repurchases made in 2021 under the 2018 Stock Repurchase Program, 0.3 million shares, or $19.8, were retained in Treasury stock at the time of repurchase; the remaining 2.8 million shares, or $184.0, were retired by the Company. During the years ended December 31, 2020 and 2019, the Company repurchased 12.0 million and 13.1 million shares of its Common Stock for $641.3 and $601.7, respectively, under the 2018 Stock Repurchase Program. Of the total repurchases made in 2019, 5.52020, 2.7 million shares, or $514.1, have been$153.9, were retained in Treasury stock at the time of repurchase; the remaining 9.3 million shares, or $487.4, were retired by the Company;Company. Of the remaining 1.0total repurchases made in 2019, 2.0 million shares, or $87.6, were retained in Treasury stock at the time of repurchase. Ofrepurchase; the total repurchases in 2018, 5.7remaining 11.1 million shares, or $498.2, have been$514.1, were retired by the Company; the remaining 0.7 million shares, or $55.0, had been retained in Treasury stock at time of repurchase. From January 1, 2020 through January 31, 2020, the Company repurchased 0.3 million additional shares of its Common Stock for $29.0, leaving $816.1 available to purchase under the 2018 Stock Repurchase Program. The price and timing of any future purchases under the 2018 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.Company. In January 2017,On April 27, 2021, the Company’s Board of Directors authorized a new stock repurchase program under which the Company couldmay purchase up to $1,000.0$2,000.0 of the Company’s Common Stock during the two-yearthree-year period ending January 24, 2019April 27, 2024 (the “2017“2021 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act. During the three monthsyear ended MarchDecember 31, 2018,2021, the Company repurchased 4.26.2 million shares of its Common Stock for $382.0, while during$457.9 under the year ended December2021 Stock Repurchase Program. Of the total repurchases made in 2021 under the 2021 Stock Repurchase Program, 0.4 million shares, or $33.0, have been retained in Treasury stock at the time of repurchase; the remaining 5.8 million shares, or $424.9, have been or will be retired by the Company. From January 1, 2022 through January 31, 2017,2022, the Company repurchased 8.40.6 million additional shares of its Common Stock for $618.0. These shares have been retired by$50.0 under the Company. These repurchases of 12.6 million shares for $1,000.0 completed the 20172021 Stock Repurchase Program,. The repurchases in the first quarter and, as of 2018, coupled with the Company’s repurchase of 6.4 million sharesFebruary 1, 2022, has remaining authorization to purchase up to $1,492.1 of its Common Stock for $553.2 under the 20182021 Stock Repurchase Program. The price and timing of any future purchases under the 2021 Stock Repurchase Program
duringfactors such as levels of cash generation from operations, the nine months ended December 31, 2018, resulted in total repurchasesvolume of 10.6 million sharesstock options exercised by employees, cash requirements for $935.2 duringacquisitions, dividends paid, economic and market conditions and the year ended December 31, 2018.price of the Company’s Common Stock.
Contingent upon declaration by the Board, of Directors, the Company generally pays a quarterly dividend on shares of its Common Stock. On July 23, 2019,October 20, 2020, the Company’s Board of Directors approved an increase to its quarterly dividend rate from $0.23$0.125 per share to $0.25$0.145 per share effective with dividends declared in the thirdfourth quarter of 2019.2020, and then on October 26, 2021, approved a further increase to its quarterly dividend rate from $0.145 per share to $0.20 per share effective with dividends declared in the fourth quarter of 2021, contingent upon declaration by the Board. The following table summarizessummarizes the declared quarterly dividends per share for each of the three years ended December 31, 2019, 20182021, 2020 and 2017:2019: | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | First Quarter | | $ | 0.23 | | $ | 0.19 | | $ | 0.16 | | $ | 0.145 | | $ | 0.125 | | $ | 0.115 | Second Quarter | | | 0.23 | | | 0.23 | | | 0.16 | | | 0.145 | | | 0.125 | | | 0.115 | Third Quarter | | | 0.25 | | | 0.23 | | | 0.19 | | | 0.145 | | | 0.125 | | | 0.125 | Fourth Quarter | | | 0.25 | | | 0.23 | | | 0.19 | | | 0.20 | | | 0.145 | | | 0.125 | Total | | $ | 0.96 | | $ | 0.88 | | $ | 0.70 | | $ | 0.635 | | $ | 0.52 | | $ | 0.48 |
The following table summarizes the dividends declared and paid for the years ended December 31, 2019, 20182021, 2020 and 2017:2019: | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | Dividends declared | | $ | 285.3 | | $ | 264.3 | | $ | 213.7 | | $ | 379.7 | | $ | 310.0 | | $ | 285.3 | Dividends paid (including those declared in the prior year) | | | 279.5 | | | 253.7 | | | 205.0 | | | 346.7 | | | 297.6 | | | 279.5 |
LIBOR Transition In July 2017, the United Kingdom's Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by the end of 2021. In December 2020, the ICE Benchmark Administration published a consultation on its intention to extend the publication of certain U.S. dollar LIBOR (“USD LIBOR”) rates until June 30, 2023. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1-month, 3-month, 6-month and 12-month) will continue to be published until June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (“SOFR”)SOFR as its preferred benchmark alternative to U.S. dollarUSD LIBOR. Published by the Federal Reserve Bank of New York,The SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. The Company is evaluatingIn March 2020, in response to this transition, the potential impact of the replacement ofFinancial Accounting Standards Board (“FASB”) issued accounting guidance providing certain optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR (which ultimately may or may notanother reference rate expected to be SOFR), from both a risk managementdiscontinued by reference rate reform, and financial reporting perspective, including the review of potentialaddresses operational issues that mightlikely to arise in connectionmodifying contracts to replace discontinued reference rates with new rates. In January 2021, the FASB issued further clarifying guidance surrounding derivatives, as it relates to this transition. Our current portfolio of debt and financial instruments tied to LIBOR consists primarily of our Commercial Paper Programs andEffective November 30, 2021, the Revolving Credit Facility the latter of which has no outstanding borrowings as of December 31, 2019.longer references LIBOR for interest rate determinations. Due to our current limited reliance on borrowings tied to LIBOR, the Company does not believecurrently believes that thisthe LIBOR transition will not have a material impact on our business,its financial condition, results of operations or cash flows. Pensions The Company and certain of its subsidiaries in the United States have defined benefit pension plans (“U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. CertainThe majority of U.S. employees are not covered by the U.S. Plans and are instead covered by various defined contribution plans. Certain foreign subsidiaries also have defined benefit plans covering their employees (the “Foreign Plans” and, together with the U.S. Plans, the “Plans”). The total liability for accrued pension and postretirement benefit obligations underassociated with the Company’s underfunded pension and postretirement benefit plans increaseddecreased in 20192021 to $184.8$173.9 from $178.5$211.0 in 20182020, primarily due to the impact of lowerhigher discount rates on our projected benefit obligation, which was partially offset by higheralong with actual returns on plan assets. In 2018, the Company also made a voluntary cash contribution of $81.0 to fund the U.S. Plans. There is no current requirement for cash contributions to any of the U.S. Plans, and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the Plans’ assets, the timing and amount of cash contributions in the future. Refer to Note 9 of the Notes to the Company’s Consolidated Financial Statements for further discussion of the Company’s benefit plans and other postretirement benefit plans. Acquisitions and Divestitures During 2021, the Company completed seven acquisitions for $2,225.4, net of cash acquired, while also completing the divestiture of the Divested MTS business, as defined and discussed below. All but one of the 2021 Acquisitions were included in the Interconnect Products and Assemblies segment. The 2021 Acquisitions were not material, either individually or in the aggregate, to the Company. Acquisition of MTS On April 7, 2021, pursuant to a definitive agreement dated December 9, 2020, by and among the Company and MTS Systems Corporation (“MTS”), the Company completed the acquisition of MTS for a total enterprise value of approximately $1,700, net of cash acquired and including the repayment of all outstanding debt and certain liabilities. The MTS acquisition was funded through a combination of borrowings under the U.S. Commercial Paper Program and cash on hand. At closing, the Company paid approximately $1,300, net of cash acquired, for 100% of the common stock of MTS, including certain liabilities settled at closing, which is reflected within Net cash used in investing activities from continuing operations in the accompanying Consolidated Statements of Cash Flow for the year ended December 31, 2021. In addition, the Company also assumed MTS’s then-outstanding $350.0 principal amount of senior notes due August 15, 2027. Shortly after the closing, the Company repaid and settled the MTS senior notes for approximately $387.3, which included accrued interest and a make-whole premium incurred as a result of the early extinguishment of the senior notes. The repayment of the outstanding senior notes, including the make-whole premium and excluding Acquisitionsinterest, was reflected within Net cash used in financing activities from continuing operations in the accompanying Consolidated Statements of Cash Flow for the year ended December 31, 2021. Prior to the acquisition, MTS was a leading global supplier of precision sensors, advanced test systems and motion simulators. MTS was historically organized into two business segments: Sensors (“MTS Sensors”) and Test & Simulation (“MTS T&S”). The MTS Sensors business provides the Company with a highly complementary offering of high-technology, harsh environment sensors sold into diverse end markets and applications. The MTS Sensors business further expands the Company’s range of sensor and sensor-based products across a wide array of industries and is reported as part of our continuing operations and within our Interconnect Products and Assemblies segment. In the second quarter of 2021, the Company incurred $55.4 ($44.6 after-tax, or $0.07 per diluted share) of acquisition-related expenses, comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the MTS acquisition.
Sale of the Divested MTS Business On January 19, 2021 and prior to the closing of the MTS acquisition, the Company entered into a definitive agreement to sell MTS (including the MTS T&S business, but excluding the MTS Sensors business) to Illinois Tool Works Inc. (“ITW”). Throughout this Annual Report, we refer to MTS (including the MTS T&S business, but excluding the MTS Sensors business) as the “Divested MTS business”. As a result of the agreement to sell the Divested MTS business to ITW, the Company concluded that the Divested MTS business met the discontinued operations reporting criteria and “held for sale” accounting criteria as of the MTS acquisition date of April 7, 2021, and consequently, the Company did not assign the Divested MTS business to either of its two reportable business segments. Accordingly, the Company accounted for the operating results and related cash flows associated with the Divested MTS business as discontinued operations through the date of its sale to ITW in the accompanying Consolidated Financial Statements. Income from discontinued operations attributable to Amphenol Corporation, net of income taxes, was $21.4 for the year ended December 31, 2021. On December 1, 2021, the Company completed the sale of the Divested MTS business for approximately $750, net of cash divested and excluding related transaction fees and expenses. The proceeds from the sale of the Divested MTS business were included in Net cash provided by investing activities from discontinued operations in the Consolidated Statements of Cash Flow for the year ended December 31, 2021. Amphenol has no continuing involvement with the Divested MTS business now that its sale has been consummated. After giving effect to the sale of the Divested MTS business as well as the repayment of the aforementioned MTS senior notes as part of the MTS acquisition, the Company paid approximately $950, net of cash acquired and excluding related transaction fees and expenses, for the retained MTS Sensors business. Refer to Note 12 of the Notes to Consolidated Financial Statements for further details related to the completed divestiture of the Divested MTS business. Acquisition of Halo Technology Limited In January 2019,On December 1, 2021, the Company acquired SSI Controls Technologiescompleted the acquisition of approximately 97% of the common stock of Halo Technology Limited (“SSI”Halo”), the sensor manufacturing division for a purchase price of SSI Technologies, Inc., for approximately $400,$694, net of cash acquired, plusacquired. The sellers retained a performance-related contingent payment.less than 3% noncontrolling interest in Halo, which includes redeemable features that are outside the control of the Company and therefore, has been classified as temporary equity on the Consolidated Balance Sheet as of December 31, 2021, as discussed in more detail in Notes 1 and 5 of the Notes to Consolidated Financial Statements. The acquisition of SSI was funded bywith cash cash equivalents and short-term investments on hand. SSI,Halo, which is headquartered in the state of Wisconsin in the United States (California), is a leading designerprovider of active and manufacturer of sensorspassive fiber optic interconnect components, with product offerings that are highly complementary to our existing high-speed and sensingfiber optic interconnect solutions for the global automotive and industrialcommunications infrastructure markets. The operating results for Halo have been included within continuing operations in the Consolidated Statements of Income since the acquisition date.
During 2019, the Company completed nine acquisitions (including SSI) for $937.4, net of cash acquired. All but oneFor further discussion of the Company’s acquisitions, are included inas well as the Interconnect ProductsCompany’s discontinued operations and Assemblies segment. These acquisitions were not materialcompleted divestiture of the Divested MTS business, refer to Note 11 and Note 12, respectively, of the Company either individually or in the aggregate.Notes to Consolidated Financial Statements.
Environmental Matters Certain operations of the Company are subject to environmental laws and regulations whichthat govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. For more information on certain environmental matters, refer to Note 15 of the Notes to Consolidated Financial Statements. Inflation and Costs The cost of the Company’s products is influenced by the cost of a wide variety of raw materials. The Company strives to offset the impact of increases in the cost of raw materials, labor and services through price increases, productivity improvements and cost saving programs. However, in certain markets, particularly in communications related markets, implementing price increases can be difficult and there is no guarantee that the Company will be successful. From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may also negatively impact the pricing of materials and components sourced or used by the Company. While the Company does not currently anticipate any significant, broad-based difficulties in obtaining raw materials or components necessary for production, beginning in 2021 and into 2022, there have been supply chain and logistical challenges that have impacted the global economy, including our Company, and have caused supply constraints and commodity price increases on certain raw materials and components used by the Company in production, as well as lower availability of, and increased prices for, freight and logistics, including air, sea and ground freight. Consequently, the Company may experience supply shortages for discrete raw materials or components in the future, which could be further exacerbated by increased commodity prices and additional inflation. For a discussion of certain risks related to inflation and costs, refer to the risk factor titled “The“The Company has at times experiencedand certain of its suppliers and customers are experiencing difficulties in obtaining a consistent supplycertain raw materials and components, and the cost of most of the Company’s raw materials at stable pricing levels”and components is increasing” in Part I, Item 1A herein. Foreign Currency Exchange Rates The Company conducts business in many foreign currencies through its worldwide operations, and as a result is subject to foreign exchange exposure due to changes in exchange rates of the various currencies, including possible currency devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. The Company attempts to minimize currency exposure risk in a number of ways including producing its products in the same country or region in which the products are sold, thereby generating revenues and incurring expenses in the same currency, cost reduction and pricing actions, working capital management and hedging contracts. However, there can be no assurance that these actions will be fully effective in managing currency risk, including in the event of a significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations. For further discussion of foreign exchange exposures, risks and uncertainties, refer to the risk factor titled “The“The Company’s results have at times been negatively affected by foreign currency exchange rates”rates” in Part I, Item 1A herein. Non-GAAP Financial Measures In addition to assessing the Company’s financial condition, results of operations, liquidity and cash flows in accordance with U.S. GAAP, management utilizes certain non-GAAP financial measures defined below as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the Company's Board of Directors and assessing related employee compensation measures. Management believes that these non-GAAP financial measures may be helpful to investors in assessing the Company’s overall financial performance, trends and year-over-year comparative results, in addition to the reasons noted below. Non-GAAP financial measures related to operating income, operating margin, net income from continuing operations attributable to Amphenol Corporation, effective tax rate and diluted EPS from continuing operations exclude income and expenses that are not directly related to the Company'sCompany’s operating performance during the years presented. Items excluded in the presentation of such non-GAAP financial measures in any period may consist of, without limitation, acquisition-related expenses, refinancing-related costs, and certain discrete tax items including but not limited to (i) the excess tax benefits related to stock-based compensation and (ii) the impact of significant changes in tax law (including the Tax Act Charge recorded in 2017 and the subsequent adjustment recorded in 2018 related to this charge).law. Non-GAAP financial measures related to net sales exclude the impact related toof foreign currency exchange rates and acquisitions. Non-GAAP financial measures and their most directly comparable U.S. GAAP financial measures presented within this Item 7 are on a continuing operations basis only and exclude any results associated with discontinued operations. The non-GAAP financial information contained herein is included for supplemental purposes only and should not be considered in isolation, as a substitute for or superior to the related U.S. GAAP financial measures. In addition, these non-GAAP financial measures are not necessarily the same or comparable to similar measures presented by other companies as such measures may be calculated differently or may exclude different items.
The non-GAAP financial measures defined below should be read in conjunction with the Company’s financial statements presented in accordance with U.S. GAAP. The reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2019, 20182021, 2020 and 20172019 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 7: | ● | Adjusted Diluted EPS is defined as diluted earnings per share from continuing operations (as reported in accordance with U.S. GAAP), excluding income and expenses and their specific tax effects that are not directly related to the Company'sCompany’s operating performance during the years presented. Adjusted Diluted EPS is calculated as Adjusted Net Income from continuing operations attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Consolidated Statements of Income. |
| ● | Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Consolidated Statements of Income, expressed as a percentage of Income from continuing operations before income taxes, as reported in the Consolidated Statements of Income, each excluding the income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented. |
| ● | Adjusted Net Income from continuing operations attributable to Amphenol Corporation is defined as Net income from continuing operations attributable to Amphenol Corporation, as reported in the Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company'sCompany’s operating performance during the years presented. |
| ● | Adjusted Operating Income is defined as Operating income, as reported in the Consolidated Statements of Income, excluding income and expenses that are not directly related to the Company'sCompany’s operating performance during the years presented. |
| ● | Adjusted Operating Margin is defined as Adjusted Operating Income (as defined above) expressed as a percentage of Net sales (as reported in the Consolidated Statements of Income). |
| ● | Constant Currency Net Sales Growth is defined as the year-over-year percentage change in net sales growth, excluding the impact of changes in foreign currency exchange rates. Amphenol’sThe Company’s results are subject to volatility related to foreign currency translation fluctuations. As such, management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Organic Net Sales Growth (defined below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends. |
| ● | Free Cash Flow is defined as (i) Net cash provided by operating activities from continuing operations (“Operating Cash Flow” - as reported in accordance with U.S. GAAP) less (ii) capital expenditures (as reported in accordance with U.S. GAAP), bothnet of proceeds from disposals of property, plant and equipment (as reported in accordance with U.S. GAAP), all of which are derived from the Consolidated Statements of Cash Flow. Free Cash Flow is an important liquidity measure for the Company, as we believe it is useful for management and investors to assess our ability to generate cash, as well as to assess how much cash can be used to reinvest in the growth of the Company or to return to shareholdersstockholders through either stock repurchases or dividends. |
| ● | Organic Net Sales Growth is defined as the year-over-year percentage change in net sales growth resulting from operating volume and pricing changes, and excludes the impact of 1)(i) changes in foreign currency exchange rates (described above), which directly impact the Company’s operating results and areis outside the control of the Company, and 2)(ii) acquisitions, closed since the beginningboth of which are taken as a percentage of the respective prior calendar year which wereperiod(s) net sales. The acquisition impact represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results as offor the full current year period(s) and/or prior comparable prior year periods and whichperiod(s) presented. Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis. Management evaluates the Company’s sales performance based on actual sales growth in U.S. dollars, as well as Constant Currency Net Sales Growth (defined above) and Organic Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends. |
Recent Accounting Pronouncements Refer to Note 1 of the Notes to the Company’s Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.pronouncements, including those adopted by the Company. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience along with other assumptions that we believe are reasonable in formulating our bases for making judgements regarding the carrying amounts of assets and liabilities that are not readily apparent elsewhere. Estimates are adjusted as new information becomes available. Actual results could differ from those estimates. The Company believes that the most significant areas involving criticalfollowing accounting policies and estimates are set forth below.most critical since they require significant assumptions and judgments that inherently are subject to risks and uncertainties. The significant accounting policies are more fully described in Note 1 of the Notes to the Company’s Consolidated Financial Statements. Revenue Recognition Topic 606 The Company’s net sales in the Consolidated Statements of Income for the years ended December 31, 20192021, 2020 and 20182019 are presented under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (collectively with its related subsequent amendments, “Topic 606”), resulting from the modified retrospective adoption of Topic 606 applied to those contracts which were not completed as of January 1, 2018.. The comparative results for the year ended December 31, 2017 were recognized in accordance with the Company’s revenue recognition policy then in effect under ASC Topic 605, Revenue Recognition (“Topic 605”), as discussed below. The adoption of Topic 606 resulted in accounting policy changes surrounding revenue recognition which replaced previous revenue guidance under Topic 605.
The Company’s primary source of revenues consist of product sales to either end customers and their appointed contract manufacturers (including original equipment manufacturers) or to distributors. Our revenues are derived from contracts with customers, which in most cases are customer purchase orders that may be governed by master sales agreements. For each contract, the promise to transfer the control of the products, each of which is individually distinct, is considered to be the identified performance obligation. As part of the consideration promised in each contract, the Company evaluates the customer’s credit risk. Our contracts do not have any significant financing components, as payment terms are generally due net 30 to 120 days after delivery. Although products are almost always sold at fixed prices, in determining the transaction price, we evaluate whether the price is subject to refund (due to returns) or adjustment (due to volume discounts, rebates, or price concessions) to determine the net consideration we expect to be entitled to. We allocate the transaction price to each distinct product based on its relative standalone selling price. Taxes assessed by governmental authorities and collected from the customer, including but not limited to sales and use taxes and value-added taxes, are not included in the transaction price.
The vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer, which generally occurs when we ship or deliver the product from our manufacturing facility to our customers, when our customer accepts and has legal title of the goods, and where the Company has a present right to payment for such goods. Based on the respective contract terms, most of our contracts’ revenues are recognized either (i) upon shipment based on free on board (“FOB”) shipping point or (ii) when the product arrives at its destination or (iii) when the products are pulled from consignment inventory.destination. For the years ended December 31, 20192021, 2020 and 2018,2019, less than 5% of our net sales were recognized over time, where the associated contracts relate to the sale of goods with no alternative use as they are only sold to a single customer and whose underlying contract terms provide the Company with an enforceable right to payment, including a reasonable profit margin, for performance completed to date, in the event of customer termination. For the contracts recognized over time, we typically record revenue using the input method, based on the materials and labor costs incurred to date relative to the contract’s total estimated costs. This method reasonably depicts when and as control of the goods transfers to the customer, since it measures our progress in producing the goods which is generally commensurate with this transfer of control. Since we typically invoice our customers at the same time that we satisfy our performance obligations, contract assets and contract liabilities related to our contracts with customers recorded in the Consolidated Balance Sheets were not material as of December 31, 20192021 and 2018.2020. Pre-adoption of Topic 606
For the year ended December 31, 2017, revenue from sales of the Company’sStandard product warranty coverage, which provides assurance that our products was recognized at the time the goods were delivered, title passed and the risks and rewards of ownership passedwill conform to the customer, providedcontractually agreed-upon specifications for a limited period from the earnings process was complete and revenue was measurable. Such recognitiondate of shipment, is typically offered, while extended or separately priced warranty coverage is typically not offered. The warranty claim is generally occurred whenlimited to a credit equal to the products reachedpurchase price or a promise to repair or replace the shipping point, the sales price was fixed and determinable, and collection was reasonably assured. Delivery was determined by the Company’s shipping terms, which was primarily freightproduct for a specified period of time at no additional charge. We estimate our warranty liability based on board shipping point. Revenue was recorded at the net amount to be received after deductions for estimated discounts, allowances and returns. These estimates and reserves were determined and adjusted as needed based upon historical experience, contract termsproduct history, and other related factors.current trends.
Income Taxes Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial statement reporting purposes. The Company recognizes the effects of changes in tax laws and rates on deferred income taxes in the period in which legislation is enacted. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. As of December 31, 2019,2021, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,000 related to certain geographies, of approximately $900, as it is the Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated. In addition, the Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its investments in foreign subsidiaries. It is not practicable to determine the deferred tax liability with respect to such basis differences. Deferred tax assets are regularly assessed for recoverability based on both historical and anticipated earnings levels and a valuation allowance is recorded when it is more likely than not that these amounts will not be recovered. The tax effects of an uncertain tax position taken or expected to be taken in income tax returns are recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. As a result of the Tax Act, in 2017, the Company recorded (i) a provisional income tax charge related to the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries, (ii) a provisional income tax charge related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a provisional income tax benefit associated with the remeasurement of its net deferred tax liabilities due to the U.S. federal corporate tax rate reduction, and included these amounts in its consolidated financial statements for the year ended December 31, 2017. Beginning in 2018, the global intangible low-taxed income (“GILTI”) provision imposed a tax on certain earnings ofof foreign subsidiaries. The Company elected an accounting policy to account for GILTI as a period cost. The U.S. Treasury Department has issued final interpretive guidance relating to certain provisions of the Tax Act and proposed additional guidance related to the same provisions. The Company will account for the impact of additional guidance in the period in which any new guidance is released, if appropriate.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which was codified under ASU 2018-05, to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In 2017, the Company recorded a provisional income tax charge as a result of the Tax Act. Consistent with ASU 2018-05, the Company completed its accounting and recorded an income tax benefit in 2018.
Disclosures about contractual obligations and commitments
The following table summarizes the Company’s known obligations to make future payments pursuant to certain contracts as of December 31, 2019, as well as an estimate of the timing in which such obligations are expected to be satisfied.
| | | | | | | | | | | | | | | | | | | Payment Due By Period | | Contractual Obligations | | | | | Less than | | 1-3 | | 3-5 | | More than | | (dollars in millions) | | Total | | 1 year | | years | | years | | 5 years | | Debt (1) | | $ | 3,630.3 | | $ | 403.5 | | $ | 523.4 | | $ | 745.8 | | $ | 1,957.6 | | Interest related to senior notes (1) | | | 670.7 | | | 92.7 | | | 163.6 | | | 133.1 | | | 281.3 | | Operating leases (2) | | | 219.4 | | | 58.8 | | | 73.3 | | | 39.9 | | | 47.4 | | Purchase obligations (3) | | | 431.1 | | | 398.4 | | | 25.6 | | | 4.6 | | | 2.5 | | Accrued pension and postretirement benefit obligations (4) | | | 58.7 | | | 7.5 | | | 11.5 | | | 11.8 | | | 27.9 | | Transition tax (5) | | | 133.4 | | | 11.4 | | | 31.6 | | | 69.1 | | | 21.3 | | Total (6) | | $ | 5,143.6 | | $ | 972.3 | | $ | 829.0 | | $ | 1,004.3 | | $ | 2,338.0 | |
(1) | The Company has excluded expected interest payments on the Revolving Credit Facility, U.S. Commercial Paper Program and Euro Commercial Paper Program from the above table, as this calculation is largely dependent on average debt levels the Company expects to have during each of the years presented. The actual interest payments made related to the Company’s Revolving Credit Facility and both Commercial Paper Programs combined, in 2019, were approximately $22.1. Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by such items as future acquisitions, repurchases of common stock, dividend payments as well as payments or additional borrowings made to reduce or increase the underlying revolver balance. |
(2) | The Company’s operating lease payments included in this table reflect the future minimum undiscounted fixed lease payments, which serve as the basis for calculating the Company’s operating lease liabilities as of December 31, 2019. The table above excludes any variable lease payments not included in the measurement of the Company’s right-of-use assets and operating lease liabilities in accordance with ASC Topic 842, due to their uncertainty. Finance leases are not material to the Company individually or in the aggregate and as such, have been excluded from the table above. |
(3) | Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production. |
(4) | Included in this table are estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans, as well as the anticipated minimum required contributions under the Company’s funded pension plans, the most significant funded plan of which covers its U.S. employees. Over the past several years, there has been no minimum requirement for Company contributions to the U.S. Plans due to prior contributions made in excess of minimum requirements and as a result, there was no anticipated minimum required contribution included in the table above related to the U.S. Plans for 2020. However, the Company did make a voluntary contribution of approximately $81.0 in 2018 to fund the U.S. Plans, while no such voluntary contribution was made in 2019. It is not possible to reasonably estimate expected required contributions in the above table after 2020 since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets. |
(5) | As a result of the enactment of the Tax Act in December 2017, the Company recorded a provisional tax charge on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries (“Transition Tax”) for the year ended December 31, 2017, based on certain assumptions made upon the Company’s then current interpretation of the Tax Act. The Company analyzed guidance and technical interpretations issued in 2018 related to the provisions of the Tax Act, and refined, analyzed and updated the underlying data, computations and assumptions used to prepare the provisional amount, and consequently completed its accounting and recorded an adjustment related to the Transition Tax. The amounts noted in the table above reflect the final Transition Tax, which is net of applicable tax credits and deductions, and in accordance with the Tax Act, is to be paid over the eight year period starting in 2018. The second installment of the Transition Tax was paid in the second quarter of 2019. |
(6) | As of December 31, 2019, the Company has recorded net liabilities of approximately $183.5 related to unrecognized tax benefits. These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows; it is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid. |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk (amounts in millions) The Company, in the normal course of doing business, is exposed to a variety of risks, including market risks associated with foreign currency exchange rates and changes in interest rates. The Company does not have any significant concentration with any one counterparty. Foreign Currency Exchange Rate Risk The Company conducts business in many foreign currencies through its worldwide operations, and as a result is subject to foreign exchange exposure due to changes in exchange rates of the various currencies. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. The Company attempts to manage currency exposure risk in a number of ways including producing its products in the same country or region in which the products are sold (thereby generating revenues and incurring expenses in the same currency), cost reduction and pricing actions, working capital management and hedging contracts. However, there can be no assurance that these actions will be fully effective in managing currency risk, including in the event of a significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations. In July 2018, the Company andMay 2020, one of itsthe Company’s wholly owned European subsidiaries (collectively, the(the “Euro Issuer”) entered into aissued €500.0 (approximately $545.4) principal amount of unsecured 0.750% senior notes (“2026 Euro Commercial Paper Program, and then inNotes”) due May 4, 2026. In October 2018, (i) the Euro Issuer issued €500.0 (approximately $574.6) principal amount of unsecured 2.000% senior notes (“2028 Euro Notes” and collectively with the 2026 Euro Notes, the “Euro Notes”) due October 8, 2028 and (ii) the Company and the Euro Issuer entered into a euro-commercial paper program (th2028.e “Euro Commercial Paper Program” and collectively with the U.S. Commercial Paper Program, “Commercial Paper Programs”). While the 2028 Euro Notes are denominated in Euros, any borrowingsthe Company may borrow, from time to time, under the Company’sRevolving Credit Facility and Euro Commercial Paper Program, and such borrowings have been and may continue to be denominated in various foreign currencies, including the Euro. When borrowing in foreign currencies, there can be no assurance that the Company can successfully manage these changes in exchange rates, including in the event of a significant and sudden decline in the value of any of the foreign currencies forin which such borrowings are made. Refer to Note 4 of the Notes to the Consolidated Financial Statements for a discussion of debt. The Company utilizes foreign exchange forward contracts to hedge exposure to foreign currency exchange rate fluctuations for exposures associated with (i) certain transactions denominated in foreign currencies. currencies and (ii) net investments in certain foreign subsidiaries from which we expect to repatriate earnings to the United States. As of December 31, 2019,2021, the fair value of such foreign exchange forward contracts was not material. A 10% change in foreign currency exchange rates would not have a material effect on the value of the hedges as of December 31, 20192021 and 2018.2020. The Company does not engage in purchasing forward contracts for trading or speculative purposes.purposes, and our derivative financial instruments are with large financial institutions with strong credit ratings. As of December 31, 2021, the Company does not have any significant concentration of exposure with any one counterparty. Refer to Note 1 and Note 5 of the Notes to the Consolidated Financial Statements for a discussion of derivative financial instruments. Interest Rate Risk The Company is subject to market risk from exposure to changes in interest rates based on the Company’s financing activities. The Company manages its exposure to interest rate risk through a mix of fixed and variable rate debt. The Company currently has outstanding various fixed rate series of senior notes outstanding over various maturity dates, twoone of which werewas issued in 2019.2021 and two in 2020. In January 2019,September 2021, the Company issued $500.0$750.0 principal amount of unsecured 4.350%2.200% Senior Notes due June 2029, the net proceeds of which, along with borrowings under the U.S. Commercial Paper Program, were used to repay $750.0 of 2.55% Senior Notes due January 30, 2019. In September 2019, the Company issued $900.0 of unsecured 2.80% Senior Notes due February 2030,15, 2031, the net proceeds of which were used to repay the cash consideration payable as a result of the tender offers associated with the 3.125% Senior Notes and 4.00% Senior Notes, with the remaining net proceeds being used for general corporate purposes, including to partially reducecertain outstanding borrowings related tounder the U.S. Commercial Paper Program. In May 2020, the Euro Issuer issued the unsecured 2026 Euro Notes, the net proceeds of which were used to repay amounts outstanding under the then existing revolving credit facility. In February 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025, the net proceeds of which were used, together with cash on hand, to repay the $400.0 outstanding principal amount of 2.20% Senior Notes due April 1, 2020 upon maturity. While there were no such borrowings as of December 31, 2019, anyAny borrowings under the Revolving Credit Facility either bear interest at or trade at rates that fluctuate with a spread that varies based on the Company’s debt rating over LIBOR.certain currency-specific benchmark rates, which benchmark rates in the case of U.S. dollar borrowings are either the base rate or the adjusted term Secured Overnight Financing Rate (“SOFR”). Any borrowings under the Commercial Paper Programs are subject to floating interest rates. Therefore, when the Company borrows under these debt instruments, the Company is exposed to market risk related to changes in interest rates. As of December 31, 2019,2021, approximately $400,$804, or 11%17%, of the Company’s outstanding borrowings, which related primarily tounder the Company’sU.S. Commercial Paper Programs,Program, were subject to floating interest rates. At December 31, 2019 and 2018,rates; the Company’s weighted average floating rate on borrowings under the U.S. Commercial Paper Program was 1.85% and 2.88%, respectively. Atas of December 31, 2019 and 2018, the Company’s average floating rate on2021 was 0.29%. As of December 31, 2020, there were no outstanding borrowings under the U.S. Commercial Paper Program. As of December 31, 2021 and 2020, there were no outstanding borrowings under the Revolving Credit Facility and Euro Commercial Paper Program was (0.13)% and (0.10)%, respectively.Program. A 10% change in the interest rate at December 31, 20192021 and 2018 for either2020 under our Revolving Credit Facility or both Commercial Paper Programs would not have a material effect on interest expense. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2020,2022, although there can be no assurances that interest rates will not change significantly.
Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholdersstockholders and the Board of Directors of Amphenol Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Amphenol Corporation and subsidiaries (the “Company”) as of December 31, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, changes in equity, and cash flow, for each of the three years in the period ended December 31, 2019,2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America (generally accepted accounting principles). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), as amended, using the modified retrospective approach.
Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income Taxes — Unrecognized Tax Benefits — Refer to Notes 1 and 6 to the financial statements Critical Audit Matter Description The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. The tax effects of an uncertain tax position taken or expected to be taken in income tax returns are recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Management judgment is required to identify and evaluate each uncertain tax position to determine whether the more likely than not recognition thresholds have been met. Further, the evaluation of each uncertain tax position requires management to apply specialized skill and knowledge related to the identified position. The Company has unrecognized tax benefits of $201.3$182.2 million, including penalties and interest, as of December 31, 2019.2021. We identified the liabilities for uncertain tax positions as a critical audit matter because of the complexity created by the multiple jurisdictions in which the Company files its tax returns, each of which has differing and complex tax laws and regulations. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate management’s identification of uncertain tax positions, the estimates of the amounts to be realized and whether it is more likely than not that the tax position will be sustained. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to uncertain tax positions included the following, among others: | ● | We tested the effectiveness of controls over the uncertain tax positions for income taxes, including management’s controls over the identification and recording of uncertain tax positions as well as the determination of whether it is more likely than not that the tax position will be sustained. |
| ● | With the assistance of our income tax specialists, we evaluated management’s significant judgements regarding uncertain tax positions including: |
| o | Assessing the reasonableness of the methods and assumptions used by management to identify uncertain tax positions including but not limited to: |
| ◾ | Evaluating former ongoing and anticipatedongoing tax audits by tax authorities |
| ◾ | Evaluating transactions for which third-party tax advice or tax opinions were received |
| ◾ | Determining if there’s any additional information available to us that was not identified and considered in management’s assessment. |
| o | Assessing the technical merits of a sample of positions identified and the reasonableness of the methodology used to determine the uncertain tax liability. |
| o | Evaluating management’s conclusion with respect to whether uncertain tax positions accounted for in prior periods have been effectively settled and/or whether the statute of limitations has expired and, if so, whether the resolution of the tax position has been appropriately accounted for in the financial statements. |
| o | Evaluating tax positions that have not yet settled or are within statute to determine whether any new information regarding the sustainability of these tax positions or measurement of tax benefit is present such that a previously unrecognized uncertain tax position is recognized. |
/s/ Deloitte & Touche LLP Hartford, Connecticut February 12, 20209, 2022 We have served as the Company's auditor since 1997. AMPHENOL CORPORATION Consolidated Statements of Income (dollars and shares in millions, except per share data) | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | | 2017 | | Net sales | | $ | 8,225.4 | | $ | 8,202.0 | | $ | 7,011.3 | | Cost of sales | | | 5,609.4 | | | 5,547.1 | | | 4,701.4 | | Gross profit | | | 2,616.0 | | | 2,654.9 | | | 2,309.9 | | Acquisition-related expenses | | | 25.4 | | | 8.5 | | | 4.0 | | Selling, general and administrative expenses | | | 971.4 | | | 959.5 | | | 878.3 | | Operating income | | | 1,619.2 | | | 1,686.9 | | | 1,427.6 | | | | | | | | | | | | | Interest expense | | | (117.6) | | | (101.7) | | | (92.3) | | Loss on early extinguishment of debt | | | (14.3) | | | — | | | — | | Other income, net | | | 8.6 | | | 3.2 | | | 17.1 | | Income before income taxes | | | 1,495.9 | | | 1,588.4 | | | 1,352.4 | | Provision for income taxes | | | (331.9) | | | (371.5) | | | (691.7) | | Net income | | | 1,164.0 | | | 1,216.9 | | | 660.7 | | Less: Net income attributable to noncontrolling interests | | | (9.0) | | | (11.9) | | | (10.2) | | Net income attributable to Amphenol Corporation | | $ | 1,155.0 | | $ | 1,205.0 | | $ | 650.5 | | | | | | | | | | | | | Net income per common share — Basic | | $ | 3.88 | | $ | 4.00 | | $ | 2.13 | | | | | | | | | | | | | Weighted average common shares outstanding — Basic | | | 297.5 | | | 301.2 | | | 305.7 | | | | | | | | | | | | | Net income per common share — Diluted | | $ | 3.75 | | $ | 3.85 | | $ | 2.06 | | | | | | | | | | | | | Weighted average common shares outstanding — Diluted | | | 307.9 | | | 312.6 | | | 316.5 | | | | | | | | | | | | | Dividends declared per common share | | $ | 0.96 | | $ | 0.88 | | $ | 0.70 | |
| | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | | 2019 | | Net sales | | $ | 10,876.3 | | $ | 8,598.9 | | $ | 8,225.4 | | Cost of sales | | | 7,474.5 | | | 5,934.8 | | | 5,609.4 | | Gross profit | | | 3,401.8 | | | 2,664.1 | | | 2,616.0 | | Acquisition-related expenses | | | 70.4 | | | 11.5 | | | 25.4 | | Selling, general and administrative expenses | | | 1,226.3 | | | 1,014.2 | | | 971.4 | | Operating income | | | 2,105.1 | | | 1,638.4 | | | 1,619.2 | | | | | | | | | | | | | Interest expense | | | (115.5) | | | (115.4) | | | (117.6) | | Loss on early extinguishment of debt | | | 0 | | | 0 | | | (14.3) | | Other (expense) income, net | | | (0.4) | | | 3.6 | | | 8.6 | | Income from continuing operations before income taxes | | | 1,989.2 | | | 1,526.6 | | | 1,495.9 | | Provision for income taxes | | | (409.1) | | | (313.3) | | | (331.9) | | Net income from continuing operations | | | 1,580.1 | | | 1,213.3 | | | 1,164.0 | | Less: Net income from continuing operations attributable to noncontrolling interests | | | (10.7) | | | (9.9) | | | (9.0) | | Net income from continuing operations attributable to Amphenol Corporation | | | 1,569.4 | | | 1,203.4 | | | 1,155.0 | | Income from discontinued operations attributable to Amphenol Corporation, net of income taxes of ($3.2) for 2021 | | | 21.4 | | | 0 | | | 0 | | Net income attributable to Amphenol Corporation | | $ | 1,590.8 | | $ | 1,203.4 | | $ | 1,155.0 | | | | | | | | | | | | | Net income per common share attributable to Amphenol Corporation — Basic: | | | | | | | | | | | Continuing operations | | $ | 2.62 | | $ | 2.02 | | $ | 1.94 | | Discontinued operations, net of income taxes | | | 0.04 | | | 0 | | | 0 | | Net income attributable to Amphenol Corporation — Basic | | $ | 2.66 | | $ | 2.02 | | $ | 1.94 | | | | | | | | | | | | | Weighted average common shares outstanding — Basic | | | 597.9 | | | 596.1 | | | 595.0 | | | | | | | | | | | | | Net income per common share attributable to Amphenol Corporation — Diluted: | | | | | | | | | | | Continuing operations | | $ | 2.51 | | $ | 1.96 | | $ | 1.88 | | Discontinued operations, net of income taxes | | | 0.03 | | | 0 | | | 0 | | Net income attributable to Amphenol Corporation — Diluted | | $ | 2.54 | | $ | 1.96 | | $ | 1.88 | | | | | | | | | | | | | Weighted average common shares outstanding — Diluted | | | 625.5 | | | 615.0 | | | 615.9 | | | | | | | | | | | | | Dividends declared per common share | | $ | 0.635 | | $ | 0.52 | | $ | 0.48 | |
Note: Per share amounts may not add due to rounding. See accompanying notes to consolidated financial statements. AMPHENOL CORPORATION Consolidated Statements of Comprehensive Income (dollars in millions) | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | | 2017 | | | | | | | | | | | | | Net income | | $ | 1,164.0 | | $ | 1,216.9 | | $ | 660.7 | | Total other comprehensive (loss) income, net of tax: | | | | | | | | | | | Foreign currency translation adjustments | | | (40.8) | | | (167.0) | | | 243.3 | | Unrealized gain (loss) on cash flow hedges | | | 0.1 | | | 0.4 | | | (0.1) | | Pension and postretirement benefit plan adjustment | | | (0.4) | | | (1.8) | | | 27.8 | | Total other comprehensive (loss) income, net of tax | | | (41.1) | | | (168.4) | | | 271.0 | | | | | | | | | | | | | Total comprehensive income | | | 1,122.9 | | | 1,048.5 | | | 931.7 | | | | | | | | | | | | | Less: Comprehensive income attributable to noncontrolling interests | | | (8.6) | | | (9.2) | | | (13.2) | | | | | | | | | | | | | Comprehensive income attributable to Amphenol Corporation | | $ | 1,114.3 | | $ | 1,039.3 | | $ | 918.5 | |
| | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | | 2019 | | | | | | | | | | | | | Net income from continuing operations | | $ | 1,580.1 | | $ | 1,213.3 | | $ | 1,164.0 | | Add: Income from discontinued operations attributable to Amphenol Corporation, net of income taxes | | | 21.4 | | | 0 | | | 0 | | Net income before allocation to noncontrolling interests | | $ | 1,601.5 | | $ | 1,213.3 | | $ | 1,164.0 | | | | | | | | | | | | | Total other comprehensive (loss) income, net of tax: | | | | | | | | | | | Foreign currency translation adjustments | | | (64.6) | | | 155.0 | | | (40.8) | | Unrealized gain (loss) on hedging activities | | | 0 | | | (0.2) | | | 0.1 | | Pension and postretirement benefit plan adjustment | | | 57.8 | | | 1.7 | | | (0.4) | | Total other comprehensive (loss) income, net of tax | | | (6.8) | | | 156.5 | | | (41.1) | | | | | | | | | | | | | Total comprehensive income | | | 1,594.7 | | | 1,369.8 | | | 1,122.9 | | | | | | | | | | | | | Less: Comprehensive income attributable to noncontrolling interests | | | (12.3) | | | (13.6) | | | (8.6) | | | | | | | | | | | | | Comprehensive income attributable to Amphenol Corporation | | $ | 1,582.4 | | $ | 1,356.2 | | $ | 1,114.3 | |
See accompanying notes to consolidated financial statements. AMPHENOL CORPORATION Consolidated Balance Sheets (dollars and shares in millions, except per share data) | | | | | | | | | | December 31, | | | | 2019 | | 2018 | | Assets | | | | | | | | Current Assets: | | | | | | | | Cash and cash equivalents | | $ | 891.2 | | $ | 1,279.3 | | Short-term investments | | | 17.4 | | | 12.4 | | Total cash, cash equivalents and short-term investments | | | 908.6 | | | 1,291.7 | | Accounts receivable, less allowance for doubtful accounts of $33.6 and $33.5, respectively | | | 1,736.4 | | | 1,791.8 | | Inventories | | | 1,310.1 | | | 1,233.8 | | Prepaid expenses and other current assets | | | 256.1 | | | 254.3 | | Total current assets | | | 4,211.2 | | | 4,571.6 | | | | | | | | | | Property, plant and equipment, net | | | 999.0 | | | 875.8 | | Goodwill | | | 4,867.1 | | | 4,103.2 | | Other intangible assets, net | | | 442.0 | | | 397.9 | | Other long-term assets | | | 296.2 | | | 96.4 | | | | $ | 10,815.5 | | $ | 10,044.9 | | | | | | | | | | Liabilities & Equity | | | | | | | | Current Liabilities: | | | | | | | | Accounts payable | | $ | 866.8 | | $ | 890.5 | | Accrued salaries, wages and employee benefits | | | 171.8 | | | 157.2 | | Accrued income taxes | | | 127.9 | | | 203.5 | | Accrued dividends | | | 74.4 | | | 68.7 | | Other accrued expenses | | | 488.5 | | | 367.1 | | Current portion of long-term debt | | | 403.3 | | | 764.3 | | Total current liabilities | | | 2,132.7 | | | 2,451.3 | | | | | | | | | | Long-term debt, less current portion | | | 3,203.4 | | | 2,806.4 | | Accrued pension and postretirement benefit obligations | | | 198.8 | | | 190.2 | | Deferred income taxes | | | 260.4 | | | 255.6 | | Other long-term liabilities | | | 424.0 | | | 277.2 | | Commitments and contingent liabilities (Note 14) | | | | | | | | | | | | | | | | Equity: | | | | | | | | Class A Common Stock, $0.001 par value; 1,000.0 shares authorized; 298.7 shares issued and 297.9 shares outstanding as of December 31, 2019; 299.2 shares issued and 298.5 shares outstanding as of December 31, 2018 | | | 0.3 | | | 0.3 | | Additional paid-in capital | | | 1,683.3 | | | 1,433.2 | | Retained earnings | | | 3,348.4 | | | 3,028.7 | | Treasury stock, at cost; 0.8 and 0.7 shares as of December 31, 2019 and 2018, respectively | | | (70.8) | | | (55.0) | | Accumulated other comprehensive loss | | | (430.9) | | | (390.2) | | Total shareholders’ equity attributable to Amphenol Corporation | | | 4,530.3 | | | 4,017.0 | | | | | | | | | | Noncontrolling interests | | | 65.9 | | | 47.2 | | Total equity | | | 4,596.2 | | | 4,064.2 | | | | $ | 10,815.5 | | $ | 10,044.9 | |
| | | | | | | | | | December 31, | | | | 2021 | | 2020 | | ASSETS | | | | | | | | Current Assets: | | | | | | | | Cash and cash equivalents | | $ | 1,197.1 | | $ | 1,702.0 | | Short-term investments | | | 44.3 | | | 36.1 | | Total cash, cash equivalents and short-term investments | | | 1,241.4 | | | 1,738.1 | | Accounts receivable, less allowance for doubtful accounts of $43.5 and $44.8, respectively | | | 2,454.8 | | | 1,951.6 | | Inventories | | | 1,894.1 | | | 1,462.2 | | Prepaid expenses and other current assets | | | 367.9 | | | 338.9 | | Total current assets | | | 5,958.2 | | | 5,490.8 | | | | | | | | | | Property, plant and equipment, net | | | 1,175.3 | | | 1,054.6 | | Goodwill | | | 6,376.8 | | | 5,032.1 | | Other intangible assets, net | | | 756.9 | | | 397.5 | | Other long-term assets | | | 411.2 | | | 352.3 | | Total Assets | | $ | 14,678.4 | | $ | 12,327.3 | | | | | | | | | | LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | | | | | | | | Current Liabilities: | | | | | | | | Accounts payable | | $ | 1,312.0 | | $ | 1,120.7 | | Accrued salaries, wages and employee benefits | | | 366.2 | | | 291.0 | | Accrued income taxes | | | 88.8 | | | 112.6 | | Accrued dividends | | | 119.8 | | | 86.8 | | Other accrued expenses | | | 556.3 | | | 462.9 | | Current portion of long-term debt | | | 4.0 | | | 230.3 | | Total current liabilities | | | 2,447.1 | | | 2,304.3 | | | | | | | | | | Long-term debt, less current portion | | | 4,795.9 | | | 3,636.2 | | Accrued pension and postretirement benefit obligations | | | 193.4 | | | 228.6 | | Deferred income taxes | | | 424.2 | | | 299.1 | | Other long-term liabilities | | | 438.7 | | | 407.2 | | Total Liabilities | | | 8,299.3 | | | 6,875.4 | | Commitments and contingent liabilities (Note 15) | | | | | | | | | | | | | | | | Redeemable noncontrolling interest | | | 19.0 | | | 0 | | | | | | | | | | Equity: | | | | | | | | Class A Common Stock, $0.001 par value; 2,000.0 shares authorized, 600.7 shares issued and 599.1 shares outstanding at December 31, 2021; 1,000.0 shares authorized, 600.7 shares issued and 598.7 shares outstanding at December 31, 2020 | | | 0.6 | | | 0.6 | | Additional paid-in capital | | | 2,409.0 | | | 2,068.1 | | Retained earnings | | | 4,278.9 | | | 3,705.4 | | Treasury stock, at cost; 1.6 shares and 2.0 shares as of December 31, 2021 and 2020, respectively | | | (100.0) | | | (111.1) | | Accumulated other comprehensive loss | | | (286.5) | | | (278.1) | | Total stockholders’ equity attributable to Amphenol Corporation | | | 6,302.0 | | | 5,384.9 | | Noncontrolling interests | | | 58.1 | | | 67.0 | | Total Equity | | | 6,360.1 | | | 5,451.9 | | Total Liabilities, Redeemable Noncontrolling Interest and Equity | | $ | 14,678.4 | | $ | 12,327.3 | |
See accompanying notes to consolidated financial statements. AMPHENOL CORPORATION Consolidated Statements of Changes in Equity (dollars and shares in millions, except per share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | | | | | | | | | | | Additional | | | | | Other | | | | | | | | | Common Stock | | Treasury Stock | | Paid-in | | Retained | | Comprehensive | | Noncontrolling | | Total | | | Common Stock | | Treasury Stock | | Paid-in | | Retained | | Comprehensive | | Noncontrolling | | Total | | | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Loss | | Interests | | Equity | | | Shares | | Amount | | Shares | | Amount | | Capital | | Earnings | | Loss | | Interests (1) | | Equity | Balance January 1, 2017 | | 308 | | $ | 0.3 | | — | | $ | — | | $ | 1,020.9 | | $ | 3,122.7 | | $ | (469.0) | | $ | 48.2 | | $ | 3,723.1 | | | Balance as of January 1, 2019 | | | 598.4 | | $ | 0.6 | | (1.3) | | $ | (55.0) | | $ | 1,432.9 | | $ | 3,028.7 | | $ | (390.2) | | $ | 47.2 | | $ | 4,064.2 | Net income | | | | | | | | | | | | | | | | 650.5 | | | | | | 10.2 | | | 660.7 | | | | | | | | | | | | | | | | | 1,155.0 | | | | | | 9.0 | | | 1,164.0 | Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | 268.0 | | | 3.0 | | | 271.0 | | | | | | | | | | | | | | | | | | | | (40.7) | | | (0.4) | | | (41.1) | Acquisitions resulting in noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 11.1 | | | 11.1 | | | | | | | | | | | | | | | | | | | | | | | 30.0 | | | 30.0 | Purchase of noncontrolling interest | | | | | | | | | | | | | (5.5) | | | | | | | | | (10.3) | | | (15.8) | | | | | | | | | | | | | | (23.4) | | | | | | | | | (14.6) | | | (38.0) | Distributions to shareholders of noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | (8.6) | | | (8.6) | | | | | | | | | | | | | | | | | | | | | | | (5.3) | | | (5.3) | Purchase of treasury stock | | | | | | | (8) | | | (618.0) | | | | | | | | | | | | | | | (618.0) | | | | | | | | (13.1) | | | (601.7) | | | | | | | | | | | | | | | (601.7) | Retirement of treasury stock | | (8) | | | — | | 8 | | | 618.0 | | | | | | (618.0) | | | | | | | | | — | | | (11.1) | | | 0 | | 11.1 | | | 514.1 | | | | | | (514.1) | | | | | | | | | 0 | Stock options exercised | | 6 | | | — | | | | | | | | 183.9 | | | | | | | | | | | | 183.9 | | | 10.1 | | | 0 | | 1.7 | | | 71.8 | | | 210.5 | | | (35.9) | | | | | | | | | 246.4 | Dividends declared ($0.70 per common share) | | | | | | | | | | | | | | | | (213.7) | | | | | | | | | (213.7) | | | Dividends declared ($0.48 per common share) | | | | | | | | | | | | | | | | | (285.3) | | | | | | | | | (285.3) | Stock-based compensation expense | | | | | | | | | | | | | 49.7 | | | | | | | | | | | | 49.7 | | | | | | | | | | | | | | 63.0 | | | | | | | | | | | | 63.0 | Balance December 31, 2017 | | 306 | | | 0.3 | | — | | | — | | | 1,249.0 | | | 2,941.5 | | | (201.0) | | | 53.6 | | | 4,043.4 | | | Cumulative effect of adoption of revenue recognition standard | | | | | | | | | | | | | | | | 3.2 | | | | | | | | | 3.2 | | | Reclassification of income tax effects resulting from the Tax Act (ASU 2018-02) | | | | | | | | | | | | | | | | 23.5 | | | (23.5) | | | | | | — | | | Balance as of December 31, 2019 | | | 597.4 | | | 0.6 | | (1.6) | | | (70.8) | | | 1,683.0 | | | 3,348.4 | | | (430.9) | | | 65.9 | | | 4,596.2 | Cumulative effect of adoption of credit loss standard (ASU 2016-13) | | | | | | | | | | | | | | | | | (3.8) | | | | | | | | | (3.8) | Net income | | | | | | | | | | | | | | | | 1,205.0 | | | | | | 11.9 | | | 1,216.9 | | | | | | | | | | | | | | | | | 1,203.4 | | | | | | 9.9 | | | 1,213.3 | Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | (165.7) | | | (2.7) | | | (168.4) | | | | | | | | | | | | | | | | | | | | 152.8 | | | 3.7 | | | 156.5 | Acquisitions resulting in noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 0.3 | | | 0.3 | | | | | | | | | | | | | | | | | | | | | | | 0.3 | | | 0.3 | Purchase of noncontrolling interest | | | | | | | | | | | | | (2.3) | | | | | | | | | (5.4) | | | (7.7) | | | | | | | | | | | | | | (2.1) | | | | | | | | | (5.9) | | | (8.0) | Distributions to shareholders of noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | (10.5) | | | (10.5) | | | | | | | | | | | | | | | | | | | | | | | (6.9) | | | (6.9) | Purchase of treasury stock | | | | | | | (11) | | | (935.2) | | | | | | | | | | | | | | | (935.2) | | | | | | | | (12.0) | | | (641.3) | | | | | | | | | | | | | | | (641.3) | Retirement of treasury stock | | (10) | | | — | | 10 | | | 880.2 | | | | | | (880.2) | | | | | | | | | — | | | (9.3) | | | 0 | | 9.3 | | | 487.4 | | | | | | (487.4) | | | | | | | | | 0 | Stock options exercised | | 3 | | | — | | | | | | | | 130.9 | | | | | | | | | | | | 130.9 | | | 12.6 | | | 0 | | 2.3 | | | 113.6 | | | 316.7 | | | (45.2) | | | | | | | | | 385.1 | Dividends declared ($0.88 per common share) | | | | | | | | | | | | | | | | (264.3) | | | | | | | | | (264.3) | | | Dividends declared ($0.52 per common share) | | | | | | | | | | | | | | | | | (310.0) | | | | | | | | | (310.0) | Stock-based compensation expense | | | | | | | | | | | | | 55.6 | | | | | | | | | | | | 55.6 | | | | | | | | | | | | | | 70.5 | | | | | | | | | | | | 70.5 | Balance December 31, 2018 | | 299 | | | 0.3 | | (1) | | | (55.0) | | | 1,433.2 | | | 3,028.7 | | | (390.2) | | | 47.2 | | | 4,064.2 | | | Balance as of December 31, 2020 | | | 600.7 | | | 0.6 | | (2.0) | | | (111.1) | | | 2,068.1 | | | 3,705.4 | | | (278.1) | | | 67.0 | | | 5,451.9 | Net income | | | | | | | | | | | | | | | | 1,155.0 | | | | | | 9.0 | | | 1,164.0 | | | | | | | | | | | | | | | | | 1,590.8 | | | | | | 10.7 | | | 1,601.5 | Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | (40.7) | | | (0.4) | | | (41.1) | | | | | | | | | | | | | | | | | | | | (8.4) | | | 1.6 | | | (6.8) | Acquisitions resulting in noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | 30.0 | | | 30.0 | | | | | | | | | | | | | | | | | | | | | | | 1.8 | | | 1.8 | Purchase of noncontrolling interest | | | | | | | | | | | | | (23.4) | | | | | | | | | (14.6) | | | (38.0) | | | | | | | | | | | | | | 4.1 | | | | | | | | | (15.3) | | | (11.2) | Distributions to shareholders of noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | (5.3) | | | (5.3) | | | | | | | | | | | | | | | | | | | | | | | (7.7) | | | (7.7) | Purchase of treasury stock | | | | | | | (7) | | | (601.7) | | | | | | | | | | | | | | | (601.7) | | | | | | | | (9.3) | | | (661.7) | | | | | | | | | | | | | | | (661.7) | Retirement of treasury stock | | (6) | | | — | | 6 | | | 514.1 | | | | | | (514.1) | | | | | | | | | — | | | (8.6) | | | 0 | | 8.6 | | | 608.9 | | | | | | (608.9) | | | | | | | | | 0 | Stock options exercised | | 6 | | | — | | 1 | | | 71.8 | | | 210.5 | | | (35.9) | | | | | | | | | 246.4 | | | 8.6 | | | 0 | | 1.1 | | | 63.9 | | | 253.8 | | | (28.7) | | | | | | | | | 289.0 | Dividends declared ($0.96 per common share) | | | | | | | | | | | | | | | | (285.3) | | | | | | | | | (285.3) | | | Dividends declared ($0.635 per common share) | | | | | | | | | | | | | | | | | (379.7) | | | | | | | | | (379.7) | Stock-based compensation expense | | | | | | | | | | | | | 63.0 | | | | | | | | | | | | 63.0 | | | | | | | | | | | | | | 83.0 | | | | | | | | | | | | 83.0 | Balance December 31, 2019 | | 299 | | $ | 0.3 | | (1) | | $ | (70.8) | | $ | 1,683.3 | | $ | 3,348.4 | | $ | (430.9) | | $ | 65.9 | | $ | 4,596.2 | | | Balance as of December 31, 2021 | | | 600.7 | | $ | 0.6 | | (1.6) | | $ | (100.0) | | $ | 2,409.0 | | $ | 4,278.9 | | $ | (286.5) | | $ | 58.1 | | $ | 6,360.1 |
| (1) | Excludes redeemable noncontrolling interest. |
See accompanying notes to consolidated financial statements. AMPHENOL CORPORATION Consolidated Statements of Cash Flow (dollars in millions) | | | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | 2018 | | 2017 | | Cash from operating activities: | | | | | | | | | | | Net income | | $ | 1,164.0 | | $ | 1,216.9 | | $ | 660.7 | | Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | Depreciation and amortization | | | 312.1 | | | 299.7 | | | 226.8 | | Stock-based compensation expense | | | 63.0 | | | 55.6 | | | 49.7 | | Loss on early extinguishment of debt | | | 14.3 | | | — | | | — | | Deferred income tax provision (benefit) | | | 15.2 | | | (12.0) | | | 186.3 | | Net change in operating assets and liabilities, excluding effects of acquisitions: | | | | | | | | | | | Accounts receivable, net | | | 117.3 | | | (237.9) | | | (146.5) | | Inventories | | | (3.4) | | | (173.3) | | | (100.4) | | Prepaid expenses and other current assets | | | (6.0) | | | (47.7) | | | (75.9) | | Accounts payable | | | (60.2) | | | 48.8 | | | 140.5 | | Accrued income taxes | | | (91.7) | | | (9.7) | | | 11.2 | | Other accrued liabilities | | | (37.6) | | | 57.4 | | | 13.0 | | Accrued pension and postretirement benefits | | | 7.2 | | | (76.6) | | | 5.0 | | Other long-term assets and liabilities | | | 8.1 | | | (8.5) | | | 173.8 | | Net cash provided by operating activities | | | 1,502.3 | | | 1,112.7 | | | 1,144.2 | | | | | | | | | | | | | Cash from investing activities: | | | | | | | | | | | Capital expenditures | | | (295.0) | | | (310.6) | | | (226.6) | | Proceeds from disposals of property, plant and equipment | | | 7.4 | | | 5.0 | | | 4.1 | | Purchases of short-term investments | | | (65.4) | | | (44.5) | | | (40.2) | | Sales and maturities of short-term investments | | | 61.6 | | | 67.2 | | | 148.0 | | Acquisitions, net of cash acquired | | | (937.4) | | | (158.9) | | | (265.5) | | Net cash used in investing activities | | | (1,228.8) | | | (441.8) | | | (380.2) | | | | | | | | | | | | | Cash from financing activities: | | | | | | | | | | | Proceeds from issuance of senior notes | | | 1,398.8 | | | 571.7 | | | 749.3 | | Repayments of long-term debt | | | (1,111.5) | | | (15.2) | | | (375.0) | | (Repayments) borrowings under commercial paper programs, net | | | (229.0) | | | (544.6) | | | 154.1 | | Payment of costs related to debt financing | | | (14.9) | | | (5.6) | | | (5.2) | | Payment of premiums and fees related to early extinguishment of debt | | | (13.4) | | | — | | | — | | Purchase of treasury stock | | | (601.7) | | | (935.2) | | | (618.0) | | Proceeds from exercise of stock options | | | 246.1 | | | 130.7 | | | 184.1 | | Distributions to and purchases of noncontrolling interests | | | (43.3) | | | (18.2) | | | (24.4) | | Dividend payments | | | (279.5) | | | (253.7) | | | (205.0) | | Net cash used in financing activities | | | (648.4) | | | (1,070.1) | | | (140.1) | | | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (13.2) | | | (40.6) | | | 60.6 | | | | | | | | | | | | | Net change in cash and cash equivalents | | | (388.1) | | | (439.8) | | | 684.5 | | Cash and cash equivalents balance, beginning of year | | | 1,279.3 | | | 1,719.1 | | | 1,034.6 | | Cash and cash equivalents balance, end of year | | $ | 891.2 | | $ | 1,279.3 | | $ | 1,719.1 | | | | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | | Interest | | $ | 116.6 | | $ | 94.2 | | $ | 84.3 | | Income taxes, net | | | 408.3 | | | 393.2 | | | 325.2 | |
| | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | | 2019 | | Cash from operating activities: | | | | | | | | | | | Net income from continuing operations | | $ | 1,580.1 | | $ | 1,213.3 | | $ | 1,164.0 | | Adjustments to reconcile net income from continuing operations to cash provided by operating activities from continuing operations: | | | | | | | | | | | Depreciation and amortization | | | 395.6 | | | 308.1 | | | 312.1 | | Stock-based compensation expense | | | 83.0 | | | 70.5 | | | 63.0 | | Loss on early extinguishment of debt | | | 0 | | | 0 | | | 14.3 | | Deferred income tax (benefit) provision | | | (29.6) | | | 30.8 | | | 15.2 | | Net change in operating assets and liabilities, excluding effects of acquisitions: | | | | | | | | | | | Accounts receivable, net | | | (398.4) | | | (146.3) | | | 117.3 | | Inventories | | | (263.0) | | | (102.0) | | | (3.4) | | Prepaid expenses and other current assets | | | (20.2) | | | (88.6) | | | (6.0) | | Accounts payable | | | 131.7 | | | 204.3 | | | (60.2) | | Accrued income taxes | | | (6.9) | | | (54.8) | | | (91.7) | | Other accrued liabilities | | | 60.4 | | | 148.5 | | | (37.6) | | Accrued pension and postretirement benefits | | | 5.8 | | | 9.4 | | | 7.2 | | Other long-term assets and liabilities | | | (14.6) | | | (1.2) | | | 8.1 | | Net cash provided by operating activities from continuing operations | | | 1,523.9 | | | 1,592.0 | | | 1,502.3 | | Net cash provided by operating activities from discontinued operations | | | 16.2 | | | 0 | | | 0 | | Net cash provided by operating activities | | | 1,540.1 | | | 1,592.0 | | | 1,502.3 | | | | | | | | | | | | | Cash from investing activities: | | | | | | | | | | | Capital expenditures | | | (360.4) | | | (276.8) | | | (295.0) | | Proceeds from disposals of property, plant and equipment | | | 3.7 | | | 12.7 | | | 7.4 | | Purchases of short-term investments | | | (164.5) | | | (141.6) | | | (65.4) | | Sales and maturities of short-term investments | | | 155.9 | | | 123.2 | | | 61.6 | | Acquisitions, net of cash acquired | | | (2,225.4) | | | (50.4) | | | (937.4) | | Other | | | (13.7) | | | (0.6) | | | 0 | | Net cash used in investing activities from continuing operations | | | (2,604.4) | | | (333.5) | | | (1,228.8) | | Net cash provided by investing activities from discontinued operations | | | 716.9 | | | 0 | | | 0 | | Net cash used in investing activities | | | (1,887.5) | | | (333.5) | | | (1,228.8) | | | | | | | | | | | | | Cash from financing activities: | | | | | | | | | | | Proceeds from issuance of senior notes and other long-term debt | | | 752.1 | | | 942.3 | | | 1,398.8 | | Repayments of senior notes and other long-term debt | | | (912.6) | | | (404.4) | | | (1,111.5) | | Borrowings under credit facilities | | | 0 | | | 1,567.4 | | | 0 | | Repayments under credit facilities | | | 0 | | | (1,568.1) | | | 0 | | Borrowings (repayments) under commercial paper programs, net | | | 796.3 | | | (385.8) | | | (229.0) | | Payment of costs related to debt financing | | | (9.3) | | | (8.7) | | | (14.9) | | Payment of premiums and fees related to early extinguishment of debt | | | 0 | | | 0 | | | (13.4) | | Payment of acquisition-related contingent consideration | | | 0 | | | (75.0) | | | 0 | | Payment of deferred purchase price related to acquisitions | | | (4.1) | | | (16.2) | | | 0 | | Purchase of treasury stock | | | (661.7) | | | (641.3) | | | (601.7) | | Proceeds from exercise of stock options | | | 288.5 | | | 385.7 | | | 246.1 | | Distributions to and purchases of noncontrolling interests | | | (18.9) | | | (14.9) | | | (43.3) | | Dividend payments | | | (346.7) | | | (297.6) | | | (279.5) | | Transfers to discontinued operations | | | (28.7) | | | 0 | | | 0 | | Net cash used in financing activities from continuing operations | | | (145.1) | | | (516.6) | | | (648.4) | | Net cash used in financing activities from discontinued operations | | | (0.1) | | | 0 | | | 0 | | Net cash used in financing activities | | | (145.2) | | | (516.6) | | | (648.4) | | | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (12.3) | | | 68.9 | | | (13.2) | | | | | | | | | | | | | Net (decrease) increase in cash and cash equivalents | | | (504.9) | | | 810.8 | | | (388.1) | | Cash and cash equivalents balance, beginning of year | | | 1,702.0 | | | 891.2 | | | 1,279.3 | | Cash and cash equivalents balance, end of year | | $ | 1,197.1 | | $ | 1,702.0 | | $ | 891.2 | | | | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | | Interest | | $ | 111.9 | | $ | 104.8 | | $ | 116.6 | | Income taxes, net | | | 445.6 | | | 337.3 | | | 408.3 | |
See accompanying notes to consolidated financial statements. AMPHENOL CORPORATION Notes to Consolidated Financial Statements (All amounts included in the following Notes to Consolidated Financial Statements are presented in millions, except share and per share data, unless otherwise noted) Note 1—Summary of Significant Accounting Policies Business Amphenol Corporation (together with its subsidiaries, “Amphenol”,“Amphenol,” the “Company”, “we”, “our”,“Company,” “we,” “our,” or “us”) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company sells its products to customers worldwide. TheThrough December 31, 2021, the Company operatesoperated through 2 reportable business segments:
| ● | Interconnect Products and Assemblies – The Interconnect Products and Assemblies segment primarily designs, manufacturesdesigned, manufactured and marketsmarketed a broad range of connector and connector systems, value-add products and other products, including antennas and sensors, used in a broad range of applications in a diverse set of end markets. |
| ● | Cable Products and Solutions – The Cable Products and Solutions segment primarily designs, manufacturesdesigned, manufactured and marketsmarketed cable, value-add products and components for use primarily in the broadband communications and information technology markets, as well as certain applications in other markets. |
Effective January 1, 2022, the Company aligned its businesses into 3 newly formed reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii) Interconnect and Sensor Systems. This new alignment replaces our historic reportable business segments. The Company is in the process of completing the update of its internal reporting to accommodate this new reporting segment structure. The Company will begin reporting its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022, including the recasting of relevant prior year period segment information for conformity of presentation. Refer to Note 16 herein for further details related to the Company’s change in its reportable business segments effective January 1, 2022. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s management evaluates these significant estimates and assumptions that affect the consolidated financial statements and related disclosures. Estimates used in calculating certain accounts, including but not limited to, the allowance for doubtful accounts, provisions for slow-moving or obsolete inventory, revenue recognition, income taxes and related valuation allowances, goodwill and intangible assets from acquisitions, and pensions, are developed based on historical experience or other assumptions that the Company believes to be reasonable. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements are prepared in U.S. dollars and include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany account balances and transactions have been eliminated in consolidation. The results of companies acquired are included in the Consolidated Financial Statements from the effective date of acquisition. Similarly, the results of companies divested are included in the Consolidated Financial Statements during the period of Amphenol’s ownership through the date of the divestiture. Change in Presentation Certain reclassifications of prior period amounts have been made to conform to the current period presentation, which had no impact on our consolidated results of operations, financial position or cash flows. SuchSpecifically, in 2021, the Company reclassified certain benefit costs that were previously recorded within “Other accrued expenses” to “Accrued salaries, wages and employee benefits” on the accompanying Consolidated Balance Sheets, which reclassifications included separating,were also reflected for the prior year in order to conform with the current year presentation. Stock Split On January 27, 2021, the Company announced that its Board of Directors (the “Board”) approved a 2-for-one split of the Company’s Class A Common Stock (“Common Stock”). The stock split was effected in the form of a stock dividend paid to stockholders of record as its own line item, other intangible assets, net from other long-term assets,of the close of business on February 16, 2021. The additional shares were distributed on March 4, 2021, and the Company’s Common Stock began trading on a split-adjusted basis on March 5, 2021. As a result of the stock split, stockholders received one additional share of Common Stock for each share held as of the record date. All current and prior year data impacted by the stock split and presented in the accompanying Consolidated Financial Statements and notes thereto, including but not limited to, number of shares and per share information, stock-based compensation data including stock options and restricted shares and related per share data, basic and diluted earnings per share, and dividends per share amounts, have been adjusted to reflect the effect of the stock split. As a result of the stock split, certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Financial Statements and the accompanying notes herein. The impact to the Consolidated Balance Sheets as well as separating office equipment and other fixed assets from machineryConsolidated Statements of Changes in Equity herein was an increase of $0.3 to Common Stock, with an offsetting decrease in Additional paid-in capital, which has been retroactively adjusted for all periods presented. While the stock split did not change the number of authorized common shares of the Company, in May 2021, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Common Stock, which amendment was filed and equipment,became effective on May 21, 2021. Refer to Note 7 herein for further details related to the increase in the table detailing the componentsnumber of property, plant and equipment in Note 3 herein.shares of Common Stock authorized for issuance as a result of this amendment. Cash and Cash Equivalents Cash and cash equivalents consist of cash and liquid investments with an original maturity of less than three months. The carrying amounts approximate fair values of those instruments, the vast majority of which are in non-U.S. bank accounts. Short-term Investments Short-term investments consist primarily of certificates of deposit with original maturities of twelve months or less. The carrying amounts approximate fair values of those instruments, the vast majority of which are in non-U.S. bank accounts. Accounts Receivable Accounts receivable is stated at net realizable value. The Company regularly reviews accounts receivable balances and adjusts the receivable reserves as necessary whenever events or circumstances indicate the carrying value may not be recoverable. The Company assesses and records an allowance for expected credit losses on accounts receivable. Inventories Inventories are stated at the lower of cost or net realizable value. The principal components of cost included in inventories are materials, direct labor and manufacturing overhead. The Company regularly reviews inventory quantities on hand, evaluates the realizability of inventories and adjusts the carrying value as necessary based on forecasted product demand. Provisions for slow-moving and obsolete inventory are made based on historical experience and product demand. Depreciable Assets Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the respective asset lives determined on a composite basis by asset group or on a specific item basis using the estimated useful lives of such assets, which generally range from 3 to 12 years for machinery and equipment and office equipment and 20 to 40 years for buildings. Leasehold building improvements are amortized over the shorter of the remaining lease term or estimated useful life of such improvements. The Company periodically reviews fixed asset lives. Depreciation expense is included in both Cost of sales and Selling, general and administrative expenses in the Consolidated Statements of Income, dependent upon the specific categorization and use of the underlying asset being depreciated. The Company assesses the impairment of property, plant and equipment subject to depreciation, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors the Company considers important, which could trigger an impairment review, include significant changes in the manner of the use of the asset, significant changes in historical trends in operating performance, significant changes in projected operating performance, and significant negative economic trends. There have been 0 impairments recorded in 2019, 20182021, 2020 or 20172019 as a result of such reviews. Leases Amphenol is a lessee of buildings, office space, automobiles and equipment throughout the world, nearly all of which are classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies as a lease at lease inception. Lease right-of-use (“ROU”) assets and lease liabilities for existing operating leases are recognized on the Consolidated Balance Sheets. Operating lease liabilities are recorded based on the present value of the future lease payments over the lease term, assessed as of the commencement date. The Company’s real estate leases, which are comprised primarily of manufacturing facilities, warehouses and sales offices, represent the vast majority of our operating lease liabilities and generally have a lease term between 2 and 12 years. The remaining leases consist primarily of machinery and equipment used in production, office equipment and vehicles, each with various lease terms. The vast majority of our leases are comprised of fixed lease payments, with a small percentage of the Company’s real estate leases including lease payments tied to a rate or index which may be subject to variability. Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). As a result of the adoption ofpractical expedient permitted under Accounting Standards Update No. 2016-02,Leases (Topic 842), we elected to account for the lease and non-lease components as a single lease component for our real estate leases. (“Topic 842”),Lease payments, which may include lease components, non-lease components and non-components, are included in the Company established accounting policies and procedures surrounding the financial reportingmeasurement of the Company’s right-of-use assetslease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs in excess of such amounts are expensed as incurred as variable lease cost. Substantially all of our lease agreements do not specify an implicit borrowing rate, and as such, the Company utilizes its incremental borrowing rate by lease term, in order to calculate the present value of our future lease payments. The discount rate represents a risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. For new or renewed leases, the discount rate is determined using available data at lease commencement and based on the lease term including any reasonably certain renewal periods. Some of our lease agreements, primarily related to real estate, include options for the Company to either renew (extend) or early terminate the lease. Leases with renewal options allow the Company to extend the lease liabilities. term typically between 1 and 6 years. Renewal options are reviewed at lease commencement to determine if such options are reasonably certain of being exercised, which could impact the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that we would exercise such option. In most cases and unless there is an economic, financial or business reason to do so, the Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company (and thus not included in our ROU asset and lease liability). Refer toRecent Accounting Pronouncements within this Note 1, as well as Note 10 herein for further details regarding the adoption of Topic 842, along with the policies and additional information related to our lease portfolio. Goodwill Goodwill represents the excess purchase cost over the fair value of net assets acquired in business combinations. The Company performs its evaluation for the impairment of goodwill for the Company’s 2 reporting units on an annual basis as of each July 1 or more frequently if an event occurs or circumstances change that would indicate that a reporting unit’s carrying amount may be impaired. The Company has definedreviews its reporting unit structure each year or more frequently based on changes in our organization. Through December 31, 2021, we continued to define our reporting units as the 2 reportable business segments “Interconnect Products and Assemblies” and “Cable Products and Solutions”, as the components of these reportable business segments have similar economic characteristics.. In 2019 and 2018the third quarter of 2021, as part of our annual evaluations, the Company utilized the option to first assess qualitative factors to determine whether it was necessary to perform the quantitative goodwill impairment assessment. As part of this assessment, the Company reviews qualitative factors which include, but are not limited to, economic, market and industry conditions, as well as the financial performance of each reporting unit. In accordance with applicable guidance, an entity is not required to calculate the fair value of a reporting unit if, after assessing these qualitative factors, the Company determines that it is more likely than not that the fair value of each of its reporting units is greater than its respective carrying amount. As of July 1, 2019 and 2018,2021, the Company determined that it was more likely than not that the fair value of its reporting units exceeded their respective carrying amounts and therefore, a quantitative assessment was not required. There has been As a result, 0 goodwill impairment resulted from the assessment as of July 1, 2021. In 2020, when testing for goodwill impairment, the Company performed a quantitative goodwill impairment assessment for each reporting unit. As part of the quantitative assessment, the Company estimated the fair value of each of its reporting units using a market approach. The Company believes the market-based guideline public company method provides the best indicator of fair value, by utilizing market prices and other relevant metrics for comparable publicly traded companies with similar operating and investment characteristics, as well as recent transactions of similar businesses within the industry. Significant judgments, estimates and assumptions were used in 2019, 2018the Company’s goodwill impairment assessment, including historical profitability data, the determination and selection of appropriate publicly traded market comparison companies, and the calculation of comparable earnings-based and other multiples derived from comparable publicly traded companies and from recent transactions within the industry. As there are inherent uncertainties and management’s judgment related to impairment analyses, the Company evaluated whether there were reasonably likely changes to management’s estimates and assumptions that would have a material impact on the results of the goodwill impairment assessment. As of July 1, 2020, the Company determined that the fair value of each of the Company’s reporting units was substantially in excess of their respective carrying amounts, and therefore, 0 goodwill impairment resulted from the assessment. The Company has 0t recognized any goodwill impairment in 2021, 2020 or 20172019 in connection with our annual impairment tests.assessments. Intangible Assets Intangible assets consist primarily of customer relationships, proprietary technology and license agreements and are generally amortized over the estimated periods of benefit. The fair value associated with acquired identifiable intangible assets are generally valued based on discounted cash flow analyses, independent appraisals and certain estimates made by management. The Company assesses and reviews its long-livedidentifiable intangible assets, other than goodwill for potential impairmentand including identifiable intangible assets subject to amortization, for potential impairment whenever events or changes in circumstances indicate the intangible asset’s carrying amount may not be recoverable. Factors the Company considers important, which could trigger an impairment review, include significant changes in the manner of the use of the asset, changes in historical trends in operating performance, significant changes in projected operating performance, anticipated future cash flows and significant negative economic trends. Indefinite-livedAny indefinite-lived intangible assets that are not subject to amortization, which isare comprised of certain trade names, are reviewed at least annually for impairment. In the third quarter of 2019,2021, the Company performed its annual assessment of these identifiable indefinite-lived intangible assets. Based on our qualitative assessment, the Company determined that it was more likely than not that the fair value of the indefinite-lived intangible assets exceeded their respective carrying amounts. There has been 0 impairment associated with our intangible asset impairmentassets in 2019, 20182021, 2020 or 20172019 as a result of such reviews. Acquisitions The Company accounts for acquisitions using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The purchase price of acquisitions is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on estimated fair values, and any excess purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. Any subsequent adjustments to the purchase price allocation prior to the completion of the measurement period will be reflected as an adjustment to goodwill in the period in which the adjustments are identified. The Company may use independent valuation specialists to assist in determining the estimated fair values of assets acquired and liabilities assumed, which could require certain significant management assumptions and estimates. Discontinued Operations and Held for Sale Accounting The Company reports a component of an entity or group of components of an entity as a discontinued operation and held for sale upon acquisition if the Company has (i) executed a plan to sell the business as of the acquisition date or (ii) has begun to formulate a plan to sell the business and either currently meets or expects to meet the held for sale criteria within three months. An entity meets the held for sale criteria when (i) management, having the authority to approve the action, commits to a plan to sell the discontinued operation, the plan of which is unlikely to have any significant changes or to be withdrawn, (ii) the completed sale is probable within one year and (iii) an active program to locate a buyer has been initiated with the operation actively marketed for sale at a price that is reasonable in relation to its current fair value and for immediate sale in its present condition. The assets acquired and liabilities assumed from an entity that qualifies for held for sale accounting are measured and recorded at fair value less costs to sell, and are recorded as current assets held for sale and current liabilities held for sale when the planned sale is expected to close within one year. The Company separately accounts for the operating results and related cash flows associated with discontinued operations until such operations are divested; such discontinued operations are reported separately from the operating results and related cash flows associated with continuing operations in the accompanying Consolidated Financial Statements. For the year ended December 31, 2021, the comprehensive income associated with discontinued operations was not material and has not been separately presented in the Consolidated Statements of Comprehensive Income. For further information related to the Company’s discontinued operations, refer to Note 12 herein. Revenue Recognition Topic 606 The Company’s net sales in the Consolidated Statements of Income for the years ended December 31, 20192021, 2020 and 20182019 are presented under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (collectively with its related subsequent amendments, “Topic 606”), resulting from the modified retrospective adoption of Topic 606 applied to those contracts which were not completed as of January 1, 2018.. The comparative results for the year ended December 31, 2017 were recognized in accordance with the Company’s revenue recognition policy then in effect under ASC Topic 605, Revenue Recognition (“Topic 605”), as discussed below. The adoption of Topic 606 resulted in accounting policy changes surrounding revenue recognition which replaced previous revenue guidance under Topic 605. In accordance with Topic 606, the Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. The vast majority of our sales are recognized when products are shipped from our facilities or delivered to our customers, depending on the respective contractual terms. For aA nominal portion of our contracts where the accounting did change, the adoption of Topic 606 resulted in an increase to the opening balance of retained earnings of approximately $3.2 as of January 1, 2018. This impact was primarily due to the acceleration of net sales and associated net income related to certain uncompleted contracts for the manufacture of goods with no alternative use and for which we have an enforceable right to payment, including a reasonable profit margin, from the customer for performance completed to date. For these contracts, we recognize revenue recognized over time as control of the goods transfers, rather than when the goods are delivered, and title, risk and reward of ownership are passed to the customer, as under previous guidance. since they have no alternative use and for which the Company has an enforceable right to payment, including a reasonable profit margin, from the customer for performance completed to date. Refer to Note 1314 herein for further discussion regarding the Company’s disaggregation of net sales. The Company’s primary source of revenues consist of product sales to either end customers and their appointed contract manufacturers (including original equipment manufacturers) or to distributors, and the vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer. Revenues are derived from contracts with customers, which in most cases are customer purchase orders that may be governed by master sales agreements. For each contract, the promise to transfer the control of the products, each of which is individually distinct, is considered to be the identified performance obligation. As part of the consideration promised in each contract, the Company evaluates the customer’s credit risk. Our contracts do not have any significant financing components, as payment terms are generally due net 30 to 120 days after delivery. Although products are almost always sold at fixed prices, in determining the transaction price, we evaluate whether the price is subject to refund (due to returns) or adjustment (due to volume discounts, rebates, or price concessions) to determine the net consideration we expect to be entitled to. We allocate the transaction price to each distinct product based on its relative standalone selling price. Taxes assessed by governmental authorities and collected from the customer,, including but not limited to sales and use taxes and value-added taxes, are not included in the transaction price. The vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer. With limited exceptions, the Company recognizes revenue at the point in time when we ship or deliver the product from our manufacturing facility to our customer, when our customer accepts and has legal title of the goods, and where the Company has a present right to payment for such goods. Based on the respective contract terms, most of our contracts’ revenues are recognized either (i) upon shipment based on free on board (“FOB”) shipping point or (ii) when the product arrives at its destination or (iii) when the product is pulled from consignment inventory.destination. For the years ended December 31, 20192021, 2020 and 2018,2019, less than 5% of our net sales were recognized over time, where the associated contracts relate to the sale of goods with no alternative use as they are only sold to a single customer and whose underlying contract terms provide the Company with an enforceable right to payment, including a reasonable profit margin, for performance completed to date, in the event of customer termination. For the contracts recognized over time, we typically record revenue using the input method, based on the materials and labor costs incurred to date relative to the contract’s total estimated costs. This method reasonably depicts when and as control of the goods transfers to the customer, since it measures our progress in producing the goods, which is generally commensurate with this transfer of control. Since we typically invoice our customers at the same time that we satisfy our performance obligations, contract assets and contract liabilities related to our contracts with customers recorded in the Consolidated Balance Sheets were not material as of December 31, 20192021 and 2018.2020. The Company receives customer orders negotiated with multiple delivery dates that may extend across more than 1 reporting period until the contract is fulfilled, the end of the order period is reached, or a pre-determined maximum order value has been reached. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. It is generally expected that a substantial portion of our remaining performance obligations will be fulfilled within three months. Nearly all of our performance obligations are fulfilled within one year. Since our performance obligations are part of contracts that generally have original durations of one year or less, we have not disclosed the aggregate amount of transaction prices associated with unsatisfied or partially unsatisfied performance obligations as of December 31, 20192021 and 2018.2020. Sales to Distributors and Resellers Sales to certain distributors and resellers are made under terms allowing certain price adjustments and limited rights of return of the Company’s products held in their inventory or upon sale to their end customers. The Company maintains a reserve for unprocessed and estimated future price adjustment claims and returns as a refund liability. The reserve is recorded as a reduction to revenue in the same period that the related revenue is recorded and is calculated based on an analysis of historical claims and returns over a period of time to appropriately account for current pricing and business trends. Similarly, sales returns and allowances are recorded based on historical return rates, as a reduction to revenue with a corresponding reduction to cost of sales for the estimated cost of inventory that is expected to be returned. These reserves were not material to the Consolidated Balance Sheets as of December 31, 20192021 and 2018.2020. Warranty Standard product warranty coverage, which provides assurance that our products will conform to the contractually agreed-upon specifications for a limited period from the date of shipment, is typically offered, while extended or separately-pricedseparately priced warranty coverage is typically not offered. The warranty claim is generally limited to a credit equal to the purchase price or a promise to repair or replace the product for a specified period of time at no additional charge. We estimate our warranty liability based on historical experience, product history, and current trends, and record warranty expense in Cost of sales in the Consolidated Statements of Income. Warranty liabilities and related warranty expense have not been and were not material in the accompanying Consolidated Financial Statements as of and for the years ended December 31, 2019, 20182021, 2020 and 2017.2019. Shipping and Handling Costs The Company accounts for shipping and handling activities related to contracts with customers as a cost to fulfill our promise to transfer control of the related product, including any such costs incurred after the customer has obtained control of the goods. Shipping and handling costs are generally charged to and paid by the majority of our customers as part of the contract. For a nominal portion of our customer contracts, primarily for certain customers in the broadband communications market (a market primarily in the Cable Products and Solutions segment), such costs are not separately charged to the customers. Shipping and handling costs are included in Cost of sales in the accompanying Consolidated Statements of Income. Contract Assets and Contract Liabilities The Company records contract assets or contract liabilities depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Contract assets represent unbilled receivables, which generally arise when revenue recognized over time exceed amounts billed to customers. Contract liabilities represent billings or advanced consideration received from customers in excess of revenue recognized to date. As the Company’s performance obligations are typically less than one year, these amounts are generally recorded as current in the accompanying Consolidated Balance Sheets within Prepaid expenses and other current assets or Other accrued expenses as of December 31, 20192021 and 2018.2020. Contract assets and contract liabilities recorded in the Consolidated Balance Sheets were not material as of December 31, 20192021 and 2018.2020. Contract Costs The Company’s policy is to capitalize any incremental costs incurred to obtain a customer contract, only to the extent that such costs are explicitly chargeable to the customer and the benefit associated with the costs is expected to be longer than one year. Otherwise, such costs are expensed as incurred and recorded within Selling, general and administrative expenses in the accompanying Consolidated Statements of Income. Incremental costs to fulfill customer orders, which are mostly comprised of pre-production and set-up costs, are generally capitalized to the extent such costs are contractually guaranteed to be reimbursed by the customer. Otherwise, such costs are expensed as incurred. Capitalized contract costs to obtain a contract or to fulfill a contract that are not accounted for under other existing accounting standards are recorded as either other current or long-term assets on the accompanying Consolidated Balance Sheets, depending on the timing of when the Company expects to recognize the expense, and are generally amortized consistent with the timing of when transfer of control of the related goods occurs. Such capitalized contract costs were not material as of December 31, 20192021 and 2018,2020, and the related amortization expense was not material for the years ended December 31, 20192021, 2020 and 2018.
Pre-adoption of Topic 606
The Company adopted Topic 606 using the modified retrospective method and as such, comparative results for the year ended December 31, 2017 were not retrospectively adjusted. For the year ended December 31, 2017, revenue from sales of the Company’s products was recognized at the time the goods were delivered, title passed and the risks and rewards of ownership passed to the customer, provided the earnings process was complete and revenue was measurable. Such recognition generally occurred when the products reached the shipping point, the sales price was fixed and determinable, and collection was reasonably assured. Delivery was determined by the Company’s shipping terms, which was primarily freight on board shipping point. Revenue was recorded at the net amount to be received after deductions for estimated discounts, allowances and returns. These estimates and reserves were determined and adjusted as needed based upon historical experience, contract terms and other related factors. The shipping costs for the majority of the Company’s sales were paid directly by the Company’s customers. In the broadband communications market (approximately 6% of net sales in 2017), the Company paid for shipping costs to the majority of its customers. Shipping costs were also paid by the Company for certain customers in the Interconnect Products and Assemblies segment.2019.
Retirement Pension Plans Costs for retirement pension plans include current service costs and amortization of prior service costs over the average working life expectancy. It is the Company’s policy to fund current pension costs taking into consideration minimum funding requirements and maximum tax deductible limitations. The expense of retiree medical benefit programs is recognized during the employees’ service with the Company. The recognition of expense and the related obligation for retirement pension plans and medical benefit programs is significantly impacted by estimates and assumptions made by management such as discount rates used to value certain liabilities, expected return on assets, mortality projections and future health care costs. The Company uses third-party specialists such as actuaries and investment advisors to assist management in appropriately measuring the expense and obligations associated with pension and other postretirement plan benefits.The defined benefit plan obligation is based on significant assumptions such as mortality rates and discount rates, as determined by the Company in consultation with the respective benefit plan actuaries and investment advisors. Stock-Based Compensation The Company accounts for its stock option and restricted share awards based on the fair value of the award at the date of grant and recognizes compensation expense over the service period that the awards are expected to vest. The Company recognizes expense for stock-based compensation with graded vesting on a straight-line basis over the vesting period of the entire award. 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 Consolidated Statements of Income. Income Taxes Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial statement reporting purposes. The Company recognizes the effects of changes in tax laws and rates on deferred income taxes in the period in which legislation is enacted. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. As of December 31, 2019,2021, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,000related to certain geographies, of approximately $900, as it is the Company’s intention to permanently reinvest such earnings outside the United States. It is impracticable to calculate the amount of taxes that would be payable if these undistributed foreign earnings were to be repatriated. In addition, the Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its investments in foreign subsidiaries. It is not practicable to determine the deferred tax liability with respect to such basis differences. Deferred tax assets are regularly assessed for recoverability based on both historical and anticipated earnings levels and a valuation allowance is recorded when it is more likely than not that these amounts will not be recovered. The tax effects of an uncertain tax position taken or expected to be taken in income tax returns are recognized only if it is “more likely than not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. As previously discussed, for the year ended December 31, 2017, as a result of the U.S. Tax Cuts and Jobs Act (“Taxof 2017 (the “Tax Act”), the Company recorded (i) a provisional income tax charge related to the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries, (ii) a provisional income tax charge related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a provisional income tax benefit associated with the remeasurement of its net deferred tax liabilities due to the U.S. federal corporate tax rate reduction, and included these amounts in its consolidated financial statements. Beginning in 2018, the global intangible low-taxed income (“GILTI”) provision imposed a tax on certain earnings of foreign subsidiaries. The Company has elected an accounting policy to account for GILTI as a period cost. The U.S. Treasury Department has issued final interpretive guidance relating to certain provisions of the Tax Act and proposed additional guidance related to the same provisions. The Company will account for the impact of additional guidance in the period in which any new guidance is released, if appropriate. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which was codified under ASU 2018-05, to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In 2017, the Company recorded a provisional income tax charge of $398.5 as a result of the Tax Act. Consistent with ASU 2018-05, the Company completed its accounting and recorded an income tax benefit of $14.5 in 2018.
Foreign Currency Translation The financial position and results of operations of the Company’s foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities of such subsidiaries have been translated into U.S. dollars at current exchange rates and related revenues and expenses have been translated at weighted average exchange rates. The aggregate effect of translation adjustments is included as a component of Accumulated other comprehensive income (loss) within equity. Transaction gains and losses related to operating assets and liabilities are included in Cost of sales. Research and Development Costs incurred in connection with the development of new products and applications are expensed as incurred. Research and development expenses for the creation of new and improved products and processes were $234.2, $220.9,$317.7, $260.7, and $193.7,$234.2, for the years 2019, 20182021, 2020 and 2017,2019, respectively, and are included in Selling, general and administrative expenses. Environmental Obligations The Company recognizes the potential cost for environmental remediation activities when site assessments are made, remediation efforts are probable and related amounts can be reasonably estimated; potential insurance reimbursements are not recorded. The Company assesses its environmental liabilities as necessary and appropriate through regular reviews of contractual commitments, site assessments, feasibility studies and formal remedial design and action plans. Net Income per Common Share Basic income per common share is based on the net income attributable to Amphenol Corporation for the year divided by the weighted average number of common shares outstanding. Diluted income per common share assumes the exercise of outstanding dilutive stock options using the treasury stock method. Refer to Note 8 of the Notes to Consolidated Financial Statements for a reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding, used in the calculation of earnings per share (basic and diluted) from continuing operations, discontinued operations and for total Amphenol Corporation. Treasury Stock Treasury stock purchases are recorded at cost. Any issuances from treasury shares are recorded using the weighted-averageweighted average cost method. Noncontrolling Interests The Company presents noncontrolling interests in consolidated entities as its own caption within equity, separate from the Company’s equity attributable to Amphenol Corporation stockholders, to the extent that such noncontrolling interests do not have redemption features that are not solely within the control of the Company, as discussed below. Net income from continuing operations attributable to noncontrolling interests is classified below net income from continuing operations. Earnings per share is determined after the impact of the noncontrolling interests’ share in net income of the Company. Redeemable Noncontrolling Interest (i.e. Temporary Equity) The Company reports noncontrolling interests in the mezzanine (“temporary equity”) section, between liabilities and equity, of the Consolidated Balance Sheets, to the extent that such noncontrolling interests have redemption features, such as a put option, that is redeemable at a fixed or determinable price on a fixed or determinable date at the option of the holder, or upon the occurrence of an event that is not solely within the control of the Company. The carrying amount of the redeemable noncontrolling interest, initially valued at fair value as part of acquisition accounting, is adjusted each reporting period to equal the greater of the (i) redemption value and (ii) carrying value of the noncontrolling interest, adjusted each reporting period for income or loss attributable to the noncontrolling interest and any distributions made to date. The redemption value is generally calculated based on a multiple of earnings, which, for the redeemable NCI currently outstanding, approximates fair value. Any measurement adjustments, if applicable, to the redeemable noncontrolling interest are recognized in Additional paid-in capital in the Consolidated Balance Sheets. Due to its redeemable features that are outside the control of the Company, the redeemable noncontrolling interest typically is and will continue to be reported in the mezzanine (temporary equity) section, between liabilities and equity, in the Consolidated Balance Sheets for as long as the put option is exercisable by the option holder. Refer to Note 5 herein for further details related to the redeemable noncontrolling interest. Derivative Financial Instruments DerivativeThe Company records each of its derivatives at fair value within the accompanying Consolidated Balance Sheets, and the respective accounting treatment for each derivative is based on its hedge designation. We do not enter into derivative financial instruments whichfor trading or speculative purposes, and our derivative financial instruments are periodically used bywith large financial institutions with strong credit ratings. As of December 31, 2021, the Company does not have any significant concentration of exposure with any one counterparty. Refer to Note 5 herein for further discussion of our derivative financial instruments.
Cash Flow Hedges The Company periodically utilizes derivative financial instruments in the management of interest rate and foreign currency exposures, are accounted for asexposures. Such cash flow hedges.hedges include foreign exchange forward contracts to hedge exposure to foreign currency exchange rate fluctuations for certain transactions denominated in foreign currencies. As of December 31, 2021 and 2020, the aggregate notional value of our outstanding cash flow hedge contracts was approximately $20 and $94, respectively. Gains and losses on derivatives designated as cash flow hedges resulting from changes in fair value are recorded in Accumulated other comprehensive income (loss), and subsequently reflected in Cost of sales in the Consolidated Statements of Income in a manner that matches the timing of the actual income or expense of such instruments with that of the hedged transaction. Any ineffective portion of the change in the fair value of designated hedging instruments is included in the Consolidated Statements of Income. Cash flows from derivativesassociated with cash flow hedges are classified and reported consistent with the cash flows associated with the underlying hedged item. We do Net Investment Hedges The Company is exposed to variability in the U.S. dollar equivalent of the net investments in our foreign subsidiaries and, by extension, the U.S. dollar equivalent of any foreign earnings repatriated to the U.S. due to potential changes in foreign currency exchange rates. As a result, the Company enters into foreign exchange forward contracts to hedge the net investments in certain foreign subsidiaries from which we expect to repatriate earnings to the United States. As of December 31, 2021 and 2020, the aggregate notional value of our outstanding net investment hedge contracts was $250 and $250, respectively. For such instruments that are designated and qualify as a net investment hedge, the effective portion of the hedging instrument’s gain or loss is reported as a component of other comprehensive income (loss) and recorded in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. The gain or loss will be subsequently reclassified into net earnings if the net investment in the hedged foreign operation is either sold or substantially liquidated. Cash flows associated with net investment hedges are classified and reported within investing activities in the Consolidated Statements of Cash Flow. Cash flows associated with our net investment hedges were not entermaterial for the years ended December 31, 2021, 2020 and 2019. Non-Designated Derivatives The Company enters into suchcertain derivative financial instruments, for trading or speculative purposes. Referfrom time to Note 5 herein for further discussiontime, that are not designated as hedging instruments. The Company enters into such foreign exchange forward contracts to reduce and minimize the impact of ourforeign currency fluctuations arising from the change in fair value of certain foreign currency denominated assets and liabilities. These non-designated derivative instruments are adjusted to fair value each period through earnings, within the financial instruments.statement line item to which the derivative instrument relates. For each of the three years ended December 31, 2021, such non-designated derivative instruments, including their impact to the Consolidated Statements of Income, were not material to the Company. Cash flows associated with non-designated hedges are classified and reported consistent with the cash flows associated with the underlying hedged item. Recent Accounting Pronouncements Recently Adopted Accounting Standards
Leases and SEC Final Rules
In February 2016,December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“Topic 842”), which amended, among other things, the existing guidance by requiring lessees to recognize lease right-of-use assets (“ROU assets”) and liabilities arising from operating leases on the balance sheet. Since issuing Topic 842, the FASB has issued various subsequent ASUs, including but not limited to, ASU 2018-10, Codification Improvements to Topic 842, Leases, which clarified various aspects of the guidance under Topic 842, as well as ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows entities the option of recognizing the cumulative effect of applying Topic 842 as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance.
Prior to adoption, the Company evaluated Topic 842, including the initial review of any necessary changes to existing processes and systems that would be required to implement this standard, in order to determine its impact on our
consolidated financial statements and related disclosures. In 2018, the Company implemented a new lease management system that facilitated the adoption of this standard and enabled the Company to fulfill its requirements for both reporting and disclosure purposes, as well as to better manage and monitor the Company’s ongoing lease portfolio.
On January 1, 2019, we adopted Topic 842 using the updated modified retrospective transition approach allowed under ASU 2018-11 and did not restate prior periods. The Company recognized ROU assets and related lease liabilities on our Consolidated Balance Sheets as of January 1, 2019 of approximately $180 related to our operating lease commitments, and there was 0 cumulative impact on retained earnings as of January 1, 2019. Topic 842 did not have a material impact on our Consolidated Statements of Income and Consolidated Statements of Cash Flow for the year ended December 31, 2019, nor did it have any impact on our compliance with debt covenants. The adoption of Topic 842 provided various optional practical expedients in transition, some of which we have elected. As part of the adoption, the Company elected the “package of 3” practical expedient, which among other things, permitted us not to reassess the historical lease classifications for existing or expired leases. Going forward, the impact of Topic 842 on the Company’s consolidated financial statements will be dependent upon the Company’s lease portfolio. The accounting for finance leases (formerly referred to as “capital leases”) remains substantially unchanged. Refer to Note 10 herein for further details regarding the impact of the adoption of Topic 842 and other information related to our lease portfolio.
Other Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which introduces an approach to estimate credit losses on certain types of financial instruments, including trade receivables, based on expected losses, as well as modifying the impairment model for available-for-sale debt securities. ASU 2016-13, which is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, requires companies to make a cumulative-effect adjustment to retained earnings as of January 1, 2020. The Company has evaluated ASU 2016-13 and will adopt the standard effective January 1, 2020, which is not expected to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which adds, amends and removes certain disclosure requirements related to fair value measurements. Among other changes, this standard requires certain additional disclosure surrounding Level 3 assets, including changes in unrealized gains or losses in other comprehensive income and certain inputs in those measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain amended or eliminated disclosures in this standard may be adopted early, while certain additional disclosure requirements in this standard can be adopted on its effective date. In addition, certain changes in the standard require retrospective adoption, while other changes must be adopted prospectively. The Company has evaluated ASU 2018-13 and will adopt the standard on January 1, 2020, which is not expected to have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifiessimplified income tax accounting in various areasareas. The Company evaluated ASU 2019-12 and adopted the standard on January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
In May 2020, the Securities and Exchange Commission (the “SEC”) issued a new rule regarding the financial statement requirements for acquisitions and dispositions of a business, which included, among other things, amending (i) certain criteria in the significance tests for acquired or to-be-acquired businesses, (ii) related pro forma financial information requirements, including butits form and content, and (iii) related disclosure requirements, including the number of acquiree financial statement periods required to be presented in SEC filings. The final rule was effective for fiscal years beginning after December 31, 2020, with early application permitted. The Company evaluated this SEC final rule, which we adopted on January 1, 2021. To date, the final rule has not limitedhad a material impact on our consolidated financial statements. Its impact on any future SEC filings will be dependent on the size of future business combinations and/or divestitures. In November 2020, the SEC issued Final Rule Release No. 33-10890 Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information that modernizes and simplifies various aspects and financial disclosure requirements in Regulation S-K, specifically related to Item 301 “Selected Financial Data”, Item 302 “Supplementary Financial Information” and Item 303 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). The intent of this final rule was to (i) eliminate duplicative disclosures, (ii) enhance and promote more principles-based MD&A disclosures with the objective of making them more meaningful for investors, all while (iii) simplifying the compliance requirements and efforts for registrants, by providing them with the flexibility to present management’s perspective on the registrant’s financial condition and results of operations. As a result of the Company’s adoption of this final rule, the previously required disclosure under Item 6. Selected Financial Data has been removed from this Annual Report on Form 10-K (“Annual Report”). In addition, as there have not been any material retrospective changes to the accountingConsolidated Statements of Income for hybrid tax regimes, tax implications relatedany of the quarters in the previous two years, the selected quarterly financial data disclosure has also been removed from the accompanying Notes to Consolidated Financial Statements. While most of the changes reduced or removed previously required information and disclosures, the final rule did expand the disclosure requirements surrounding certain aspects of MD&A under Regulation S-K. The final rule was published in the Federal Register on January 11, 2021, became effective on February 10, 2021, and registrants are required to comply with this final rule in the registrant’s first fiscal year ending on or after August 9, 2021. The Company evaluated this SEC final rule, which was adopted and whose requirements and amendments were incorporated, in its entirety, within this Annual Report. The application of this SEC final rule did not have a material impact on this current SEC filing nor is it expected to have a material impact on future SEC filings. Other Recently Issued Accounting Standards Not Yet Adopted In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which amends ASC 805 by now requiring acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combinations,combination. Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. The intent of ASU 2021-08 is to address diversity in practice and interim period accountingimprove comparability for enacted changesboth the recognition and measurement of acquired revenue contracts by providing (i) guidance on how to determine whether a contract liability is recognized by the acquirer in tax law, along with some codification improvements.a business combination and (ii) specific guidance on how to recognize and measure contract assets and contract liabilities from revenue contracts in a business combination. ASU 2019-122021-08 is effective for fiscal years, andincluding interim periods within those fiscal years, beginning after December 15, 2020,2022, and the amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. Certain changes in the standard require retrospective or modified retrospective adoption, while other changes must be adopted prospectively. The Company is currently evaluating ASU 2019-122021-08 and its potential impact on our consolidated financial statements. The United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced in July 2017 its intent to phase out the use of LIBOR by the end of 2021. In December 2020, the ICE Benchmark Administration published a consultation on its intention to extend the publication of certain U.S. dollar LIBOR (“USD LIBOR”) rates until June 30, 2023. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1-month, 3-month, 6-month and 12-month) will continue to be published until June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (the “SOFR”) as its preferred benchmark alternative to USD LIBOR. The SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In March 2020, in response to this transition, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB also issued ASU 2021-01 Reference Rate Reform (Topic 848): Scope, which permits entities to elect certain optional expedients and exceptions when accounting for derivatives and certain hedging relationships affected by changes in interest rates and the transition. Effective November 30, 2021, the Revolving Credit Facility no longer references LIBOR for interest rate determinations. Due to our current limited reliance on borrowings tied to LIBOR, the Company currently believes that the LIBOR transition will not have a material impact on its financial condition, results of operations or cash flows. Note 2—Inventories The components of Inventories are comprised of: | | | | | | | | | | | | | | | December 31, | | December 31, | | | 2019 | | 2018 | | 2021 | | 2020 | Raw materials and supplies | | $ | 509.6 | | $ | 463.6 | | $ | 818.4 | | $ | 587.4 | Work in process | | | 395.2 | | | 371.1 | | | 511.5 | | | 410.7 | Finished goods | | | 405.3 | | | 399.1 | | | 564.2 | | | 464.1 | | | $ | 1,310.1 | | $ | 1,233.8 | | $ | 1,894.1 | | $ | 1,462.2 |
Note 3—Property, Plant and Equipment, Net The components of Property, plant and equipment, net are summarized as follows: | | | | | | | | | | | | | | | December 31, | | December 31, | | | 2019 | | 2018 | | 2021 | | 2020 | Land and improvements | | $ | 34.8 | | $ | 29.3 | | $ | 34.9 | | $ | 33.5 | Buildings and improvements | | | 347.4 | | | 325.7 | | | 420.6 | | | 394.3 | Machinery and equipment | | | 1,800.4 | | | 1,553.2 | | | 2,332.3 | | | 2,040.1 | Office equipment and other | | | 303.6 | | | 282.4 | | | 349.1 | | | 325.3 | | | | 2,486.2 | | | 2,190.6 | | | 3,136.9 | | | 2,793.2 | Accumulated depreciation | | | (1,487.2) | | | (1,314.8) | | | (1,961.6) | | | (1,738.6) | | | $ | 999.0 | | $ | 875.8 | | $ | 1,175.3 | | $ | 1,054.6 |
Depreciation expense for the years ended December 31, 2021, 2020 and 2019 2018was $302.9, $252.7 and 2017 was $240.0, $247.6 and $173.0, respectively. Note 4—Long-Term Debt Long-term debt consists of the following: | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | December 31, 2018 | | | | | | Carrying | | Approximate | | Carrying | | Approximate | | | | Maturity | | Amount | | Fair Value (1) | | Amount | | Fair Value (1) | | Revolving Credit Facility | | January 2024 | | $ | — | | $ | — | | $ | — | | $ | — | | U.S. Commercial Paper Program (less unamortized discount of NaN and $0.5 at December 31, 2019 and 2018, respectively) | | January 2024 | | | 160.0 | | | 160.0 | | | 554.5 | | | 554.5 | | Euro Commercial Paper Program (plus unamortized premium of NaN and NaN at December 31, 2019 and 2018, respectively) | | January 2024 | | | 235.5 | | | 235.5 | | | 68.8 | | | 68.8 | | 2.55% Senior Notes (less unamortized discount of NaN at December 31, 2018) | | January 2019 | | | — | | | — | | | 750.0 | | | 749.4 | | 2.20% Senior Notes (less unamortized discount of NaN and $0.1 at December 31, 2019 and 2018, respectively) | | April 2020 | | | 400.0 | | | 400.0 | | | 399.9 | | | 395.5 | | 3.125% Senior Notes (less unamortized discount of $0.1 and $0.1 at December 31, 2019 and 2018, respectively) | | September 2021 | | | 227.6 | | | 231.0 | | | 374.9 | | | 374.2 | | 4.00% Senior Notes (less unamortized discount of $0.2 and $0.4 at December 31, 2019 and 2018, respectively) | | February 2022 | | | 294.8 | | | 304.0 | | | 499.6 | | | 508.8 | | 3.20% Senior Notes (less unamortized discount of $0.2 and $0.3 at December 31, 2019 and 2018, respectively) | | April 2024 | | | 349.8 | | | 363.7 | | | 349.7 | | | 334.5 | | 2.000% Euro Senior Notes (less unamortized discount of $2.5 and $2.8 at December 31, 2019 and 2018, respectively) | | October 2028 | | | 558.2 | | | 622.8 | | | 570.5 | | | 572.8 | | 4.350% Senior Notes (less unamortized discount of $0.4 at December 31, 2019) | | June 2029 | | | 499.6 | | | 562.9 | | | — | | | — | | 2.800% Senior Notes (less unamortized discount of $0.7 at December 31, 2019) | | February 2030 | | | 899.3 | | | 897.3 | | | — | | | — | | Notes payable to foreign banks and other debt | | 2020-2032 | | | 5.5 | | | 5.5 | | | 16.6 | | | 16.6 | | Less unamortized deferred debt issuance costs | | | | | (23.6) | | | — | | | (13.8) | | | — | | Total debt | | | | | 3,606.7 | | | 3,782.7 | | | 3,570.7 | | | 3,575.1 | | Less current portion | | | | | 403.3 | | | 403.3 | | | 764.3 | | | 763.7 | | Total long-term debt | | | | $ | 3,203.4 | | $ | 3,379.4 | | $ | 2,806.4 | | $ | 2,811.4 | |
| | | | | | | | | | | | | | | | | | | | December 31, 2021 | | December 31, 2020 | | | | | | Carrying | | Approximate | | Carrying | | Approximate | | | | Maturity | | Amount | | Fair Value (1) | | Amount | | Fair Value (1) | | Revolving Credit Facility | | November 2026 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | U.S. Commercial Paper Program (less unamortized discount of nil and NaN at December 31, 2021 and 2020, respectively) | | November 2026 | | | 795.2 | | | 795.2 | | | 0 | | | 0 | | Euro Commercial Paper Program (plus unamortized premium of NaN and NaN at December 31, 2021 and 2020, respectively) | | November 2026 | | | 0 | | | 0 | | | 0 | | | 0 | | 3.125% Senior Notes (less unamortized discount of NaN at December 31, 2020 | | September 2021 | | | 0 | | | 0 | | | 227.7 | | | 231.6 | | 4.00% Senior Notes (less unamortized discount of $0.1 at December 31, 2020 | | February 2022 | | | 0 | | | 0 | | | 294.9 | | | 303.6 | | 3.20% Senior Notes (less unamortized discount of $0.1 and $0.2 at December 31, 2021 and 2020, respectively) | | April 2024 | | | 349.9 | | | 363.5 | | | 349.8 | | | 378.1 | | 2.050% Senior Notes (less unamortized discount of $0.4 and $0.6 at December 31, 2021 and 2020, respectively) | | March 2025 | | | 399.6 | | | 407.4 | | | 399.4 | | | 420.7 | | 0.750% Euro Senior Notes (less unamortized discount of $1.8 and $2.4 at December 31, 2021 and 2020, respectively) | | May 2026 | | | 565.5 | | | 579.0 | | | 608.4 | | | 633.6 | | 2.000% Euro Senior Notes (less unamortized discount of $1.9 and $2.4 at December 31, 2021 and 2020, respectively) | | October 2028 | | | 565.4 | | | 626.7 | | | 608.4 | | | 694.9 | | 4.350% Senior Notes (less unamortized discount of $0.3 and $0.4 at December 31, 2021 and 2020, respectively) | | June 2029 | | | 499.7 | | | 567.7 | | | 499.6 | | | 608.4 | | 2.800% Senior Notes (less unamortized discount of $0.6 and $0.6 at December 31, 2021 and 2020, respectively) | | February 2030 | | | 899.4 | | | 928.3 | | | 899.4 | | | 987.8 | | 2.200% Senior Notes (less unamortized discount of $2.7 at December 31, 2021 | | September 2031 | | | 747.3 | | | 733.4 | | | 0 | | | 0 | | Other debt | | 2022-2032 | | | 8.6 | | | 8.6 | | | 6.7 | | | 6.7 | | Less: unamortized deferred debt issuance costs | | | | | (30.7) | | | — | | | (27.8) | | | — | | Total debt | | | | | 4,799.9 | | | 5,009.8 | | | 3,866.5 | | | 4,265.4 | | Less: current portion | | | | | 4.0 | | | 4.0 | | | 230.3 | | | 234.2 | | Total long-term debt | | | | $ | 4,795.9 | | $ | 5,005.8 | | $ | 3,636.2 | | $ | 4,031.2 | |
| (1) | The fair value of each series of the Company’s Senior Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). |
Revolving Credit Facility On January 15, 2019,November 30, 2021, the Company amended and restated its $2,000.0$2,500.0 unsecured revolving credit facility with(the “Revolving Credit Facility”). As a $2,500.0 unsecured credit facility (“result, the Revolving Credit Facility”)Facility no longer references LIBOR for interest rate determinations. The Revolving Credit Facility maintains the lenders’ aggregate commitments under the facility at $2,500.0. The Revolving Credit Facility which matures January 2024,in November 2026 and gives the Company the ability to borrow, in various currencies, at a spread that varies based on the Company’s debt rating over LIBOR.certain currency-specific benchmark rates, which benchmark rates in the case of U.S. dollar borrowings are either the base rate or the adjusted term SOFR. The Company may utilize the Revolving Credit Facility for general corporate purposes. Due to the significant volatility in the credit and capital markets resulting from the outbreak of the COVID-19 pandemic, the Company borrowed approximately $1,255.6 under the Revolving Credit Facility in the first quarter of 2020, at a weighted average interest rate of 1.82%. The outstanding borrowings as of March 31, 2020 included €200.0 ($217.4 at date of issuance) of euro-denominated borrowings, with the remainder of the outstanding borrowings denominated in U.S. dollars. The borrowings under the Revolving Credit Facility during the first quarter of 2020 were used in part to repay outstanding balances under the U.S. Commercial Paper Program and the Euro Commercial Paper Program (each as defined below). During the second quarter of 2020, the Company repaid all of the outstanding borrowings under the Revolving Credit Facility using cash and cash equivalents on hand as well as the net proceeds from the 2026 Euro Notes (defined below). At December 31, 2021 and 2020, there were 0 outstanding borrowings under the Revolving Credit Facility. The carrying value of any borrowings under the Revolving Credit Facility would approximate their fair value due primarily to their market interest rates and would be classified as Level 2 in the fair value hierarchy (Note 5). At December 31, 2019 and 2018, there were 0Any outstanding borrowings under the Revolving Credit Facility. The RevolvingFacility are classified as long-term debt in the accompanying Consolidated Balance Sheets. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. Commercial Paper Programs The Company has a commercial paper program (the “U.S. Commercial Paper Program”) pursuant to which the Company issuesmay issue short-term unsecured commercial paper notes (“U.S.(the “USCP Notes” or “U.S. Commercial Paper” or “USCP Notes”) in one or more private placements in the United States (the “U.S. Commercial Paper Program”).States. The maturities of the USCP Notes vary, but may not exceed 397 days from the date of issue. The USCP Notes are sold under customary terms in the commercial paper market and may be issued at par or a discount therefrom, and bear varying interest rates on a fixed or floating basis. The average interest rate onmaximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0. On April 7, 2021, a combination of borrowings under the U.S. Commercial Paper asProgram and cash on hand were used to fund the acquisition of MTS Systems Corporation (“MTS”). In 2021, the Company also used borrowings under the U.S. Commercial Paper Program to (i) redeem, in the third quarter of 2021, its unsecured 3.125% Senior Notes (the “2021 Senior Notes”) due September 15, 2021, of which $227.7 aggregate principal amount was outstanding and (ii) redeem, in the fourth quarter of 2021, its unsecured 4.00% Senior Notes (the “2022 Senior Notes”) due February 1, 2022, of which $295.0 aggregate principal amount was outstanding. At December 31, 2019 and 20182021, the amount of USCP Notes outstanding was 1.85% and 2.88%, respectively.$795.2, with a weighted average interest rate of 0.29%. At December 31, 2020, there were 0 USCP Notes outstanding under the U.S. Commercial Paper Program. OnIn July 10, 2018, the Company and 1 of its wholly owned European subsidiaries (the “Euro Issuer”) entered into a euro-commercialcommercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”) pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, the “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States. The maturities of the ECP Notes will vary, but may not exceed 183 days from the date of issue. The ECP Notes are sold under customary terms in the euro-commercialcommercial paper market and may be issued at par or a discount therefrom or a premium thereto and bear varying interest rates on a fixed or floating basis. The ECP Notes may be issued in Euros, Sterling, U.S. Dollarsdollars or other currencies. AsIn addition, effective April 14, 2020 through March 22, 2021, a subsidiary of December 31, 2019 and 2018, the Company was able to issue ECP Notes through the Bank of England’s COVID Corporate Financing Facility (the “BOE Facility”). The BOE Facility expired on March 22, 2021, although the Company did not borrow under the BOE Facility. The maximum aggregate principal amount outstanding of ECP Notes outstanding was €210.0 (approximately $235.5)at any time is $2,000.0. At December 31, 2021 and €60.0 (approximately $68.8), respectively. The average interest rate on the2020, there were 0 ECP Notes outstanding as of December 31, 2019 and 2018 was (0.13)% and (0.10)%, respectively.under the Euro Commercial Paper Program.
Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time. AsIn conjunction with the Revolving Credit Facility, as of December 31, 2019,2021, the authorization from the Company’s Board of Directors limits the maximum aggregate principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper euro-commercial paper or similar programs, along with outstanding amounts under the Revolving Credit Facility, at any time to $2,500.0 consistent within the Revolving Credit Facility. In addition, the maximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0, while the maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0.aggregate. The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and, based on the Board’s authorization described above, are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary. Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes. The Commercial Paper is classified as long-term debt in the accompanying Consolidated Balance Sheets since the Company has the intent and ability to refinance the Commercial Paper on a long-term basis using the Company’s Revolving Credit Facility. The Commercial Paper is actively traded and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The carrying value of Commercial Paper borrowings approximates their fair value. U.S. Senior Notes On September 14, 2021, the Company issued $750.0 principal amount of unsecured 2.200% Senior Notes due September 15, 2031 at 99.634% of face value (the “2031 Senior Notes”). The 2031 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2031 Senior Notes is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2022. Prior to June 15, 2031, the Company may, at its option, redeem some or all of the 2031 Senior Notes at any time by paying the redemption price (which includes a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after June 15, 2031, the Company may, at its option, redeem some or all of the 2031 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The Company used the net proceeds from the 2031 Senior Notes to repay certain outstanding borrowings under the U.S. Commercial Paper Program. On February 20, 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025 at 99.829% of face value (the “2025 Senior Notes”). The 2025 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2025 Senior Notes is payable semiannually on March 1 and September 1 of each year, commencing on September 1, 2020. Prior to February 1, 2025, the Company may, at its option, redeem some or all of the 2025 Senior Notes at any time by paying the redemption price (which includes a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after February 1, 2025, the Company may, at its option, redeem some or all of the 2025 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. On April 1, 2020, the Company used the net proceeds from the 2025 Senior Notes, together with cash on hand, to repay the $400.0 outstanding principal amount of unsecured 2.20% Senior Notes due April 1, 2020 upon maturity. On January 9, 2019, the Company issued $500.0 principal amount of unsecured 4.350% Senior Notes due June 1, 2029 at 99.904%99.904% of face value (the “2029 Senior Notes”). The 2029 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2029 Senior Notes is payable semiannually on June 1 and December 1 of each year, commencing on June 1, 2019. Prior to March 1, 2029, the Company may, at its option, redeem some or all of the 2029 Senior Notes at any time by paying the redemption price (which may includeincludes a make-whole premium), plus accrued and unpaid interest, if any, to but not including, the date of redemption. If redeemed on or after March 1, 2029, the Company may, at its option, redeem some or all of the 2029 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including, the date of redemption. TheIn January 2019, the Company used the net proceeds from the 2029 Senior Notes, along with proceeds from borrowings under the U.S. Commercial Paper Program, to repay the $750.0$750.0 outstanding principal amount of unsecured 2.55% Senior Notes due in January 2019. On September 4, 2019, the Company commenced tender offers (“Tender(the “Tender Offers”) to purchase for cash any and all of the Company’s then outstanding (i) $375.0 principal amount of its 3.125%the 2021 Senior Notes due September 2021 (“2021 Senior Notes”) and (ii) $500.0 principal amount of its 4.00% Senior Notes due February 2022 (“the 2022 Senior Notes”).Notes. On September 11, 2019, as a result of the Tender Offers, the Company accepted for payment $147.3 aggregate principal amount of the 2021 Senior Notes and $205.0 aggregate principal amount of the 2022 Senior Notes for 101.9% and 104.5% of par value, respectively (collectively, the “Tendered Notes”), plus accrued and unpaid interest to, but not including, the settlement date of the Tender Offers. The total consideration for the Tendered Notes was $368.8, which in addition to the Tendered Notes, included $13.4 of premiums and fees paid related to the early extinguishment of debt and $3.1 of accrued interest. For the year ended December 31, 2019, the Company recorded a loss on early debt extinguishment of $14.3 ($12.5 after-tax, or $0.04$0.02 per diluted share) within Loss on early extinguishment of debt on the accompanying Consolidated Statements of Income. This charge iswas primarily comprised of the premiums and fees incurred related to the Tendered Notes, along with the non-cash charge associated with the write-off of the remaining unamortized deferred debt issuance costs associated with the Tendered Notes. The remaining principal amounts associated with the 2021 Senior Notes and 2022 Senior Notes, which were not redeemed as a result of the Tender Offers, remain outstanding as of December 31, 2019, as noted in the table above. On September 10, 2019, the Company issued $900.0 principal amount of unsecured 2.800% Senior Notes due February 15, 2030 at 99.920% of face value (the “2030 Senior Notes”). The 2030 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2030 Senior Notes is payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2020. Prior to November 15, 2029, the Company may, at its option, redeem some or all of the 2030 Senior Notes at any time by paying the redemption price (which may includeincludes a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after November 15, 2029, the Company may, at its option, redeem some or all of the 2030 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. In September 2019, the Company used the net proceeds from the 2030 Senior Notes to fund the cash consideration payable in the Tender Offers, with the remaining net proceeds being used for general corporate purposes, including to partially reduce outstanding borrowings related to the U.S. Commercial Paper Program. On April 5, 2017, the Company issued $400.0 principal amount of unsecured 2.20% Senior Notes due April 1, 2020 at 99.922% of face value (the “2020 Senior Notes”) and $350.0 principal amount of unsecured 3.20% Senior Notes due April 1, 2024 at 99.888% of face value (the “2024 Senior Notes” and, together with the 2020 Senior Notes, the “2020 and 2024 Notes”). Interest on each of the 2020 Senior Notes and 2024 Senior Notes is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2017. Prior to maturity, the Company may, at its option, redeem some or all of the 2020 Senior Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. Prior to February 1, 2024, the Company may, at its option, redeem some or all of the 2024 Senior Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after February 1, 2024, the Company may, at its option, redeem some or all of the 2024 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to, but not including, the date of redemption. In September 2017, the Company used the net proceeds from the 2020 and 2024 Notes to repay all of its outstanding $375.0 principal amount of 1.55% Senior Notes due September 15, 2017, with the remainder of the net proceeds being used for general corporate purposes.
All of the Company’s outstanding senior notes in the United States (“U.S.(the “U.S. Senior Notes”) are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on each series of U.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of U.S. Senior Notes at any time, subject to certain terms and conditions, which include paying 100%100% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, and, with certain exceptions, a make-whole premium. The Company’s 2.20% Senior Notes are due in April 2020 and are therefore recorded, net Euro Senior Notes On October 8,May 4, 2020, the Euro Issuer issued €500.0 (approximately $545.4 at date of issuance) principal amount of unsecured 0.750% Senior Notes due May 4, 2026 at 99.563% of face value (the “2026 Euro Notes” or the “0.750% Euro Senior Notes”). The 2026 Euro Notes are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on the 2026 Euro Notes is payable annually on May 4 of each year, commencing on May 4, 2021. Prior to February 4, 2026, the Company may, at its option, redeem some or all of the 2026 Euro Notes at any time by paying the redemption price (which includes a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after February 4, 2026, the Company may, at its option, redeem some or all of the 2026 Euro Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The Company used the net proceeds from the 2026 Euro Notes to repay amounts outstanding under the then existing revolving credit facility. In 2018, the Euro Issuer issued €500.0 (approximately $574.6 at date of issuance) principal amount of unsecured 2.000% Senior Notes due October 8, 2028 at 99.498% of face value (the “2028 Euro Notes” or the “2.000% Euro Senior Notes”, collectively with the 2026 Euro Notes, the “Euro Notes”, and collectively with the U.S. Senior Notes and 2026 Euro Notes, the “Senior Notes”). The 2028 Euro Notes are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on the 2028 Euro Notes is payable annually on October 8 of each year, commencing on October 8, 2019. Prior to July 8, 2028, the Company may, at its option, redeem some or all of the 2028 Euro Notes at any time by paying the redemption price (which may includeincludes a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after July 8, 2028, the Company may, at its option, redeem some or all of the 2028 Euro Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The Company used a portion of the net proceeds from the 2028 Euro Notes to repay a portion of the outstanding amounts under its Commercial Paper Programs, with the remainder of the net proceeds being used for general corporate purposes. The fair value of each series of Senior Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The Company’s Senior Notes containimpose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial and non-financial covenants.requirements. The maturity of the Company’s debt (exclusive of unamortized deferred debt issuance costs as of December 31, 2019)2021) over each of the next five years ending December 31 and thereafter, is as follows: | | | | | | | | | 2020 | | $ | 403.5 | | | 2021 | | | 228.2 | | | 2022 | | | 295.2 | | | $ | 4.0 | | 2023 | | | 0.3 | | | | 1.1 | | 2024 | | | 745.5 | | | | 350.1 | | 2025 | | | | 400.4 | | 2026 | | | | 1,362.6 | | Thereafter | | | 1,957.6 | | | | 2,712.4 | | | | $ | 3,630.3 | | | $ | 4,830.6 | |
At December 31, 2019,2021, the Company had approximately $70.8$53.8 of uncommitted standby letter of credit facilities, of which $30.0$32.9 were issued. Note 5—Fair Value Measurements Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. These requirements establish market or observable inputs as the preferred source of values. Assumptions based on hypothetical transactions are used in the absence of market inputs. The Company does not have any non-financial instruments accounted for at fair value on a recurring basis. The valuation techniques required are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy: Level 1 Quoted prices for identical instruments in active markets. Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Significant inputs to the valuation model are unobservable. The Company believes that the assets or liabilities currently subject to such standards with fair value disclosure requirements are primarily debt instruments, pension plan assets, short-term investments, and derivative instruments and contingent consideration payments.instruments. Each of these assets and liabilities is discussed below, with the exception of debt instruments and pension plan assets, which are covered in Note 4 and Note 9, respectively, herein, as well as the fair value of assets acquired and liabilities assumed as part of acquisition accounting, which is covered in Note 11 herein. Substantially all of the Company’s short-term investments consist of certificates of deposit with original maturities of twelve months or less and as such, are considered as Level 1 in the fair value hierarchy as they are traded in active markets for identical assets. The carrying amounts of these instruments, the majority of which are in non-U.S. bank accounts, approximate their fair value. The Company’s derivative instruments representprimarily consist of foreign exchange forward contracts, which are valued using bank quotations based on market observable inputs such as forward and spot rates and are therefore classified as Level 2 in the fair value hierarchy. The contingent consideration payment related to the SSI acquisition is valued using Level 3 unobservable inputs, such as probability weighted payout projections, within the fair value hierarchy. The impact of the credit risk related to these financial assets is immaterial. The fair values of the Company’s financial and non-financial assets and liabilities subject to such standards at December 31, 20192021 and December 31, 20182020 are as follows: | | | | | | | | | | | | | | | | Fair Value Measurements | | | | | | | Quoted Prices in | | Significant | | Significant | | | | | | | Active Markets | | Observable | | Unobservable | | | | | | | for Identical | | Inputs | | Inputs | | 2019 | | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) | | Short-term investments | | $ | 17.4 | | $ | 17.4 | | $ | — | | $ | — | | Forward contracts | | | (1.3) | | | — | | | (1.3) | | | — | | Contingent consideration | | | (75.0) | | | — | | | — | | | (75.0) | | Total | | $ | (58.9) | | $ | 17.4 | | $ | (1.3) | | $ | (75.0) | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | Short-term investments | | $ | 12.4 | | $ | 12.4 | | $ | — | | $ | — | | Forward contracts | | | 2.4 | | | — | | | 2.4 | | | — | | Total | | $ | 14.8 | | $ | 12.4 | | $ | 2.4 | | $ | — | |
With the exception of the fair value of the assets acquired and liabilities assumed in connection with acquisition accounting, the Company does not have any other significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis.
| | | | | | | | | | | | | | | | Fair Value Measurements | | | | | | | Quoted Prices in | | Significant | | Significant | | | | | | | Active Markets | | Observable | | Unobservable | | | | | | | for Identical | | Inputs | | Inputs | | 2021 | | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) | | Short-term investments | | $ | 44.3 | | $ | 44.3 | | $ | 0 | | $ | 0 | | Forward contracts | | | (0.4) | | | 0 | | | (0.4) | | | 0 | | Redeemable noncontrolling interest | | | (19.0) | | | 0 | | | 0 | | | (19.0) | | Total | | $ | 24.9 | | $ | 44.3 | | $ | (0.4) | | $ | (19.0) | | | | | | | | | | | | | | | | 2020 | | | | | | | | | | | | | | Short-term investments | | $ | 36.1 | | $ | 36.1 | | $ | 0 | | $ | 0 | | Forward contracts | | | (2.7) | | | 0 | | | (2.7) | | | 0 | | Total | | $ | 33.4 | | $ | 36.1 | | $ | (2.7) | | $ | 0 | |
The Company utilizes foreign exchange forward contracts, hedging instruments accounted for as cash flow hedges, in the management of foreign currency exposures. In addition, the Company also enters into foreign exchange forward contracts, accounted for as net investment hedges, to hedge our exposure to variability in the U.S. dollar equivalent of the net investments in certain foreign currency exchange rate fluctuations for certain transactions denominated in foreign currencies.subsidiaries. As of December 31, 2019,2021, the fair value of such foreign exchange forward contracts in the table above consisted primarily of 2(i) 1 outstanding foreign exchange forward contracts, which fixed intercompany Korean Won and Great Britain Pound exposures into Hong Kong Dollar, with each expiring in 2020. These forward contracts are designated hedging instrumentscontract accounted for as a cash flow hedges. For the years ended December 31, 2019 and 2018, the amounts recognizedhedge, expiring in Accumulated other comprehensive loss associated withSeptember 2022, (ii) various outstanding foreign exchange forward contracts were not material. For the years ended December 31, 2019, 2018accounted for as net investment hedges and 2017, the amounts reclassified from Accumulated other comprehensive loss to(iii) various outstanding foreign exchange gain (loss), included within Cost of sales in the accompanying Consolidated Statements of Income, were not material. The amount included in Accumulated other comprehensive loss as of December 31, 2019 associated with these forward contracts is expected to be reclassified into earnings within the next twelve months.that are not designated as hedging instruments. As of December 31, 20192021 and 2018,2020, the fair values of the Company’s forward contracts are recorded within Prepaid expenses and other current assets, Other long-term assets, Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, depending on their value and remaining contractual period. For further discussion on the Company’s derivative financial instruments and related policies, refer to Note 1 herein. Certain acquisitions may result in noncontrolling interest holders who, in certain cases, are entitled to a put option, giving them the ability to put some or all of their redeemable interest in the shares of the acquiree to the Company. Specifically, if exercised by the noncontrolling interest holder, Amphenol would be required to purchase some or all of the option holder’s redeemable interest, at a redemption price during specified time period(s) stipulated in the respective acquisition agreement. The redeemable noncontrolling interest as of December 31, 2021 was entirely related to an acquisition that closed in December 2021, and based on the terms of the agreement, will remain in temporary equity until the put option is either exercised and the entire redeemable noncontrolling interest is fully settled or the put option expires. The redemption value of the redeemable noncontrolling interest is generally calculated using Level 3 unobservable inputs based on a multiple of earnings, which, for the redeemable NCI currently outstanding, approximates fair value. As such, the redemption value is classified as Level 3 in the fair value hierarchy as included in the table above. Since the initial measurement of the redeemable noncontrolling interest was recorded in December 2021, there were no material redemption value adjustments to the initial redemption value recorded as of December 31, 2021. Refer to Note 1 herein for further discussion of redeemable noncontrolling interests. As defined and further discussed in Note 12 herein, the Divested MTS business met the held for sale criteria upon the acquisition of MTS on April 7, 2021. As a result, the disposal group was measured at fair value less costs to sell, which is considered a Level 3 fair value measurement based on the transaction’s expected consideration. At each reporting period in 2021, the Company reassessed the fair value of these assets held for sale and liabilities held for sale and noted that the carrying value of the disposal group did not exceed its fair value less costs to sell. At December 31, 2021, there were 0 assets held for sale 0r liabilities held for sale on the Consolidated Balance Sheets, as a result of the sale of the Divested MTS business in December 2021, as discussed in further detail in Note 12 herein. With the exception of the fair value of the assets acquired and liabilities assumed in connection with acquisition accounting as well as the assets held for sale and liabilities held for sale discussed above, the Company does not have any other significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis. Note 6—Income Taxes The components of income from continuing operations before income taxes and the provision for income taxes are as follows: | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | Year Ended December 31, | | | | 2019 | | 2018 | | 2017 | | | 2021 | | 2020 | | 2019 | | Income before income taxes: | | | | | | | | | | | | Income from continuing operations before income taxes: | | | | | | | | | | | | United States | | $ | 318.6 | | $ | 194.1 | | $ | 153.0 | | | $ | 407.3 | | $ | 310.3 | | $ | 318.6 | | Foreign | | | 1,177.3 | | | 1,394.3 | | | 1,199.4 | | | | 1,581.9 | | | 1,216.3 | | | 1,177.3 | | | | $ | 1,495.9 | | $ | 1,588.4 | | $ | 1,352.4 | | | $ | 1,989.2 | | $ | 1,526.6 | | $ | 1,495.9 | | Current tax provision: | | | | | | | | | | | | Current tax provision (benefit): | | | | | | | | | | | | United States | | $ | 22.9 | | $ | 37.8 | | $ | 200.0 | | | $ | 86.8 | | $ | (5.7) | | $ | 22.9 | | Foreign | | | 293.8 | | | 345.7 | | | 305.4 | | | | 351.9 | | | 288.2 | | | 293.8 | | | | | 316.7 | | | 383.5 | | | 505.4 | | | | 438.7 | | | 282.5 | | | 316.7 | | Deferred tax provision (benefit): | | | | | | | | | | | | | | | | | | | | | United States | | | 35.8 | | | 27.8 | | | 51.0 | | | | (35.4) | | | 43.0 | | | 35.8 | | Foreign | | | (20.6) | | | (39.8) | | | 135.3 | | | | 5.8 | | | (12.2) | | | (20.6) | | | | | 15.2 | | | (12.0) | | | 186.3 | | | | (29.6) | | | 30.8 | | | 15.2 | | Total provision for income taxes | | $ | 331.9 | | $ | 371.5 | | $ | 691.7 | | | $ | 409.1 | | $ | 313.3 | | $ | 331.9 | |
As described in Note 1 herein, theThe United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”) in 2017. The Tax Act provides forAs a result, in 2017, the Company recorded a transition tax on(“Transition Tax”) related to the deemed repatriation of the accumulated unremitted foreign earnings and profits of the Company’s foreign subsidiaries (“Transition Tax”) and a reductionsubsidiaries. In the second quarter of the U.S. federal corporate income tax rate from 35% to 21%, among other changes. In 2017,2021, the Company recorded a provisional income tax charge of $398.5 (“Tax Act Charge”) that was comprised of (i)paid the Transition Tax of $259.4, (ii) a charge of $176.6 related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a tax benefit of $37.5 associated with the remeasurement of the Company’s U.S. net deferred tax liabilities due to the U.S. federal corporate tax rate reduction, all of which was included in the 2017 provision and reflected the then estimated impacts of the Tax Act as previously disclosed. The Company analyzed guidance and technical interpretations issued in 2018 related to the provisions of the Tax Act, and refined, analyzed and updated the underlying data, computations and assumptions used to prepare the Tax Act Charge. As a result, the Company completed its accounting within the one-year measurement period and recorded an income tax benefit of $14.5 in 2018.
The Company paid its secondfourth annual installment of the Transition Tax, in the second quarternet of 2019.applicable tax credits and deductions. The Company will pay the balance of the Transition Tax, net of applicable tax credits and deductions, over anthe remainder of the eight-year period untilending 2025, as permitted under the Tax Act. The current and long-term portions of the Transition Tax are recorded in Accrued income taxes and Other long-term liabilities, respectively, on the Consolidated Balance Sheets as of December 31, 20192021 and 2018. The2020. In addition, as a result of the Tax Act, the Company also recorded a tax charge, in 2017, related to changes in the Company’s permanent reinvestment assertion, in 2017 due to our intention to repatriate prior accumulated unremitted earnings from certain foreign subsidiaries over time. We will pay such taxes when those respective earnings are repatriated.
At December 31, 2019, the Company had $146.4 of foreign tax loss carryforwards, $56.0 of U.S. state tax loss carryforwards and $0.7 of U.S. federal tax loss carryforwards, of which $95.8, $56.0 and $0.7, respectively, will either expire or be refunded at various dates through 2039 and the balance can be carried forward indefinitely. The Company had $3.8 of foreign tax credit carryforwards and $13.7 of U.S. state tax credit carryforwards, of which $3.8 and $7.9, respectively, will either expire or be refunded at various dates through 2039 and the balance can be carried forward indefinitely.
A valuation allowance of $35.2 and $34.7 at December 31, 2019 and 2018, respectively, has been recorded which relates primarily to the U.S. federal and state and foreign net operating loss carryforwards and U.S. state tax credits. The net change in the valuation allowance for deferred tax assets in both 2019 and 2018 was not material.
Differences between the U.S. statutory federal tax rate and the Company’s effective income tax rate are analyzed below:
| | | | | | | | | | | | Year Ended December 31, | | | | 2019 | | | 2018 | | | 2017 | | U.S. statutory federal tax rate | | 21.0 | % | | 21.0 | % | | 35.0 | % | State and local taxes | | 0.7 | | | 0.6 | | | 0.2 | | Foreign earnings and dividends taxed at different rates | | 1.4 | | | 2.3 | | | (9.1) | | U.S. tax on foreign income | | 1.2 | | | 1.8 | | | — | | Tax Act - transition tax | | — | | | 0.7 | | | 19.2 | | Tax Act - remeasurement of deferred tax liabilities, net | | — | | | — | | | (2.8) | | Tax Act - change in indefinite reinvestment assertion | | — | | | (1.6) | | | 13.1 | | Excess tax benefits related to stock-based compensation | | (2.5) | | | (1.2) | | | (4.9) | | Other, net | | 0.4 | | | (0.2) | | | 0.4 | | Effective tax rate | | 22.2 | % | | 23.4 | % | | 51.1 | % |
At December 31, 2021, the Company had $156.7 of foreign tax loss carryforwards, $84.1 of U.S. state tax loss carryforwards and $13.8 of U.S. federal tax loss carryforwards, of which $114.3, $84.1 and $13.8, respectively, will either expire or be refunded at various dates through 2041 and the balance can be carried forward indefinitely. At December 31, 2021, the Company had $0.6 of foreign tax credit carryforwards, $17.0 of U.S. state tax credit carryforwards, and $0.9 of U.S. federal tax credit carryforwards, of which $0.4, $11.0, and $0.9, respectively, will either expire or be refunded at various dates through 2041 and the balance can be carried forward indefinitely. A valuation allowance of $44.9 and $40.1 at December 31, 2021 and 2020, respectively, has been recorded which relates primarily to the U.S. state and foreign net operating loss carryforwards and U.S. state tax credits. The valuation allowance for deferred tax assets increased by $4.8 and $4.9 in 2021 and 2020, respectively, which was primarily driven by U.S. state and foreign net operating loss carryforwards in both years. Differences between the U.S. statutory federal tax rate and the Company’s effective income tax rate are analyzed below: | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | | 2020 | | | 2019 | | U.S. statutory federal tax rate | | 21.0 | % | | 21.0 | % | | 21.0 | % | State and local taxes | | 0.8 | | | 0.8 | | | 0.7 | | Foreign earnings and dividends taxed at different rates | | 1.8 | | | 2.1 | | | 1.4 | | U.S. tax on foreign income | | 0.6 | | | 0.8 | | | 1.2 | | Excess tax benefits related to stock-based compensation | | (3.2) | | | (2.8) | | | (2.5) | | Settlements of uncertain tax positions in foreign jurisdictions including refund claims and related deferred taxes | | (0.7) | | | (1.3) | | | 0 | | Other, net | | 0.3 | | | (0.1) | | | 0.4 | | Effective tax rate | | 20.6 | % | | 20.5 | % | | 22.2 | % |
The components of the Company’s deferred tax assets and liabilities are comprised of the following: | | | | | | | | | | | | | | | December 31, | | December 31, | | | 2019 | | 2018 | | 2021 | | 2020 | Deferred tax assets relating to: | | | | | | | | | | | | | Accrued liabilities and reserves | | $ | 41.8 | | $ | 39.1 | | $ | 60.0 | | $ | 54.2 | Operating lease liabilities | | | 45.7 | | | — | | | 56.4 | | | 52.7 | Operating loss and tax credit carryforwards | | | 81.3 | | | 81.5 | | | 62.6 | | | 62.8 | Pensions | | | 26.2 | | | 29.0 | | | 20.3 | | | 36.4 | Inventories | | | 39.3 | | | 40.4 | | | 60.2 | | | 49.0 | Employee benefits | | | 36.0 | | | 34.0 | | | 37.9 | | | 35.2 | Total deferred tax assets | | | 270.3 | | | 224.0 | | | 297.4 | | | 290.3 | Valuation allowance | | | (35.2) | | | (34.7) | | | (44.9) | | | (40.1) | Total deferred tax assets, net of valuation allowances | | | 235.1 | | | 189.3 | | | 252.5 | | | 250.2 | | | | | | | | | | | | | | Deferred tax liabilities relating to: | | | | | | | | | | | | | Goodwill | | | 175.2 | | | 152.2 | | | 234.2 | | | 202.1 | Depreciation and amortization | | | 74.1 | | | 68.5 | | | 176.0 | | | 81.5 | Operating lease right-of-use assets | | | 45.7 | | | — | | | 56.4 | | | 52.7 | Unremitted foreign earnings | | | 115.8 | | | 141.3 | | | 119.1 | | | 114.9 | Contingent consideration | | | 4.3 | | | 4.3 | | Total deferred tax liabilities | | | 415.1 | | | 366.3 | | | 585.7 | | | 451.2 | | | | | | | | | | | | | | Net deferred tax liability | | $ | 180.0 | | $ | 177.0 | | $ | 333.2 | | $ | 201.0 | | | | | | | | | | | | | | Classification of deferred tax assets and liabilities, as reflected on the Consolidated Balance Sheets: | | | | | | | | | | | | | Other long-term assets | | $ | 80.4 | | $ | 78.6 | | $ | 91.0 | | $ | 98.1 | Deferred income taxes | | | 260.4 | | | 255.6 | | | 424.2 | | | 299.1 | Net deferred tax liability, long-term | | $ | 180.0 | | $ | 177.0 | | $ | 333.2 | | $ | 201.0 |
A tabular reconciliation of the gross amounts of unrecognized tax benefits excluding interest and penalties at the beginning and end of the year for 2019, 20182021, 2020 and 20172019 is shown below. | | | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | | 2021 | | 2020 | | 2019 | | Unrecognized tax benefits as of January 1 | | $ | 130.5 | | $ | 127.3 | | $ | 106.2 | | | $ | 135.3 | | $ | 159.1 | | $ | 130.5 | | Gross increases for tax positions in prior periods | | | 20.9 | | | 18.9 | | | 32.7 | | | | 6.5 | | | 5.4 | | | 20.9 | | Gross increases for tax positions in current period | | | 9.0 | | | 2.0 | | | 2.4 | | | | 8.2 | | | 16.4 | | | 9.0 | | Settlements | | | — | | | (14.1) | | | (11.0) | | | | 0 | | | (38.8) | | | 0 | | Lapse of statutes of limitations | | | (1.3) | | | (3.6) | | | (3.0) | | | | (2.3) | | | (6.8) | | | (1.3) | | Unrecognized tax benefits as of December 31 | | $ | 159.1 | | $ | 130.5 | | $ | 127.3 | | | $ | 147.7 | | $ | 135.3 | | $ | 159.1 | |
The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, the provision for income taxes included a net (benefit) expense of $4.4, $1.1($4.6), $2.8 and $3.7,$4.4, respectively, in estimated interest and penalties. As of December 31, 2019, 20182021, 2020 and 2017,2019, the liability for unrecognized tax benefits included $42.2, $40.5$34.5, $39.2 and $39.3,$42.2, respectively, for tax-related interest and penalties. The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 20142017 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of December 31, 20192021 and 2018,2020, the amount of unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $171.0$177.6 and $141.8,$169.3, respectively. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, management anticipates that over the next twelve-month period, audit activity could be completed and statutes of limitations may close relating to existing unrecognized tax benefits of approximately $42.3.$12.6. Note 7—Equity Stock-Based Compensation: TheFor the years ended December 31, 2021, 2020 and 2019, the Company’s incomeIncome from continuing operations before income taxes was reduced by $63.0, $55.6 and $49.7 for the years ended December 31, 2019, 2018 and 2017, respectively, related to the expense incurred for stock-based compensation plans,expense of $83.0, $70.5 and $63.0, respectively, the expense of which is included in Selling, general and administrative expenses in the accompanying Consolidated Statements of Income. In addition, for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, the Company recognized aggregate income tax benefits (associated with stock-based compensation) of $46.0, $27.5$71.7, $50.7 and $78.3,$46.0, respectively, in the provisionProvision for income taxes in the accompanying Consolidated Statements of Income associated with stock-based compensation.Income. These aggregate income tax benefits during the years ended December 31, 2019, 20182021, 2020 and 20172019 include excess tax benefits of $38.1, $19.8$63.4, $42.8 and $66.6,$38.1, respectively, from option exercises. The impact associated with recognizing excess tax benefits from option exercises during these years.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 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”). A committee, which provided for the issuance of 60,000,000 shares. In March 2021, the Company’s Board authorized and approved the Amended and Restated 2017 Stock Purchase and Option Plan for Key Employees of Directors has been authorized to grant stock options pursuant toAmphenol and Subsidiaries (the “Amended 2017 Employee Option Plan” and, together with the 2017 Employee Option Plan. ThePlan, the “2017 Option Plan”), which among other things, increased the number of shares of the Company’s Class A Common Stock (“Common Stock”) reserved for issuance under the plan by 40,000,000 shares. The Amended 2017 Employee Option Plan is 30,000,000 shares.was approved by the Company’s stockholders and became effective on May 19, 2021. As of December 31, 2019,2021, there were 10,977,05043,277,741 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.ThePlan, the Company also continues to maintainissued stock options under the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries, as amendedand its amendment (the “2009 Employee Option Plan”). NaN additional stock options will be granted under the 2009 Employee Option Plan. Options granted under the 2017 Employee 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.
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. The 2004 Directors Option Plan expired in May 2014, except that its terms continue with respect to any outstanding options granted thereunder. Options were last granted under the 2004 Directors Option Plan in May 2011. Options granted under the 2004 Directors Option Plan are fully vested and are generally exercisable over a period of ten years from the date of grant.
Stock option activity for 2017, 2018 and 2019 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, 2017 | | 32,266,391 | | $ | 44.14 | | 7.03 | | | | | Options granted | | 7,029,600 | | | 72.98 | | | | | | | Options exercised | | (5,773,287) | | | 31.87 | | | | | | | Options forfeited | | (300,340) | | | 55.16 | | | | | | | Options outstanding at December 31, 2017 | | 33,222,364 | | | 52.27 | | 7.05 | | | | | Options granted | | 6,302,100 | | | 87.95 | | | | | | | Options exercised | | (3,464,876) | | | 37.81 | | | | | | | Options forfeited | | (508,920) | | | 69.03 | | | | | | | Options outstanding at December 31, 2018 | | 35,550,668 | | | 59.77 | | 6.81 | | | | | Options granted | | 6,181,700 | | | 89.52 | | | | | | | Options exercised | | (5,847,252) | | | 42.14 | | | | | | | Options forfeited | | (209,910) | | | 78.17 | | | | | | | Options outstanding at December 31, 2019 | | 35,675,206 | | $ | 67.70 | | 6.75 | | $ | 1,445.9 | | Vested and non-vested options expected to vest at December 31, 2019 | | 33,577,637 | | $ | 67.05 | | 6.67 | | $ | 1,382.7 | | Exercisable options at December 31, 2019 | | 16,658,376 | | $ | 54.79 | | 5.30 | | $ | 890.2 | |
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 2019, 2020 and 2021 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, 2019 | | 71,101,336 | | $ | 29.88 | | 6.81 | | | | | Options granted | | 12,363,400 | | | 44.76 | | | | | | | Options exercised | | (11,694,504) | | | 21.07 | | | | | | | Options forfeited | | (419,820) | | | 39.08 | | | | | | | Options outstanding at December 31, 2019 | | 71,350,412 | | | 33.85 | | 6.75 | | | | | Options granted | | 12,220,400 | | | 45.12 | | | | | | | Options exercised | | (14,969,624) | | | 25.80 | | | | | | | Options forfeited | | (615,540) | | | 41.55 | | | | | | | Options outstanding at December 31, 2020 | | 67,985,648 | | | 37.58 | | 6.79 | | | | | Options granted | | 7,543,589 | | | 66.65 | | | | | | | Options exercised | | (9,692,199) | | | 29.87 | | | | | | | Options forfeited | | (536,290) | | | 48.00 | | | | | | | Options outstanding at December 31, 2021 | | 65,300,748 | | $ | 42.00 | | 6.47 | | $ | 2,968.8 | | Vested and non-vested options expected to vest at December 31, 2021 | | 62,319,077 | | $ | 41.64 | | 6.40 | | $ | 2,855.5 | | Exercisable options at December 31, 2021 | | 33,920,465 | | $ | 35.27 | | 5.19 | | $ | 1,770.3 | |
A summary of the status of the Company’s non-vested options as of December 31, 20192021 and changes during the year then ended is as follows: | | | | | | | | | | | | | | | | | Weighted Average | | | | | Weighted Average | | | | | | Fair Value | | | | | Fair Value | | | | Options | | at Grant Date | | | Options | | at Grant Date | | Non-vested options at January 1, 2019 | | 19,289,500 | | $ | 9.73 | | | Non-vested options at January 1, 2021 | | | 36,989,300 | | $ | 6.43 | | Options granted | | 6,181,700 | | | 12.26 | | | 7,543,589 | | | 13.27 | | Options vested | | (6,244,460) | | | 9.18 | | | (12,616,316) | | | 5.68 | | Options forfeited | | (209,910) | | | 10.62 | | | (536,290) | | | 7.91 | | Non-vested options at December 31, 2019 | | 19,016,830 | | $ | 10.72 | | | Non-vested options at December 31, 2021 | | | 31,380,283 | | $ | 8.34 | |
The weighted average fair value at the grant date of options granted during 20182020 and 20172019 was $12.82$8.17 and $8.78,$6.13, respectively. During the years ended December 31, 2019, 20182021, 2020 and 2017,2019, the following activity occurred under the Company’s option plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | | 2021 | | 2020 | | 2019 | Total intrinsic value of stock options exercised | | $ | 329.6 | | $ | 188.1 | | $ | 268.7 | | | $ | 430.9 | | $ | 436.1 | | $ | 329.6 | Total fair value of stock options vested | | | 57.3 | | | 51.0 | | | 46.3 | | | | 71.7 | | | 62.4 | | | 57.3 |
As of December 31, 2019,2021, the total compensation cost related to non-vested options not yet recognized was approximately $152.2,$197.3, with a weighted average expected amortization period of 3.363.35 years. The grant dategrant-date fair value of each option grant under the 2009 Employee Option Plan the 2017 Employee Option Planand the 2004 Directors2017 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. The fair value of stock options has been estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | | | 2021 | | 2020 | | 2019 | | Risk free interest rate | | 2.1 | % | | 2.9 | % | | 1.7 | % | | | 0.7 | % | | 0.3 | % | | 2.1 | % | | Expected life | | 4.7 | years | | 4.7 | years | | 4.6 | years | | | 4.7 | years | | 4.7 | years | | 4.7 | years | | Expected volatility | | 14.0 | % | | 13.0 | % | | 13.0 | % | | | 25.0 | % | | 24.0 | % | | 14.0 | % | | Expected dividend yield | | 1.0 | % | | 1.0 | % | | 1.0 | % | | | 1.0 | % | | 1.1 | % | | 1.0 | % | |
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 Company’s Board of Directors.Board. As of December 31, 2019,2021, the number of restricted shares available for grant under the 2012 Directors Restricted Stock Plan was 94,846.141,359. Restricted shares granted under the 2012 Directors Restricted Stock Plan generally vest on the earlier of the first anniversary of the date of grant date.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 2019, 2020 and 2021 was as follows: | | | | | | | | | | | | | | | | Weighted Average | | | | | | Fair Value | | Remaining | | | | Restricted | | at Grant | | Amortization | | | | Shares | | Date | | Term (in years) | | Restricted shares outstanding at January 1, 2019 | | 29,746 | | $ | 43.95 | | 0.39 | | Restricted shares granted | | 28,608 | | | 44.75 | | | | Shares vested and issued | | (33,322) | | | 44.03 | | | | Restricted shares outstanding at December 31, 2019 | | 25,032 | | | 44.75 | | 0.39 | | Restricted shares granted | | 26,350 | | | 45.55 | | | | Shares vested and issued | | (25,032) | | | 44.75 | | | | Restricted shares outstanding at December 31, 2020 | | 26,350 | | | 45.55 | | 0.38 | | Restricted shares granted | | 21,983 | | | 66.33 | | | | Shares vested and issued | | (27,272) | | | 45.80 | | | | Restricted shares outstanding at December 31, 2021 | | 21,061 | | $ | 66.92 | | 0.38 | |
The total fair value of restricted share awards that vested during 2021, 2020, and 2019 was $1.2, $1.2 and $1.5, respectively. As of December 31, 2021, the total compensation cost related to non-vested restricted shares not yet recognized was approximately $0.5 (with a weighted average expected amortization period of 0.38 years). Authorized Shares for Issuance On May 19, 2021, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation, which increased the total number of shares of Common Stock that the Company is authorized to issue to 2 billion shares, an increase of 1 billion shares from the amount previously authorized. The amendment was filed and became effective on May 21, 2021. Restricted share activity for 2017, 2018 and 2019 was as follows:
| | | | | | | | | | | | | | | | Weighted Average | | | | | | Fair Value | | Remaining | | | | Restricted | | at Grant | | Amortization | | | | Shares | | Date | | Term (in years) | | Restricted shares outstanding at January 1, 2017 | | 16,905 | | $ | 57.99 | | 0.38 | | Restricted shares granted | | 12,905 | | | 73.25 | | | | Shares vested and issued | | (16,905) | | | 57.99 | | | | Restricted shares outstanding at December 31, 2017 | | 12,905 | | | 73.25 | | 0.37 | | Restricted shares granted | | 15,014 | | | 87.84 | | | | Shares vested and issued | | (13,046) | | | 73.35 | | | | Restricted shares outstanding at December 31, 2018 | | 14,873 | | | 87.89 | | 0.39 | | Restricted shares granted | | 14,304 | | | 89.49 | | | | Shares vested and issued | | (16,661) | | | 88.07 | | | | Restricted shares outstanding at December 31, 2019 | | 12,516 | | $ | 89.49 | | 0.39 | |
The total fair value of restricted share awards that vested during 2019, 2018, and 2017 was $1.5, $1.0 and $1.0, respectively. As of December 31, 2019, the total compensation cost related to non-vested restricted shares not yet recognized was approximately $0.4 with a weighted average expected amortization period of 0.39 years.
Stock Repurchase Program:Programs: On April 24, 2018, the Company’s Board of Directors authorized a stock repurchase program under which the Company maycould purchase up to $2,000.0 of the Company’s Common Stock during the three-year period ending April 24, 2021 (the “2018 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the yearsyear ended December 31, 2019 and 2018,2021, the Company repurchased 6.5 million and 6.43.1 million shares of its Common Stock for $601.7$203.8 under the 2018 Stock Repurchase Program. As a result of these purchases, the Company completed all purchases authorized under the 2018 Stock Repurchase Program and, $553.2,therefore, the 2018 Stock Repurchase Program has terminated. Of the total repurchases made in 2021 under the 2018 Stock Repurchase Program, 0.3 million shares, or $19.8, were retained in Treasury stock at the time of repurchase; the remaining 2.8 million shares, or $184.0, were retired by the Company. During the years ended December 31, 2020 and 2019, the Company repurchased 12.0 million and 13.1 million shares of its Common Stock for $641.3 and $601.7, respectively, under the 2018 Stock Repurchase Program. Of the total repurchases made in 2019, 5.52020, 2.7 million shares, or $514.1, have been$153.9, were retained in Treasury stock at the time of repurchase; the remaining 9.3 million shares, or $487.4, were retired by the Company;Company. Of the remaining 1.0total repurchases made in 2019, 2.0 million shares, or $87.6, were retained in Treasury stock at the time of repurchase. Ofrepurchase; the total repurchases in 2018, 5.7remaining 11.1 million shares, or $498.2, have been$514.1, were retired by the Company; the remaining 0.7 million shares, or $55.0, had been retained in Treasury stock at time of repurchase. From January 1, 2020 through January 31, 2020, the Company repurchased 0.3 million additional shares of its Common Stock for $29.0, leaving $816.1 available to purchase under the 2018 Stock Repurchase Program. The price and timing of any future purchases under the 2018 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.Company. On January 24, 2017,April 27, 2021, the Company’s Board of Directors authorized a new stock repurchase program under which the Company couldmay purchase up to $1,000.0$2,000.0 of the Company’s Common Stock during the two-yearthree-year period ending January 24, 2019April 27, 2024 (the “2017“2021 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act. During the three monthsyear ended MarchDecember 31, 2018,2021, the Company repurchased 4.26.2 million shares of its Common Stock for $382.0, while during$457.9 under the year ended December2021 Stock Repurchase Program. Of the total repurchases made in 2021 under the 2021 Stock Repurchase Program, 0.4 million shares, or $33.0, have been retained in Treasury stock at the time of repurchase; the remaining 5.8 million shares, or $424.9, have been or will be retired by the Company. From January 1, 2022 through January 31, 2017,2022, the Company repurchased 8.40.6 million additional shares of its Common Stock for $618.0. These shares have been retired by$50.0 under the Company. These repurchases of 12.6 million shares for $1,000.0 completed the 20172021 Stock Repurchase Program. The repurchases in the first quarterProgram, and, as of 2018, coupled with the Company’s repurchase of 6.4 million sharesFebruary 1, 2022, has remaining authorization to purchase up to $1,492.1 of its Common Stock for $553.2 under the 20182021 Stock Repurchase Program. The price and timing of any future purchases under the 2021 Stock Repurchase Program duringwill depend on a number of factors such as levels of cash generation from operations, the nine months ended December 31, 2018, resulted in total repurchasesvolume of 10.6 million sharesstock options exercised by employees, cash requirements for $935.2 duringacquisitions, dividends paid, economic and market conditions and the year ended December 31, 2018.price of the Company’s Common Stock. Dividends: Contingent upon declaration by the Board, of Directors, the Company generally pays a quarterly dividend on shares of its Common Stock. On October 20, 2020, the Board approved an increase to its quarterly dividend rate from $0.125 per share to $0.145 per share effective with dividends declared in the fourth quarter of 2020, and then on October 26, 2021, approved a further increase to its quarterly dividend rate from $0.145 per share to $0.20 per share effective with dividends declared in the fourth quarter of 2021, contingent upon declaration by the Board. The following table summarizes the quarterly declared quarterly dividends per share for each of the three years ended December 31, 2019, 20182021, 2020 and 2017:2019: | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | First Quarter | | $ | 0.23 | | $ | 0.19 | | $ | 0.16 | | $ | 0.145 | | $ | 0.125 | | $ | 0.115 | Second Quarter | | | 0.23 | | | 0.23 | | | 0.16 | | | 0.145 | | | 0.125 | | | 0.115 | Third Quarter | | | 0.25 | | | 0.23 | | | 0.19 | | | 0.145 | | | 0.125 | | | 0.125 | Fourth Quarter | | | 0.25 | | | 0.23 | | | 0.19 | | | 0.20 | | | 0.145 | | | 0.125 | Total | | $ | 0.96 | | $ | 0.88 | | $ | 0.70 | | $ | 0.635 | | $ | 0.52 | | $ | 0.48 |
Dividends declared and paid for the years ended December 31, 2021, 2020 and 2019 were as follows: | | | | | | | | | | | | 2021 | | 2020 | | 2019 | Dividends declared | | $ | 379.7 | | $ | 310.0 | | $ | 285.3 | Dividends paid (including those declared in the prior year) | | | 346.7 | | | 297.6 | | | 279.5 |
Dividends declared and paid for the years ended December 31, 2019, 2018 and 2017 were as follows:
| | | | | | | | | | | | 2019 | | 2018 | | 2017 | Dividends declared | | $ | 285.3 | | $ | 264.3 | | $ | 213.7 | Dividends paid (including those declared in the prior year) | | | 279.5 | | | 253.7 | | | 205.0 |
Accumulated Other Comprehensive Income (Loss): Balances of related after-tax components comprising Accumulated other comprehensive income (loss) included in equity at December 31, 2019, 20182021, 2020 and 20172019 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign | | Unrealized | | Pension and | | Accumulated | | | Foreign | | Unrealized | | Pension and | | Accumulated | | | | Currency | | Gain (Loss) | | Postretirement | | Other | | | Currency | | Gain (Loss) | | Postretirement | | Other | | | | Translation | | on Cash | | Benefit Plan | | Comprehensive | | | Translation | | on Hedging | | Benefit Plan | | Comprehensive | | | | Adjustments | | Flow Hedges | | Adjustment | | Income (Loss) | | | Adjustments | | Activities | | Adjustment | | (Loss) Income | | Balance at January 1, 2017 | | $ | (273.5) | | $ | (0.1) | | $ | (195.4) | | $ | (469.0) | | | Other comprehensive income (loss) before reclassifications, net of tax of NaN, $0.1 and ($3.4), respectively | | | 240.3 | | | (0.1) | | | 10.7 | | | 250.9 | | | Amounts reclassified from Accumulated other comprehensive income (loss) to earnings, net of tax of ($9.1) | | | — | | | — | | | 17.1 | | | 17.1 | | | Balance at December 31, 2017 | | | (33.2) | | | (0.2) | | | (167.6) | | | (201.0) | | | Other comprehensive income (loss) before reclassifications, net of tax of NaN, ($0.1) and $6.6, respectively | | | (164.3) | | | 0.4 | | | (22.0) | | | (185.9) | | | Amounts reclassified from Accumulated other comprehensive income (loss) to earnings, net of tax of ($6.4) | | | — | | | — | | | 20.2 | | | 20.2 | | | Amounts reclassified from Accumulated other comprehensive income (loss) to retained earnings, resulting from income tax effects of the Tax Act (ASU 2018-02) | | | — | | | — | | | (23.5) | | | (23.5) | | | Balance at December 31, 2018 | | | (197.5) | | | 0.2 | | | (192.9) | | | (390.2) | | | Balance at January 1, 2019 | | | $ | (197.5) | | $ | 0.2 | | $ | (192.9) | | $ | (390.2) | | Other comprehensive income (loss) before reclassifications, net of tax of NaN, NaN and $5.3, respectively | | | (40.4) | | | 0.1 | | | (15.7) | | | (56.0) | | | | (40.4) | | | 0.1 | | | (15.7) | | | (56.0) | | Amounts reclassified from Accumulated other comprehensive income (loss) to earnings, net of tax of ($4.9) | | | — | | | — | | | 15.3 | | | 15.3 | | | | 0 | | | 0 | | | 15.3 | | | 15.3 | | Balance at December 31, 2019 | | $ | (237.9) | | $ | 0.3 | | $ | (193.3) | | $ | (430.9) | | | | (237.9) | | | 0.3 | | | (193.3) | | | (430.9) | | Other comprehensive income (loss) before reclassifications, net of tax of NaN, NaN and $7.1, respectively | | | | 151.3 | | | (0.2) | | | (18.9) | | | 132.2 | | Amounts reclassified from Accumulated other comprehensive income (loss) to earnings, net of tax of ($6.7) | | | | 0 | | | 0 | | | 20.6 | | | 20.6 | | Balance at December 31, 2020 | | | | (86.6) | | | 0.1 | | | (191.6) | | | (278.1) | | Other comprehensive income (loss) before reclassifications, net of tax of NaN, NaN and ($12.3), respectively | | | | (66.2) | | | 0 | | | 37.4 | | | (28.8) | | Amounts reclassified from Accumulated other comprehensive income (loss) to earnings, net of tax of ($6.6) | | | | 0 | | | 0 | | | 20.4 | | | 20.4 | | Balance at December 31, 2021 | | | $ | (152.8) | | $ | 0.1 | | $ | (133.8) | | $ | (286.5) | |
TheFor the years ended December 31, 2021, 2020 and 2019, as it relates to the Company’s cash flow hedges, which is comprised of foreign exchange forward contracts, the amounts recognized in Accumulated other comprehensive (loss) income associated with foreign exchange forward contracts, as well as the amounts reclassified from Accumulated other comprehensive income (loss) for unrealizedto foreign exchange gain (loss) on cash flow hedges, which comprised of foreign exchange forward contracts, are, included in Cost of sales in the accompanying Consolidated Statements of Income.Income, were not material. There were 0 reclassifications associated with our net investment hedges from Accumulated other comprehensive income (loss) to earnings during the years presented in the table above. The amount included in Accumulated other comprehensive loss as of December 31, 2021 associated with our cash flow hedges is expected to be reclassified into earnings within the next twelve months. The amounts reclassified from Accumulated other comprehensive income (loss) to earnings, related to pension and other postretirement benefit plans in the table above, are reported within Other (expense) income, net in the Consolidated Statements of Income, the vast majority of which is related to the amortization of actuarial losses associated with our defined benefit plans. The amortization of actuarial losses areis included in the computation of net pension expense discussed in more detail within Note 9 herein.
Note 8—Earnings Per Share Basic earnings per share (“EPS”) is computed by dividing net income attributable to Amphenol Corporation by the weighted average number of common shares outstanding. Diluted EPS is computed by dividing net income attributable to Amphenol Corporation by the weighted average number of outstanding common shares, andincluding dilutive common shares, outstanding,the dilutive effect of which relates to stock options. A reconciliation of the basic weighted average common shares outstanding to diluted weighted average common shares outstanding, along with the earnings per share (basic and diluted) for the years ended December 31, 2019, 20182021, 2020 and 20172019 is as follows:follows (note - per share amounts may not add due to rounding): | | | | | | | | | | (dollars and shares in millions, except per share data) | | 2019 | | 2018 | | 2017 | Net income attributable to Amphenol Corporation shareholders | | $ | 1,155.0 | | $ | 1,205.0 | | $ | 650.5 | Basic weighted average common shares outstanding | | | 297.5 | | | 301.2 | | | 305.7 | Effect of dilutive stock options | | | 10.4 | | | 11.4 | | | 10.8 | Diluted weighted average common shares outstanding | | | 307.9 | | | 312.6 | | | 316.5 | Earnings per share attributable to Amphenol Corporation shareholders: | | | | | | | | | | Basic | | $ | 3.88 | | $ | 4.00 | | $ | 2.13 | Diluted | | $ | 3.75 | | $ | 3.85 | | $ | 2.06 |
| | | | | | | | | | | | | | | | | | | | (dollars and shares in millions, except per share data) | | 2021 | | 2020 | | 2019 | Net income attributable to Amphenol Corporation stockholders: | | | | | | | | | | Net income from continuing operations attributable to Amphenol Corporation | | $ | 1,569.4 | | $ | 1,203.4 | | $ | 1,155.0 | Income from discontinued operations attributable to Amphenol Corporation, net of income taxes of ($3.2) for 2021 | | | 21.4 | | | 0 | | | 0 | Net income attributable to Amphenol Corporation | | $ | 1,590.8 | | $ | 1,203.4 | | $ | 1,155.0 | | | | | | | | | | | Weighted average common shares outstanding — Basic | | | 597.9 | | | 596.1 | | | 595.0 | Effect of dilutive stock options | | | 27.6 | | | 18.9 | | | 20.9 | Weighted average common shares outstanding — Diluted | | | 625.5 | | | 615.0 | | | 615.9 | | | | | | | | | | | Net income per common share attributable to Amphenol Corporation — Basic: | | | | | | | | | | Continuing operations | | $ | 2.62 | | $ | 2.02 | | $ | 1.94 | Discontinued operations, net of income taxes | | | 0.04 | | | 0 | | | 0 | Net income attributable to Amphenol Corporation — Basic | | $ | 2.66 | | $ | 2.02 | | $ | 1.94 | | | | | | | | | | | Net income per common share attributable to Amphenol Corporation — Diluted: | | | | | | | | | | Continuing operations | | $ | 2.51 | | $ | 1.96 | | $ | 1.88 | Discontinued operations, net of income taxes | | | 0.03 | | | 0 | | | 0 | Net income attributable to Amphenol Corporation — Diluted | | $ | 2.54 | | $ | 1.96 | | $ | 1.88 |
Note: As discussed in further detail in Note 1 herein, all current and prior year data presented in the table above, including the number of shares and per share information, have been adjusted to reflect the effect of the stock split that went into effect in March 2021. Excluded from the computations above were anti-dilutive common shares (primarily related to outstanding stock options) of 7.13.5 million, 3.39.4 million and 1.614.2 million for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively. Note 9—Benefit Plans and Other Postretirement Benefits Defined Benefit Plans The Company and certain of its domestic subsidiaries have defined benefit pension plans (the “U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. CertainThe majority of U.S. employees are not covered by the U.S. Plans and are instead covered by various defined contribution plans. Certain foreign subsidiaries have defined benefit plans covering their employees (the “Foreign Plans” and, together with the U.S. Plans, the “Plans”). The largest foreign pension plan, in accordance with local regulations, is unfunded and had a projected benefit obligation of approximately $103.6104.1 and $92.7$120.8 at December 31, 20192021 and 2018,2020, respectively. Total required contributions to be made during 20202022 for the unfunded Foreign Plans are included in Other accrued expenses in the accompanying Consolidated Balance Sheets and in the tables below. The following is a summary of the Company’s defined benefit plans’ funded status as of the most recent actuarial valuations as of December 31 of each year.
| | | | | | | | | | | | | | | | | | | | | U.S. Plans | | Foreign Plans | | Total | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | Change in projected benefit obligation: | | | | | | | | | | | | | | | | | | | Projected benefit obligation at beginning of year | | $ | 448.9 | | $ | 486.7 | | $ | 235.3 | | $ | 255.0 | | $ | 684.2 | | $ | 741.7 | Service cost | | | 5.4 | | | 4.5 | | | 2.6 | | | 2.8 | | | 8.0 | | | 7.3 | Interest cost | | | 16.8 | | | 14.9 | | | 4.7 | | | 4.7 | | | 21.5 | | | 19.6 | Plan amendments | | | 4.8 | | | 0.2 | | | — | | | 0.8 | | | 4.8 | | | 1.0 | Actuarial (gain) loss | | | 47.1 | | | (33.1) | | | 24.8 | | | (3.1) | | | 71.9 | | | (36.2) | Foreign exchange translation | | | — | | | — | | | 1.6 | | | (13.0) | | | 1.6 | | | (13.0) | Benefits paid | | | (26.5) | | | (24.3) | | | (7.6) | | | (11.9) | | | (34.1) | | | (36.2) | Projected benefit obligation at end of year | | | 496.5 | | | 448.9 | | | 261.4 | | | 235.3 | | | 757.9 | | | 684.2 | | | | | | | | | | | | | | | | | | | | Change in plan assets: | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | | 418.2 | | | 389.6 | | | 95.9 | | | 108.3 | | | 514.1 | | | 497.9 | Actual return on plan assets | | | 80.5 | | | (28.8) | | | 11.4 | | | (0.9) | | | 91.9 | | | (29.7) | Employer contributions | | | 1.0 | | | 81.7 | | | 5.6 | | | 6.6 | | | 6.6 | | | 88.3 | Foreign exchange translation | | | — | | | — | | | 2.5 | | | (6.2) | | | 2.5 | | | (6.2) | Benefits paid | | | (26.5) | | | (24.3) | | | (7.6) | | | (11.9) | | | (34.1) | | | (36.2) | Fair value of plan assets at end of year | | | 473.2 | | | 418.2 | | | 107.8 | | | 95.9 | | | 581.0 | | | 514.1 | | | | | | | | | | | | | | | | | | | | Underfunded status at end of year | | $ | 23.3 | | $ | 30.7 | | $ | 153.6 | | $ | 139.4 | | $ | 176.9 | | $ | 170.1 | | | | | | | | | | | | | | | | | | | | Amounts recognized on the balance sheet as of December 31: | | | | | | | | | | | | | | | | | | | Other accrued expenses | | $ | 1.0 | | $ | 1.0 | | $ | 3.2 | | $ | 2.9 | | $ | 4.2 | | $ | 3.9 | Accrued pension and postretirement benefit obligations | | | 22.3 | | | 29.7 | | | 150.4 | | | 136.5 | | | 172.7 | | | 166.2 | Underfunded status at end of year | | $ | 23.3 | | $ | 30.7 | | $ | 153.6 | | $ | 139.4 | | $ | 176.9 | | $ | 170.1 | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive loss, net | | $ | (131.5) | | $ | (140.2) | | $ | (62.0) | | $ | (52.7) | | $ | (193.5) | | $ | (192.9) | | | | | | | | | | | | | | | | | | | | Weighted average assumptions used to determine projected benefit obligations: | | | | | | | | | | | | | | | | | | | Discount rate | | | 3.11 | % | | 4.14 | % | | 1.59 | % | | 2.28 | % | | | | | | Rate of compensation increase | | | 2.60 | % | | 3.00 | % | | 1.78 | % | | 1.77 | % | | | | | |
The projected benefit obligation increased in 2019 primarily due to higher actuarial losses in 2019, primarily resulting from the impact of lower discount rates on our projected benefit obligation. The projected benefit obligation decreased in 2018 primarily due to actuarial gains in 2018 resulting from the impact of higher discount rates on our projected benefit obligation. The accumulated benefit obligation for the Company’s defined benefit pension plans was $748.4 and $674.5 at December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the accumulated benefit obligation for the U.S. Plans was $495.0 and $446.4, respectively, and for the Foreign Plans was $253.4 and $228.1, respectively. All of the Company’s U.S. Plans and Foreign Plans have accumulated benefit obligations (and projected benefit obligations) in excess of plan assets as of December 31, 2019 and 2018.
The following is a summary of the Company’s defined benefit plans’ funded status as of the most recent actuarial valuations as of December 31 of each year. | | | | | | | | | | | | | | | | | | | | | U.S. Plans | | Foreign Plans | | Total | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | Change in projected benefit obligation: | | | | | | | | | | | | | | | | | | | Projected benefit obligation at beginning of year | | $ | 526.4 | | $ | 496.5 | | $ | 302.0 | | $ | 261.4 | | $ | 828.4 | | $ | 757.9 | Service cost | | | 4.2 | | | 4.5 | | | 3.3 | | | 3.0 | | | 7.5 | | | 7.5 | Interest cost | | | 8.6 | | | 13.2 | | | 2.7 | | | 3.5 | | | 11.3 | | | 16.7 | Plan amendments | | | 0.4 | | | 0 | | | 0 | | | 0.1 | | | 0.4 | | | 0.1 | Actuarial (gain) loss | | | (16.9) | | | 38.5 | | | (20.4) | | | 24.1 | | | (37.3) | | | 62.6 | Foreign exchange translation | | | 0 | | | 0 | | | (12.3) | | | 17.9 | | | (12.3) | | | 17.9 | Benefits paid | | | (27.4) | | | (26.3) | | | (9.4) | | | (8.0) | | | (36.8) | | | (34.3) | Projected benefit obligation at end of year | | | 495.3 | | | 526.4 | | | 265.9 | | | 302.0 | | | 761.2 | | | 828.4 | | | | | | | | | | | | | | | | | | | | Change in plan assets: | | | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | | 515.7 | | | 473.2 | | | 116.6 | | | 107.8 | | | 632.3 | | | 581.0 | Actual return on plan assets | | | 38.2 | | | 67.8 | | | 6.3 | | | 6.3 | | | 44.5 | | | 74.1 | Employer contributions | | | 1.0 | | | 1.0 | | | 5.8 | | | 5.5 | | | 6.8 | | | 6.5 | Foreign exchange translation | | | 0 | | | 0 | | | (2.8) | | | 5.0 | | | (2.8) | | | 5.0 | Benefits paid | | | (27.4) | | | (26.3) | | | (9.4) | | | (8.0) | | | (36.8) | | | (34.3) | Fair value of plan assets at end of year | | | 527.5 | | | 515.7 | | | 116.5 | | | 116.6 | | | 644.0 | | | 632.3 | | | | | | | | | | | | | | | | | | | | Over (under) funded status at end of year | | $ | 32.2 | | $ | (10.7) | | $ | (149.4) | | $ | (185.4) | | $ | (117.2) | | $ | (196.1) | | | | | | | | | | | | | | | | | | | | Amounts recognized on the balance sheet as of December 31: | | | | | | | | | | | | | | | | | | | Other long-term assets | | $ | 50.0 | | $ | 7.8 | | $ | 0.7 | | $ | 0.3 | | $ | 50.7 | | $ | 8.1 | | | | | | | | | | | | | | | | | | | | Other accrued expenses | | | 1.1 | | | 1.0 | | | 3.1 | | | 3.3 | | | 4.2 | | | 4.3 | Accrued pension and postretirement benefit obligations | | | 16.7 | | | 17.5 | | | 147.0 | | | 182.4 | | | 163.7 | | | 199.9 | Over (under) funded status at end of year | | $ | 32.2 | | $ | (10.7) | | $ | (149.4) | | $ | (185.4) | | $ | (117.2) | | $ | (196.1) | | | | | | | | | | | | | | | | | | | | Accumulated other comprehensive loss, net | | $ | (83.0) | | $ | (118.2) | | $ | (51.8) | | $ | (74.3) | | $ | (134.8) | | $ | (192.5) | | | | | | | | | | | | | | | | | | | | Weighted average assumptions used to determine projected benefit obligations: | | | | | | | | | | | | | | | | | | | Discount rate | | | 2.69 | % | | 2.30 | % | | 1.58 | % | | 1.12 | % | | | | | | Rate of compensation increase | | | 2.40 | % | | 2.40 | % | | 1.75 | % | | 1.75 | % | | | | | |
The projected benefit obligation decreased in 2021 primarily due to both actuarial gains, resulting from the impact of higher discount rates on our projected benefit obligation, and benefits paid during the year. The projected benefit obligations increased in 2020 primarily due to actuarial losses, resulting from the impact of lower discount rates on our projected benefit obligation. The accumulated benefit obligation for the Company’s defined benefit pension plans was $753.7 and $818.4 at December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the accumulated benefit obligation for the U.S. Plans was $494.2 and $525.1, respectively, and for the Foreign Plans was $259.5 and $293.3, respectively. The following summarizes information for defined benefit plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2021 and 2020: | | | | | | | | | | | | | | | U.S. Plans | | Foreign Plans | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | Accumulated benefit obligation | | $ | 29.2 | | $ | 29.8 | | $ | 254.1 | | $ | 287.6 | Fair value of plan assets | | | 12.0 | | | 11.7 | | | 110.3 | | | 110.7 |
The following summarizes information for defined benefit plans with a projected benefit obligation in excess of plan assets as of December 31, 2021 and 2020: | | | | | | | | | | | | | | | U.S. Plans | | Foreign Plans | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | Projected benefit obligation | | $ | 29.6 | | $ | 30.1 | | $ | 260.6 | | $ | 296.4 | Fair value of plan assets | | | 12.0 | | | 11.7 | | | 110.3 | | | 110.7 |
The amounts, before tax, included in Accumulated other comprehensive loss at December 31, 20192021 and 20182020 that have not yet been recognized as expense were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Plans | | Foreign Plans | | Total | | U.S. Plans | | Foreign Plans | | Total | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | Actuarial losses, net | | $ | 164.3 | | $ | 178.8 | | $ | 76.9 | | $ | 63.4 | | $ | 241.2 | | $ | 242.2 | | $ | 103.6 | | $ | 148.9 | | $ | 64.7 | | $ | 98.8 | | $ | 168.3 | | $ | 247.7 | Prior service cost | | | 8.7 | | | 5.7 | | | 0.8 | | | 0.8 | | | 9.5 | | | 6.5 | | | 5.1 | | | 6.6 | | | 0.7 | | | 0.8 | | | 5.8 | | | 7.4 |
The following is a summary of the components of net pension expense for the Company’s defined benefit plans for the years ended December 31, 2019, 20182021, 2020 and 2017:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Plans | | Foreign Plans | | Total | | U.S. Plans | | Foreign Plans | | Total | | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | �� | 2017 | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | Components of net pension expense: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Service cost | | $ | 5.4 | | $ | 4.5 | | $ | 6.7 | | $ | 2.6 | | $ | 2.8 | | $ | 2.9 | | $ | 8.0 | | $ | 7.3 | | $ | 9.6 | | $ | 4.2 | | $ | 4.5 | | $ | 5.4 | | $ | 3.3 | | $ | 3.0 | | $ | 2.6 | | $ | 7.5 | | $ | 7.5 | | $ | 8.0 | Interest cost | | | 16.8 | | | 14.9 | | | 15.3 | | | 4.7 | | | 4.7 | | | 4.7 | | | 21.5 | | | 19.6 | | | 20.0 | | | 8.6 | | | 13.2 | | | 16.8 | | | 2.7 | | | 3.5 | | | 4.7 | | | 11.3 | | | 16.7 | | | 21.5 | Expected return on plan assets | | | (33.2) | | | (34.5) | | | (27.2) | | | (3.7) | | | (3.8) | | | (3.5) | | | (36.9) | | | (38.3) | | | (30.7) | | | (28.1) | | | (33.8) | | | (33.2) | | | (3.1) | | | (3.4) | | | (3.7) | | | (31.2) | | | (37.2) | | | (36.9) | Amortization of prior service cost | | | 1.7 | | | 2.3 | | | 2.7 | | | 0.1 | | | — | | | — | | | 1.8 | | | 2.3 | | | 2.7 | | | 1.9 | | | 2.1 | | | 1.7 | | | 0.2 | | | 0 | | | 0.1 | | | 2.1 | | | 2.1 | | | 1.8 | Settlements | | | — | | | — | | | — | | | — | | | 0.6 | | | — | | | — | | | 0.6 | | | — | | Amortization of actuarial losses | | | 14.4 | | | 19.0 | | | 18.3 | | | 4.1 | | | 4.2 | | | 4.6 | | | 18.5 | | | 23.2 | | | 22.9 | | | 17.8 | | | 19.8 | | | 14.4 | | | 7.0 | | | 5.4 | | | 4.1 | | | 24.8 | | | 25.2 | | | 18.5 | Net pension expense | | $ | 5.1 | | $ | 6.2 | | $ | 15.8 | | $ | 7.8 | | $ | 8.5 | | $ | 8.7 | | $ | 12.9 | | $ | 14.7 | | $ | 24.5 | | $ | 4.4 | | $ | 5.8 | | $ | 5.1 | | $ | 10.1 | | $ | 8.5 | | $ | 7.8 | | $ | 14.5 | | $ | 14.3 | | $ | 12.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Discount rate | | | 4.14 | % | | 3.48 | % | | 3.93 | % | | 2.28 | % | | 2.21 | % | | 2.28 | % | | | | | | | | | | | 2.30 | % | | 3.11 | % | | 4.14 | % | | 1.12 | % | | 1.59 | % | | 2.28 | % | | | | | | | | | Expected long-term return on assets | | | 7.50 | % | | 7.75 | % | | 7.75 | % | | 3.75 | % | | 3.69 | % | | 3.80 | % | | | | | | | | | | | 6.00 | % | | 7.50 | % | | 7.50 | % | | 2.71 | % | | 3.25 | % | | 3.75 | % | | | | | | | | | Rate of compensation increase | | | 3.00 | % | | 3.00 | % | | 3.00 | % | | 1.77 | % | | 1.70 | % | | 1.63 | % | | | | | | | | | | | 2.40 | % | | 2.60 | % | | 3.00 | % | | 1.75 | % | | 1.78 | % | | 1.77 | % | | | | | | | | |
The pension expense for the Plans is calculated based upon a number of actuarial assumptions established on January 1 of the applicable year, including mortality projections as well as a weighted average discount rate, rate of increase in future compensation levels and an expected long-term rate of return on the respective Plans’ assets which are detailed in the table above. The Company records service costs in the same line item as the respective employee compensation costs and within operating income, while all other pension-related costs including interest cost, expected return on plan assets, amortization of prior service cost and amortization of net actuarial losses are reported separately within Other (expense) income, net in the Consolidated Statements of Income. The discount rate used by the Company for valuing pension liabilities is based on a review of high quality corporate bond yields with maturities approximating the remaining life of the projected benefit obligations. The weighted average discount rate for the U.S. Plans on this basis was 3.11%2.69% and 4.14%2.30% at December 31, 20192021 and 2018,2020, respectively. The decreaseincrease in the discount rate for the U.S. Plans resulted in an increasea decrease in the benefit obligation of approximately $50$23 at December 31, 2019.2021. The weighted average discount rate for the Foreign Plans was 1.59%1.58% and 2.28%1.12% at December 31, 20192021 and 2018,2020, respectively. The increasedecrease in the benefit obligation associated with our Foreign Plans at December 31, 20192021 was primarily driven by the decreaseincrease in the discount rate.rate, along with foreign currency translation. The Company calculates its service and interest costs by applying a split discount rate approach under which specific spot rates along the selected yield curve are applied to the relevant projected cash flows as the Company believes this method more precisely measures its obligations. The mortality assumptions used by the Company reflect commonly used mortality tables and improvement scales for each plan and increased life expectancies for plan participants. The primary investment objective of the Plans is to build and ensure an adequate pool of assets to support the benefit obligations to participants, retirees and beneficiaries. To meet this objective,Over time, the Plans seekhave aimed to earn a rate of return on assets greater than the liability discount rate, with a prudent level of risk and diversification. The current investment policy includesFor the U.S. Plans, this has resulted in assets exceeding benefit obligations. As a strategyresult, in an effort to maintain an adequate levelreduce the funding status volatility of diversification, subject to portfolio risks. Thethe Plans, the Company has shifted the target asset allocations for the U.S. Plans are generallyfrom 60% equityequities and 40% fixed income.income at the end of 2020 to 25% equities and 75% fixed income at the end of 2021. Short-term strategic ranges for investments arewill continue to be established within these long termnew long-term target percentages. The Company regularly reviews the actual asset allocation and periodically rebalances investments to its targeted allocation when considered appropriate. The Company invests in a diversified investment portfolio through various investment managers and evaluates its plan assets for the existence of concentration risks. As of December 31, 2019,2021, there were no significant concentrations of risks in the Company’s defined benefit plan assets. The Company does not invest nor instruct investment managers to invest pension assets in Amphenol securities. The Plans may indirectly hold the Company’s securities as a result of external investment management in certain commingled funds. Such holdings would not be material relative to the Plans’ total assets. The Company’s Foreign Plans primarily invest in equity and debt securities and insurance contracts, as determined by each Plans’ Trustees or investment managers.
Plans’ total assets. The Company’s Foreign Plans primarily invest in equity and debt securities and insurance contracts, as determined by each Plans’ Trustees or investment managers. In developing the expected long-term rate of return assumption for the U.S. Plans, the Company evaluated input from its external actuaries and investment consultants as well as consideration ofrelies primarily on projected long-term inflation assumptions. Projectedasset returns by such consultants are based on broad equity and bond indices. The Company also considered its historical compounded return of approximately 8.6%, which has been in excess of these broad equity and bond benchmark indices. As described above,asset class prepared annually by our investment consultants. During 2021, the expected long-term rate of return on the U.S. Plans’ assets iswas based on an asset allocation assumption of approximately 60% with equity managers (with an expected long-term rate of return of approximately 8%) and 40% with fixed income managers (with an expected long-term rate of return of approximately 6%4.5%). The Company believes that the long-term asset allocation on average will approximate 60% with equity managers and 40% with fixed income managers. The Company regularly reviews the actual asset allocation and periodically rebalances investments to its targeted allocation when considered appropriate. The Company’s Plan assets, the vast majority of which relate to the U.S. Plans, are reported at fair value and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The process requires judgment and may have an effect on the placement of the Plan assets within the fair value measurement hierarchy. The fair values of the Company’s pension Plans’ assets at December 31, 20192021 and 20182020 by asset category are as follows (refer to Note 5 for definitions of Level 1, 2 and 3 inputs): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets Measured at | | | | | | | | | | | Assets Measured at | Asset Category | | Total | | Level 1 | | Level 2 | | Level 3 | | Net Asset Value (a) | | Total | | Level 1 | | Level 2 | | Level 3 | | Net Asset Value (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | | | | | | | | | | | | | | | | December 31, 2021 | | | | | | | | | | | | | | | | | Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. equities — large cap | | $ | 112.0 | | $ | 56.9 | | $ | 55.1 | | $ | — | | $ | — | | $ | 62.7 | | $ | 30.1 | | $ | 32.6 | | $ | 0 | | $ | 0 | U.S. equities — small/mid cap and other | | | 36.4 | | | — | | | 36.4 | | | — | | | — | | | 15.9 | | | 0 | | | 15.9 | | | 0 | | | 0 | International equities — growth | | | 56.9 | | | 51.8 | | | 5.1 | | | — | | | — | | | 31.8 | | | 25.5 | | | 6.3 | | | 0 | | | 0 | International equities — other | | | 74.9 | | | — | | | 41.0 | | | — | | | 33.9 | | | 70.9 | | | 0 | | | 45.7 | | | 0 | | | 25.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Alternative investment funds | | | 21.1 | | | — | | | — | | | — | | | 21.1 | | | 25.5 | | | 0 | | | 0 | | | 0 | | | 25.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. fixed income securities — short term | | | 18.1 | | | — | | | 18.1 | | | — | | | — | | U.S. fixed income securities — intermediate term | | | 26.8 | | | 26.8 | | | — | | | — | | | — | | | 97.3 | | | 0 | | | 97.3 | | | 0 | | | 0 | U.S. fixed income securities — long term | | | 118.6 | | | — | | | 118.6 | | | — | | | — | | | 266.1 | | | 0 | | | 266.1 | | | 0 | | | 0 | U.S. fixed income securities — high yield | | | 14.2 | | | — | | | 14.2 | | | — | | | — | | International fixed income securities — other | | | 24.0 | | | — | | | 24.0 | | | — | | | — | | | 30.2 | | | 0 | | | 30.2 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | 37.0 | | | — | | | — | | | 37.0 | | | — | | | 34.1 | | | 0 | | | 0 | | | 34.1 | | �� | 0 | Real estate funds | | | 10.7 | | | — | | | — | | | 10.7 | | | — | | Cash and cash equivalents (b) | | | 30.3 | | | 30.3 | | | — | | | — | | | — | | Cash and cash equivalents | | | | 9.5 | | | 9.5 | | | 0 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 581.0 | | $ | 165.8 | | $ | 312.5 | | $ | 47.7 | | $ | 55.0 | | $ | 644.0 | | $ | 65.1 | | $ | 494.1 | | $ | 34.1 | | $ | 50.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | | | | | | | | | | | | | | | December 31, 2020 | | | | | | | | | | | | | | | | | Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. equities — large cap | | $ | 139.3 | | $ | 104.9 | | $ | 34.4 | | $ | — | | $ | — | | $ | 124.9 | | $ | 63.5 | | $ | 61.4 | | $ | 0 | | $ | 0 | U.S. equities — small/mid cap and other | | | 27.5 | | | — | | | 27.5 | | | — | | | — | | | 37.7 | | | 0 | | | 37.7 | | | 0 | | | 0 | International equities — growth | | | 32.7 | | | 28.0 | | | 4.7 | | | — | | | — | | | 67.5 | | | 61.6 | | | 5.9 | | | 0 | | | 0 | International equities — other | | | 84.9 | | | — | | | 34.0 | | | — | | | 50.9 | | | 96.2 | | | 0 | | | 41.3 | | | 0 | | | 54.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Alternative investment funds | | | 19.9 | | | — | | | — | | | — | | | 19.9 | | | 22.4 | | | 0 | | | 0 | | | 0 | | | 22.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. fixed income securities — short term | | | 11.2 | | | — | | | — | | | — | | | 11.2 | | U.S. fixed income securities — intermediate term | | | 77.7 | | | 77.7 | | | — | | | — | | | — | | | 29.2 | | | 29.2 | | | 0 | | | 0 | | | 0 | U.S. fixed income securities — long term | | | | 130.5 | | | 0 | | | 130.5 | | | 0 | | | 0 | U.S. fixed income securities — high yield | | | 26.4 | | | — | | | 26.4 | | | — | | | — | | | 15.5 | | | 0 | | | 15.5 | | | 0 | | | 0 | International fixed income securities — other | | | 45.9 | | | — | | | 45.9 | | | — | | | — | | | 49.5 | | | 0 | | | 49.5 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | 35.1 | | | — | | | — | | | 35.1 | | | — | | | 40.0 | | | 0 | | | 0 | | | 40.0 | | | 0 | Real estate funds | | | 10.2 | | | — | | | — | | | 10.2 | | | — | | | 10.8 | | | 0 | | | 0 | | | 10.8 | | | 0 | Cash and cash equivalents | | | 3.3 | | | 3.3 | | | — | | | — | | | — | | | 8.1 | | | 8.1 | | | 0 | | | 0 | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 514.1 | | $ | 213.9 | | $ | 172.9 | | $ | 45.3 | | $ | 82.0 | | $ | 632.3 | | $ | 162.4 | | $ | 341.8 | | $ | 50.8 | | $ | 77.3 |
| (a) | Certain investments measured at fair value using the net asset value (NAV) practical expedient have been removed from the fair value hierarchy but included in the table above in order to permit the reconciliation of the fair value hierarchy to total plan assets. |
(b) | The majority of the cash and cash equivalents on hand at December 31, 2019, which is primarily within the U.S. Plans, was subsequently invested, in early January 2020, in certain equity securities within the International equities-other category. |
Equity securities consist primarily of publicly traded U.S. and non-U.S. equities. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded. Certain equity securities held in commingled funds are valued at unitized net asset value (“NAV”) based on the fair value of the underlying net assets owned by the funds. Alternative investment funds include investments in hedge funds including fund of fund products. Fixed income securities consist primarily of government securities and corporate bonds. They are valued at the closing price in the active market or at quotes obtained from brokers/dealers or pricing services. Certain fixed income securities held within commingled funds are valued based on the fair value of the underlying net assets of the funds, as determined by the custodian of the funds. The Level 2 pension plan assets are primarily comprised of pooled funds valued using published prices based off of observable market data. The Level 3 pension plan assets as of December 31, 20192021 and 20182020 included in the table above consist primarily of contracts with insurance companies related to certain foreign plans. The insurance contracts generally include guarantees in accordance with the policy purchased. Our valuation of Level 3 assets is based on insurance company or third-party actuarial valuations, representing an estimation of the surrender or market values of the insurance contract between the Company and the insurance companies. OurIn prior years, our Level 3 pension plan assets also includeincluded certain investments in commingled real estate funds which arewere valued based on unobservable market price inputs. The following table sets forth a summary of changes of the fair value of the Level 3 pension plan assets for the years ended December 31, 20192021 and 2018:2020: | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2021 | | | 2020 | Balance on January 1 | | $ | 45.3 | | $ | 44.9 | | $ | 50.8 | | $ | 47.7 | Unrealized gains (losses), net | | | 4.0 | | | 1.2 | | Unrealized (losses) gains, net | | | | (0.1) | | | 1.1 | Purchases, sales and settlements, net | | | (1.2) | | | 0.9 | | | (14.2) | | | (1.0) | Foreign currency translation | | | (0.4) | | | (1.7) | | | (2.4) | | | 3.0 | Balance on December 31 | | $ | 47.7 | | $ | 45.3 | | $ | 34.1 | | $ | 50.8 |
The Company made cash contributions to the Plans of $6.8, $6.5, and $6.6 $88.3,in 2021, 2020, and $22.5 in 2019, 2018, and 2017, respectively. In January 2018, the Company made voluntary cash contributions of approximately $81.0 to fund the U.S. Plans. There is no current requirement for cash contributions to any of the U.S. Plans, and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the Plans’ assets, the timing and amount of cash contributions in the future. Benefit payments related to the Plans above, including those amounts to be paid out of Company assets and reflecting future expected service as appropriate, are expected to be as follows: | | | | | | | | | | | | | | | | | | | | | | | U.S. | | Foreign | | | | | U.S. | | Foreign | | | | Year | | Plans | | Plans | | Total | | | Plans | | Plans | | Total | | 2020 | | $ | 26.7 | | $ | 6.9 | | $ | 33.6 | | | 2021 | | | 27.9 | | | 7.3 | | | 35.2 | | | 2022 | | | 28.9 | | | 8.6 | | | 37.5 | | | $ | 28.2 | | $ | 8.9 | | $ | 37.1 | | 2023 | | | 29.8 | | | 8.4 | | | 38.2 | | | | 29.0 | | | 8.5 | | | 37.5 | | 2024 | | | 30.5 | | | 9.6 | | | 40.1 | | | | 29.6 | | | 9.6 | | | 39.2 | | 2025-2029 | | | 152.7 | | | 53.1 | | | 205.8 | | | 2025 | | | | 30.0 | | | 9.6 | | | 39.6 | | 2026 | | | | 30.2 | | | 10.1 | | | 40.3 | | 2027-2031 | | | | 147.5 | | | 54.4 | | | 201.9 | |
The Company also has an unfunded Supplemental Employee Retirement Plan (“SERP”), which provides for the payment of the portion of annual pension which cannot be paid from the retirement plan as a result of regulatory limitations on average compensation for purposes of the benefit computation. The obligation related to the SERP is included in the accompanying Consolidated Balance Sheets and in the tables above. Certain foreign subsidiaries of the Company offer certain benefits under local statutory plans which are excluded from the tables above. The net liability for such plans was $15.1$16.6 and $13.7$16.1 as of December 31, 20192021 and 2018,2020, respectively, the majority of which is included within Accrued pension and postretirement benefit obligations in the accompanying Consolidated Balance Sheets. Other Postretirement Benefit Plans The Company maintains self-insurance programs for that portion of its health care and workers compensation costs not covered by insurance. The Company also provides certain health care and life insurance benefits to certain eligible retirees in the U.S. through postretirement benefit (“OPEB”) programs. The Company’s share of the cost of such plans for most participants is fixed, and any increase in the cost of such plans will be the responsibility of the retirees. The Company funds the benefit costs for such plans on a pay-as-you-go basis. As of December 31, 20192021 and 2018,2020, the total liability associated with postretirement benefit obligations was approximately $7.9$6.0 and $8.4$6.8, respectively, the majority of which is included in Accrued pension and postretirement benefit obligations on the accompanying Consolidated Balance Sheets. The weighted average discount rate used to determine the projected benefit obligation as of December 31, 20192021 and 20182020 was 3.10%2.75% and 4.06%2.40%, respectively. Net postretirement benefit expense on the accompanying Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 2018were NaN, $0.2 and 2017 were $0.3, $0.8 and $0.9, respectively. Since the Company’s obligation for postretirement medical plans is fixed and since the benefit obligation and the net postretirement benefit expense are not material in relation to the Company’s financial condition or results of operations, the Company believes any change in medical costs from that estimated will not have a significant impact on the Company. Defined Contribution Plans The Company offers various defined contribution plans for certain U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements. Through 2018, theThe Company matched the majority ofmatches employee contributions to the U.S. defined contribution plans with cash contributions up to a maximum of 5% of eligible compensation. Effective January 1, 2019, the Company increased its matching of employee contributions to the U.S. defined contribution plans to a maximum of 6% of eligible compensation. The Company provided matching contributions to the U.S. defined contribution plans of approximately $16.2, $13.3 and $13.1 $8.6in 2021, 2020 and $6.9 in 2019, 2018 and 2017, respectively. Note 10—Leases
Amphenol is a lessee of buildings, office space, automobiles and equipment throughout the world, nearly all of which are classified as operating leases expiring at various dates. The Company determines if an arrangement qualifies as a lease at lease inception. The Company adopted Topic 842 effective January 1, 2019. Operating lease liabilities are recorded based on the present value of the future lease payments over the lease term, assessed as of the commencement date. The Company’s real estate leases, which are comprised primarily of manufacturing facilities, warehouses and sales offices, represent the vast majority of our operating lease liabilities and generally have a lease term between 2 and 12 years. The remaining leases consist primarily of machinery and equipment used in production, office equipment and vehicles, each with various lease terms. The vast majority of our leases are comprised of fixed lease payments, with a small percentage of the Company’s real estate leases including lease payments tied to a rate or index which may be subject to variability. Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). As a practical expedient permitted under Topic 842, we have elected to account for the lease and non-lease components as a single lease component for our real estate leases. Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs in excess of such amounts are expensed as incurred as variable lease cost.
Substantially all of our lease agreements do not specify an implicit borrowing rate, and as such, the Company utilizes its incremental borrowing rate by lease term, in order to calculate the present value of our future lease payments. The discount rate represents a risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined based on the remaining lease term using available data as of that date. For new or renewed leases starting in 2019, the discount rate is determined using available data at lease commencement and based on the lease term including any reasonably certain renewal periods.
Some of our lease agreements, primarily related to real estate, include options for the Company to either renew (extend) or early terminate the lease. Leases with renewal options allow the Company to extend the lease term typically between 1 and 6 years. Renewal options are reviewed at lease commencement to determine if such options are reasonably certain of being exercised, which could impact the lease term. When determining if a renewal option is
reasonably certain of being exercised, the Company considers several factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that we would exercise such option. In most cases, the Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company (and thus not included in our ROU asset and lease liability) unless there is an economic, financial or business reason to do so.Note 10—Leases
Operating Leases For the yearyears ended December 31, 2021, 2020 and 2019, total operating lease cost was $118.2, $98.7, and $97.6, respectively, which includesinclude an immaterial amount of variable lease cost, and is recorded in Cost of sales and Selling, general and administrative expenses, dependent on the nature of the leased asset. Other than variable lease cost, operating lease cost is recognized on a straight-line basis over the lease term. The following summarizes:summarizes (i) the future minimum undiscounted lease payments under non-cancelable operating leases for each of the next five years and thereafter, incorporating the practical expedient to account for lease and non-lease components as a single lease component for our existing real estate leases and (ii) a reconciliation of the undiscounted lease payments to the present value of the lease liabilities recognized, and (iii)all as of December 31, 2021: | | | | | | | Year Ending December 31, | | | 2022 | | $ | 75.0 | 2023 | | | 57.3 | 2024 | | | 42.0 | 2025 | | | 28.8 | 2026 | | | 19.8 | Thereafter | | | 44.4 | Total future minimum lease payments | | $ | 267.3 | Less imputed interest | | | (16.3) | Total present value of future minimum lease payments | | $ | 251.0 |
The following summarizes the operating lease-related account balances on our Consolidated Balance Sheets, all as of December 31, 2019:2021 and 2020: | | | | | | Operating | Year Ending December 31, | | Leases | 2020 | | $ | 58.8 | 2021 | | | 43.0 | 2022 | | | 30.3 | 2023 | | | 22.6 | 2024 | | | 17.3 | Thereafter | | | 47.4 | Total future minimum lease payments | | $ | 219.4 | Less imputed interest | | | (20.0) | Total present value of future minimum lease payments | | $ | 199.4 | | | | | As of December 31, 2019: | | | | Operating lease right-of-use assets (included in Other long-term assets) | | $ | 196.7 | | | | | Other accrued expenses | | $ | 54.0 | Other long-term liabilities | | | 145.4 | Total operating lease liabilities | | $ | 199.4 |
| | | | | | | As of December 31: | | 2021 | | 2020 | Operating lease right-of-use assets (included in Other long-term assets) | | $ | 244.9 | | $ | 224.4 | | | | | | | | Other accrued expenses | | $ | 70.6 | | $ | 68.0 | Other long-term liabilities | | | 180.4 | | | 161.1 | Total operating lease liabilities | | $ | 251.0 | | $ | 229.1 |
The following summarizes additional supplemental data related to our operating leases: | | | | | | | | | | | | | | | | | | | Operating | | | Year Ended December 31, 2019: | | Leases | | | Year Ended December 31: | | | 2021 | | 2020 | | 2019 | Supplemental Cash Flow Information: | | | | | | | | | | | | | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | | | | | | | | Operating cash flows from operating leases | | $ | 86.0 | | | $ | 103.2 | | | $ | 88.1 | | | $ | 86.0 | | | | | | | | | | | | | | | | | | | Right-of-use assets obtained in exchange for lease liabilities | | $ | 98.6 | | | $ | 121.5 | | | $ | 104.7 | | | $ | 98.6 | | | | | | | | | | | | | | | | | | | As of December 31, 2019: | | | | | | As of December 31: | | | | | | | | | | | | | | Weighted Average Remaining Lease Term | | | 6 | years | | | 5 years | | | | 5 years | | 6 years | | Weighted Average Discount Rate | | | 3.2 | % | | | 2.2 | % | | | 2.6 | % | | | 3.2 | % |
Lease contracts that we have executed but which have not yet commenced as of December 31, 20192021 were not material, and are excluded from the tables above. The Company does not generally enter into leases involving the construction or design of the underlying asset, and nearly all of the assets we lease are not specialized in nature. Our lease agreements generally do not include residual value guarantees nor do we enter into sublease arrangements with external parties. Prior to January 1, 2019, the Company accounted for its leases in accordance with Topic 840, Leases. Total rent expense under operating leases for the years ended December 31, 2018 and 2017 was approximately $87.2 and $58.5,
respectively, which was recorded in Cost of sales and Selling, general and administrative expenses, dependent on the nature of the leased asset. At December 31, 2018, the Company was committed under operating leases for buildings, office space, automobiles and equipment, which expired at various dates. As previously disclosed in our 2018 Annual Report and under previous lease accounting guidance, future minimum lease payments (undiscounted) under non-cancelable operating leases as of December 31, 2018 was as follows:
| | | | | 2019 | | $ | 70.5 | | 2020 | | | 39.0 | | 2021 | | | 25.9 | | 2022 | | | 16.5 | | 2023 | | | 11.9 | | Beyond 2023 | | | 33.5 | | Total minimum obligation | | $ | 197.3 | |
Finance Leases In rare circumstances, the Company may enter into finance leases (formerly referred to as “capital leases”) for specific equipment used in manufacturing, in which the Company takes ownership of the asset upon the end of the lease. The Company records its finance leases within Property, plant and equipment, net, Current portion of long-term debt and Long-term debt on the accompanying Consolidated Balance Sheets. The Company’s finance leases and related depreciation and interest expense, cash flows and impact on the Company’s consolidated financial statements were not material individually or in the aggregate as of and for the years ended December 31, 2019, 20182021, 2020 and 2017.2019. Note 11—Acquisitions 2021 Acquisitions During the year ended December 31, 2021, the Company completed 7 acquisitions for $2,225.4, net of cash acquired, while also completing the divestiture of the Divested MTS business, as discussed below and in Note 12 herein. NaN of the acquisitions were included in the Interconnect Products and Assemblies segment, while 1 acquisition was included in the Cable Products and Solutions segment. The Company is in the process of completing its analyses of the fair value of the assets acquired and liabilities assumed. The Company anticipates that the final assessments of values will not differ materially from the preliminary assessments. The operating results of the 2021 acquisitions have been included in the Consolidated Statements of Income for the year ended December 31, 2021, since their respective dates of acquisition. Pro forma financial information, as well as further details regarding the purchase price allocation related to these acquisitions, has not been presented, since these acquisitions were not material, either individually or in the aggregate, to the Company’s financial results. Acquisition of MTS Systems Corporation On December 9, 2020, Amphenol announced that the Company entered into a definitive agreement under which Amphenol would acquire MTS Systems Corporation (Nasdaq: MTSC) (“MTS”) for $58.50 per share in cash. Prior to the acquisition, MTS was a leading global supplier of precision sensors, advanced test systems and motion simulators. MTS was historically organized into 2 business segments: Sensors (“MTS Sensors”) and Test & Simulation (“MTS T&S”). The MTS Sensors business provides the Company with a highly complementary offering of high-technology, harsh environment sensors sold into diverse end markets and applications. The MTS Sensors business further expands the Company’s range of sensor and sensor-based products across a wide array of industries and is reported as part of our continuing operations and within our Interconnect Products and Assemblies segment. On January 19, 2021 and prior to the closing of the MTS acquisition, the Company entered into a definitive agreement to sell MTS (including the MTS T&S business, but excluding the MTS Sensors business) to Illinois Tool Works Inc. (“ITW”). Throughout this Annual Report, we refer to MTS (including the MTS T&S business, but excluding the MTS Sensors business) as the “Divested MTS business”. On April 7, 2021, the Company completed the acquisition of MTS for a total enterprise value of approximately $1,700, net of cash acquired and including the repayment of all outstanding debt and certain liabilities. The MTS acquisition was funded through a combination of borrowings under the U.S. Commercial Paper Program, as discussed in Note 4 herein, and cash on hand. At closing, the Company paid approximately $1,300, net of cash acquired, for 100% of the common stock of MTS, including certain liabilities settled at closing, which is reflected within Net cash used in investing activities from continuing operations in the accompanying Consolidated Statements of Cash Flow for the year ended December 31, 2021. In addition, the Company also assumed MTS’s then-outstanding $350.0 principal amount of senior notes due August 15, 2027. Shortly after the closing, the Company repaid and settled the MTS senior notes for approximately $387.3, which included accrued interest and a make-whole premium incurred as a result of the early extinguishment of the senior notes. The repayment of the outstanding senior notes, including the make-whole premium and excluding interest, was reflected within Net cash used in financing activities from continuing operations in the accompanying Consolidated Statements of Cash Flow for the year ended December 31, 2021. On December 1, 2021, the Company completed the sale of the Divested MTS business to ITW for approximately $750, net of cash divested and excluding related transaction fees and expenses. After giving effect to the sale of the Divested MTS business as well as the repayment of the aforementioned MTS senior notes as part of the MTS acquisition, the Company paid approximately $950, net of cash acquired and excluding related transaction fees and expenses, for the retained MTS Sensors business. Refer to Note 12 herein for further details related to the Company’s discontinued operations and the completed divestiture of the Divested MTS business. The Company is in the process of completing the acquisition accounting related to the MTS Sensors business, specifically the allocation of the purchase price attributable to the MTS Sensors business to the tangible and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values. The preliminary purchase price allocation for the MTS Sensors business is being performed separately from the Divested MTS business, the latter of which was accounted for as discontinued operations and whose assets acquired, including associated goodwill, and liabilities assumed were reported as current assets held for sale and liabilities held for sale in the Company’s balance sheet. As a result of the sale of the Divested MTS business on December 1, 2021, the Company completed the acquisition accounting associated with the Divested MTS business and the associated current assets held for sale and current liabilities held for sale are 0 longer reported on the Company’s Consolidated Balance Sheets as of December 31, 2021. While the Company is in the process of completing its analyses of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as part of acquisition accounting, the MTS acquisition resulted in the recognition of $741.1 of goodwill, $54.0 of indefinite-lived tradename intangible assets and $178.2 of definite-lived intangible assets, each associated with the MTS Sensors business. The definite-lived intangible assets are comprised of customer relationships, proprietary technology, and backlog of $122.9, $39.1 and $16.2, respectively, and are amortized based upon the underlying pattern of economic benefit with weighted average useful lives of 11 years, 15 years and 0.25 years, respectively. Other than these intangible assets, the remainder of the purchase price has been allocated to other identifiable assets acquired and liabilities assumed. As part of acquisition accounting, the Company also recorded $47.0 of deferred tax liabilities associated with certain basis differences, the majority of which the Company recognized for tax purposes and paid in the fourth quarter of 2021 upon the sale of the Divested MTS business. The excess purchase price over the fair value of the underlying assets acquired (net of liabilities assumed) was allocated to goodwill, which primarily represents the value of assembled workforce and the anticipated cost savings and efficiencies associated with the integration of the MTS Sensors business, along with other intangible assets acquired that do not qualify for separate recognition. The Company does 0t expect any such recognized goodwill associated with the acquisition of the MTS Sensors business to be deductible for tax purposes. Since the current purchase price allocation is based on preliminary assessments made by management as of December 31, 2021, the acquisition accounting is subject to final adjustment and it is possible that the final assessment of values may differ from this preliminary assessment. The operating results for the MTS Sensors business have been included within continuing operations in the Consolidated Statements of Income since the acquisition date, while the operating results for the Divested MTS business have been classified and reported as discontinued operations as discussed further in Note 12 herein. Acquisition of Halo Technology Limited On December 1, 2021, the Company completed the acquisition of approximately 97% of the common stock of Halo Technology Limited (“Halo”) for a purchase price of approximately $694, net of cash acquired. The sellers retained a less than 3% noncontrolling interest in Halo, which includes redeemable features that are outside the control of the Company and therefore, has been classified as temporary equity on the Consolidated Balance Sheet as of December 31, 2021, as discussed in more detail in Notes 1 and 5 herein. The acquisition was funded with cash on hand. Halo, which is headquartered in the United States (California), is a leading provider of active and passive fiber optic interconnect components, with product offerings that are highly complementary to our existing high-speed and fiber optic interconnect solutions for the communications infrastructure markets. The Company has begun the process of analyzing the allocation of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, as part of acquisition accounting. As of December 31, 2021, the Halo acquisition resulted in the recognition of $528.3 of goodwill, $28.0 of indefinite-lived tradename intangible assets and $156.0 of definite-lived intangible assets. The definite-lived intangible assets are comprised of customer relationships, proprietary technology, and backlog of $31.0, $116.0 and $9.0, respectively, and are amortized based upon the underlying pattern of economic benefit with weighted average useful lives of 10 years, 15 years and one month, respectively. Other than these intangible assets, the remainder of the purchase price has been allocated to other identifiable assets acquired and liabilities and noncontrolling interests (including redeemable noncontrolling interests) assumed. As part of acquisition accounting, the excess purchase price over the fair value of the underlying assets acquired (net of liabilities and noncontrolling interests assumed) was allocated to goodwill, which primarily represents the value of assembled workforce and the anticipated cost savings and efficiencies associated with the integration of Halo, along with other intangible assets acquired that do not qualify for separate recognition. The Company does 0t expect any such recognized goodwill associated with the Halo acquisition to be deductible for tax purposes. Since the current purchase price allocation is based on an initial preliminary assessment made by management as of December 31, 2021, the acquisition accounting for Halo is subject to final adjustment and it is possible that the final assessment of values may differ from our initial preliminary assessment. The operating results for Halo have been included within continuing operations in the Consolidated Statements of Income since the acquisition date. The acquisition of Halo, which is reported within our Interconnect Products and Assemblies segment, was not material to the Company’s financial results. 2020 Acquisitions During the year ended December 31, 2020, the Company completed 2 acquisitions for $50.4, net of cash acquired, both of which were included in the Interconnect Products and Assemblies segment. The Company completed the acquisition accounting, including the analyses of the fair value of the assets acquired and liabilities assumed, for both 2020 acquisitions, and the final assessments of values did not differ materially from the preliminary assessments. Pro forma financial information, as well as further details regarding the purchase price allocation related to these acquisitions, has not been presented, since these acquisitions were not material, either individually or in the aggregate, to the Company’s financial results. 2019 Acquisitions During the year ended December 31, 2019, the Company completed 9 acquisitions for $937.4, net of cash acquired. All but 1 of the acquisitions were included in the Interconnect Products and Assemblies segment. The 2019 acquisitions resulted in the recognition, in 2019, of $784.6 of goodwill and $111.8 of definite-lived intangible assets, primarily related to customer relationships and proprietary technology, with the remainder of the purchase price being allocated to other identifiable assets acquired and liabilities and noncontrolling interests assumed. These definite-lived intangible assets are being amortized based upon the underlying pattern of economic benefit, with the vast majority having useful lives ranging from 5 to 10 years. The excess purchase price over the fair value of the underlying net assets acquired was allocated to goodwill, which primarily represents the value of the assembled workforce along with other intangible assets acquired that do not qualify for separate recognition. Approximately $455 of the goodwill recognized from acquisitions in 2019 will be deductible for tax purposes. The Company completed the acquisition accounting, including its analyses of the fair value of the assets acquired and liabilities assumed, for all 2019 acquisitions, and the final assessments of values did not differ materially from the preliminary assessments. The operating results of the 2019 acquisitions have been included in the Consolidated Statements of Income, since their respective dates of acquisition. Pro forma financial information, as well as further details regarding the purchase price allocation related to these acquisitions, was not presented, since these acquisitions were not material, either individually or in the aggregate, to the Company’s financial results. In January 2019, the Company acquired SSI Controls Technologies (“SSI”), the sensor manufacturing division of SSI Technologies, Inc., for approximately $400, net of cash acquired, plus a performance-related contingent payment. SSI, which is headquartered in the United States (Wisconsin), is a leading designer and manufacturer of sensors and sensing solutions for the global automotive and industrial markets. The SSI acquisition of SSI iswas not material to the Company. The contingent consideration payment iswas based on certain 2019 revenue and profitability levels of SSI. The Company determined the fair value of this liability using Level 3 unobservable inputs, such as probability weighted payout projections, and is classified as Level 3 in the fair value hierarchy (Note 5). The calculation of the contingent consideration is payablewas finalized in the first quarter of 2020 as $75.0, based on actual financial data used for inputs, and recordedwas paid in Other accrued expenses on the accompanying Consolidated Balance Sheets assecond quarter of December 31, 2019.2020. During the twelve months ended December 31, 2019, the Company completed 9 acquisitions, including SSI, for $937.4, net of cash acquired. All but 1 of the acquisitions are in the Interconnect Products and Assemblies segment. In 2019, acquisitions resulted in the recognition of $784.6 of goodwill and $111.8 of definite-lived intangible assets, primarily related to customer relationships and proprietary technology, with the remainder of the purchase price being allocated to other identifiable assets acquired and liabilities and noncontrolling interests assumed. These definite-lived intangible assets are being amortized based upon the underlying pattern of economic benefit as reflected by the future net cash inflows, with the vast majority having useful lives ranging from 5 to 10 years. The excess purchase price over the fair value of the underlying net assets acquired was allocated to goodwill, which primarily represents the value of the assembled workforce along with other intangible assets acquired that do not qualify for separate recognition. The Company expects that approximately $455 of the goodwill recognized from acquisitions in 2019 will be deductible for tax purposes. The Company is in the process of completing its analyses of the fair value of the assets acquired and liabilities assumed. The Company anticipates that the final assessments of values will not differ materially from the preliminary assessments. The operating results of the 2019 acquisitions have been included in the Consolidated Statements of Income for the year ended December 31, 2019, since their respective dates of acquisition. Pro forma financial information related to these acquisitions has not been presented, since these acquisitions were not material, either individually or in the aggregate, to the Company’s financial results.
During the twelve months ended December 31, 2018, the Company completed 3 acquisitions, all in the Interconnect Products and Assemblies segment, for $158.9, net of cash acquired. The Company has completed its analyses of the fair value of the assets acquired and liabilities assumed for all 2018 acquisitions. The acquisitions in 2018 were not material, either individually or in the aggregate, to the Company’s financial results, and therefore, pro forma financial information related to these acquisitions has not been presented.
Acquisition-related Expenses In 2021, the Company incurred $70.4 ($57.3 after-tax) of acquisition-related expenses, comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the MTS acquisition in the second quarter of 2021, along with external transaction costs and certain non-cash purchase accounting costs related to the Halo acquisition in the fourth quarter of 2021. In 2020, the Company incurred approximately $11.5 ($10.7 after-tax) of acquisition-related expenses, comprised primarily of external transaction costs related to acquisitions that were announced or closed. In 2019, the Company incurred approximately $25.4 ($21.0 after-tax) of acquisition-related expenses, comprised primarily related toof the amortization of $15.7 related to the value associated with acquired backlog (primarily(of which $12.5 related to the SSI acquisition)acquisition of SSI), with the remainder representing external transaction costs. In 2018, the Company incurred approximately $8.5 ($7.2 after-tax) of acquisition-related expenses in the fourth quarter related to external transaction costs. In 2017, the Company incurred approximately $4.0 ($3.7 after-tax) of acquisition-related expenses in the second quarter related to external transaction costs. Such acquisition-related expenses are separately presented in the accompanying Consolidated Statements of Income. Note 12—Discontinued Operations Presentation and Sale of the Divested MTS Business On January 19, 2021 and prior to the closing of the MTS acquisition, the Company entered into a definitive agreement to sell the Divested MTS business to ITW. As a result of the agreement to sell the Divested MTS business to ITW, the Company concluded that the Divested MTS business met the discontinued operations reporting criteria and “held for sale” accounting criteria as of the MTS acquisition date of April 7, 2021, and consequently, the Company did not assign the Divested MTS business to either of its 2 reportable business segments. Accordingly, since the Divested MTS business has never been nor was expected to ever be considered part of our continuing operations, the Company accounted for the operating results and related cash flows associated with the Divested MTS business as discontinued operations in the accompanying Consolidated Statements of Income and Consolidated Statements of Cash Flow, respectively, as of the MTS acquisition date through December 1, 2021, the date of the sale of the Divested MTS business. The Company also ceased recording depreciation and amortization on the held for sale assets as of the MTS acquisition date. In 2021, the assets and liabilities associated with the Divested MTS business were presented as current assets held for sale and current liabilities held for sale, respectively, on the Company’s balance sheet throughout the period in which Amphenol owned the business. As discussed in Note 11 herein, the purchase price allocation associated with the Divested MTS business was performed separately from the MTS Sensors business, as the Divested MTS business met the “held for sale” accounting criteria. The assets acquired and liabilities assumed resulting from the purchase price allocation for the Divested MTS business were measured and recorded at fair value less costs to sell as of the date of the MTS acquisition and recorded as current assets held for sale and current liabilities held for sale, as separate single line items in the Company’s balance sheet from the MTS acquisition date through December 1, 2021, the date of the sale of the Divested MTS business. In addition, the Company assumed a $28.7 contingent consideration liability from the MTS acquisition, which was recognized at fair value as part of acquisition accounting. This contingent consideration was recorded within current liabilities held for sale in the Company’s balance sheet as of the acquisition date. During the third quarter of 2021, the Company made a capital contribution to the Divested MTS business, which in turn used the funding to settle the contingent consideration. On December 1, 2021, the Company completed the sale of the Divested MTS business to ITW for approximately $750, net of cash divested and excluding related transaction fees and expenses. The proceeds from the sale of the Divested MTS business were included in Net cash provided by investing activities from discontinued operations in the Consolidated Statements of Cash Flow for the year ended December 31, 2021. Amphenol has no continuing involvement with the Divested MTS business now that its sale has been consummated. At December 31, 2021, there were 0 assets held for sale 0r liabilities held for sale on the Consolidated Balance Sheets, as a result of the sale of the Divested MTS business in December 2021. In addition, there were no material adjustments to previously reported balances associated with the assets held for sale and liabilities held for sale. The sale of the Divested MTS business did not result in any significant gain or loss recorded to discontinued operations in the Consolidated Statements of Income for the year ended December 31, 2021. Note 13—Goodwill and Other Intangible Assets The changes in the carrying amount of goodwill by segment were as follows: | | | | | | | | | | | | | Interconnect | | Cable | | | | | | | Products and | | Products and | | | | | | | Assemblies | | Solutions | | Total | | Goodwill at December 31, 2019 | | $ | 4,710.0 | | $ | 157.1 | | $ | 4,867.1 | | Acquisition-related | | | 50.0 | | | 0.5 | | | 50.5 | | Foreign currency translation | | | 114.5 | | | 0 | | | 114.5 | | Goodwill at December 31, 2020 | | | 4,874.5 | | | 157.6 | | | 5,032.1 | | Acquisition-related | | | 1,405.0 | | | 11.6 | | | 1,416.6 | | Foreign currency translation | | | (71.7) | | | (0.2) | | | (71.9) | | Goodwill at December 31, 2021 | | $ | 6,207.8 | | $ | 169.0 | | $ | 6,376.8 | |
The increase in goodwill during 2021 was primarily driven by the acquisition of MTS and Halo, along with the other acquisitions that closed during the year, as described in Note 11 herein. Other than goodwill noted above, the Company’s intangible assets as of December 31, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | December 31, 2020 | | Weighted | | Gross | | | | Net | | Gross | | | | Net | | Average | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | | Life (years) | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | Customer relationships | 10 | | $ | 637.2 | | $ | 357.5 | | $ | 279.7 | | $ | 456.6 | | $ | 313.6 | | $ | 143.0 | Proprietary technology | 13 | | | 311.1 | | | 102.2 | | | 208.9 | | | 156.2 | | | 88.1 | | | 68.1 | Backlog and other | 1 | | | 74.9 | | | 74.7 | | | 0.2 | | | 49.7 | | | 49.4 | | | 0.3 | Total intangible assets (definite-lived) | 10 | | | 1,023.2 | | | 534.4 | | | 488.8 | | | 662.5 | | | 451.1 | | | 211.4 | | | | | | | | | | | | | | | | | | | | | Trade names (indefinite-lived) | | | | 268.1 | | | | | | 268.1 | | | 186.1 | | | | | | 186.1 | | | | $ | 1,291.3 | | $ | 534.4 | | $ | 756.9 | | $ | 848.6 | | $ | 451.1 | | $ | 397.5 |
The increase in the gross carrying amount of intangible assets in 2021 was driven by certain customer relationships recognized resulting from acquisition accounting associated with our 2021 acquisitions, as well as certain proprietary technology and indefinite-lived trade names associated with both the MTS and Halo acquisitions. Amortization expense for the years ended December 31, 2021, 2020 and 2019 was approximately $86.4, $49.6 and $67.3, respectively. Amortization expense in 2021 includes $16.2 and $9.0 related to the amortization of acquired backlog resulting from the MTS and Halo acquisitions, respectively, while amortization expense in 2019 included $15.7 related to the amortization of acquired backlog, primarily from the SSI acquisition. As of December 31, 2021, amortization expense relating to the Company’s current intangible assets estimated for each of the next five fiscal years is approximately $67.5 in 2022, $64.7 in 2023, $59.1 in 2024, $49.7 in 2025, and $48.0 in 2026. Note 14—Reportable Business Segments and International Operations Through December 31, 2021, the Company had 2 reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Company organized its reportable business segments based upon similar economic characteristics and business groupings of products, services, and customers, and did not include any aggregated operating segments. These reportable business segments were determined based upon how the Company operated its businesses, assessed operating performance, made resource allocation decisions, and communicated results, Note 12—Goodwilloutlook and Other Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
| | | | | | | | | | | | | Interconnect | | Cable | | | | | | | Products and | | Products and | | | | | | | Assemblies | | Solutions | | Total | | Goodwill at December 31, 2017 | | $ | 3,896.1 | | $ | 146.5 | | $ | 4,042.6 | | Acquisition-related | | | 126.7 | | | — | | | 126.7 | | Foreign currency translation | | | (66.1) | | | — | | | (66.1) | | Goodwill at December 31, 2018 | | $ | 3,956.7 | | $ | 146.5 | | $ | 4,103.2 | | Acquisition-related | | | 774.0 | | | 10.6 | | | 784.6 | | Foreign currency translation | | | (20.7) | | | — | | | (20.7) | | Goodwill at December 31, 2019 | | $ | 4,710.0 | | $ | 157.1 | | $ | 4,867.1 | |
Other than goodwill noted above, the following is a summary of the Company’s intangible assets as of December 31, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | December 31, 2018 | | Weighted | | Gross | | | | Net | | Gross | �� | | | Net | | Average | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | | Life (years) | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | Customer relationships | 9 | | $ | 446.2 | | $ | 272.2 | | $ | 174.0 | | $ | 399.2 | | $ | 234.7 | | $ | 164.5 | Proprietary technology | 11 | | | 156.0 | | | 74.4 | | | 81.6 | | | 107.5 | | | 60.5 | | | 47.0 | Backlog and other | 2 | | | 49.7 | | | 49.4 | | | 0.3 | | | 34.0 | | | 33.7 | | | 0.3 | Total intangible assets (definite-lived) | 9 | | | 651.9 | | | 396.0 | | | 255.9 | | | 540.7 | | | 328.9 | | | 211.8 | | | | | | | | | | | | | | | | | | | | | Trade names (indefinite-lived) | | | | 186.1 | | | | | | 186.1 | | | 186.1 | | | | | | 186.1 | | | | $ | 838.0 | | $ | 396.0 | | $ | 442.0 | | $ | 726.8 | | $ | 328.9 | | $ | 397.9 |
The increase in the carrying amounts of intangible assets in 2019 was primarily due to intangible assets acquired as a result of the SSI acquisition, along with the other acquisitions closed during the year. The amortization expense for the years ended December 31, 2019, 2018 and 2017 was approximately $67.3, $46.9 and $48.6, respectively. The amortization expense in 2019 includes $15.7 relatedstrategy to the amortization of acquired backlog, primarily from the SSI acquisition. As of December 31, 2019, amortization expense relating to the Company’s current intangible assets estimated for each of the next five fiscal years is approximately $49.3 in 2020, $44.7 in 2021, $37.4 in 2022, $34.7 in 2023,Board and $29.3 in 2024.
Note 13—Reportable Business Segments and International Operations
The Company has 2 reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Company organizes its reportable business segments based upon similar economic characteristics and business groupings of products, services, and customers. These reportable business segments are determined based upon how the Company reviews its businesses, assesses operating performance and makes investing and resource allocation decisions.stockholders. The Interconnect Products and Assemblies segment primarily designs, manufacturesdesigned, manufactured and marketsmarketed a broad range of connector and connector systems, value-add products and other products, including antennas and sensors, used in a broad range of applications in a diverse set of end markets. The Cable Products and Solutions segment primarily designs, manufacturesdesigned, manufactured and marketsmarketed cable, value-add products and components for use primarily in the broadband communications and information technology markets, as well as certain applications in other markets. The accounting policies of the segments arewere the same as those for the Company as a whole, and areas described in Note 1 herein. The Company evaluatesevaluated the performance of business unitsthe segments and allocatesallocated resources to them based on, among other things, profit or loss from operations before interest, headquarters’ expense allocations, stock-based compensation expense, income taxes, amortization related to certain intangible assets and nonrecurring gains and losses. The Company also provided general corporate services to its reportable business segments, which continued to be reported as “Corporate/Other”, a non-reportable business segment.
Effective January 1, 2022, the Company aligned its businesses into 3 newly formed reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii)Interconnect and Sensor Systems. Refer to Note 16 herein for further details related to the Company’s change in its reportable business segments. The segment results and segment assets the years ended December 31, 2021, 2020 and 2019 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products | | Cable Products | | | | | | | | and Assemblies | | and Solutions | | Corporate / Other (1) | | Total Consolidated | | | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | Net sales: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | External | | $ | 10,430.9 | | $ | 8,229.9 | | $ | 7,840.3 | | $ | 445.4 | | $ | 369.0 | | $ | 385.1 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 10,876.3 | | $ | 8,598.9 | | $ | 8,225.4 | | Intersegment | | | 111.0 | | | 58.5 | | | 35.3 | | | 53.9 | | | 38.2 | | | 51.6 | | | 0 | | | 0 | | | 0 | | | 164.9 | | | 96.7 | | | 86.9 | | Depreciation and amortization | | | 383.7 | | | 297.1 | | | 300.1 | | | 4.8 | | | 4.3 | | | 6.4 | | | 7.1 | | | 6.7 | | | 5.6 | | | 395.6 | | | 308.1 | | | 312.1 | | Capital expenditures | | | 355.5 | | | 272.1 | | | 289.6 | | | 4.4 | | | 3.7 | | | 4.1 | | | 0.5 | | | 1.0 | | | 1.3 | | | 360.4 | | | 276.8 | | | 295.0 | | Segment operating income | | | 2,296.8 | | | 1,741.2 | | | 1,722.7 | | | 22.8 | | | 35.4 | | | 39.5 | | | | | | | | | | | | 2,319.6 | | | 1,776.6 | | | 1,762.2 | | Segment assets (excluding goodwill) | | | 7,996.5 | | | 6,672.8 | | | 5,666.4 | | | 265.0 | | | 214.2 | | | 209.2 | | | | | | | | | | | | 8,261.5 | | | 6,887.0 | | | 5,875.6 | |
| (1) | Corporate / Other is not a reportable business segment, but has been included above for purposes of reconciling between segment data and total consolidated data. The reconciliation of segment operating income and segment assets (excluding goodwill) to consolidated results is included in the tables below. |
A reconciliation of segment operating income to consolidated income from continuing operations before income taxes is summarized as follows: | | | | | | | | | | | | For the Years Ended December 31, | | | 2021 | | 2020 | | 2019 | Segment operating income | | $ | 2,319.6 | | $ | 1,776.6 | | $ | 1,762.2 | Stock-based compensation expense | | | (83.0) | | | (70.5) | | | (63.0) | Acquisition-related expenses | | | (70.4) | | | (11.5) | | | (25.4) | Other operating expenses | | | (61.1) | | | (56.2) | | | (54.6) | Interest expense | | | (115.5) | | | (115.4) | | | (117.6) | Loss on early extinguishment of debt | | | 0 | | | 0 | | | (14.3) | Other (expense) income, net | | | (0.4) | | | 3.6 | | | 8.6 | Income from continuing operations before income taxes | | $ | 1,989.2 | | $ | 1,526.6 | | $ | 1,495.9 |
Reconciliation of segment assets to consolidated total assets: | | | | | | | | | | December 31, | | | | 2021 | | 2020 | | Segment assets, excluding goodwill | | $ | 8,261.5 | | $ | 6,887.0 | | Goodwill | | | 6,376.8 | | | 5,032.1 | | Other assets | | | 40.1 | | | 408.2 | | Consolidated total assets | | $ | 14,678.4 | | $ | 12,327.3 | |
Other assets in both years were comprised primarily of corporate-held cash and cash equivalents on hand, along with other corporate identifiable assets. among other things, profit or loss from operations before interest, headquarters’ expense allocations, stock-based compensation expense, income taxes, amortization related to certain intangible assets and nonrecurring gains and losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products | | Cable Products | | | | | | | | and Assemblies | | and Solutions | | Corporate / Other (1) | | Total Consolidated | | | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | Net sales: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | External | | $ | 7,840.3 | | $ | 7,781.9 | | $ | 6,606.9 | | $ | 385.1 | | $ | 420.1 | | $ | 404.4 | | $ | — | | $ | — | | $ | — | | $ | 8,225.4 | | $ | 8,202.0 | | $ | 7,011.3 | | Intersegment | | | 35.3 | | | 12.8 | | | 9.7 | | | 51.6 | | | 34.0 | | | 40.7 | | | — | | | — | | | — | | | 86.9 | | | 46.8 | | | 50.4 | | Depreciation and amortization | | | 300.1 | | | 287.2 | | | 214.7 | | | 6.4 | | | 6.6 | | | 6.3 | | | 5.6 | | | 5.9 | | | 5.8 | | | 312.1 | | | 299.7 | | | 226.8 | | Capital expenditures | | | 289.6 | | | 305.0 | | | 220.4 | | | 4.1 | | | 5.2 | | | 5.6 | | | 1.3 | | | 0.4 | | | 0.6 | | | 295.0 | | | 310.6 | | | 226.6 | | Segment operating income | | | 1,722.7 | | | 1,752.5 | | | 1,475.2 | | | 39.5 | | | 52.6 | | | 54.2 | | | | | | | | | | | | 1,762.2 | | | 1,805.1 | | | 1,529.4 | | Segment assets (excluding goodwill) | | | 5,666.4 | | | 5,678.6 | | | 5,732.6 | | | 209.2 | | | 208.1 | | | 200.3 | | | | | | | | | | | | 5,875.6 | | | 5,886.7 | | | 5,932.9 | |
(1) | Corporate / Other is not a reportable business segment, but has been included above for purposes of reconciling between segment data and total consolidated data. The reconciliation of segment operating income and segment assets (excluding goodwill) to consolidated results is included in the tables below. |
Reconciliation of segment operating income to consolidated income before income taxes:
| | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | Segment operating income | | $ | 1,762.2 | | $ | 1,805.1 | | $ | 1,529.4 | | Stock-based compensation expense | | | (63.0) | | | (55.6) | | | (49.7) | | Acquisition-related expenses | | | (25.4) | | | (8.5) | | | (4.0) | | Other operating expenses | | | (54.6) | | | (54.1) | | | (48.1) | | Interest expense | | | (117.6) | | | (101.7) | | | (92.3) | | Loss on early extinguishment of debt | | | (14.3) | | | — | | | — | | Other income, net | | | 8.6 | | | 3.2 | | | 17.1 | | Income before income taxes | | $ | 1,495.9 | | $ | 1,588.4 | | $ | 1,352.4 | |
Reconciliation of segment assets to consolidated total assets:
| | | | | | | | | | 2019 | | 2018 | | Segment assets, excluding goodwill | | $ | 5,875.6 | | $ | 5,886.7 | | Goodwill | | | 4,867.1 | | | 4,103.2 | | Other assets | | | 72.8 | | | 55.0 | | Consolidated total assets | | $ | 10,815.5 | | $ | 10,044.9 | |
Other assets are comprised primarily of corporate identifiable assets such as cash and cash equivalents.
Net sales by geographic area for the years ended December 31, 2021, 2020 and 2019 2018 and 2017 and property, plant and equipment, netlong-lived assets by geographic area as of December 31 were as follows: | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | Net sales | | | | | | | | | | | | | | | | | | | United States | | $ | 2,524.7 | | $ | 2,241.4 | | $ | 1,978.4 | | $ | 3,155.9 | | $ | 2,494.0 | | $ | 2,524.7 | China | | | 2,306.4 | | | 2,594.0 | | | 2,067.3 | | | 3,044.4 | | | 2,597.5 | | | 2,306.4 | Other foreign locations | | | 3,394.3 | | | 3,366.6 | | | 2,965.6 | | | 4,676.0 | | | 3,507.4 | | | 3,394.3 | Total | | $ | 8,225.4 | | $ | 8,202.0 | | $ | 7,011.3 | | $ | 10,876.3 | | $ | 8,598.9 | | $ | 8,225.4 | | | | | | | | | | | | | | | | | | | | Long-lived assets(1) | | | | | | | | | | | | | | | | | | | United States | | $ | 355.0 | | $ | 225.1 | | $ | 212.7 | | $ | 362.1 | | $ | 352.7 | | $ | 355.0 | China | | | 343.1 | | | 273.8 | | | 244.7 | | | 451.7 | | | 399.6 | | | 343.1 | Other foreign locations | | | 497.6 | | | 376.9 | | | 359.4 | | | 606.4 | | | 526.7 | | | 497.6 | Total | | $ | 1,195.7 | | $ | 875.8 | | $ | 816.8 | | $ | 1,420.2 | | $ | 1,279.0 | | $ | 1,195.7 |
| (1) | Long-lived assets included in this table are comprised of property, plant and equipment, net, for all years presented. In addition, for 2019,and operating lease right-of-use assets are also included, as a result of the Company’s adoption of Topic 842 effective January 1, 2019. Refer to Note 10 herein for further details on the impact of Topic 842.all years presented. | |
Disaggregation of Net Sales The following table shows our net sales disaggregated into categories the Company considers meaningful to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors for the years ended December 31, 20192021, 2020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interconnect Products | | Cable Products | | Total Reportable | | Interconnect Products | | Cable Products | | Total Reportable | | | and Assemblies | | and Solutions | | Business Segments | | and Assemblies | | and Solutions | | Business Segments | Year ended December 31, | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | | | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | Net sales by: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sales channel: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | End customers and contract manufacturers | | $ | 6,684.0 | | $ | 6,667.9 | | $ | 301.4 | | $ | 322.3 | | $ | 6,985.4 | | $ | 6,990.2 | | $ | 8,666.2 | | $ | 6,934.1 | | $ | 6,684.0 | | $ | 372.0 | | $ | 310.6 | | $ | 301.4 | | $ | 9,038.2 | | $ | 7,244.7 | | $ | 6,985.4 | Distributors and resellers | | | 1,156.3 | | | 1,114.0 | | | 83.7 | | | 97.8 | | | 1,240.0 | | | 1,211.8 | | | 1,764.7 | | | 1,295.8 | | | 1,156.3 | | | 73.4 | | | 58.4 | | | 83.7 | | | 1,838.1 | | | 1,354.2 | | | 1,240.0 | | | $ | 7,840.3 | | $ | 7,781.9 | | $ | 385.1 | | $ | 420.1 | | $ | 8,225.4 | | $ | 8,202.0 | | $ | 10,430.9 | | $ | 8,229.9 | | $ | 7,840.3 | | $ | 445.4 | | $ | 369.0 | | $ | 385.1 | | $ | 10,876.3 | | $ | 8,598.9 | | $ | 8,225.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Geography: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | United States | | $ | 2,323.5 | | $ | 2,038.0 | | $ | 201.2 | | $ | 203.4 | | $ | 2,524.7 | | $ | 2,241.4 | | $ | 2,909.1 | | $ | 2,282.6 | | $ | 2,323.5 | | $ | 246.8 | | $ | 211.4 | | $ | 201.2 | | $ | 3,155.9 | | $ | 2,494.0 | | $ | 2,524.7 | China | | | 2,300.6 | | | 2,589.9 | | | 5.8 | | | 4.1 | | | 2,306.4 | | | 2,594.0 | | | 3,032.6 | | | 2,590.3 | | | 2,300.6 | | | 11.8 | | | 7.2 | | | 5.8 | | | 3,044.4 | | | 2,597.5 | | | 2,306.4 | Other foreign locations | | | 3,216.2 | | | 3,154.0 | | | 178.1 | | | 212.6 | | | 3,394.3 | | | 3,366.6 | | | 4,489.2 | | | 3,357.0 | | | 3,216.2 | | | 186.8 | | | 150.4 | | | 178.1 | | | 4,676.0 | | | 3,507.4 | | | 3,394.3 | | | $ | 7,840.3 | | $ | 7,781.9 | | $ | 385.1 | | $ | 420.1 | | $ | 8,225.4 | | $ | 8,202.0 | | $ | 10,430.9 | | $ | 8,229.9 | | $ | 7,840.3 | | $ | 445.4 | | $ | 369.0 | | $ | 385.1 | | $ | 10,876.3 | | $ | 8,598.9 | | $ | 8,225.4 |
Net sales by geographic area are based on the customer location to which the product is shipped. No single customer representedaccounted for 10% or more of the Company’s net sales for the year ended December 31, 2021. During the year ended December 31, 2020, aggregate sales to the Company’s largest customer accounted for approximately 11% of the Company’s net sales. No single customer accounted for 10% or more of the Company’s net sales for the year ended December 31, 2019. During the year ended December 31, 2018, aggregate sales to the Company’s largest customer, including sales of products to EMS companies that the Company believes are manufacturing products on their behalf, represented approximately 12% of the Company’s net sales. No single customer represented 10% or more of the Company’s net sales for the year ended December 31, 2017. It is impracticable to disclose net sales by product or group of products.
For further discussion related to the Company’s policies surrounding revenue recognition, refer to Note 1 herein.
Note 14—15—Commitments and Contingencies TheFrom time to time, the Company has been threatened with, or named as a defendant in, severalvarious legal or regulatory actions arising from normal business activities.in the ordinary course of business. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. Although the potential liability with respect to certain of such legal or regulatory actions cannot be reasonably estimated, none of such matters is expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s legal costs associated with defending itself are recorded to expense as incurred.
In August 2018, the Company received a subpoena from the U.S. Department of Defense, Office of the Inspector General (the “OIG”), requesting documents pertaining to certain products manufactured by the Company’s Military and Aerospace Group that are purchased or used by the U.S. government. TheAs of the date of this filing, the Company is cooperatinghas responded to several production requests from the OIG, with the request.most recent being completed during the third quarter of 2021. This matter is ongoing and the Company continues to cooperate with the OIG on its requests. The Company is currently unable to estimate the timing or outcome of the matter. From December 2019 through October 2020, the Company was named as one of several defendants in 4 separate lawsuits filed in the State of Indiana. The lawsuits relate to a manufacturing site in Franklin, Indiana (the “Site”) where the Company has been conducting an environmental clean-up effort under the direction of the United States Environmental Protection Agency (the “EPA”). The Site was shut down in 1983, more than three years before the Company acquired the Site as part of a larger acquisition that led to the establishment of the Company’s business in 1987 (the “Acquisition”). In connection with the Acquisition, the Company agreed, and has continued, to work closely with the EPA regarding the ongoing clean-up effort at the Site, subject to an indemnity from the seller (the “Seller”). In 1989, the Company sold the property where the Site is located. The lawsuits collectively seek, among other things, compensation for personal injuries and for past, present and future medical expenses, compensation for loss of property values near the Site and costs related to medical monitoring for individuals living close to the Site, in each case arising from alleged exposure to hazardous chemicals. The Company denies any wrongdoing and is defending each of the above described lawsuits. All the costs incurred relating to these lawsuits have been reimbursed by the Seller based on the Seller’s indemnification obligations entered into in connection with the Acquisition (the “1987 Indemnification Agreement”). In addition, the environmental investigation, remediation and monitoring activities undertaken by the Company relating to the Site have been reimbursed under the 1987 Indemnification Agreement. As a result, the Company does not believe that the costs associated with these lawsuits or the resolution of the related environmental matters will have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows. In March 2021, a non-material customer of the Company filed a formal request for arbitration against the Company relating to a product sold to such customer that the customer alleges did not meet the agreed upon product specification. The customer is pursuing breach of warranty claims against the Company, among other assertions, and is seeking damages relating to its estimated costs of replacing the product. While the customer has claimed damages of approximately €90, the arbitrator will have discretion to determine the actual amount of damages as well as the apportionment of responsibility between the parties. The Company has denied that its product caused the damages, that its product did not meet the agreed upon specifications and that the claimed damages are appropriate, and is vigorously defending itself in the arbitration. Certain operations of the Company are subject to environmental laws and regulations whichthat govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company also has purchase obligations related to commitments to purchase certain goods and services. At December 31, 2019,2021, the Company had purchase commitments of $398.4$793.6 in 2020, $25.62022, $40.6 in 20212023 and 2022,2024, combined, and $7.1$4.1 beyond 2024. Note 16—Subsequent Events New Reportable Business Segments Effective January 1, 2022, the Company aligned its businesses into 3 newly formed reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii) Interconnect and Sensor Systems. This new alignment replaces our historic reportable business segments. All businesses previously reported in the Interconnect Products and Assemblies segment have now been aligned with 1 of the 3 newly formed segments. All businesses previously reported in the Cable Products and Solutions segment have now been aligned with our newly formed Communications Solutions segment. This new alignment reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future. The segment structure reflects the manner in which the Chief Operating Decision Maker (“CODM”), who is the Company’s Chief Executive Officer, regularly assesses information for decision-making purposes, including the allocation of resources, effective January 1, 2022. In conjunction with the new alignment of our business, the Company appointed 3 new segment managers to lead their respective reportable business segments, each reporting directly to the Company’s Chief Executive Officer. Note 15—Selected Quarterly Financial Data (Unaudited)The Company’s 3 new reportable business segments have been identified as:
| | | | | | | | | | | | | | | | | Three Months Ended | | | | | March 31, | | June 30, | | September 30, | | December 31, | | | 2019 | | | | | | | | | | | | | | | Net sales | | $ | 1,958.5 | | $ | 2,015.3 | | $ | 2,100.6 | | $ | 2,151.0 | | | Gross profit | | | 627.8 | | | 647.6 | | | 661.9 | | | 678.7 | | | Operating income | | | 376.2 | (1) | | 399.5 | (2) | | 413.6 | | | 429.8 | | | Net income | | | 269.9 | (1) | | 290.9 | (2) | | 282.3 | (3) | | 320.8 | (4) | | Net income attributable to Amphenol Corporation | | | 267.5 | (1) | | 288.4 | (2) | | 280.3 | (3) | | 318.7 | (4) | | | | | | | | | | | | | | | | | Net income per common share—Basic | | | 0.90 | (1) | | 0.97 | (2) | | 0.95 | (3) | | 1.07 | (4) | | Net income per common share—Diluted | | | 0.87 | (1) | | 0.93 | (2) | | 0.92 | (3) | | 1.03 | (4) | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | Net sales | | $ | 1,866.9 | | $ | 1,981.4 | | $ | 2,129.0 | | $ | 2,224.7 | | | Gross profit | | | 606.9 | | | 644.8 | | | 688.2 | | | 715.0 | | | Operating income | | | 376.9 | | | 408.2 | | | 444.2 | | | 457.6 | (8) | | Net income | | | 268.3 | (5) | | 287.8 | (6) | | 319.6 | (7) | | 341.2 | (8) | | Net income attributable to Amphenol Corporation | | | 265.6 | (5) | | 284.8 | (6) | | 316.6 | (7) | | 338.1 | (8) | | | | | | | | | | | | | | | | | Net income per common share—Basic | | | 0.87 | (5) | | 0.95 | (6) | | 1.05 | (7) | | 1.13 | (8) | | Net income per common share—Diluted | | | 0.84 | (5) | | 0.91 | (6) | | 1.01 | (7) | | 1.09 | (8) | |
●Harsh Environment Solutions – the Harsh Environment Solutions segment designs, manufactures and markets a broad range of ruggedized interconnect products, including connectors and interconnect systems, printed circuits and printed circuit assemblies and other products for use in the industrial, military, commercial aerospace, automotive, mobile networks and information technology and data communications end markets. (1) | Operating income, net income and net income per common share includes acquisition-related expenses of $16.5 ($13.2 after-tax, or $0.04 per diluted share) primarily comprised of amortization related to the value associated with acquired backlog from the SSI acquisition, along with external transaction costs. Net income and net income per common share also includes excess tax benefits related to stock-based compensation of $6.8 ($0.02 per diluted share). These items had the aggregate effect of decreasing Operating income, Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $16.5, $6.4, $6.4, and $0.02 per share, respectively, for the three months ended March 31, 2019. |
●Communications Solutions – the Communications Solutions segment designs, manufactures and markets a broad range of connector and interconnect systems, including high speed, radio frequency, power, fiber optic and other products, together with antennas, for use in the information technology and data communications, mobile devices, industrial, mobile networks, broadband communications, automotive, commercial aerospace and military end markets. (2) | Operating income, net income and net income per common share includes acquisition-related expenses of $8.9 ($7.8 after-tax, or $0.03 per diluted share) primarily related to external transaction costs, as well as amortization related to the value associated with acquired backlog from an acquisition closed in the second quarter of 2019. Net income and net income per common share also includes excess tax benefits related to stock-based compensation of $12.9 ($0.04 per diluted share). These items had the aggregate effect of decreasing Operating income by $8.9, while increasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $5.1, $5.1, and $0.01 per share, respectively, for the three months ended June 30, 2019. |
●Interconnect and Sensor Systems – the Interconnect and Sensor Systems segment designs, manufactures and markets a broad range of sensors, sensor-based systems, connectors and value-add interconnect systems used in the automotive, industrial, information technology and data communications, mobile networks, military and commercial aerospace end markets. (3) | Net income and net income per common share includes the excess tax benefits related to stock-based compensation of $1.6 ($0.01 per diluted share) and the refinancing-related costs associated with the early extinguishment of debt of $14.3 ($12.5 after-tax, or $0.04 per diluted share). These items had the aggregate effect of decreasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $10.9, $10.9, and $0.03 per share, respectively, for the three months ended September 30, 2019. |
The Company is in the process of completing the update of its internal reporting to accommodate this new reporting segment structure. The Company will begin reporting its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022, including the recasting of relevant prior year period segment information for conformity of presentation.
(4) | Net income and net income per common share includes the excess tax benefits related to stock-based compensation of $16.8. The excess tax benefits had the effect of increasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $16.8, $16.8, and $0.05 per share, respectively, for the three months ended December 31, 2019. |
(5) | Net income and net income per common share includes excess tax benefits related to stock-based compensation of $4.1. The excess tax benefits had the effect of increasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $4.1, $4.1, and $0.01 per share, respectively, for the three months ended March 31, 2018. |
(6) | Net income and net income per common share includes excess tax benefits related to stock-based compensation of $3.0. The excess tax benefits had the effect of increasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $3.0, $3.0, and $0.01 per share, respectively, for the three months ended June 30, 2018. |
(7) | Net income and net income per common share includes excess tax benefits related to stock-based compensation of $7.0. The excess tax benefits had the effect of increasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $7.0, $7.0, and $0.02 per share, respectively, for the three months ended September 30, 2018. |
(8) | Operating income, net income and net income per common share includes acquisition-related expenses of $8.5 ($7.2 after-tax, or $0.02 per diluted share) primarily related to external transaction costs. Net income and net income per common share also includes an income tax benefit of $14.5 ($0.04 per diluted share) recorded in 2018 related to the completion of its accounting for the provisional Tax Act Charge from 2017 resulting from the enactment of the Tax Cuts and Jobs Act, and the excess tax benefits related to stock-based compensation of $5.7 ($0.02 per diluted share). These items had the aggregate effect of decreasing Operating income by $8.5, while increasing Net income, Net income attributable to Amphenol Corporation, and Net income per common share-Diluted by $13.0, $13.0, and $0.04 per share, respectively, for the three months ended December 31, 2018. |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, pursuant toas defined in Rules 13a-15(e) or 15d-15(e) ofunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2019.2021. These disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.2021. There has been no change in our internal control over financial reporting during the Company’s most recent fiscal quarter ended December 31, 20192021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Beginning January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) and its related subsequent amendments (collectively, “Topic 842”). Although the adoption of Topic 842 did not have a material impact on our Consolidated Statements of Income and Consolidated Statements of Cash Flow for the year ended December 31, 2019, the Company implemented changes to our processes related to our lease commitments and the related control activities, including the implementation of a new lease management system and certain controls over financial reporting necessary for the required disclosures, as well as the implementation of new policies and any necessary changes to existing related policies. Refer to Note 1 and Note 10 of the accompanying Consolidated Financial Statements for further discussion on the adoption of Topic 842. Management Report on Internal Control Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management is responsible for establishing and maintaining adequate internal control over financial reporting of Amphenol Corporation and its subsidiaries (the “Company”), pursuant toas defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the internal control over financial reporting based on criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019. 2021. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of December 31, 20192021 in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB). Those standards require that Deloitte & Touche LLP plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Deloitte & Touche LLP has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2019,2021, which is included in Item 8 of this Annual Report on Form 10-K.Report. Item 9B. Other Information None.Effective February 7, 2022, the Board approved and adopted the Company’s Fourth Amended and Restated By-laws (the “By-laws”), which amended the Company’s previously existing By-laws as described below.
The By-laws revise the deadline for advance notice of business and nominations for an annual meeting of stockholders to generally not later than the close of business 90 days, nor earlier than the close of business 120 days, prior to the one-year anniversary of the preceding year’s annual meeting. As a result of the amendments, for consideration at the 2022 Annual Meeting of Stockholders, director nominations or the presentation of other business must be received by the Secretary of the Company no later than February 18, 2022. In addition, the amendments revise the deadline in the By-laws for advance notice of director nominations for a special meeting of stockholders where directors will be elected to generally not earlier than the close of business 120 days prior to such special meeting and not later than the close of business 90 days prior to such special meeting, or, if later, the tenth day following public announcement of the special meeting. The By-laws also revise the advance notice disclosure requirements to require the stockholder proposing business or nominating directors or demanding a record date to request a special meeting, to provide additional information about the stockholder’s ownership of securities in the Company (including ownership of derivative securities) and material litigation, relationships and interests in material agreements with or involving the Company. Further, the By-laws require the stockholder to provide additional information regarding any candidate the stockholder proposes to nominate for election as a director, including all information with respect to such nominee that would be required to be set forth in a stockholder’s notice if such nominee were a stockholder delivering such notice and a description of any direct or indirect material interest in any material contract or agreement between or among the nominating stockholder and each nominee or his or her respective associates. Additionally, the By-laws require any candidate for the Board, whether nominated by a stockholder or the Board, to provide certain background information and representations regarding disclosure of voting or compensation arrangements, compliance with the Company’s policies and guidelines and intent to serve the entire term. The By-laws also require the stockholder to provide additional information regarding the proposed business and any related agreements between the stockholder and any other beneficial holder. All disclosures must be updated as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting. The amendments also added a forum selection provision, which provides that, unless the Company consents in writing to the selection of another forum, (a) the Delaware Court of Chancery will be the sole and exclusive forum for the following actions: (i) any derivative action or proceeding brought by or on behalf of the Company, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action arising pursuant to any provision of the General Corporation Law of the State of Delaware or the Company’s Certificate of Incorporation or By-laws, and (iv) any action asserting a claim against the Company governed by the internal affairs doctrine, and (b) the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the Securities Act of 1933, as amended. Additionally, the amendments include language pursuant to which stockholders are deemed to have consented to personal jurisdiction in the Delaware Court of Chancery and to service of process on their counsel in any action initiated in violation of the forum selection provision. The amendments also clarify (i) the majority election standard for director nominees, (ii) that the Board shall determine the size of the Board and (iii) the timing for a stockholder to request a record date to act by written consent and for such record date to be set. The amendments include certain technical, conforming, modernizing and clarifying changes to the By-laws. The foregoing description of the amendments is qualified in its entirety by reference to the full text of the By-laws, a copy of which is attached as Exhibit 3.2 to this Annual Report on Form 10-K and incorporated herein by reference. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III The Company intends to file a definitive proxy statement (the “Proxy Statement”) pursuant to Regulation 14A under the Securities Exchange Act within 120 days following the end of the fiscal year ended December 31, 2019,2021, and certain information included therein is incorporated herein by reference. Item 10. Directors, Executive Officers and Corporate Governance Pursuant to Instruction G(3) to Form 10-K, the information required by Item 10 with respect to the Directors of the Registrant is incorporated herein by reference to the Proxy Statement. Pursuant to Instruction G(3) to Form 10-K, the information required by Item 10 with respect to the Executive Officers of the Registrant is incorporated herein by reference to the Proxy Statement. To the extent disclosure for delinquent reports is being made, it can be found under the caption “Delinquent Section 16(a) Reports” in the Proxy Statement and is incorporated herein by reference to the Proxy Statement. Information regarding theThe Company’s Code of Business Conduct and Ethics, which is applicable to all directors, officers and employees of the Company, including the principal executive officer, principal financial officer and principal accounting officer, is available on the Company’s website at www.amphenol.com.www.amphenol.com. The Company willintends to post all amendments to or waivers from its Code of Business Conduct and Ethics (to the extent applicable to the Company’s principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions) on its website. In addition, a current copy may be requested by writing to the Company’s World Headquarters at:
358 Hall Avenue P.O. Box 5030 Wallingford, CT 06492 Attention: Investor Relations Item 11. Executive Compensation Pursuant to Instruction G(3) to Form 10-K, the information required by Item 11 is incorporated herein by reference to the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Pursuant to Instruction G(3) to Form 10-K, the information required by Item 12 is incorporated herein by reference to the Proxy Statement.Statement, other than the “Equity Compensation Plan Information” provided below. ForEquity Compensation Plan Information
The following table summarizes the Company’s equity compensation plan information required under Item 201(d)as of Regulation S-K, refer to Item 5 of this Annual Report on Form 10-K.December 31, 2021: | | | | | | | | | | | Equity Compensation Plan Information | | | | Number of securities to | | Weighted average | | Number of securities | | | | be issued upon exercise | | exercise price of | | remaining available for | | | | of outstanding options, | | outstanding options, | | future issuance under | | Plan category | | warrants and rights | | warrants and rights | | equity compensation plans | | Equity compensation plans approved by security holders | | 65,321,809 | | $ | 42.01 | | 68,696,960 | | Equity compensation plans not approved by security holders | | — | | | — | | — | | Total | | 65,321,809 | | $ | 42.01 | | 68,696,960 | |
Item 13. Certain Relationships and Related Transactions, and Director Independence Pursuant to Instruction G(3) to Form 10-K, the information required by Item 13 is incorporated herein by reference to the Proxy Statement. Item 14. Principal AccountingAccountant Fees and Services Pursuant to Instruction G(3) to Form 10-K, the information required by Item 14 is incorporated herein by reference to the Proxy Statement.
PART IV Item 15. Exhibits,Exhibit and Financial Statement Schedules (a)(1) Consolidated Financial Statements | | | Page | | | Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | 4149
| | | Consolidated Statements of Income—Years Ended December 31, 2019, 20182021, 2020 and 20172019 | 4351
| | | Consolidated Statements of Comprehensive Income—Years Ended December 31, 2019, 20182021, 2020 and 20172019 | 4452
| | | Consolidated Balance Sheets—December 31, 20192021 and 20182020 | 4553
| | | Consolidated Statements of Changes in Equity—Years Ended December 31, 2019, 20182021, 2020 and 20172019 | 4654
| | | Consolidated Statements of Cash Flow—Years Ended December 31, 2019, 20182021, 2020 and 20172019 | 4755
| | | Notes to Consolidated Financial Statements | 4856
| | | Management Report on Internal Control | 7894
| | | (a)(2) Financial Statement Schedules for the Three Years Ended December 31, 20192021 | | | | Schedule | | | | II—Valuation and Qualifying Accounts for the years ended December 31, 2019, 20182021, 2020 and 20172019 | 83100
|
Schedules other than the above have been omitted because they are either not applicable or the required information has been disclosedincluded in the consolidated financial statementsConsolidated Financial Statements or the notes thereto. (a)(3) Listing of Exhibits The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K:Report: | | | | 3.1 | Restated Certificate of Incorporation of Amphenol Corporation, dated August 3, 2016May 19, 2021 (filed as Exhibit 3.1 to the June 30, 20162021 10-Q).* | 3.2 | Amphenol Corporation, ThirdFourth Amended and Restated By-LawsBy-laws dated March 21, 2016 (filed as Exhibit 3.1 to the Form 8-K filed on March 22, 2016).February 7, 2022.** | 4.1 | Indenture, dated as of November 5, 2009, between Amphenol Corporation and The Bank of New York Mellon, as trustee (filed as Exhibit 4.1 to the Form 8-K filed on November 5, 2009).* | 4.2 | Indenture, dated as of October 8, 2018, between Amphenol Technologies Holding GmbH, Amphenol Corporation and The Bank of New York Mellon, as trustee (filed as Exhibit 4.1 to the Form 8-K filed on October 9, 2018).* | 4.3 | Officers’ Certificate,Indenture, dated January 26, 2012, establishing the 4.00% Senior Notes due 2022 pursuant to the Indentureas of May 4, 2020, between Amphenol Technologies Holding GmbH, Amphenol Corporation and The Bank of New York Mellon, as trustee (filed as Exhibit 4.24.1 to the Form 8-K filed on January 26, 2012)May 5, 2020).*
| 4.4 | Officer’s Certificate, dated September 12, 2014, establishing both the 1.550% Senior Notes due 2017 and the 3.125% Senior Notes due 2021 pursuant to the Indenture (filed as Exhibit 4.2 to the Form 8-K filed on September 12, 2014).*
| 4.5
| Officer’s Certificate, dated April 5, 2017, establishing both the 2.200% Senior Notes due 2020 and the 3.200% Senior Notes due 2024 pursuant to the Indenture (filed as Exhibit 4.2 to the Form 8-K filed on April 5, 2017).* | 4.64.5
| Officer’s Certificate, dated January 9, 2019, establishing the 4.350% Senior Notes due 2029 pursuant to the Indenture (filed as Exhibit 4.2 to the Form 8-K filed on January 10, 2019).* | 4.74.6
| Officer’s Certificate, dated September 10, 2019, establishing the 2.800% Senior Notes due 2030 pursuant to the Indenture (filed as Exhibit 4.2 to the Form 8-K filed on September 10, 2019).* | 4.7 | Officer’s Certificate, dated February 20, 2020, establishing the 2.050% Senior Notes due 2025 pursuant to the Indenture (filed as Exhibit 4.2 to the Form 8-K filed on February 20, 2020).* | 4.8 | Officer’s Certificate, dated September 14, 2021, establishing the 2.200% Senior Notes due 2031 pursuant to the Indenture (filed as Exhibit 4.2 to the Form 8-K filed on September 14, 2021).* |
4.84.9
| Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.8 to the December 31, 2019 10-K).1934.** | 10.1 | Amended and Restated 2017 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (filed as Annex A to the Company’s Definitive Proxy Statement on Schedule 14A for its 20172021 Annual Meeting of Stockholders, filed on April 17, 2017)12, 2021).†* | 10.2 | Form of 2017 Stock Option Agreement (filed as Exhibit 10.1 to the Form 8-K filed on May 19, 2017).†* | 10.3 | 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (filed as Exhibit 10.7 to the June 30, 2009 10-Q).†* | 10.4 | The First Amendment to the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (filed as Exhibit 10.2 to the Form 8-K filed on May 23, 2014).†* | 10.5 | Form of 2009 Non-Qualified Stock Option Grant Agreement dated as of May 20, 2009 (filed as Exhibit 10.8 to the June 30, 2009 10-Q).†* | 10.6 | Form of 2009 Management Stockholders’ Agreement dated as of May 20, 2009 (filed as Exhibit 10.9 to the June 30, 2009 10-Q).†* | 10.7 | Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016 (filed as Exhibit 10.6 to the December 31, 2016 10-K).†* | 10.8 | First Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated November 10, 2016 (filed as Exhibit 10.7 to the December 31, 2016 10-K).†* | 10.9 | Second Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated October 1, 2016 (filed as Exhibit 10.8 to the December 31, 2016 10-K).†* | 10.10 | Third Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated December 13, 2016 (filed as Exhibit 10.9 to the December 31, 2016 10-K).†* | 10.11 | Fourth Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated May 2, 2017 (filed as Exhibit 10.12 to the June 30, 2017 10-Q).†* | 10.12 | Fifth Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated October 29, 2018 (filed as Exhibit 10.12 to the December 31, 2018 10-K).†* | 10.13 | Sixth Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated October 4, 2019 (filed as Exhibit 10.13 to the December 31, 2019 10-K).†** | 10.14 | Seventh Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated December 2, 2019 (filed as Exhibit 10.14 to the December 31, 2019 10-K).†* | 10.15 | Eighth Amendment to Pension Plan for Employees of Amphenol Corporation as amended and restated effective January 1, 2016, dated December 9, 2021.†** | 10.1510.16
| Amended and Restated Amphenol Corporation Supplemental Employee Retirement Plan (filed as Exhibit 10.24 to the December 31, 2008 10-K).†* | 10.1610.17
| First Amendment to the Amended and Restated Amphenol Corporation Supplemental Employee Retirement Plan, dated October 29, 2018 (filed as Exhibit 10.14 to the December 31, 2018 10-K).†* | 10.1710.18
| Amphenol Corporation Directors’ Deferred Compensation Plan (filed as Exhibit 10.11 to the December 31, 1997 10-K).†* | 10.18
| The 2004 Stock Option Plan for Directors of Amphenol Corporation (filed as Exhibit 10.44 to the June 30, 2004 10-Q).†*
| 10.19 | The Amended 2004 Stock Option Plan for Directors of Amphenol Corporation (filed as Exhibit 10.29 to the June 30, 2008 10-Q).†*
| 10.20
| The 2012 Restricted Stock Plan for Directors of Amphenol Corporation dated May 24, 2012 (filed as Exhibit 10.15 to the June 30, 2012 10-Q).†* | 10.2110.20
| 2012 Restricted Stock Plan for Directors of Amphenol Corporation Restricted Share Award Agreement dated May 24, 2012 (filed as Exhibit 10.16 to the June 30, 2012 10-Q).†* | 10.2210.21
| 20202022 Amphenol Corporation Management Incentive Plan (filed as Exhibit 10.22 to the December 31, 2019 10-K).Plan.†**
| 10.2310.22
| Second Amended and Restated Credit Agreement, dated as of January 15, 2019,November 30, 2021, among the Company, certain subsidiaries of the Company, a syndicate of financial institutions and JPMorgan Chase Bank, N.A., acting as the administrative agent (filed as Exhibit 10.1 to the Form 8-K filed on January 18, 2019)December 10, 2021).* | 10.24
| Continuing Agreement for Standby Letters of Credit between the Company and Deutsche Bank dated March 4, 2009 (filed as Exhibit 10.36 to the March 31, 2009 10-Q).*
| 10.2510.23
| The Amphenol Corporation Employee Savings/401(K) Plan Adoption Agreement as amended and restated effective January 1, 2019, dated December 21, 2018 (filed as Exhibit 10.25 to the December 31, 2018 10-K).†* | 10.2610.24
| Amendment to The Amphenol Corporation Employee Savings/401(K) Plan Adoption Agreement, effective January 1, 2020, dated December 23, 2019 (filed as Exhibit 10.26 to the December 31, 2019 10-K).†* | 10.25 | Amendment to The Amphenol Corporation Employee Savings/401(K) Plan Adoption Agreement, effective January 1, 2021, dated October 8, 2020 (filed as Exhibit 10.24 to the December 31, 2020 10-K).†* | 10.26 | Amendment to The Amphenol Corporation Employee Savings/401(K) Plan Adoption Agreement, effective March 1, 2021, dated February 22, 2021 (filed as Exhibit 10.25 to the March 31, 2021 10-Q).†* | 10.27 | Amendment to The Amphenol Corporation Employee Savings/401(K) Plan Adoption Agreement, effective November 29, 2021, dated November 12, 2021.†** | 10.28 | Amendment to The Amphenol Corporation Employee Savings/401(K) Plan Adoption Agreement, effective January 1, 2022, dated November 17, 2021.†** | 10.29 | Amended and Restated Amphenol Corporation Supplemental Defined Contribution Plan (filed as Exhibit 10.30 to the September 30, 2011 10-Q).†* |
10.2810.30
| Amphenol Corporation Supplemental Defined Contribution Plan as amended effective January 1, 2012 (filed as Exhibit 10.34 to the December 31, 2011 10-K).†* | 10.2910.31
| Amphenol Corporation Supplemental Defined Contribution Plan as amended effective January 1, 2019 (filed as Exhibit 10.28 to the December 31, 2018 10-K).†* | 10.3010.32
| Commercial Paper Program form of Dealer Agreement dated as of August 29, 2014 between the Company, Citibank Global Markets and JP Morgan Securities LLC (filed as Exhibit 10.1 to the Form 8-K filed on September 5, 2014).* | 10.3110.33
| Commercial Paper Program Dealer Agreement dated as of July 10, 2018 between Amphenol Technologies Holding GmbH (as issuer), Amphenol Corporation (as guarantor), Barclays Bank PLC (as Arranger), and Barclays Bank PLC and Commerzbank Aktiengesellschaft (as Original Dealers) (filed as Exhibit 10.1 to the Form 8-K filed on July 11, 2018).* | 10.3210.34
| Form of Indemnification Agreement for Directors and Executive Officers (filed as Exhibit 10.27 to the December 31, 2016 10-K).†* | 21.1 | Subsidiaries of the Company.** | 23.1 | Consent of Deloitte & Touche LLP.** | 31.1 | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** | 31.2 | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** | 32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*** | 32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*** | 101.INS | Inline XBRL Instance Document – the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.** | 101.SCH | Inline XBRL Taxonomy Extension Schema Document.** | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.** | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.** | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.** | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.** | 104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).** |
† Management contract or compensatory plan or arrangement. * Incorporated herein by reference as stated. ** Filed herewith. *** Furnished with this report.herewith. Item 16. Form 10-K Summary Not applicable. SCHEDULE II AMPHENOL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2019, 20182021, 2020 and 20172019 (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at | | Charged to | | | | | Balance at | | | Balance at | | Charged to | | | | | Balance at | | | | beginning | | cost and | | Additions | | end of | | | beginning | | cost and | | Additions | | end of | | | | of period | | expenses | | (Deductions) | | period | | | of period | | expenses | | (Deductions) | | period | | Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2021 | | | $ | 44.8 | | $ | 1.5 | | $ | (2.8) | | $ | 43.5 | | Year ended December 31, 2020 | | | | 33.6 | | | 8.5 | | | 2.7 | | | 44.8 | | Year ended December 31, 2019 | | $ | 33.5 | | $ | 1.2 | | $ | (1.1) | | $ | 33.6 | | | | 33.5 | | | 1.2 | | | (1.1) | | | 33.6 | | Year ended December 31, 2018 | | | 23.0 | | | 13.0 | | | (2.5) | | | 33.5 | | | Year ended December 31, 2017 | | | 23.6 | | | 1.8 | | | (2.4) | | | 23.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Valuation allowance on deferred tax assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2021 | | | $ | 40.1 | | $ | 6.3 | | $ | (1.5) | | $ | 44.9 | | Year ended December 31, 2020 | | | | 35.2 | | | 3.8 | | | 1.1 | | | 40.1 | | Year ended December 31, 2019 | | $ | 34.7 | | $ | 0.2 | | $ | 0.3 | | $ | 35.2 | | | | 34.7 | | | 0.2 | | | 0.3 | | | 35.2 | | Year ended December 31, 2018 | | | 39.6 | | | (3.8) | | | (1.1) | | | 34.7 | | | Year ended December 31, 2017 | | | 37.2 | | | 2.5 | | | (0.1) | | | 39.6 | | |
Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the Town of Wallingford, State of Connecticut on the 12th9th day of February, 2020.2022. | | | AMPHENOL CORPORATION | | | | | | /s/ R. Adam Norwitt | | R. Adam Norwitt | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | Signature | | Title | | Date | | | | | | | | | | | /s/ R. Adam Norwitt | | President, Chief Executive Officer and Director | | February 12, 20209, 2022 | R. Adam Norwitt | | (Principal Executive Officer) | | | | | | | | /s/ Craig A. Lampo | | Senior Vice President and Chief Financial Officer | | February 12, 20209, 2022 | Craig A. Lampo | | (Principal Financial Officer and Principal Accounting Officer) | | | | | | | | /s/ Martin H. Loeffler | | Chairman of the Board of Directors | | February 12, 20209, 2022 | Martin H. Loeffler | | | | | | | | | | /s/ David P. Falck | | Presiding Director | | February 9, 2022 | David P. Falck | | | | | | | | | | /s/ Nancy A. Altobello | | Director | | February 9, 2022 | Nancy A. Altobello | | | | | | | | | | /s/ Stanley L. Clark | | Director | | February 12, 20209, 2022 | Stanley L. Clark | | | | | | | | | | /s/ John D. Craig | | Director | | February 12, 20209, 2022 | John D. Craig |
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| | | | | | | | | | /s/ Edward G. Jepsen | | Director | | February 12, 20209, 2022 | Edward G. Jepsen | | | | | | | | | | /s/ Rita S. Lane | | Director | | February 9, 2022 | Rita S. Lane | | | | | | | | | | /s/ Robert A. Livingston | | Director | | February 12, 20209, 2022 | Robert A. Livingston | | | | | | | | | | /s/ Anne Clarke Wolff | | Director | | February 12, 20209, 2022 | Anne Clarke Wolff | | | | | | | | | |
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