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Item 7. Management’s Discussion and Analysis

2021-02-10 compared with 2020-02-12 · 263 added, 218 removed, 327 unchanged (60% of the section changed)

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(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 following discussion and analysis of the results of operations and financial condition for the three years ended December 31, 2020, 2019 and 2018 has been derived from and should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, herein.

The Consolidated Financial Statements have been prepared in U.S.

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● 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 2020 , the Company reported net sales, operating income and net income attributable to Amphenol Corporation of $8,598.9, $1,638.4 and $1,203.4, respectively, representing an increase of 5%, 1% and 4%, respectively, from 2019.

In 2020, the Company’s net income attributable to Amphenol Corporation was impacted by (a) excess tax benefits related to stock-based compensation of $42.8 resulting from stock option exercises and (b) a discrete tax benefit of $19.9 related to the settlements of refund claims in certain non-U.S.

jurisdictions and the resulting adjustments to deferred taxes, partially offset by (c) acquisition-related expenses of $11.5 ($10.7 after-tax) primarily comprised of external transaction costs related to acquisitions that were announced or closed.

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.

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 reconciled in Part II, Item 7 herein , was unchanged in 2020 compared to 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.

In addition, a strength of the Company has been its ability to consistently generate cash from 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 2020, the Company generated Operating Cash Flow of $1,592.0 and Free Cash Flow of $1,327.9.

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.

Consistent with ASU 2018-05, t he 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.

Impact of Coronavirus (“COVID-19”) on our Operations, Financial Condition, Liquidity and Results of Operations

The COVID-19 pandemic has caused widespread disruptions to our Company during 2020, particularly during the first half of the year.

During the first quarter, these disruptions were primarily limited to our operations in China, which were closed for three weeks during January and February due to government mandates.

As the virus spread to the rest of the world beginning in March and continuing throughout the remainder of 2020, most of our other operations outside of China were also impacted.

As of December 31, 2020, we continue to experience some disruptions, and at a minimum, we expect those disruptions to continue through the first half of 2021 and they could, potentially, extend for the full year and beyond.

These disruptions have included and may continue to include, depending on the specific location, government regulations that limit our ability to operate certain of our facilities at full capacity and to adjust certain costs, travel restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.

During the fourth quarter of 2020 and into 2021, in several regions around the world, including the United States and Europe, there has been a resurgence in COVID-19 cases.

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, future government regulations and actions in response to the crisis, the timing, availability and effectiveness of vaccines, some of which have recently been approved and distributed for use, 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.

The Company continues taking actions to mitigate, as best we can, the impact of the COVID-19 pandemic on the health and well-being of our employees, the communities in which we operate and our partners, as well as the impact on our operations and business as a whole.

However, there can be no assurance that the COVID-19 pandemic will not have a material and adverse impact on our operations, financial condition, liquidity and results of operations.

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

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2020 Compared to 2019

Net sales were $8,225.4 for the year ended December 31, 2019 compared to $8,202.0 for the year ended December 31, 2018, which was flat in U.S.

dollars, an increase of 2% in constant currencies and a decrease of 3% organically (excluding both currency and acquisition impacts), over the prior year.

Net sales were $8,598.9 for the year ended December 31, 2020 compared to $8,225.4 for the year ended December 31, 2019, which was an increase of 5% in U.S.

dollars, 4% in constant currencies, and 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 96% of net sales) increased 5% in U.S.

dollars and 2% in constant currencies, while decreasing 3% organically, in 2019 compared to 2018.

The sales growth was driven by strong growth in the military and commercial aerospace markets as well as contributions from the Company’s acquisition program.

This sales growth was largely offset by reductions 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 due to strength in large passenger planes.

Net sales to the industrial market increased (approximately $66.1), primarily driven by 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.

Net sales to the automotive market increased (approximately $38.0), driven primarily by contributions from acquisitions, which were partially offset by moderations in demand due to the slowing of the worldwide automotive market.

Net sales to the information technology and data communications market slightly increased (approximately $5.6), driven primarily by contributions from acquisitions and organic growth of sales to data center customers, offset by moderations in market demand for storage and networking related products.

Net sales to the mobile devices market decreased (approximately $277.5), driven by moderations in sales of products incorporated into smartphones.

Net sales to the mobile networks market decreased (approximately $10.2), due to reduced demand from both mobile networks equipment manufacturers and mobile operators, offset in part by contributions from acquisitions.

dollars, 4% in constant currencies, and 2% organically, in 2020 compared to 2019.

The sales growth was driven by strong growth in the industrial, information technology and data communications, and mobile devices markets, along with moderate growth in the military market, and contributions from the Company’s 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 industrial market increased (approximately $246.4), primarily driven by strength in battery and electric vehicle, industrial instrumentation, heavy equipment, alternative energy and medical applications, along with contributions from acquisitions.

Net sales to the information technology and data communications market increased (approximately $234.0), driven 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 incorporated into laptops, tablets, wearable devices, and accessories along with production-related products, which was partially offset by a slight moderation of sales into smartphones.

Net sales to the military market increased (approximately $32.2), driven by strength across multiple segments of the military market, 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 decreased (approximately $98.5), which 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, partially as a result of the negative impact of the COVID-19 pandemic, offset in part by contributions from acquisitions.

Net sales to the automotive market decreased (approximately $86.0), due to a significant reduction in 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 4% of net sales), which primarily serves the broadband communications market, decreased 4% in U.S.

dollars, 1% in constant currencies and 1% organically in 2020, compared to 2019.

The decrease in the Cable Products and Solutions segment was primarily due to a reduction in demand from broadband service providers.

The decrease in net sales in the Cable Products and Solutions segment was largely driven by the

negative impact of the COVID-19 pandemic primarily during the first half of 2020, as well as an overall weakness in market demand.

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S.

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(4) Acquisition impact, a non-GAAP measure, represents the impact on net sales resulting from acquisitions closed since the beginning of the prior calendar year, which were not included in the Company’s results as of the comparable prior year and which do not reflect the underlying growth of the Company on a comparative basis.

Geographically, net sales in the United States in 2019 increased approximately 13% in U.S.

Geographically, net sales in the United States in 2020 decreased approximately 1% in U.S.

dollars ($2,494.0 in 2020 versus $2,524.7 in 2019) and 5% organically, compared to 2019.

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, driven by moderations in Asia.

The comparatively stronger U.S.

dollar in 2019 had the effect of decreasing net sales by approximately $125.8 when compared to foreign currency translation rates in 2018.

Foreign sales in 2020 increased approximately 7% in U.S.

dollars ($6,104.9 in 2020 versus $5,700.7 in 2019), 7% in constant currencies and 5% organically, compared to 2019, driven by strong growth in Asia.

The comparatively weaker U.S.

dollar in 2020 had an insignificant effect on net sales compared to 2019.

Selling, general and administrative expenses were $1,014.2 or 11.8% of net sales for 2020, compared to $971.4 or 11.8% of net sales for 2019.

Administrative expenses were flat in 2019 compared to 2018, and represented approximately 4.7% of net sales in both years.

Administrative expenses increased approximately $27.5 in 2020, and represented approximately 4.8% of net sales in 2020 and 4.7% of net sales in 2019.

Research and development expenses increased approximately $26.5 in 2020 primarily related to increases in expenses for new product development, and represented approximately 3.0% of net sales in 2020 and 2.8% of net sales in 2019.

Selling and marketing expenses were flat in 2019 compared to 2018, and represented approximately 4.3% of net sales in both years.

Selling and marketing expenses decreased approximately $11.2 in 2020 compared to 2019, and represented approximately 4.0% of net sales in 2020 and 4.3% of net sales in 2019.

Operating income was $1,638.4 or 19.1% of net sales in 2020, compared to $1,619.2 or 19.7% of net sales in 2019.

Operating income for 2019 included acquisition-related expenses of $25.4, comprising of the amortization of $15.7 related to the value associated with acquired backlog resulting from 2019 acquisitions, with the remainder representing external transaction costs.

Operating income for 2018 included acquisition-related expenses of $8.5, related to external transaction costs.

These 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 20.0% of net sales in 2019 and $1,695.4 or 20.7% in 2018.

Operating income for 2020 included acquisition-related expenses of $11.5, primarily comprised of external transaction costs related to acquisitions that were announced or closed.

Operating income for 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 by $10.7 or $0.03 per share, and $21.0 or $0.07 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, was $1,649.9 or 19.2% of net sales, respectively, in 2020 and $1,644.6 or 20.0% of net sales, respectively, in 2019.

Operating income for the Interconnect Products and Assemblies segment in 2020 was $1,741.2 or 21.2% of net sales, compared to $1,722.7 or 22.0% of net sales in 2019.

The slight decrease in operating margin for the Interconnect Products and Assemblies segment for 2019 compared to 2018 was primarily driven by normal downside conversion related to the organic decline in sales as well as the impact of recent acquisitions which currently have, on average, a lower operating margin than the average of the Interconnect Products and Assemblies segment.

In addition, the operating income for the Cable Products and Solutions segment in 2019 was $39.5 or 10.2% of net sales, compared to $52.6 or 12.5% of net sales in 2018.

The decrease in operating income margin for the Cable Products and Solutions segment in 2019 compared to 2018 was primarily driven by lower volumes and product mix.

The decrease in operating 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 during the second half of 2020.

Operating income for the Cable Products and Solutions segment in 2020 was $35.4 or 9.6% of net sales, compared to $39.5 or 10.2% of net sales in 2019.

The decrease in operating margin for the Cable Products and Solutions segment in 2020 compared to 2019 was primarily driven by lower volumes as well as the negative impact of the COVID-19 pandemic, primarily during the first half of 2020.

Interest expense was $115.4 in 2020 compared to $117.6 in 2019.

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.

Refer to Note 4 of the Consolidated Financial Statements for further information related to the Company’s debt.

Refer to Note 4 of the accompanying Consolidated Financial Statements and the “Liquidity and Capital Resources” section within this Item 7 for further information related to the Tendered Notes.

Provision for income taxes was at an effective rate of 20.5% in 2020 and 22.2% in 2019.

Provision for income taxes in 2019 included excess tax benefits of $38.1 from stock option exercises, 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.

These items had the aggregate effect of lowering the effective tax rate and increasing earnings per share by the amounts noted in the tables 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 24.5% and 25.5% for 2019 and 2018, respectively, as reconciled in the table below to the comparable effective tax rate based on GAAP results.

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 certain non-U.S.

jurisdictions and the resulting adjustments to deferred taxes, which was partially offset by the tax effect related to acquisition-related expenses during the year, each of which had an impact on the effective tax rate and 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 24.5% for both 2020 and 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 attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) was $1,155.0 and $3.75, respectively, for 2019, compared to $1,205.0 and $3.85, respectively, for 2018.

Excluding the effect of the aforementioned items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,150.4 and $3.74, respectively, for 2019, compared to $1,177.9 and $3.77, respectively, for 2018.

statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 6 of the Notes to Consolidated Financial Statements.

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were $1,203.4 and $3.91, respectively, for 2020, compared to $1,155.0 and $3.75, respectively, for 2019.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income 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 $1,151.4 and $3.74, respectively, for 2020, compared to $1,150.4 and $3.74, respectively, for 2019.

The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S.

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Excess tax benefits related to stock-based compensation

Tax Act Charge (benefit)

Discrete tax item

Adjusted (non-GAAP)

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2019 Compared to 2018

Net sales were $8,202.0 for the year ended December 31, 2018 compared to $7,011.3 for the year ended December 31, 2017, an increase of 17% in both U.S.

dollars and constant currencies and 14% organically (excluding both currency and acquisition impacts) over the prior year.

Net sales were $8,225.4 for the year ended December 31, 2019 compared to $8,202.0 for the year ended December 31, 2018, which was flat in U.S.

dollars, an increase of 2% in constant currencies and a decrease of 3% organically (excluding both currency and acquisition impacts), over the prior year.

Net sales in the Interconnect Products and Assemblies segment (approximately 95% of net sales) increased 1% in U.S.

dollars, 17% in constant currencies and 14% organically in 2018, compared to 2017.

The sales growth was driven by growth in the mobile devices, industrial, automotive, information technology and data communications, military, mobile networks 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.

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.

the industrial market increased (approximately $214.9), reflecting sales strength in medical, heavy equipment, electric vehicle, railway 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 as contributions from acquisitions.

Net sales to the information technology and data communications market increased (approximately $166.1), reflecting organic growth in products for data centers, including server and networking-related applications, storage, and consumer electronics.

Net sales to the military market increased (approximately $133.2), driven by broad strength across the market including increased sales into avionics, military communications and military airframe applications, as well as missile applications.

Net sales to the mobile networks market increased (approximately $56.3), due to increased sales to both mobile networks equipment manufacturers and mobile operators.

dollars and 2% in constant currencies, while decreasing 3% organically, in 2019 compared to 2018.

The sales growth was driven by strong growth in the military and commercial aerospace markets as well as contributions from the Company’s acquisition program.

This sales growth was largely offset by reductions in the communications-related markets, in particular the mobile devices market, along with the negative effect of currency translation.

Net sales to the commercial aerospace market increased (approximately $48.7) primarily due to strength in large passenger planes.

Net sales in the Cable Products and Solutions segment (approximately 5% of net sales), which primarily serves the broadband communications market, increased 4% in U.S.

Net sales to the mobile devices market decreased (approximately $277.5), driven by moderations in sales of products incorporated into smartphones.

Net sales in the Cable Products and Solutions segment (approximately 5% of net sales), which primarily serves the broadband communications market, decreased 8% in U.S.

dollars, 6% in constant currencies and 7% organically in 2019, compared to 2018.

The increase 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 offset by the slight decrease in sales into the broadband communications market.

The decrease in net sales in the Cable Products and Solutions segment was primarily due to a reduction in demand from broadband service providers.

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S.

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dollars ($2,524.7 in 2019 versus $2,241.4 in 2018) and 4% organically, compared to 2018.

Foreign sales 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.

The comparatively slightly weaker U.S.

dollar in 2018 had an insignificant effect on net sales compared to 2017.

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, driven by moderations in Asia.

The comparatively stronger U.S.

dollar in 2019 had the effect of decreasing net sales by approximately $125.8, compared to foreign currency translation rates in 2018.

Selling, general and administrative expenses were $971.4 or 11.8% of net sales for 2019, compared to $959.5 or 11.7% of net sales for 2018.

Administrative expenses increased approximately $46.4 in 2018 primarily related to increases in employee-related benefits and stock-based compensation expense, and represented approximately 4.7% of net sales in 2018 and 4.8% of net sales in 2017.

Administrative expenses were flat in 2019 compared to 2018, and represented approximately 4.7% of net sales in both years.

Research and development expenses increased approximately $13.3 in 2019 primarily related to increases in expenses for new product development, and represented approximately 2.8% of net sales in 2019 and 2.7% of net sales in 2018.

Selling and marketing expenses increased approximately $7.6 in 2018 primarily related to the increase in sales volume and represented approximately 4.3% of net sales in 2018 and 4.9% of net sales in 2017.

Selling and marketing expenses were flat in 2019 compared to 2018, and represented approximately 4.3% of net sales in both years.

Operating income was $1,619.2 or 19.7% of net sales in 2019, compared to $1,686.9 or 20.6% of net sales in 2018.

Operating income for 2018 and 2017 includes acquisition-related expenses of $8.5 and $4.0, respectively, related to external transaction costs.

Operating income for 2018 included acquisition-related expenses of $8.5, related to external transaction costs.

These acquisition-related expenses are separately presented in the Consolidated Statements of Income.

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 2019 was $1,722.7 or 22.0% of net sales, compared to $1,752.5 or 22.5% of net sales in 2018.

The increase in operating income margin was driven primarily by strong operating leverage on higher sales volumes.

In addition, the operating income for the Cable Products and Solutions segment in 2018 was $52.6 or 12.5% of net sales, compared to $54.2 or 13.4% of net sales in 2017.

The decrease in operating income margin for the Cable Products and Solutions segment in 2018 compared to 2017 was primarily driven by increases in certain com modity costs.

Operating income for the Cable Products and Solutions segment in 2019 was $39.5 or 10.2% of net sales, compared to $52.6 or 12.5% of net sales in 2018.

The decrease in operating margin for the Cable Products and Solutions segment in 2019 compared to 2018 was primarily driven by lower volumes and product mix.

Interest expense was $117.6 in 2019 compared to $101.7 in 2018.

The increase was primarily due to higher average interest rates on the Company’s U.S.

Commercial Paper Program (as defined below in this Item 7) and the senior note issuances in April 2017.

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 the Tendered Notes as a result of the tender offers in September 2019.

Refer to Note 4 of the accompanying Consolidated Financial Statements and the Liquidity and Capital Resources section within this Item 7 for further information related to the Tendered Notes.

Provision for income taxes was at an effective rate of 22.2% in 2019 and 23.4% in 2018.

The lower effective tax rate in 2018 compared to 2017 resulted primarily from the Tax Act Charge of $398.5 recorded in 2017, 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 the completion of the accounting for the Tax Act Charge, along with the excess tax benefits of $19.8 from stock option exercises.

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 defined in the “Non-GAAP Financial Measures” section below, was 25.5% and 26.5% for 2018 and 2017, respectively, as reconciled in the table below to the comparable effective tax rate based on GAAP results.

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 of the income tax charge (“Tax Act Charge”) associated with the Tax Cuts and Jobs Act (“Tax Act”), which were partially offset by the tax effect related to acquisition-related expenses during the year, each of which had an impact on the effective tax rate and earnings per share by the amounts noted in the table below.

These items had the aggregate effect of lowering the effective tax rate and increasing earnings per share by the amounts noted in the tables below.

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 attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) was $1,205.0 and $3.85, respectively, for 2018, compared to $650.5 and $2.06, respectively, for 2017.

Excluding the effect of the aforementioned items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,177.9 and $3.77, respectively, for 2018, compared to $986.1 and $3.12, respectively, for 2017.

statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 6 of the Notes to Consolidated Financial Statements.

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were $1,155.0 and $3.75, respectively, for 2019, compared to $1,205.0 and $3.85, respectively, for 2018.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,150.4 and $3.74, respectively, for 2019, compared to $1,177.9 and $3.77, respectively, for 2018.

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Acquisition-related expenses

Loss on early extinguishment of debt

Excess tax benefits related to stock-based compensation

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At December 31, 2020 and 2019, the Company had cash, cash equivalents and short-term investments of $1,738.1 and $908.6, respectively.

The vast 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.

The majority of the Company’s cash, cash equivalents and short-term investments on hand as of December 31, 2020 and 2019 was located outside of the United States.

The Company used approximately $145, net of cash acquired, of its cash and cash equivalents as of December 31, 2020 to fund two acquisitions in January 2021.

The Company also expects to fund the anticipated acquisition of MTS (as defined below) by the middle of 2021, through a combination of cash and cash equivalents on hand, along with borrowings under our existing revolving credit or commercial paper facilities, as discussed in more detail later within this Item 7.

As of December 31, 2020, there were no outstanding borrowings under the Company’s Commercial Paper Programs and the Revolving Credit Facility (each defined below).

Prior to the Tax Act, the Company asserted its intention to indefinitely reinvest outside of the United States all of its foreign earnings not otherwise distributed currently.

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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 and indefinitely reinvest all remaining 2018 foreign earnings.

On December 31, 2019 and 2018, the Company indicated its intention to distribute certain 2019 and 2018 foreign earnings, respectively, and accrued foreign and U.S.

state and local taxes, if applicable, on those earnings as appropriate and indefinitely reinvest all remaining 2019 and 2018 foreign earnings, respectively.

The Company intends to distribute certain 2020 foreign earnings and has accrued foreign and U.S.

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The Company intends to evaluate certain post-2020 earnings for distribution, and accrue for those distributions where appropriate, and to indefinitely reinvest all other foreign earnings.

As of December 31, 2019, the Company has not provided for deferred income taxes on undistributed foreign earnings related to certain geographies of approximately $900, as it is the Company’s intention to permanently reinvest such earnings outside the United States.

As of December 31, 2020, the Company has not provided for deferred income taxes on undistributed foreign

earnings of approximately $900 related to certain geographies, 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.

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Commercial Paper Program, the Euro Commercial Paper Program, and the Revolving Credit Facility (each as defined below in this Item 7).

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 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 (including the issuances of the 2025 Senior Notes in February 2020 and the 2026 Euro Notes in May 2020, each as defined and discussed further within this Item 7), provide adequate liquidity to meet its obligations for at least the next twelve months.

The Company’s primary ongoing cash requirements will be for operating and capital expenditures, the MTS acquisition, 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 3.125% Senior Notes due in September 2021), and to the extent of any amounts outstanding, the Revolving Credit Facility and the Commercial Paper Programs (all as defined below).

The Company may also use cash to fund all or part of the cost of future acquisitions.

The Company expects that capital expenditures in 2021 will be in a range of 3% to 4% of net sales.

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The ability to generate cash from operating activities is one of the Company’s fundamental financial strengths.

Cash flow provided by operating activities (“Operating Cash Flow”) was $1,502.3 for 2019 compared to $1,112.7 for 2018.

The increase in Operating Cash Flow for 2019 is primarily related to 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.

Net cash provided by operating activities (“Operating Cash Flow”) was $1,592.0 for 2020, compared to $1,502.3 for 2019 and $1,112.7 for 2018.

The increase in Operating Cash Flow for 2020 compared to 2019 is primarily due to the increase in net income, along with a lower usage of cash related to the change in working capital as discussed below.

The increase in Operating Cash Flow for 2019 compared to 2018 was primarily related to a lower usage of cash related to the change in working capital.

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.

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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 wa s 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.

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.

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.

$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.

The following describes the significant changes in the amounts as presented on the accompanying Consolidated Balance Sheets at December 31, 2020 compared to December 31, 2019.

Accounts receivable decreased $55.4 to $1,736.4 primarily due to lower sales volumes in the fourth quarter of 2019 relative to the fourth quarter of 2018 as well as the effect of translation from exchange rate changes at December 31, 2019 compared to December 31, 2018 (“Translation”), partially offset by the impact of acquisitions.

Days sales outstanding at December 31, 2019 and 2018 were approximately 73 days.

Inventories increased $76.3 to $1,310.1, primarily due to the impact of acquisitions, partially offset by Translation.

Inventory days at December 31, 2019 and 2018 were approximately 80 days and 74 days, respectively.

Property, plant and equipment, net, increased $123.2 to $999.0, primarily due to capital expenditures of $295.0 and the impact of acquisitions, partially offset by depreciation of $240.0, disposals and Translation.

Goodwill increased $763.9 to $4,867.1 primarily as a result of goodwill recognized related to nine acquisitions that closed in 2019, partially offset by Translation.

Other intangible assets, net increased $44.1 to $442.0 primarily due to the recognition of certain identifiable intangible assets of $111.8 related to the 2019 acquisitions, partially offset by amortization of $67.3.

Other long-term assets increased $199.8 to $296.2 primarily due to the adoption of the new lease standard (“Topic 842”) described in Note 1 and Note 10 of the accompanying Consolidated Financial Statements, which resulted in the recognition of $196.7 of operating lease right-of-use assets as of December 31, 2019.

Accounts payable decreased $23.7 to $866.8, primarily due to less purchasing activity resulting from lower sales activity and Translation, partially offset by the impact of acquisitions.

Payable days at December 31, 2019 and 2018 were 53 days.

Total accrued expenses, including accrued income taxes, increased $66.1 to $862.6, primarily as a result of the adoption of Topic 842, which resulted in the recognition of $54.0 of current operating lease liabilities as of December 31, 2019, and the impact of acquisitions, partially offset by certain tax payments.

Other long-term liabilities, including deferred tax liabilities, increased $151.6 to $684.4, primarily as a result of the adoption of Topic 842, which resulted in the recognition of $145.4 of long-term operating lease liabilities as of December 31, 2019.

In 2019 and 2018, the Company made aggregate cash contributions to its defined benefit pension plans of approximately $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.

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.

Accounts receivable increased $215.2 to $1,951.6 primarily due to higher sales in the fourth quarter of 2020 relative to the fourth quarter of 2019, along with the effect of translation from exchange rate changes at December 31, 2020 compared to December 31, 2019 (“Translation”).

Days sales outstanding at December 31, 2020 and 2019 were 72 days and 73 days, respectively.

Inventories increased $152.1 to $1,462.2, primarily to support higher sales levels, along with the effect of Translation.

Inventory days at December 31, 2020 and 2019 were 79 days and 80 days, respectively.

Prepaid expenses and other current assets increased $82.8 to $338.9, primarily due to increases in certain prepaid expenses and other current receivables.

Property, plant and equipment, net, increased $55.6 to $1,054.6, primarily due to capital expenditures of $276.8 and Translation, partially offset by depreciation of $252.7 and disposals.

Goodwill increased $165.0 to $5,032.1, primarily as a result of Translation, as well as goodwill recognized related to two acquisitions that closed in 2020.

Other intangible assets, net, decreased $44.5 to $397.5 primarily due to the amortization of $49.6 related to the Company’s intangible assets.

Other long-term assets increased $56.1 to $352.3, primarily due to an increase in operating lease right-of-use assets, along with an increase in deferred tax assets.

Accounts payable increased $253.9 to $1,120.7, primarily as a result of increased purchasing activity related to higher sales levels, along with Translation.

Payable days at December 31, 2020 and 2019 were 61 days and 53 days, respectively.

Total accrued expenses, including accrued income taxes, increased $90.7 to $953.3, primarily as a result of an increase in accrued salaries and wages and other accrued expenses, partly offset by the contingent consideration payment (related to the SSI acquisition) of $75.0 in June 2020, a deferred purchase price payment in the third quarter of $16.2, and a decrease in accrued income taxes, primarily resulting from U.S.

federal tax payments.

Accrued pension and postretirement benefit obligations increased $29.8 to $228.6, primarily due to a decrease in the discount rate used to calculate the pension liabilities, partially offset by benefit payments.

Other long-term liabilities, including deferred tax liabilities, increased $21.9 to $706.3, primarily as a result of an increase in deferred tax liabilities.

In 2020, 2019 and 2018, the Company made aggregate cash contributions to its defined benefit pension plans of approximately $6.5, $6.6 and $88.3, respectively.

In 2018, approximately $81.0 of the contributions in that year related to the January 2018 voluntary cash contribution to fund our U.S.

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, 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.

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GAAP financial measure for the years ended December 31, 2020, 2019 and 2018.

The increase in Free Cash Flow in 2020 compared to 2019 was driven by the increase in Operating Cash Flow, as described above, and to a lesser extent, a decrease in capital expenditures.

The increase in Free Cash Flow in 2019 compared to 2018 was driven by the increase in Operating Cash Flow, as described above.

The decrease in Free Cash Flow in 2018 compared to 2017 was primarily 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.

Operating Cash Flow (GAAP)

Capital expenditures (GAAP)

Proceeds from disposals of property, plant and equipment (GAAP)

Free Cash Flow (non-GAAP)

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Net cash used in investing activities was $333.5 in 2020, compared to $1,228.8 in 2019 and $441.8 in 2018.

In 2019, net cash used in investing activities 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 2020, net cash used in investing activities was driven primarily by capital expenditures (net of disposals) of $264.1, the use of $50.4 to fund acquisitions, and net purchases of short-term investments of $18.4.

In 2019, net cash used in

investing activities 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, proceeds from the exercise of stock options, dividend payments, and distributions to and purchases of noncontrolling interests.

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, proceeds from stock option exercises, dividend payments, and distributions to and purchases of noncontrolling interests.

Net cash used in financing activities was $516.6 in 2020, compared to $648.4 in 2019 and $1,070.1 in 2018.

In 2019, net cash used in financing activities was driven primarily by (i) the aggregate repayments of certain of the Company’s senior notes and other long-term debt (primarily 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, (ii) repurchases of the Company’s common stock of $601.7, (iii) dividend payments of $279.5, (iv) net repayments under the Company’s commercial paper programs of $229.0, (v) distributions to and purchases of noncontrolling interests of $43.3, (vi) payments of costs of $14.9 related to debt financing primarily associated with the 2029 Senior Notes, the Revolving Credit Facility, and the 2030 Senior Notes (each as defined below), and (vii) premiums and fees paid of $13.4 related to the early extinguishment of the Tendered Notes, partially offset by (i) aggregate net cash proceeds from the issuances of the 2029 Senior Notes and the 2030 Senior Notes of $1,398.8 and (ii) cash proceeds from the exercise of stock options of $246.1.

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.

In 2020, net cash used in financing activities was driven primarily by (i) repurchases of the Company’s common stock of $641.3, (ii) the repayments of $404.4 associated with 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 costs of $8.7 related to debt financing primarily associated with the 2025 Senior Notes and 2026 Euro Notes (each as defined below), and (viii) net repayments under the Company’s credit facilities of $0.7, partially offset by (i) net cash proceeds from both the February 2020 issuance of the 2025 Senior Notes and the May 2020 issuance of the 2026 Euro Notes of $942.3 and (ii) cash proceeds of $385.7 from the exercise of stock options.

In 2019, net cash used in financing activities was driven primarily by (i) the aggregate repayments of $1,111.5 associated with certain of the Company’s senior notes (the 2.55% U.S.

Senior Notes due January 2019 and the early extinguishment of the Tendered Notes in September 2019) and other long-term debt, (ii) repurchases of the Company’s common stock of $601.7, (iii) dividend payments of $279.5, (iv) net repayments of $229.0 associated with the Company’s 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 primarily associated with the 2029 Senior Notes, the Revolving Credit Facility, and the 2030 Senior Notes (each as defined below), and (vii) premiums and fees paid of $13.4 related to the early extinguishment of the Tendered Notes, partially offset by (i) aggregate net cash proceeds from the issuances of the 2029 Senior Notes and the 2030 Senior Notes of $1,398.8 and (ii) cash proceeds of $246.1 from the exercise of stock 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 $559.8 associated with commercial paper and other debt, (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 2028 Euro Notes and Euro Commercial Paper Program (each defined below), partially offset by (i) net cash proceeds of $571.7 from the October 2018 issuance of the 2028 Euro Notes and (ii) cash proceeds of $130.7 from the exercise of stock options.

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 facility and senior notes as part of its overall cash management strategy.

On January 15, 2019, the Company amended its $2,000.0 unsecured credit facility with a $2,500.0 unsecured credit facility (“Revolving Credit Facility”).

The Revolving Credit Facility, which matures January 2024, increases the lenders’ aggregate commitments by $500.0 and gives the Company the ability to borrow at a spread over LIBOR.

The Company’s debt financing includes the use of the commercial paper programs, the Revolving Credit Facility and senior notes as part of its overall cash management strategy.

On January 15, 2019, the Company amended its existing $2,000.0 unsecured credit facility with a $2,500.0 unsecured credit facility (the “Revolving Credit Facility”).

The Revolving Credit Facility, which matures January 2024, gives the Company the ability to borrow, in various currencies, at a spread over LIBOR.

The Company may utilize the Revolving Credit Facility for general corporate purposes.

At December 31, 2019, there were no borrowings under the Revolving Credit Facility.

At December 31, 2020, 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, 2020, 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 issues short-term unsecured commercial paper notes in one or more private placements in the United States (the “U.S.

The Company has a commercial paper program pursuant to which the Company may 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 amount of U.S.

commercial paper notes outstanding (“USCP Notes”) as of December 31, 2019 was $160.0.

On July 10, 2018, the Company and one of its wholly owned European subsidiaries (the “Euro Issuer”) entered into a euro-commercial 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.

As of December 31, 2020, there were no USCP Notes outstanding.

In July 2018, the Company and one of its wholly owned European subsidiaries (collectively, the “Euro Issuer”) entered into a euro-commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S.

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.

dollars or other currencies.

The amount of ECP Notes outstanding as of December 31, 2019 was €210.0 (approximately $235.5).

In addition, effective April 14, 2020, a subsidiary of the Company is able to issue ECP Notes through the Bank of England’s COVID Corporate Financing Facility (the “BOE Facility”).

The BOE Facility will be available until March 22, 2021, although the Company has no current intentions to borrow under the BOE Facility.

As of December 31, 2020, there were no ECP Notes outstanding, including under the BOE Facility.

Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time.

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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.

On March 20, 2020, the Company, through one of its wholly owned foreign subsidiaries, borrowed $100.0 (the maximum borrowing capacity) on an uncommitted line of credit, at a variable LIBOR-based interest rate, initially set at 1.92%.

This line of credit, which was guaranteed by the Company and carried an interest rate of LIBOR plus 80 basis points, expired on December 19, 2020.

Borrowings under this line of credit arrangement were used for general corporate purposes.

Prior to maturity, on May 5, 2020, the Company repaid, in full, the outstanding borrowing on this uncommitted line of credit, using cash and cash equivalents on hand.

As of December 31, 2020, the Company has outstanding senior notes (the “Senior Notes”) as follows:

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February 2030

May 2026 (Euro Notes)

October 2028 (Euro Notes)

Senior Notes are unsecured and rank equally in right of payment with the Company’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, 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 September 4, 2019, 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 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”).

On April 1, 2020, the Company used the net proceeds from the 2025 Senior Notes to repay the $400.0 principal amount of unsecured 2.20% Senior Notes due April 1, 2020 upon maturity.

Commercial Paper Program, to repay the $750.0 principal amount of unsecured 2.55% Senior Notes due in January 2019.

On September 4, 2019, the Company commenced tender offers (the “Tender Offers”) to purchase for cash any and all of the Company’s outstanding (i) $375.0 principal amount of 3.125% Senior Notes due September 2021 (the “2021 Senior Notes”) and (ii) $500.0 principal amount of 4.00% Senior Notes due February 2022 (the “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 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.

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, 2020.

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Commercial Paper Program.

On October 8, 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”, and collectively with the 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.

All of the Company’s outstanding senior notes in the United States (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, subject to certain terms and conditions.

The 2021 Senior Notes are due in September 2021 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, 2020.

On 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 “0.750% Euro Senior Notes”).

The Company used the net proceeds from the 2026 Euro Notes to repay amounts outstanding under its Revolving Credit Facility.

On October 8, 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, the “Senior Notes”).

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 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, subject to certain terms and conditions.

The Company’s Senior Notes contain certain financial and non-financial covenants.

At December 31, 2020, the Company was in compliance with the financial covenants 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.

Refer to Note 4 of the Notes to 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 may 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 years ended December 31, 2019 and 2018, the Company repurchased 6.5 million and 6.4 million shares of its Common Stock for $601.7 and $553.2, respectively, under the 2018 Stock Repurchase Program.

Of the total repurchases in 2019, 5.5 million shares, or $514.1, have been retired by the Company;

the remaining 1.0 million shares, or $87.6, were retained in Treasury stock at time of repurchase.

Of the total repurchases in 2018, 5.7 million shares, or $498.2, have been 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.

During the years ended December 31, 2020, 2019 and 2018, the Company repurchased 6.0 million, 6.5 million and 6.4 million shares of its Common Stock for $641.3, $601.7 and $553.2, respectively, under the 2018 Stock Repurchase Program.

Of the total repurchases in 2020, 1.4 million shares, or $153.9, have been retained in Treasury stock at time of repurchase;

the remaining 4.6 million shares, or $487.4, have been retired by the Company.

Of the total repurchases in 2019, 1.0 million shares, or $87.6, were retained in Treasury stock at time of repurchase;

the remaining 5.5 million shares, or $514.1, were retired by the Company.

Of the total repurchases in 2018, 0.7 million shares, or $55.0, were retained in Treasury stock at time of repurchase;

the remaining 5.7 million shares, or $498.2, were retired by the Company.

From January 1, 2021 through January 31, 2021, the Company repurchased $4.0 of its Common Stock, and has remaining authorization to purchase up to $199.8 of its Common Stock under the 2018 Stock Repurchase Program.

The price and timing of any future purchases under the 2018 Stock Repurchase Program will depend on a number of factors such as levels of cash generation from operations, the level of uncertainty relating to the COVID-19 pandemic, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.

In January 2017, the Company’s Board of Directors authorized a stock repurchase program under which the Company could purchase up to $1,000.0 of the Company’s Common Stock during the two-year period ending January 24, 2019 (the “2017 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act.

During the three months ended March 31, 2018, the Company repurchased 4.2 million shares of its Common Stock for $382.0, while during the year ended December 31, 2017, the Company repurchased 8.4 million shares of its Common Stock for $618.0 .

These shares have been retired by the Company .

These repurchases of 12.6 million shares for $1,000.0 completed the 2017 Stock Repurchase Program .

The repurchases in the first quarter of 2018, coupled with the Company’s repurchase of 6.4 million shares of its Common Stock for $553.2 under the 2018 Stock Repurchase Program

during the nine months ended December 31, 2018, resulted in total repurchases of 10.6 million shares for $935.2 during the year ended December 31, 2018.

During the three months ended March 31, 2018, the Company repurchased 4.2 million shares of its Common Stock for $382.0, all of which were retired by the Company;

these repurchases completed the $1,000.0 2017 Stock Repurchase Program.

The repurchases in the first quarter of 2018, coupled with the Company’s repurchase of 6.4 million shares of its Common Stock for $553.2 under the 2018 Stock Repurchase Program during the nine months ended December 31, 2018, resulted in total repurchases of 10.6 million shares for $935.2 during the year ended December 31, 2018.

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, the Company’s Board of Directors approved an increase to its quarterly dividend rate from $0.23 to $0.25 per share effective with dividends declared in the third quarter of 2019.

The following table summarizes the declared quarterly dividends per share for each of the three years ended December 31, 2019, 2018 and 2017:

On October 20, 2020, the Company’s Board of Directors approved an increase to its quarterly dividend rate from $0.25 per share to $0.29 per share effective with dividends declared in the fourth quarter of 2020.

The following table summ arizes the declared quarterly dividends per share for each of the three years ended December 31, 2020, 2019 and 2018:

First Quarter

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In July 2017, the United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced its intent to phase out the use of LIBOR by the end of 2021.

On December 4, 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.

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”) as its preferred benchmark alternative to U.S.

dollar LIBOR.

Published by the Federal Reserve Bank of New York, SOFR represents a measure of the cost of borrowing cash overnight, collateralized by 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.

The Company is evaluating the potential impact of the replacement of LIBOR (which ultimately may or may not be SOFR), from both a risk management and financial reporting perspective, including the review of potential issues that might arise in connection with this transition.

Our current portfolio of debt and financial instruments tied to LIBOR consists primarily of our Commercial Paper Programs and Revolving Credit Facility, the latter of which has no outstanding borrowings as of December 31, 2019.

Due to our current limited reliance on borrowings tied to LIBOR, the Company does not believe that this transition will have a material impact on our business, financial condition, results of operations or cash flows.

In March 2020, in response to this transition, the Financial 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 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.

In January 2021, the FASB issued further clarifying guidance surrounding derivatives, as it relates to this transition.

The Company is evaluating the potential impact of the replacement of LIBOR from both a risk management and financial reporting perspective.

Our current portfolio of debt and financial instruments currently tied to LIBOR consists primarily of our Revolving Credit Facility, which had no outstanding borrowings as of December 31, 2020.

Due to our current limited reliance on borrowings tied to LIBOR, the Company does not currently believe that this transition will have a material impact on our financial condition, results of operations or cash flows.

The Company and certain of its subsidiaries in the United States have defined benefit pension plans (“U.S.

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Plans’ benefits are generally based on years of service and compensation and are generally noncontributory.

employees not covered by the U.S.

Plans are covered by defined contribution plans.

The majority of U.S.

employees are not covered by the U.S.

Plans and are covered by 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 under the Company’s pension and postretirement benefit plans increased in 2019 to $184.8 from $178.5 in 2018 primarily due to the impact of lower discount rates on our projected benefit obligation, which was partially offset by higher actual returns on plan assets.

In 2018, the Company also made a voluntary cash contribution of $81.0 to fund the U.S.

The total liability for accrued pension and postretirement benefit obligations associated with the Company’s underfunded pension and postretirement benefit plans increased in 2020 to $211.0 from $184.8 in 2019 primarily due to the impact of lower discount rates on our projected benefit obligation, which was partially offset by actual returns on plan assets.

In 2018, the Company also

made a voluntary cash contribution of $81.0 to fund the U.S.

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.

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.

The acquisition of SSI was funded by cash, cash equivalents and short-term investments on hand.

SSI, which is headquartered in the state of Wisconsin in the United States, is a leading designer and manufacturer of sensors and sensing solutions for the global automotive and industrial markets.

During 2019, the Company completed nine acquisitions (including SSI) for $937.4, net of cash acquired.

All but one of the acquisitions are included in the Interconnect Products and Assemblies segment.

These acquisitions were not material to the Company either individually or in the aggregate.

Refer to Note 9 of the Notes to Consolidated Financial Statements for further discussion of the Company’s benefit plans and other postretirement benefit plans.

During 2020, the Company completed two acquisitions for $50.4, net of cash acquired.

The 2020 acquisitions were included in the Interconnect Products and Assemblies segment and were not material, either individually or in the aggregate, to the Company.

During 2019, the Company completed nine acquisitions (including the January 2019 acquisition of SSI Controls Technologies) for $937.4, net of cash acquired.

All but one of the acquisitions in 2019 were included in the Interconnect Products and Assemblies segment.

These 2019 acquisitions were not material, either individually or in the aggregate, to the Company.

On December 9, 2020, Amphenol announced that the Company entered into a definitive agreement under which Amphenol will acquire MTS Systems Corporation (Nasdaq:

MTSC) (“MTS”) for $58.50 per share in cash, or approximately $1,700, net of cash acquired and including the assumption of outstanding debt and liabilities.

MTS, which is headquartered in the state of Minnesota in the United States, is a leading global supplier of precision sensors, advanced test systems and motion simulators.

MTS is organized into two business segments:

Sensors and Test & Simulation.

The Sensors segment represents a highly complementary offering of high-technology, harsh environment sensors sold into diverse end markets and applications.

The Company expects the MTS acquisition to further expand our range of sensor and sensor-based products across a wide array of industries.

The definitive agreement to acquire MTS has been unanimously approved by the boards of both companies and is expected to close by the middle of 2021, subject to certain regulatory approvals, approval from MTS’s shareholders and other customary closing conditions.

Amphenol expects to fund the MTS acquisition through a combination of cash and cash equivalents on hand, along with borrowings under our existing revolving credit or commercial paper facilities.

On January 19, 2021, the Company announced that it has entered into an agreement to sell the MTS Test & Simulation business to Illinois Tool Works Inc.

The sale of this business is expected to close following the anticipated closing of our acquisition of MTS, subject to certain regulatory approvals and other customary closing conditions.

In January 2021, the Company also completed two acquisitions, each in the Interconnect Products and Assemblies segment, for approximately $145, net of cash acquired.

These acquisitions, which were funded using cash and cash equivalents on hand, are not material, either individually or in the aggregate, to the Company’s financial results.

For further discussion of the Company’s acquisitions, refer to Note 11 of the Notes to Consolidated Financial Statements.

On January 27, 2021, the Company announced that its Board of Directors approved a two-for-one split of the Company’s common stock.

The stock split will be effected in the form of a stock dividend paid to shareholders of record as of the close of business on February 16, 2021.

The Company expects the additional shares will be distributed on March 4, 2021.

Refer to Note 8 of the Notes to Consolidated Financial Statements for the pro forma effect of this stock split as if it had been effective for all years presented.

Environmental Matters

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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 14 of the Notes to Consolidated Financial Statements.

Inflation and Costs

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Non-GAAP financial measures related to operating income, operating margin, net income attributable to Amphenol Corporation, effective tax rate and diluted EPS exclude income and expenses that are not directly related to the Company’s operating performance during the years presented.

Items excluded in 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).

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.

Non-GAAP financial measures related to net sales exclude the impact related to foreign currency exchange and acquisitions.

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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 Net cash provided by operating activities (“Operating Cash Flow” - as reported in accordance with U.S.

GAAP) less capital expenditures (as reported in accordance with U.S.

GAAP), both of which are derived from the Consolidated Statements of Cash Flow.

● Free Cash Flow is defined as (i) Net cash provided by operating activities (“Operating Cash Flow” - as reported in accordance with U.S.

GAAP) less (ii) capital expenditures (as reported in accordance with U.S.

GAAP), net 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 shareholders 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) changes in foreign currency exchange rates, which directly impact the Company’s operating results and are outside the control of the Company and 2) acquisitions closed since the beginning of the prior calendar year, which were not included in the Company’s results as of the comparable prior year periods and which do not reflect the underlying growth of the Company on a comparative basis.

● 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 (i) changes in foreign currency exchange rates, which directly impact the Company’s operating results and are outside the control of the Company and (ii) acquisitions closed since the beginning of the prior calendar year, which were not included in the Company’s results as of the comparable prior year periods and which 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.

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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.

Refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements, including those adopted by the Company.

Critical Accounting Policies and Estimates

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The Company believes that the most significant areas involving critical accounting policies are set forth below.

The significant accounting policies are more fully described in Note 1 of the Notes to the Company’s Consolidated Financial Statements.

The significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition

The Company’s net sales in the Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 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.

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 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.

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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

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, 2020 and 2019.

Pre-adoption of Topic 606

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.

Deferred income taxes are provided for revenue and expenses which are recognized in different periods for income tax and financial statement reporting purposes.

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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, 2020, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $900 related to certain geographies, 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.

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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.

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 of foreign subsidiaries.

The accounting associated with each of the provisional amounts was completed in 2018.

Beginning in 2018, the global intangible low-taxed income (“GILTI”) provision imposed a tax on certain earnings o f foreign subsidiaries.

The Company elected an accounting policy to account for GILTI as a period cost.

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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, t he Company completed its accounting and recorded an income tax benefit in 2018.

Disclosures about contractual obligations and commitments

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(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.

Over the past several years, there has been no minimum requirement for Company contributions to the U.S.

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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.

Plans, while no such voluntary contribution was made in 2020 and 2019.

It is not possible to reasonably estimate expected required contributions in the above table after 2021 since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets.

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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.

The third installment of the Transition Tax was paid in the third quarter of 2020.

(6) As of December 31, 2020, the Company has recorded net liabilities of approximately $168.2 related to unrecognized tax benefits.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis