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Item 2. Management’s Discussion and Analysis

2021-04-30 compared with 2020-10-23 · 168 added, 196 removed, 150 unchanged (71% 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 and nine months ended September 30, 2020 and 2019 has been derived from and should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our,” or “us”), which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The following discussion and analysis of the results of operations and financial condition for the three months ended March 31, 2021 and 2020 has been derived from and should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our,” or “us”), which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”.

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Refer to “Non-GAAP Financial Measures” within this Item 2 for more information, including our reasons for including the non-GAAP financial measures and material limitations with respect to the usefulness of the measures.

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

The additional shares were distributed on March 4, 2021, and the Company’s Common Stock began trading on a split-adjusted basis on March 5, 2021.

All current and prior year data impacted by the stock split and presented in this Item 2 and throughout this Form 10-Q herein, including number of shares, share and per share activity, earnings per share and dividends per share amounts, among others, have been retroactively adjusted to reflect the effect of the stock split.

Refer to Note 1 of the accompanying Notes to Condensed Consolidated Financial Statements for further information related to the stock split.

Safe Harbor Statement

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events and are subject to risks and uncertainties.

The forward-looking statements, which address the Company’s expected business and financial performance and financial condition, among other matters, may contain words and terms such as:

“anticipate,” “could,” “believe,” “continue,” “expect,” “estimate,” “forecast,” “ongoing,” “project,” “seek,” “predict,” “target,” “will,” “intend,” “plan,” “look ahead,” “optimistic,” “potential,” “guidance,” “may,” “should,” or “would” and other words and terms of similar meaning.

Although the Company believes the expectations reflected in such forward-looking statements, including those with regards to results of operations, liquidity or the Company’s effective tax rate, are based upon reasonable assumptions, the expectations may not be attained or there may be material deviation.

All statements that address events or developments that we expect or believe may or will occur in the future are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

The forward-looking statements, which address the Company’s expected business and financial performance and financial condition, as well as expectations regarding the anticipated timing and estimated expenses associated with the closing of certain acquisitions and divestitures, among other matters, may contain words and terms such as:

“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “look ahead,” “may,” “ongoing,” “optimistic,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” or “would” and other words and terms of similar meaning.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about expected earnings, revenues, growth, liquidity or other financial matters, together with any forward-looking statements related in any way to (i) the coronavirus (“COVID-19”) pandemic, including its future impact on the Company, (ii) the expected acquisition costs associated with the MTS Systems Corporation (“MTS”) acquisition and (iii) the expected closing of the divestiture of the MTS Test & Simulation (“MTS T&S”) business to Illinois Tool Works Inc.

(“ITW”) which may not be completed in a timely manner or at all, all of which are discussed within this Form 10-Q.

Although the Company believes the expectations reflected in all forward-looking statements, including those with regards to results of operations, liquidity, the Company’s effective tax rate, acquisition-related costs associated with the MTS acquisition and other matters discussed herein, are based upon reasonable assumptions, the expectations may not be attained or there may be material deviation.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.

There are risks and uncertainties that could cause actual results to differ materially from these forward-looking statements, which include, but are not limited to, the following:

future risks and existing uncertainties associated with the COVID-19 pandemic, which continues to disrupt our operations, including, 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 and the gradual transition back to the workplace, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers;

There are risks and uncertainties that could cause actual results to differ materially from these forward-looking statements, which include, but are not limited to, the

future risks and existing uncertainties associated with adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic, which continues to disrupt our operations, including, 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;

uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers;

uncertainties and volatility in the global capital markets;

political, economic, military and other risks in countries outside of the United States;

political, economic, military and other risks in countries outside the United States;

the impact of general economic conditions, geopolitical conditions and U.S.

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the Company’s ability to compete successfully on the basis of technology innovation, product quality and performance, price, customer service and delivery time;

the Company’s ability to continue to conceive, design, manufacture and market new products and upon

continuing market acceptance of its existing and future product lines;

the Company’s ability to continue to conceive, design, manufacture and market new products and ability to rely upon continuing market acceptance of its existing and future product lines;

difficulties and unanticipated expenses in connection with purchasing and integrating newly acquired businesses, including the potential for the impairment of goodwill and other intangible assets;

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governmental export and import controls that certain of our products may be subject to, including export licensing, customs regulations, economic sanctions or other laws;

cybersecurity threats or incidents that could arise on our information technology systems which could disrupt business operations and adversely impact our reputation and operating results and potentially lead to litigation and/or governmental investigations;

changes in fiscal and tax policies, audits and examinations by taxing authorities, laws, regulations and guidance in the United States and foreign jurisdictions, including related interpretations of certain provisions of the U.S.

Tax Cuts and Jobs Act of 2017 (“Tax Act”);

cybersecurity threats or incidents that could arise on our information technology systems, which could disrupt business operations or cause the release of highly sensitive confidential information and adversely impact our reputation and operating results and potentially lead to litigation and/or governmental investigations;

changes in fiscal and tax policies, audits and examinations by taxing authorities, laws, regulations and guidance in the United States and foreign jurisdictions;

any difficulties in protecting the Company’s intellectual property rights;

and litigation, customer claims, product recalls, governmental investigations, criminal liability or environmental matters including changes to laws and regulations to which the Company may be subject.

In addition, the extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, future government regulations in response to the crisis 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.

Such forward-looking statements may also be impacted by, among other things, additional guidance under the Tax Act.

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’s interpretive guidance initiatives are ongoing.

Any future guidance on the Tax Act could impact our forward-looking statements.

In addition, 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, 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.

A further description of these uncertainties and other risks can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, Quarterly Reports on Form 10-Q and the Company’s other reports filed with the Securities and Exchange Commission.

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The Company undertakes no obligation to update or revise any forward-looking statements except as required by law.

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 the first nine months of 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 second and third quarters of 2020, most of our other operations outside of China were then also impacted.

As of September 30, 2020, we continue to experience some disruptions, and at a minimum, we expect those disruptions to continue throughout the remainder of 2020.

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 and the gradual transition back to the workplace, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.

As noted below within this Item 2, the COVID-19 pandemic did have a negative impact on our year-to-date financial results, primarily during the first six months of 2020, and it may continue to have a negative impact on our financial results for the fourth quarter of 2020 and beyond.

The extent of any future impact will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, future government regulations in response to the crisis 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.

Given this uncertainty, the Company is currently unable to quantify the potential impact of the COVID-19 pandemic on its future operations, financial condition, liquidity and results of operations.

Impact of COVID-19 on our Operations, Financial Condition, Liquidity and Results of Operations

The COVID-19 pandemic caused widespread disruptions to our Company during 2020, particularly during the first half of that year, and as of March 31, 2021, we continue to experience some disruptions, and at a minimum, we expect those disruptions to continue through the second quarter of 2021 and they could, potentially, extend for the full year and beyond.

restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.

In the second half of 2020 and into the first quarter of 2021, in several regions around the world, including the United States, Europe, South America and India, there was 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, 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.

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.

Results of Operations

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019

Net sales were $2,323.4 in the third quarter of 2020 compared to $2,100.6 in the third quarter of 2019, which represented an increase of 11% in U.S.

Three months ended March 31, 2021 compared to the three months ended March 31, 2020

Net sales were $2,377.1 in the first quarter of 2021 compared to $1,862.0 in the first quarter of 2020, which represented an increase of 28% in U.S.

dollars, 25% in constant currencies and 23% organically, over the respective prior year period.

Net sales were $6,172.9 in the first nine months of 2020 compared to $6,074.4 in the first nine months of 2019, which represented an increase of 2% in U.S.

dollars and 2% in constant currencies, while decreasing 1% organically, over the respective prior year period.

The increase in net sales during the third quarter of 2020 relative to the comparable period in 2019 was driven primarily by strong growth in several markets in the Interconnect Products and Assemblies segment, as described below.

The increase in net sales during the first nine months of 2020 relative to the comparable period in 2019 was driven primarily by strong growth in several markets (as discussed below), which was partially offset by the sudden and severe slowdown in certain of our markets resulting from the global outbreak of COVID-19, which also caused production limitations 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) in the third quarter of 2020 increased 11% in U.S.

dollars, 10% in constant currencies and 9% organically, compared to the third quarter of 2019.

This increase was driven by strong growth in the mobile devices, information technology and data communications, and industrial markets, slightly offset by a significant slowdown in the commercial aerospace market, which continued to be negatively impacted by the COVID-19 pandemic, and a moderation in the mobile networks market.

Net sales in the Interconnect Products and Assemblies segment (approximately 96% of net sales) in the first nine months of 2020 increased 2% in U.S.

dollars and 2% in constant currencies, while decreasing 1% organically, compared to the first nine months of 2019.

This increase was primarily driven by strong growth in the information technology and data communications, industrial and mobile devices markets, offset in part by a significant decline in the automotive, mobile networks and commercial aerospace markets, all of which were negatively impacted by the COVID-19 pandemic.

Net sales in the Cable Products and Solutions segment (approximately 4% of net sales) in the third quarter of 2020, which primarily serves the broadband communications market, increased 2% in U.S.

dollars, 5% in constant currencies and 5% organically, compared to the third quarter of 2019.

This increase was primarily driven by an increase in market demand at broadband operators.

Net sales in the Cable Products and Solutions segment (approximately 4% of net sales) in the first nine months of 2020 decreased 4% in U.S.

dollars, 1% in constant currencies and 1% organically, compared to the first nine months of 2019.

The increase in net sales was driven primarily by growth in nearly all markets in the Interconnect Products and Assemblies segment, as described below.

Net sales in the Interconnect Products and Assemblies segment (approximately 96% of net sales) in the first quarter of 2021 increased 28% in U.S.

dollars, 25% in constant currencies and 23% organically, compared to the first quarter of 2020.

This increase was driven by growth in nearly all markets, in particular by strong growth in the automotive, mobile devices, industrial, and information technology and data communications markets, moderate growth in the military and mobile networks markets, and contributions from the Company’s acquisition program, all of which were slightly offset by a significant decline in the commercial aerospace market which continued to be negatively impacted by the COVID-19 pandemic.

The strong sales growth in the Interconnect Products and Assemblies segment also reflected a recovery in certain markets from the negative impact in the first quarter of 2020 resulting from the COVID-19 pandemic.

Net sales in the Cable Products and Solutions segment (approximately 4% of net sales) in the first quarter of 2021, which primarily serves the broadband communications market, increased 17% in U.S.

dollars, 18% in constant currencies and 18% organically, compared to the first quarter of 2020.

This increase was primarily driven by increased market demand at broadband operators, as well as the market recovery from the negative impact of the COVID-19 pandemic that impacted the first quarter of 2020.

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

GAAP financial measures for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019:

GAAP financial measures for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:

Percentage Growth (relative to same prior year period)

Sales Growth (3)

Three Months Ended September 30:

Interconnect Products and Assemblies

Cable Products and Solutions

Nine Months Ended September 30:

Three Months Ended March 31:

Interconnect Products and Assemblies

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(2) Foreign currency translation impact, a non-GAAP measure, represents the impact on net sales resulting from foreign currency exchange rate changes in the current year period(s) compared to the same period(s) in the prior year.

Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior periods from current year reported net sales, taken as a percentage of the respective prior period net sales.

Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior year period(s) from current year reported net sales, taken as a percentage of the respective prior period net sales.

(3) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the "Non-GAAP Financial Measures"

(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 periods and which do not reflect the underlying growth of the Company on a comparative basis.

Geographically, sales in the United States in the third quarter of 2020 were flat in U.S.

dollars ($668.8 in 2020 versus $667.9 in 2019) while decreasing 1 % organically, compared to the third quarter of 2019.

Sales in the United States in the first nine months of 2020 decreased 1% in U.S.

dollars ($1,854.0 in 2020 versus $1,879.6 in 2019) and 6% organically, compared to the first nine months of 2019.

Foreign sales in the third quarter of 2020 increased 15% in U.S.

dollars ($1,654.6 in 2020 versus $1,432.7 in 2019), 14% in constant currencies and 13% organically, compared to the third quarter of 2019.

Foreign sales in the first nine months of 2020 increased 3% in U.S.

dollars ($4,318.9 in 2020 versus $4,194.8 in 2019), 4% in constant currencies and 1% organically, compared to the first nine months of 2019.

Geographically, sales in the United States in the first quarter of 2021 increased 10% in U.S.

dollars ($673.9 in 2021 versus $615.4 in 2020) and 7 % organically, compared to the first quarter of 2020.

Foreign sales in the first quarter of 2021 increased 37% in U.S.

dollars ($1,703.2 in 2021 versus $1,246.6 in 2020), 32% in constant currencies and 30% organically, compared to the first quarter of 2020.

The comparatively weaker U.S.

dollar for the third quarter of 2020 had the effect of increasing sales by approximately $17.0, relative to the comparable period in 2019.

The comparatively stronger U.S.

dollar for the first nine months of 2020 had the effect of decreasing sales by approximately $23.3, relative to the comparable period in 2019.

Selling, general and administrative expenses increased to $259.1, or 11.2% of net sales, and $748.4, or 12.1% of net sales, for the third quarter and first nine months of 2020, respectively, compared to $248.3, or 11.8% of net sales, and $722.5, or 11.9% of net sales, for the third quarter and first nine months of 2019, respectively.

The decrease in selling, general and administrative expenses as a percentage of net sales in the third quarter of 2020 is primarily driven by higher sales during the third quarter, relative to the comparable period of 2019.

The increase in selling, general and administrative expenses as a percentage of net sales in the first nine months of 2020 was primarily driven by government actions imposed in response to the COVID-19 pandemic that limited the Company’s ability to adjust costs, specifically in the first half of 2020.

Administrative expenses represented approximately 4.4% and 4.8% of net sales for the third quarter and first nine months of 2020, respectively, and represented approximately 4.8% and 4.7% o f net sales for the third quarter and first nine months of 2019, respectively.

Research and development expenses represented approximately 3.0% and 3.1% of net sales for the third quarter and first nine months of 2020, respectively, and represented approximately 2.8% and 2.9% of net sales for the third quarter and first nine months of 2019, respectively.

Selling and marketing expenses represented approximately 3.7% and 4.2% of net sales for the third quarter and first nine months of 2020, respectively, and represented approximately 4.2% and 4.4% of net sales for the third quarter and first nine months of 2019, respectively.

Operating income was $475.8, or 20.5% of net sales, and $1,150.1, or 18.6% of net sales, for the third quarter and first nine months of 2020, respectively, compared to $413.6, or 19.7% of net sales, and $1,189.4, or 19.6% of net sales, for the third quarter and first nine months of 2019, respectively.

Operating income for the first nine months of 2019 included $25.4 of acquisition-related expenses (separately presented in the Condensed Consolidated Statements of Income) comprised of the amortization of $15.7 related to the value associated with the acquired backlog from two acquisitions, as well as external transaction costs of $9.7.

For the nine months ended September 30, 2019, these acquisition-related expenses had the effect of decreasing net income by $21.0, or $0.07 per share.

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 $1,214.8, or 20.0% of net sales, for the nine months ended September 30, 2019.

Operating income for the Interconnect Products and Assemblies segment for the third quarter and first nine months of 2020 was $498.4, or 22.4% of net sales, and $1,217.6, or 20.6% of net sales, respectively, compared to $433.9, or 21.7% of net sales, and $1,272.4, or 22.0% of net sales, for the third quarter and first nine months of 2019, respectively.

The increase in operating margin for the Interconnect Products and Assemblies segment for the third quarter of 2020 relative to the comparable period in 2019 is primarily driven by strong operating leverage on the higher sales volumes.

The decrease in operating margin for the Interconnect Products and Assemblies segment for the first nine months of 2020 relative to the comparable period in 2019 was primarily driven by the significant incremental costs incurred during the first half of 2020 related to the COVID-19 pandemic.

The incremental costs incurred related to the COVID-19 pandemic primarily impacted the first half of 2020.

Operating income for the Cable Products and Solutions segment for the third quarter and first nine months of 2020 was $10.9, or 10.7% of net sales, and $25.7, or 9.4% of net sales, respectively, compared to $10.2, or 10.2% of net sales, and $29.3, or 10.3% of net sales, for the third quarter and first nine months of 2019, respectively.

The increase in operating margin for the Cable Products and Solutions segment for the third quarter of 2020 relative to the comparable period in 2019 is driven primarily by operating leverage on the higher sales volumes.

The decrease in operating margin for the Cable Products and Solutions segment for the first nine months of 2020 relative to the comparable period in 2019 was driven by lower volumes as well as the negative impact of the COVID-19 pandemic on our ability to produce products and adjust certain costs, primarily during the first half of 2020.

Interest expense for the third quarter and first nine months of 2020 was $28.0 and $87.1, respectively, compared to $29.7 and $89.5 for the third quarter and first nine months of 2019, respectively.

dollar for the first quarter of 2021 had the effect of increasing sales by approximately $56.4 relative to the comparable period in 2020.

Selling, general and administrative expenses increased to $262.7, or 11.1% of net sales, for the first quarter of 2021, compared to $242.9, or 13.0% of net sales, for the first quarter of 2020.

The decrease in selling, general and administrative expenses as a percentage of net sales in the first quarter of 2021 is primarily driven by higher sales during the first quarter of 2021, relative to the comparable period of 2020.

Administrative expenses represented approximately 4.3% of net sales for the first quarter of 2021 and represented approximately 5.2% o f net sales for the first quarter of 2020.

Research and development expenses represented approximately 3.1% of net sales for the first quarter of 2021 and represented approximately 3.1% of net sales for the first quarter of 2020.

Selling and marketing expenses represented approximately 3.7% of net sales for the first quarter of 2021 and represented approximately 4.8% of net sales for the first quarter of 2020.

The comparable first quarter of 2020 was negatively impacted by government actions imposed in response to the COVID-19 pandemic that limited the Company’s ability to adjust costs during that quarter which elevated the percentage of net sales in such period.

Operating income was $464.8, or 19.6% of net sales, for the first quarter of 2021, compared to $316.9, or 17.0% of net sales, for the first quarter of 2020.

The increase in operating income and operating margin for the first quarter of 2021 relative to the comparable period in 2020 was primarily driven by the Interconnect Products and Assemblies segment.

Operating income for the Interconnect Products and Assemblies segment for the first quarter of 2021 was $489.4, or 21.5% of net sales, compared to $339.8, or 19.1% of net sales, for the first quarter of 2020.

The increase in operating margin for the Interconnect Products and Assemblies segment for the first quarter of 2021 relative to the comparable period in 2020 is primarily driven by normal operating leverage on the higher sales volumes combined with the benefit of a lower cost impact resulting from the COVID-19 pandemic compared to the first quarter of 2020, partially offset by the impact of the more challenging commodity and supply chain environment.

Operating income for the Cable Products and Solutions segment for the first quarter of 2021 was $8.5, or 8.8% of net sales, compared to $6.3, or 7.6% of net sales, for the first quarter of 2020.

The increase in operating margin for the Cable Products and Solutions segment for the first quarter of 2021 relative to the comparable period in 2020 is primarily

driven by normal operating leverage on the higher sales volumes combined with the benefit of a lower cost impact resulting from the COVID-19 pandemic compared to the first quarter of 2020, partially offset by the impact of the more challenging commodity and supply chain environment.

Interest expense for the first quarter of 2021 was $28.6 compared to $28.8 for the first quarter of 2020.

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

Loss on early extinguishment of debt for the third quarter and first nine months of 2019 was $14.3.

The loss on early extinguishment of debt incurred during the third quarter of 2019 was 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 accompanying Condensed Consolidated Financial Statements and the Liquidity and Capital Resources section within this Item 2 for further information related to the Tendered Notes.

Provision for income taxes for the third quarter and first nine months of 2020 was at an effective tax rate of 22.1% and 20.0%, respectively.

Provision for income taxes for the third quarter and first nine months of 2019 was at an effective tax rate of 24.5% and 22.9%, respectively.

For the third quarter and first nine months of 2020 and 2019, the excess tax benefits resulting from stock option exercise activity had the impact of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the tables below.

For the first nine months of 2020, the effective tax rate was also impacted by a discrete tax benefit related to the settlements of refund claims in certain non-U.S.

jurisdictions and the resulting adjustments to deferred taxes, which had the impact of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the tables below.

The effective tax rate for the third quarter of 2019 was further impacted by the tax effect of the refinancing-related costs associated with the early extinguishment of debt, while the effective tax rate for the first nine months of 2019 was further impacted by the tax effects of both the acquisition-related expenses and the refinancing-related costs associated with the early extinguishment of debt, all as noted in the tables below.

months ended September 30, 2020 and 2019 was 24.5% for all periods, as reconciled in the tables below to the comparable effective tax rate based on GAAP results.

Provision for income taxes for the first quarter of 2021 was at an effective tax rate of 23.9%, compared to 15.9% for the first quarter of 2020.

For the first quarter of 2021 and 2020, the excess tax benefits resulting from stock option exercise activity had the impact of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below.

For the first quarter of 2020, the effective tax rate was also impacted by a discrete tax benefit related to the settlements of refund claims in certain non-U.S.

jurisdictions and the resulting adjustments to deferred taxes, which had the impact of decreasing the effective tax rate and increasing earnings per share by the amounts noted in the table below.

Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 2, for the three months ended March 31, 2021 and 2020 was 24.5% for both periods, as reconciled in the table below to the comparable effective tax rate based on GAAP results.

Refer to Note 6 of the Condensed Consolidated Financial Statements for further information related to income taxes.

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were $346.6 and $1.12, respectively, for the third quarter of 2020, compared to $280.3 and $0.92, respectively, for the third quarter of 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 2, were $335.9 and $1.09, respectively, for the third quarter of 2020, compared to $291.2 and $0.95, respectively, for the third quarter of 2019.

Net income attributable to Amphenol Corporation and Diluted EPS were $846.4 and $2.76, respectively, for the first nine months of 2020, compared to $836.3 and $2.72, respectively, for the first nine months of 2019.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $798.4 and $2.61, respectively, for the first nine months of 2020, compared to $848.5 and $2.76, respectively, for the first nine months of 2019.

The following tables reconcile 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.

GAAP financial measures for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Reported (GAAP)

Loss on early extinguishment of debt

Excess tax benefits related to stock-based compensation

Adjusted (non-GAAP)

Nine Months Ended September 30,

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were $329.6 and $0.53, respectively, for the first quarter of 2021, compared to $242.1 and $0.40, respectively, for the first quarter of 2020.

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 2, were $327.0 and $0.52, respectively, for the first quarter of 2021, compared to $217.2 and $0.35, respectively, for the first quarter of 2020.

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.

GAAP financial measures for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Reported (GAAP)

Acquisition-related expenses

Loss on early extinguishment of debt

Excess tax benefits related to stock-based compensation

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GAAP financial measures, for purposes of this table, we derive the reported (GAAP) measures based on GAAP results, which serve as the basis for the reconciliation to their comparable non-GAAP financial measure.

(2) All percentages and per share amounts in this table were calculated using actual, unrounded results;

therefore, the sum of the components may not add due to rounding.

Liquidity and Capital Resources

As of September 30, 2020 and December 31, 2019, the Company had cash, cash equivalents and short-term investments of $1,456.2 and $908.6, respectively, with the vast majority of such funds located outside of the United

As of September 30, 2020, there were no outstanding borrowings under the Commercial Paper Programs and the $2,500.0 Revolving Credit Facility (each defined below).

As a result of the Tax Act, on December 31, 2017, the Company indicated an intention to repatriate most of its pre-2018 accumulated earnings and recorded the foreign and U.S.

state and local tax costs related to the repatriation.

As of March 31, 2021 and December 31, 2020, the Company had cash, cash equivalents and short-term investments of $2,361.2 and $1,738.1, respectively, with the majority of such funds located outside of the United States.

On April 7, 2021, the Company used a combination of cash and cash equivalents on hand and borrowings under its U.S.

Commercial Paper Program (defined below) to fund the acquisition of MTS.

As a result of the U.S.

Tax Cuts and Jobs Act of 2017 (the “Tax Act”), on December 31, 2017, the Company indicated an intention to repatriate most of its pre-2018 accumulated earnings and recorded the foreign and U.S.

and local tax costs related to the repatriation.

The associated tax payments are due as the repatriations are made.

The Company intends to distribute certain post-2017 foreign earnings and has accrued foreign and U.S.

state and local taxes, if applicable, on those earnings as appropriate as of September 30, 2020, and intends to indefinitely reinvest all remaining post-2017 foreign earnings.

state and local taxes, if applicable, on those earnings as appropriate as of March 31, 2021, and intends to indefinitely reinvest all remaining post-2017 foreign earnings.

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

In addition, the Transition Tax on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries will be paid, net of applicable tax credits and deductions, in annual installments until 2025, as permitted under the Tax Act.

The Company’s primary sources of liquidity are internally generated cash flow, our cash, cash equivalents and short-term investments on hand, the Commercial Paper Programs, and the Revolving Credit Facility.

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 2), provide adequate liquidity to meet its obligations for at least the next twelve months.

Commercial Paper Program to partially fund the acquisition of MTS, 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, 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, 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 acquisitions.

The Company may also use cash to fund all or part of the cost of acquisitions, as was the case with the recent acquisition of MTS in April 2021.

Cash Flow Summary

The following table summarizes the Company’s cash flows from operating, investing and financing activities for the nine months ended September 30, 2020 and 2019, as reflected in the Condensed Consolidated Statements of Cash Flow:

Nine Months Ended September 30,

The following table summarizes the Company’s cash flows from operating, investing and financing activities for the three months ended March 31, 2021 and 2020, as reflected in the Condensed Consolidated Statements of Cash Flow:

Three Months Ended March 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

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

Net cash provided by operating activities (“Operating Cash Flow”) was $ 1,151.0 in the first nine months of 2020 compared to $1,078.2 in the first nine months of 2019.

The increase in Operating Cash Flow for the first nine months of 2020 compared to the first nine months of 2019 is primarily due to a decrease in the components of working capital.

In the first nine months of 2020, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow decreased $38.6, excluding the impact of acquisitions and foreign currency translation, due to increases in accounts payable of $191.7 and accrued liabilities, including income taxes, of $80.6, partially offset by increases in accounts receivable of $126.4, inventories of $65.2, and prepaid expenses and other current assets of $42.1.

In the first nine months of 2019, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $27.1, excluding the impact of acquisitions

and foreign currency translation, primarily due to decreases in accounts payable of $75.9 and accrued liabilities, including income taxes, of $74.4, partially offset by a decrease in accounts receivable of $129.6.

The following describes the significant changes in the amounts as presented on the accompanying Condensed Consolidated Balance Sheets at September 30, 2020 as compared to December 31, 2019.

Accounts receivable increased $ 143.9 to $1,880.3, primarily due to higher sales in the third quarter of 2020 relative to the fourth quarter of 2019 as well as the effect of translation from exchange rate changes at September 30, 2020 compared to December 31, 2019 (“Translation”).

Days sales outstanding at September 30, 2020 and December 31, 2019 were approximately 72 and 73 days, respectively.

Inventories increased $ 80.9 to $1,391 .0, primarily to support higher sales levels, along with the effect of Translation.

Inventory days at September 30, 2020 and December 31, 2019 were 79 and 80 days, respectively.

Prepaid expenses and other current assets increased $53.4 to $309.5, primarily due to increases in certain prepaid expenses and other current receivables.

Property, plant and equipment, net, increased $ 37.9 to $1,036.9, primarily due to capital expenditures of $204.8 and Translation, partially offset by depreciation of $176.1.

Goodwill increased $88.4 to $4,955.5, primarily as a result of goodwill recognized related to two acquisitions that closed in 2020, along with Translation.

Other intangible assets, net decreased $33.8 to $408.2, primarily due to the amortization related to the Company’s intangible assets during the first nine months of 2020, partially offset by Translation.

Accounts payable increased $209.1 to $1,075.9, primarily as a result of increased purchasing activity resulting from higher sales levels, along with Translation.

Payable days at September 30, 2020 and December 31, 2019 were approximately 61 and 53 days, respectively.

Total accrued expenses, including accrued income taxes, increased $47.3 to $909.9, primarily as a result of an increase in accrued salaries and wages and other accrued expenses, along with the impact of acquisitions, partly offset by the contingent consideration payment (related to the SSI acquisition) of $75.0 in June 2020 and the deferred purchase price payment in the third quarter of $16.2, along with a decrease in accrued income taxes, primarily resulting from certain tax payments.

There is no current requirement for cash contributions to any of the Company’s defined benefit pension plans in the U.S., and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the pension plans’ assets, the timing and amount of cash contributions in the future, as discussed in more detail in Note 10 of the notes to the condensed consolidated financial statements.

Net cash provided by operating activities (“Operating Cash Flow”) was $ 321.0 in the first three months of 2021 compared to $384.3 in the first three months of 2020.

The decrease in Operating Cash Flow for the first three months of 2021 compared to the first three months of 2020 is primarily due to an increase in the components of working capital, partially offset by an increase in net income.

In the first three months of 2021, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $114.6, excluding the impact of acquisitions and foreign currency translation, due to an increase in inventories of $85.7 and decreases in accounts payable of $52.6 and accrued liabilities, including income taxes, of $16.4, partially offset by decreases in accounts receivable of $32.1 and prepaid expenses and other current assets of $8.0.

In the first three months of 2020, the components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow decreased $43.8, excluding the impact of acquisitions and foreign currency translation, primarily due to a decrease in accounts receivable of $166.0, partially offset by an increase in inventories of $37.1 and decreases in accrued liabilities, including income taxes, of $35.3 and accounts payable of $33.5.

The following describes the significant changes in the amounts as presented on the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 as compared to December 31, 2020.

Accounts receivable decreased $ 19.8 to $1,931.8, primarily due to slightly lower sales in the first quarter of 2021 relative to the fourth quarter of 2020, along with the effect of translation from exchange rate changes (“Translation”) at March 31, 2021 compared to December 31, 2020, partially offset by the impact of the four acquisitions which closed during the first quarter of 2021 (the “2021 acquisitions”) .

Days sales outstanding at March 31, 2021 and December 31, 2020 were 73 days and 72 days, respectively.

Inventories increased $ 102.9 to $1,565 .1, primarily in response to the recent supply chain disruptions experienced during the first quarter along with the impact of the 2021 acquisitions, partially offset by the effect of Translation.

Inventory days at March 31, 2021 and December 31, 2020 were 85 days and 79 days, respectively.

Prepaid expenses and other current assets decreased $10.3 to $328.6, primarily due to decreases in certain current receivables.

Property, plant and equipment, net, increased $ 21.6 to $1,076.2, primarily due to capital expenditures of $78.4 and the impact of the 2021 acquisitions, partially offset by depreciation of $63.0 and Translation.

Goodwill increased $60.9 to $5,093.0, resulting from goodwill recognized related to the 2021 acquisitions, partially offset by Translation.

Other intangible assets, net increased $12.8 to $410.3, primarily due to the recognition of certain intangible assets related to the 2021 acquisitions, partially offset by amortization.

Accounts payable decreased $50.0 to $1,070.7.

Payable days at March 31, 2021 and December 31, 2020 were 59 days and 61 days, respectively.

Other long-term liabilities, including deferred tax liabilities, increased $22.5 to $728.8, primarily as a result of an increase in deferred tax liabilities.

There is no current requirement for cash contributions to any of the Company’s defined benefit pension plans in the U.S., and the Company plans to evaluate annually, based on actuarial calculations and the investment performance of the pension plans’ assets, the timing and amount of cash contributions in the future, as discussed in more detail in Note 10 of the Notes to Condensed Consolidated Financial Statements.

In addition to cash flow from operating activities, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, as a key metric in measuring the Company’s ability to generate cash.

The following table reconciles Free Cash Flow to its most directly comparable U.S.

GAAP financial measure for the nine months ended September 30, 2020 and 2019.

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

Nine Months Ended September 30,

GAAP financial measure for the three months ended March 31, 2021 and 2020.

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

Three Months Ended March 31,

Operating Cash Flow (GAAP)

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Cash flows from investing activities consist primarily of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment, net sales and maturities (purchases) of short-term investments, and acquisitions.

Net cash used in investing activities was $262.5 in the first nine months of 2020, compared to $1,111.0 in the first nine months of 2019.

In the first nine months of 2020, net cash used in investing activities was driven primarily by capital expenditures (net of disposals) of $194.0, the use of $50.3 to fund acquisitions, and net purchases of short-term investments of $18.2.

In the first nine months of 2019, net cash used in investing activities was driven primarily by the

use of $891.2 to fund acquisitions, capital expenditures (net of disposals) of $215.9, and net purchases of short-term investments of $3.9.

Net cash used in investing activities was $263.2 in the first quarter of 2021, compared to $70.4 in the first quarter of 2020.

In the first quarter of 2021, net cash used in investing activities was driven primarily by the use of $185.6 to fund acquisitions and capital expenditures (net of disposals) of $77.5, partially offset by net sales and maturities of short-term investments of $2.3.

In the first quarter of 2020, net cash used in investing activities was driven primarily by capital expenditures (net of disposals) of $59.6, and the use of $16.5 to fund acquisitions, partially offset by net sales and maturities of short-term investments of $5.7.

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

Net cash used in financing activities was $384.2 in the first nine months of 2020, compared to $246.4 in the first nine months of 2019.

For the first nine months of 2020, net cash used in financing activities was driven primarily by repurchases of the Company’s common stock of $459.2, the repayment of the Company’s 2.20% U.S.

Senior Notes due April 2020 and other debt of $402.9, net repayments related to the Company’s commercial paper programs of $385.9, dividend payments of $223.0, payment related to acquisition-related contingent consideration of $75.0, payment associated with the deferred purchase price related to an acquisition of $16.2, distributions to and purchases of noncontrolling interests of $11.5, 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 net repayments under the Company’s credit facilities of $0.7, partially offset by the 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 cash proceeds from the exercise of stock options of $256.6.

For the first nine months of 2019, net cash used in financing activities was driven primarily by 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 $1,111.2, repurchases of the Company’s common stock of $558.7, dividend payments of $205.5, distributions to and purchases of noncontrolling interests of $25.0, 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 premiums and fees paid of $13.4 related to the early extinguishment of the Tendered Notes, partially offset by aggregate net cash proceeds from the issuances of the 2029 Senior Notes and the 2030 Senior Notes of $1,398.8, cash proceeds from the exercise of stock options of $146.3, and net borrowings related to the Company’s commercial paper programs of $137.2.

Net cash provided by financing activities was $586.2 in the first quarter of 2021, compared to $1,187.4 in the first quarter of 2020.

For the first quarter of 2021, net cash provided by financing activities was driven by (i) net borrowings of $813.1 comprised primarily of borrowings under the U.S.

Commercial Paper Program in anticipation of the closing of the MTS acquisition and (ii) cash proceeds of $21.1 from the exercise of stock options, partially offset by (i) repurchases of the Company’s common stock of $152.8, (ii) dividend payments of $86.8, (iii) distributions to and purchases of noncontrolling interests of $7.6, and (iv) repayments of $0.8 related to other long-term debt.

For the first quarter of 2020, net cash provided by financing activities was driven primarily by (i) net borrowings of $1,352.4 under the Company’s credit facilities, (ii) net cash proceeds from the February 2020 issuance of the 2025 Senior Notes (as defined below) of $399.3, and (iii) cash proceeds of $30.0 from the exercise of stock options, partially offset by (i) repurchases of the Company’s common stock of $257.2, (ii) net repayments related to the Company’s commercial paper programs of $250.4, (iii) dividend payments of $74.4, (iv) distributions to and purchases of noncontrolling interests of $8.1, (v) payments of costs of $3.9 related to debt financing primarily associated with the 2025 Senior Notes, and (vi) repayments of $0.3 related to other long-term debt.

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

The Company has a $2,500.0 unsecured credit facility (the “Revolving Credit Facility”), which matures January 2024 and 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 September 30, 2020, there were no outstanding borrowings under the Revolving Credit Facility.

As of March 31, 2021 and 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 September 30, 2020, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

At March 31, 2021, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

Pursuant to the terms of the U.S.

commercial paper program, the Company issues 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 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”).

There were no USCP Notes outstanding as of September 30, 2020.

Pursuant to the terms of the euro-commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S.

Commercial Paper Program, the “Commercial Paper Programs”), the Company and one of its wholly owned European subsidiaries (the “Euro Issuer”) issues short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, the “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States.

The amount of USCP Notes outstanding as of March 31, 2021 was $811.0, with a weighted average interest rate of 0.20%.

On April 7, 2021, a combination of borrowings under the U.S.

Commercial Paper Program and cash and cash equivalents on hand were used to fund the acquisition of MTS Systems Corporation.

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

The Company and one of its wholly owned European subsidiaries (collectively, the “Euro Issuer”) also has a 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, “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States.

The ECP Notes may be issued in Euros, Sterling, U.S.

dollars or other currencies.

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.

As of September 30, 2020, there were no ECP Notes outstanding.

As of March 31, 2021 and December 31, 2020, there were no ECP Notes outstanding.

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

In conjunction with the Revolving Credit Facility, the authorization from the Company’s Board of Directors limits the maximum aggregate principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper, euro-commercial paper or similar programs at any time to $2,500.0.

In addition, the maximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0.

The maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0.

The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary.

In conjunction with the Revolving Credit Facility, the authorization from the Company’s Board of Directors limits the maximum principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper or similar programs, along with outstanding amounts under the Revolving Credit Facility, at any time to $2,500.0 in the aggregate.

In addition, the maximum aggregate principal amount outstanding of USCP Notes and ECP Notes at any time is $2,500.0 and $2,000.0, respectively.

The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by

Moody’s and are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary.

Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes.

The Company reviews its optimal mix of short-term and long-term debt regularly and may replace certain amounts of Commercial Paper, short-term debt and current maturities of long-term debt with new issuances of long-term debt in the future.

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 is guaranteed by the Company and carries an interest rate of LIBOR plus 80 basis points, expires 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 September 30, 2020, the Company has outstanding senior notes (the “Senior Notes”) as follows:

As of March 31, 2021, the Company has outstanding senior notes (the “Senior Notes”) as follows:

September 2021

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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.

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 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 September 30, 2020.

On September 10, 2019, the Company issued $900.0 principal amount of unsecured 2.800% Senior Notes due February 15, 2030 at 99.920% of face value (the “2030 Senior Notes”).

In September 2019, the Company used the net proceeds from the 2030 Senior Notes to fund the cash consideration payable in the Tender Offers, with the remaining net proceeds being used for general corporate purposes, including to partially reduce outstanding borrowings related to the U.S.

Commercial Paper Program.

In January 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 principal amount of unsecured 2.55% Senior Notes due in January 2019.

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 the U.S.

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 the U.S.

The Company may, at its option, redeem some or all of any series of U.S.

Senior Notes, subject to certain terms and conditions.

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” and collectively with the 2028 Euro Notes, the “Euro Notes”).

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

The remaining principal amounts outstanding associated with the Company’s 3.125% Senior Notes due in September 2021 and 4.00% Senior Notes due in February 2022 are each recorded, net of the related unamortized discount and debt issuance costs, within Current portion of long-term debt in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2021.

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 the “0.750% Euro Senior Notes” and collectively with the Euro Notes due October 2028, the “Euro Notes”).

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

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 the Euro Notes is payable annually.

The Company may, at its option, redeem some or all of any series of the Euro Notes, subject to certain terms and conditions.

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.

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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 three months ended September 30, 2020, the Company repurchased 1.9 million shares of its Common Stock for $201.9, while during the nine months ended September 30, 2020, the Company repurchased 4.6 million shares of its Common Stock for $459.2, all under the 2018 Stock Repurchase Program.

Of the total repurchases during the first nine months of 2020, 1.0 million shares, or $110.3, have been retained in Treasury stock at time of repurchase;

During the three months ended March 31, 2021, the Company repurchased 2.4 million shares of its Common Stock for $152.8, under the 2018 Stock Repurchase Program.

Of the total repurchases during the first three months of 2021, 0.3 million shares, or $19.8, have been retained in Treasury stock at time of repurchase;

the remaining 2.1 million shares, or $133.0, have been retired by the Company.

During the three months ended September 30, 2019, the Company repurchased 1.7 million shares of its Common Stock for $150.0, while during the nine months ended September 30, 2019, the Company repurchased 6.1 million shares of its Common Stock for $558.7, all under the 2018 Stock Repurchase Program.

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

the remaining 5.1 million shares, or $471.1, were retired by the Company.

From October 1, 2020 through October 20, 2020, the Company repurchased approximately 0.1 million additional shares of its Common Stock for $6.0, leaving $379.9 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 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.

Contingent upon declaration by the Board of Directors, the Company generally pays a quarterly dividend on shares of its Common Stock.

The following table summarizes the declared quarterly dividends per share as well as the dividends declared and paid for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

During the three months ended March 31, 2020, the Company repurchased 5.4 million shares of its Common Stock for $257.2, under the 2018 Stock Repurchase Program.

All of the repurchases during the first three months of 2020 were retired by the Company.

In April 2021, the Company repurchased 0.8 million additional shares of its Common Stock for $51.0, which completed the 2018 Stock Repurchase Program.

On April 27, 2021, the Company’s Board of Directors authorized a new 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 27, 2024 (the “2021 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act.

As of April 27, 2021, the Company has not repurchased any shares of its Common Stock under the 2021 Stock Repurchase Program.

The price and timing of any future purchases under the 2021 Stock Repurchase Program will depend on a number of factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Company’s common stock.

Contingent upon declaration by the Company’s Board of Directors, the Company generally pays a quarterly dividend on shares of its Common Stock.

The following table summarizes the declared quarterly dividends per share as well as the dividends declared and paid for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Dividends declared per share

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Dividends paid (including those declared in the prior year)

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, and then on October 20, 2020, approved

a further increase to its quarterly dividend rate to $0.29 per share effective with dividends declared in the fourth quarter of 2020.

On October 20, 2020, the Company’s Board of Directors approved an increase to its quarterly dividend rate from $0.125 per share to $0.145 per share effective with dividends declared in the fourth quarter of 2020 and contingent upon declaration by the Company’s Board of Directors.

Acquisitions and Divestitures

During the first three months of 2021, the Company completed four acquisitions, all but one of which is included within the Interconnect Products and Assemblies segment, for approximately $185.6, net of cash acquired.

These 2021 acquisitions were not material, either individually or in the aggregate, to the Company.

Acquisition of MTS and Anticipated Divestiture of MTS T&S Business

On April 7, 2021, pursuant to a definitive agreement dated December 9, 2020, by and among the Company and MTS, the Company completed the acquisition of MTS for a purchase price of approximately $1,300, net of cash acquired and including the repayment of certain outstanding debt and liabilities at closing.

In addition to the purchase price, the Company also assumed MTS’s then outstanding senior notes due August 15, 2027, which the Company repaid and settled shortly after the closing, including accrued interest, for approximately $355.

The MTS acquisition was funded through a combination of borrowings under the U.S.

Commercial Paper Program and cash and cash equivalents on hand.

MTS is a leading global supplier of precision sensors, advanced test systems and motion simulators.

MTS was historically organized into two business segments:

Sensors (“MTS Sensors”) and Test & Simulation (“MTS T&S”).

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

The MTS Sensors business will further expand the Company’s range of sensor and sensor-based products across a wide array of industries and will be reported as part of our continuing operations and within our Interconnect Products and Assemblies segment.

The Company has incurred and will continue to incur certain acquisition-related expenses such as non-cash purchase accounting-related charges, costs related to the early extinguishment of the MTS senior notes, external transaction costs, severance costs and other costs associated with the MTS acquisition, which is currently expected to be approximately $85, or $0.12 per diluted share, for the second quarter of 2021.

On January 19, 2021, the Company entered into an agreement to sell the MTS T&S business to Illinois Tool Works Inc.

The agreed-upon sale price is approximately $750, subject to certain post-closing adjustments and excluding

transaction-related expenses, and the closing is subject to the receipt of all required regulatory approvals and the satisfaction of other customary closing conditions.

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

For further details related to the MTS acquisition, as well as the planned divestiture of the MTS T&S business, refer to Note 16 of the Notes to Condensed Consolidated Financial Statements.

Environmental Matters

Certain operations of the Company are subject to environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes.

Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes.

The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

For more information on certain environmental matters, refer to Note 15 of the Notes to Condensed Consolidated Financial Statements.

Non-GAAP Financial Measures

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The reconciliations of these non-GAAP financial measures to the most directly comparable U.S.

GAAP financial measures for the three and nine months ended September 30, 2020 and 2019 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 2:

GAAP financial measures for the three months ended March 31, 2021 and 2020 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 2:

● Adjusted Diluted EPS is defined as diluted earnings per share (as reported in accordance with U.S.

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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-Q

Item 2. Management’s Discussion and Analysis