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Item 7. Management’s Discussion and Analysis

2022-02-09 compared with 2021-02-10 · 379 added, 330 removed, 260 unchanged (73% 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, 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 following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2021, 2020 and 2019 has been derived from and should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, herein for Amphenol Corporation (together with its subsidiaries, “Amphenol,” the “Company,” “we,” “our,” or “us”).

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

dollars, in accordance with accounting principles generally accepted in the United States (“U.S.

dollars, in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP” or “GAAP”).

Any references to the Company’s results in this Item 7 are specifically to our continuing operations only and exclude discontinued operations, unless otherwise noted.

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

For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meanings, respectively, as these aforementioned non-GAAP financial measures.

For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meaning, respectively, as these aforementioned non-GAAP financial measures.

Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures.

In addition to historical information, the following discussion and analysis also contains certain forward-looking statements that are subject to risks and uncertainties, including but not limited to the risk factors described in Part I, Item 1A herein, as well as the risks and uncertainties that exist with the use of forward-looking statements as described in the “Cautionary Note Regarding Forward-Looking Statements” section included herein at the beginning of this Annual Report on Form 10-K .

Amphenol Corporation (together with its subsidiaries, “Amphenol”, the “Company”, “we”, “our”, or “us”) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.

The Company operates through two reporting segments:

On January 27, 2021, the Company announced that its Board of Directors (the “Board”) approved a two-for-one split of the Company’s Class A Common Stock (“Common Stock”).

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

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

As a result of the stock split, stockholders received one additional share of Common Stock for each share held as of the record date.

All current and prior year data impacted by the stock split and presented in this Item 7 and throughout this Annual Report, including number of shares and per share information, earnings per share, and dividends per share amounts, among others, have been retroactively adjusted to reflect the effect of the stock split.

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

Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.

Through December 31, 2021, the Company operated through two reporting segments:

(i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions.

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● military and commercial aerospace applications.

The Company’s products are used in a wide variety of applications by numerous customers around the world.

The Company’s products are used in a wide variety of applications by a wide array of customers around the world.

The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time.

There has been a trend on the part of customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices.

A trend among customers has been to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices.

The Company has focused its global resources to position itself to compete effectively in this environment.

The Company believes that its global presence is an important competitive advantage as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.

Effective January 1, 2022, the Company aligned its businesses into three newly formed reportable business segments:

(i) Harsh Environment Solutions , (ii) Communications Solutions and (iii) Interconnect and Sensor Systems .

This new alignment replaces our historic reportable business segments.

All businesses previously reported in the Interconnect Products and Assemblies segment have now been aligned with one o f the three newly formed segments.

All businesses previously reported in the Cable Products and Solutions segment have now been aligned with our newly formed Communications Solutions segment.

This new alignment reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of Amphenol’s business for the future.

The Company will begin reporting its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022, including the recasting of relevant prior year period segment information for conformity of presentation.

F or further details related to the Company’s change in its reportable business segments effective January 1, 2022, refer to Note 16 of the Notes to Consolidated Financial Statements herein.

The Company’s strategy is to provide its customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis, while maintaining continuing programs of productivity improvement and cost control.

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The Company’s strategic objective is to further enhance its position in its served markets by pursuing the following success factors:

● Pursue broad diversification;

● Develop high technology performance-enhancing interconnect solutions;

● Pursue broad market diversification;

● Develop high-technology performance-enhancing solutions;

● Expand global presence;

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● Foster collaborative, entrepreneurial management.

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” .

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.

In 2021 , the Company reported net sales, operating income and net income from continuing operations attributable to Amphenol Corporation of $10,876.3, $2,105.1 and $1,569.4, respectively, representing an increase of 26%, 28% and 30%, respectively, from 2020.

In 2021, the Company’s net income from continuing operations attributable to Amphenol Corporation was impacted by (a) excess tax benefits of $63.4 related to stock-based compensation resulting from stock option exercises and (b) a discrete tax benefit of $14.9 related to the settlement of uncertain tax positions in certain non-U.S.

jurisdictions, partially offset by (c) acquisition-related expenses of $70.4 ($57.3 after-tax) comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the acquisition of MTS Systems Corporation (“MTS”) in the second quarter of 2021 and external transaction costs and certain non-cash purchase accounting costs related to the acquisition of Halo Technology Limited (“Halo”) in the fourth quarter of 2021.

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

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

Excluding the effects of these items, Adjusted Operating Income and Adjusted Net Income from continuing operations attributable to Amphenol Corporation, as defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7 , increased by 32% and 34%, respectively, in 2021 compared to 2020.

Sales and profitability trends are discussed in detail in “Results of Operations” below.

In addition, a strength of the Company has been its ability to consistently generate cash from operations (“Operating Cash Flow”).

In addition, a strength of the Company has been its ability to consistently generate net cash provided by operating activities from continuing operations (“Operating Cash Flow”).

The Company uses Operating Cash Flow to fund capital expenditures and acquisitions, repurchase shares of its Common Stock, pay dividends and reduce indebtedness.

In 2021, the Company generated Operating Cash Flow of $1,523.9 and Free Cash Flow of $1,167.2.

Free Cash Flow, a non-GAAP financial measure, is defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7 herein.

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.

Free Cash Flow, a non-GAAP financial measure, is defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7.

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

The COVID-19 pandemic has affected our offices and manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers.

The COVID-19 pandemic caused widespread disruptions to our Company during the first half of 2020, and to a lesser extent, those disruptions continued during the second half of 2020 and throughout all of 2021.

As of December 31, 2021, we continue to experience some disruptions, and at a minimum, particularly given the surge of cases resulting from the Omicron variant, we expect those disruptions to continue into 2022 and potentially beyond .

These disruptions have included and may continue to include government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply-chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers.

During 2021 and into 2022, there have been resurgences in COVID-19 cases in several regions around the world, particularly related to new variant strains, including Delta and Omicron.

The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the impact of the recent resurgence of the crisis due to the Omicron variant, as well as any additional future resurgences from known or new variants, future government regulations and actions in response to the crisis, the timing, availability, effectiveness and adoption rates of vaccines and treatments, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.

In addition, the COVID-19 pandemic could impact the health of our management team and other employees.

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.

Given these uncertainties, we expect the pandemic to continue to have an impact on our business, operations, financial condition, liquidity and results of operations in 2022 and potentially beyond.

T here can be no assurance that the COVID- 19 pandemic will not have a material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future.

For further discussion on the risks and uncertainties associated with the COVID-19 pandemic, refer to Part I, Item 1A.

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Loss on early extinguishment of debt

Other income, net

Income before income taxes

Other (expense) income, net

Income from continuing operations before income taxes

Provision for income taxes

Net income attributable to noncontrolling interests

Net income from continuing operations

Net income from continuing operations attributable to noncontrolling interests

Net income from continuing operations attributable to Amphenol Corporation

Income from discontinued operations attributable to Amphenol Corporation

Net income attributable to Amphenol Corporation

2021 Compared to 2020

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.

Net sales were $10,876.3 for the year ended December 31, 2021 compared to $8,598.9 for the year ended December 31, 2020, which represented an increase of 26% in U.S.

dollars, 25% in constant currencies, and 18% 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.

The increase in net sales in 2021 was driven by growth in several markets in the Interconnect Products and Assemblies segment, as described below.

Net sales in the Interconnect Products and Assemblies segment (approximately 96% of net sales) increased 27% in U.S.

dollars, 25% in constant currencies, and 19% organically, in 2021, compared to 2020.

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.

The sales growth in 2021 was driven by strong growth across nearly all end markets, including the industrial, automotive, information technology and data communications, military and mobile networks markets, along with moderate growth in the mobile devices

market and contributions from the Company’s acquisition program.

This sales growth was partially offset by a decline in the commercial aerospace market, which continued to be negatively impacted by the significant impact of the COVID-19 pandemic on travel and aircraft production.

The strong sales growth in 2021 in the Interconnect Products and Assemblies segment also reflected a recovery in certain markets from the more negative impact resulting from the COVID-19 pandemic during 2020.

Net sales to the industrial market increased (approximately $864.6), with broad-based growth across nearly all market segments of the global industrial market, with particular strength in heavy equipment, factory automation, industrial instrumentation, battery and heavy electric vehicle, alternative energy, rail mass transit, and transportation, along with contributions from acquisitions.

Net sales to the automotive market increased (approximately $683.4), reflecting the continued recovery and growth in most regions of the global automotive market, as well as the Company’s expanded position in next-generation electronics, including in particular electric and hybrid drive trains.

Net sales to the information technology and data communications market increased (approximately $482.7), driven primarily by continued strong sales growth to web service providers and broad-based market demand for server, storage and networking related products as customers worked to support higher demand for increased bandwidth.

Net sales to the military market increased (approximately $135.8), driven by strength across nearly all segments of the military market, including missile, military communications and naval and space-related applications, along with a recovery from the impact of pandemic-related production disruptions experienced during the first half of 2020, as well as contributions from acquisitions.

Net sales to the mobile networks market increased (approximately $60.5), driven by a recovery in demand from mobile networks equipment manufacturers and mobile operators, which was primarily driven by increased demand for products used in 5G network build-outs and contributions from acquisitions, offset in part by reductions of sales to certain customers in China that were added to the U.S.

Department of Commerce’s “Entity List”.

Net sales to the mobile devices market increased (approximately $45.7), driven by growth in products incorporated into laptops and wearable devices, along with production-related products, and was partially offset by moderations of sales into smartphones and tablets.

Net sales to the commercial aerospace market decreased (approximately $26.6) primarily due to the continued significant impact of the COVID-19 pandemic on travel and aircraft production.

Net sales in the Cable Products and Solutions segment (approximately 4% of net sales), which primarily serves the broadband communications market, increased 21% in U.S.

dollars, 20% in constant currencies and 15% organically in 2021, compared to 2020.

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 increase in net sales in the Cable Products and Solutions segment was primarily driven by increased market demand from broadband operators and mobile network service providers, as well as the contribution from one acquisition in this segment that closed during the first quarter of 2021.

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

GAAP financial measures, by segment and consolidated, for the year ended December 31, 2020 compared to the year ended December 31, 2019:

GAAP financial measures, by segment, geography and consolidated, for the year ended December 31, 2021 compared to the year ended December 31, 2020:

Percentage Growth (relative to prior year) (1)

Sales Growth (4)

Net sales by:

Interconnect Products and Assemblies

Cable Products and Solutions

Geography (6) :

United States

(1) Percentages in this table were calculated using actual, unrounded results;

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

(2) Net sales growth in U.S.

dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the accompanying financial statements.

dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 14 of the Notes to Consolidated Financial Statements.

While the term “net sales growth in U.S.

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

(2) 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 compared to the prior year.

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

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

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

(4) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section.

(4) 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 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 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.

(5) Acquisition impact, a non-GAAP measure, represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year and/or prior comparable year presented.

Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis.

(6) Net sales by geographic area are based on the customer location to which the product is shipped.

The increase in foreign net sales in 2021 compared to 2020 was driven by strong growth in both Europe and Asia.

The comparatively weaker U.S.

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

dollar in 2021 had the effect of increasing sales by approximately $159.1, compared to 2020.

Selling, general and administrative expenses were $1,226.3, or 11.3% of net sales for 2021, compared to $1,014.2, or 11.8% of net sales for 2020.

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 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.

The decrease in selling, general and administrative expenses as a percentage of net sales in 2021 was driven primarily by higher sales during the year, relative to 2020 which was more negatively impacted by the COVID-19 pandemic, slightly offset by the impact of MTS’s Sensors business, acquired in 2021, which currently has higher selling, general and administrative expenses as a percentage of net sales compared to the average of the Company.

Administrative expenses increased $78.6 in 2021, and represented approximately 4.5% of net sales in 2021 and 4.8% of net sales in 2020.

Research and development expenses increased $57.0 in 2021 primarily related to increases in expenses for new product development, and represented approximately 2.9% of net sales in 2021 and 3.0% of net sales in 2020.

Selling and marketing expenses increased $76.5 in 2021 compared to 2020, and represented approximately 3.8% of net sales in 2021 and 4.0% of net sales in 2020.

Operating income was $2,105.1, or 19.4% of net sales in 2021, compared to $1,638.4, or 19.1% of net sales in 2020.

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.

Operating income in 2021 included acquisition-related expenses of $70.4, comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the MTS acquisition in the second quarter of 2021, along with external transaction costs and certain non-cash purchase accounting costs related to the Halo acquisition in the fourth quarter of 2021.

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

These acquisition-related expenses in 2021 and 2020 had the effect of decreasing net income from continuing operations by $57.3, or $0.09 per share, and $10.7, or $0.02 per share, respectively.

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

Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, 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.

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 $2,175.5 and 20.0% of net sales, respectively, in 2021, and $1,649.9 and 19.2% of net sales, respectively, in 2020.

The increase in Adjusted Operating Income and Adjusted Operating Margin in 2021 relative to 2020 was primarily driven by the Interconnect Products and Assemblies segment, as discussed further below.

Operating income for the Interconnect Products and Assemblies segment in 2021 was $2,296.8, or 22.0% of net sales, compared to $1,741.2, or 21.2% of net sales in 2020.

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.

The increase in operating margin for the Interconnect Products and Assemblies segment for 2021 compared to 2020 is 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 2020, partially offset by the impact of the more challenging commodity and supply chain environment experienced in 2021.

Operating income for the Cable Products and Solutions segment in 2021 was $22.8, or 5.1% of net sales, compared to $35.4, or 9.6% of net sales in 2020.

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.

The decrease in operating margin for the Cable Products and Solutions segment in 2021 compared to 2020 is driven by the impact of the more challenging commodity, logistics and supply chain environment experienced in 2021.

Interest expense was $115.5 in 2021 compared to $115.4 in 2020.

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

Loss on early extinguishment of debt was $14.3 in 2019, which related to refinancing-related costs, specifically premiums and fees incurred associated with the early extinguishment of certain redeemed principal amounts of the 3.125% Senior Notes 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 Consolidated Financial Statements and the “Liquidity and Capital Resources” section within this Item 7 for further information related to the Tendered Notes.

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

Provision for income taxes was at an effective rate of 20.6% in 2021 and 20.5% in 2020.

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.

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, 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.

Provision for income taxes in 2021 included (i) excess tax benefits of $63.4 from stock option exercises and (ii) a discrete tax benefit of $14.9 related to the settlement of uncertain tax positions in certain non-U.S.

jurisdictions, all of which was partially offset by the tax effects related to acquisition-related expenses during the year.

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

jurisdiction and the resulting adjustments to deferred taxes, which were partially offset by the tax effects related to acquisition-related expenses during the year.

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

Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.3% and 24.5% for 2021 and 2020, respectively, as reconciled in the table below to the comparable effective tax rate based on GAAP results.

For additional details related to the reconciliation between the U.S.

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

Net income from continuing operations attributable to Amphenol Corporation and Net income from continuing operations per common share attributable to Amphenol Corporation-Diluted (“Diluted EPS”) were $1,569.4 and $2.51, respectively, for 2021, compared to $1,203.4 and $1.96, respectively, for 2020.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,548.4 and $2.48, respectively, for 2021, compared to $1,151.4 and $1.87, respectively, for 2020.

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

GAAP financial measures for the years ended December 31, 2021 and 2020:

1 unchanged sentence

Acquisition-related expenses

Loss on early extinguishment of debt

Excess tax benefits related to stock-based compensation

1 unchanged sentence

Adjusted (non-GAAP) (2)

All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations

(1) While the terms “operating margin” and “effective tax rate” are not considered U.S.

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

(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.

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 represented 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.

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.

This sales growth was partially offset by declines in the commercial aerospace, mobile networks and automotive markets, all of which were negatively impacted by the COVID-19 pandemic.

Net sales to the mobile devices market increased (approximately $179.9), driven by strength in products incorporated into laptops, tablets, wearable devices, and accessories along with production-related products, and was partially offset by a slight moderation of sales into smartphones.

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.

to the mobile networks market decreased (approximately $98.5), which reflected the impact of the 2019 U.S.

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 net sales 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.

GAAP financial measures, by segment and consolidated, for the year ended December 31, 2019 compared to the year ended December 31, 2018:

GAAP financial measures, by segment, geography and consolidated, for the year ended December 31, 2020 compared to the year ended December 31, 2019:

Percentage Growth (relative to prior year) (1)

Sales Growth (4)

Net sales by:

Interconnect Products and Assemblies

Cable Products and Solutions

Geography (6) :

United States

(1) Percentages in this table were calculated using actual, unrounded results;

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

(2) Net sales growth in U.S.

dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the accompanying financial statements.

dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 14 of the Notes to Consolidated Financial Statements.

While the term “net sales growth in U.S.

1 unchanged sentence

(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 compared to the prior year.

(4) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section.

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

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

Foreign sales in 2019 decreased approximately 4% in U.S.

dollars ($5,700.7 in 2019 versus $5,960.6 in 2018), 2% in constant currencies and 6% organically, compared to 2018, 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.

Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis.

(6) Net sales by geographic area are based on the customer location to which the product is shipped.

The increase in foreign net sales in 2020 compared to 2019 was driven primarily 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.

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

Administrative expenses increased $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 $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 decreased $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 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, respectively, in 2019 and $1,695.4 or 20.7% of net sales, respectively, in 2018.

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

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

These acquisition-related expenses in 2020 and 2019 had the effect of decreasing net income from continuing operations by $10.7, or $0.02 per share, and $21.0, or $0.03 per share, respectively.

Acquisition-related expenses are separately

presented in the Consolidated Statements of Income.

Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $1,649.9 and 19.2% of net sales, respectively, in 2020, and $1,644.6 and 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.

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 2019 compared to 2018 was primarily driven by lower volumes and product mix.

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).

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.

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

Loss on early extinguishment of debt was $14.3 in 2019, which related to refinancing-related costs, specifically premiums and fees incurred associated with the early extinguishment of certain redeemed principal amounts of the 3.125% Senior Notes due September 2021 (the “2021 Senior Notes”) and 4.00% Senior Notes due February 2022 (the “2022 Senior Notes”) (collectively, the “Tendered Notes”) as a result of the tender offers in September 2019.

Refer to Note 4 of the accompanying Consolidated Financial Statements for further information related to the Tendered Notes.

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

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.

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.

jurisdiction and the resulting adjustments to deferred taxes, which were partially offset by the tax effects related to acquisition-related expenses during the year.

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

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 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.

Net income from continuing operations attributable to Amphenol Corporation and Diluted EPS were $1,203.4 and $1.96, respectively, for 2020, compared to $1,155.0 and $1.88, respectively, for 2019.

Excluding the effect of the aforementioned items discussed above, Adjusted Net Income from continuing operations attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,151.4 and $1.87, respectively, for 2020, compared to $1,150.4 and $1.87, respectively, for 2019.

GAAP financial measures for the years ended December 31, 2020 and 2019:

3 unchanged sentences

Excess tax benefits related to stock-based compensation

Tax Act Charge (benefit)

Discrete tax item

Adjusted (non-GAAP) (2)

All data in the tables above are on a continuing operations basis only and exclude results associated with discontinued operations

(1) While the terms “operating margin” and “effective tax rate” are not considered U.S.

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

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

Liquidity and Capital Resources

Liquidity and Cash Requirements

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

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.

For earnings occurring on or after January 1, 2018, the Tax Act’s change to a modified territorial tax system in the United States has significantly reduced the U.S.

At December 31, 2021 and 2020, the Company had cash, cash equivalents and short-term investments of $1,241.4 and $1,738.1, respectively, with the majority of the Company’s cash, cash equivalents and short-term investments on hand located outside of the United States.

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

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

In addition, on December 1, 2021, the Company used cash on hand to fund the acquisition of Halo.

The Company’s primary sources of liquidity are internally generated cash provided by operating activities, our cash, cash equivalents and short-term investments on hand, the U.S.

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

The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash from operating activities, availability under its Revolving Credit Facility, and access to capital markets (including the recent issuance of the Company’s $750.0 principal amount of unsecured 2.200% Senior Notes due September 15, 2031 (the “2031 Senior Notes”) in September 2021, along with borrowings under the U.S.

Commercial Paper Program), provide adequate liquidity to meet both its short-term (next twelve months) and reasonably foreseeable long-term requirements and obligations.

Cash Requirements from Known Contractual and Other Obligations

The Company’s primary ongoing cash requirements will be for operating and working capital needs, capital expenditures, product development activities, repurchases of our Common Stock, dividends, debt service, payments associated with the one-time tax on the deemed repatriation of all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries (“Transition Tax”) which is payable in annual installments until 2025, taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings) , funding of pension obligations, and other contractual obligations and commitments (refer to the table below for the Company’s material cash requirements from known contractual and other obligations).

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

The Company’s debt service requirements consist primarily of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility and the Commercial Paper Programs (all as defined below).

The Company expects that capital expenditures in 2022 will be in a range of 3% to 4% of net sales.

The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of December 31, 2021, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied.

Payment Due By Period

Contractual Obligations

(dollars in millions)

Interest related to senior notes

Operating leases (2)

Purchase obligations (3)

Accrued pension and postretirement benefit obligations (4)

Transition tax (5)

(1) The Company has excluded expected interest payments on the Revolving Credit Facility, U.S.

Commercial Paper Program and Euro Commercial Paper Program from the above table, as this calculation is largely dependent on average debt levels the Company expects to have during each of the years presented.

The actual interest payments made related to the Company’s Revolving Credit Facility and both Commercial Paper Programs combined, in 2021, were approximately $2.4.

Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by items such as future acquisitions, repurchases of Common Stock and dividend payments, as well as payments or additional borrowings made to reduce or increase the underlying revolver balance.

(2) The Company’s operating lease payments included in this table reflect the future minimum undiscounted fixed lease payments, which serve as the basis for calculating the Company’s operating lease liabilities as of December 31, 2021.

The table above excludes any variable lease payments not included in the measurement of the Company’s right-of-use assets and operating lease liabilities, due to their uncertainty.

Finance leases are not material to the Company individually or in the aggregate and as such have been excluded from the table above.

(3) Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production.

(4) This table includes estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans, as well as the anticipated minimum required contributions under the Company’s funded pension plans, the most significant funded plan of which covers certain of its U.S.

Over the past several years, there has been no minimum requirement for Company contributions to our defined benefit pension plans in the United States (“U.S.

Plans”) due to prior contributions made in excess of minimum requirements, and as a result, there was no anticipated minimum required contribution included in the table above related to the U.S.

Plans for 2022.

The Company did not make any voluntary contributions to its U.S.

Plans in 2021 and 2020.

It is not possible to reasonably estimate expected required contributions in the above table after 2022 since several assumptions are required to calculate minimum required contributions, such as the discount rate and expected returns on pension assets.

(5) As a result of the enactment of the U.S.

Tax Cuts and Jobs Act of 2017 (“Tax Act”) in December 2017, the United States changed to a modified territorial tax system, which significantly reduced the U.S.

tax expense associated with the remittance of foreign earnings, among other changes.

The Tax Act also imposed a one-time transition tax (“Transition Tax”) on all of the Company’s pre-2018 accumulated unremitted foreign earnings.

The Tax Act also imposed the Transition Tax associated with all of the Company’s pre-2018 accumulated unremitted earnings and profits of foreign subsidiaries.

As a result, on December 31, 2017, the Company recorded a provisional U.S.

tax expense for the Transition Tax, which was adjusted and finalized in 2018.

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

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.

The Transition Tax is to be paid in annual installments over the eight-year period until 2025, as permitted under the Tax Act.

The table above reflects the remaining amounts associated with the Transition Tax, which is net of applicable tax credits and deductions.

The fourth installment of the Transition Tax was paid in the second quarter of 2021.

(6) As of December 31, 2021, the Company has recorded net liabilities of approximately $176.5 related to unrecognized tax benefits.

These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows.

It is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid.

Repatriation of Foreign Earnings and Related Income Taxes

Following the enactment of the Tax Act in December 2017, the Company has previously indicated an intention to repatriate most of its pre-2021 accumulated earnings and has accrued the foreign and U.S.

state and local taxes, if applicable, on those earnings, as appropriate.

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

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 indefinitely reinvest the remaining pre-2021 foreign earnings.

The Company intends to distribute certain 2021 foreign earnings and has accrued foreign and U.S.

state and local taxes, if applicable, on those earnings as appropriate as of December 31, 2020, and intends to indefinitely reinvest all remaining 2020 foreign earnings.

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, 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.

state and local taxes, where applicable, on those earnings, as of December 31, 2021, and intends to indefinitely reinvest the remaining 2021 foreign earnings.

The Company intends to evaluate certain post-2021 earnings for repatriation, and accrue for those distributions where appropriate, and to indefinitely reinvest all other foreign earnings.

As of December 31, 2021, the Company has not provided for deferred income taxes on undistributed foreign earnings of approximately $1,000 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.

The Company’s primary sources of liquidity are internally generated cash flow, our cash, cash equivalents and short-term investments on hand, the U.S.

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

The Company believes that its cash, cash equivalents and short-term investment position on hand, ability to generate future cash flow from operations, availability under its credit facilities, and access to capital markets (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.

Cash Flow Summary

1 unchanged sentence

Year Ended December 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by operating activities from continuing operations

Net cash used in investing activities from continuing operations

Net cash used in financing activities from continuing operations

Net cash change from discontinued operations

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net cash change from discontinued operations in the table above includes the proceeds from the sale of the Divested MTS business during the year ended December 31, 2021, as discussed in further detail later within this Item 7.

Operating Activities

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 $1,592.0 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.

Plans”, and together with its foreign plans, the “Plans”), while no such voluntary cash contribution to the U.S.

Plans was made in 2019.

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

Net cash provided by operating activities from continuing operations (“Operating Cash Flow”) was $1,523.9 in 2021, compared to $1,592.0 in 2020 and $1,502.3 in 2019.

The decrease in Operating Cash Flow in 2021 compared to 2020 is primarily due to a higher usage of cash related to the change in working capital as discussed below, partially offset by an increase in net income from continuing operations.

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

In 2021, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $496.4, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in accounts receivable, inventories, and prepaid expenses and other current assets of $398.4, $263.0 and $20.2, respectively, partially offset by increases in accounts payable of $131.7 and accrued liabilities, including income taxes, of $53.5.

In 2020, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $38.9, excluding the impact of acquisitions and foreign currency translation, due to increases in accounts receivable, inventories, and prepaid expenses and other current assets of $146.3, $102.0 and $88.6, respectively, partially offset by increases in accounts payable of $204.3 and accrued liabilities, including income taxes, of $93.7.

In 2019, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $81.6, excluding the impact of acquisitions and foreign currency translation, primarily due to decreases in accrued liabilities, including income taxes, of $129.3 and accounts payable of $60.2, partially offset by a decrease in accounts receivable of $117.3.

In 2018, the components of working capital as presented on the accompanying Consolidated Statements of Cash Flow increased $362.4, excluding the impact of acquisitions and foreign currency translation, primarily due to increases in accounts receivable, inventories, and prepaid expenses 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.

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

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”).

Accounts receivable increased $503.2 to $2,454.8 primarily due to higher sales in the fourth quarter of 2021 relative to the fourth quarter of 2020, along with the impact of the seven acquisitions (collectively, the “2021 Acquisitions”) that closed during 2021, in particular the MTS and Halo acquisitions, all of which was partially offset by the effect of translation from exchange rate changes (“Translation”) at December 31, 2021 compared to December 31, 2020.

Days sales outstanding at December 31, 2021 and 2020 were 71 days and 72 days, respectively.

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

Inventories increased $431.9 to $1,894.1, primarily due to higher sales, along with the impact of our 2021 Acquisitions, partially offset by Translation.

Inventory days at December 31, 2021 and 2020 were 80 days and 79 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.

Prepaid expenses and other current assets increased $29.0 to $367.9, primarily due to increases in certain prepaid expenses and other current receivables as well as the impact of the 2021 Acquisitions.

Property, plant and equipment, net, increased $120.7 to $1,175.3, primarily due to capital expenditures of $360.4 and the impact of the 2021 Acquisitions, partially offset by depreciation of $302.9, disposals and Translation.

Goodwill increased $1,344.7 to $6,376.8, resulting from goodwill recognized related to the 2021 Acquisitions, primarily from the MTS and Halo acquisitions, partially offset by Translation.

Other intangible assets, net, increased $359.4 to $756.9 due to the recognition of certain intangible assets related to the 2021 Acquisitions, primarily from the MTS and Halo acquisitions, partially offset by amortization of $86.4 related to the Company’s intangible assets.

Other long-term assets increased $58.9 to $411.2, primarily due to increases in (i) overfunded pension plans primarily in the U.S.

and (ii) operating lease right-of-use assets resulting from both leases assumed from the 2021 Acquisitions as well as new and renewed lease agreements entered into during the year.

Accounts payable increased $191.3 to $1,312.0, primarily as a result of increased purchasing activity related to higher sales levels, along with the

impact of the 2021 Acquisitions.

Payable days at December 31, 2021 and 2020 were 56 days and 61 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.

Total accrued expenses, including accrued income taxes, increased $177.8 to $1,131.1, primarily as a result of the MTS acquisition and the other 2021 Acquisitions, along with an increase in accrued salaries, wages and employee benefits, and other accrued expenses, partially offset by a decrease in accrued income taxes, primarily resulting from U.S.

federal tax payments.

Accrued pension and postretirement benefit obligations 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.

Accrued pension and postretirement benefit obligations decreased $35.2 to $193.4, primarily due to the impact of higher discount rates used to calculate our projected benefit obligation, along with Translation.

Other long-term liabilities, including deferred tax liabilities, increased $156.6 to $862.9, primarily as a result of an increase in deferred tax liabilities resulting from the MTS and Halo acquisitions, along with an increase in long-term operating lease liabilities resulting from both leases assumed from the 2021 Acquisitions as well as new and renewed lease agreements entered into during the year.

In 2021, 2020 and 2019, the Company made aggregate cash contributions to its defined benefit pension plans of approximately $6.8, $6.5 and $6.6, 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.

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GAAP financial measure for the years ended December 31, 2021, 2020 and 2019.

The decrease in Free Cash Flow in 2021 compared to 2020 was driven by the increase in capital expenditures to support our strong sales growth and, to a lesser extent, the decrease in Operating Cash Flow, as described above.

The increase in Free Cash Flow in 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 following table is on a continuing operations basis only and excludes any cash flows related to discontinued operations:

Operating Cash Flow (GAAP)

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Investing Activities

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

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

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.

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

Net cash used in investing activities from continuing operations was $2,604.4 in 2021, compared to $333.5 in 2020 and $1,228.8 in 2019.

In 2021, net cash used in investing activities from continuing operations was driven primarily by the use of $2,225.4 to fund acquisitions, capital expenditures (net of disposals) of $356.7, and net purchases of short-term investments of $8.6.

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

In 2019, net cash used in investing activities from continuing operations was driven primarily by the use of $937.4 to fund acquisitions, capital expenditures (net of disposals) of $287.6, and net purchases of short-term investments of $3.8.

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 $516.6 in 2020, compared to $648.4 in 2019 and $1,070.1 in 2018.

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.

Net cash used in financing activities from continuing operations was $145.1 in 2021, compared to $516.6 in 2020 and $648.4 in 2019.

In 2021, net cash used in financing activities from continuing operations was driven primarily by (i) debt repayments of $912.6, primarily related to the repayment of the assumed outstanding MTS senior notes in the

second quarter of 2021 as well as the redemption of the 3.125% Senior Notes in the third quarter of 2021 and the redemption of the 4.00% Senior Notes in the fourth quarter of 2021, (ii) repurchases of the Company’s Common Stock of $661.7, (iii) dividend payments of $346.7, (iv) a cash transfer of $28.7 made by the Company’s continuing operations to its discontinued operations in order to fund the September 2021 payment of contingent consideration assumed as part of the MTS acquisition, (v) distributions to and purchases of noncontrolling interests of $18.9, (vi) payments of $9.3 related to debt financing costs associated with the 2031 Senior Notes, and (vii) payments of $4.1 associated with the deferred purchase price related to acquisitions, partially offset by (a) net borrowings of $796.3 primarily under the U.S.

Commercial Paper Program, the majority of the proceeds of which were used to fund acquisitions and to redeem the 3.125% Senior Notes and the 4.00% Senior Notes, (b) net cash proceeds of $752.1, primarily related to the September 2021 issuance of the 2031 Senior Notes, and (c) cash proceeds of $288.5 from the exercise of stock options.

In 2020, net cash used in financing activities from continuing operations was driven primarily by (i) repurchases of the Company’s Common Stock of $641.3, (ii) debt repayments of $404.4 related to the Company’s 2.20% U.S.

Senior Notes due April 2020 and other debt, (iii) net repayments of $385.8 related to the Company’s Commercial Paper Programs, (iv) dividend payments of $297.6, (v) payment of $75.0 related to acquisition-related contingent consideration, (vi) payment of $16.2 associated with the deferred purchase price related to an acquisition, (vii) distributions to and purchases of noncontrolling interests of $14.9, (vii) payments of $8.7 related to debt financing costs primarily associated with the 2025 Senior Notes and 2026 Euro Notes (each as defined below), and (viii) net repayments of $0.7 under the Company’s credit facilities, partially offset by (a) aggregate net cash proceeds of $942.3 from both the February 2020 issuance of the 2025 Senior Notes and the May 2020 issuance of the 2026 Euro Notes and (b) cash proceeds of $385.7 from the exercise of stock options.

In 2019, net cash used in financing activities from continuing operations was driven primarily by (i) the aggregate debt repayments of $1,111.5 associated with certain of the Company’s senior notes (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 related to the Company’s Commercial Paper Programs, (v) distributions to and purchases of noncontrolling interests of $43.3, (vi) payments of $14.9 related to debt financing costs primarily associated with the Revolving Credit Facility, the 4.350% Senior Notes due June 2029 (the “2029 Senior Notes”), and the 2.800% Senior Notes due February 2030 (the “2030 Senior Notes”), and (vii) premiums and fees paid of $13.4 related to the early extinguishment of the Tendered Notes, partially offset by (a) aggregate net cash proceeds of $1,398.8 from the issuances of the 2029 Senior Notes and the 2030 Senior Notes and (b) cash proceeds of $246.1 from the exercise of stock options.

The Company has significant flexibility to meet its financial commitments.

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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.

On November 30, 2021, the Company amended and restated its $2,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”).

As a result, the Revolving Credit Facility no longer references LIBOR for interest rate determinations.

The Revolving Credit Facility maintains the lenders’ aggregate commitments under the facility at $2,500.0.

The Revolving Credit Facility matures in November 2026 and gives the Company the ability to borrow, in various currencies, at a spread that varies based on the Company’s debt rating over certain currency-specific benchmark rates, which benchmark rates in the case of U.S.

dollar borrowings are either the base rate or the adjusted term Secured Overnight Financing Rate (“SOFR”).

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

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Commercial Paper Program”).

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.

Commercial Paper Program, the “Commercial Paper Programs”) pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, the “Commercial Paper”),

which are guaranteed by the Company and are to be issued outside of the United States.

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

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

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

The Company also used borrowings under the U.S.

Commercial Paper Program to (i) redeem, in the third quarter of 2021, its unsecured 3.125% Senior Notes due September 15, 2021, of which $227.7 aggregate principal amount was outstanding and (ii) redeem, in the fourth quarter of 2021, its unsecured 4.00% Senior Notes due February 1, 2022, of which $295.0 aggregate principal amount was outstanding .

As of December 31, 2021, the amount of USCP Notes outstanding was $795.2, with a weighted average interest rate of 0.29%.

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

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, 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.

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

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

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

As of December 31, 2020, 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, consistent with the Revolving Credit Facility.

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

The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and 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, as of December 31, 2021, the authorization from the Board 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 .

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

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

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

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

September 2021

February 2030

September 2031

May 2026 (Euro Notes)

October 2028 (Euro 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.

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 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 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.

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.

On September 14, 2021, the Company issued the 2031 Senior Notes due September 15, 2031.

The Company used the net proceeds from the 2031 Senior Notes to repay certain outstanding borrowings under the U.S.

Commercial Paper Program.

On February 20, 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025 (the “2025 Senior Notes”).

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

All of the Company’s outstanding senior notes in the United States (the “ U.S.

Senior Notes”) are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness.

Senior Notes”) are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness.

Interest on each series of U.S.

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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 at any time, 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 (the “2026 Euro Notes”).

The Company used the net proceeds from the 2026 Euro Notes to repay amounts outstanding under the then existing revolving credit facility.

In 2018, the Euro Issuer issued €500.0 (approximately $574.6 at date of issuance) principal amount of unsecured 2.000% Senior Notes due October 8, 2028 (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.

The Euro Notes are unsecured and rank equally in right of payment with the Company’s and the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the

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.

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

The Senior Notes impose certain obligations on the Company and prohibit various actions by the Company unless it satisfies certain financial requirements.

On December 31, 2021, the Company was in compliance with all requirements under its Senior Notes.

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, 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;

In April 2018, the Board authorized a stock repurchase program under which the Company could 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 year ended December 31, 2021, the Company repurchased 3.1 million shares of its Common Stock for $203.8 under the 2018 Stock Repurchase Program.

As a result of these purchases, the Company completed all purchases authorized under the 2018 Stock Repurchase Program and, therefore, the 2018 Stock Repurchase Program has terminated.

Of the total repurchases made in 2021 under the 2018 Stock Repurchase Program, 0.3 million shares, or $19.8, were retained in Treasury stock at the time of repurchase;

the remaining 2.8 million shares, or $184.0, were retired by the Company.

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

During the years ended December 31, 2020 and 2019, the Company repurchased 12.0 million and 13.1 million shares of its Common Stock for $641.3 and $601.7, respectively, under the 2018 Stock Repurchase Program.

Of the total repurchases made in 2020, 2.7 million shares, or $153.9, were retained in Treasury stock at the time of repurchase;

the remaining 9.3 million shares, or $487.4, were retired by the Company.

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, 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 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.

Of the total repurchases made in 2019, 2.0 million shares, or $87.6, were retained in Treasury stock at the time of repurchase;

the remaining 11.1 million shares, or $514.1, were retired by the Company.

On April 27, 2021, the Board authorized a new stock repurchase program under which the Company may purchase up to $2,000.0 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.

During the year ended December 31, 2021, the Company repurchased 6.2 million shares of its Common Stock for $457.9 under the 2021 Stock Repurchase Program.

Of the total repurchases made in 2021 under the 2021 Stock Repurchase Program, 0.4 million shares, or $33.0, have been retained in Treasury stock at the time of repurchase;

the remaining 5.8 million shares, or $424.9, have been or will be retired by the Company.

From January 1, 2022 through January 31, 2022, the Company repurchased 0.6 million additional shares of its Common Stock for $50.0 under the 2021 Stock Repurchase Program, and, as of February 1, 2022, has remaining authorization to purchase up to $1,492.1 of its Common Stock under the 2021 Stock Repurchase Program.

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

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

On October 20, 2020, the Board approved an increase to its quarterly dividend rate from $0.125 per share to $0.145 per share effective with dividends declared in the fourth quarter of 2020, and then on October 26, 2021, approved a further increase to its quarterly dividend rate from $0.145 per share to $0.20 per share effective with dividends declared in the fourth quarter of 2021, contingent upon declaration by the Board.

The following table summ arizes the declared quarterly dividends per share for each of the three years ended December 31, 2021, 2020 and 2019:

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LIBOR Transition

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.

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

In December 2020, the ICE Benchmark Administration published a consultation on its intention to extend the publication of certain U.S.

dollar LIBOR (“USD LIBOR”) rates until June 30, 2023.

Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1-month, 3-month, 6-month and 12-month) will continue to be published until June 30, 2023.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, identified the Secured Overnight Financing Rate (the “SOFR”) as its preferred benchmark alternative to USD LIBOR.

financial institutions, identified 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.

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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.

Effective November 30, 2021, the Revolving Credit Facility no longer references LIBOR for interest rate determinations.

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

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

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employees are not covered by the U.S.

Plans and are covered by defined contribution plans.

Plans and are instead covered by various defined contribution plans.

Certain foreign subsidiaries also have defined benefit plans covering their employees (the “Foreign Plans” and, together with the U.S.

Plans, the “Plans”).

The total liability for accrued pension and postretirement benefit obligations 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.

The total liability for accrued pension and postretirement benefit obligations associated with the Company’s underfunded pension and postretirement benefit plans decreased in 2021 to $173.9 from $211.0 in 2020, primarily due to the impact of higher discount rates on our projected benefit obligation, along with actual returns on plan assets.

There is no current requirement for cash contributions to any of the U.S.

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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.

Acquisitions and Divestitures

During 2021, the Company completed seven acquisitions for $2,225.4, net of cash acquired, while also completing the divestiture of the Divested MTS business, as defined and discussed below.

All but one of the 2021 Acquisitions were included in the Interconnect Products and Assemblies segment.

The 2021 Acquisitions were not material, either individually or in the aggregate, to the Company.

Acquisition of MTS

On April 7, 2021, pursuant to a definitive agreement dated December 9, 2020, by and among the Company and MTS Systems Corporation (“MTS”), the Company completed the acquisition of MTS for a total enterprise value of approximately $1,700, net of cash acquired and including the repayment of all outstanding debt and certain liabilities.

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

Commercial Paper Program and cash on hand.

At closing, the Company paid approximately $1,300, net of cash acquired, for 100% of the common stock of MTS, including certain liabilities settled at closing, which is reflected within Net cash used in investing activities from continuing operations in the accompanying Consolidated Statements of Cash Flow for the year ended December 31, 2021.

In addition, the Company also assumed MTS’s then-outstanding $350.0 principal amount of senior notes due August 15, 2027.

Shortly after the closing, the Company repaid and settled the MTS senior notes for approximately $387.3, which included accrued interest and a make-whole premium incurred as a result of the early extinguishment of the senior notes.

The repayment of the outstanding senior notes, including the make-whole premium and excluding

interest, was reflected within Net cash used in financing activities from continuing operations in the accompanying Consolidated Statements of Cash Flow for the year ended December 31, 2021.

Prior to the acquisition, MTS was a leading global supplier of precision sensors, advanced test systems and motion simulators.

MTS was historically organized into two business segments:

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

The MTS Sensors business provides the Company with a highly complementary offering of high-technology, harsh environment sensors sold into diverse end markets and applications.

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

In the second quarter of 2021, the Company incurred $55.4 ($44.6 after-tax, or $0.07 per diluted share) of acquisition-related expenses, comprised primarily of transaction, severance, restructuring and certain non-cash purchase accounting costs related to the MTS acquisition.

Sale of the Divested MTS Business

On January 19, 2021 and prior to the closing of the MTS acquisition, the Company entered into a definitive agreement to sell MTS (including the MTS T&S business, but excluding the MTS Sensors business) to Illinois Tool Works Inc.

Throughout this Annual Report, we refer to MTS (including the MTS T&S business, but excluding the MTS Sensors business) as the “Divested MTS business”.

As a result of the agreement to sell the Divested MTS business to ITW, the Company concluded that the Divested MTS business met the discontinued operations reporting criteria and “held for sale” accounting criteria as of the MTS acquisition date of April 7, 2021, and consequently, the Company did not assign the Divested MTS business to either of its two reportable business segments.

Accordingly, t he Company accounted for the operating results and related cash flows associated with the Divested MTS business as discontinued operations through the date of its sale to ITW in the accompanying Consolidated Financial Statements.

Income from discontinued operations attributable to Amphenol Corporation, net of income taxes, was $21.4 for the year ended December 31, 2021.

On December 1, 2021, the Company completed the sale of the Divested MTS business for approximately $750, net of cash divested and excluding related transaction fees and expenses .

The proceeds from the sale of the Divested MTS business were included in Net cash provided by investing activities from discontinued operations in the Consolidated Statements of Cash Flow for the year ended December 31, 2021.

Amphenol has no continuing involvement with the Divested MTS business now that its sale has been consummated .

After giving effect to the sale of the Divested MTS business as well as the repayment of the aforementioned MTS senior notes as part of the MTS acquisition, the Company paid approximately $950, net of cash acquired and excluding related transaction fees and expenses, for the retained MTS Sensors business.

Refer to Note 12 of the Notes to Consolidated Financial Statements for further details related to the completed divestiture of the Divested MTS business.

Acquisition of Halo Technology Limited

On December 1, 2021, the Company completed the acquisition of approximately 97% of the common stock of Halo Technology Limited (“Halo”) for a purchase price of approximately $694, net of cash acquired.

The sellers retained a less than 3% noncontrolling interest in Halo, which includes redeemable features that are outside the control of the Company and therefore, has been classified as temporary equity on the Consolidated Balance Sheet as of December 31, 2021, as discussed in more detail in Notes 1 and 5 of the Notes to Consolidated Financial Statements.

The acquisition was funded with cash on hand.

Halo, which is headquartered in the United States (California), is a leading provider of active and passive fiber optic interconnect components, with product offerings that are highly complementary to our existing high-speed and fiber optic interconnect solutions for the communications infrastructure markets.

The operating results for Halo have been included within continuing operations in the Consolidated Statements of Income since the acquisition date.

For further discussion of the Company’s acquisitions, as well as the Company’s discontinued operations and completed divestiture of the Divested MTS business, refer to Note 11 and Note 12, respectively, of the Notes to 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.

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However, in certain markets, particularly in communications related markets, implementing price increases can be difficult and there is no guarantee that the Company will be successful.

For a discussion of certain risks related to inflation and costs, refer to the risk factor titled “The Company has at times experienced difficulties in obtaining a consistent supply of materials at stable pricing levels” in Part I, Item 1A herein.

Foreign Exchange

From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may also negatively impact the pricing of materials and components sourced or used by the Company.

While the Company does not currently anticipate any significant, broad-based difficulties in obtaining raw materials or components necessary for production, beginning in 2021 and into 2022, there have been supply chain and logistical challenges that have impacted the global economy, including our Company, and have caused supply constraints and commodity price increases on certain raw materials and components used by the Company in production , as well as lower availability of, and increased prices for, freight and logistics, including air, sea and ground freight .

Consequently, the Company may experience supply shortages for discrete raw materials or components in the future, which could be further exacerbated by increased commodity prices and additional inflation.

For a discussion of certain risks related to inflation and costs, refer to the risk factor titled “ The Company and certain of its suppliers and customers are experiencing difficulties obtaining certain raw materials and components, and the cost of most of the Company’s raw materials and components is increasing ” in Part I, Item 1A herein.

Foreign Currency Exchange Rates

The Company conducts business in many foreign currencies through its worldwide operations, and as a result is subject to foreign exchange exposure due to changes in exchange rates of the various currencies, including possible currency devaluations.

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In addition to assessing the Company’s financial condition, results of operations, liquidity and cash flows in accordance with U.S.

GAAP, management utilizes certain non-GAAP financial measures defined below as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the Company’s Board of Directors and assessing related employee compensation measures.

GAAP, management utilizes certain non-GAAP financial measures defined below as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the Board and assessing related employee compensation measures.

Management believes that these non-GAAP financial measures may be helpful to investors in assessing the Company’s overall financial performance, trends and year-over-year comparative results, in addition to the reasons noted below.

Non-GAAP financial measures related to operating income, operating margin, net income 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.

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

Items excluded in the presentation of such non-GAAP financial measures in any period may consist of, without limitation, acquisition-related expenses, refinancing-related costs, and certain discrete tax items including but not limited to (i) the excess tax benefits related to stock-based compensation and (ii) the impact of significant changes in tax law.

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

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

Non-GAAP financial measures and their most directly comparable U.S.

GAAP financial measures presented within this Item 7 are on a continuing operations basis only and exclude any results associated with discontinued operations.

The non-GAAP financial information contained herein is included for supplemental purposes only and should not be considered in isolation, as a substitute for or superior to the related U.S.

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The non-GAAP financial measures defined below should be read in conjunction with the Company’s financial statements presented in accordance with U.S.

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

The reconciliations of these non-GAAP financial measures to the

most directly comparable U.S.

GAAP financial measures for the years ended December 31, 2021, 2020 and 2019 are included in “Results of Operations” and “Liquidity and Capital Resources” within this Item 7:

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

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

GAAP), excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.

Adjusted Diluted EPS is calculated as Adjusted Net Income attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Consolidated Statements of Income.

● Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Consolidated Statements of Income, expressed as a percentage of Income before income taxes, as reported in the Consolidated Statements of Income, each excluding the income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.

● Adjusted Net Income attributable to Amphenol Corporation is defined as Net income attributable to Amphenol Corporation, as reported in the Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company's operating performance during the years presented.

Adjusted Diluted EPS is calculated as Adjusted Net Income from continuing operations attributable to Amphenol Corporation, as defined below, divided by the weighted average outstanding diluted shares as reported in the Consolidated Statements of Income.

● Adjusted Effective Tax Rate is defined as Provision for income taxes, as reported in the Consolidated Statements of Income, expressed as a percentage of Income from continuing operations before income taxes, as reported in the Consolidated Statements of Income, each excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.

● Adjusted Net Income from continuing operations attributable to Amphenol Corporation is defined as Net income from continuing operations attributable to Amphenol Corporation, as reported in the Consolidated Statements of Income, excluding income and expenses and their specific tax effects that are not directly related to the Company’s operating performance during the years presented.

● Adjusted Operating Income is defined as Operating income, as reported in the Consolidated Statements of Income, excluding income and expenses that are not directly related to the Company’s operating performance during the years presented.

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● Constant Currency Net Sales Growth is defined as the year-over-year percentage change in net sales growth, excluding the impact of changes in foreign currency exchange rates.

Amphenol’s results are subject to volatility related to foreign currency translation fluctuations.

The Company’s results are subject to volatility related to foreign currency translation fluctuations.

As such, management evaluates the Company’s sales performance based on actual sales growth in U.S.

dollars, as well as Organic Net Sales Growth (defined below) and Constant Currency Net Sales Growth, and believes that such information is useful to investors to assess the underlying sales trends.

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

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

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

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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 (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.

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 stockholders 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 (i) changes in foreign currency exchange rates (described above), which is outside the control of the Company, and (ii) acquisitions, both of which are taken as a percentage of the respective prior year period(s) net sales.

The acquisition impact represents the percentage impact on net sales resulting from acquisitions that have not been included in the Company’s consolidated results for the full current year period(s) and/or prior comparable year period(s) presented.

Such net sales related to these acquisitions do not reflect the underlying growth of the Company on a comparative basis.

Management evaluates the Company’s sales performance based on actual sales growth in U.S.

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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

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

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Actual results could differ from those estimates.

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

The Company believes that the following accounting policies and estimates are most critical since they require significant assumptions and judgments that inherently are subject to risks and uncertainties.

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

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The Company’s net sales in the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 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.

2014-09, Revenue from Contracts with Customers (Topic 606) (collectively with its related subsequent amendments, “Topic 606”).

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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The vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer, which generally occurs when we ship or deliver the product from our manufacturing facility to our customers, when our customer accepts and has legal title of the goods, and where the Company has a present right to payment for such goods.

Based on the respective contract terms, most of our contracts’ revenues are recognized either (i) upon shipment based on free on board (“FOB”) shipping point, (ii) when the product arrives at its destination or (iii) when the products are pulled from consignment inventory.

Based on the respective contract terms, most of our contracts’ revenues are recognized either (i) upon shipment based on free on board (“FOB”) shipping point or (ii) when the product arrives at its destination.

For the years ended December 31, 2021, 2020 and 2019, less than 5% of our net sales were recognized over time, where the associated contracts relate to the sale of goods with no alternative use as they are only sold to a single customer and whose underlying contract terms provide the Company with an enforceable right to payment, including a reasonable profit margin, for performance completed to date, in the event of customer termination.

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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, 2021 and 2020.

Standard product warranty coverage, which provides assurance that our products will conform to the contractually agreed-upon specifications for a limited period from the date of shipment, is typically offered, while extended or separately priced warranty coverage is typically not offered.

The warranty claim is generally limited to a credit equal to the purchase price or a promise to repair or replace the product for a specified period of time at no additional charge.

We estimate our warranty liability based on historical experience, product history, and current trends.

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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The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes.

As a result of the Tax Act, in 2017, the Company recorded (i) a provisional income tax charge related to the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries, (ii) a provisional income tax charge related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a provisional income tax benefit associated

with the remeasurement of its net deferred tax liabilities due to the U.S.

federal corporate tax rate reduction, and included these amounts in its consolidated financial statements for the year ended December 31, 2017.

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.

As a result of the Tax Act, 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.

Disclosures about contractual obligations and commitments

The following table summarizes the Company’s known obligations to make future payments pursuant to certain contracts as of December 31, 2020, as well as an estimate of the timing in which such obligations are expected to be satisfied.

Payment Due By Period

Contractual Obligations

(dollars in millions)

Interest related to senior notes (1)

Operating leases (2)

Purchase obligations (3)

Accrued pension and postretirement benefit obligations (4)

Transition tax (5)

(1) The Company has excluded expected interest payments on the Revolving Credit Facility, U.S.

The actual interest payments made related to the Company’s Revolving Credit Facility and both Commercial Paper Programs combined, in 2020, were approximately $4.6.

Expected debt levels, and therefore expected interest payments, are difficult to predict, as they are significantly impacted by such items as future acquisitions, repurchases of common stock, dividend payments as well as payments or additional borrowings made to reduce or increase the underlying revolver balance.

The table above excludes any variable lease payments not included in the measurement of the Company’s right-of-use assets and operating lease liabilities in accordance with ASC Topic 842, due to their uncertainty.

Finance leases are not material to the Company individually or in the aggregate and as such, have been excluded from the table above.

(3) Purchase obligations relate primarily to open purchase orders for goods and services, including but not limited to, raw materials and components to be used in production.

(4) Included in this table are estimated benefit payments expected to be made under the Company’s unfunded pension and postretirement benefit plans, as well as the anticipated minimum required contributions under the Company’s funded pension plans, the most significant funded plan of which covers certain of its U.S.

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

Plans due to prior contributions made in excess of minimum requirements and as a result, there was no anticipated minimum required contribution included in the table above related to the U.S.

Plans for 2021.

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 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.

(5) As a result of the enactment of the Tax Act in December 2017, the Company recorded a provisional tax charge on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries (“Transition Tax”) for the year ended December 31, 2017, based on certain assumptions made upon the Company’s then current interpretation of the Tax Act.

The Company analyzed guidance and technical interpretations issued in 2018 related to the provisions of the Tax Act, and refined, analyzed and updated the underlying data, computations and assumptions used to prepare the provisional amount, and consequently completed its accounting and recorded an adjustment related to the Transition Tax.

The amounts noted in the table above reflect the final Transition Tax, which is net of applicable tax credits and deductions, and in accordance with the Tax Act, is to be paid over the eight year period starting in 2018.

The 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.

These liabilities have been excluded from the above table due to the high degree of uncertainty regarding the timing of potential future cash flows;

it is difficult to make a reasonably reliable estimate of the amount and period in which all of these liabilities might be paid .

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