UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | |
☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
| | For the quarterly period ended OR |
| | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number number: 1-10879
AMPHENOL CORPORATION
(Exact name of registrant as specified in its charter)
358 Hall Avenue
Wallingford, Connecticut06492
(Address of principal executive offices) (Zip Code)
203-265-8900203-265-8900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $0.001 par value | APH | New York Stock Exchange |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒⌧ No ☐◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| |
Large | Accelerated |
| |
Non-accelerated | Smaller |
| Emerging |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2017,April 27, 2021, the total number of shares outstanding of the registrant’s Class A Common Stock was 305,339,096.597,615,720.
Amphenol Corporation
on Form 10-Q
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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1
PART I — FINANCIAL INFORMATION
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in millions)
|
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|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Assets |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,452.2 |
| $ | 1,034.6 |
|
Short-term investments |
|
| 37.4 |
|
| 138.6 |
|
Total cash, cash equivalents and short-term investments |
|
| 1,489.6 |
|
| 1,173.2 |
|
Accounts receivable, less allowance for doubtful accounts of $19.4 and $23.6, respectively |
|
| 1,575.5 |
|
| 1,349.3 |
|
Inventories |
|
| 1,098.2 |
|
| 928.9 |
|
Other current assets |
|
| 189.6 |
|
| 139.8 |
|
Total current assets |
|
| 4,352.9 |
|
| 3,591.2 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, less accumulated depreciation of $1,156.4 and $1,007.2, respectively |
|
| 790.1 |
|
| 711.4 |
|
Goodwill |
|
| 3,969.3 |
|
| 3,678.8 |
|
Intangibles, net and other long-term assets |
|
| 496.5 |
|
| 517.3 |
|
|
|
|
|
|
|
|
|
|
| $ | 9,608.8 |
| $ | 8,498.7 |
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|
|
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|
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|
Liabilities & Equity |
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Current Liabilities: |
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|
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|
|
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Accounts payable |
| $ | 826.8 |
| $ | 678.2 |
|
Accrued salaries, wages and employee benefits |
|
| 143.4 |
|
| 131.8 |
|
Accrued income taxes |
|
| 102.0 |
|
| 125.1 |
|
Accrued dividends |
|
| 57.9 |
|
| 49.3 |
|
Other accrued expenses |
|
| 302.5 |
|
| 275.6 |
|
Current portion of long-term debt |
|
| 1.1 |
|
| 375.2 |
|
Total current liabilities |
|
| 1,433.7 |
|
| 1,635.2 |
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
| 3,559.7 |
|
| 2,635.5 |
|
Accrued pension and postretirement benefit obligations |
|
| 285.0 |
|
| 288.4 |
|
Other long-term liabilities |
|
| 221.1 |
|
| 216.5 |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
Common stock |
|
| 0.3 |
|
| 0.3 |
|
Additional paid-in capital |
|
| 1,187.8 |
|
| 1,020.9 |
|
Retained earnings |
|
| 3,165.3 |
|
| 3,122.7 |
|
Accumulated other comprehensive loss |
|
| (286.2) |
|
| (469.0) |
|
Total shareholders’ equity attributable to Amphenol Corporation |
|
| 4,067.2 |
|
| 3,674.9 |
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
| 42.1 |
|
| 48.2 |
|
Total equity |
|
| 4,109.3 |
|
| 3,723.1 |
|
|
|
|
|
|
|
|
|
|
| $ | 9,608.8 |
| $ | 8,498.7 |
|
| | | | | | | |
| | March 31, | | December 31, | | ||
|
| 2021 |
| 2020 |
| ||
Assets | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 2,327.6 | | $ | 1,702.0 | |
Short-term investments | |
| 33.6 | |
| 36.1 | |
Total cash, cash equivalents and short-term investments | |
| 2,361.2 | |
| 1,738.1 | |
Accounts receivable, less allowance for doubtful accounts of $43.3 and $44.8, respectively | |
| 1,931.8 | |
| 1,951.6 | |
Inventories | |
| 1,565.1 | |
| 1,462.2 | |
Prepaid expenses and other current assets | |
| 328.6 | |
| 338.9 | |
Total current assets | |
| 6,186.7 | |
| 5,490.8 | |
| | | | | | | |
Property, plant and equipment, less accumulated depreciation of $1,767.5 and $1,738.6, respectively | | | 1,076.2 | | | 1,054.6 | |
Goodwill | | | 5,093.0 | | | 5,032.1 | |
Other intangible assets, net | |
| 410.3 | |
| 397.5 | |
Other long-term assets | | | 367.3 | | | 352.3 | |
| | $ | 13,133.5 | | $ | 12,327.3 | |
| | | | | | | |
Liabilities & Equity | | | | | | | |
Current Liabilities: | | | | | | | |
Accounts payable | | $ | 1,070.7 | | $ | 1,120.7 | |
Accrued salaries, wages and employee benefits | |
| 191.9 | |
| 195.4 | |
Accrued income taxes | |
| 129.4 | |
| 112.6 | |
Accrued dividends | | | 86.6 | | | 86.8 | |
Other accrued expenses | |
| 542.9 | |
| 558.5 | |
Current portion of long-term debt | |
| 526.4 | |
| 230.3 | |
Total current liabilities | |
| 2,547.9 | |
| 2,304.3 | |
| | | | | | | |
Long-term debt, less current portion | |
| 4,110.3 | |
| 3,636.2 | |
Accrued pension and postretirement benefit obligations | |
| 224.8 | |
| 228.6 | |
Deferred income taxes | | | 314.8 | | | 299.1 | |
Other long-term liabilities | |
| 414.0 | |
| 407.2 | |
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Equity: | | | | | | | |
Common stock | | | 0.6 | | | 0.6 | |
Additional paid-in capital | |
| 2,105.7 | |
| 2,068.1 | |
Retained earnings | |
| 3,807.1 | |
| 3,705.4 | |
Treasury stock, at cost | | | (117.4) | | | (111.1) | |
Accumulated other comprehensive loss | |
| (335.0) | |
| (278.1) | |
Total shareholders’ equity attributable to Amphenol Corporation | |
| 5,461.0 | |
| 5,384.9 | |
| | | | | | | |
Noncontrolling interests | |
| 60.7 | |
| 67.0 | |
Total equity | |
| 5,521.7 | |
| 5,451.9 | |
| | $ | 13,133.5 | | $ | 12,327.3 | |
See accompanying notes to condensed consolidated financial statements.
2
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars and shares in millions, except per share data)
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 30, |
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Net sales |
| $ | 1,840.8 |
| $ | 1,635.9 |
| $ | 5,067.4 |
| $ | 4,635.3 |
|
Cost of sales |
|
| 1,234.7 |
|
| 1,098.6 |
|
| 3,392.8 |
|
| 3,141.3 |
|
Gross profit |
|
| 606.1 |
|
| 537.3 |
|
| 1,674.6 |
|
| 1,494.0 |
|
Acquisition-related expenses |
|
| — |
|
| 6.3 |
|
| 4.0 |
|
| 36.6 |
|
Selling, general and administrative expenses |
|
| 228.2 |
|
| 204.7 |
|
| 642.4 |
|
| 591.3 |
|
Operating income |
|
| 377.9 |
|
| 326.3 |
|
| 1,028.2 |
|
| 866.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (24.6) |
|
| (18.1) |
|
| (67.3) |
|
| (54.2) |
|
Other income, net |
|
| 5.1 |
|
| 2.3 |
|
| 12.9 |
|
| 5.0 |
|
Income before income taxes |
|
| 358.4 |
|
| 310.5 |
|
| 973.8 |
|
| 816.9 |
|
Provision for income taxes |
|
| (78.1) |
|
| (83.4) |
|
| (212.7) |
|
| (222.6) |
|
Net income |
|
| 280.3 |
|
| 227.1 |
|
| 761.1 |
|
| 594.3 |
|
Less: Net income attributable to noncontrolling interests |
|
| (2.8) |
|
| (2.8) |
|
| (7.2) |
|
| (6.8) |
|
|
|
|
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|
|
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|
|
|
|
|
|
Net income attributable to Amphenol Corporation |
| $ | 277.5 |
| $ | 224.3 |
| $ | 753.9 |
| $ | 587.5 |
|
|
|
|
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|
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|
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|
Net income per common share — Basic |
| $ | 0.91 |
| $ | 0.73 |
| $ | 2.47 |
| $ | 1.91 |
|
|
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|
Weighted average common shares outstanding — Basic |
|
| 305.0 |
|
| 308.9 |
|
| 305.8 |
|
| 308.3 |
|
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|
Net income per common share — Diluted |
| $ | 0.88 |
| $ | 0.71 |
| $ | 2.39 |
| $ | 1.86 |
|
|
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|
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|
|
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|
|
Weighted average common shares outstanding — Diluted |
|
| 315.7 |
|
| 315.7 |
|
| 316.1 |
|
| 315.1 |
|
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|
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Dividends declared per common share |
| $ | 0.19 |
| $ | 0.14 |
| $ | 0.51 |
| $ | 0.42 |
|
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Net sales | | $ | 2,377.1 | | $ | 1,862.0 | |
Cost of sales | |
| 1,649.6 | |
| 1,302.2 | |
Gross profit | |
| 727.5 | |
| 559.8 | |
Selling, general and administrative expenses | |
| 262.7 | |
| 242.9 | |
Operating income | |
| 464.8 | |
| 316.9 | |
| | | | | | | |
Interest expense | |
| (28.6) | |
| (28.8) | |
Other (expense) income, net | |
| (0.3) | |
| 1.1 | |
Income before income taxes | |
| 435.9 | |
| 289.2 | |
Provision for income taxes | |
| (104.1) | |
| (46.0) | |
Net income | |
| 331.8 | |
| 243.2 | |
Less: Net income attributable to noncontrolling interests | |
| (2.2) | |
| (1.1) | |
Net income attributable to Amphenol Corporation | | $ | 329.6 | | $ | 242.1 | |
| | | | | | | |
Net income per common share — Basic | | $ | 0.55 | | $ | 0.41 | |
| | | | | | | |
Weighted average common shares outstanding — Basic | |
| 598.5 | |
| 594.9 | |
| | | | | | | |
Net income per common share — Diluted | | $ | 0.53 | | $ | 0.40 | |
| | | | | | | |
Weighted average common shares outstanding — Diluted | |
| 624.1 | |
| 612.9 | |
See accompanying notes to condensed consolidated financial statements.
3
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in millions)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
| | | | | | | |
Net income | | $ | 331.8 | | $ | 243.2 | |
Total other comprehensive (loss) income, net of tax: | | | | | | | |
Foreign currency translation adjustments | |
| (62.3) | |
| (100.7) | |
Unrealized gain on hedging activities | |
| 0.1 | |
| 0.2 | |
Pension and postretirement benefit plan adjustment, net of tax of ($1.6) and ($1.7), respectively | |
| 5.1 | |
| 5.2 | |
Total other comprehensive (loss) income, net of tax | |
| (57.1) | |
| (95.3) | |
| | | | | | | |
Total comprehensive income | |
| 274.7 | |
| 147.9 | |
| | | | | | | |
Less: Comprehensive income attributable to noncontrolling interests | |
| (2.0) | |
| 0 | |
| | | | | | | |
Comprehensive income attributable to Amphenol Corporation | | $ | 272.7 | | $ | 147.9 | |
See accompanying notes to condensed consolidated financial statements.
4
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(dollars in millions)
| | | | | | | |
| | Three Months Ended March 31, |
| ||||
|
| 2021 |
| 2020 |
| ||
Cash from operating activities: | | | | | | | |
Net income | | $ | 331.8 | | $ | 243.2 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 76.7 | |
| 72.1 | |
Stock-based compensation expense | |
| 19.1 | |
| 15.4 | |
Deferred income tax provision | |
| 14.2 | | | 13.4 | |
Net change in components of working capital | | | (114.6) | | | 43.8 | |
Net change in other long-term assets and liabilities | | | (6.2) | | | (3.6) | �� |
| | | | | | | |
Net cash provided by operating activities | |
| 321.0 | |
| 384.3 | |
| | | | | | | |
Cash from investing activities: | | | | | | | |
Capital expenditures | |
| (78.4) | |
| (60.8) | |
Proceeds from disposals of property, plant and equipment | |
| 0.9 | |
| 1.2 | |
Purchases of short-term investments | |
| (46.2) | |
| (12.0) | |
Sales and maturities of short-term investments | |
| 48.5 | |
| 17.7 | |
Acquisitions, net of cash acquired | |
| (185.6) | |
| (16.5) | |
Other | | | (2.4) | | | 0 | |
| | | | | | | |
Net cash used in investing activities | |
| (263.2) | |
| (70.4) | |
| | | | | | | |
Cash from financing activities: | | | | | | | |
Proceeds from issuance of senior notes and other long-term debt | |
| 1.2 | |
| 399.3 | |
Repayments of senior notes and other long-term debt | |
| (0.8) | | | (0.3) | |
Borrowings under credit facilities | |
| 0 | |
| 1,567.4 | |
Repayments under credit facilities | | | 0 | | | (215.0) | |
Borrowings (repayments) under commercial paper programs, net | | | 811.9 | | | (250.4) | |
Payment of costs related to debt financing | |
| 0 | |
| (3.9) | |
Proceeds from exercise of stock options | |
| 21.1 | | | 30.0 | |
Distributions to and purchases of noncontrolling interests | | | (7.6) | | | (8.1) | |
Purchase of treasury stock | |
| (152.8) | |
| (257.2) | |
Dividend payments | |
| (86.8) | |
| (74.4) | |
| | | | | | | |
Net cash provided by financing activities | |
| 586.2 | |
| 1,187.4 | |
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| (18.4) | |
| (20.2) | |
| | | | | | | |
Net change in cash and cash equivalents | |
| 625.6 | |
| 1,481.1 | |
Cash and cash equivalents balance, beginning of period | |
| 1,702.0 | |
| 891.2 | |
| | | | | | | |
Cash and cash equivalents balance, end of period | | $ | 2,327.6 | | $ | 2,372.3 | |
| | | | | | | |
Cash paid for: | | | | | | | |
Interest | | $ | 28.1 | | $ | 22.0 | |
Income taxes, net | |
| 75.2 | |
| 64.2 | |
See accompanying notes to condensed consolidated financial statements.
35
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in millions)
|
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|
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|
|
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|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 280.3 |
| $ | 227.1 |
| $ | 761.1 |
| $ | 594.3 |
|
Total other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 52.1 |
|
| 26.0 |
|
| 172.4 |
|
| 37.3 |
|
Unrealized gain (loss) on cash flow hedges |
|
| (0.6) |
|
| 1.3 |
|
| — |
|
| 2.3 |
|
Defined benefit plan adjustment, net of tax of ($2.2) and ($6.7) for 2017 and ($2.2) and ($6.6) for 2016, respectively |
|
| 4.2 |
|
| 4.0 |
|
| 12.5 |
|
| 12.0 |
|
Total other comprehensive income, net of tax |
|
| 55.7 |
|
| 31.3 |
|
| 184.9 |
|
| 51.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
| 336.0 |
|
| 258.4 |
|
| 946.0 |
|
| 645.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to noncontrolling interests |
|
| (3.6) |
|
| (2.7) |
|
| (9.3) |
|
| (6.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Amphenol Corporation |
| $ | 332.4 |
| $ | 255.7 |
| $ | 936.7 |
| $ | 639.7 |
|
See accompanying notes to condensed consolidated financial statements.
4
AMPHENOL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(dollars in millions)
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
Cash from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 761.1 |
| $ | 594.3 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 168.5 |
|
| 163.6 |
|
Stock-based compensation expense |
|
| 37.1 |
|
| 35.5 |
|
Excess tax benefits from stock-based compensation payment arrangements |
|
| — |
|
| (33.2) |
|
Net change in components of working capital |
|
| (252.8) |
|
| (27.4) |
|
Net change in other long-term assets and liabilities |
|
| 2.5 |
|
| (4.1) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
| 716.4 |
|
| 728.7 |
|
|
|
|
|
|
|
|
|
Cash from investing activities: |
|
|
|
|
|
|
|
Capital expenditures |
|
| (155.8) |
|
| (136.3) |
|
Proceeds from disposals of property, plant and equipment |
|
| 2.0 |
|
| 4.0 |
|
Purchases of short-term investments |
|
| (36.1) |
|
| (173.3) |
|
Sales and maturities of short-term investments |
|
| 140.4 |
|
| 33.3 |
|
Acquisitions, net of cash acquired |
|
| (243.5) |
|
| (1,272.6) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| (293.0) |
|
| (1,544.9) |
|
|
|
|
|
|
|
|
|
Cash from financing activities: |
|
|
|
|
|
|
|
Proceeds from issuance of senior notes, net |
|
| 749.3 |
|
| — |
|
Repayments of long-term debt |
|
| (375.0) |
|
| — |
|
Borrowings under commercial paper program, net |
|
| 173.6 |
|
| 145.8 |
|
Payment of costs related to debt financing |
|
| (5.2) |
|
| (3.0) |
|
Proceeds from exercise of stock options |
|
| 134.4 |
|
| 120.8 |
|
Excess tax benefits from stock-based compensation payment arrangements |
|
| — |
|
| 33.2 |
|
Distributions to and purchases of noncontrolling interests |
|
| (22.1) |
|
| (5.8) |
|
Purchase and retirement of treasury stock |
|
| (555.6) |
|
| (229.6) |
|
Dividend payments |
|
| (147.1) |
|
| (129.4) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
| (47.7) |
|
| (68.0) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 41.9 |
|
| 0.6 |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| 417.6 |
|
| (883.6) |
|
Cash and cash equivalents balance, beginning of period |
|
| 1,034.6 |
|
| 1,737.2 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents balance, end of period |
| $ | 1,452.2 |
| $ | 853.6 |
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
Interest |
| $ | 78.0 |
| $ | 65.2 |
|
Income taxes |
|
| 244.1 |
|
| 192.4 |
|
See accompanying notes to condensed consolidated financial statements.
5
AMPHENOL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollarsamounts in millions, except share and per share data)
Note 1—Basis of Presentation and Principles of Consolidation
The condensed consolidated balance sheetsCondensed Consolidated Balance Sheets as of September 30, 2017March 31, 2021 and December 31, 2016,2020, and each of the related condensed consolidated statementsCondensed Consolidated Statements of incomeIncome, Condensed Consolidated Statements of Comprehensive Income and condensed consolidated statementsCondensed Consolidated Statements of comprehensive incomeCash Flow for the three and nine months ended September 30, 2017March 31, 2021 and 2016, and the related condensed consolidated statements of cash flow for the nine months ended September 30, 2017 and 20162020, include the accounts of Amphenol Corporation and its subsidiaries (“Amphenol”,(“Amphenol,” the “Company”, “we”, “our”,“Company,” “we,” “our,” or “us”). All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements included herein are unaudited. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting ofincluding normal recurring adjustments considered necessary for a fair presentation of the results, in conformity with accounting principles generally accepted in the United States of America have been included.America. The results of operations for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 (the “2016“2020 Annual Report”).
Stock Split
On January 27, 2021, the Company announced that its Board of Directors approved a 2-for-one split of the Company’s Common Stock. The stock split was effected in the form of a stock dividend paid to shareholders of record as of the close of business on February 16, 2021. The additional shares were distributed on March 4, 2021, and the Company’s Common Stock began trading on a split-adjusted basis on March 5, 2021. As a result of the stock split, shareholders received one additional share of Amphenol Common Stock, $0.001 par value, for each share held as of the record date. There was no change in the number of authorized common shares of the Company as a result of the stock split.
All current and prior year data presented in the accompanying Condensed Consolidated Financial Statements and notes thereto in this Form 10-Q, including but not limited to, number of shares, share and per share activity, stock-based compensation data including stock options and restricted share units and related per share data, basic and diluted earnings per share, and dividends per share amounts, have been adjusted to reflect the effect of the stock split. As a result of the stock split, certain prior period amounts have been reclassified to conform to the current period presentation in the Condensed Consolidated Financial Statements and accompanying notes herein. The impact to the Condensed Consolidated Balance Sheets, as well as the rollforward of consolidated changes in equity included in Note 7 herein, was an increase of $0.3 to Common Stock, with an offsetting decrease in Additional paid-in capital, which has been retroactively adjusted for all periods presented.
Note 2—New Accounting Pronouncements
Recently Adopted Accounting Standards and Final SEC Rules
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplified income tax accounting in various areas. The Company has evaluated and adopted ASU 2019-12 on January 1, 2021, which did not have a material impact on our consolidated financial statements.
In May 2020, the Securities and Exchange Commission (the “SEC”) issued a new rule regarding the financial statement requirements for acquisitions and dispositions of a business, which included, among other things, amending (i) certain criteria in the significance tests for acquired or to-be-acquired businesses, (ii) related pro forma financial information requirements, including its form and content, and (iii) related disclosure requirements, including the number of acquiree financial statement periods required to be presented in SEC filings. The final rule was effective for fiscal
6
years beginning after December 31, 2020, with early application permitted. The Company evaluated and adopted this SEC final rule on January 1, 2021, which did not have a material impact on our condensed consolidated financial statements. Its impact on any future SEC filings will be dependent on the size of future business combinations.
Recently Issued Accounting Standards and Final SEC Rules Not Yet Adopted
The United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced in July 2017 its intent to phase out the use of LIBOR by the end of 2021. In December 2020, the ICE Benchmark Administration published a consultation on its intention to extend the publication of certain U.S. dollar LIBOR (“USD LIBOR”) rates until June 30, 2023. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1-month, 3-month, 6-month and 12-month) will continue to be published until June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, identified the Secured Overnight Financing Rate (the “SOFR”) as its preferred benchmark alternative to USD LIBOR. The SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In March 2016,2020, in response to this transition, the FASB issued ASU 2016‑09, Compensation—Stock Compensation2020-04, Reference Rate Reform (Topic 718): Improvements to Employee Share-Based Payment Accounting (“848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2016‑09”2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB also issued ASU 2021-01 Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which permits entities to elect certain optional expedients and exceptions when accounting for derivatives and certain hedging relationships affected by changes in interest rates and the transition. 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 tied to LIBOR consists primarily of our Revolving Credit Facility (as defined below), which had 0 outstanding borrowings as of March 31, 2021. We do not currently believe that this transition will have a material impact on our financial condition, results of operations or cash flows.
In November 2020, the SEC issued a new rule that modernizes and simplifies various aspects and financial disclosure requirements in Regulation S-K, specifically related to Item 301 “Selected Financial Data”, Item 302 “Supplementary Financial Information” and Item 303 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). The intent of this new rule is to (i) eliminate duplicative disclosures, (ii) enhance and promote more principles-based MD&A disclosures with the objective of making them more meaningful for investors, all while (iii) simplifying the compliance requirements and efforts for registrants, by providing them with the flexibility to present management’s perspective on the registrant’s financial condition and results of operations. While most of the changes involve reducing or eliminating previously required information and disclosures, the rule does expand the disclosure requirements surrounding certain provisionsaspects of the various items in Regulation S-K discussed above. The final rule was published in the Federal Register on January 11, 2021, is effective thirty days after its publication date, or February 10, 2021, and registrants are required to comply with this final rule in the registrant’s first fiscal year ending on or after the date that is 210 days after the publication date (August 9, 2021). The Company has evaluated this SEC final rule, and we plan to incorporate the requirements and amendments of this SEC rule, in its entirety, as part of our Form 10-K for the year ending December 31, 2021. The application of this new SEC rule is not expected to have a material impact on our future SEC filings.
Note 3—Inventories
Inventories consist of:
| | | | | | | |
| | | | | | ||
| | March 31, | | December 31, | | ||
|
| 2021 |
| 2020 |
| ||
Raw materials and supplies |
| $ | 642.8 |
| $ | 587.4 | |
Work in process | |
| 453.7 | |
| 410.7 | |
Finished goods | |
| 468.6 | |
| 464.1 | |
|
| $ | 1,565.1 |
| $ | 1,462.2 | |
7
Note 4—Debt
The Company’s debt (net of any unamortized discount) consists of the following:
| | | | | | | | | | | | | | | |
|
| | | March 31, 2021 | | December 31, 2020 |
| ||||||||
| | | | Carrying | | Approximate | | Carrying | | Approximate |
| ||||
| | |
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| ||||
Revolving Credit Facility | | | | $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 | |
U.S. Commercial Paper Program | | | |
| 811.0 | |
| 811.0 | |
| 0 | |
| 0 | |
Euro Commercial Paper Program | | | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
3.125% Senior Notes due September 2021 | | | |
| 227.7 | |
| 230.1 | |
| 227.7 | |
| 231.6 | |
4.00% Senior Notes due February 2022 | | | |
| 294.9 | |
| 300.9 | |
| 294.9 | |
| 303.6 | |
3.20% Senior Notes due April 2024 | | | |
| 349.8 | |
| 373.0 | |
| 349.8 | |
| 378.1 | |
2.050% Senior Notes due March 2025 | | | | | 399.5 | | | 412.2 | | | 399.4 | | | 420.7 | |
0.750% Euro Senior Notes due May 2026 | | | | | 584.3 | | | 606.0 | | | 608.4 | | | 633.6 | |
2.000% Euro Senior Notes due October 2028 | | | | | 584.3 | | | 659.3 | | | 608.4 | | | 694.9 | |
4.350% Senior Notes due June 2029 | | | | | 499.6 | | | 566.7 | | | 499.6 | | | 608.4 | |
2.800% Senior Notes due February 2030 | | | | | 899.4 | | | 925.5 | | | 899.4 | | | 987.8 | |
Other debt | | | |
| 12.2 | |
| 12.2 | |
| 6.7 | |
| 6.7 | |
Less unamortized deferred debt issuance costs |
| | |
| (26.0) | |
| — | |
| (27.8) | |
| — | |
Total debt | | | |
| 4,636.7 | |
| 4,896.9 | |
| 3,866.5 | |
| 4,265.4 | |
Less current portion | | | |
| 526.4 | | | 534.8 | |
| 230.3 | |
| 234.2 | |
Total long-term debt | | | | $ | 4,110.3 |
| $ | 4,362.1 |
| $ | 3,636.2 |
| $ | 4,031.2 | |
Revolving Credit Facility
The Company has a $2,500.0 unsecured credit facility (the “Revolving Credit Facility”), which matures January 2024 and gives the Company the ability to borrow, in various currencies, at a spread over LIBOR. The Company may utilize the Revolving Credit Facility for general corporate purposes. At March 31, 2021 and December 31, 2020, there were 0 outstanding borrowings under the Revolving Credit Facility. The carrying value of any borrowings under the Revolving Credit Facility would approximate their fair value due primarily to their market interest rates and would be classified as Level 2 in the fair value hierarchy (Note 5). Any outstanding borrowings under the Revolving Credit Facility are classified as long-term debt in the accompanying Condensed Consolidated Balance Sheets. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. At March 31, 2021, the Company was in compliance with the financial covenants under the Revolving Credit Facility.
Commercial Paper Programs
The Company has a commercial paper program pursuant to which the Company may issue short-term unsecured commercial paper notes (the “USCP Notes”) in one or more private placements in the United States (the “U.S. Commercial Paper Program”). The maturities of the USCP Notes vary, but may not exceed 397 days from the date of issue. The USCP Notes are sold under customary terms in the commercial paper market and may be issued at par or a discount therefrom, and bear varying interest rates on a fixed or floating basis. As of March 31, 2021, the amount of USCP Notes outstanding was $811.0, with a weighted average interest rate of 0.20%. On April 7, 2021, a combination of borrowings under the U.S. Commercial Paper Program and cash and cash equivalents on hand were used to fund the previously announced acquisition of MTS Systems Corporation (“MTS”). Refer to Note 16 herein for further discussion of the acquisition of MTS.
The Company and 1 of its wholly owned European subsidiaries (collectively, the “Euro Issuer”) also has a commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”) pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States. The maturities of the ECP Notes will
8
vary, but may not exceed 183 days from the date of issue. The ECP Notes are sold under customary terms in the commercial paper market and may be issued at par or a discount therefrom or a premium thereto and bear varying interest rates on a fixed or floating basis. The ECP Notes may be issued in Euros, Sterling, U.S. dollars or other currencies. As of March 31, 2021, there were 0 ECP Notes outstanding. In addition, until March 22, 2021, the Company was able to issue ECP Notes through the Bank of England’s COVID Corporate Financing Facility (the “BOE Facility”). There were 0 outstanding borrowings at March 31, 2021 under the BOE Facility, which expired on March 22, 2021.
Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time. In conjunction with the Revolving Credit Facility, the authorization from the Company’s Board of Directors limits the maximum principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper or similar programs, along with outstanding amounts under the Revolving Credit Facility, at any time to $2,500.0 in the aggregate. In addition, the maximum aggregate principal amount outstanding of USCP Notes and ECP Notes at any time is $2,500.0 and $2,000.0, respectively. The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary. Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes. The Commercial Paper is classified as long-term debt in the accompanying Condensed Consolidated Balance Sheets since the Company has the intent and ability to refinance the Commercial Paper on a long-term basis using the Company’s Revolving Credit Facility. The Commercial Paper is actively traded and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The carrying value of Commercial Paper borrowings approximates their fair value.
U.S. Senior Notes
On February 20, 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025 at 99.829% of face value (the “2025 Senior Notes”). The 2025 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2025 Senior Notes is payable semiannually on March 1 and September 1 of each year, commencing on September 1, 2020. Prior to February 1, 2025, the Company may, at its option, redeem some or all of the 2025 Senior Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after February 1, 2025, the Company may, at its option, redeem some or all of the 2025 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. On April 1, 2020, the Company used the net proceeds from the 2025 Senior Notes to repay the $400.0 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. Interest on each series of U.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of U.S. Senior Notes at any time subject to certain terms and conditions, which include paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, and, with certain exceptions, a make-whole premium. The fair value of each series of U.S. Senior Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The remaining principal amounts outstanding associated with the accounting for stock compensation. ASU 2016‑09 is effective for fiscal years,Company’s 3.125% Senior Notes due in September 2021 and interim periods4.00% Senior Notes due in February 2022 are each recorded, net of the related unamortized discount and debt issuance costs, within those fiscal years, beginning after December 15, 2016, with early adoption permitted. Effective January 1, 2017,Current portion of long-term debt in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2021. The U.S. Senior Notes contain certain financial and non-financial covenants. At March 31, 2021, the Company adopted ASU 2016‑09,was in compliance with the financial covenants under its U.S. Senior Notes.
Euro Senior Notes
On May 4, 2020, the Euro Issuer issued €500.0 (approximately $545.4 at date of issuance) principal amount of unsecured 0.750% Senior Notes due May 4, 2026 at 99.563% of face value (the “2026 Euro Notes” or the “0.750% Euro Senior Notes”, collectively with the 2.000% Euro Senior Notes due October 2028, the “Euro Notes”, and the Euro Notes collectively with the U.S. Senior Notes, the “Senior Notes”). The 2026 Euro Notes are unsecured and rank equally in
9
right of payment with the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on the 2026 Euro Notes is payable annually on May 4 of each year, commencing on May 4, 2021. Prior to February 4, 2026, the Company may, at its option, redeem some or all of the 2026 Euro Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after February 4, 2026, the Company may, at its option, redeem some or all of the 2026 Euro Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The Company used the net proceeds from the 2026 Euro Notes to repay amounts outstanding under the Revolving Credit Facility.
The Company’s Euro Notes are unsecured and rank equally in right of payment with the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on each series of Euro Notes is payable annually. The Company may, at its option, redeem some or all of any series of Euro Notes at any time subject to certain terms and conditions, which requires include paying 100% of the principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, and, with certain exceptions, a make-whole premium. The fair value of each series of Euro Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The Euro Notes contain certain financial and non-financial covenants. At March 31, 2021, the Company was in compliance with the financial covenants under its Euro Notes.
Note 5—Fair Value Measurements
Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. These requirements establish market or observable inputs as the preferred source of values. Assumptions based on hypothetical transactions are used in the absence of market inputs. The Company does not have any non-financial instruments accounted for at fair value on a recurring basis.
The valuation techniques required are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Significant inputs to the valuation model are unobservable.
The Company believes that the assets or liabilities currently subject to such standards with fair value disclosure requirements are primarily debt instruments, pension plan assets, short-term investments, and derivative instruments. Each of these assets and liabilities is discussed below, with the exception of debt instruments and pension plan assets, which are covered in Note 4 and Note 10, respectively, herein, in addition to the Notes to Consolidated Financial Statements in the 2020 Annual Report. Substantially all of the Company’s short-term investments consist of certificates of deposit with original maturities of twelve months or less and as such, are considered as Level 1 in the fair value hierarchy as they are traded in active markets for identical assets. The carrying amounts of these instruments, the majority of which are in non-U.S. bank accounts, approximate their fair value. The Company’s derivative instruments primarily consist of foreign exchange forward contracts, which are valued using bank quotations based on market observable inputs such as forward and spot rates and are therefore classified as Level 2 in the fair value hierarchy. The
10
impact of the credit risk related to these financial assets is immaterial. The fair values of the Company’s financial and non-financial assets and liabilities subject to such standards as of March 31, 2021 and December 31, 2020 are as follows:
| | | | | | | | | | | | |
| | Fair Value Measurements | ||||||||||
| | | | | Quoted Prices in | | Significant | | Significant | |||
| | | | | Active Markets | | Observable | | Unobservable | |||
| | | | | for Identical | | Inputs | | Inputs | |||
| | Total | | Assets (Level 1) | | (Level 2) | | (Level 3) | ||||
March 31, 2021: | | | | | | | | | | | | |
Short-term investments | | $ | 33.6 | | $ | 33.6 | | $ | 0 | | $ | 0 |
Forward contracts | | | (10.8) | | | 0 | | | (10.8) | | | 0 |
Total | | $ | 22.8 | | $ | 33.6 | | $ | (10.8) | | $ | 0 |
| | | | | | | | | | | | |
December 31, 2020: | | | | | | | | | | | | |
Short-term investments | | $ | 36.1 | | $ | 36.1 | | $ | 0 | | $ | 0 |
Forward contracts | | | (2.7) | | | 0 | | | (2.7) | | | 0 |
Total | | $ | 33.4 | | $ | 36.1 | | $ | (2.7) | | $ | 0 |
With the exception of the fair value of the assets acquired and liabilities assumed in connection with acquisition accounting, the Company does not have any other significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis.
As of March 31, 2021, the fair value of such forward contracts in the table above consisted of (i) 2 outstanding foreign exchange forward contracts accounted for as cash flow hedges, with each expiring in 2021, (ii) various outstanding foreign exchange forward contracts accounted for as net investment hedges and (iii) various outstanding foreign exchange forward contracts that are not designated as hedging instruments. The amounts recognized in Accumulated other comprehensive income (loss) associated with foreign exchange forward contracts and the amounts reclassified from Accumulated other comprehensive income (loss) to foreign exchange gain (loss), included in Cost of sales in the accompanying Condensed Consolidated Statements of Income during the three months ended March 31, 2021 and 2020, were not material. The fair values of the Company’s forward contracts are recorded within Prepaid expenses and other current assets, Other long-term assets, Other accrued expenses and Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets, depending on their value and remaining contractual period.
Note 6—Income Taxes
| | | | | | |
| Three Months Ended | | ||||
| March 31, | | ||||
| 2021 | | 2020 | | ||
Provision for income taxes | $ | (104.1) | | $ | (46.0) | |
Effective tax rate |
| 23.9 | % |
| 15.9 | % |
For the three months ended March 31, 2021 and 2020, stock option exercise activity had the impact of lowering our Provision for income taxes by $2.6 and $5.0, respectively, and lowering our effective tax rate by 60 basis points and 170 basis points, respectively, due to the recognition of excess tax benefits and tax deficiencies to be recorded as a discrete income tax item in the statement of income in the period in which they occur. For the three and nine months ended September 30, 2017, this change resulted in the recognition of tax benefits of approximately $16.6 (or $0.05 per share) and $45.8 (or $0.14 per share), respectively, within the provisionProvision for income taxes in the accompanying Condensed Consolidated Statements of Income. Under previous accounting guidance, these tax benefits would have been recorded directly to equity. Since this provision ofFor the standard was applied prospectively, there was no impact to prior periods. As of January 1, 2017,three months ended March 31, 2020, the Company did not have any unrecognized excess tax benefits in which the related tax deduction did not reduce income taxes payable and therefore, there was no cumulative-effect adjustment to beginning retained earnings. The ASU also eliminated the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities in the statement of cash flows, but rather requires such excess tax benefits and deficiencies to be classified within operating activities, consistent with other cash flows related to income taxes. The Company adopted this provision prospectively, and prior period amounts in the Statements of Cash Flow have not been adjusted. As permitted, the Company elected to continue its existing accounting practice of estimating forfeitures when recognizing stock-based compensation expense. Other provisions of this standard did not and are not expected to have a material impact on our consolidated financial statements. The impact of this guidance on our consolidated financial statements could result in significant fluctuations in our effective tax rate also includes a discrete tax benefit related to the settlements of refund claims in certain non-U.S. jurisdictions and the future, sinceresulting adjustments to deferred taxes, which had the provisionimpact of lowering our Provision for income taxes will be impactedand effective tax rate by $19.9 and 690 basis points, respectively.
On December 22, 2017, the timingUnited States federal government enacted the Tax Cuts and intrinsic value of future stock-based compensation award exercises. ReferJobs Act (“Tax Act”), marking a change from a worldwide tax system to Note 6, Note 8 and Note 15 for further discussion ona modified territorial tax system in the impactUnited States. As part of this standard.
In January 2017,change, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): SimplifyingTax Act, among other changes, provides for a transition tax (“Transition Tax”) related to the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates Step 2deemed repatriation of the two-step goodwill impairment assessment process requiring an entity to calculate any impairment as the difference between a reporting unit’s implied fair value of goodwillaccumulated unremitted earnings and the carrying valueprofits of the goodwill. Rather, ASU 2017-04 would now require any goodwill impairment chargesCompany’s foreign subsidiaries. The Company plans to be calculated aspay its fourth annual installment of the difference between a reporting unit’s fair valueTransition Tax, net of applicable tax credits and its carrying value, with the loss being limited to its carrying value. ASU 2017-04 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019 with prospective application, and early adoption is allowed. Although the Company early adopted ASU 2017-04deductions, in the thirdsecond quarter of 2017 in conjunction with its annual impairment assessment,2021, and will pay the
6
Company concluded that a Step 1 assessment was not required given the results of our annual impairment assessment discussed in Note 12 herein. As such, ASU 2017-04 did not have any impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. (“ASU”) 2014‑09, Revenue from Contracts with Customers (“ASU 2014‑09”), which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract(s), (3) determine the transaction price(s), (4) allocate the transaction price(s) to the performance obligations in the contract(s), and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance under ASU 2014‑09 shall apply for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. Since 2014, the FASB has issued various related updates including, but not limited to, ASU 2016‑08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations, and ASU 2016‑10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. The Company has an implementation plan involving teams across our organization to review and implement the requirements of ASU 2014‑09. We have substantially completed the review of our existing contracts and the related revenue streams, and based on the results of this review, we expect most of our revenue to be recognized on a “point-in-time” basis which is consistent with current practice, with a small portion of our revenue to be recognized “over time” under the new standard. In the third quarter of 2017, we began making system reporting changes to incorporate the impact balance of the new standard into our financial reporting processes; implementingTransition Tax, net of applicable tax credits and deductions, over the related internal controls, policies, and processes; and draftingremainder of the required disclosures. We will expand our financial statement disclosures in the first quarter of 2018 to comply with this new standard, specifically regarding the disaggregation of revenue and performance obligations, among other requirements. Aseight-year period ending 2025, as permitted under the standard,Tax Act. The current and long-term portions
11
of the Transition Tax are recorded in Accrued income taxes and Other long-term liabilities, respectively, on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.
The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company will adopt ASU 2014‑09 inis subject to income tax examinations by tax authorities for the first quarter of 2018 using the modified retrospective approachyears 2017 and has begun quantifying the impact of the cumulative effect of applying this new standard on existing, uncompleted contracts at the adoption date, which will result in an adjustment to the opening balance of retained earnings as of January 1, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016‑02”), which amends, among other things, the existing guidance by requiring lessees to recognize lease assets (right-to-use) and liabilities (for reasonably certain lease payments) arising from operating leases on the balance sheet. For leases with a term of twelve months or less, ASU 2016‑02 permits an entity to make an accounting policy election to recognize such leases as lease expense, generally on a straight-line basis over the lease term. ASU 2016‑02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 using a modified retrospective approach, with early adoption permitted. The Company has begun evaluating ASU 2016‑02, including the initial review of any necessary changes to our existing processes and systems that will be required to implement this new standard, in order to determine its impact on our consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017‑07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017‑07”), requiring employers to provide more details about the components of costs related to retirement benefits. Specifically, ASU 2017‑07 requires employers to report the service costs for providing pensions to employees in the same line item as other employee compensation costs, while the other pension-related costs such as interest costs, amortization of pension-related costs from prior periods, and the gains or losses on plan assets, should be reported separately and outside of the subtotal of operating income. ASU 2017‑07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted only if adopted in the first quarter of the Company’s fiscal year. The Company has evaluated ASU 2017‑07, which requires certain expenses to be reclassified within the
7
income statement, and we do not expect the reclassification to be material. The Company will adopt this new standard in the first quarter of 2018.
In May 2017, the FASB issued ASU 2017‑09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017‑09”), which provides guidance to determine which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Topic 718. ASU 2017‑09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, and requires prospective application to changes in terms or conditions of awards occurring on or after the adoption date.after. The Company is evaluating ASU 2017‑09 and we dogenerally not believe it will have a material impact on our consolidated financial statements.
Note 3—Inventories
Inventories consist of:
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| ||
|
| September 30, |
| December 31, |
| ||
|
| 2017 |
| 2016 |
| ||
Raw materials and supplies |
| $ | 384.5 |
| $ | 319.8 |
|
Work in process |
|
| 366.8 |
|
| 313.4 |
|
Finished goods |
|
| 346.9 |
|
| 295.7 |
|
|
| $ | 1,098.2 |
| $ | 928.9 |
|
Note 4—Reportable Business Segments
The Company has two reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Company organizes its reportable business segments based upon similar economic characteristics and business groupingsable to precisely estimate the ultimate settlement amounts or timing until the close of products, services and customers. These reportable business segments are determined based upon how the Company reviews its businesses, assesses operating performance and makes investing and resource allocation decisions. The Interconnect Product and Assemblies segment primarily designs, manufactures and markets a broad range of connector and connector systems, value-add products and other products, including antennas and sensors, used in a broad range of applications in a diverse set of end markets. The Cable Products and Solutions segment primarily designs, manufactures and markets cable, value-add products and components for use primarily in the broadband communications and information technology markets as well as certain applications in other markets. The accounting policies of the segments are the same as those for the Company as a whole and are described in Note 1 of the notes to the consolidated financial statements in the Company’s 2016 Annual Report.an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the performanceCompany’s belief that the underlying tax positions are fully supportable. As of business unitsMarch 31, 2021, the amount of unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $170.2. Unrecognized tax benefits are reviewed on among other things, profit or loss from operations before interest, headquarters’ expense allocations, stock-based compensation expense, income taxes, amortization relatedan ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, management anticipates that over the next twelve-month period, audit activity could be completed and statutes of limitations may close relating to certain intangible assets and nonrecurring gains and losses.existing unrecognized tax benefits of approximately $26.0.
The segment results for the three and nine months ended September 30, 2017 and 2016 are as follows:
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| Interconnect Products |
| Cable Products |
| Total Reportable |
| ||||||||||||
|
| and Assemblies |
| and Solutions |
| Business Segments |
| ||||||||||||
Three Months Ended September 30: |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||
Net sales: |
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|
|
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|
|
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|
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|
External |
| $ | 1,731.5 |
| $ | 1,543.2 |
| $ | 109.3 |
| $ | 92.7 |
| $ | 1,840.8 |
| $ | 1,635.9 |
|
Intersegment |
|
| 2.7 |
|
| 1.5 |
|
| 10.9 |
|
| 8.7 |
|
| 13.6 |
|
| 10.2 |
|
Segment operating income |
|
| 388.3 |
|
| 342.0 |
|
| 14.3 |
|
| 13.8 |
|
| 402.6 |
|
| 355.8 |
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Nine Months Ended September 30: |
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Net sales: |
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External |
| $ | 4,754.3 |
| $ | 4,366.9 |
| $ | 313.1 |
| $ | 268.4 |
| $ | 5,067.4 |
| $ | 4,635.3 |
|
Intersegment |
|
| 6.9 |
|
| 5.0 |
|
| 31.5 |
|
| 21.6 |
|
| 38.4 |
|
| 26.6 |
|
Segment operating income |
|
| 1,060.8 |
|
| 932.2 |
|
| 44.0 |
|
| 38.6 |
|
| 1,104.8 |
|
| 970.8 |
|
8
A reconciliation of segment operating income to consolidated income before income taxes for the three and nine months ended September 30, 2017 and 2016 is summarized as follows:
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Segment operating income |
| $ | 402.6 |
| $ | 355.8 |
| $ | 1,104.8 |
| $ | 970.8 |
|
Interest expense |
|
| (24.6) |
|
| (18.1) |
|
| (67.3) |
|
| (54.2) |
|
Other income, net |
|
| 5.1 |
|
| 2.3 |
|
| 12.9 |
|
| 5.0 |
|
Stock-based compensation expense |
|
| (12.6) |
|
| (12.2) |
|
| (37.1) |
|
| (35.5) |
|
Acquisition-related expenses |
|
| — |
|
| (6.3) |
|
| (4.0) |
|
| (36.6) |
|
Other operating expenses |
|
| (12.1) |
|
| (11.0) |
|
| (35.5) |
|
| (32.6) |
|
Income before income taxes |
| $ | 358.4 |
| $ | 310.5 |
| $ | 973.8 |
| $ | 816.9 |
|
Note 5—Changes in7—Shareholders’ Equity and Noncontrolling Interests
Net income attributable to noncontrolling interests is classified below net income. Earnings per share is determined after the impact of the noncontrolling interests’ share in net income of the Company. In addition, the equity attributable to noncontrolling interests is presented as a separate caption within equity.
A rollforward of consolidated changes in equity for the ninethree months ended September 30, 2017March 31, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amphenol Corporation Shareholders | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | Common Stock | | Treasury Stock | | | | | | | | Other | | | | | | | |||||||
| | Shares | | | | | Shares | | | | | Additional | | Retained | | Comprehensive | | Noncontrolling | | Total | |||||
|
| (in millions) |
| Amount |
| (in millions) |
| Amount |
| Paid-In Capital |
| Earnings |
| Loss |
| Interests |
| Equity | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 |
| 600.7 |
| $ | 0.6 |
| (2.0) |
| $ | (111.1) |
| $ | 2,068.1 |
| $ | 3,705.4 |
| $ | (278.1) |
| $ | 67.0 |
| $ | 5,451.9 |
Net income | | | | | | | | | | | | | | |
| 329.6 | | | | |
| 2.2 | |
| 331.8 |
Other comprehensive income (loss) | | | | | | | | | | | | | | | | | |
| (56.9) | |
| (0.2) | |
| (57.1) |
Acquisitions resulting in noncontrolling interest | | | | | | | | | | | | | | | | | | | | |
| 1.8 | |
| 1.8 |
Purchase of noncontrolling interest | | | | | | | | | | | | | 2.5 | | | | | | | | | (7.3) | | | (4.8) |
Distributions to shareholders of noncontrolling interests | | | | | | | | | | | | | | | | | | | | |
| (2.8) | |
| (2.8) |
Purchase of treasury stock | | | | | | | (2.4) | |
| (152.8) | | | | | | | | | | | | | |
| (152.8) |
Retirement of treasury stock |
| (2.1) | | | 0 | | 2.1 | |
| 133.0 | | | | |
| (133.0) | | | | | | | |
| 0 |
Stock options exercised |
| 0.6 | | | 0 | | 0.2 | | | 13.5 | |
| 16.0 | | | (8.3) | | | | | | | |
| 21.2 |
Dividends declared ($0.145 per common share) | | | | | | | | | | | | | | |
| (86.6) | | | | | | | |
| (86.6) |
Stock-based compensation expense | | | | | | | | | | | |
| 19.1 | | | | | | | | | | |
| 19.1 |
Balance as of March 31, 2021 |
| 599.2 |
| $ | 0.6 |
| (2.1) |
| $ | (117.4) |
| $ | 2,105.7 |
| $ | 3,807.1 |
| $ | (335.0) |
| $ | 60.7 |
| $ | 5,521.7 |
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| Amphenol Corporation Shareholders | |||||||||||||||||||||
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| Accumulated |
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| |
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| Common Stock |
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| Other |
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| ||||
|
| Shares |
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| Additional |
| Retained |
| Comprehensive |
| Treasury |
| Noncontrolling |
| Total | ||||||
|
| (in millions) |
| Amount |
| Paid-In Capital |
| Earnings |
| Loss |
| Stock |
| Interests |
| Equity | |||||||
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Balance as of December 31, 2016 |
| 308.3 |
| $ | 0.3 |
| $ | 1,020.9 |
| $ | 3,122.7 |
| $ | (469.0) |
| $ | — |
| $ | 48.2 |
| $ | 3,723.1 |
Net income |
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|
| 753.9 |
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|
| 7.2 |
|
| 761.1 |
Other comprehensive income |
|
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| 182.8 |
|
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|
| 2.1 |
|
| 184.9 |
Acquisitions resulting in noncontrolling interest |
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| 1.2 |
|
| 1.2 |
Purchase of noncontrolling interest |
|
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|
|
|
|
| (5.5) |
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|
|
|
|
|
|
|
|
| (9.5) |
|
| (15.0) |
Distributions to shareholders of noncontrolling interests |
|
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|
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| (7.1) |
|
| (7.1) |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (555.6) |
|
|
|
|
| (555.6) |
Retirement of treasury stock |
| (7.7) |
|
|
|
|
|
|
|
| (555.6) |
|
|
|
|
| 555.6 |
|
|
|
|
| — |
Stock options exercised |
| 4.4 |
|
|
|
|
| 135.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 135.3 |
Dividends declared |
|
|
|
|
|
|
|
|
|
| (155.7) |
|
|
|
|
|
|
|
|
|
|
| (155.7) |
Stock-based compensation expense |
|
|
|
|
|
|
| 37.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 37.1 |
Balance as of September 30, 2017 |
| 305.0 |
| $ | 0.3 |
| $ | 1,187.8 |
| $ | 3,165.3 |
| $ | (286.2) |
| $ | — |
| $ | 42.1 |
| $ | 4,109.3 |
12
A rollforward of consolidated changes in equity for the ninethree months ended September 30, 2016March 31, 2020 is as follows:
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| |||||||||||||||||||||||||
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| Amphenol Corporation Shareholders | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
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|
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|
|
| Accumulated |
|
|
|
|
|
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|
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| ||||||||||||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
| Shares |
|
|
|
| Additional |
| Retained |
| Comprehensive |
| Treasury |
| Noncontrolling |
| Total | |||||||||||||||||||||||||||||||
|
| (in millions) |
| Amount |
| Paid-In Capital |
| Earnings |
| Loss |
| Stock |
| Interests |
| Equity | ||||||||||||||||||||||||||||||||
|
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|
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| |||||||||||||||||||||||||
Balance as of December 31, 2015 |
| 308.0 |
| $ | 0.3 |
| $ | 783.3 |
| $ | 2,804.4 |
| $ | (349.5) |
| $ | — |
| $ | 39.9 |
| $ | 3,278.4 | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | Amphenol Corporation Shareholders | ||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | Accumulated | | | | | | | ||||||||||||||||||||||||
| | Common Stock | | Treasury Stock | | | | | | | | Other | | | | | | | ||||||||||||||||||||||||||||||
| | Shares | | | | | Shares | | | | | Additional | | Retained | | Comprehensive | | Noncontrolling | | Total | ||||||||||||||||||||||||||||
|
| (in millions) |
| Amount |
| (in millions) |
| Amount |
| Paid-In Capital |
| Earnings |
| Loss |
| Interests |
| Equity | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
Balance as of December 31, 2019 |
| 597.4 |
| $ | 0.6 |
| (1.6) |
| $ | (70.8) |
| $ | 1,683.0 |
| $ | 3,348.4 |
| $ | (430.9) |
| $ | 65.9 |
| $ | 4,596.2 | |||||||||||||||||||||||
Cumulative effect of adoption of credit loss standard (ASU 2016-13) | | | | | | | | | | | | | | | | (3.8) | | | | | | | | | (3.8) | |||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
| 587.5 |
|
|
|
|
|
|
|
| 6.8 |
|
| 594.3 | | | | | | | | | | | | | | |
| 242.1 | | | | |
| 1.1 | |
| 243.2 |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| 52.2 |
|
|
|
|
| (0.6) |
|
| 51.6 | | | | | | | | | | | | | | | | | |
| (94.2) | | | (1.1) | |
| (95.3) |
Acquisitions resulting in noncontrolling interest |
|
|
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|
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| 6.4 |
|
| 6.4 | |||||||||||||||||||||||||
Purchase of noncontrolling interest | | | | | | | | | | | | | (2.1) | | | | | | | | | (5.2) | | | (7.3) | |||||||||||||||||||||||
Distributions to shareholders of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5.8) |
|
| (5.8) | | | | | | | | | | | | | | | | | | | | |
| (0.8) | |
| (0.8) |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (229.6) |
|
|
|
|
| (229.6) | | | | | | | (5.4) | |
| (257.2) | | | | | | | | | | | | | |
| (257.2) |
Retirement of treasury stock |
| (4.0) |
|
|
|
|
|
|
|
| (229.6) |
|
|
|
|
| 229.6 |
|
|
|
|
| — |
| (5.4) | | | 0 | | 5.4 | |
| 257.2 | | | | |
| (257.2) | | | | | | | |
| 0 |
Stock options exercised, including tax benefit |
| 4.7 |
|
|
|
|
| 153.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 153.4 | |||||||||||||||||||||||||
Dividends declared |
|
|
|
|
|
|
|
|
|
| (129.5) |
|
|
|
|
|
|
|
|
|
|
| (129.5) | |||||||||||||||||||||||||
Stock options exercised |
| 1.2 | | | 0 | | 0.2 | | | 12.3 | |
| 24.0 | | | (7.0) | | | | | | | |
| 29.3 | |||||||||||||||||||||||
Dividends declared ($0.125 per common share) | | | | | | | | | | | | | | |
| (74.0) | | | | | | | |
| (74.0) | |||||||||||||||||||||||
Stock-based compensation expense |
|
|
|
|
|
|
| 35.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35.5 | | | | | | | | | | | |
| 15.4 | | | | | | | | | | |
| 15.4 |
Balance as of September 30, 2016 |
| 308.7 |
| $ | 0.3 |
| $ | 972.2 |
| $ | 3,032.8 |
| $ | (297.3) |
| $ | — |
| $ | 46.7 |
| $ | 3,754.7 | |||||||||||||||||||||||||
Balance as of March 31, 2020 |
| 593.2 |
| $ | 0.6 |
| (1.4) |
| $ | (58.5) |
| $ | 1,720.3 |
| $ | 3,248.5 |
| $ | (525.1) |
| $ | 59.9 |
| $ | 4,445.7 |
9
Note 6—Earnings Per Share
Basic earnings per share (“EPS”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”) is computed by dividing net income attributable to Amphenol Corporationin accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the three months ended March 31, 2021, the Company repurchased 2.4 million shares of its Common Stock for $152.8 under the 2018 Stock Repurchase Program. Of the total repurchases during the first three months of 2021, 0.3 million shares, or $19.8, have been retained in Treasury stock at time of repurchase; the remaining 2.1 million shares, or $133.0, have been retired by the weighted averageCompany. During the three months ended March 31, 2020, the Company repurchased 5.4 million shares of its Common Stock for $257.2 under the 2018 Stock Repurchase Program. All of the repurchases during the first three months of 2020 were retired by the Company. In April 2021, the Company repurchased 0.8 million additional shares of its Common Stock for $51.0, which completed the 2018 Stock Repurchase Program.
On April 27, 2021, the Company’s Board of Directors authorized a new stock repurchase program under which the Company may purchase up to $2,000.0 of the Company’s Common Stock during the three-year period ending April 27, 2024 (the “2021 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Exchange Act. As of April 27, 2021, the Company has 0t repurchased any shares of its Common Stock under the 2021 Stock Repurchase Program. The price and timing of any future purchases under the 2021 Stock Repurchase Program will depend on a number of factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends paid, economic and market conditions and the price of the Company’s common shares outstanding. Diluted EPS is computed by dividing net income attributable to Amphenol Corporationstock.
Contingent upon declaration by the weighted average numberCompany’s Board of common shares and dilutive common shares outstanding, which relates to stock options. A reconciliation ofDirectors, the basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three and nine months ended September 30, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
(dollars and shares in millions, except per share data) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net income attributable to Amphenol Corporation shareholders |
| $ | 277.5 |
| $ | 224.3 |
| $ | 753.9 |
| $ | 587.5 |
Basic weighted average common shares outstanding |
|
| 305.0 |
|
| 308.9 |
|
| 305.8 |
|
| 308.3 |
Effect of dilutive stock options |
|
| 10.7 |
|
| 6.8 |
|
| 10.3 |
|
| 6.8 |
Diluted weighted average common shares outstanding |
|
| 315.7 |
|
| 315.7 |
|
| 316.1 |
|
| 315.1 |
Earnings per share attributable to Amphenol Corporation shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.91 |
| $ | 0.73 |
| $ | 2.47 |
| $ | 1.91 |
Diluted |
| $ | 0.88 |
| $ | 0.71 |
| $ | 2.39 |
| $ | 1.86 |
Excluded from the computations above were anti-dilutive commonCompany generally pays a quarterly dividend on shares of 5.3 millionits Common Stock. The following table summarizes the dividends declared and 13.2 millionpaid for the three months ended September 30, 2017March 31, 2021 and 2016, respectively and 2.1 million and 11.0 million for the nine months ended September 30, 2017 and 2016, respectively.2020:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2021 | | 2020 | | ||
Dividends declared | | $ | 86.6 | | $ | 74.0 | |
Dividends paid (including those declared in the prior year) | |
| 86.8 | |
| 74.4 | |
In addition to the impact on the provision for income taxes discussed in Note 2 herein, the adoption of ASU 2016-09 in 2017 requires that excess tax benefits and tax deficiencies be excluded from the assumed proceeds available in calculating the dilutive effect of stock options under the treasury stock method. As required, the Company adopted this provision of the new standard prospectively, which had the effect of increasingOn October 20, 2020, the Company’s diluted weighted average common shares outstandingBoard of Directors approved an increase to its quarterly dividend rate from $0.125 per share to $0.145 per share effective with dividends declared in the fourth quarter of 2020 and contingent upon declaration by approximately two million shares for both the three and nine months ended September 30, 2017.
Note 7—Commitments and Contingencies
The Company has been named as a defendant in several legal actions arising from normal business activities. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. Although the potential liability with respect to certain of such legal actions cannot be reasonably estimated, none of such matters is expected to have a material adverse effect on the Company’s financial condition, resultsBoard of operations or cash flows. The Company’s legal costs associated with defending itself are recorded to expense as incurred.Directors.
Certain operations13
Note 8—Stock-Based Compensation
For the three months ended September 30, 2017March 31, 2021 and 2016,2020, the Company’s incomeIncome before income taxes was reduced for stock-based compensation expense of $12.6$19.1 and $12.2, respectively, and for the nine months ended September 30, 2017 and 2016, the Company’s income before income taxes was reduced for stock-based compensation expense of $37.1 and $35.5,$15.4, respectively. In addition, for the three months ended September 30, 2017March 31, 2021 and 2016,2020, the Company recognized aggregate income tax benefits associated with stock-based compensation of $19.5$4.5 and $2.9,$6.8, respectively, and for the nine months ended September 30, 2017 and 2016, the Company recognized income tax benefits associated with stock-based
10
compensation of $54.7 and $8.5, respectively. The income tax benefits during the three and nine months ended September 30, 2017 above include the tax benefit from option exercises during such periods in accordance with ASU 2016‑09 (Note 2). Under previous accounting guidance, a portion of this benefit would have been recorded directly to equity. The income tax benefit associated with stock options is included in the provisionProvision for income taxes in the accompanying Condensed Consolidated Statements of Income.Income associated with stock-based compensation. These aggregate income tax benefits during the three months ended March 31, 2021 and 2020 include excess tax benefits of $2.6 and $5.0, respectively, from option exercises.
The impact associated with recognizing excess tax benefits from option exercises in the provision for income taxes on our consolidated financial statements could result in significant fluctuations in our effective tax rate in the future, since the provision for income taxes will be impacted by the timing and intrinsic value of future stock-based compensation award exercises.
Stock-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates. Changes in estimated forfeitures are recognized in the period of change and impact the amount of expense to be recognized in future periods. The expense incurred for stock-based compensation plans is included in Selling, general and administrative expenseexpenses in the accompanying Condensed Consolidated Statements of Income.
Stock Options
In May 2017, the Company adopted the 2017 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (the “2017 Employee Option Plan”). The Company also continues to maintain the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries, as amended (the “2009 Employee Option Plan”) and the 2000 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries, as amended (the “2000 Employee Option Plan”), although no additional stock options will be granted under the 2009 Employee Option Plan or the 2000 Employee Option Plan. A committee of the Company’s Board of Directors has been authorized to grant stock options pursuant to the 2017 Employee Option Plan. TheAt the time of its adoption, the number of shares of the Company’s Class A Common Stock (“Common Stock”) reserved for issuance under the 2017 Employee Option Plan is 30,000,000 shares. was 60,000,000 shares (as approved by the Company’s Board of Directors). As of September 30, 2017,March 31, 2021, there were 22,970,40010,101,120 shares of Common Stock available for the granting of additional stock options under the 2017 Employee Option Plan. The Company also continues to maintain the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries, as amended (the “2009 Employee Option Plan”). NaN additional stock options will be granted under the 2009 Employee Option Plan. Options granted under the 2017 Employee Option Plan and the 2009 Employee Option Plan generally vest ratably over a period of five years from the date of grant and are generally exercisable over a period of ten years from the date of grant. Options granted under the 2000 Employee Option Plan are fully vested and are generally exercisable over a period of ten years from the date of grant.
In 2004, the Company adopted the 2004 Stock Option Plan for Directors of Amphenol Corporation (the “2004 Directors Option Plan”). The 2004 Directors Option Plan is administered by the Company’s Board of Directors. As of September 30, 2017, there were 140,000 shares of Common Stock available for the granting of additional stock options under the 2004 Directors Option Plan, although no additional stock options are expected to be granted under this plan. Options were last granted under the 2004 Directors Option Plan in May 2011. Options granted under the 2004 Directors Option Plan are fully vested and are generally exercisable over a period of ten years from the date of grant.
11
Stock option activity for the three and nine months ended September 30, 2017March 31, 2021 was as follows:
| | | | | | | | | | | |
| | | | | | | Weighted | | | |
|
| | | | | | Average | | Aggregate |
| ||
| | | | Weighted | | Remaining | | Intrinsic |
| ||
| | | | Average | | Contractual | | Value | | ||
|
| Options |
| Exercise Price |
| Term (in years) |
| (in millions) |
| ||
Options outstanding at January 1, 2021 |
| 67,985,648 | | $ | 37.58 |
| 6.79 | | $ | 1,890.4 | |
Options granted |
| 215,080 | |
| 64.69 | | | | | | |
Options exercised |
| (757,598) | |
| 28.12 | | | | | | |
Options forfeited |
| (31,160) | |
| 42.37 | | | | | | |
Options outstanding at March 31, 2021 |
| 67,411,970 | | $ | 37.77 |
| 6.57 | | $ | 1,901.0 | |
Vested and non-vested options expected to vest at March 31, 2021 |
| 64,076,188 | | $ | 37.47 |
| 6.50 | | $ | 1,826.2 | |
Exercisable options at March 31, 2021 |
| 30,329,950 | | $ | 31.94 |
| 5.10 | | $ | 1,032.0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
| Average |
| Aggregate |
| ||
|
|
|
| Weighted |
| Remaining |
| Intrinsic |
| ||
|
|
|
| Average |
| Contractual |
| Value |
| ||
|
| Options |
| Exercise Price |
| Term (in years) |
| (in millions) |
| ||
Options outstanding at January 1, 2017 |
| 32,266,391 |
| $ | 44.14 |
| 7.03 |
| $ | 744.1 |
|
Options granted |
| — |
|
|
|
|
|
|
|
|
|
Options exercised |
| (834,925) |
|
|
|
|
|
|
|
|
|
Options forfeited |
| (45,660) |
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2017 |
| 31,385,806 |
|
| 44.54 |
| 6.85 |
|
| 835.7 |
|
Options granted |
| 6,886,600 |
|
|
|
|
|
|
|
|
|
Options exercised |
| (1,759,976) |
|
|
|
|
|
|
|
|
|
Options forfeited |
| (70,160) |
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2017 |
| 36,442,270 |
|
| 50.65 |
| 7.33 |
|
| 844.3 |
|
Options granted |
| 143,000 |
|
|
|
|
|
|
|
|
|
Options exercised |
| (1,757,971) |
|
|
|
|
|
|
|
|
|
Options forfeited |
| (27,400) |
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2017 |
| 34,799,899 |
| $ | 51.56 |
| 7.20 |
| $ | 1,151.2 |
|
Vested and non-vested options expected to vest at September 30, 2017 |
| 32,626,495 |
| $ | 50.85 |
| 7.11 |
| $ | 1,102.3 |
|
Exercisable options at September 30, 2017 |
| 15,026,939 |
| $ | 38.97 |
| 5.58 |
| $ | 686.2 |
|
14
A summary of the status of the Company’s non-vested options as of September 30, 2017March 31, 2021 and changes during the three and nine months then ended is as follows:
|
|
|
|
|
|
| ||||||
|
|
|
| Weighted |
| |||||||
|
|
|
| Average Fair |
| |||||||
|
|
|
| Value at Grant |
| |||||||
|
| Options |
| Date |
| |||||||
Non-vested options at January 1, 2017 |
| 18,725,570 |
| $ | 7.99 |
| ||||||
| | | | | | | ||||||
|
| |
| Weighted |
| |||||||
| | | | Average | | |||||||
| | | | Fair Value at | | |||||||
| | Options | | Grant Date |
| |||||||
Non-vested options at January 1, 2021 |
| 36,989,300 | | $ | 6.43 | | ||||||
Options granted |
| — |
|
| — |
|
| 215,080 | |
| 12.11 | |
Options vested |
| (82,740) |
|
| 8.17 |
|
| (91,200) | |
| 3.88 | |
Options forfeited |
| (45,660) |
|
| 7.84 |
|
| (31,160) | |
| 5.77 | |
Non-vested options at March 31, 2017 |
| 18,597,170 |
|
| 7.98 |
| ||||||
Options granted |
| 6,886,600 |
|
| 8.77 |
| ||||||
Options vested |
| (5,668,910) |
|
| 7.91 |
| ||||||
Options forfeited |
| (70,160) |
|
| 8.20 |
| ||||||
Non-vested options at June 30, 2017 |
| 19,744,700 |
|
| 8.28 |
| ||||||
Options granted |
| 143,000 |
|
| 9.33 |
| ||||||
Options vested |
| (87,340) |
|
| 8.07 |
| ||||||
Options forfeited |
| (27,400) |
|
| 7.94 |
| ||||||
Non-vested options at September 30, 2017 |
| 19,772,960 |
| $ | 8.29 |
| ||||||
Non-vested options at March 31, 2021 |
| 37,082,020 | | $ | 6.46 | |
During the three and nine months ended September 30, 2017March 31, 2021 and 2016,2020, the following activity occurred under the Company’s option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
|
| Three Months Ended |
| |||||||||||||||||
| | March 31, | | |||||||||||||||||
| | 2021 | | 2020 | | |||||||||||||||
Total intrinsic value of stock options exercised |
| $ | 77.0 |
| $ | 72.7 |
| $ | 191.1 |
| $ | 155.3 |
| | $ | 28.9 | | $ | 45.2 | |
Total fair value of stock options vested |
|
| 0.7 |
|
| 0.6 |
|
| 46.2 |
|
| 43.0 |
| |
| 0.4 | |
| 0.6 | |
As of September 30, 2017,March 31, 2021, the total compensation cost related to non-vested options not yet recognized was approximately $132.6$165.2 with a weighted average expected amortization period of 3.483.25 years.
12
The grant-date fair value of each option grant under the 2000 Employee Option Plan, the 2009 Employee Option Plan, the 2017 Employee Option Plan and the 2004 Directors2017 Employee Option Plan is estimated using the Black-Scholes option pricing model. The grant-date fair value of each share grant is determined based on the closing share price of the Company’s Common Stock on the date of the grant. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model for option grants requires management to make certain assumptions with respect to selected model inputs. Expected share price volatility is calculated based on the historical volatility of the Common Stock and implied volatility derived from related exchange traded options. The average expected life is based on the contractual term of the option and expected exercise and historical post-vesting termination experience. The risk-free interest rate is based on U.S. Treasury zero-coupon issuances with a remaining term equal to the expected life assumed at the date of grant. The expected annual dividend per share is based on the Company’s dividend rate.
Restricted Shares
In 2012, the Company adopted the 2012 Restricted Stock Plan for Directors of Amphenol Corporation (the “2012 Directors Restricted Stock Plan”). The 2012 Directors Restricted Stock Plan is administered by the Company’s Board of Directors. As of September 30, 2017,March 31, 2021, the number of restricted shares available for grant under the 2012 Directors Restricted Stock Plan was 124,164.163,342. Restricted shares granted under the 2012 Directors Restricted Stock Plan generally vest on the first anniversary of the grant date. Grants under the 2012 Directors Restricted Stock Plan entitle the holder to receive shares of the Company’s Common Stock without payment.
Restricted share activity for the three and nine months ended September 30, 2017March 31, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
| Average Remaining |
| |
|
| Restricted |
| Fair Value at |
| Amortization Term |
| |
|
| Shares |
| Grant Date |
| (in years) |
| |
Restricted shares outstanding at January 1, 2017 |
| 16,905 |
| $ | 57.99 |
| 0.38 |
|
Restricted shares granted |
| — |
|
| — |
|
|
|
Restricted shares outstanding at March 31, 2017 |
| 16,905 |
|
| 57.99 |
| 0.13 |
|
Shares vested and issued |
| (16,905) |
|
| 57.99 |
|
|
|
Restricted shares granted |
| 11,526 |
|
| 72.90 |
|
|
|
Restricted shares outstanding at June 30, 2017 |
| 11,526 |
|
| 72.90 |
| 0.89 |
|
Restricted shares granted |
| 1,379 |
|
| 76.13 |
|
|
|
Restricted shares outstanding at September 30, 2017 |
| 12,905 |
| $ | 73.25 |
| 0.65 |
|
| | | | | | | | |
| | | | | | | Weighted Average | |
| | | | | | Remaining | | |
| | Restricted | | Fair Value at | | Amortization | | |
|
| Shares |
| Grant Date |
| Term (in years) |
| |
Restricted shares outstanding at January 1, 2021 |
| 26,350 | | $ | 45.55 | | 0.38 | |
Restricted shares granted |
| 0 | |
| 0 | | | |
Restricted shares outstanding at March 31, 2021 |
| 26,350 | | $ | 45.55 |
| 0.13 | |
As of September 30, 2017,March 31, 2021, the total compensation cost related to non-vested restricted shares not yet recognized was approximately $0.6 with$0.2 (with a weighted average expected amortization period of 0.65 years.0.13 years).
15
Note 9—Shareholders’ EquityEarnings Per Share
On January 24, 2017,Basic earnings per share (“EPS”) is computed by dividing net income attributable to Amphenol Corporation by the Company’s Boardweighted average number of Directors authorized a newcommon shares outstanding. Diluted EPS is computed by dividing net income attributable to Amphenol Corporation by the weighted average number of outstanding common shares and dilutive common shares, the dilutive effect of which relates to stock repurchase program under which the Company may purchase up to $1,000.0options. A reconciliation of the Company’s Common Stock during the two-year period ending January 24, 2019 in accordancebasic weighted average common shares outstanding to diluted weighted average common shares outstanding, along with the requirements of Rule 10b-18 ofearnings per share (basic and diluted) for the Exchange Act (the “2017 Stock Repurchase Program”). During the ninethree months ended September 30, 2017,March 31, 2021 and 2020 is as follows:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
(dollars and shares in millions, except per share data) |
| 2021 |
| 2020 |
| ||
Net income attributable to Amphenol Corporation shareholders | | $ | 329.6 | | $ | 242.1 | |
Basic weighted average common shares outstanding | |
| 598.5 | |
| 594.9 | |
Effect of dilutive stock options | |
| 25.6 | |
| 18.0 | |
Diluted weighted average common shares outstanding | |
| 624.1 | |
| 612.9 | |
Earnings per share attributable to Amphenol Corporation shareholders: | | | | | | | |
Basic | | $ | 0.55 | | $ | 0.41 | |
Diluted | | $ | 0.53 | | $ | 0.40 | |
Excluded from the Company repurchased 7.7computations above were anti-dilutive common shares (primarily related to outstanding stock options) of 0.1 million shares of its common stockand 6.2 million for $555.6. These treasury shares have been retired by the Company and common stock and retained earnings were reduced accordingly. The Company has not repurchased any additional shares of its common stock through October 31, 2017. As of October 31, 2017, the Company has remaining authorization to purchase up to approximately $444.4 of its common stock under the 2017 Stock Repurchase Program. The price and timing of any future purchases under the 2017 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.
13
Contingent upon declaration by the Board of Directors, the Company generally pays a quarterly dividend on shares of its Common Stock. In October 2016, the Board of Directors approved an increase in the quarterly dividend rate from $0.14 to $0.16 per share effective with dividends declared in the fourth quarter of 2016, and in July 2017, approved a further increase in the quarterly dividend rate from $0.16 to $0.19 per share effective with dividends declared in the third quarter of 2017. For the three and nine months ended September 30, 2017, the Company paid dividends in the amount of $48.8March 31, 2021 and $147.1, respectively, and declared dividends in the amount of $57.9 and $155.7, respectively. For the three and nine months ended September 30, 2016, the Company paid dividends in the amount of $43.1 and $129.4, respectively, and declared dividends in the amount of $43.2 and $129.5,2020, respectively.
Note 10—Benefit Plans and Other Postretirement Benefits
The Company and certain of its domestic subsidiaries have defined benefit pension plans (the “U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. CertainThe majority of U.S. employees are not covered by the U.S. Plans and are covered by defined contribution plans. Certain foreign subsidiaries have defined benefit plans covering their employees (the “International“Foreign Plans” and, together with the U.S. Plans, the “Plans”). The following is a summary, based on the most recent actuarial valuations of the Company’s net cost for pension benefits, of the Plans and other postretirement benefits for the three and nine months ended September 30, 2017March 31, 2021 and 2016: 2020:
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| Other Postretirement | ||||||||||
|
| Pension Benefits |
| Benefits | ||||||||||||||
Three Months Ended September 30: |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||||
| | | | | | | ||||||||||||
| | Pension Benefits | ||||||||||||||||
Three Months Ended March 31: |
| 2021 |
| 2020 | ||||||||||||||
Service cost |
| $ | 2.5 |
| $ | 2.3 |
| $ | — |
| $ | — |
| $ | 1.9 |
| $ | 2.0 |
Interest cost |
|
| 5.0 |
|
| 5.2 |
|
| 0.1 |
|
| 0.1 | |
| 2.8 | |
| 4.2 |
Expected return on plan assets |
|
| (7.8) |
|
| (7.6) |
|
| — |
|
| — | |
| (7.8) | |
| (9.3) |
Amortization of prior service cost |
|
| 0.7 |
|
| 0.6 |
|
| — |
|
| — | |
| 0.5 | |
| 0.5 |
Amortization of net actuarial losses |
|
| 5.8 |
|
| 5.6 |
|
| 0.2 |
|
| 0.2 | |
| 6.2 | |
| 6.2 |
Net pension expense |
| $ | 6.2 |
| $ | 6.1 |
| $ | 0.3 |
| $ | 0.3 |
| $ | 3.6 |
| $ | 3.6 |
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|
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|
|
| ||||||
Nine Months Ended September 30: |
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|
|
|
|
|
|
|
| ||||||
Service cost |
| $ | 7.3 |
| $ | 6.9 |
| $ | — |
| $ | 0.1 | ||||||
Interest cost |
|
| 14.9 |
|
| 15.8 |
|
| 0.3 |
|
| 0.3 | ||||||
Expected return on plan assets |
|
| (23.2) |
|
| (22.7) |
|
| — |
|
| — | ||||||
Amortization of transition obligation |
|
| — |
|
| (0.1) |
|
| — |
|
| — | ||||||
Amortization of prior service cost |
|
| 2.1 |
|
| 1.7 |
|
| — |
|
| — | ||||||
Amortization of net actuarial losses |
|
| 17.2 |
|
| 16.7 |
|
| 0.5 |
|
| 0.5 | ||||||
Net pension expense |
| $ | 18.3 |
| $ | 18.3 |
| $ | 0.8 |
| $ | 0.9 |
DuringBased on the nine months ended September 30, 2017,Company’s current investment strategy for its U.S. Plans, the Company madeCompany’s expected long-term rate of return assumption to determine net periodic pension expense for 2021 is 6.0%. There is 0 current requirement for cash contributions to any of approximately $17.0 to the U.S. Plans, and estimates that,the Company plans to evaluate annually, based on current actuarial calculations it will make aggregate cash contributions toand the Plans in 2017investment performance of approximately $25.0, the majority of which will be toPlans’ assets, the U.S. Plans. The timing and amount of cash contributions in subsequent years will depend on a number of factors, including the investment performance of the Plans’ assets.future.
The Company offers various defined contribution plans for certain U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements. The Company matches the majority of employee contributions to the U.S. defined contribution plans with cash contributions up to a maximum of 5%6% of eligible compensation. During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the totalCompany provided matching contributions to the U.S. defined contribution plans wereof approximately $5.0$4.4 and $3.5,$3.4, respectively.
1416
Note 11—Acquisitions
On January 8, 2016,2021 Acquisitions
During the first three months of 2021, the Company acquired all of the share capital of FCI Asia Pte Ltd (“FCI”)completed 4 acquisitions for a purchase price of approximately $1,178.6,$185.6, net of cash acquired. The acquisition was funded by cash, cash equivalents and short-term investments that were held outsideNaN of the United States. The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed of FCI based upon their estimated fair values. In the fourth quarter of 2016, the Company completed its analysis of the fair value of the net assets acquired through the use of independent valuations and management’s estimates, as notedacquisitions have been included in the Company’s 2016 Annual Report.
Interconnect Products and Assemblies segment, while 1 acquisition has been included in the Cable Products and Solutions segment. The Company completed several other acquisitions at the end of 2016 and throughout 2017 and is in the process of completing its analyses of the fair value of the assets acquired and liabilities assumed. The Company anticipates that the final assessments of values will not differ materially from the preliminary assessments. These otherThe operating results of the 2021 acquisitions have been included in the Condensed Consolidated Statements of Income since their respective dates of acquisition. Pro forma financial information related to these acquisitions has not been presented, since these acquisitions were not material, to the Company either individually or in the aggregate. aggregate, to the Company’s financial results.
Acquisition-related Expenses
During the nine months ended September 30, 2017,On April 7, 2021, the Company incurred approximately $4.0 ($3.7 after-tax)completed the previously announced acquisition of acquisition-related expenses relatedMTS Systems Corporation (“MTS”). Refer to external transaction costs. During the nine months ended September 30, 2016, the Company incurred approximately $30.3 ($27.3 after-tax) of acquisition-related expenses in the first quarter of 2016Note 16 herein for further details related to the MTS acquisition, as well as the planned divestiture of FCI, primarilythe MTS Test & Simulation business.
2020 Acquisitions
During the year ended December 31, 2020, the Company completed 2 acquisitions, which are included in the Interconnect Products and Assemblies segment, for approximately $50.4, net of cash acquired. While the Company has completed the acquisition accounting for 1 of the acquisitions in 2020, the Company is in the process of completing the analyses of the fair value of the assets acquired and liabilities assumed for the other 2020 acquisition. The Company anticipates that the final assessments of values will not differ materially from the preliminary assessments. Pro forma financial information related to external transaction costs, amortization relatedthese acquisitions has not been presented, since these acquisitions were not material, either individually or in the aggregate, to the value associated with acquired backlog and post-closing restructuring charges; and approximately $6.3 ($5.8 after-tax) of acquisition-related transaction expenses in the third quarter of 2016 related to other 2016 acquisitions. Such acquisition-related expenses are separately presented in the accompanying Condensed Consolidated Statements of Income.Company’s financial results.
Note 12—Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
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| Interconnect |
| Cable |
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| ||||||||||||
|
| Products and |
| Products and |
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| ||||||||||||
|
| Assemblies |
| Solutions |
| Total |
| |||||||||||||
Goodwill at December 31, 2016 |
| $ | 3,532.5 |
| $ | 146.3 |
| $ | 3,678.8 |
| ||||||||||
| | | | | | | | | | | ||||||||||
|
| Interconnect |
| Cable |
| | |
| ||||||||||||
| | Products and | | Products and | | | |
| ||||||||||||
| | Assemblies | | Solutions | | Total |
| |||||||||||||
Goodwill at December 31, 2020 | | $ | 4,874.5 | | $ | 157.6 | | $ | 5,032.1 | | ||||||||||
Acquisition-related |
|
| 192.7 |
|
| — |
|
| 192.7 |
| |
| 96.5 | |
| 11.6 | |
| 108.1 | |
Foreign currency translation |
|
| 97.8 |
|
| — |
|
| 97.8 |
| |
| (47.2) | |
| 0 | |
| (47.2) | |
Goodwill at September 30, 2017 |
| $ | 3,823.0 |
| $ | 146.3 |
| $ | 3,969.3 |
| ||||||||||
Goodwill at March 31, 2021 | | $ | 4,923.8 | | $ | 169.2 | | $ | 5,093.0 | |
The Company performs its annual evaluation for the impairment of goodwill for the Company’s reporting units as of each July 1 or more frequently if an event occurs or circumstances change that would indicate that a reporting unit’s carrying amount may be impaired. The Company has defined its reporting units as the two reportable business segments “Interconnect Products and Assemblies” and “Cable Products and Solutions”, as the components of these reportable business segments have similar economic characteristics. In 2017, as part of our annual evaluation, the Company utilized the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment assessment. As part of this assessment, the Company reviews qualitative factors, which include but are not limited to, economic, market and industry conditions, as well as the financial performance of each reporting unit. In accordance with applicable guidance, an entity is not required to calculate the fair value of a reporting unit if, after assessing these qualitative factors, the Company determines that it is more likely than not that its reporting unit’s fair value is greater than its carrying amount. During the third quarter, the Company determined that it was more likely than not that the fair value of its reporting units exceeded their respective carrying amounts and therefore, a quantitative assessment was not required. The Company has not recognized any goodwill impairment in 2017, 2016 or 2015 in connection with its annual impairment test.
Other than goodwill noted above, as well as indefinite-lived trade name intangible assets of approximately $186.1 as of September 30, 2017 and December 31, 2016, the Company’s intangible assets are subject to amortization. A
15
summary of the Company’s amortizable intangible assets as of September 30, 2017March 31, 2021 and December 31, 2016 is2020 were as follows:
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|
| September 30, 2017 |
| December 31, 2016 | |||||||||||||||||||||||||||||||||
|
| Gross |
|
|
| Net |
| Gross |
|
|
| Net | |||||||||||||||||||||||||
|
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying | |||||||||||||||||||||||||
|
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | March 31, 2021 | | December 31, 2020 | ||||||||||||||||||||||||||||||||
| Weighted | | Gross |
| |
| Net |
| Gross |
| |
| Net | ||||||||||||||||||||||||
| Average | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | ||||||||||||||||||||||||
| Life (years) | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | ||||||||||||||||||||||||
Customer relationships |
| $ | 390.2 |
| $ | 188.9 |
| $ | 201.3 |
| $ | 381.1 |
| $ | 159.1 |
| $ | 222.0 | 9 | | $ | 479.9 | | $ | 321.1 | | $ | 158.8 | | $ | 456.6 | | $ | 313.6 | | $ | 143.0 |
Proprietary technology |
|
| 107.5 |
|
| 48.5 |
|
| 59.0 |
|
| 106.7 |
|
| 40.9 |
|
| 65.8 | 11 | |
| 156.0 | |
| 90.9 | | | 65.1 | |
| 156.2 | |
| 88.1 | | | 68.1 |
Backlog and other |
|
| 34.0 |
|
| 33.6 |
|
| 0.4 |
|
| 34.0 |
|
| 33.5 |
|
| 0.5 | 2 | |
| 49.7 | |
| 49.4 | | | 0.3 | |
| 49.7 | |
| 49.4 | | | 0.3 |
Total |
| $ | 531.7 |
| $ | 271.0 |
| $ | 260.7 |
| $ | 521.8 |
| $ | 233.5 |
| $ | 288.3 | |||||||||||||||||||
Total intangible assets (definite-lived) | 9 | | | 685.6 | | | 461.4 | | | 224.2 | | | 662.5 | | | 451.1 | | | 211.4 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Trade names (indefinite-lived) | | | | 186.1 | | | | | | 186.1 | | | 186.1 | | | | | | 186.1 | ||||||||||||||||||
| | | $ | 871.7 | | $ | 461.4 | | $ | 410.3 | | $ | 848.6 | | $ | 451.1 | | $ | 397.5 |
Customer relationships, proprietary technology, and backlog and other amortizableThe increase in the gross carrying amount of intangible assets have weighted average useful lives of approximately 10 years, 11 years and 2 years, respectively, for an aggregate weighted average useful life of approximately 10 years at September 30, 2017.
The Company reviews its identifiable intangible assets subject to amortization whenever events or changes in circumstances indicate the carrying amount may not be recoverable, while any indefinite-lived intangible assets that are not subject to amortization are reviewed at least annually for impairment. In the thirdfirst quarter of 2017, the Company performed its annual assessment of these identifiable indefinite-lived intangible assets. Based on our qualitative assessment, the Company determined that it2021 was more likely than not that the fair value of the indefinite-lived intangible assets exceeded their respective carrying amounts. There have been no impairments recorded in 2017, 2016 or 2015driven by certain customer relationships recognized as a result of such reviews.
Intangible assets are included in Intangibles, net and other long-term assets in the accompanying Condensed Consolidated Balance Sheets. The amortizationacquisition accounting associated with our first quarter 2021 acquisitions. Amortization expense for the three months ended September 30, 2017March 31, 2021 and 20162020 was approximately $12.3 and $11.6,
17
$12.9, respectively.The amortization expense for the nine months ended September 30, 2017 and 2016 was approximately $36.4 and $42.8, respectively. Amortization expense for the nine months ended September 30, 2016 included $8.0 related to the amortization of acquired backlog from the FCI acquisition. As of September 30, 2017,March 31, 2021, amortization expense relating to the Company’s current intangible assets estimated for the remainder of 20172021 is approximately $12.3$37.0 and for each of the next five fiscal years is approximately $45.2$42.0 in 2018, $41.32022, $39.3 in 2019, $35.92023, $33.6 in 2020, $30.42024, $24.2 in 20212025 and $23.1 in 2022.2026.
Note 13—DebtReportable Business Segments
The Company’s debt (net of any unamortized discount) consists of the following:
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|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||
|
| Carrying |
| Approximate |
| Carrying |
| Approximate |
| ||||
|
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| ||||
Revolving Credit Facility |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Commercial Paper Program |
|
| 1,191.9 |
|
| 1,191.9 |
|
| 1,018.9 |
|
| 1,018.9 |
|
1.55% Senior Notes due September 2017 |
|
| — |
|
| — |
|
| 374.9 |
|
| 375.4 |
|
2.55% Senior Notes due January 2019 |
|
| 749.7 |
|
| 756.1 |
|
| 749.5 |
|
| 758.3 |
|
2.20% Senior Notes due April 2020 |
|
| 399.7 |
|
| 400.6 |
|
| — |
|
| — |
|
3.125% Senior Notes due September 2021 |
|
| 374.8 |
|
| 383.5 |
|
| 374.8 |
|
| 380.4 |
|
4.00% Senior Notes due February 2022 |
|
| 499.5 |
|
| 527.7 |
|
| 499.4 |
|
| 523.7 |
|
3.20% Senior Notes due April 2024 |
|
| 349.6 |
|
| 354.1 |
|
| — |
|
| — |
|
Notes payable to foreign banks and other debt |
|
| 9.6 |
|
| 9.6 |
|
| 5.5 |
|
| 5.5 |
|
Less deferred debt issuance costs |
|
| (14.0) |
|
| — |
|
| (12.3) |
|
| — |
|
Total debt |
|
| 3,560.8 |
|
| 3,623.5 |
|
| 3,010.7 |
|
| 3,062.2 |
|
Less current portion |
|
| 1.1 |
|
| 1.1 |
|
| 375.2 |
|
| 375.7 |
|
Total long-term debt |
| $ | 3,559.7 |
| $ | 3,622.4 |
| $ | 2,635.5 |
| $ | 2,686.5 |
|
16
Revolving Credit Facility
The Company has 2 reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Company organizes its reportable business segments based upon similar economic characteristics and business groupings of products, services, and customers, and do not include any aggregated operating segments. These reportable business segments are determined based upon how the Company operates its businesses, assesses operating performance, makes resource allocation decisions, and communicates results, outlook and strategy to our Board of Directors and shareholders. The Interconnect Products and Assemblies segment primarily designs, manufactures and markets a $2,000.0 unsecured credit facility (the “Revolving Credit Facility”), which maturesbroad range of connector and connector systems, value-add products and other products, including antennas and sensors, used in a broad range of applications in a diverse set of end markets. The Cable Products and Solutions segment primarily designs, manufactures and markets cable, value-add products and components for use primarily in the broadband communications and information technology markets as well as certain applications in other markets. The accounting policies of the segments are the same as those for the Company as a whole and are described herein and in Note 1 of the Notes to Consolidated Financial Statements in the 2020 Annual Report. The Company evaluates the performance of the segments and allocates resources to them based on, among other things, profit or loss from operations before interest, headquarters’ expense allocations, stock-based compensation expense, income taxes, amortization related to certain intangible assets and nonrecurring gains and losses.
The segment results for the three months ended March 31, 2021 and gives2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interconnect Products | | Cable Products | | | | |
| ||||||||||||||||
| | and Assemblies | | and Solutions | | Corporate / Other (1) | | Total Consolidated |
| ||||||||||||||||
Three Months Ended March 31: |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||
Net sales: | | | | | | | | | | | | | | | | | | | | | | | | | |
External |
| $ | 2,280.0 |
| $ | 1,779.0 |
| $ | 97.1 |
| $ | 83.0 |
| $ | 0 |
| $ | 0 |
| $ | 2,377.1 |
| $ | 1,862.0 | |
Intersegment | |
| 17.8 | |
| 8.4 | |
| 11.7 | |
| 8.9 | |
| 0 | |
| 0 | |
| 29.5 | |
| 17.3 | |
Segment operating income | |
| 489.4 | |
| 339.8 | |
| 8.5 | |
| 6.3 | |
| | |
| | |
| 497.9 | |
| 346.1 | |
(1) | Corporate / Other is not a reportable business segment; the reconciliation of segment operating income to consolidated results is included in the table below. |
A reconciliation of segment operating income to consolidated income before income taxes for the three months ended March 31, 2021 and 2020 is summarized as follows:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Segment operating income | | $ | 497.9 | | $ | 346.1 | |
Stock-based compensation expense | |
| (19.1) | |
| (15.4) | |
Other operating expenses | |
| (14.0) | |
| (13.8) | |
Interest expense | |
| (28.6) | |
| (28.8) | |
Other (expense) income, net | |
| (0.3) | |
| 1.1 | |
Income before income taxes | | $ | 435.9 | | $ | 289.2 | |
Note 14—Revenue Recognition
Revenues consist of product sales to either end customers and their appointed contract manufacturers (including original equipment manufacturers) or to distributors, and the vast majority of our sales are recognized at a point-in-time under the core principle of recognizing revenue when control transfers to the customer. With limited exceptions, the Company recognizes revenue at the abilitypoint in time when we ship or deliver the product from our manufacturing facility to borrow at a spread over LIBOR. The Company may utilizeour customer, when our customer accepts and has legal title of the Revolving Credit Facility for general corporate purposes. At September 30, 2017, there were no borrowings undergoods, and where the Revolving Credit Facility. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. At September 30, 2017, the Company was in compliance with the financial covenants under the Revolving Credit Facility.
Commercial Paper Program
The Company has a commercial paper program (the “Commercial Paper Program”) pursuantpresent right to whichpayment for such goods. For the three months ended March 31, 2021 and 2020, 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
18
sold to a single customer and whose underlying contract terms provide the Company issues short-term unsecured commercial paper notes (“Commercial Paper”) in one or more private placements. Amounts available under the Commercial Paper Program are borrowed, repaid and re-borrowed from timewith an enforceable right to time. The maturities of the Commercial Paper vary, but may not exceed 397 days from thepayment, including a reasonable profit margin, for performance completed to date, of issue. The Commercial Paper is sold under customary terms in the commercial paper marketevent of customer termination. Since we typically invoice our customers at the same time that we satisfy our performance obligations, contract assets and may be issued at a discount from par, or, alternatively, may be sold at par,contract liabilities related to our contracts with customers recorded in the Company’s Condensed Consolidated Balance Sheets were not significant as of March 31, 2021 and bears varying interest rates on a fixed or floating basis. The Commercial Paper Program is rated A-2 by Standard & Poor’s and P-2 by Moody’s and is backstopped by the Revolving Credit Facility. The maximum aggregate principal amount of the Commercial Paper outstanding under the Commercial Paper Program at any time is $2,000.0. The Commercial Paper is classified as long-term debtDecember 31, 2020. These amounts are recorded in the accompanying Condensed Consolidated Balance Sheets sincewithin Prepaid expenses and other current assets or Other accrued expenses as of March 31, 2021 and December 31, 2020.
The Company receives customer orders negotiated with multiple delivery dates that may extend across more than 1 reporting period until the contract is fulfilled, the end of the order period is reached, or a pre-determined maximum order value has been reached. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. It is generally expected that a substantial portion of our remaining performance obligations will be fulfilled within three months, and nearly all of our performance obligations are fulfilled within one year. Since our performance obligations are part of contracts that generally have original durations of one year or less, we have not disclosed the aggregate amount of transaction prices associated with unsatisfied or partially unsatisfied performance obligations as of March 31, 2021.
While the Company hastypically offers standard product warranty coverage which provides assurance that our products will conform to the intent and ability to refinance the Commercial Paper oncontractually agreed-upon specifications for a long-term basis using the Revolving Credit Facility. The Commercial Paper is actively traded and is therefore classified as Level 1 in the fair value hierarchy (Note 14). The carrying value of Commercial Paper borrowings approximated their fair value. The average interest rate on the Commercial Paper as of September 30, 2017 was 1.48%.
Senior Notes
All of the Company’s outstanding senior notes, listed in the table above, are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on each series of the senior notes is payable semiannually. The Company may, at its option, redeem some or all of any series of senior notes at any time subject to certain terms and conditions, which include paying 100% of the principal amount, plus accrued and unpaid interest, if any, tolimited period from the date of repurchaseshipment, the Company’s warranty liabilities as of March 31, 2021 and with certain exceptions, a make-whole premium. The fair value of each series of senior notes is based on recent bid prices in an active marketDecember 31, 2020, and is therefore classified as Level 1 inrelated warranty expense for the fair value hierarchy (Note 14).
On April 5, 2017, the Company issued $400.0 principal amount of unsecured 2.20% Senior Notes due April 1, 2020 at 99.922% of face value (the “2020 Senior Notes”) and $350.0 principal amount of unsecured 3.20% Senior Notes due April 1, 2024 at 99.888% of face value (the “2024 Senior Notes” and, together with the 2020 Senior Notes, the “Notes”). Interest on each of these series of Notes is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2017. The Company may, at its option, redeem some or all of the 2020 Senior Notes at any time by paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, and if redeemed prior to the date of maturity, a make-whole premium. The Company may, at its option, redeem some or all of the 2024 Senior Notes at any time by paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, and if redeemed prior to February 1, 2024, a make-whole premium. For the ninethree months ended September 30, 2017, the Company incurred approximately $5.2 of costs related to the issuances of the Notes.
In September 2017, the Company used the net proceeds from the Notes to repay all of its outstanding $375.0 1.55% Senior Notes thatMarch 31, 2021 and 2020, have not been and were due September 15, 2017, with the remainder of the net proceeds being used for general corporate purposes. As of December 31, 2016, such 1.55% Senior Notes were recorded, net of the related unamortized discount and debt issuance costs, within Current portion of long-term debtnot material in the accompanying Condensed Consolidated Balance Sheets.Financial Statements.
17
Net Sales
Note 14—Fair Value Measurements
The following table shows our net sales disaggregated into categories the Company considers meaningful to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors for the three months ended March 31, 2021 and 2020:
Fair value is determined
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| | Interconnect Products | | Cable Products | | Total Reportable | | ||||||||||||
| | and Assemblies | | and Solutions | | Business Segments | | ||||||||||||
Three Months Ended March 31, | | 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
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Net sales by: | | | | | | | | | | | | | | | | | | | |
Sales channel: | | | | | | | | | | | | | | | | | | | |
End customers and contract manufacturers | | $ | 1,931.0 |
| $ | 1,488.6 |
| $ | 82.3 |
| $ | 66.1 |
| $ | 2,013.3 |
| $ | 1,554.7 |
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Distributors and resellers | |
| 349.0 | |
| 290.4 | |
| 14.8 | |
| 16.9 | |
| 363.8 | |
| 307.3 | |
| | $ | 2,280.0 | | $ | 1,779.0 | | $ | 97.1 | | $ | 83.0 | | $ | 2,377.1 | | $ | 1,862.0 | |
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Geography: | | | | | | | | | | | | | | | | | | | |
United States | | $ | 621.7 |
| $ | 571.4 |
| $ | 52.2 |
| $ | 44.0 |
| $ | 673.9 |
| $ | 615.4 |
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China | |
| 657.7 | |
| 416.9 | |
| 3.2 | |
| 0.8 | |
| 660.9 | |
| 417.7 | |
Other foreign locations | |
| 1,000.6 | |
| 790.7 | |
| 41.7 | |
| 38.2 | |
| 1,042.3 | |
| 828.9 | |
| | $ | 2,280.0 | | $ | 1,779.0 | | $ | 97.1 | | $ | 83.0 | | $ | 2,377.1 | | $ | 1,862.0 | |
Net sales by geographic area are based on the exchange pricecustomer location to which the product is shipped.
Note 15—Commitments and Contingencies
The Company has been named as a defendant in several legal actions arising from normal business activities. The Company records a loss contingency liability when a loss is considered probable and the amount can be reasonably estimated. Although the potential liability with respect to certain of such legal actions cannot be reasonably estimated, none of such matters is expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s legal costs associated with defending itself are recorded to expense as incurred.
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In August 2018, the Company received a subpoena from the U.S. Department of Defense, Office of the Inspector General, requesting documents pertaining to certain products manufactured by the Company’s Military and Aerospace Group that would be received for an assetare purchased or paidused by the U.S. government. This matter is ongoing and the Company is cooperating with the request. The Company is currently unable to transfer a liability (an exit price)estimate the timing or outcome of the matter.
From December 2019 through October 2020, the Company has been named as one of several defendants in 4 separate lawsuits filed in the principal or most advantageous marketState of Indiana. The lawsuits relate to a manufacturing site in Franklin, Indiana (the “Site”) where the Company has been conducting an environmental clean-up effort under the direction of the United States Environmental Protection Agency (the “EPA”). The Site was shut down in 1983, more than three years before the Company acquired the Site as part of a larger acquisition that led to the establishment of the Company’s business in 1987 (the “Acquisition”). In connection with the Acquisition, the Company agreed, and has continued, to work closely with the EPA regarding the ongoing clean-up effort at the Site, subject to an indemnity from the seller (the “Seller”). In 1989, the Company sold the property where the Site is located. The lawsuits collectively seek, among other things, compensation for personal injuries and for past, present and future medical expenses, compensation for loss of property values near the asset or liabilitySite and costs related to medical monitoring for individuals living close to the Site, in an orderly transaction between market participants. These requirements establish market or observable inputs aseach case arising from alleged exposure to hazardous chemicals. The Company denies any wrongdoing and is defending each of the preferred source of values. Assumptionsabove described lawsuits. All the costs incurred relating to these lawsuits are reimbursed by the Seller based on hypothetical transactionsthe Seller’s indemnification obligations entered into in connection with the Acquisition (the “1987 Indemnification Agreement”). In addition, the environmental investigation, remediation and monitoring activities undertaken by the Company relating to the Site are used inreimbursed under the absence of market inputs. The1987 Indemnification Agreement. As a result, the Company does not believe that the costs associated with these lawsuits or the resolution of the related environmental matters will have any non-financial instruments accounted for at fair valuea material adverse effect on a recurring basis.
The valuation techniques required are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two typesconsolidated financial condition, results of inputs createoperations or cash flows.
In March 2021, a non-material customer of the following fair value hierarchy:Company filed a formal request for arbitration against the Company relating to a product sold to such customer which the customer alleges did not meet the agreed upon product specification. The customer is pursuing breach of warranty claims against the Company, among other assertions, and is seeking damages relating to its estimated costs of replacing the product. While the customer has claimed damages of approximately €80, the arbitrator will have discretion to determine the actual amount of damages as well as the apportionment of responsibility between the parties. The Company has denied that its product caused the damages, that its product did not meet the agreed upon specifications and that the claimed damages are appropriate, and is vigorously defending itself in the arbitration.
Level 1 Quoted prices for identical instruments in active markets.
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in marketsCertain operations of the Company are subject to environmental laws and regulations that are not active;govern the discharge of pollutants into the air and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Significant inputs towater, as well as the valuation model are unobservable.
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 assets or liabilities subject to such standards with fair value disclosure requirements are short-term investments and derivative instruments. Substantially allcosts of the Company’s short-term investments consist of certificates of deposit with original maturities of twelve months or less and as such, are considered as Level 1 in the fair value hierarchy as they are traded in active markets whichcontinuing compliance will not have identical assets. The carrying amounts of these instruments, the majority of which are in non-U.S. bank accounts, approximate their fair value. The Company’s derivative instruments represent foreign exchange rate forward contracts, which are valued using bank quotations baseda material adverse effect on market observable inputs such as forward and spot rates and are therefore classified as Level 2 in the fair value hierarchy. The impact of the credit risk related to these financial assets is immaterial. The fair values of the Company’s financial condition, results of operations or cash flows.
Note 16—Subsequent Events
Acquisition of MTS Systems Corporation
On December 9, 2020, Amphenol announced that the Company entered into a definitive agreement under which Amphenol would acquire MTS Systems Corporation (Nasdaq: MTSC) (“MTS”) for $58.50 per share in cash. In the first quarter of 2021, the acquisition of MTS was approved by MTS’s shareholders. MTS is a leading global supplier of precision sensors, advanced test systems and non-financialmotion simulators. MTS was historically organized into 2 business segments: Sensors (“MTS Sensors”) and Test & Simulation (“MTS T&S”). The MTS Sensors segment represents a highly complementary offering of high-technology, harsh environment sensors sold into diverse end markets and applications. The MTS Sensors business will further expand the Company’s range of sensor and sensor-based products across a wide array of industries and will be reported as part of our continuing operations and within our Interconnect Products and Assemblies segment. On January 19, 2021, the Company entered into an agreement to sell the MTS T&S business to Illinois Tool Works Inc. (“ITW”) (NYSE: ITW). Further details related to the planned divestiture of the MTS T&S business are included below.
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On April 7, 2021, the Company completed its acquisition of MTS for a purchase price of approximately $1,300, net of cash acquired and including the repayment of certain outstanding debt and liabilities at closing. In addition to the purchase price, the Company also assumed MTS’s then outstanding senior notes due August 15, 2027, which the Company repaid and settled shortly after the closing, including accrued interest, for approximately $355. The MTS acquisition was funded through a combination of borrowings under the U.S. Commercial Paper Program, as discussed in Note 4 herein, and cash and cash equivalents on hand.
The Company is in the early stages of preparing its acquisition accounting related to MTS, which is currently incomplete due to the proximity of the acquisition’s closing date to the date of this quarterly report. The Company has begun its preliminary analysis associated with allocating the purchase price to the related tangible and identifiable intangible assets acquired and liabilities assumed, based upon their estimated fair values.
Anticipated Divestiture of MTS T&S Business
On January 19, 2021, the Company entered into an agreement to sell the MTS T&S business to ITW. The agreed-upon sale price is approximately $750, subject to certain post-closing adjustments and excluding transaction-related expenses, and the closing is subject to the receipt of all required regulatory approvals and the satisfaction of other customary closing conditions.
Since the MTS T&S business was (i) part of the recent MTS acquisition and (ii) has never been nor will ever be considered part of our continuing operations, the Company expects to report the operating results and related cash flows of the MTS T&S business as a discontinued operation, effective as of the MTS acquisition date. Accordingly, the Company will not assign the MTS T&S business to either of our 2 reportable business segments due to its anticipated sale later in 2021. The MTS T&S business will meet the “held for sale” accounting criteria and the respective assets and liabilities subject towill be classified as such standards at September 30, 2017 and December 31, 2016 are as follows:
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September 30, 2017: |
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Short-term investments |
| $ | 37.4 |
| $ | 37.4 |
| $ | — |
| $ | — |
Forward contracts |
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| 2.5 |
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| — |
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| 2.5 |
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| — |
Total |
| $ | 39.9 |
| $ | 37.4 |
| $ | 2.5 |
| $ | — |
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December 31, 2016: |
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Short-term investments |
| $ | 138.6 |
| $ | 138.6 |
| $ | — |
| $ | — |
Forward contracts |
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| 8.4 |
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| — |
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| 8.4 |
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| — |
Total |
| $ | 147.0 |
| $ | 138.6 |
| $ | 8.4 |
| $ | — |
The Company does not have any significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis.
The amount recognized in Accumulated other comprehensive income (loss) associated with foreign exchange rate forward contracts and the amount reclassified from Accumulated other comprehensive income (loss)less costs to foreign exchange gain (loss) in the accompanying Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2017 and 2016 were not material. The fair valuessell as of the forward contracts are recorded within Other current assets, Intangibles, net and other long-term assets, Other accrued expenses or Other long-term liabilities indate of the accompanying Condensed Consolidated Balance Sheets, depending on their value and remaining contractual period.MTS acquisition.
1821
Note 15—Income Taxes
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Provision for income taxes |
| $ | (78.1) |
| $ | (83.4) |
| $ | (212.7) |
| $ | (222.6) |
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Effective tax rate |
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| 21.8 | % |
| 26.9 | % |
| 21.8 | % |
| 27.2 | % |
As a result of the adoption of the new stock-based compensation standard (ASU 2016-09), stock option exercise activity had the impact of lowering our effective tax rate by approximately 470 basis points for both the third quarter and first nine months of 2017. The adoption of ASU 2016-09 was applied prospectively and therefore, there was no such impact to the provision for income taxes for the third quarter and first nine months of 2016. Refer to Note 2 herein for further information regarding the impact associated with the adoption of this new accounting standard. Acquisition-related expenses had the impact of increasing the effective tax rate for the third quarter and the first nine months of 2016 by approximately 40 basis points and 70 basis points, respectively.
The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2013 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of September 30, 2017, the amount of the liability for unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $136.0, which is included in Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and the closing of statutes of limitation. Based on information currently available, management anticipates that over the next twelve-month period, audit activity could be completed and statutes of limitation may close relating to existing unrecognized tax benefits of approximately $5.1.
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The following discussion and analysis of the results of operations and financial condition for the three Stock Split On January 27, 2021, the Company announced that its Board of Directors approved a two-for-one split of the Company’s Common Stock. The stock split was effected in the form of a stock dividend paid to shareholders of record as of the close of business on February 16, 2021. The additional shares were distributed on March 4, 2021, and the Company’s Common Stock began trading on a split-adjusted basis on March 5, 2021. All current and prior year data impacted by the stock split and presented in this Item 2 and throughout this Form 10-Q herein, including number of shares, share and per share activity, earnings per share and dividends per share amounts, among others, have been retroactively adjusted to reflect the effect of the stock split. Refer to Note 1 of the accompanying Notes to Condensed Consolidated Financial Statements for further information related to the stock split. Safe Harbor Statement This Quarterly Report on Form 10-Q Forward-looking statements 22 following: future risks and existing uncertainties associated with adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic, which continues to disrupt our operations, including, depending on the specific location, government regulations that limit our ability to operate certain of our facilities at full capacity and to adjust certain costs, travel restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers; uncertainties associated with a protracted economic slowdown that could negatively affect the financial condition of our customers; uncertainties and volatility in the global capital markets; political, economic, A further description of these uncertainties and other risks can be found in Impact of COVID-19 on our Operations, Financial Condition, Liquidity and Results of Operations
23 restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers. In the second half of 2020 and into the first quarter of 2021, in several regions around the world, including the United States, Europe, South America and India, there was a resurgence in COVID-19 cases. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, future government regulations and actions in response to the crisis, the timing, availability and effectiveness of vaccines, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. In addition, the COVID-19 pandemic could impact the health of our management team and other employees. The Company continues taking actions to mitigate, as best we can, the impact of the COVID-19 pandemic on the health and well-being of our employees, the communities in which we operate and our partners, as well as the impact on our operations and business as a whole. However, there can be no assurance that the COVID-19 pandemic will not have a material and adverse impact on our operations, financial condition, liquidity and results of operations. Results of Operations Three months ended Net sales were Net sales in the Interconnect Products and Assemblies segment (approximately
moderate growth Net sales in the Cable Products and Solutions segment (approximately 24 The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures for the three
Geographically, sales in the United States in the
Selling, general and administrative expenses increased to
Operating income was Operating income for the Interconnect Products and Assemblies segment for the Operating income for the Cable Products and Solutions segment for the 25 driven by normal operating leverage on the higher sales volumes combined with the benefit of a lower cost impact resulting from the COVID-19 pandemic compared to the Interest expense for the
Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the three
Liquidity and Capital Resources
As a result of the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”), on December 31, 2017, the Company indicated an intention to repatriate most of its pre-2018 accumulated earnings and recorded the foreign and U.S. state 26 and local tax costs related to the repatriation. The associated tax payments are due as the repatriations are made. The Company intends to distribute certain post-2017 foreign earnings and has accrued foreign and U.S. state and local taxes, if applicable, on those earnings as appropriate as of March 31, 2021, and intends to indefinitely reinvest all remaining post-2017 foreign earnings. The Company intends to evaluate future earnings for distribution, and accrue for those distributions where appropriate, and to indefinitely reinvest all other foreign earnings. In addition, the Transition Tax on the deemed repatriation of the accumulated unremitted earnings and profits of foreign subsidiaries will be paid, net of applicable tax credits and deductions, in annual installments until 2025, as permitted under the Tax Act. The Company’s primary sources of liquidity are internally generated cash flow, our cash, cash equivalents and short-term investments on hand, the Commercial Paper Programs, and the Revolving Credit Facility (each as The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchases of its Common Stock, dividends, debt service, payments associated with the Transition Tax (which is payable in annual installments until 2025), taxes due upon the repatriation of foreign earnings (which will be payable upon the repatriation of such earnings), and funding of pension obligations. The Company’s debt service requirements consist primarily of principal and interest on the Company’s Senior Notes, and to the extent of any amounts outstanding, the Revolving Credit Facility and the Commercial Paper Programs (all as defined below). The Company may also use cash to fund all or part of the Cash Flow Summary The following table summarizes the Company’s cash flows from operating, investing and financing activities for the
Operating Activities The ability to generate cash from operating activities is one of the Company’s fundamental financial strengths. In the first 27 The following describes the significant changes in the amounts as presented on the accompanying Condensed Consolidated Balance Sheets at
In addition to cash flow from operating activities, the Company also considers Free Cash Flow, a non-GAAP financial measure defined in the “Non-GAAP Financial Measures” section below, as a key metric in measuring the Company’s ability to generate cash. The following table reconciles Free Cash Flow to its most directly comparable U.S. GAAP financial measure for the
Investing Activities Cash flows from investing activities consist primarily of cash flows associated with capital expenditures, proceeds from disposals of property, plant and equipment, net sales and maturities (purchases) of short-term investments, and acquisitions. Net cash used in investing activities was 28 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 provided by financing activities was $586.2 in the first quarter of 2021, compared to $1,187.4 in the first quarter of 2020. For the first quarter of 2021, net cash provided by financing activities was driven by (i) net borrowings of $813.1 comprised primarily of borrowings under the U.S. Commercial Paper Program in anticipation of the
The Company has significant flexibility to meet its financial commitments. The Company uses debt financing to lower the overall cost of capital and increase return on stockholders’ equity. The Company’s debt financing includes the use of The Company has a Pursuant to the terms of the U.S. commercial paper program, the Company The Company and one of its wholly owned European subsidiaries (collectively, the “Euro Issuer”) also has a commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”) pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States. The ECP Notes may be issued in Euros, Sterling, U.S. dollars or other currencies. As of March 31, 2021 and December 31, 2020, there were no ECP Notes outstanding. Amounts available under the Commercial Paper 29 Moody’s and
As of
All of the Company’s outstanding senior notes in the United States (the “U.S. Senior Notes”) are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on each series of
On May 4, 2020, the Euro Issuer issued €500.0 (approximately $545.4 at date of issuance) principal amount of unsecured 0.750% Senior Notes due May 4, 2026 at 99.563% of face value (the “2026 Euro Notes” or the “0.750% Euro Senior Notes” and collectively with the Euro Notes due October 2028, the “Euro Notes”). The Company used the net proceeds from the 2026 Euro Notes to repay amounts outstanding under the Revolving Credit Facility. The Euro Notes are unsecured and rank equally in right of payment with the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on each series of the Euro Notes is payable annually. The Company may, at its option, redeem some or all of any series of Euro Notes, subject to certain terms and conditions. The Company’s Senior Notes contain certain financial and non-financial covenants. Refer to Note
30 In April 2021, the Company repurchased 0.8 million additional shares of its Common Stock for $51.0, which completed the 2018 Stock Repurchase Program. On
On October 20, 2020, the Company’s Board of Directors approved an increase to its quarterly dividend rate from $0.125 per share to $0.145 per share effective with dividends declared in the fourth quarter of 2020 and contingent upon declaration by the Company’s Board of Directors. Acquisitions and Divestitures During the first three months of 2021, the Company completed four acquisitions, all but one of which is included within the Interconnect Products and Assemblies segment, for approximately $185.6, net of cash acquired. These 2021 acquisitions were not material, either individually or in the aggregate, to the Company. Acquisition of MTS and Anticipated Divestiture of MTS T&S Business On April 7, 2021, pursuant to a definitive agreement dated December 9, 2020, by and among the Company and MTS, the Company completed the acquisition of MTS for a purchase price of approximately $1,300, net of cash acquired and including the repayment of certain outstanding debt and liabilities at closing. In addition to the purchase price, the Company also assumed MTS’s then outstanding senior notes due August 15, 2027, which the Company repaid and settled shortly after the closing, including accrued interest, for approximately $355. The On January 19, 2021, the Company entered into an agreement to sell the MTS T&S business to Illinois Tool Works Inc. The agreed-upon sale price is approximately $750, subject to certain post-closing adjustments and excluding
For further discussion of the Environmental Matters Certain operations of the Company are subject to environmental laws and regulations Non-GAAP Financial Measures In addition to assessing the Company’s financial condition, results of operations, liquidity and cash flows in accordance with U.S. GAAP, management utilizes certain non-GAAP financial measures defined below as part of its internal reviews for purposes of monitoring, evaluating and forecasting the Company’s financial performance, communicating operating results to the
The non-GAAP financial measures defined below should be read in conjunction with the Company’s financial statements presented in accordance with U.S. GAAP. The reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures for the three
32
Critical Accounting Policies and Estimates The Company’s disclosures of its critical accounting policies, which are contained in its 2020 Annual Report, have not materially changed since that report was filed. Item 3.Quantitative and Qualitative Disclosures About Market Risk The Company, in the normal course of doing business, is exposed to a variety of risks, including market risks associated with foreign currency exchange rates and changes in interest rates. The Company does not have any significant concentration with any one counterparty. There has been no material change in the Company’s assessment of its sensitivity to foreign currency exchange rate risk since its presentation set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in its
Credit Facility and Commercial Paper 33 Commercial Paper Item 4.Controls and Procedures The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, pursuant to Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. These controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
There have been no material changes to the Company’s risk factors as disclosed in Part I, Item Item 2.Unregistered Sales of Equity Securities and Use of Proceeds Repurchase of Equity Securities In April 2018, the Company’s Board of Directors authorized a stock repurchase program under which the Company may purchase up to $2.0 billion of the Company’s Common Stock during the three-year period ending April 24, 2021 (the “2018 Stock Repurchase Program”) in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). During the three months ended March 31, 2021, the Company repurchased 2.4 million shares of its Common Stock for $152.8 million under the 2018 Stock Repurchase Program. Of the total repurchases during the three months ended March 31, 2021, 0.3 million shares, or $19.8 million, have been retained in Treasury stock at time of repurchase; the remaining 2.1 million shares, or $133.0 million, have been retired by the Company. In April 2021, the Company repurchased 0.8 million additional shares of its Common Stock for $51.0 million, which completed the $2.0 billion 2018 Stock Repurchase Program. The table below reflects the Company’s stock repurchases for the three months ended March 31, 2021, adjusted to give effect to the two-for-one stock split, which is discussed in Note 1 of the Notes to Condensed Consolidated Financial Statements:
On
Item 3.Defaults Upon Senior Securities None. 35
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† Management contract or compensatory plan or arrangement. * Incorporated herein by reference as stated. ** Filed herewith. *** Furnished with this report.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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