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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2020

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: 1-10879

GRAPHIC

AMPHENOL CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware

(State of Incorporation)

22-2785165

(I.R.S. Employer Identification No.)

358 Hall Avenue, Wallingford, Connecticut 06492

(Address of principal executive offices)

203-265-8900

(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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 

Indicate by check mark whether the 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 every Interactive Data File required to be submitted 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 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.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of June 30, 2020, the aggregate market value of Amphenol Corporation Class A Common Stock (based upon the closing price of such stock on the New York Stock Exchange) held by non-affiliates was approximately $25,254 million.

As of January 31, 2021, the total number of shares outstanding of Registrant’s Class A Common Stock was 299,576,711.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement, which is expected to be filed within 120 days following the end of the fiscal year covered by this report, are incorporated by reference into Part III hereof.

Table of Contents

INDEX

    

Page

PART I

Item 1.

Business

2

General

2

Coronavirus (“COVID-19”) Pandemic

4

Our Strategy

4

Markets

5

Customers and Geographies

8

Manufacturing

8

Research and Development

9

Intellectual Property

9

Raw Materials

9

Competition

10

Backlog and Seasonality

10

Human Capital Management and Our Culture

10

Environmental Matters

11

Available Information

11

Item 1A.

Risk Factors

12

Item 1B.

Unresolved Staff Comments

21

Item 2.

Properties

21

Item 3.

Legal Proceedings

21

Item 4.

Mine Safety Disclosures

21

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

22

Item 6.

Selected Financial Data

24

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

44

Item 8.

Financial Statements and Supplementary Data

45

Report of Independent Registered Public Accounting Firm

45

Consolidated Statements of Income

47

Consolidated Statements of Comprehensive Income

48

Consolidated Balance Sheets

49

Consolidated Statements of Changes in Equity

50

Consolidated Statements of Cash Flow

51

Notes to Consolidated Financial Statements

52

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

86

Item 9A.

Controls and Procedures

86

Item 9B.

Other Information

86

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

87

Item 11.

Executive Compensation

87

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

87

Item 13.

Certain Relationships and Related Transactions, and Director Independence

87

Item 14.

Principal Accounting Fees and Services

87

PART IV

Item 15.

Exhibits, Financial Statement Schedules

88

Item 16.

Form 10-K Summary

90

Signature of the Registrant

92

Signatures of the Directors

92

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Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events and are subject to risks and uncertainties. The forward-looking statements, which address Amphenol Corporation’s expected business and financial performance and financial condition, as well as expectations regarding the anticipated timing or financial impact of the closing of certain acquisitions and divestitures, among other matters, may contain words and terms such as: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “look ahead,” “may,” “ongoing,” “optimistic,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would” and other words and terms of similar meaning.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about expected earnings, revenues, growth, liquidity or other financial matters, together with any forward-looking statements related in any way to (i) the coronavirus (“COVID-19”) pandemic including its future impact on Amphenol Corporation (together with its subsidiaries, the “Company”) and (ii) the expected timing of the Company’s acquisition of MTS Systems Corporation (“MTS”) and related divestiture of the Test & Simulation business to Illinois Tool Works Inc. (“ITW”), all of which are discussed within this Annual Report on Form 10-K. Forward-looking statements related to the acquisition of MTS and the divestiture of the Test & Simulation business are subject to a number of risks that include, but are not limited to: (i) the risk that the proposed merger between Amphenol and MTS, and/or the proposed subsequent sale of the MTS Test & Simulation business to ITW, may not be completed in a timely manner or at all, (ii) unanticipated difficulties or expenditures relating to the proposed transactions, the response of business partners and competitors to the announcement of the proposed transactions, potential disruptions to current plans and operations and/or potential difficulties in employee retention as a result of the announcement and pendency of the proposed transactions and (iii) the failure of the transactions, if completed, to deliver the financial benefits to Amphenol currently anticipated by the Amphenol management team. Although the Company believes the expectations reflected in forward-looking statements, including those with regards to results of operations, liquidity, the Company’s effective tax rate and other matters discussed herein, are based upon reasonable assumptions, the expectations may not be attained or there may be material deviation. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. There are risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. A description of some of these uncertainties and other risks is set forth under the caption “Risk Factors” in Part I, Item 1A and elsewhere in this Annual Report on Form 10-K, as well as other reports filed with the Securities and Exchange Commission (“SEC”), including but not limited to Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Such forward-looking statements may also be impacted by, among other things, additional guidance under the U.S. Tax Cuts and Jobs Act (“Tax Act”). While the Company completed its accounting of the Tax Act in the fourth quarter of 2018 based on the regulatory guidance issued at that time, the Department of Treasury’s interpretive guidance initiatives are ongoing. Any future guidance on the Tax Act could impact our forward-looking statements.

These or other uncertainties may cause the Company’s actual future results to be materially different from those expressed in any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements except as required by law.

PART I

Item 1. Business

General

Amphenol Corporation (together with its subsidiaries, “Amphenol”, the “Company”, “we”, “our”, or “us”) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company estimates, based on reports of industry analysts, that worldwide sales of interconnect and sensor-related products were approximately $180 billion in 2020.

Certain predecessor businesses of the Company were founded in 1932 and the Company was incorporated under the laws of the State of Delaware in 1986. The Company’s Class A Common Stock began trading on the New York Stock Exchange in 1991.

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The Company’s strategy is to provide our customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis while maintaining continuing programs of productivity improvement and cost control. The Company operates through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Interconnect Products 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. Interconnect products include connectors, which when attached to an electrical, electronic or fiber optic cable, a printed circuit board or other device, facilitate transmission of power or signals. Value-add systems generally consist of a system of cable, flexible circuits or printed circuit boards and connectors, antennas or sensors for linking electronic equipment. 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 table below provides a summary of our reporting segments, the 2020 net sales contribution of each segment, the primary industry and end markets that we service and our key products:

Reporting Segment

    

Interconnect Products and Assemblies

    

Cable Products and Solutions

% of 2020 Net Sales:

96%

4%

Primary End Markets

   Automotive

   Broadband Communications

   Commercial Aerospace

   Industrial

   Information Technology and Data Communications

   Military

   Mobile Devices

   Mobile Networks

   Automotive

   Broadband Communications

   Industrial

   Information Technology and Data Communications

   Mobile Networks

Key Products

Connector and Connector Systems:

   fiber optic interconnect products

   harsh environment interconnect products

   high-speed interconnect products

   power interconnect products, busbars and distribution systems

   radio frequency interconnect products and antennas

   other connectors

Sensors and Sensor-based Products:

   gas and moisture

   level

   position

   pressure

   temperature

   vibration

Value-Add Products:

   backplane interconnect systems

   cable assemblies and harnesses

   cable management products

Other:

   antennas

   flexible and rigid printed circuit boards

   hinges

   molded parts

   production-related products

Cable:

   coaxial cable

   power cable

   specialty cable

Value-Add Products:

   cable assemblies

Components:

   combiner/splitter products

   connector and connector systems

   fiber optic components

Information regarding the Company’s operations and assets by reporting segment, as well as the Company’s net sales and long-lived assets by geographic area, appears in Note 13 of the Notes to Consolidated Financial Statements.

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Coronavirus (“COVID-19”) Pandemic

The COVID-19 pandemic has affected our manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. Throughout most of 2020, particularly during the first half of the year, the COVID-19 pandemic has caused widespread disruptions to our Company, which have included and may continue to include, depending on the specific location, government regulations that limit our ability to operate certain of our facilities at full capacity and to adjust certain costs, travel restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers. During the fourth quarter of 2020 and into 2021, in several regions around the world, including the United States and Europe, there has been a resurgence in COVID-19 cases. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, future government regulations and actions in response to the crisis, the timing, availability and effectiveness of vaccines, some of which have recently been approved and distributed for use, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. In addition, the COVID-19 pandemic could impact the health of our management team and other employees. Given these uncertainties, we expect the pandemic to continue to have an impact on our operations, financial condition, liquidity and results of operations through at least the first half of 2021 and it could, potentially, extend for the full year and beyond. For a discussion of certain risks related to the COVID-19 pandemic, refer to the risk factor titled “We face significant risks related to adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic” in Part I, Item 1A. Risk Factors herein. For a discussion of the financial impact of the COVID-19 pandemic on our operations, financial condition, liquidity and results of operations, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our Strategy

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

Pursue broad diversification - The Company constantly drives to increase the diversity of its markets, customers, applications and products. Due to the tremendous variety of opportunities in the electronics industry, management believes that it is important to ensure participation wherever significant growth opportunities are available. This diversification positions us to proliferate our technologies across the broadest array of opportunities and reduces our exposure to any particular market, thereby reducing the variability of our financial performance. An overview of the Company’s market and product participation is described under “Markets”.

Develop high technology performance-enhancing interconnect solutions - The Company seeks to expand the scope and number of its preferred supplier relationships. The Company works closely with its customers at the design stage to create and manufacture innovative solutions. These products generally have higher value-added content than other interconnect products and have been developed across the Company’s markets. The Company is focused on technology leadership in the interconnect areas of radio frequency, power, harsh environment, high-speed and fiber optics, as well as sensors, as it views these technology areas to be of particular importance to our global customer base.

Expand global presence - The Company intends to further expand its global manufacturing, engineering, sales and service operations to better serve its existing customer base, penetrate developing markets and establish new customer relationships. As the Company’s global customers expand their international operations to access developing world markets and lower manufacturing costs in certain regions, the Company is continuing to expand its international footprint in order to provide real-time capabilities to these customers. The majority of the Company’s international operations have broad capabilities including new product development. The Company is also able to take advantage of the lower manufacturing costs in some regions, and has established low-cost manufacturing and assembly facilities in the Americas, Europe/Africa and Asia.

Control costs - The Company recognizes the importance in today’s global marketplace of maintaining a competitive cost structure. Innovation, product quality and performance and comprehensive customer service are not mutually exclusive with controlling costs. Controlling costs is part of a mindset. It is having the discipline to invest in programs that have a good return, maintaining a cost structure as flexible as possible to respond to changes in the marketplace, dealing with suppliers and vendors in a fair but prudent way to ensure a

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reasonable cost for materials and services and creating a mindset where managers manage the Company’s assets as if they were their own.

Pursue strategic acquisitions and investments - The Company believes that the industry in which it operates is highly fragmented and continues to provide significant opportunities for strategic acquisitions. Accordingly, we continue to pursue acquisitions of high potential companies with strong management teams that complement our existing business while further expanding our product lines, technological capabilities and geographic presence. Furthermore, we seek to enhance the performance of acquired companies by leveraging Amphenol’s position with customers across our diverse end markets, our leading technologies and our access to low-cost manufacturing around the world. In 2020, the Company invested approximately $50 million to fund two acquisitions and announced a definitive agreement to acquire MTS for $1.7 billion, while in 2019, the Company invested approximately $937 million to fund nine acquisitions. Our acquisitions in 2020 and 2019 have strengthened our customer base and product offerings in many of our end markets.

Foster collaborative, entrepreneurial management - Amphenol’s management system is designed to provide clear income statement and balance sheet responsibility in a flat organizational structure. Each general manager is incented to grow and develop his or her business and to think entrepreneurially in providing innovative, timely and cost-effective solutions to customer needs. In addition, Amphenol’s general managers have access to the resources of the larger organization and are encouraged to work collaboratively with their peers throughout the Company to meet the needs of the expanding marketplace and to achieve common goals.

Markets

The Company sells products to customers in a diversified set of end markets. For a discussion of certain risks related to the Company’s markets, refer to the subsection titled “Risks related to our end markets” included in Part I, Item 1A. Risk Factors herein.

Automotive - Amphenol is a leading supplier of advanced interconnect systems, sensors and antennas for a growing array of automotive applications. In addition, Amphenol has developed advanced technology solutions for hybrid and electric vehicles and is working with leading global customers to proliferate these advanced interconnect products into next-generation automobiles. Sales into the automotive market represented approximately 17% of the Company’s net sales in 2020 with sales into the following primary end applications:

antennas
electric vehicles
engine management and control
exhaust monitoring and cleaning
hybrid vehicles
infotainment and communications
lighting
power management
safety and security systems
sensing systems
telematics systems
transmission systems

Broadband Communications - Amphenol is a world leader in broadband communication products for cable, satellite and telco video and data networks, with industry-leading engineering, design and manufacturing expertise. The Company offers a wide range of products to service the broadband market, from customer premises cable and interconnect devices to distribution cable and fiber optic components, as well as interconnect products integrated into headend equipment. Sales into the broadband communications market represented approximately 4% of the Company’s net sales in 2020 with sales into the following primary end applications:

cable, satellite and telco networks
customer premises equipment
high-speed internet hardware
network switching equipment
satellite interface devices
set top boxes

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Commercial Aerospace - Amphenol is a leading provider of high-performance interconnect systems and components to the commercial aerospace market. In addition to connector and interconnect assembly products, the Company also provides rigid and flexible printed circuits as well as high-technology cable management products. Our products are specifically designed to operate in the harsh environments of commercial aerospace while also providing substantial weight reduction, simplified installation and minimal maintenance. Sales into the commercial aerospace market represented approximately 3% of the Company’s net sales in 2020 with sales into the following primary end applications:

aircraft and airframe power distribution
avionics
controls and instrumentation
engines
in-flight entertainment
in-flight internet connectivity
lighting and control systems
wire bundling and cable management

Industrial - Amphenol is a technology leader in the design, manufacture and supply of high-performance interconnect systems, sensors and antennas for a broad range of industrial applications. Amphenol’s core competencies include application-specific industrial interconnect solutions utilizing integrated assemblies, including with both cable and flexible printed circuits, as well as high-power interconnects requiring advanced engineering and system integration. In particular, our innovative solutions facilitate the increasing demands of embedded computing and power distribution. Sales into the industrial market represented approximately 22% of the Company’s net sales in 2020 with sales into the following primary end applications:

agriculture equipment
alternative and traditional energy generation
batteries and hybrid drive systems
entertainment
factory and machine tool automation
heavy equipment
instrumentation
internet of things
LED lighting
marine
medical equipment
oil and gas
power distribution
public safety
rail mass transit
smart manufacturing
transportation

Information Technology and Data Communications - Amphenol is a global provider of interconnect solutions to designers, manufacturers and operators of internet-enabling systems. With our industry-leading high-speed, power and fiber optic technologies, together with superior simulation and testing capability and cost effectiveness, Amphenol is a market leader in interconnect development for the information technology (“IT”) and datacom market. Whether industry standard or application-specific designs are required, Amphenol provides customers with products that enable performance at the leading edge of next-generation, high-speed, power and fiber optic technologies. Sales into the IT and datacom market represented approximately 21% of the Company’s net sales in 2020 with sales into the following primary end applications:

cloud computing and data centers
gaming systems
internet appliances
networking equipment
servers

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storage systems
transmission
web service providers

Military - Amphenol is a world leader in the design, manufacture and supply of high-performance interconnect systems for harsh environment military applications. Such products require superior performance and reliability under conditions of stress and in hostile environments such as vibration, pressure, humidity, nuclear radiation and rapid and severe temperature changes. Amphenol provides an unparalleled product breadth, from military specification connectors to customized high-speed board level interconnects; from flexible to rigid printed circuit boards; and from backplane systems to completely integrated assemblies. Amphenol is a technology leader, participating in major programs from the earliest inception across each phase of the production cycle. Sales into the military market represented approximately 12% of the Company’s net sales in 2020 with sales into the following primary end applications:

avionics
communications
engines
ground vehicles and tanks
homeland security
naval
ordnance and missile systems
radar systems
rotorcraft
satellite and space programs
unmanned aerial vehicles

Mobile Devices - Amphenol designs and manufactures an extensive range of interconnect products, antennas and electromechanical components found in a wide array of mobile computing devices. Amphenol’s capability for high-volume production of these technically demanding, miniaturized products, combined with our speed of new product introduction, are critical drivers of the Company’s long-term success in this market. Sales into the mobile devices market represented approximately 15% of the Company’s net sales in 2020 with sales into the following primary end applications:

consumer electronics
mobile and smart phones, including accessories
mobile computing devices, including laptops, tablets, ultrabooks and e-readers
production-related products
wearable and hearable devices

Mobile Networks - Amphenol is a leading global interconnect solutions provider to the mobile networks market and offers a wide product portfolio, including antennas, connectors and interconnect systems. The Company’s products are used in current and next generation wireless communications standards, including in 5G networks. In addition, the Company works with service providers around the world to offer an array of antennas and installation-related site solution interconnect products. Sales into the mobile networks market represented approximately 6% of the Company’s net sales in 2020 with sales into the following primary end applications:

antenna systems
base stations
combiners, filters and amplifiers
core network controllers
distributed antenna systems (DAS)
mobile switches
radio links
small cells
wireless routers

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Customers and Geographies

The Company manufactures and sells a broad portfolio of products on a global basis to customers in various industries. Our customers include many of the leaders in their respective industries, and our relationships with them typically date back many years. We believe that our diversified customer base provides us an opportunity to leverage our skills and experience across markets and reduces our exposure to particular end markets. Additionally, we believe that the diversity of our customer base is an important strength of the Company.

There has been a trend on the part of customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. The Company has positioned its global resources to compete effectively in this environment. As an industry leader, the Company has established close working relationships with many of its customers on a global basis. These relationships allow the Company to better anticipate and respond to these customer needs when designing new products and new technical solutions. By working with customers in developing new products and technologies, the Company is able to identify and act on trends and leverage knowledge about next-generation technology across our portfolio of products. In addition, the Company has concentrated its efforts on service, procurement and manufacturing improvements designed to increase product quality and performance and lower product lead-time and cost. For a discussion of certain risks related to the Company’s sales, refer to the subsection titled “Risks related to our end markets” included in Part I, Item 1A. Risk Factors herein.

The Company’s products are sold to thousands of original equipment manufacturers (“OEMs”) in numerous countries throughout the world. The Company’s products are also sold to electronic manufacturing services (“EMS”) companies, to original design manufacturers (“ODMs”) and to service providers, including telecommunications network service providers and web service providers. During the year ended December 31, 2020, aggregate sales to Apple Inc., including sales of products to EMS companies that the Company believes are manufacturing products on Apple’s behalf, accounted for approximately 11% of our net sales. No single customer accounted for 10% or more of the Company’s net sales for the year ended December 31, 2019.

The Company sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The Company’s sales to distributors represented approximately 16% and 15% of the Company’s net sales in 2020 and 2019, respectively. In addition to product design teams and collaborative initiatives with customers, the Company uses key account managers to manage customer relationships on a global basis such that it can bring to bear its total resources to meet the worldwide needs of its multinational customers.

Manufacturing

The Company is a global manufacturer employing advanced manufacturing processes including molding, stamping, plating, turning, computer numerical control (“CNC”) machining, extruding, die casting and assembly operations and proprietary process technology for specialty and coaxial cable production, antenna and sensor fabrication. Outsourcing of certain manufacturing processes is used when cost-effective. Substantially all of the Company’s manufacturing facilities are certified under the requirements of the International Organization for Standardization (the “ISO”), specifically to the ISO 9000 series of quality standards, and many of the Company’s manufacturing facilities are certified to other quality standards, including QS 9000, ISO 14000 and TS 16949.

The Company’s manufacturing facilities are generally vertically-integrated operations from the initial design stage through final design and manufacturing. The Company has an established manufacturing presence in approximately 40 countries. Our global coverage positions us near many of our customers’ locations and allows us to assist them in consolidating their supply base and lowering their production and logistics costs. In addition, the Company generally relies on local general management in every region, which we believe creates a strong degree of organizational stability and deeper understanding of local markets. We believe our balanced geographic distribution lowers our exposure to particular geographies. The Company designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa. The Company believes that its global presence is an important competitive advantage, as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.

The Company employs a global manufacturing strategy to ensure proximity and outstanding service to customers, while also lowering production and logistics costs. The Company’s strategy is to maintain strong cost controls in its manufacturing and assembly operations. The Company is continually evaluating and adjusting its expense levels and workforce to reflect current business conditions and maximize the return on capital investments. The Company sources

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its products on a worldwide basis. To better serve certain high-volume customers, the Company has established certain facilities near these major customers. The Company seeks to position its manufacturing and assembly facilities in order to serve local markets while coordinating, as appropriate, product design and manufacturing responsibility with the Company’s other operations around the world. For a discussion of certain risks related to the Company’s foreign operations, refer to the subsection titled “Risks related to our global operations” included in Part I, Item 1A. Risk Factors herein.

Research and Development

The Company generally implements its product development strategy through product design teams and collaborative initiatives with customers, which often results in the Company obtaining approved vendor status for its customers’ new products and programs. The Company focuses its research and development efforts primarily on those product areas that it believes have the potential for broad market applications and significant sales within a one- to three-year period. The Company seeks to have its products become widely accepted within the industry for similar applications and products manufactured by other potential customers, which the Company believes will provide additional sources of future revenue. By developing application specific products, the Company is able to decrease its exposure to standard products, which are more likely to experience greater pricing pressure. At the end of 2020, our research, development, and engineering efforts, which relate to the creation of new and improved products and processes, were supported by approximately 3,300 employees and were performed primarily by individual operating units focused on specific markets and product technologies.

Intellectual Property

Patents and other proprietary rights are important to our business. We own a large portfolio of patents that principally relate to mechanical, electrical, optical and electronic features of connector, antenna and sensor products. We also own a portfolio of trademarks and are a licensee of various patents and trademarks. Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. Trademark rights may potentially extend for longer periods of time and are dependent upon the laws of various jurisdictions and the use of the trademarks.

We also rely upon trade secrets, manufacturing know-how, continuing technological innovations and licensing opportunities to maintain and improve our competitive position. We review third-party proprietary rights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property claims of others.

From time to time, the Company is involved in disputes with third parties regarding the Company’s or such third party’s intellectual property assets, particularly patents. While we consider our patents and trademarks to be valuable assets, we do not believe that our competitive position or our operations are dependent upon or would be materially impacted by the loss of any single patent or group of related patents, or by a third party’s successful enforcement of its patents against us or any of our products. For a discussion of certain risks related to the Company’s intellectual property, refer to the risk factor titled “The Company relies on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights” in Part I, Item 1A. Risk Factors herein.

Raw Materials

The Company purchases a wide variety of raw materials for the manufacture of its products, including (i) precious metals such as gold, silver and palladium, (ii) aluminum, steel, copper, titanium and metal alloy products and (iii) plastic materials. The Company also purchases a wide variety of mechanical and electronic components for the manufacturing of its products. Such raw materials and components are generally available throughout the world and are purchased locally from a variety of suppliers. The Company is generally not dependent upon any one source for raw materials or components or, if one source is used, the Company attempts to protect itself through long-term supply agreements. The Company does not anticipate any difficulties in obtaining raw materials or components necessary for production. Information regarding our obligations related to commitments to purchase certain goods and services is disclosed in Note 14 of the Notes to Consolidated Financial Statements. For a discussion of certain risks related to raw materials and components, refer to the risk factor titled “The Company has at times experienced difficulties in obtaining a consistent supply of materials at stable pricing levels” in Part I, Item 1A. Risk Factors herein.

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Competition

The Company encounters competition in substantially all areas of its business. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. Primary competitors within the Interconnect Products and Assemblies segment include Aptiv, Carlisle, Commscope, Eaton, Foxconn, Hirose, Huber & Suhner, ICT Luxshare, JAE, Jonhon, JST, Molex, Radiall, Rosenberger, Sensata, TE Connectivity, Yazaki and 3M, among others. Primary competitors within the Cable Products and Solutions segment include Belden and Commscope, among others. In addition, the Company competes with a large number of smaller companies who compete in specific geographies, markets or products. For a discussion of certain risks related to competition, refer to the risk factor titled “The Company encounters competition in substantially all areas of its business” in Part I, Item 1A. Risk Factors herein.

Backlog and Seasonality

The Company estimates that its backlog of unfilled firm orders as of December 31, 2020 was approximately $2.380 billion compared with backlog of approximately $1.978 billion as of December 31, 2019. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. Unfilled orders may generally be cancelled prior to shipment of goods. It is expected that all or a substantial portion of the backlog will be filled within the next 12 months. Significant elements of the Company’s business, such as sales to the communications-related markets (including wireless communications, information technology and data communications and broadband communications) and sales to distributors, generally have short lead times. Therefore, backlog may not be indicative of future demand.

Generally, the Company does not experience significant seasonality in its business, although historically, the strongest quarters have typically been the last two quarters of our fiscal year. The ongoing COVID-19 pandemic could result in temporary changes to the seasonality of our business. For a discussion of certain risks related to the COVID-19 pandemic, refer to the risk factor titled “We face significant risks related to adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic” in Part I, Item 1A. Risk Factors herein.

Human Capital Management and Our Culture

The Company’s success is based on the capability, adaptability and accountability of our people around the world.  One of the key components of our business strategy is the fostering of a collaborative and entrepreneurial management culture. Each of our general managers operates in a flat organizational structure and is incented to grow and develop their business, with the support of the resources of the larger organization. We believe this structure, with approximately 120 general managers running unique businesses, creates an environment and culture where each of our employees has a more direct link to the success of their individual businesses and a more personal connection to the employees they oversee and the communities in which they operate.

As of December 31, 2020, the Company had approximately 80,000 employees worldwide, with the majority of our people based in the Asia-Pacific region.  The Company believes that it has a good relationship with both its unionized and non-unionized employees.

Governance and Culture - Our Board of Directors (the “Board”) is actively involved in overseeing the Company’s employee-related strategies and practices as well as the Company’s culture. This oversight is conducted both directly and through certain of the Board’s committees.  At each of its regularly scheduled quarterly meetings, the Board reviews changes in key personnel and, at least annually, meets with management to discuss various human resources related topics, including talent development, succession planning, compensation and culture. We believe the Company’s culture has been a critical component of the Company’s success and reinforcing that culture is a key responsibility of our executive management.

Diversity and Inclusion - Our business spans the globe and the employees in our facilities reflect the diversity of our geographic footprint.  The Company generally relies on local general management in every region, which we believe creates a strong degree of organizational stability and a deep commitment to our people and the local community.  At Amphenol, we aim to create an inclusive working environment where all employees are respected and treated equally. This message is emphasized from the top of our organization down to each of our employees. A key hallmark of our structure is our entrepreneurial culture that creates clear accountability for each of our general managers, who are our key business leaders. Our core management team is comprised of these general managers, as well as their controllers and our

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executive team.  Women represented 29% of this core management group at the end of 2020. Of our total employees worldwide, we are proud that approximately half are women.

Health, Safety and Well-being - The safety and well-being of our employees is critical to our successful operation. Our health and safety activities are overseen by our corporate environmental, health, safety and sustainability leadership team but are managed by our local teams, who coordinate on-site safety programs, resources, reporting and training in our facilities. We believe that this model of coaching and tracking at the corporate level, but administering at the facility level, has allowed us to provide training and supervision that better fits the local needs of each of our workforces. During the COVID-19 pandemic, we have taken additional actions to protect the physical and mental health and well-being of our employees throughout the world, including in particular those employees who work in our factories. We have also encouraged employees to work from home when possible and appropriate and have taken an integrated approach to helping our employees optimally manage their work and personal responsibilities.

Community and Social Impact - Amphenol recognizes that we have a responsibility to be a positive influence in the communities in which we operate around the world. Most of our community outreach is organized by our local management teams, which helps ensure that our efforts are working in support of the local communities in which our employees live and work. Our local teams are actively supporting their communities in a variety of ways including: school supply drives, local blood drives, mentoring of at-risk students, community clean-up events, local tree planting, holiday-giving events and food delivery services to immobile individuals. To support our communities during the COVID-19 pandemic, we leveraged our global supply chain to procure face masks, sanitizer, thermometers and other critical supplies, which our teams donated to local hospitals, clinics, at risk individuals, our employees and their families.

Environmental Matters

Certain operations of the Company are subject to environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. For more information on certain environmental matters, refer to Note 14 of the Notes to Consolidated Financial Statements. For a discussion of certain risks related to environmental matters, refer to the risk factor titled “The Company is subject to environmental laws and regulations that could adversely affect its business” in Part I, Item 1A. Risk Factors herein.

Available Information

The U.S. Securities and Exchange Commission (“SEC”) maintains a website that contains reports, proxy and information statements and other information regarding issuers, including Amphenol, that file with the SEC. Any such documents that the Company files with the SEC can be obtained by the public on the SEC’s website at http://www.sec.gov. The Company’s annual report on Form 10-K and all of the Company’s other filings with the SEC, such as quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are also available to view, free of charge, on the Company’s website, www.amphenol.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Copies are also available without charge, from Amphenol Corporation, Investor Relations, 358 Hall Avenue, Wallingford, CT 06492. The information on our website is not incorporated by reference in this Annual Report on Form 10-K.

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Item 1A. Risk Factors

Investors should carefully consider the risks described below and all other information in this annual report on Form 10-K. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or that we currently consider immaterial may also impair the Company’s business, operations, liquidity and financial condition. In addition to the risk factor included below related to adverse public health developments and, in particular, the ongoing COVID-19 pandemic and its effects on public health and the global economy, the Company also notes that the effects of the pandemic have and may continue to impact many of the other risk factors described below.

If actions taken by management to limit, monitor or control enterprise risk exposures are not successful, the Company’s business and consolidated financial statements could be materially adversely affected. In such case, the trading price of the Company’s common stock and debt securities could decline and investors may lose all or part of their investment.

Risks related to our global operations

Non-U.S. markets form a substantial portion of the Company’s business and as a result, the Company is more exposed to political, economic, military and other risks in countries outside the United States.

During 2020, non-U.S. markets constituted approximately 71% of the Company’s net sales, with China constituting approximately 30% of the Company’s net sales. The Company employs approximately 90% of its workforce outside the United States. The Company’s customers are located throughout the world and the Company has many manufacturing, administrative and sales facilities outside the United States. As a result, our financial results and our operations, including our ability to manufacture, assemble and test, design, develop or sell products, and the demand for our products, may be adversely affected by a number of global and regional factors outside of our control. Because the Company has extensive non-U.S. operations as well as significant cash and cash investments held at institutions located outside of the United States, it is exposed to additional risks that could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows, including:

instability in political or economic conditions, including but not limited to inflation, recession or slowing growth, changes in tariff and trade barriers and import and export licensing requirements, our ability to hire and maintain qualified staff in these regions, foreign currency exchange restrictions and devaluations, restrictive governmental controls on the movement and repatriation of earnings and capital, and actual or anticipated military or political conflicts, particularly in emerging markets;

intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars, cyber attacks and acts of terrorism or war; and

interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limited to, strikes, financial instabilities, computer malfunctions or cybersecurity incidents, inventory excesses, natural disasters such as fires, floods, earthquakes, hurricanes or tornadoes or adverse public health developments, including the ongoing COVID-19 pandemic discussed further below.

International trade or other disputes may result in increased tariffs, trade barriers, retaliatory governmental regulations or actions and other protectionist measures that could increase our manufacturing costs, make our products less competitive, reduce consumer demand or impede or slow the movement of our goods across borders. Increasing protectionism and economic nationalism may lead to further changes in trade policy, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in some markets.

Changes in general economic conditions, geopolitical conditions, U.S. trade policies and other factors beyond the Company’s control may adversely impact our business and operating results.

The Company’s operations and performance depend significantly on global, regional and U.S. economic and geopolitical conditions. In recent years, there have been significant changes to U.S. trade policies, legislation, treaties and tariffs, in particular trade policies and tariffs affecting China. Some of these trade policies, including the U.S.’s trading relationship with China, have been renegotiated during this timeframe and are subject to further changes in the future. Changes to current policies by the U.S. or other governments could affect our business, including potentially through increased import tariffs and other influences on U.S. trade relations with China and other countries. The imposition of additional tariffs or other trade barriers could increase our costs in certain markets, and may cause our

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customers to find alternative sourcing. In addition, other countries have changed and may continue to change their own policies on trade as well as business and foreign investment in their respective countries. Additionally, it is possible that U.S. policy changes and uncertainty about such changes could increase market volatility and currency exchange rate fluctuations. Market volatility and currency exchange rate fluctuations could have a material adverse effect on our business, financial condition, results of operations or cash flows. As a result of these dynamics, we cannot predict the impact to our business of any future changes to the U.S.’s trading relationships or of new laws or regulations by the U.S. or other countries.

In addition to changes in U.S. trade policy, a number of other economic and geopolitical factors both in the United States and abroad could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows, such as:

a global or regional economic slowdown in any of the Company’s market segments;
postponement of spending, in response to tighter credit, financial market volatility and other factors;
effects of significant changes in economic, monetary and/or fiscal policies in the United States and abroad including significant income tax changes, currency fluctuations and inflationary pressures;
employment regulations and local labor conditions, including increases in employment costs, particularly in low-cost regions in which the Company currently operates;
industrial policies in various countries that favor domestic industries over multinationals or that restrict foreign companies altogether;
difficulties protecting intellectual property;
longer payment cycles;
credit risks and other challenges in collecting accounts receivable;
changes in assumptions, such as discount rates, along with lower than expected investment returns and performance related to the Company’s benefit plans;
the impact of each of the foregoing on outsourcing and procurement arrangements;
social unrest due to escalating racial tensions in the United States and certain other countries where we operate; and
continuing uncertainty regarding the United Kingdom’s recent withdrawal from the European Union, otherwise known as “Brexit”.

We face significant risks related to adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic.

Any outbreaks of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, financial condition, liquidity and results of operations. For example, the COVID-19 pandemic has affected our manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. The COVID-19 pandemic has caused widespread disruptions to our Company throughout most of 2020, particularly during the first half of the year. During the first quarter of 2020, these disruptions were primarily limited to our operations in China, which were closed for three weeks during January and February due to government mandates. As the virus spread to the rest of the world beginning in March and continuing throughout the remainder of 2020, most of our other operations outside of China were also impacted. As of December 31, 2020, we continue to experience some disruptions, and at a minimum, we expect those disruptions to continue through the first half of 2021 and they could, potentially, extend for the full year and beyond. These disruptions have included and may continue to include, depending on the specific location, government regulations that limit our ability to operate certain of our facilities at full capacity and to adjust certain costs, travel restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, future government regulations and actions in response to the crisis, the timing, availability and effectiveness of vaccines, some of which have recently been approved and distributed for use, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. In addition, the COVID-19 pandemic could impact the health of our management team and other employees. It is impossible to predict the overall future impact of the COVID-19 pandemic on our business, financial condition, liquidity and financial results, and there can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our financial results in the future during any quarter or period in which we are affected.

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In addition, the COVID-19 pandemic increases the likelihood and potential severity of other risks (including some discussed separately within this Item 1A. Risk Factors), including but not limited to, the following:

A protracted economic slowdown could negatively affect the financial condition of our customers, which may result in an increase in bankruptcies or insolvencies, a delay in payments and decreased sales.

A scarcity of resources or other hardships caused by the COVID-19 pandemic may result in increased nationalism, protectionism and political tensions which may cause governments and/or other entities to take actions that may have a significant negative impact on the ability of the Company, its suppliers and its customers to conduct business.

We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19. This change may exacerbate certain risks to our business, including an increased demand for information technology resources, an increased risk of phishing and other cybersecurity attacks, and an increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information.

If the vaccines that have recently been approved and distributed for use prove ineffective, we could experience another disruption in the global capital markets, which could increase the cost of, and adversely impact access to, capital (including the commercial paper markets) and increase economic uncertainty.

If the financial performance of our businesses were to decline significantly as a result of the COVID-19 pandemic, we could incur a material non-cash charge to our income statement for the impairment of goodwill and other intangible assets.

If there is a general market downturn and continued high degree of volatility in the financial markets, we may experience a material re-valuation of, for example, our pension assets and obligations.

Our international operations require us to comply with anti-corruption laws and regulations of the U.S. government and various foreign jurisdictions and our business reputation and financial results may be impaired by improper conduct by any of our employees, customers, suppliers, distributors or any other business partners.

Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various foreign jurisdictions, and our failure to comply with these rules and regulations may expose us to significant liabilities. These laws and regulations may apply to companies, individual directors, officers, employees, subcontractors and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”). The FCPA prohibits U.S. companies and their officers, directors, employees and agents acting on their behalf from corruptly offering, promising, authorizing or providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately and fairly reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. In addition, some of the foreign locations in which we operate lack a developed legal system and have elevated levels of corruption. As a result of the above activities, we are exposed to the risk of violating anti-corruption laws.

We have established policies and procedures designed to assist us and our personnel in complying with applicable U.S. and international laws and regulations. However, there can be no assurance that these policies will be effective in preventing our directors, officers, employees, subcontractors and agents from taking actions that violate these legal requirements. Violations of these legal requirements could subject us to criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts and other remedial measures. In addition, any actual or alleged violations could disrupt our operations, cause reputational harm, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

The Company’s results have at times been negatively affected by foreign currency exchange rates.

The Company conducts business in many foreign currencies through its worldwide operations, and as a result is subject to foreign exchange exposure due to changes in exchange rates of the various currencies including possible currency devaluations. Changes in exchange rates can positively or negatively affect the Company’s sales, operating

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margins and equity. The Company manages currency exposure risk in a number of ways, including producing its products in the same country or region in which the products are sold (thereby generating revenues and incurring expenses in the same currency), cost reduction and pricing actions, working capital management and hedging contracts. However, there can be no assurance that these actions will be fully effective in managing currency risk, including in the event of a significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations, which could have an adverse effect on the Company’s business, financial condition and results of operations.

The Company has at times experienced difficulties in obtaining a consistent supply of materials at stable pricing levels.

The Company uses basic materials like aluminum, steel, copper, titanium, metal alloys, gold, silver, palladium and plastic resins in its manufacturing processes as well as a variety of components and relies on third party suppliers to secure these materials. Volatility in the prices of such materials and availability of supply may have a substantial impact on the price the Company pays for such materials. In addition, the Company may not be able to pass along increased raw material or component prices to its customers. Consequently, our results of operations and financial condition may be adversely affected.

In limited instances we depend on a single source of supply or participate in commodity markets that may be served by a limited number of suppliers. Delays in obtaining supplies may result from a number of factors affecting our suppliers, and any delay could impair our ability to deliver products to our customers. For example, the COVID-19 pandemic initially disrupted the supply of raw materials, primarily in the first half of 2020; reoccurrences of such unforeseen events may result in the Company experiencing difficulties in obtaining a consistent supply of materials at stable pricing levels. Accordingly, such delays and associated risks could have an adverse effect on our business, results of operations and financial condition.

Risks related to our end markets

The Company is dependent on the communications industry, including information technology and data communications, wireless communications and broadband communications.

Approximately 46% of the Company’s 2020 net sales came from sales to the communications industry, including information technology and data communication, wireless communications and broadband communications, with 15% of the Company’s 2020 net sales coming from sales to the mobile devices market. Demand for these products is subject to rapid technological change. These markets are dominated by several large manufacturers and operators who regularly exert significant pressure on their suppliers, including the Company. Furthermore, there has been a trend on the part of customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. There can be no assurance that the Company will be able to meet these standards or maintain competitive pricing and therefore continue to compete successfully in the communications industry. The Company’s failure to do so could have a material adverse effect on the Company’s business, financial condition and results of operations.

Approximately 4% and 6% of the Company’s 2020 net sales came from sales to the broadband communications and mobile networks markets, respectively. Demand for the Company’s products in these markets depends primarily on capital spending by operators for constructing, rebuilding or upgrading their systems. The amount of this capital spending and, therefore, the Company’s sales and profitability will be affected by a variety of factors, including general economic conditions, consolidation within the communications industry, the financial condition of operators and their access to financing, competition, technological developments, new legislation and regulation of operators. There can be no assurance that existing levels of capital spending will continue or that spending will not decrease.

Changes in defense expenditures may reduce the Company’s sales.

Approximately 12% of the Company’s 2020 net sales came from sales to the military market. The Company participates in a broad spectrum of defense programs. The Company’s military sales are generally to contractors and subcontractors of the U.S. or foreign governments or to distributors that in turn sell to the contractors and subcontractors. Accordingly, the Company’s sales are affected by changes in the defense budgets of the U.S. and foreign governments. A significant decline in U.S. or foreign government defense expenditures could have an adverse effect on the Company’s business, financial condition and results of operations. U.S. and foreign government expenditures are also subject to

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political and budgetary fluctuations and constraints, which may result in significant unexpected changes in levels of demand for our products.

The Company is dependent on the acceptance of new product introductions for continued revenue growth.

The Company estimates that products introduced in the last two years accounted for approximately 25% of 2020 net sales. The Company’s long-term results of operations depend substantially upon its ability to continue to conceive, design, manufacture and market new products and upon continuing market acceptance of its existing and future product lines. In the ordinary course of business, the Company continually develops or creates new product line concepts. If the Company fails, or is significantly delayed, in introducing new product line concepts or if the Company’s new products are not met with market acceptance, its business, financial condition and results of operations may be adversely affected.

The Company encounters competition in substantially all areas of its business.

The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. Competitors include large, diversified companies, some of which have greater assets and financial resources than the Company, as well as medium- to small-sized companies. In addition, rapid technological changes occurring in the communications industry could also lead to the entry of new competitors of all sizes against whom we may not be able to successfully compete. There can be no assurance that the Company will be able to compete successfully against existing or new competition, and the inability to do so may result in price reductions, reduced margins, or loss of market share, any of which could have an adverse effect on the Company’s business, financial condition and results of operations.

Risks related to acquisitions

The Company has at times experienced difficulties and unanticipated expenses in connection with purchasing and integrating newly acquired businesses.

The Company has completed a number of acquisitions in recent years, including nine in 2019 and two in 2020. The Company anticipates that it will continue to pursue acquisition opportunities as part of its growth strategy. From time to time, the Company experiences difficulty and unanticipated expenses associated with purchasing and integrating acquisitions, and acquisitions do not always perform as expected. The Company has also experienced challenges at times following the acquisition of a new company or business, including but not limited to: managing the operations, manufacturing facilities and technology; maintaining and increasing the customer base; or retaining key employees, suppliers and distributors. In some cases, the Company may pursue indemnification claims against the seller or sellers of an acquired business for pre-acquisition liabilities, breaches of representations, warranties or covenants or for other reasons provided for in the relevant acquisition agreement. To the extent we pursue indemnification claims against the seller or sellers of any acquired business, such seller or sellers may successfully contest such claims, such seller or sellers may not have the financial capacity to compensate us for such claims or such claims may otherwise be difficult or impractical to enforce. Although we expect to realize strategic, operational and financial benefits as a result of past or future acquisitions and investments, we cannot predict or guarantee whether and to what extent anticipated cost savings, benefits and growth prospects will be achieved.

On December 9, 2020, the Company announced that we had entered into a definitive agreement to acquire MTS Systems Corporation (“MTS”) for $58.50 per share in cash, or approximately $1.7 billion, net of cash acquired and including the assumption of outstanding debt and liabilities. On January 19, 2021, the Company announced that we had entered into an agreement to sell the MTS Test & Simulation (“T&S”) business to Illinois Tool Works Inc. (“ITW”). The agreement to acquire MTS is expected to close by the middle of 2021, but is subject to certain regulatory approvals, approval from MTS’s shareholders and other customary closing conditions. The sale of the MTS T&S business to ITW is expected to close following the anticipated closing of our acquisition of MTS, but is also subject to certain regulatory approvals and other customary closing conditions. The acquisition of MTS and the sale of the MTS T&S business to ITW are subject to a number of risks that include, but are not limited to: (i) the risk that the proposed merger between Amphenol and MTS, and/or the proposed subsequent sale of the MTS T&S business to ITW, may not be completed in a timely manner or at all, (ii) unanticipated difficulties or expenditures relating to the proposed transactions, the response of business partners and competitors to the announcement of the proposed transactions, potential disruptions to current plans and operations and/or potential difficulties in employee retention as a result of the announcement and pendency of the proposed transactions and (iii) the failure of the transactions, if completed, to deliver the financial benefits to Amphenol currently anticipated by the Amphenol management team.

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The Company may in the future incur goodwill and other intangible asset impairment charges.

At December 31, 2020, the total assets of the Company were $12.3 billion, which included $5.0 billion of goodwill (the excess of fair value of consideration paid over the fair value of net identifiable assets of businesses acquired) and $397.5 million of other intangible assets, net. The Company performs annual evaluations (or more frequently, if necessary) for the potential impairment of the carrying value of goodwill and other intangible assets. Such evaluations to date have not resulted in the need to recognize an impairment. However, if the financial performance of the Company’s businesses were to decline significantly, the Company could incur a material non-cash charge to its income statement for the impairment of goodwill and other intangible assets. Furthermore, we cannot provide assurance that impairment charges in the future will not be required if the expected cash flow estimates as projected by management do not occur, especially if an economic recession occurs and continues for a lengthy period or becomes severe, or if acquisitions and investments made by the Company fail to achieve expected returns.

Risks related to our liquidity and capital resources

The Company’s credit agreements contain certain covenants, which if breached, could have a material adverse effect on the Company.

The Credit Agreement, as amended and restated effective January 15, 2019, among the Company, certain subsidiaries of the Company and a syndicate of financial institutions (the “Revolving Credit Facility”), which also backstops the Company’s U.S. commercial paper program (“U.S. Commercial Paper Program”) and Euro commercial paper program, contains financial and other covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, a limit on priority indebtedness and limits on incurrence of liens. Although the Company believes none of these covenants is presently restrictive to the Company’s operations, the ability to meet the financial covenants can be affected by events beyond the Company’s control, and the Company cannot provide assurance that it will meet those tests. A breach of any of these covenants could result in a default under the Revolving Credit Facility. Upon the occurrence of an event of default under any of the Company’s credit facilities, the lenders could terminate all commitments to extend further credit and elect to declare amounts outstanding thereunder to be immediately due and payable which could result in the acceleration of certain of the Company’s other indebtedness and the Company not having sufficient assets to repay the Revolving Credit Facility and such other indebtedness. As of December 31, 2020, the Company had no outstanding borrowings under the Revolving Credit Facility, U.S. Commercial Paper Program and Euro commercial paper program.

The Company relies on the capital markets, and its inability to access those markets on favorable terms could adversely affect the Company’s results.

The Company has used the capital markets to invest in its business and make strategic acquisitions. If general economic and capital market conditions deteriorate significantly, it could impact the Company’s ability to access the capital markets. While the Company has not recently encountered any financing difficulties, the capital and credit markets have experienced significant volatility in the past. Market conditions could make it more difficult to access capital to finance capital investments, acquisitions and other initiatives including dividends and share repurchases. As such, this could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. In addition, while the Company has not encountered any such issues to date, if the credit rating agencies that rate the Company’s debt were to downgrade the Company’s credit rating in conjunction with a deterioration of the Company’s performance, it would likely increase the Company’s cost of capital and make it more difficult for the Company to obtain new financing and access capital markets, which could also have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

The Company’s results may be negatively affected by changing interest rates.

The Company is subject to interest rate volatility with regard to existing and future issuances of debt. The Company monitors its mix of fixed-rate and variable-rate debt, as well as its mix of short-term and long-term debt. As of December 31, 2020, less than 1% of the Company’s outstanding borrowings were subject to floating interest rates and were primarily comprised of foreign borrowings. A 10% change in the London Interbank Offered Rate (“LIBOR”) or floating interest rates at December 31, 2020 would not have a material effect on the Company’s interest expense. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2021, although there can be no assurance that interest rates will not change significantly.

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In 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced its intent to phase out the use of LIBOR by the end of 2021.  On December 4, 2020, the ICE Benchmark Administration published a consultation on its intention to extend the publication of certain U.S. dollar LIBOR (“USD LIBOR”) rates until June 30, 2023. 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. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on, and the market price for, our current or future indebtedness may be adversely affected. Refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 of the Notes to Consolidated Financial Statements for further discussion and details on this development.

As of December 31, 2020, nearly all of the Company’s outstanding borrowings were based on fixed rates and primarily related to the following unsecured Senior Notes:

Principal

Fixed

Amount

Interest

(in millions)

Rate

Maturity

$

227.7

3.125

September 2021

295.0

4.00

February 2022

350.0

3.20

April 2024

400.0

2.050

March 2025

500.0

4.350

June 2029

900.0

2.80

February 2030

500.0

0.750

May 2026 (Euro Notes)

500.0

2.00

October 2028 (Euro Notes)

Legal and regulatory risks

Our business and financial results may be adversely affected by government contracting risks.

We are subject to various laws and regulations applicable to parties doing business with the U.S. government, including laws and regulations governing performance of U.S. government contracts, the use and treatment of U.S. government furnished property and the nature of materials used in our products. We may be unilaterally suspended or barred from conducting business with the U.S. government or its suppliers (both directly and indirectly), or become subject to fines or other sanctions if we are found to have violated such laws or regulations. As a result of the need to comply with these laws and regulations, we are subject to increased risks of governmental investigations, civil fraud actions, criminal prosecutions, whistleblower lawsuits and other enforcement actions. For example, in August 2018, we received a subpoena from the U.S. Department of Defense, Office of the Inspector General, requesting documents pertaining to certain products manufactured by the Company’s Military and Aerospace Group that are purchased or used by the U.S. government, as noted herein in Item 3. Legal Proceedings and Note 14 of the Notes to Consolidated Financial Statements. The laws and regulations to which we are subject include, but are not limited to, Export Administration Regulations, the Federal Acquisition Regulation, the False Claims Act, International Traffic in Arms Regulations and regulations from the Bureau of Alcohol, Tobacco and Firearms and the FCPA. Failure to comply with applicable requirements also could harm our reputation and our ability to compete for future government contracts or sell commercial equivalent products. Any of these outcomes could have a material adverse effect on our business, results of operations and financial condition.

In addition, U.S. government contracts are subject to modification, curtailment or termination by the U.S. government without prior written notice, either for convenience or for default as a result of our failure to perform under the applicable contract. If terminated by the U.S. government as a result of our default, we could be liable for additional costs the U.S. government incurs in acquiring undelivered goods or services from another source and any other damages it suffers. We are also prohibited from assigning prime U.S. government contracts without the prior consent of the U.S. government contracting officer. Furthermore, the U.S. government periodically audits our governmental contract costs, which could result in fines, penalties or adjustment of costs and prices under the contracts. Any such fines, penalties or payment adjustments resulting from such audits could adversely affect our reputation, business, financial condition, results of operations or cash flows.

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The Company is subject to governmental export and import controls.

Certain of our products, including purchased components of such products, are subject to export controls and may be exported only with the required export license or through an export license exception. In addition, we are required to comply with certain U.S. and foreign sanctions and embargoes. These laws and regulations are complex, may change frequently and with limited notice, have generally become more stringent over time and have intensified under recent U.S. administrations, especially in light of recent trade tensions with China. For example, in 2019, the U.S. government added certain of the Company’s customers based in China to its “Entity List”, which imposes additional restrictions on sales to such customers. Although such restrictions did not have a material adverse effect on the Company’s business, financial condition and results of operations, the U.S. government has the power to place even greater restrictions on these and other customers, and such restrictions could prohibit the Company from selling products to such customers. If we were to fail to comply with these restrictions or applicable export licensing, customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines for us, the incarceration of responsible employees and managers, and the possible loss of export or import privileges. In addition, if our distributors fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected through reputational harm and penalties. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.

Cybersecurity incidents on our information technology systems could disrupt business operations or cause the release of highly sensitive confidential information, resulting in adverse impacts to our reputation and operating results and potentially leading to litigation and/or governmental investigations.

Cybersecurity threats continue to expand and evolve globally, making it difficult to detect and prevent such threats from impacting the Company. While the Company has been a target of various cybersecurity attacks, including but not limited to ransomware attacks, the impact of such attacks has not been material. Cybersecurity threats to the Company could lead to unauthorized access to the Company’s information technology systems, products, customers, suppliers and third party service providers. Cybersecurity incidents could potentially result in the disruption of our business operations and/or the misappropriation, destruction or corruption of critical data and confidential or proprietary information. Cybersecurity events could also result in the Company being unable to access critical data in a timely manner, or at all. Cybersecurity incidents could also result from unauthorized parties gaining access to our systems or information through fraudulent or other means of deceiving our employees, suppliers or third party service providers. In addition, the ongoing COVID-19 pandemic may increase our susceptibility to cybersecurity incidents and risks, especially as certain of our employees have transitioned and continue to work from home. Despite the Company’s implementation of preventative security measures to prevent, detect, address and mitigate these threats, our infrastructure may still be susceptible to disruptions from cybersecurity incidents, ransomware attacks, security breaches, computer viruses, outages, systems failures, natural disasters, adverse public health developments, or other catastrophic events, any of which could include reputational damage, loss of our intellectual property, release of highly sensitive confidential information, the inability to access critical data, litigation with third parties and/or governmental investigations, among other things, which could have a material adverse effect on our business, financial condition and results of operations.

We and our business partners maintain significant amounts of data electronically in locations around the world.  This data relates to all aspects of our business, including financial information and current and future products under development, and also contains certain customer, supplier, partner and employee data.  We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyber attacks or tampering that could compromise the integrity and privacy of this data or make the data inaccessible to us.  In addition, in certain cases, in order to conduct business, we outsource to third-party business partners.  We obtain assurances from those parties that they have systems and processes in place to protect our data, and where applicable, that they will take steps to assure the protection of our data; nonetheless, those partners may also be subject to data intrusion or a cyber attack.  Any compromise of the data could substantially disrupt our operations, harm our customers, employees and other business partners, damage our reputation, violate applicable laws and regulations, and subject us to potentially significant costs and liabilities.

The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. For example, the European Union's General Data Protection Regulation (“GDPR”), which became effective in May 2018, and the state of California’s California Consumer Privacy Act (“CCPA”), which became effective January 1, 2020, impose significant new requirements and additional obligations for companies on how they collect, process and transfer personal data by enhancing consumer privacy rights and imposing significant fines for non-compliance. The potential for fines and other related costs in the event of a breach of or non-

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compliance with the GDPR, CCPA or other existing or proposed information security or privacy laws and requirements may have an adverse effect on our financial results.

Changes in fiscal and tax policies, audits and examinations by taxing authorities could impact the Company’s results.

The Company is subject to tax in the U.S. and numerous foreign jurisdictions.  The Company is currently under tax examination in several jurisdictions, and in addition, new examinations could be initiated by additional tax authorities. As the Company has operations in jurisdictions throughout the world, the risk of tax examinations will continue to occur. The Company’s financial condition, results of operations or cash flows may be materially impacted by the results of these tax examinations.

Any future changes in tax laws, regulations, accounting standards for income taxes and/or other tax guidance, including related interpretations, could materially impact the Company’s current and non-current tax liabilities, along with deferred tax assets and liabilities, and consequently, our financial condition, results of operations or cash flows.

The Company relies on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights.

We rely on patent and trade secret laws, copyright, trademark, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights. Despite our efforts, these protections may be limited and we may encounter difficulties in protecting our intellectual property rights, particularly in certain countries outside the U.S. We cannot provide assurance that the patents that we hold or may obtain will provide meaningful protection against our competitors. Changes in national or international laws concerning intellectual property may affect our ability to prevent or address the misappropriation of, or the unauthorized use of, our intellectual property, potentially resulting in loss of market share. Litigation may be necessary to enforce our intellectual property rights. Litigation is inherently uncertain and outcomes are often unpredictable. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.

The Company is subject to customer claims, litigation and other regulatory or legal proceedings.

The Company is currently engaged in, or subject to, various customer claims, litigation and other regulatory and legal matters and may be subject to additional claims, litigation and other regulatory or legal proceedings in the future. Such matters expose the Company to risks that could be material, including but not limited to, risks related to employment disputes, tax controversies, government investigations, intellectual property infringement, compliance with environmental laws, unfair sales practices, product safety and liability, and product warranty, indemnity and other contract-related claims. These matters may subject the Company to lawsuits, product recalls, government investigations and criminal liability, including claims for compensatory, punitive or consequential damages, and could result in disruptions to our business and significant legal expenses. These matters could also damage our reputation, harm our relationships with customers or negatively affect product demand. While the Company does maintain certain insurance coverages that may mitigate losses associated with some of these types of claims and proceedings, the policies may not respond in all cases and, where insurance exists, the amount of insurance coverage may not be adequate to cover the total claims and liabilities. Any current or future substantial liabilities or regulatory actions could have a material adverse effect on our business, financial condition, cash flows and reputation.

The Company is subject to environmental laws and regulations that could adversely affect its business.

The Company operates in both the United States and various foreign jurisdictions, and we must comply with locally enacted laws and regulations addressing health, safety and environmental matters in such jurisdictions in which we manufacture and/or sell our products. Certain operations of the Company are subject to locally enacted environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. While the Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations, the Company and its operations may be subject to liabilities, regardless of fault, for investigative and/or remediation efforts on such matters that may arise at any of the Company’s former or current properties, either owned or leased. For example, as disclosed in Note 14 of the Notes to Consolidated Financial Statements, the Company has been named as one of several defendants in four separate lawsuits filed in the State of Indiana relating to a manufacturing site in Franklin, Indiana where the Company has been conducting an environmental clean-up effort under the direction of the United States Environmental Protection Agency. All costs incurred by the Company relating to these lawsuits as well as all costs associated with the clean-up effort at the manufacturing site are reimbursed by the former owner pursuant to an indemnification agreement entered into in

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connection with the acquisition of the manufacturing site as part of a larger acquisition that led to the establishment of the Company’s business in 1987. Environmental liabilities can result from the use of hazardous materials in production, the disposal of products, damages associated with the use of any of our products or other related matters. We cannot be certain as to the potential impact of any changes to environmental conditions or environmental policies that may arise at any of our jurisdictions. Our failure to comply with these local environmental laws and regulations could result in fines or other punitive damages and/or modifications to our production processes as well as subject us to reputational harm, any of which could adversely impact our financial position, results of operations, or cash flows.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s fixed assets include plants and warehouses and a substantial quantity of machinery and equipment, most of which is general purpose machinery and equipment using tools and fixtures and in many instances having automatic control features and special adaptations. The Company’s plants, warehouses and machinery and equipment are generally in good operating condition, are reasonably maintained and substantially all of its facilities are in regular use. The Company considers the present level of fixed assets along with planned capital expenditures as suitable and adequate for operations in the current business environment. At December 31, 2020, the Company operated a total of approximately 480 plants, warehouses and offices of which (a) the locations in the U.S. had approximately 3.9 million square feet, of which approximately 2.0 million square feet were leased; (b) the locations outside the U.S. had approximately 17.6 million square feet, of which approximately 13.6 million square feet were leased; and (c) the square footage by segment was approximately 20.2 million square feet and approximately 1.3 million square feet for the Interconnect Products and Assemblies segment and the Cable Products and Solutions segment, respectively. Of the total plants, warehouses and offices operated by the Company, approximately 200 are manufacturing facilities with over 10,000 square feet, of which approximately half are ISO 14001 certified.

The Company believes that its facilities are suitable and adequate for the business conducted therein and are being appropriately utilized for their intended purposes. Utilization of the facilities varies based on demand for the products. The Company continuously reviews its anticipated requirements for facilities and, based on that review, may from time to time acquire or lease additional facilities and/or dispose of existing facilities.

Item 3. Legal Proceedings

Information with respect to legal proceedings and this item is included in Note 14 of the Notes to Consolidated Financial Statements contained in Part II, Item 8 of this report, which is incorporated herein by reference.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company effected the initial public offering of its Class A Common Stock (“Common Stock”) in November 1991. The Company’s Common Stock has been listed on the New York Stock Exchange since that time under the ticker symbol “APH”. As of January 31, 2021, there were 32 holders of record of the Company’s Common Stock. A significant number of outstanding shares of Common Stock are registered in the name of only one holder, which is a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms. The Company believes that there are a significant number of beneficial owners of its Common Stock.

Stock Split

On January 27, 2021, the Company announced that its Board of Directors approved a two-for-one split of the Company’s common stock. The stock split will be effected in the form of a stock dividend paid to shareholders of record as of the close of business on February 16, 2021. The Company expects the additional shares will be distributed on March 4, 2021. Refer to Note 8 of the Notes to Consolidated Financial Statements for the pro forma effect of this stock split as if it had been effective for all years presented.

Stock Performance Graph

The following graph compares the cumulative total shareholder return of Amphenol over a period of five years ending December 31, 2020 with the performance of the Standard & Poor’s 500 (“S&P 500”) Stock Index and the Dow Jones U.S. Electrical Components & Equipment Index. This graph assumes that $100 was invested in the Common Stock of Amphenol and each index on December 31, 2015, reflects reinvested dividends and is weighted on a market capitalization basis as of the beginning of each year. Each reported data point below represents the last trading day of each calendar year. The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance.

GRAPHIC

Dividends

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

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The following table sets forth the dividends declared per common share for each quarter of 2020 and 2019:

    

2020

    

2019

First Quarter

$

0.25

$

0.23

Second Quarter

 

0.25

 

0.23

Third Quarter

 

0.25

 

0.25

Fourth Quarter

 

0.29

 

0.25

Total

$

1.04

$

0.96

Dividends declared and paid for the years ended December 31, 2020 and 2019 (in millions) were as follows:

    

2020

2019

Dividends declared

$

310.0

$

285.3

Dividends paid (including those declared in the prior year)

 

297.6

 

279.5

The Company’s Revolving Credit Facility contains financial covenants and restrictions, some of which may limit the Company’s ability to pay dividends, and any future indebtedness that the Company may incur could limit its ability to pay dividends.

Equity Compensation Plan Information

The following table summarizes the Company’s equity compensation plan information as of December 31, 2020:

Equity Compensation Plan Information

    

Number of securities to

    

Weighted average

    

Number of

    

be issued upon exercise

exercise price of

securities

    

of outstanding options,

outstanding options,

remaining available

Plan category

    

warrants and rights

warrants and rights

for future issuance

Equity compensation plans approved by security holders

    

34,005,999

$

75.17

 

17,863,121

Equity compensation plans not approved by security holders

    

 

 

Total

    

34,005,999

$

75.17

 

17,863,121

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. During the year ended December 31, 2020, the Company repurchased 6.0 million shares of its Common Stock for $641.3 million under the 2018 Stock Repurchase Program. Of the total repurchases in 2020, 1.4 million shares, or $153.9 million, have been retained in Treasury stock at time of repurchase; the remaining 4.6 million shares, or $487.4 million, have been retired by the Company.  From January 1, 2021 through January 31, 2021, the Company repurchased $4.0 million of its Common Stock, and has remaining authorization to purchase up to $199.8 million of its Common Stock under the 2018 Stock Repurchase Program. The price and timing of any future purchases under the 2018 Stock Repurchase Program will depend on a number of factors such as levels of cash generation from operations, the level of uncertainty relating to the COVID-19 pandemic, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.

The table below reflects the Company’s stock repurchases for the year ended December 31, 2020:

    

Total Number of

Maximum Dollar

(dollars in millions, except price per share)

Shares Purchased as

Value of Shares

Total Number

Average

Part of Publicly

that May Yet be

of Shares

Price Paid

Announced Plans or

Purchased Under the

Period

Purchased

    

per Share

    

Programs

    

Plans or Programs

First Quarter - 2020

2,692,461

$

95.54

2,692,461

$

587.9

Second Quarter - 2020

587.9

Third Quarter - 2020

1,869,448

108.01

1,869,448

385.9

Fourth Quarter - 2020:

October 1 to October 31, 2020

 

193,338

 

113.77

 

193,338

 

363.9

November 1 to November 30, 2020

 

778,155

 

123.31

 

778,155

 

268.0

December 1 to December 31, 2020

 

486,227

 

132.07

 

486,227

 

203.8

1,457,720

124.97

1,457,720

203.8

Total - 2020

 

6,019,629

$

106.54

 

6,019,629

 

$

203.8

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Item 6. Selected Financial Data

The following table presents selected consolidated financial data that is derived from the Company’s audited Consolidated Financial Statements and that should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Consolidated Financial Statements and accompanying notes included herein. The Company’s acquisitions during the five-year period below may affect the comparability of results. Our consolidated financial information may not be indicative of our future performance.

(dollars and shares 

    

    

    

    

    

 

in millions, except per share data)

2020

2019

2018

2017

2016

 

Operations

Net sales

$

8,598.9

$

8,225.4

$

8,202.0

$

7,011.3

$

6,286.4

Net income attributable to Amphenol Corporation

 

1,203.4

(1)

 

1,155.0

(2)

 

1,205.0

(3)

 

650.5

(4)

 

822.9

(5)

Net income per common share—Diluted

 

3.91

(1)

 

3.75

(2)

 

3.85

(3)

 

2.06

(4)

 

2.61

(5)

Financial Condition

Cash, cash equivalents and short-term investments

$

1,738.1

$

908.6

$

1,291.7

$

1,753.7

$

1,173.2

Working capital

 

3,186.5

 

2,078.5

 

2,120.3

 

3,076.6

 

1,956.0

Total assets

 

12,327.3

 

10,815.5

 

10,044.9

 

10,003.9

 

8,498.7

Long-term debt, including current portion

 

3,866.5

 

3,606.7

 

3,570.7

 

3,542.6

 

3,010.7

Shareholders’ equity attributable to Amphenol Corporation

 

5,384.9

 

4,530.3

 

4,017.0

 

3,989.8

 

3,674.9

Weighted average shares outstanding—Diluted

 

307.5

 

307.9

 

312.6

 

316.5

 

315.2

Cash dividends declared per share

$

1.04

$

0.96

$

0.88

$

0.70

$

0.58

(1) Includes (a) excess tax benefits related to stock-based compensation of $42.8 resulting from stock option exercises and (b) a discrete tax benefit of $19.9 related to the settlements of refund claims in certain non-U.S. jurisdictions and the resulting adjustments to deferred taxes, partially offset by (c) acquisition-related expenses of $11.5 ($10.7 after-tax) primarily comprised of external transaction costs related to acquisitions that were announced or closed. These items had the aggregate effect of increasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $52.0 and $0.17 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, both non-GAAP financial measures defined in Part II, Item 7 herein, were $1,151.4 and $3.74 per share, respectively, for the year ended December 31, 2020.

(2) Includes (a) excess tax benefits related to stock-based compensation of $38.1 resulting from stock option exercises, partially offset by (b) acquisition-related expenses of $25.4 ($21.0 after-tax) comprised of the amortization related to the value associated with acquired backlog from two acquisitions, along with external transaction costs and (c) refinancing-related costs of $14.3 ($12.5 after-tax) associated with the early extinguishment of debt. These items had the aggregate effect of increasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $4.6 and $0.01 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, both non-GAAP financial measures defined in Part II, Item 7 herein, were $1,150.4 and $3.74 per share, respectively, for the year ended December 31, 2019.

(3) Includes (a) an income tax benefit of $14.5 recorded in 2018 related to the completion of the accounting associated with the provisional income tax charge recorded in 2017 related to the enactment of the Tax Cuts and Jobs Act and (b) excess tax benefits related to stock-based compensation of $19.8 resulting from stock option exercises, partially offset by (c) acquisition-related expenses of $8.5 ($7.2 after-tax) primarily relating to external transaction costs. These items had the aggregate effect of increasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $27.1 and $0.08 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $1,177.9 and $3.77 per share, respectively, for the year ended December 31, 2018.

(4) Includes (a) an income tax charge of $398.5 related to the enactment of the Tax Cuts and Jobs Act, which represented our estimate of taxes arising from the implementation of a modified territorial tax regime and the deemed and intended repatriation of prior unremitted earnings of foreign subsidiaries, partially offset by the tax benefit associated with the remeasurement of the Company’s U.S. net deferred tax liabilities due to the U.S. federal corporate tax rate reduction and (b) acquisition-related expenses of $4.0 ($3.7 after-tax) primarily relating to external transaction costs associated with 2017 acquisitions, partially offset by (c) excess tax benefits related to stock-based compensation of $66.6 resulting from stock option exercises. These items had the aggregate effect of decreasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $335.6 and $1.06 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $986.1 and $3.12 per share, respectively, for the year ended December 31, 2017.

(5) Includes acquisition-related expenses of $36.6 ($33.1 after-tax) primarily relating to the FCI Asia Pte. Ltd. (“FCI”) and other 2016 acquisitions, including external transaction costs, amortization related to the value associated with acquired backlog and restructuring charges. These items had the aggregate effect of decreasing Net income attributable to Amphenol Corporation and Net income per common share-Diluted by $33.1 and $0.11 per share, respectively. Excluding the effect of these items, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS were $856.0 and $2.72 per share, respectively, for the year ended December 31, 2016.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(amounts in millions, except share and per share data, unless otherwise noted)

The following discussion and analysis of the results of operations and financial condition for the three years ended December 31, 2020, 2019 and 2018 has been derived from and should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, herein. The Consolidated Financial Statements have been prepared in U.S. dollars, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The following discussion and analysis also includes references to certain non-GAAP financial measures, which are defined in the “Non-GAAP Financial Measures” section below, including “Constant Currency Net Sales Growth” and “Organic Net Sales Growth”. For purposes of the following discussion, the terms “constant currencies” and “organically” have the same meanings, respectively, as these aforementioned non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” within this Item 7 for more information, including our reasons for including non-GAAP financial measures and material limitations with respect to the usefulness of the measures.

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

Overview

General

Amphenol Corporation (together with its subsidiaries, “Amphenol”, the “Company”, “we”, “our”, or “us”) is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company operates through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. In 2020, approximately 71% of the Company’s sales were outside the United States. The primary end markets for our products are:

information technology and communication devices and systems for the converging technologies of voice, video and data communications;
a broad range of industrial applications and traditional, hybrid and electric automotive applications; and
military and commercial aerospace applications.

The Company’s products are used in a wide variety of applications by numerous customers around the world. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. There has been a trend on the part of customers to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. The Company has focused its global resources to position itself to compete effectively in this environment. The Company believes that its global presence is an important competitive advantage as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.

Strategy

The Company’s strategy is to provide its customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis while maintaining continuing programs of productivity improvement and cost control. The Company focuses its research and development efforts through close collaboration with its customers to develop highly-engineered products that meet customer needs and have the potential for broad market applications and significant sales within a one- to three-year period. The Company is also focused on controlling costs. The Company does this by investing in modern manufacturing technologies, controlling purchasing processes and expanding into lower cost areas.

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

Pursue broad diversification;
Develop high technology performance-enhancing interconnect solutions;
Expand global presence;
Control costs;
Pursue strategic acquisitions and investments; and
Foster collaborative, entrepreneurial management.

In 2020, the Company reported net sales, operating income and net income attributable to Amphenol Corporation of $8,598.9, $1,638.4 and $1,203.4, respectively, representing an increase of 5%, 1% and 4%, respectively, from 2019. In 2020, the Company’s net income attributable to Amphenol Corporation was impacted by (a) excess tax benefits related to stock-based compensation of $42.8 resulting from stock option exercises and (b) a discrete tax benefit of $19.9 related to the settlements of refund claims in certain non-U.S. jurisdictions and the resulting adjustments to deferred taxes, partially offset by (c) acquisition-related expenses of $11.5 ($10.7 after-tax) primarily comprised of external transaction costs related to acquisitions that were announced or closed. In 2019, the Company’s net income attributable to Amphenol Corporation was impacted by (a) excess tax benefits related to stock-based compensation of $38.1 resulting from stock option exercises, partially offset by (b) acquisition-related expenses of $25.4 ($21.0 after-tax) primarily from the amortization related to the value associated with acquired backlog as well as external transaction costs and (c) refinancing-related costs associated with the early extinguishment of debt of $14.3 ($12.5 after-tax), comprised primarily of the premiums and other fees incurred from the early extinguishment of redeemed amounts of our 3.125% Senior Notes and 4.00% Senior Notes resulting from the tender offers in September 2019 described herein under “Liquidity and Capital Resources – Financing Activities”. Excluding the effects of these items, Adjusted Operating Income and Adjusted Net Income attributable to Amphenol Corporation, as defined in the “Non-GAAP Financial Measures” section below and reconciled in Part II, Item 7 herein, was unchanged in 2020 compared to 2019. Sales and profitability trends are discussed in detail in “Results of Operations” below. In addition, a strength of the Company has been its ability to consistently generate cash from operations (“Operating Cash Flow”). The Company uses Operating Cash Flow to fund capital expenditures and acquisitions, repurchase shares of its common stock, pay dividends and reduce indebtedness. In 2020, the Company generated Operating Cash Flow of $1,592.0 and Free Cash Flow of $1,327.9. Free Cash Flow, a non-GAAP financial measure, is defined in the “Non-GAAP Financial Measures” section below and reconciled within this Part II, Item 7 herein.

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

The COVID-19 pandemic has caused widespread disruptions to our Company during 2020, particularly during the first half of the year.  During the first quarter, these disruptions were primarily limited to our operations in China, which were closed for three weeks during January and February due to government mandates.  As the virus spread to the rest of the world beginning in March and continuing throughout the remainder of 2020, most of our other operations outside of China were also impacted.  As of December 31, 2020, we continue to experience some disruptions, and at a minimum, we expect those disruptions to continue through the first half of 2021 and they could, potentially, extend for the full year and beyond.  These disruptions have included and may continue to include, depending on the specific location, government regulations that limit our ability to operate certain of our facilities at full capacity and to adjust certain costs, travel restrictions, “work-from-home” orders, supplier constraints, supply-chain interruptions, logistics challenges and limitations, and reduced demand from certain customers.  During the fourth quarter of 2020 and into 2021, in several regions around the world, including the United States and Europe, there has been a resurgence in COVID-19 cases. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, future government regulations and actions in response to the crisis, the timing, availability and effectiveness of vaccines, some of which have recently been approved and distributed for use, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.  In addition, the COVID-19 pandemic could impact the health of our management team and other employees. The Company continues taking actions to mitigate, as best we can, the impact of the COVID-19 pandemic on the health and well-being of our employees, the communities in which we operate and our partners, as well as the impact on our operations and business as a whole.  However, there can be no assurance that the COVID-19 pandemic will not have a material and adverse impact on our operations, financial condition, liquidity and results of operations. For further discussion on the risks and uncertainties associated with the COVID-19 pandemic, refer to Part I, Item 1A. Risk Factors.

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Results of Operations

The following table sets forth the components of net income attributable to Amphenol Corporation as a percentage of net sales for the years indicated.

Year Ended December 31,

 

    

2020

    

2019

    

2018

 

Net sales

 

100.0

%  

100.0

%  

100.0

%  

Cost of sales

 

69.0

68.2

67.6

Acquisition-related expenses

 

0.1

0.3

0.1

Selling, general and administrative expenses

 

11.8

11.8

11.7

Operating income

 

19.1

19.7

20.6

Interest expense

 

(1.3)

(1.4)

(1.2)

Loss on early extinguishment of debt

(0.2)

Other income, net

 

0.1

Income before income taxes

 

17.8

18.2

19.4

Provision for income taxes

 

(3.7)

(4.1)

(4.5)

Net income

 

14.1

14.1

14.9

Net income attributable to noncontrolling interests

 

(0.1)

(0.1)

(0.2)

Net income attributable to Amphenol Corporation

 

14.0

%  

14.0

%  

14.7

%  

2020 Compared to 2019

Net sales were $8,598.9 for the year ended December 31, 2020 compared to $8,225.4 for the year ended December 31, 2019, which was an increase of 5% in U.S. dollars, 4% in constant currencies, and 2% organically (excluding both currency and acquisition impacts), over the prior year. The increase in net sales in 2020 was driven by strong growth in several markets, which was partially offset by the sudden and severe slowdown in certain of our markets resulting from the global outbreak of the COVID-19 pandemic, which also caused production disruptions in many parts of the world during much of the first half of 2020.

Net sales in the Interconnect Products and Assemblies segment (approximately 96% of net sales) increased 5% in U.S. dollars, 4% in constant currencies, and 2% organically, in 2020 compared to 2019. The sales growth was driven by strong growth in the industrial, information technology and data communications, and mobile devices markets, along with moderate growth in the military market, and contributions from the Company’s acquisition program. This sales growth was partially offset by declines in the commercial aerospace, mobile networks and automotive markets, all of which were negatively impacted by the COVID-19 pandemic. Net sales to the industrial market increased (approximately $246.4), primarily driven by strength in battery and electric vehicle, industrial instrumentation, heavy equipment, alternative energy and medical applications, along with contributions from acquisitions. Net sales to the information technology and data communications market increased (approximately $234.0), driven primarily by strong sales growth to data center customers and market demand for storage and networking related products as customers worked to support higher demand for increased bandwidth to support work, school and entertainment activities during the pandemic, along with contributions from acquisitions. Net sales to the mobile devices market increased (approximately $179.9), driven by strength in products incorporated into laptops, tablets, wearable devices, and accessories along with production-related products, which was partially offset by a slight moderation of sales into smartphones. Net sales to the military market increased (approximately $32.2), driven by strength across multiple segments of the military market, offset in part by the impact of pandemic-related production disruptions experienced during the first half of the year. Net sales to the commercial aerospace market decreased significantly (approximately $135.3) primarily due to the significant impact of the COVID-19 pandemic on travel and aircraft production. Net sales to the mobile networks market decreased (approximately $98.5), which reflected the impact of the 2019 U.S. Government restrictions on certain Chinese customers as well as reduced demand from both mobile networks equipment manufacturers and mobile operators, partially as a result of the negative impact of the COVID-19 pandemic, offset in part by contributions from acquisitions. Net sales to the automotive market decreased (approximately $86.0), due to a significant reduction in demand resulting from customer factory shutdowns together with production disruptions in the first half of 2020 resulting from the COVID-19 pandemic, which was partially offset by a strong recovery of demand during the second half of the year.

Net sales in the Cable Products and Solutions segment (approximately 4% of net sales), which primarily serves the broadband communications market, decreased 4% in U.S. dollars, 1% in constant currencies and 1% organically in 2020, compared to 2019. The decrease in net sales in the Cable Products and Solutions segment was largely driven by the

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

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures, by segment and consolidated, for the year ended December 31, 2020 compared to the year ended December 31, 2019:

Percentage Growth (relative to prior year)

Net sales

Foreign

Constant

Organic

growth in

currency

Currency Net

Acquisition

Net Sales

U.S. Dollars (1)

impact (2)

Sales Growth (3)

impact (4)

Growth (3)

  

2020

   

2019

(GAAP)

(non-GAAP)

(non-GAAP)

(non-GAAP)

(non-GAAP)

Net sales:

 

Interconnect Products and Assemblies

$

8,229.9

 

$

7,840.3

5

%  

1

%  

4

%  

2

%  

2

%  

Cable Products and Solutions

 

369.0

 

385.1

(4)

%  

(3)

%  

(1)

%  

%  

(1)

%  

Consolidated

$

8,598.9

$

8,225.4

5

%  

1

%  

4

%  

2

%  

2

%  

(1) Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the accompanying financial statements. While the term “net sales growth in U.S. dollars” is not considered a U.S. GAAP financial measure, for purposes of this table, we derive the reported (GAAP) measure based on GAAP results, which serves as the basis for the reconciliation to its comparable non-GAAP financial measures.
(2) Foreign currency translation impact, a non-GAAP measure, represents the impact on net sales resulting from foreign currency exchange rate changes in the current year compared to the prior year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior year from current year reported net sales, taken as a percentage of the respective prior year’s net sales.
(3) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section.
(4) Acquisition impact, a non-GAAP measure, represents the impact on net sales resulting from acquisitions closed since the beginning of the prior calendar year, which were not included in the Company’s results as of the comparable prior year and which do not reflect the underlying growth of the Company on a comparative basis.

Geographically, net sales in the United States in 2020 decreased approximately 1% in U.S. dollars ($2,494.0 in 2020 versus $2,524.7 in 2019) and 5% organically, compared to 2019. Foreign sales in 2020 increased approximately 7% in U.S. dollars ($6,104.9 in 2020 versus $5,700.7 in 2019), 7% in constant currencies and 5% organically, compared to 2019, driven by strong growth in Asia. The comparatively weaker U.S. dollar in 2020 had an insignificant effect on net sales compared to 2019.

Selling, general and administrative expenses were $1,014.2 or 11.8% of net sales for 2020, compared to $971.4 or 11.8% of net sales for 2019. Administrative expenses increased approximately $27.5 in 2020, and represented approximately 4.8% of net sales in 2020 and 4.7% of net sales in 2019. Research and development expenses increased approximately $26.5 in 2020 primarily related to increases in expenses for new product development, and represented approximately 3.0% of net sales in 2020 and 2.8% of net sales in 2019. Selling and marketing expenses decreased approximately $11.2 in 2020 compared to 2019, and represented approximately 4.0% of net sales in 2020 and 4.3% of net sales in 2019.

Operating income was $1,638.4 or 19.1% of net sales in 2020, compared to $1,619.2 or 19.7% of net sales in 2019. Operating income for 2020 included acquisition-related expenses of $11.5, primarily comprised of external transaction costs related to acquisitions that were announced or closed. Operating income for 2019 included acquisition-related expenses of $25.4, comprised of the amortization of $15.7 related to the value associated with the acquired backlog resulting from two of our 2019 acquisitions, with the remainder representing external transaction costs. These acquisition-related expenses in 2020 and 2019 had the effect of decreasing net income by $10.7 or $0.03 per share, and $21.0 or $0.07 per share, respectively. Acquisition-related expenses are separately presented in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, was $1,649.9 or 19.2% of net sales, respectively, in 2020 and $1,644.6 or 20.0% of net sales, respectively, in 2019.

Operating income for the Interconnect Products and Assemblies segment in 2020 was $1,741.2 or 21.2% of net sales, compared to $1,722.7 or 22.0% of net sales in 2019. The decrease in operating margin for the Interconnect Products and Assemblies segment for 2020 compared to 2019 was primarily driven by the significant incremental costs incurred, primarily during the first half of 2020, related to the COVID-19 pandemic. This decrease in the operating margin during the first half of 2020 was partly offset by strong operating leverage on higher sales volumes during the second half of 2020.

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Operating income for the Cable Products and Solutions segment in 2020 was $35.4 or 9.6% of net sales, compared to $39.5 or 10.2% of net sales in 2019. The decrease in operating margin for the Cable Products and Solutions segment in 2020 compared to 2019 was primarily driven by lower volumes as well as the negative impact of the COVID-19 pandemic, primarily during the first half of 2020.

Interest expense was $115.4 in 2020 compared to $117.6 in 2019. Refer to Note 4 of the Consolidated Financial Statements for further information related to the Company’s debt.

Loss on early extinguishment of debt was $14.3 in 2019, which related to refinancing-related costs, specifically premiums and fees incurred associated with the early extinguishment of certain redeemed principal amounts of the 3.125% Senior Notes and 4.00% Senior Notes (collectively, the “Tendered Notes”) as a result of the tender offers in September 2019. Refer to Note 4 of the accompanying Consolidated Financial Statements and the “Liquidity and Capital Resources” section within this Item 7 for further information related to the Tendered Notes.

Provision for income taxes was at an effective rate of 20.5% in 2020 and 22.2% in 2019. Provision for income taxes in 2020 included (i) excess tax benefits of $42.8 from stock option exercises and (ii) a discrete tax benefit of $19.9 related to the settlements of refund claims in certain non-U.S. jurisdictions and the resulting adjustments to deferred taxes, which was partially offset by the tax effect related to acquisition-related expenses during the year, each of which had an impact on the effective tax rate and earnings per share by the amounts noted in the table below. Provision for income taxes in 2019 included excess tax benefits of $38.1 from stock option exercises, which was partially offset by the tax effects related to (i) acquisition-related expenses during the year and (ii) refinancing-related costs associated with the early extinguishment of debt, each of which had an impact on the effective tax rate and earnings per share by the amounts noted in the table below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.5% for both 2020 and 2019, as reconciled in the table below to the comparable effective tax rate based on GAAP results. For additional details related to the reconciliation between the U.S. statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 6 of the Notes to Consolidated Financial Statements.

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were $1,203.4 and $3.91, respectively, for 2020, compared to $1,155.0 and $3.75, respectively, for 2019. Excluding the effect of the aforementioned items discussed above, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,151.4 and $3.74, respectively, for 2020, compared to $1,150.4 and $3.74, respectively, for 2019.

The following table reconciles Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income attributable to Amphenol Corporation, Adjusted Effective Tax Rate and Adjusted Diluted EPS (all defined in the “Non-GAAP Financial Measures” section below) to the most directly comparable U.S. GAAP financial measures for the years ended December 31, 2020 and 2019:

2020

2019

Net Income

Net Income

attributable

Effective

attributable

Effective

Operating

Operating

to Amphenol

Tax

Diluted

Operating

Operating

to Amphenol

Tax

Diluted

Income

  

Margin (1)

    

Corporation

Rate (1)

EPS

Income

  

Margin (1)

    

Corporation

Rate (1)

EPS

Reported (GAAP)

$

1,638.4

 

19.1

%  

$

1,203.4

20.5

$

3.91

$

1,619.2

 

19.7

%  

$

1,155.0

22.2

$

3.75

Acquisition-related expenses

11.5

0.1

10.7

(0.1)

0.03

25.4

0.3

21.0

(0.1)

0.07

Loss on early extinguishment of debt

-

-

-

-

-

-

-

12.5

(0.1)

0.04

Excess tax benefits related to stock-based compensation

-

-

(42.8)

2.8

(0.14)

-

-

(38.1)

2.5

(0.12)

Discrete tax item

-

-

(19.9)

1.3

(0.06)

-

-

-

-

-

Adjusted (non-GAAP)

$

1,649.9

19.2

%  

$

1,151.4

24.5

$

3.74

$

1,644.6

20.0

%  

$

1,150.4

24.5

$

3.74

(1) While the terms “operating margin” and “effective tax rate” are not considered U.S. GAAP financial measures, for purposes of this table, we derive the reported (GAAP) measures based on GAAP results, which serve as the basis for the reconciliation to their comparable non-GAAP financial measure.

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2019 Compared to 2018

Net sales were $8,225.4 for the year ended December 31, 2019 compared to $8,202.0 for the year ended December 31, 2018, which was flat in U.S. dollars, an increase of 2% in constant currencies and a decrease of 3% organically (excluding both currency and acquisition impacts), over the prior year.

Net sales in the Interconnect Products and Assemblies segment (approximately 95% of net sales) increased 1% in U.S. dollars and 2% in constant currencies, while decreasing 3% organically, in 2019 compared to 2018. The sales growth was driven by strong growth in the military and commercial aerospace markets as well as contributions from the Company’s acquisition program. This sales growth was largely offset by reductions in the communications-related markets, in particular the mobile devices market, along with the negative effect of currency translation. Net sales to the military market increased (approximately $181.0), driven by broad-based strength across essentially all segments including military vehicle, rotorcraft, and military airframe applications. Net sales to the commercial aerospace market increased (approximately $48.7) primarily due to strength in large passenger planes. Net sales to the industrial market increased (approximately $66.1), primarily driven by contributions from acquisitions, as well as strength in medical and factory automation applications, which were partially offset by moderations in industrial instrumentation, heavy equipment and transportation, as well as other applications. Net sales to the automotive market increased (approximately $38.0), driven primarily by contributions from acquisitions, which were partially offset by moderations in demand due to the slowing of the worldwide automotive market. Net sales to the information technology and data communications market slightly increased (approximately $5.6), driven primarily by contributions from acquisitions and organic growth of sales to data center customers, offset by moderations in market demand for storage and networking related products. Net sales to the mobile devices market decreased (approximately $277.5), driven by moderations in sales of products incorporated into smartphones. Net sales to the mobile networks market decreased (approximately $10.2), due to reduced demand from both mobile networks equipment manufacturers and mobile operators, offset in part by contributions from acquisitions.

Net sales in the Cable Products and Solutions segment (approximately 5% of net sales), which primarily serves the broadband communications market, decreased 8% in U.S. dollars, 6% in constant currencies and 7% organically in 2019, compared to 2018. The decrease in net sales in the Cable Products and Solutions segment was primarily due to a reduction in demand from broadband service providers.

The table below reconciles Constant Currency Net Sales Growth and Organic Net Sales Growth to the most directly comparable U.S. GAAP financial measures, by segment and consolidated, for the year ended December 31, 2019 compared to the year ended December 31, 2018:

Percentage Growth (relative to prior year)

Net sales

Foreign

Constant

Organic

growth in

currency

Currency Net

Acquisition

Net Sales

U.S. Dollars (1)

impact (2)

Sales Growth (3)

impact (4)

Growth (3)

  

2019

   

2018

(GAAP)

(non-GAAP)

(non-GAAP)

(non-GAAP)

(non-GAAP)

Net sales:

 

Interconnect Products and Assemblies

$

7,840.3

 

$

7,781.9

1

%  

(1)

%  

2

%  

5

%  

(3)

%  

Cable Products and Solutions

 

385.1

 

420.1

(8)

%  

(2)

%  

(6)

%  

1

%  

(7)

%  

Consolidated

$

8,225.4

$

8,202.0

%  

(2)

%  

2

%  

5

%  

(3)

%  

(1) Net sales growth in U.S. dollars is calculated based on Net sales as reported in the Consolidated Statements of Income and Note 13 of the accompanying financial statements. While the term “net sales growth in U.S. dollars” is not considered a U.S. GAAP financial measure, for purposes of this table, we derive the reported (GAAP) measure based on GAAP results, which serves as the basis for the reconciliation to its comparable non-GAAP financial measures.
(2) Foreign currency translation impact, a non-GAAP measure, represents the impact on net sales resulting from foreign currency exchange rate changes in the current year compared to the prior year. Such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior year from current year reported net sales, taken as a percentage of the respective prior year’s net sales.
(3) Constant Currency Net Sales Growth and Organic Net Sales Growth are non-GAAP financial measures as defined in the “Non-GAAP Financial Measures” section.
(4) Acquisition impact, a non-GAAP measure, represents the impact on net sales resulting from acquisitions closed since the beginning of the prior calendar year, which were not included in the Company’s results as of the comparable prior year and which do not reflect the underlying growth of the Company on a comparative basis.

Geographically, net sales in the United States in 2019 increased approximately 13% in U.S. dollars ($2,524.7 in 2019 versus $2,241.4 in 2018) and 4% organically, compared to 2018. Foreign sales in 2019 decreased approximately 4% in U.S. dollars ($5,700.7 in 2019 versus $5,960.6 in 2018), 2% in constant currencies and 6% organically, compared to 2018, driven by moderations in Asia. The comparatively stronger U.S. dollar in 2019 had the effect of decreasing net sales by approximately $125.8, compared to foreign currency translation rates in 2018.

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Selling, general and administrative expenses were $971.4 or 11.8% of net sales for 2019, compared to $959.5 or 11.7% of net sales for 2018. Administrative expenses were flat in 2019 compared to 2018, and represented approximately 4.7% of net sales in both years. Research and development expenses increased approximately $13.3 in 2019 primarily related to increases in expenses for new product development, and represented approximately 2.8% of net sales in 2019 and 2.7% of net sales in 2018. Selling and marketing expenses were flat in 2019 compared to 2018, and represented approximately 4.3% of net sales in both years.

Operating income was $1,619.2 or 19.7% of net sales in 2019, compared to $1,686.9 or 20.6% of net sales in 2018. Operating income for 2019 included acquisition-related expenses of $25.4, comprised of the amortization of $15.7 related to the value associated with the acquired backlog resulting from two of our 2019 acquisitions, with the remainder representing external transaction costs. Operating income for 2018 included acquisition-related expenses of $8.5, related to external transaction costs. These acquisition-related expenses are separately presented in the Consolidated Statements of Income. Excluding the effect of these acquisition-related expenses, Adjusted Operating Income and Adjusted Operating Margin, as defined in the “Non-GAAP Financial Measures” section below, were $1,644.6 or 20.0% of net sales, respectively, in 2019 and $1,695.4 or 20.7% of net sales, respectively, in 2018.

Operating income for the Interconnect Products and Assemblies segment in 2019 was $1,722.7 or 22.0% of net sales, compared to $1,752.5 or 22.5% of net sales in 2018. The slight decrease in operating margin for the Interconnect Products and Assemblies segment for 2019 compared to 2018 was primarily driven by normal downside conversion related to the organic decline in sales as well as the impact of recent acquisitions which currently have, on average, a lower operating margin than the average of the Interconnect Products and Assemblies segment.

Operating income for the Cable Products and Solutions segment in 2019 was $39.5 or 10.2% of net sales, compared to $52.6 or 12.5% of net sales in 2018. The decrease in operating margin for the Cable Products and Solutions segment in 2019 compared to 2018 was primarily driven by lower volumes and product mix.

Interest expense was $117.6 in 2019 compared to $101.7 in 2018. The increase is primarily due to higher average debt levels and the higher average interest rate associated with the 4.350% U.S. Senior Notes issuance in January 2019 (the net proceeds of which, along with commercial paper borrowings, were used to repay the Company’s 2.55% U.S. Senior Notes also in January 2019).

Loss on early extinguishment of debt was $14.3 in 2019, which related to refinancing-related costs, specifically premiums and fees incurred associated with the early extinguishment of the Tendered Notes as a result of the tender offers in September 2019. Refer to Note 4 of the accompanying Consolidated Financial Statements and the Liquidity and Capital Resources section within this Item 7 for further information related to the Tendered Notes.

Provision for income taxes was at an effective rate of 22.2% in 2019 and 23.4% in 2018. Provision for income taxes in 2019 included excess tax benefits of $38.1 from stock option exercises, which was partially offset by the tax effects related to (i) acquisition-related expenses during the year and (ii) refinancing-related costs associated with the early extinguishment of debt, each of which had an impact on the effective tax rate and earnings per share by the amounts noted in the table below. Provision for income taxes in 2018 included (i) excess tax benefits of $19.8 from stock option exercises and (ii) an income tax benefit of $14.5 related to the completion of the accounting of the income tax charge (“Tax Act Charge”) associated with the Tax Cuts and Jobs Act (“Tax Act”), which were partially offset by the tax effect related to acquisition-related expenses during the year, each of which had an impact on the effective tax rate and earnings per share by the amounts noted in the table below. These items had the aggregate effect of lowering the effective tax rate and increasing earnings per share by the amounts noted in the tables below. Excluding the effect of these items, the Adjusted Effective Tax Rate, a non-GAAP financial measure as defined in the “Non-GAAP Financial Measures” section below within this Item 7, was 24.5% and 25.5% for 2019 and 2018, respectively, as reconciled in the table below to the comparable effective tax rate based on GAAP results. For additional details related to the reconciliation between the U.S. statutory federal tax rate and the Company’s effective tax rate for these years, refer to Note 6 of the Notes to Consolidated Financial Statements.

Net income attributable to Amphenol Corporation and Net income per common share-Diluted (“Diluted EPS”) were $1,155.0 and $3.75, respectively, for 2019, compared to $1,205.0 and $3.85, respectively, for 2018. Excluding the effect of the aforementioned items discussed above, Adjusted Net Income attributable to Amphenol Corporation and Adjusted Diluted EPS, as defined in the “Non-GAAP Financial Measures” section below within this Item 7, were $1,150.4 and $3.74, respectively, for 2019, compared to $1,177.9 and $3.77, respectively, for 2018.

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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 years ended December 31, 2019 and 2018:

2019

2018

Net Income

Net Income

attributable

Effective

attributable

Effective

Operating

Operating

to Amphenol

Tax

Diluted

Operating

Operating

to Amphenol

Tax

Diluted

Income

  

Margin (1)

    

Corporation

Rate (1)

EPS

    

Income

  

Margin (1)

    

Corporation

Rate (1)

EPS

Reported (GAAP)

$

1,619.2

 

19.7

%  

$

1,155.0

22.2

$

3.75

$

1,686.9

 

20.6

%  

$

1,205.0

23.4

$

3.85

Acquisition-related expenses

25.4

0.3

21.0

(0.1)

0.07

8.5

0.1

7.2

-

0.02

Loss on early extinguishment of debt

-

-

12.5

(0.1)

0.04

-

-

-

-

-

Excess tax benefits related to stock-based compensation

-

-

(38.1)

2.5

(0.12)