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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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

22-2785165

(State of Incorporation)

(IRS Employer Identification No.)

358 Hall Avenue

Wallingford, Connecticut 06492

(Address of principal executive offices) (Zip Code)

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

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of October 20, 2020, the total number of shares outstanding of the registrant’s Class A Common Stock was 299,154,751.

Table of Contents

Amphenol Corporation

Index to Quarterly Report

on Form 10-Q

    

Page

Part I

Financial Information

Item 1.

Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

2

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019

3

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019

4

Condensed Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 2020 and 2019

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

Part II

Other Information

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3.

Defaults Upon Senior Securities

40

Item 4.

Mine Safety Disclosures

40

Item 5.

Other Information

40

Item 6.

Exhibits

41

Signature

44

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMPHENOL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in millions)

September 30, 

December 31, 

    

2020

    

2019

 

Assets

Current Assets:

Cash and cash equivalents

$

1,420.5

$

891.2

Short-term investments

 

35.7

 

17.4

Total cash, cash equivalents and short-term investments

 

1,456.2

 

908.6

Accounts receivable, less allowance for doubtful accounts of $48.0 and $33.6, respectively

 

1,880.3

 

1,736.4

Inventories

 

1,391.0

 

1,310.1

Prepaid expenses and other current assets

 

309.5

 

256.1

Total current assets

 

5,037.0

 

4,211.2

Property, plant and equipment, less accumulated depreciation of $1,668.0 and $1,487.2, respectively

1,036.9

999.0

Goodwill

4,955.5

4,867.1

Other intangible assets, net

 

408.2

 

442.0

Other long-term assets

316.3

296.2

$

11,753.9

$

10,815.5

Liabilities & Equity

Current Liabilities:

Accounts payable

$

1,075.9

$

866.8

Accrued salaries, wages and employee benefits

 

189.1

 

171.8

Accrued income taxes

 

117.4

 

127.9

Accrued dividends

74.7

74.4

Other accrued expenses

 

528.7

 

488.5

Current portion of long-term debt

 

229.2

 

403.3

Total current liabilities

 

2,215.0

 

2,132.7

Long-term debt, less current portion

 

3,586.0

 

3,203.4

Accrued pension and postretirement benefit obligations

 

189.4

 

198.8

Deferred income taxes

253.5

260.4

Other long-term liabilities

 

404.8

 

424.0

Equity:

Common stock

0.3

0.3

Additional paid-in capital

 

1,938.1

 

1,683.3

Retained earnings

 

3,587.1

 

3,348.4

Treasury stock, at cost

(96.9)

(70.8)

Accumulated other comprehensive loss

 

(388.4)

 

(430.9)

Total shareholders’ equity attributable to Amphenol Corporation

 

5,040.2

 

4,530.3

Noncontrolling interests

 

65.0

 

65.9

Total equity

 

5,105.2

 

4,596.2

$

11,753.9

$

10,815.5

See accompanying notes to condensed consolidated financial statements.

2

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(dollars and shares in millions, except per share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

 

Net sales

$

2,323.4

$

2,100.6

$

6,172.9

$

6,074.4

Cost of sales

 

1,588.5

 

1,438.7

 

4,274.4

 

4,137.1

Gross profit

 

734.9

 

661.9

 

1,898.5

 

1,937.3

Acquisition-related expenses

 

 

 

 

25.4

Selling, general and administrative expenses

 

259.1

 

248.3

 

748.4

 

722.5

Operating income

 

475.8

 

413.6

 

1,150.1

 

1,189.4

Interest expense

 

(28.0)

 

(29.7)

 

(87.1)

 

(89.5)

Loss on early extinguishment of debt

 

 

(14.3)

 

 

(14.3)

Other income, net

 

1.0

 

4.5

 

3.4

 

7.6

Income before income taxes

 

448.8

 

374.1

 

1,066.4

 

1,093.2

Provision for income taxes

 

(99.3)

 

(91.8)

 

(213.3)

 

(250.0)

Net income

 

349.5

 

282.3

 

853.1

 

843.2

Less: Net income attributable to noncontrolling interests

 

(2.9)

 

(2.0)

 

(6.7)

 

(6.9)

Net income attributable to Amphenol Corporation

$

346.6

$

280.3

$

846.4

$

836.3

Net income per common share — Basic

$

1.16

$

0.95

$

2.84

$

2.81

Weighted average common shares outstanding — Basic

 

298.8

 

296.6

 

297.6

 

297.6

Net income per common share — Diluted

$

1.12

$

0.92

$

2.76

$

2.72

Weighted average common shares outstanding — Diluted

 

308.2

 

306.2

 

306.2

 

307.8

See accompanying notes to condensed consolidated financial statements.

3

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in millions)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

 

Net income

$

349.5

$

282.3

$

853.1

$

843.2

Total other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

 

102.9

 

(102.6)

 

28.7

 

(116.9)

Unrealized gain (loss) on cash flow hedges

 

0.4

 

0.1

 

(0.2)

 

0.1

Pension and postretirement benefit plan adjustment, net of tax of ($1.7) and ($5.0) for 2020, and ($1.2) and ($3.6) for 2019, respectively

 

5.2

 

3.8

 

15.5

 

11.3

Total other comprehensive income (loss), net of tax

 

108.5

 

(98.7)

 

44.0

 

(105.5)

Total comprehensive income

 

458.0

 

183.6

 

897.1

 

737.7

Less: Comprehensive income attributable to noncontrolling interests

 

(5.2)

 

(0.1)

 

(8.2)

 

(4.9)

Comprehensive income attributable to Amphenol Corporation

$

452.8

$

183.5

$

888.9

$

732.8

See accompanying notes to condensed consolidated financial statements.

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(dollars in millions)

Nine Months Ended September 30, 

 

    

2020

    

2019

 

Cash from operating activities:

Net income

$

853.1

$

843.2

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

 

218.0

 

235.4

Stock-based compensation expense

 

51.0

 

46.4

Loss on early extinguishment of debt

 

 

14.3

Deferred income tax benefit

 

(5.8)

(37.5)

Net change in components of working capital

38.6

(27.1)

Net change in other long-term assets and liabilities

(3.9)

3.5

 

Net cash provided by operating activities

 

1,151.0

 

1,078.2

Cash from investing activities:

Capital expenditures

 

(204.8)

 

(223.0)

Proceeds from disposals of property, plant and equipment

 

10.8

 

7.1

Purchases of short-term investments

 

(89.3)

 

(48.5)

Sales and maturities of short-term investments

 

71.1

 

44.6

Acquisitions, net of cash acquired

 

(50.3)

 

(891.2)

Net cash used in investing activities

 

(262.5)

 

(1,111.0)

Cash from financing activities:

Proceeds from issuance of senior notes

 

942.3

 

1,398.8

Repayments of senior notes and other long-term debt

 

(402.9)

(1,111.2)

Borrowings under credit facilities

 

1,567.4

 

Repayments under credit facilities

(1,568.1)

(Repayments) borrowings under commercial paper programs, net

(385.9)

137.2

Payment of costs related to debt financing

 

(8.7)

 

(14.9)

Payment of premiums and fees related to early extinguishment of debt

(13.4)

Payment of acquisition-related contingent consideration

 

(75.0)

 

Payment of deferred purchase price related to an acquisition

(16.2)

Proceeds from exercise of stock options

256.6

146.3

Distributions to and purchases of noncontrolling interests

(11.5)

(25.0)

Purchase of treasury stock

 

(459.2)

 

(558.7)

Dividend payments

 

(223.0)

 

(205.5)

Net cash used in financing activities

 

(384.2)

 

(246.4)

Effect of exchange rate changes on cash and cash equivalents

 

25.0

 

(30.8)

Net change in cash and cash equivalents

 

529.3

 

(310.0)

Cash and cash equivalents balance, beginning of period

 

891.2

 

1,279.3

Cash and cash equivalents balance, end of period

$

1,420.5

$

969.3

Cash paid for:

Interest

$

74.5

$

81.8

Income taxes, net

 

262.9

 

333.2

See accompanying notes to condensed consolidated financial statements.

5

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AMPHENOL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(amounts in millions, except share and per share data)

Note 1—Basis of Presentation and Principles of Consolidation

The condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the related condensed consolidated statements of income for the three and nine months ended September 30, 2020 and 2019, the related condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2020 and 2019, and the related condensed consolidated statements of cash flow for the nine months ended September 30, 2020 and 2019 include the accounts of Amphenol Corporation and its subsidiaries (“Amphenol,” the “Company,” “we,” “our,” or “us”). All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements included herein are unaudited. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments considered necessary for a fair presentation of the results, in conformity with accounting principles generally accepted in the United States of America. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Annual Report”).

Certain reclassifications of prior period amounts have been made to conform to the current period presentation, which had no impact on our condensed consolidated results of operations, financial position or cash flows. Such reclassifications included combining the “Net change in accrued pension and postretirement benefits” with the “Net change in other long-term assets and liabilities” line item, within “Net cash provided by operating activities” in the Condensed Consolidated Statements of Cash Flow.

Note 2—New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which introduced an approach to estimate credit losses on certain types of financial instruments, including trade receivables, based on expected losses, and modified the impairment model for available-for-sale debt securities. ASU 2016-13, which is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, required companies to make a cumulative-effect adjustment to retained earnings as of January 1, 2020. The Company adopted ASU 2016-13 effective January 1, 2020, which resulted in the Company recording a cumulative adjustment that reduced beginning retained earnings by $3.8, arising from the estimated credit losses associated with the Company’s accounts receivable balance as of the date of adoption. The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position and its consolidated financial statements. Prior periods presented herein remain in accordance with then effective accounting standards.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which added, amended and removed certain disclosure requirements related to fair value measurements. Among other changes, this standard required certain additional disclosure surrounding Level 3 assets, including changes in unrealized gains or losses in other comprehensive income and certain inputs in those measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain amended or eliminated disclosures in this standard may be adopted early, while certain additional disclosure requirements in this standard may be adopted on its effective date. In addition, certain changes in the standard require retrospective adoption, while other changes must be adopted prospectively. The Company adopted ASU 2018-13 effective January 1, 2020, which did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies income tax accounting in various areas including, but not limited to, the accounting for hybrid tax regimes, tax implications related to business combinations, and interim period accounting

6

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for enacted changes in tax law, along with some codification improvements. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Certain changes in the standard require retrospective or modified retrospective adoption, while other changes must be adopted prospectively. The Company has evaluated ASU 2019-12, which is not expected to have a material impact on our consolidated financial statements.

The United Kingdom’s Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced in July 2017 its intent to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, identified the Secured Overnight Financing Rate (the “SOFR”) as its preferred benchmark alternative to U.S. dollar LIBOR. The SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is calculated based on directly observable U.S. Treasury-backed repurchase transactions. In March 2020, in response to this transition, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financing Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact of the replacement of LIBOR, which ultimately may or may not be the SOFR, from both a risk management and financial reporting perspective, as well as the guidance under ASU 2020-04. Our current portfolio of debt and financial instruments currently tied to LIBOR consists primarily of our Commercial Paper Programs and Revolving Credit Facility, both of which are discussed in more detail in Note 4 herein. We do not currently believe that this transition will have a material impact on our financial condition, results of operations or cash flows.

In May 2020, the Securities and Exchange Commission (the “SEC”) issued a final rule regarding the financial statement requirements for acquisitions and dispositions of a business, which included, among other things, amending (i) certain criteria in the significance tests for acquired or to-be-acquired businesses, (ii) related pro forma financial information requirements, including its form and content, and (iii) related disclosure requirements, including the number of acquiree financial statement periods required to be presented in SEC filings. The final rule is effective for fiscal years beginning after December 31, 2020, with early application permitted. The Company has evaluated this SEC final rule, and its impact on any future SEC filings will be dependent on the size of future business combinations.

In August 2020, the SEC issued a final rule that modernizes the disclosure requirements in Regulation S-K, Item 101 “Description of Business”, Item 103 “Legal Proceedings” and Item 105 “Risk Factors”. The intent of this final rule was to improve the readability of disclosures, reduce repetition, and eliminate immaterial information, thereby simplifying compliance for registrants and making disclosures more meaningful for investors. While most of the changes involved reducing or eliminating previously required disclosures, the final rule expanded the disclosure requirements related to human capital and more specifically, any human capital measures or objectives that management focuses on in managing the business. The final rule will be effective thirty days after its date of publication in the Federal Register. The Company has evaluated this SEC final rule, and we do not expect it will have a material impact on our SEC filings.

Note 3—Inventories

Inventories consist of:

September 30, 

December 31, 

 

    

2020

    

2019

 

Raw materials and supplies

 

$

550.5

 

$

509.6

Work in process

 

413.2

 

395.2

Finished goods

 

427.3

 

405.3

 

$

1,391.0

 

$

1,310.1

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Note 4—Debt

The Company’s debt (net of any unamortized discount) consists of the following:

 

September 30, 2020

December 31, 2019

 

Carrying

Approximate

Carrying

Approximate

 

    

Amount

    

Fair Value

    

Amount

    

Fair Value

 

Revolving Credit Facility

$

 

$

 

$

 

$

U.S. Commercial Paper Program

 

 

 

160.0

 

160.0

Euro Commercial Paper Program

 

 

 

235.5

 

235.5

2.20% Senior Notes due April 2020

 

 

 

400.0

 

400.0

3.125% Senior Notes due September 2021

 

227.7

 

233.0

 

227.6

 

231.0

4.00% Senior Notes due February 2022

 

294.9

 

305.8

 

294.8

 

304.0

3.20% Senior Notes due April 2024

 

349.8

 

377.6

 

349.8

 

363.7

2.050% Senior Notes due March 2025

399.4

419.6

0.750% Euro Senior Notes due May 2026

583.6

593.9

2.000% Euro Senior Notes due October 2028

583.6

649.9

558.2

622.8

4.350% Senior Notes due June 2029

499.6

605.2

499.6

562.9

2.800% Senior Notes due February 2030

899.4

984.3

899.3

897.3

Notes payable to foreign banks and other debt

 

5.9

 

5.9

 

5.5

 

5.5

Less unamortized deferred debt issuance costs

 

 

(28.7)

 

 

(23.6)

 

Total debt

 

3,815.2

 

4,175.2

 

3,606.7

 

3,782.7

Less current portion

 

229.2

234.5

 

403.3

 

403.3

Total long-term debt

$

3,586.0

 

$

3,940.7

 

$

3,203.4

 

$

3,379.4

Revolving Credit Facility

On January 15, 2019, the Company amended its $2,000.0 unsecured credit facility with a $2,500.0 unsecured credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility, which matures January 2024, gives the Company the ability to borrow, in various currencies, at a spread over LIBOR. The Company may utilize the Revolving Credit Facility for general corporate purposes. At September 30, 2020 and December 31, 2019, there were no outstanding borrowings under the Revolving Credit Facility. The carrying value of any borrowings under the Revolving Credit Facility would approximate their fair value due primarily to their market interest rates and would be classified as Level 2 in the fair value hierarchy (Note 5). The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants. At September 30, 2020, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

Commercial Paper Programs

The Company has a commercial paper program pursuant to which the Company issues short-term unsecured commercial paper notes (the “USCP Notes”) in one or more private placements in the United States (the “U.S. Commercial Paper Program”). The maturities of the USCP Notes vary, but may not exceed 397 days from the date of issue. The USCP Notes are sold under customary terms in the commercial paper market and may be issued at par or a discount therefrom, and bear varying interest rates on a fixed or floating basis. There were no USCP Notes outstanding as of September 30, 2020.

The Company and one of its wholly owned European subsidiaries (the “Euro Issuer”) also has a euro-commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”) pursuant to which the Euro Issuer may issue short-term unsecured commercial paper notes (the “ECP Notes” and, together with the USCP Notes, “Commercial Paper”), which are guaranteed by the Company and are to be issued outside of the United States.  The maturities of the ECP Notes will vary, but may not exceed 183 days from the date of issue.  The ECP Notes are sold under customary terms in the euro-commercial paper market and may be issued at par or a discount therefrom or a premium thereto and bear varying interest rates on a fixed or floating basis. The ECP Notes may be issued in Euros, Sterling, U.S. dollars or other currencies.  In addition, effective April 14, 2020, a subsidiary of the Company is able to issue ECP Notes through the Bank of England’s COVID

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Corporate Financing Facility (the “BOE Facility”). The BOE Facility will be available until March 22, 2021. As of September 30, 2020, there were no ECP Notes outstanding.

Amounts available under the Commercial Paper Programs may be borrowed, repaid and re-borrowed from time to time. In conjunction with the Revolving Credit Facility, the authorization from the Company’s Board of Directors limits the maximum aggregate principal amount outstanding of USCP Notes, ECP Notes, and any other commercial paper, euro-commercial paper or similar programs at any time to $2,500.0.  In addition, the maximum aggregate principal amount outstanding of USCP Notes at any time is $2,500.0. The maximum aggregate principal amount outstanding of ECP Notes at any time is $2,000.0. The Commercial Paper Programs are rated A-2 by Standard & Poor’s and P-2 by Moody’s and are currently backstopped by the Revolving Credit Facility, as amounts undrawn under the Company’s Revolving Credit Facility are available to repay Commercial Paper, if necessary. Net proceeds of the issuances of Commercial Paper are expected to be used for general corporate purposes. Any outstanding Commercial Paper is classified as long-term debt in the accompanying Condensed Consolidated Balance Sheets since the Company has the intent and ability to refinance the Commercial Paper on a long-term basis using the Company’s Revolving Credit Facility. The Commercial Paper is actively traded and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The carrying value of Commercial Paper borrowings approximates their fair value.  

U.S. Senior Notes

On February 20, 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025 at 99.829% of face value (the “2025 Senior Notes”). The 2025 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2025 Senior Notes is payable semiannually on March 1 and September 1 of each year, commencing on September 1, 2020.  Prior to February 1, 2025, the Company may, at its option, redeem some or all of the 2025 Senior Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after February 1, 2025, the Company may, at its option, redeem some or all of the 2025 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.  On April 1, 2020, the Company used the net proceeds from the 2025 Senior Notes to repay the $400.0 principal amount of unsecured 2.20% Senior Notes due April 1, 2020 upon maturity.

On January 9, 2019, the Company issued $500.0 principal amount of unsecured 4.350% Senior Notes due June 1, 2029 at 99.904% of face value (the “2029 Senior Notes”). The 2029 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2029 Senior Notes is payable semiannually on June 1 and December 1 of each year, commencing on June 1, 2019.  Prior to March 1, 2029, the Company may, at its option, redeem some or all of the 2029 Senior Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after March 1, 2029, the Company may, at its option, redeem some or all of the 2029 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. In January 2019, the Company used the net proceeds from the 2029 Senior Notes, along with proceeds from borrowings under the U.S. Commercial Paper Program, to repay the $750.0 principal amount of unsecured 2.55% Senior Notes due in January 2019.   

On September 4, 2019, the Company commenced tender offers (the “Tender Offers”) to purchase for cash any and all of the Company’s outstanding (i) $375.0 principal amount of 3.125% Senior Notes due September 2021 (the “2021 Senior Notes”) and (ii) $500.0 principal amount of 4.00% Senior Notes due February 2022 (the “2022 Senior Notes”). On September 11, 2019, as a result of the Tender Offers, the Company accepted for payment $147.3 aggregate principal amount of the 2021 Senior Notes and $205.0 aggregate principal amount of the 2022 Senior Notes for 101.9% and 104.5% of par value, respectively (collectively, the “Tendered Notes”), plus accrued and unpaid interest to, but not including, the settlement date of the Tender Offers. The total consideration for the Tendered Notes was $368.8, which in addition to the Tendered Notes, included $13.4 of premiums and fees paid related to the early extinguishment of debt and $3.1 of accrued interest. For the three and nine months ended September 30, 2019, the Company recorded a loss on early debt extinguishment of $14.3 ($12.5 after-tax, or $0.04 per diluted share) within Loss on early extinguishment of debt on the accompanying Condensed Consolidated Statements of Income. This charge was primarily comprised of the premiums and fees incurred related to the Tendered Notes, along with the non-cash charge associated with the write-off

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of the remaining unamortized deferred debt issuance costs associated with the Tendered Notes. The remaining principal amounts associated with the 2021 Senior Notes and 2022 Senior Notes, which were not redeemed as a result of the Tender Offers, remain outstanding as of September 30, 2020, as noted in the table above.

On September 10, 2019, the Company issued $900.0 principal amount of unsecured 2.800% Senior Notes due February 15, 2030 at 99.920% of face value (the “2030 Senior Notes”). The 2030 Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on the 2030 Senior Notes is payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2020.  Prior to November 15, 2029, the Company may, at its option, redeem some or all of the 2030 Senior Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to, but not including, the date of redemption. If redeemed on or after November 15, 2029, the Company may, at its option, redeem some or all of the 2030 Senior Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.  In September 2019, the Company used the net proceeds from the 2030 Senior Notes to fund the cash consideration payable in the Tender Offers, with the remaining net proceeds being used for general corporate purposes, including to partially reduce outstanding borrowings related to the U.S. Commercial Paper Program.   

All of the Company’s outstanding senior notes in the United States (the “U.S. Senior Notes”) are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. Interest on each series of U.S. Senior Notes is payable semiannually. The Company may, at its option, redeem some or all of any series of the U.S. Senior Notes at any time subject to certain terms and conditions, which include paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, and, with certain exceptions, a make-whole premium. The fair value of each series of U.S. Senior Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The Company’s 2021 Senior Notes are due in September 2021 and are therefore recorded, net of the related unamortized discount and debt issuance costs, within Current portion of long-term debt in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2020. The U.S. Senior Notes contain certain financial and non-financial covenants. At September 30, 2020, the Company was in compliance with the financial covenants under its U.S. Senior Notes.

Euro Senior Notes

On May 4, 2020, the Euro Issuer issued €500.0 (approximately $545.4 at date of issuance) principal amount of unsecured 0.750% Senior Notes due May 4, 2026 at 99.563% of face value (the “2026 Euro Notes” or the “0.750% Euro Senior Notes”). The 2026 Euro Notes are unsecured and rank equally in right of payment with the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on the 2026 Euro Notes is payable annually on May 4 of each year, commencing on May 4, 2021. Prior to February 4, 2026, the Company may, at its option, redeem some or all of the 2026 Euro Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to the date of redemption. If redeemed on or after February 4, 2026, the Company may, at its option, redeem some or all of the 2026 Euro Notes at any time by paying the redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The fair value of the 2026 Euro Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The Company used the net proceeds from the 2026 Euro Notes to repay amounts outstanding under its Revolving Credit Facility.

On October 8, 2018, the Euro Issuer issued €500.0 (approximately $574.6 at date of issuance) principal amount of unsecured 2.000% Senior Notes due October 8, 2028 at 99.498% of face value (the “2028 Euro Notes” or the “2.000% Euro Senior Notes”, collectively with the 2026 Euro Notes, the “Euro Notes”, and collectively with the U.S. Senior Notes and 2026 Euro Notes, “Senior Notes”). The 2028 Euro Notes are unsecured and rank equally in right of payment with the Euro Issuer’s other unsecured senior indebtedness, and are fully and unconditionally guaranteed on a senior unsecured basis by the Company. Interest on the 2028 Euro Notes is payable annually on October 8 of each year, commencing on October 8, 2019.  Prior to July 8, 2028, the Company may, at its option, redeem some or all of the 2028 Euro Notes at any time by paying the redemption price (which may include a make-whole premium), plus accrued and unpaid interest, if any, to the date of redemption. If redeemed on or after July 8, 2028, the Company may, at its option, redeem some or all of the 2028 Euro Notes at any time by paying the redemption price equal to 100% of the principal

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amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.  The fair value of the 2028 Euro Notes is based on recent bid prices in an active market and is therefore classified as Level 1 in the fair value hierarchy (Note 5). The Company used a portion of the net proceeds from the 2028 Euro Notes to repay a portion of the outstanding amounts under its Commercial Paper Programs, with the remainder of the net proceeds being used for general corporate purposes. 

The Euro Notes contain certain financial and non-financial covenants. At September 30, 2020, the Company was in compliance with the financial covenants under its Euro Notes.

Other Line of Credit Facilities

On March 20, 2020, the Company, through one of its wholly owned foreign subsidiaries, borrowed $100.0 (the maximum borrowing capacity) on an uncommitted line of credit, at a variable LIBOR-based interest rate, initially set at 1.92%. This line of credit, which is guaranteed by the Company and carries an interest rate of LIBOR plus 80 basis points, expires on December 19, 2020. Borrowings under this line of credit arrangement were used for general corporate purposes. The carrying value of this borrowing approximated its fair value due primarily to its market interest rates and was classified as Level 2 in the fair value hierarchy (Note 5). Prior to maturity, on May 5, 2020, the Company repaid, in full, the outstanding borrowing on this uncommitted line of credit, using cash and cash equivalents on hand.

Note 5—Fair Value Measurements

Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. These requirements establish market or observable inputs as the preferred source of values. Assumptions based on hypothetical transactions are used in the absence of market inputs. The Company does not have any non-financial instruments accounted for at fair value on a recurring basis.

The valuation techniques required are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1           Quoted prices for identical instruments in active markets.

Level 2           Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3           Significant inputs to the valuation model are unobservable.

The Company believes that the assets or liabilities subject to such standards with fair value disclosure requirements are primarily debt instruments, pension plan assets, short-term investments, derivative instruments and contingent consideration payments. Each of these assets and liabilities is discussed below, with the exception of debt instruments and pension plan assets, which are covered in Note 4 and Note 10, respectively, herein, in addition to the notes to the consolidated financial statements within the Company’s most recent 2019 Annual Report. Substantially all of the Company’s short-term investments consist of certificates of deposit with original maturities of twelve months or less and as such, are considered as Level 1 in the fair value hierarchy as they are traded in active markets for identical assets. The carrying amounts of these instruments, the majority of which are in non-U.S. bank accounts, approximate their fair value. The Company’s derivative instruments represent foreign exchange forward contracts, which are valued using bank quotations based on market observable inputs such as forward and spot rates and are therefore classified as Level 2 in the fair value hierarchy. The contingent consideration payment (related to the acquisition of SSI in January 2019, described further in Note 11 herein) was valued using Level 3 unobservable inputs, such as probability weighted payout projections, within the fair value hierarchy. The calculation of the contingent consideration was finalized in the first quarter of 2020 based on actual financial data used for inputs, and the consideration was paid in June 2020. The impact

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of the credit risk related to these financial assets is immaterial. The fair values of the Company’s financial and non-financial assets and liabilities subject to such standards at September 30, 2020 and December 31, 2019 are as follows:

Fair Value Measurements

Quoted Prices in

Significant

Significant

Active Markets

Observable

Unobservable

for Identical

Inputs

Inputs

Total

Assets (Level 1)

(Level 2)

(Level 3)

September 30, 2020:

Short-term investments

$

35.7

$

35.7

$

$

Forward contracts

(7.7)

(7.7)

Total

$

28.0

$

35.7

$

(7.7)

$

December 31, 2019:

Short-term investments

$

17.4

$

17.4

$

$

Forward contracts

(1.3)

(1.3)

Contingent consideration

(75.0)

(75.0)

Total

$

(58.9)

$

17.4

$

(1.3)

$

(75.0)

With the exception of the fair value of the assets acquired and liabilities assumed in connection with acquisition accounting, the Company does not have any other significant financial or non-financial assets and liabilities that are measured at fair value on a non-recurring basis.

The amounts recognized in Accumulated other comprehensive income (loss) associated with foreign exchange forward contracts and the amount reclassified from Accumulated other comprehensive income (loss) to foreign exchange gain (loss) in the accompanying Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2020 and 2019 were not material. The fair values of the forward contracts are recorded within Prepaid expenses and other current assets, Other long-term assets, Other accrued expenses and Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets, depending on their value and remaining contractual period.

Note 6—Income Taxes

    

Three Months Ended September 30, 

    

Nine Months Ended September 30, 

2020

2019

2020

2019

Provision for income taxes

$

(99.3)

$

(91.8)

$

(213.3)

$

(250.0)

Effective tax rate

 

22.1

%  

 

24.5

%  

 

20.0

%  

 

22.9

%

For the three months ended September 30, 2020 and 2019, stock option exercise activity had the impact of lowering our Provision for income taxes by $10.7 and $1.6, respectively, and lowering our effective tax rate by 240 basis points and 40 basis points, respectively, due to the recognition of excess tax benefits within Provision for income taxes in the accompanying Condensed Consolidated Statements of Income. For the nine months ended September 30, 2020 and 2019, stock option exercise activity had the impact of lowering our Provision for income taxes by $28.1 and $21.3, respectively, and lowering our effective tax rate by 260 basis points and 190 basis points, respectively. For the nine months ended September 30, 2020, the effective tax rate also includes a discrete tax benefit related to the settlements of refund claims in certain non-U.S. jurisdictions and the resulting adjustments to deferred taxes, which had the impact of lowering our Provision for income taxes and effective tax rate by $19.9 and 190 basis points, respectively. During the three and nine months ended September 30, 2019, the loss on early extinguishment of debt also had the effect of increasing the effective tax rate by approximately 40 basis points and 10 basis points, respectively.

On December 22, 2017, the United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”), marking a change from a worldwide tax system to a modified territorial tax system in the United States. As part of this change, the Tax Act, among other changes, provides for a transition tax on the accumulated unremitted foreign earnings and profits of the Company’s foreign subsidiaries (“Transition Tax”) and a reduction of the U.S. federal corporate income tax rate from 35% to 21%. The Company finalized its accounting of the Tax Act in the fourth quarter of 2018. The Company paid the third annual installment of the Transition Tax, net of applicable tax credits and deductions, in the third quarter of 2020, and will pay the balance of the Transition Tax over the remainder of the eight-year period ending

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2025, as permitted under the Tax Act. The current and long-term portions of the Transition Tax are recorded in Accrued income taxes and Other long-term liabilities, respectively, on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.

The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2016 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of September 30, 2020, the amount of unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $157.8. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, management anticipates that over the next twelve-month period, audit activity could be completed and statutes of limitations may close relating to existing unrecognized tax benefits of approximately $10.2.

Note 7—Shareholders’ Equity and Noncontrolling Interests

Net income attributable to noncontrolling interests is classified below net income. Earnings per share is determined after the impact of the noncontrolling interests’ share in net income of the Company. In addition, the equity attributable to noncontrolling interests is presented as a separate caption within equity.

A rollforward of consolidated changes in equity for the three months ended September 30, 2020 is as follows:

Amphenol Corporation Shareholders

Accumulated

Common Stock

Treasury Stock

Other

Shares

Shares

Additional

Retained

Comprehensive

Noncontrolling

Total

    

(in millions)

    

Amount

    

(in millions)

    

Amount

    

Paid-In Capital

    

Earnings

    

Loss

    

Interests

    

Equity

Balance as of June 30, 2020

 

298.5

 

$

0.3

 

(0.2)

 

$

(21.0)

 

$

1,834.5

 

$

3,419.4

 

$

(494.6)

 

$

61.7

 

$

4,800.3

Net income

 

346.6

 

2.9

 

349.5

Other comprehensive income (loss)

 

106.2

 

2.3

 

108.5

Distributions to shareholders of noncontrolling interests

 

(1.9)

 

(1.9)

Purchase of treasury stock

(1.9)

 

(201.9)

 

(201.9)

Retirement of treasury stock

 

(0.9)

0.9

 

91.6

 

(